"Practice in which the number of grades in a pay-scale structure is reduced, and the differential between one grade and the next is increased. Broadbanding is said to decrease intra-firm rivalry in employees and to increase inter-firm (or cross-departmental) flexibility."
Broadbanding is defined as a strategy for salary structures that consolidate a large number of pay grades into a few "broad bands."
In a broadband pay structure, the numbers of salary grades are consolidated into fewer, but broader, pay ranges. In broadbanding, the spread of the pay ranges is wider and there is less overlap with other pay ranges.
Broadbanding evolved because organizations want to flatten their hierarchies and move decision-making closer to the point where necessity and knowledge exist in organizations. In flattened organizations, fewer promotional opportunities exist so the broadbanding structure allows more latitude for pay increases and career growth without promotion.
Most firms end up with pay plans that slot jobs into classes or grades, each with its own vertical pay rate range. For example, the U.S. government's pay plan consists of 18 main grades (GS-1 to GS-18). each with its own pay range. For an employee whose job falls in one of these grades, the pay range for thai grade dictates his or her minimum and maximum salary.
The question is how wide should the salary grades be in terms of the number of job evaluation points or rankings they include? There is a downside to having narrow grades. Again, for instance, if you want someone whose job is in grade 2 to fill in for a time in a job that happens to be in grade 1, it's difficult to reassign that person without lowering his or her salary. Similarly, if you want the person to learn about a job that happens to be in grade 3, the employee might object to the reassignment without a corresponding raise to grade 3 pay. Traditional grade pay plans thus breed inflexibility.
That is why some firms are broadbanding their pay plans. Broadbandtng means collapsing salary grades and ranges into just a few wide ranges, or bands, each of which contains a relatively wide range ol jobs and salary levels. Figure 8.5 illustrates this. In this figure, the company's previous six pay grades are consolidated into two broadbands.
Benefits of Broadbanding
Broadbanding has been successfully implemented in large, hierarchical organizations which attempted to flatten their organizations and remove levels of management. For example, organizations that had eight levels of management could eliminate four levels, widen the salary ranges of the remaining four levels, and simply slot each manager into one of those ranges.
With broadbanding, a manager can more easily encourage his/her employees to broaden their skills and abilities. This is valuable to organizations because employees with broad skills and abilities are critical for the success in a total quality/continuous improvement environment. In contrast, the jobs in traditional organizations are narrow and specialized. In order for employees to advance in pay and responsibility, they have to further develop their specialized skill. Thus a bias exists against the broadening of skills.
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