There are different ways your business can manage salary structures when planning your workforce. While many traditional companies have a very detailed organizational hierarchy, and each with its own corresponding pay scale, there are newer methods being used to shrink organizational charts and expand pay ranges.
Broadbanding is quickly becoming a popular way for companies to increase internal job rivalry and encourage employees to self-develop and grow within an organization. While there are many benefits to this unique pay structure, it’s not ideal for every organization.
This guide will help you understand what a broadband compensation structure is, when to use it, and when it might not be a good fit for your team. We’ll also review some pros and cons of this pay structure and offer some best practices to help you get started.
What is broadbanding in human resource management?
Broadbanding in HR terms refers to a pay structure with wide salary ranges within each pay grade. Traditional pay structures have many different job levels or bands, with about a 40% difference between the lowest and highest points of each job level. To significantly increase an employee’s salary in a traditional model, they would have to jump up a few levels.
With a broadbanding pay scale, there are fewer job bands with a much wider range of salaries between the low and high points of each level. With this approach, employees typically stay within a band for a longer period of time, and there can be up to an 80% difference in the levels of pay within one band.
Advantages of broadbanding
Now let’s look at some specific benefits a broadbanding pay structure can offer your company.
1. Improved focus on career development
Since the broadband compensation structure offers such a large gap between minimum and maximum pay, employees will stay within a specific job band for a longer period of time. During this time, employees are encouraged to be curious about job development, push themselves to tackle new projects, and learn new skills to receive pay raises.
Unlike traditional models where employees have little room to improve within a specific job tier, broadbanding offers a much more flexible approach, allowing employees to explore new areas of growth that will benefit their team.
2. Simplified organizational structure
Traditional job models can have complex organizational structures. Broadbanding allows you to significantly decrease the number of job tiers within your organization and offers more room for lateral moves. The tiers in broadbanding structures are broader, allowing you to put loose structure around expectations but really fine-tune a particular job to an individual’s strengths.
3. More satisfied employees
Broadbanding can help attract top talent and improve your employees’ satisfaction with their jobs and the company overall. Some employees don’t ever want to become managers, but they still want to continue to learn and grow while receiving more compensation for their newly acquired talents. Broadbanding is an excellent way to retain the best of the best and allow for expansion without forcing structure promotions.
4. Less demand for specific job skills
Another perk of broadbanding is that since the job tiers are so flexible and accommodating, there’s little need to search for employees with the exact same job skills. You could have employees within the same job band at the same pay rate who have varied skills that come together to make the company stronger and more competitive. This opens your doors to attract talent that might not necessarily fit within a hyper-defined role.
Disadvantages of broadbanding
On the other hand, there are some disadvantages to broadbanding worth considering before pursuing this method.
1. Not always scalable
If you’re the owner of a large corporation that employs hundreds or thousands of employees, a flexible broadband pay structure might not make the most sense. It can be hard to scale and repeat a broadband pay system that worked well in one department across many different departments.
A more traditional model might make it simpler to recruit new talent and make sure all the skills you need to keep the company running smoothly are in-house. It can also be difficult to manage payroll for so many different pay rates, depending on the size of your HR department and your specific HR software.
2. Difficult to measure internal success
Broadband pay structures encourage employees to self-develop, but the new skills and projects they tackle might not be in the best interest of the company. While guardrails can be set up to promote job development that fits in within a specific job band’s expectations, it can be hard to measure an employee’s effectiveness when everyone is doing their jobs differently.
This might not be as much of a hurdle for small companies or those using the decision band method (DBM), but it can be a massive challenge for larger companies.
3. Wide salary ranges can lead to confusion
In traditional pay structures, there are well-defined midpoints. While broadband structures can also have midpoints, they’re more likely to have midranges. This can make it difficult to determine how much of a raise each employee should receive, particularly if you’re not able to successfully measure how an employee’s growth will benefit the company financially.
Who should use broadbanding?
While broadbanding pay structures have become more popular for a variety of reasons, traditional pay models still have their place in certain corporate structures. It’s important to know whether broadbanding pay structures will be an asset to your team before committing to making this change.
When broadbanding makes sense
Let’s look at a few types of companies that might be able to benefit from a broadbanding pay structure:
- Startups: When forming a startup, you often need individuals with a particular expertise but who can wear many hats. Defining these roles can be hard to do in terms of traditional job bands. With broadbanding pay structures, you have the customization and flexibility you need to hire top talent at different pay levels that may fall within the same broad bands.
- Creative agencies: A marketing or advertising agency typically needs creatives from a variety of fields to grow and expand their audience base. While these fields can be defined — writers, designers, developers, project managers — not every individual or team will need the same exact skill sets. For example, you might have a web project team with two writers, one who excels at creating punchy headlines and organizing sitemaps and another who’s great at turning out copy and commanding a client’s attention in meetings. These variables work well in creative settings and can lead to lateral moves to new teams and pay raises that don’t necessarily bump individuals up to management or director roles.
- Lean businesses: Companies with a small number of employees will typically require employees to be continuously learning and developing new job skills. Broadbanding allows you to encourage employees to look beyond traditional job roles and is ideal for lean businesses that need employees who are always up for a challenge.
Who should try a different pay structure
As previously mentioned, broadbanding won’t work for all companies. Here are three types of companies that might want to explore other pay structures:
- Large corporations: Broadbanding can be difficult to scale and can cause problems in pay differences, role definitions, and hiring practices for large companies. If you hire salary and hourly workers as well, broadbanding will likely add confusion to your pay structure.
- Hierarchical companies: No matter what size it is, if your business requires hierarchy to thrive, a broadbanding model likely won’t work well for you.
- Businesses looking to scale: Even if your team is small now, if you’re looking to scale and add offices across the country or world, you’ll likely appreciate a more structured and easy-to-replicate pay structure.
3 best practices when using a broadbanding pay structure
If you do decide to use a broadbanding structure in your company, here are some general recommendations to make this pay scale as successful as possible.
1. Set employee growth plans
Since it can be difficult to track employee performance within this model, it’s important to set individual growth plans based on employees’ interests, desire to grow, and current job performance. This will come in handy when determining future pay increases and lateral moves.
2. Clearly define management structures
While broadbanding generally works well for teams with flat structures, ultimately your employees will need some type of manager, team lead, or supervisor to turn to. Make sure they know who that person is and guarantee they have regular access to management.
3. Explain your pay bands during job interviews
Some employees prefer to work for companies with frequent promotional opportunities, even if it limits their job growth. Make sure you clearly explain how your company manages growth and pay raises before hiring a new team member.
Broadbanding offers more flexibility for many streamlined companies
The concept of broadband pay offers exciting opportunities for both companies and employees. If your business doesn’t fit the traditional hierarchical job mold, adapting this pay model can help you attract the right talent for your business needs.
View more information: https://www.fool.com/the-blueprint/broadbanding/