In this research paper I will provide information of what broadbanding is, history of development of this performance and reward human resource technique, state its advantages and disadvantages as well as make an analysis whether its usage is effective enough in the organizations and explain why.
Human resource management along with the performance and reward techniques is being constantly developed and frequently traditional salary programs do not correspond to the needs and wants of both employees and company short-term and long-term objectives (Neubauer 1995, 50). Retransformation of the salary programs usually refer to making them simpler, or just aiming to evaluate and rewards competencies of the employees that are important to the company. Many organizations nowadays are willing to pay for the particular person to be involved in the performance and not the actual evaluated performance that the employee is supposed to do. So, broadbanding is also the kind of compensation technique, which generally refers to the substitution of the traditional narrow salary ranges with the less by the amount bands that are wider by range and overlapping (Neubauer 1995, 50). There are two main categories of broadbanding, which are career bands and salary bands. Salary bands are said to be several overlapping bands to which the traditional salary structure is retransformed, and each band subsequently is having the possible minimum and maximum amount of money the person in the company taking the definite position can earn. The traditional spread from minimum to maximum becomes wider and can be greater than 100% and therefore, this allows increasing the salary of the employees’ performance of which are near the maximum of the salary range for their job level. Career bands by notion are nearly the same as salary bands with the single exception that their main goal is to simplify the management development. Career bands are used in the organization when it is aiming to make the career growth more lateral then vertical, in cases when vertical moves become more difficult to perform. When both types of bands are used in the company, it requires the complete change of the scheme of how the compensation is delivered in the form of promotions, merit increases and other options.
2. History of Broadbanding Emergence and Development
Generally speaking, the idea of the broadbanding even not used often is not new. It was developed in 1950s in England by the psychologist named Elliott Jaques. In his book that appeared in 1956 “Measurement of Responsibility” he described the amount of time the employee controls in regard of his work until the intervention from management is needed. This is what he indicated: “When we talk about discretion… we are talking about those aspects of a job in which the person is allowed to choose, and indeed requires to choose, from among alternative ways of doing something, as opposed to those aspects in which he is prohibited from choosing and must follow the prescribed policy or method” (Jaques 1956, 86). The idea is that the higher the position the person takes, the more time should be taken for the job review. The author proposed the optimal solution of having seven bands in the company, but this idea however does not exclude the possibility of having sublevels within the frame of each band.
The idea of the salary bands was very popular in the 1970s in England. As an example, can be mentioned the case with the medical research firm which recognized to having problems with the job-evaluation program, and differences among research-director position in particular. The difficulty was with the compensation patterns for employees of the similar grade positions, as market research revealed that there were differences in the compensation of the senior veterinary pathologists, senior pharmacologists, senior microbiologists and head of the departments. Such different obviously were informally recognized in the company, but not done appropriately, therefore the organization made the decision to establish the banding system with the overlapping ranges so that each grade had several salary bands with the different minimums and maximums. So, the organization succeeded in taking into consideration the market value of the job done, as well as added internal value(Neubauer 1995, 51).
3. To Broadband or Not to Broadband…
Broadbanding as any other compensation and reward technique has its advantages and drawbacks, and it is obvious that what is effective for one company cannot be equally effective for the other. Before the organization makes the decision to broadband the salary system, it should make the market survey in order to understand the market pay data to build up pay scales. First of all, the organization should identify its position at the job market, and this can be easily done by simple looking at the number of applicants it is attracting. Therefore, the employee retention rates that are high indicate that the organization is very much competitive at the market. But let’s return to the factual compensation. Employees in any organization are willing to have viable, reasonable and market-responsive salaries, as compensation is the direct demonstration that the work done by the employee is valued. Subsequently, compensation appears to be the most powerful communication tool (Heathfield 2003). When the studies on regard of up-to-date market pay, bonuses and benefits are fulfilled, several important things should be done in order to apply gathered data for the development of the pay scale. First of all it should be verified whether the collected data is correct and corresponds to the specific job descriptions to adequately value each position and job done. Next, jobs should be arranged along the market line in accordance with the job value as defined by the market pricing data. The market line should be used for the development of the pay grades by structuring groups with the similar market values. The quantity of the necessary pay grades is defined by the number of the hierarchical organization levels (quantity of supervision levels, job technical sophistication, etc.). The pay range should be developed for each pay grade, where pay range is said to be the distance between the minimum and the maximum compensation point for each position. Lower salary values jobs are supposed to have narrow ranges, executive ones- largest. Society for Human Resource Management proposes the following common ranges to be used: nonexempt manufacturing (narrow range of 20-25%, or flat rate), nonexempt clerical (relatively narrow of 30-40%), exempt professional, administrative, supervisory (50-60%), exempt managerial and executives (the widest ranges of 50% and more). Then the minimum and maximum points should be calculates and the market line should be drawn across the pay grades upon the basis of the company’s compensation philosophy.
Broadband pay structures allow additional opportunity to the usage of the interchange between the marketplace and internal pay structures of the organization. In such structure the amount of salary grades are consolidated and fewer ranges imply wider ranges spread and less overlap with other ranges (Heathfield 2003). Broadbanding allows more opportunities for restructuring, as employees can stay in their positions longer, and provide the opportunity of the career growth without the promotion necessity. Broadband pay structures stimulate the broad employee skills development, non-managerial positions are valued and the development of skills of the employee is rewarded. So, the employees become more responsible for the development of their career (competency-based pay system).
