Broadbanding is a term that refers to a company’s pay structure that focuses less on hierarchy and more on job duties, skills, and performance. Whereas a typical company might have numerous levels of pay for employees, a company that utilizes broadbanding has fewer levels of pay that cover a wider range.
The idea behind broadbanding is that individuals are less focused on moving up the corporate ladder and are more focused on acquiring skills and knowledge. This article will look at the types of companies that use broadbanding as well as the advantages and disadvantages of the practice.
An In-Depth Look at Broadbanding
Companies with a high hierarchy utilize numerous pay levels with small ranges. An example of this would be a company whose starting level is $20,000 – $40,000; mid-level is $40,000 – $60,000; high level is $60,000 – $80,000; and top level is $80,000 – $100,000. In this example, there are four levels, and each level has a small salary wage.
Compare this structure to a broadband structure where the lowest salary level of $20,000 – $60,000 and the highest salary level of $60,000 – $100,000. Between the lowest and highest salary levels, there is a wide range of what employees could be paid.
When companies use broadbanding, they establish a salary midpoint to set their salary levels. In our example, the salary midpoint for the lowest level would be $40,000; and the midpoint for the highest level would be $80,000. The $20,000 on each side of the level represents low and high anomalies for that position.
Companies that Use Broadbanding
Companies that use broadbanding typically have flat workplace hierarchies. This means that there are few managers that have a large quantity of employees that report to them. Examples include a manufacturing plant where a large number of line workers report to one manager, and there is one manager per manufacturing plant.
Another example of companies that utilize broadbanding are start-up companies with few employees. When a company is just starting out, one employee may be asked to complete a variety of tasks that don’t necessary align with their job description. For example, an administrative assistant might help with content creation or graphic design. In this situation, it makes sense for the assistant to be paid according to the range of skills he or she completed versus being locked into one salary level.
A 2018 study found that while broadbanding used to be a popular pay structure, it has declined in popularity and has been overtaken by market-based pay structure, in which companies pay employees based on what other companies in the same industry are paying their employees.
Advantages of Broadbanding
There are a variety of benefits to paying employees within the broadbanding system.
Promotes Career Development
Because there are less hierarchies to deal with, internal growth is signified due to increased skills and responsibilities. Rather than simply focusing on moving up from one level to the next, employees can focus on gaining new skills and experiences. Operating within a broadband system emphasizes wholistic growth for an employee and rewards them growing as opposed to simply checking off a box to move up to the next pay level.
Transparency and Trust
With a broadband system, managers can recognize that growth has occurred with two employees and compensate them accordingly, even if one employee gained a different set of skills than the other employee. This can be beneficial for employee morale and instill optimism within the company that growth is possible, even if it doesn’t look the exact same for each employee. There is more freedom to move within the company and receive fair compensation.
Additionally, a broadband system of pay often correlates to a more simple hierarchy, making it easier to understand a company’s structure from the outside looking in. This reduces confusion in understanding the laundry list of items that is needed for promotion in a company with a traditional hierarchy.
Disadvantages of Broadbanding
As evidenced by the declining number of companies that utilize broadbanding, there are significant disadvantages to the practice of broadbanding.
Lack of External Market Rates
The concept of broadbanding highlights internal growth and movement within a company. While this helps employees gain more pay for their increased skills, this movement can occur in a bubble when compared to market rates. Though an individual could get promoted, he or she could be paid less than their efforts than individuals in other companies performing similar duties.
Lack of Promotions
In a traditional hierarchy, the large amount of levels can be comforting in the sense that upward movement can be expected if the employee acts accordingly. While broadbanding removes the strictness of this traditional upward growth, it can also result in less promotions overall. Additionally, if the upward path is murky and ill-defined, it can lower employee morale. If there is no clear path to promotion, why try at all?
Lack of Cost-Control Mechanism
With a traditional hierarchy system of pay, there are clear guidelines for pay increases. This ensures consistency within the budget from year-to-year. A broadband system does not have such regularity and can cause issue for the organization’s budget due to inconsistent pay raises that happen at different times.
There are many aspects to consider when it comes to companies deciding how to pay their employees. Turn to the experts at Bhr Consulting to learn more about each system and see which is best for your company!