White Paper

Broadbanding
By WorldatWork Staff
May 2000

Broadbanding has been a part of the HR field since the late ’80s and early ’90s
and was developed to compress many salary grades into fewer, wide pay
"bands." Those organizations that implemented such a system were driven by
the need to adapt salary-administration systems and procedures to meet a new
business climate and create a flatter organization.

WorldatWork’s glossary definition of broadbanding is as follows: "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 percent
differences between minimum and maximum or more."

Simply stated, broadbanding refers to the collapsing of job clusters or tiers of

positions into a few wide bands to manage career growth and deliver pay.

When broadbanding was created and massaged to its present defined form,
several objectives were found:

• Development of broader work force skills

• Career development among employees
• Reduction of administration with job evaluation, salary structure and merit
pay.

Broadbanding usually appeals to fast-moving organizations that are undergoing

persistent change. Such organizations that want to be quicker and more flexible
in the marketplace have implemented broadbanding. They have found that
broadbands complement processes designed to increase company speed,
flexibility and risk taking.

The concept seems to fit as a solution for employer and employee. Some or most
of the career ladder rungs were removed and employees were encouraged to
earn more by adding value to the company. This could be accomplished by
developing new skills or competencies and/or participating in a variable pay
system with a line of sight to the company’s performance.

Broadbands support this evolving organizational dynamic by providing less

formal structure. The traditional compensation approach emphasized internal
equity and focused the employee’s attention on the world inside the firm.
Broadbanding helps employees see a new world inside the firm and helps them
experience an internal culture that more closely reflects the external, competitive
marketplace. It helps make it easier for them to reorient themselves to the
marketplace.

In broadbanding, there is no automatic progression to the midpoint because

there is no midpoint. The marketplace for talent no longer is represented by a
highly defined salary structure, but rather mirrored by loosely defined, ambiguous
broadbands that don’t apply directly to a person’s position. Initially, many people
may be uncomfortable with broadbanding, but it makes them freer and more in
control of their own economic security.

From an organizational standpoint, many believe that less organizational

structure is a key to winning in the global marketplace.

Not for Everybody

This is not to say that broadbanding is a panacea for all organizations. One
potential disadvantage is that broadbanding’s delayered approach to salary
administration may not fit the culture of heavily level-oriented companies. The
need to manage salaries also does not go away. Market pricing becomes even
more important because it is used extensively to identify salary targets.

When broadbanding is implemented, an organization also may have to re-

examine such things as management incentives, perquisites and other items tied
to the conventional salary grade. Line managers also may need to be retrained to
make compensation decisions while being persuaded to accept new or greater
responsibility for employee career development.

As some companies have found, pay systems are most effective when they
support organizational change, not when they lead change. Some theorize that if
an organization is not ready for broadbanding, it will likely fail.

Other potential pitfalls exist.

• It could be possible to flatten the pay structure to the extent that

supervisors and their subordinates are in the same band.
• The question of inflation arises, both of pay and of expectations, when
employees are put in bands with potentially higher maximums than their
previous grade maximums.
• It becomes more difficult to compare jobs to the marketplace and maintain
external equity.
Just a Tool

It is important to remember that broadbanding is just one of several

compensation tools. There are other alternatives to support movement toward a
flatter organizational structure. It also is possible to implement broadbanding for
certain employee groups to correct problems in the existing pay structure.

Organizations constantly face the challenge to improve the way they operate to
become more competitive in the global economy. Pay systems can be effective
tools to support organization change.

Research has found that broadbanding has become an effective tool for
administering pay strategies and managing growth.

Going Global

Business leaders around the world are turning to broadbanding to internally

support the structural business changes to stay competitive. Companies
worldwide are picking up on broadbanding ideas and concepts because other
parts of the world are facing some of the same business pressures the United
States experienced, such as reengineering, downsizing and the push to improve
performance. These pressures create conditions where the attributes of
broadbanding can be appropriately applied.

Driving the global broadbanding growth is business need. Research has found
that the overall set of objectives that lead companies outside the United States to
pursue broadbanding are essentially the same as those expressed by U.S.
corporations.

Where the complexity arises for global organizations considering broadbands is

the diverse socio-economic, cultural and legislative conditions among business
locations. Because these conditions vary from region to region and locality to
locality, the first consideration in adapting broadbanding is understanding that the
"one-size-fits-all" approach will be problematic.

The way a broadbanding plan is administered in the United States may fail in
Germany. What works in the United Kingdom may not succeed in Asia.
Consequently, the best approach is to think globally, but act locally.

All global implementation plans should have set, well-defined parameters based
on overall corporate values. Flexibility needs to be allowed in some areas so
worldwide business units can apply different broadbanding options to support
their individual business plans, as well as respond to the socio-economic, cultural
or legislative issues that affect global workplaces differently.
Organizations also should be aware of country-specific work rules, union issues
and legislation can play a significant role in how viable broadbanding really is.

As companies around the world face increased business pressures, many are
taking more of an integrated HR approach to their operations. Many times, a
global broadbanding pay system is part of their strategy because it promotes
high levels of employee output and competitively rewards employees.

The real advantage of global broadbanding is its design flexibility, which is critical
for long-term success. Taking into account the individual needs and specific
challenges faced within each country, such a system can be implemented
globally.

Summary

Broadbanding, in itself, does not answer the question of how people will develop
new skills, plan their careers or progress in pay. It creates the conditions that
make it advantageous for people to learn, and it creates room for the
organization to pay for that learning if it contributes to improve performance.

Organizations that implement broadbanding need to pay attention to the support

mechanisms if it is to succeed. This includes careful implementation, ongoing
communication, formal skill and career development programs, and objective
evaluation of overall effectiveness.

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