The use of broad banding in compensation admin (Part I)
BROAD banding refers to a pay structure that has wide ranges between the minimum salary and maximum salary per grade. e common salary ranges for standard pay structures range from as low as 5% to as high as 40%.
In a broad-banded structure, the salary range is wide, ranging from as low as 60% to as high as 100%. In rare cases, broadbanded structures can go above 100%. People need to understand that adopting a broad-banded structure is a reflection of the organisation’s philosophy around pay. e underlying philosophy around broadbanded structures is that the organisation strongly believes that it needs wide ranges to enable it to reward employees significantly different from one another even if they belong to the same band.
e philosophy acknowledges that while a job grade groups and reflects jobs of the same value, within that same grade individual contribution by employees, can significantly vary and that must be acknowledged through pay differentials between individuals in the same band.
Objectives of broad banding
A broad-banded pay structure can be instituted to achieve several objectives within the broader pay philosophy of the organisation. Here are some of the objectives of a broadbanded pay structure:
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To drive organisational culture changeSome organisations can introduce broad banding to drive culture change. As an example, an organisation may want to implement a pay philosophy change as part of an organisation-wide culture change program. e broad banding is likely to be instituted to support a performancebased pay culture where merit increases are more frequently based on individual performance than guaranteed increases.
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To reward top performers more significantly than other performers — when the organisation intends to reward its employees more significantly based on performance it can institute broad banding. Broad banding ensures that the organisation is not constrained by the narrow ranges found in traditional pay structures.
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Reward people in a lower grade higher than those in higher grades if they are top performers. Sometimes broad banding can help the organisation to reward an individual in a lower grade higher than an employee in a higher grade because of the wide ranges, which also overlaps with an adjacent lower grade.
Advantages of broad banding
ere are several advantages of broad banding here I will share the key ones. Any moves to broad banding must be accompanied by a very strong pay philosophy. Without a strong pay philosophy, broad banding may not bring the necessary advantages often associated with a properly implemented broadbanded pay structure. Here are some of the advantages of implementing broad banding;
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It makes it easier to differentiate employees based on superior performance. e broad-banded structure allows you to reward your top performers significantly. Because of this advantage, it is possible to have your top employees being paid 80% better than a poor performer in the same grade, who very likely in such a structure will be paid at the bottom of that grade.
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Broad banding brings flexibility to the management of a pay structure. As an example, because the bands are so wide, it is possible to have several roles than those you would expect in normal grade. is tends to erase feelings of inequity normally raised by many employees against the standard grades.
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With broad banding, it is possible to support dual-career ladders. is is very helpful in organisations where there are usually complains related to differentiating between technical roles and support functions. Broad banding allows you to put in the same band support function and technical roles and differentiate them based on their performance or contribution.
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Broad banding allows your organisation to flatten your grading structure. Instead of having 16 grades as an example where people jostle for power to get into higher grades, you may end up with only six grades from the lowest role to the highest role.
To be continued next week.