Salaries: How broadbanding works

It is essential in establishing what is required to pay for a specific position. [iStockphoto]

Broadbanding is a method for evaluation and construction of a job grading structure that exchanges a large number of narrow salary ranges for a smaller number of broader salary ranges. 

It is essential in establishing what is required to pay for a specific position.

Advantages of broadbanding

• It streamlines hierarchy structure within the organization
• It promotes and facilitates internal movement within the organization and emphasizes other attributes of a position, other than the pay grade which is already disclosed
• Gives more transparency and added trust in management

The disadvantages of broadbanding

• Reduces awareness of external market salary rates.
• Broadbanding leads to lack of promotions within the organization; it allows organizations to increase pay and offer opportunities for training without promoting employees.
• Broadband pay structures aren’t sensitive to changing market conditions.

Disadvantages of broadbanding?

1. Lack of external market rates

Broadbanding pay structures value greater internal flexibility for pay determination and movement. However, because companies value internal development, there is lesser awareness when it comes to external market rates.

2. Non-precise midpoints

Broadbanding leaves your organization with very wide salary bands within your structures. The midpoints within those bands are ill-defined because the range is so large.

3. No cost-control mechanism

The wide range of a broad banding structure can cause individual pay to increase at different rates among the few bands in your structure, potentially causing issues with your budget.

Be sure to analyze how pay increases will be given, and whether any job changes will result in lateral or upward moves in compensation, to avoid going over budget and losing revenue due to high expenses.