Random Thoughts on Broadbanding

Full pre-post disclosure:  I am not now, nor have I ever been, a big fan of broadbanding.  Although I have presented and discussed it as an option with many clients, as objectively as I can manage to do, the truth is that I don't see this structure approach as a sensible or effective one for most organizations.  I do see it as a good solution in limited, special circumstances (e.g., within a particular job family, like engineering), but much less so for an overall base salary management program.  My intent with this post is to lay out my thoughts on the approach, and perhaps those who've had a fabulous experience with broadbanding, or who see advantages that I have overlooked will share comments to that effect.

In its glossary, which I consider the definitive one for the rewards profession, WorldatWork defines broadbanding as:

A pay structure that consolidates a large number of pay grades and salary ranges into much fewer broad bands with relatively wide salary ranges, typically with 100% or more difference between minimum and maximum. 

By collapsing a pay structure into fewer, wider salary bands, at least in the "pure" sense of broadbanding, an organization effectively gives up the control point (midpoint) of a traditional salary range.  That is because the broad band does not represent appropriate pay for a job, but rather for an entire class of work (such as "managerial" or "advanced professional").  This is a critical shift to bear in mind because the result is a pay system that is no longer job-based, but rather person-based.  No longer do we set and manage pay opportunity by the level and attributes of a job, but rather by the skill, competency and performance of an individual - within a broader "range" established to represent the value of a broader class of work.

While there are those experts who espouse the point of view that traditional functional organizations, and even the very notion of a job itself, sit on the brink of extinction, that doesn't match my reality as I work with a wide range of organizations in my market as well as other parts of the country.  (And see earlier post on this very topic - The Functional Organization: Rumors of its Death Have Been Greatly Exaggerated.)  But my biggest objection here is a completely practical one.  What a pure broadbanding approach leaves the organization with is a very wide band of salary possibility, less a control point, within which all pay is now managed based on our ability to gauge individual employee performance and competency.  In other words, we've removed the guard rails that control by job used to offer us, made our margin for error alarmingly wide, and created a system whereby effective salary management hinges almost entirely on our ability to define, manage and assess individual employee performance.  This at a time when, according to a recent study on the state of performance management conducted by WorldatWork and Sibson Consulting, 50% of senior HR professionals give their performance management programs a letter grade of C or poorer, and only 5% give them an A.  It just doesn't strike me as a recipe for success - at least not for most organizations.

And yes, I know that many organizations have addressed this issue by augmenting their broad bands; adding a series of control points and sub-bands, within the broad bands, to provide more guidance and control to salary decisions.  To which I say:  Gosh, that starts to sound a lot like a series of traditional salary ranges.

According to many experts in the field of rewards, and in the words of a white paper on the topic, broad bands are designed to increase a company's "speed, flexibility and risk taking".  And this is essentially accomplished through the removal of salary controls.  I may be short sighted and lacking in vision, but I have to confess that I just don't see it - except in the case of those organizations in a position to replace those salary controls with a particularly rigorous and high-functioning system of individual performance development and appraisal.

So there it is.  One person's perspective - random thoughts, if you will - on broadbanding.  Those of you with experience in this arena, or even just a strong opinion, let's hear what you think!

Comments

[Frank Giancola]

Ann,

I agree with your assessment of broadbanding. Only about 17% of firms use it, according to Mercer surveys. It was an overhyped concept in the 1990's.

Like your new format.

Frank

[Ann Bares]

Frank:

Thanks for the comment and the Mercer statistic on broadbanding prevalence - that's one I don't have.

While the concept certainly peaked in the 1990's, I still get the question on a regular basis, and so thought it worth addressing here (in my always-opinionated way!).

[laurie ruettimann]

While the concept certainly peaked in the 1990's, I still get the question on a regular basis, and so thought it worth addressing here (in my always-opinionated way!).

I love your opinionated way, but I fought this battle through most of the (very new) 21st century. I worked for two large organizations who were saddled with inadequate salary ranges and prefered to "buy" a new solution rather than do the hard work to fix the existing ranges. It taught me that the way companies manage compensation is a true indicator of shareholder value.

[Ann Bares]

Laurie:

Thanks - that makes ... two of us! I suspect that more than a couple of organizations "purchased" a broadbanding system as a way to finally escape the drudgery of managing a base pay structure. And I agree - that decisions like these say a lot about the company. See last Tuesday's post about Fortune's "Most Admired" and executing well on the basics.

Appreciate your stopping by and commenting!

[Wally Bock]

This post was selected for the Carnival of Human Resources
http://blog.threestarleadership.com/2008/03/18/31908-the-carnival-of-human-resources.aspx

[E James (Jim) Brennan]

Never had a positive experience of any kind with broadbanding. Most frequently found the best to be merely a mask overlaid on a conventional grade/value system. They are useful for broad categorizations of the type needed for management development and internal equity peer-rank statifications, but they are toxic to competitive pay systems, merely exacerbating conflicts at the margins. Being in Band 3 v. Band 4 is a lot more pay-significant than being in Grade 12 or Grade 13. Plus, you must pay in excess of market-clearing rates, or your band minimums will be inefffective, so they encourage excessive overpay scenarios popular with all.

[KK Cheung]

Broadbanding has been mythicized and now I have to face it in my organization. My company is a pharmaceutical manufacturer and my boss would like to apply broadbanding in the whole company. I would say it works for the pharmaceutical/technical professionals only but it would certainly be a disaster if being applied to all.