What is a broadbanding pay structure? Definition and Example

What is a broadbanding pay structure?

Broadbanding is a compensation structure that reduces the number of pay grades and widens salary ranges within each band, unlike traditional structures with many narrow pay grades. It combines similar job classifications into broader categories, which allows for more flexible compensation based on employees' contributions and skills in their role.

Why broadbanding is important?

Broadbanding is important because it offers a win-win for companies and employees. Companies gain flexibility in rewarding talent and streamlining administration, while employees have clearer growth paths, increased recognition for high performance, and more internal mobility opportunities. However, this approach requires a strong performance evaluation system to ensure fair compensation decisions.

Fortunately, Compensation Software simplifies pay management by providing data-driven insights, automating tasks, and standardizing processes. It centralizes pay data for accuracy, aids in budgeting and forecasting, promotes fair pay practices, and reduces internal pay gaps.

Who uses broadbanding pay structure?

Broadbanding offers flexibility and is popular in large organizations or those with complex job structures. Industries that use these pay structures include:

• Startups: It can offer startups flexibility in structuring pay, especially when job roles may be less defined or subject to frequent change.

• Technology companies: The fast-paced and innovative nature of technology companies often benefits from the flexibility of broadbanding to quickly adapt to evolving roles and responsibilities.

• Healthcare organizations: Healthcare organizations often have diverse job roles that may not fit neatly into traditional pay grades, making it a more suitable option.

• Government agencies: It can provide government agencies with the flexibility to manage a wide range of job classifications and complexities within a simplified structure.

• Educational institutions: Educational institutions may use broadbanding to accommodate diverse roles, such as faculty, administrative staff, and support personnel, under a unified pay structure.

Advantages and disadvantages of broadbanding

Broadbanding helps organizations manage salaries, but it has pros and cons.

Benefits

• Increased flexibility: Broadbanding allows more flexibility in setting salaries for a wide range of job roles.

• Enhanced career progression: Employees have clearer and more flexible career paths.

• Rewarding performance: It's easier to tie pay to individual performance.

• Simplified administration: It streamlines administrative processes with fewer pay grades.

Drawbacks

• Limited promotion opportunities: There may be fewer distinct promotion opportunities.

• Management challenges: It can be more complex for managers to assess performance and salary progression.

• Potential for pay compression: There's a risk of small pay differences between employees with different levels of experience or performance.

• External market comparison issues: Comparing salaries to external market rates can be challenging.

The good news is that Compensation Software can regularly research market rates to align your broadband with external benchmarks. It also allows for quickly expanding and contracting ranges, moving jobs between ranges, and building and saving new structures with ease.

Broadbanding in hr example

Imagine a finance department with different pay grades for various roles.

• Senior Financial Analyst

• Financial Analyst

• Accounting Specialist

• Accounting Assistant

In broadbanding, these roles would be grouped into one "Finance" band with a broader salary range to fit the department's varying experience and skills.

Traditional pay structure:

Pay Grade 5	Senior Financial Analyst	$80,000 - $100,000
Pay Grade 4	Financial Analyst	$60,000 - $80,000
Pay Grade 3	Accounting Specialist	$40,000 - $60,000
Pay Grade 2	Accounting Assistant	$30,000 - $40,000

Broadbanding pay structure:

Finance Band

$48,000 - $108,000

(Median: $60,000)

In this example, all roles in a department are put into one salary band instead of separate grades. This makes pay simpler and gives more flexibility in setting salaries.

Related: How to Build Salary Bands to Ensure Equitable Pay in the Workplace

FAQs

Here are some common questions about broadbanding:

Is broadbanding pay structure suitable for every organization?

Broadbanding offers flexible pay ranges that reward skill growth, but may not suit organizations with specific roles or frequent small promotions. It's best for companies where employees stay in roles or move horizontally.

How are salary ranges set in broadbanding?

Broadbanding sets salary ranges by considering market data for similar positions to find a competitive midpoint. It then creates a wider range (usually 80% to 200% of that midpoint) to accommodate current employee salaries, internal movement, and rewarding valuable skills and experience.

Speaking of market data, Compensation Software gathers and analyzes salary data for similar positions in the geographic location and industry. This data helps determine a competitive midpoint for each broadband being created.

How can organizations make broadbanding pay structure successful?

Organizations should think carefully about using a broadbanding pay structure. While it offers flexibility and rewards skill growth, it needs clear communication and strong management. Involving stakeholders in designing bands and training managers to evaluate skills within the wider range is important. Also, having clear rules for promotions and raises within bands, along with plans for employee growth, will justify moving toward the top of the pay range and make broadbanding successful.

What considerations should organizations have when transitioning to a broadbanding?

Organizations transitioning to broadbanding should carefully consider how to manage wider salary ranges within each band to ensure fairness. This means setting clear rules for promotions, explaining how skills affect pay, and checking for pay fairness regularly.

Salary.com’s tool can monitor pay equity within an organization, identifying and addressing potential pay gaps based on factors like gender or race. It also assesses internal pay differences by employee group and helps you take corrective action as needed.