Then, when the employee reaches the maximum of the salary range, there still remains the need to compensate him/her. Broadbanding also reduces management layers and minimizes corporate hierarchy that makes the title of the job less important (Yurkutat 1997, 24). This pay system is also easy to administrate and implies less time to be spent on the evaluation of the job, as it is not as sensitive as rapidly changing market. This is what Keith Fortier and Christopher Fusco indicated on regard of the broadbanding in their “Salary Structures”: “Whereas the design characteristics of traditional structures emphasize internal equity and focus the employee’s attention on the world inside the firm, broadbanding focuses employees on the changing needs of the organization and helps them experience an internal culture that more closely reflects the external business environment and the competitive recruiting market.”
Among broadbanding disadvantages can be mentioned the fact that many corporate cultures do not allow the traditional pay system’s abolition, and it can be considered more expensive because of the salary control points’ shortage. It can be also to shift employees’ perception from the traditional pay system to the broadband and to explain thoroughly. Broadbanding pay system can be also incompatible with the strategic objectives of the organization with the multiple businesses, as there can be predetermined single compensation plan for all business units. When it is combined with the competency-based pay system it can appear that the job evaluation becomes more time-consuming. Competency-based pay is also considered to be more expensive in the long run for the company, as all employees develop their competencies and do not use them to the fullest extent in their jobs, which can lower employees’ morale due to their frustration to this inability.
Practice shows that at present moment broadbanding pay system is being implemented in many organizations. The main decision-making factor for that implementation, unfortunately, in many cases, remains the innovation factor with the idea that every new thing is good without thorough compatibility analysis. In such a manner broadbanding becomes the fad, whose long term effect upon the organization’s performance is difficult to predict. Each organization has an alternative whether to develop the existing traditional pay system and introduce new features to it, or totally restructure it (Neubauer 1995, 52).
4. Broadbanding as the Key to Change
Broadbanding can be effective and may not be considered just a fad in the series of certain circumstances. Separate pay programs and structures can enforce the feeling of the class distinction between nonexempt and exempt employees. There can be the large number of discrete job level and titles, which make employees change their positions within their functional hierarchy very often. When the higher salary is tied to the higher position, it is the great motivation for the employees to move up, which is not always desirable for the organization’s structure. And the next problem arises in the lower levels of management when the sales people are not willing to move to supervisory positions due to narrow alary ranges and the lack of viable pay opportunity, which with the moving upward the hierarchical scale will decrease their salary. People who are working in the organization for the long period of time may have the sense of uncertainty, as thy have already reached the particular level and they remain unsure upon their value to the organization, as well as potential in it. Broadbanding as the new pay program can meet the following requirements and expectations of the organization: it can evaluate job complexity and challenge and not jut the amount of the job done, experience and continuity of being within the organization of the employee, acquisition of skills as well as cross-functional knowledge, flexible and broad job definitions, and careers that consist of the sustained contributions and not the series of hierarchical promotions. Broadbanding can also eliminate administrative burdens and stable elements that are tied to job evaluation and pay programs (Haslett 1995, 42).
In such a case, broadbanding is viewed as the key change element and the solution to address requirements of the organization. “Broadbanding is a compensation management response to changing business conditions. In broadband salary structures, employers reward employees who demonstrate substantial capability improvements with a salary progression that penetrates more deeply into the banded range over time, in lieu of promotions. Whereas the design characteristics of traditional structures emphasize internal equity and focus the employee’s attention on the world inside the firm, broadbanding focuses employees on the changing needs of the organization and helps them experience an internal” (Fortier and Fusco 2002, 3).
Broader salary bands and more flexible salary increase guidelines allow the organization to provide more reward service. The reduced job emphasis is supposed to encourage employees to make cross-functional moves to jobs. And it is supposed to be easier to the HR managers to promote employees as they would not have to “re-level” jobs and recount the payment. Broadbanding pay system is also very easy and simple, as there is only one way to broadband.
After the implementation of the broadbanding pay program, the following results can be fairly expected: minimized organizational disorder and the administrative burden associated with the restructuring, facilitated few small acquisitions, set the stage for broad-based acceptance of new, cross-functional opportunities, regardless of the impact on an individual’s pay, established better definitions of competencies and competency level for certain job families, clarifying how to position individuals within and across broad bands, decreased HR staff time spent on job evaluation and other administrative tasks, which increasing the time spent partnering with line managers on employee pay decisions, brought about greater buy-in of line managers to their increased role in employee career and salary management through the general salary review date, which facilitated consistency and a linkage to annual results, the performance management system’s reliance on multiple sources of feedback, which added credibility to pay decisions and the availability of HR support on tough calls and unexpected situations (Haslett 1995, 45). But the process of evaluation of feedback from broadbanding pay system implementation is sustainable and the following improvements can be also expected after a period of time: better sources of survey data to support the increased emphasis on marketplace competitiveness (survey sources with sufficient detail to match to broader job or competency definitions are scarce, and senior management wants reassurance that pay levels are under control), recognition programs to reward employees who demonstrate new behaviors that support the company’s new values, training to improve managers’ performance management skills, elimination of level-based, status- oriented prerequisites and the strategic resolution of variable pay issues (Haslett 1995, 46).
Broadbanding is the HR practice that is aimed to transform the traditional large number of salary levels into the small number of salary grades that have broad pay ranges. Broadband pay programs develop as companies are looking forward flatting their hierarchies and moving decision-making responsibilities to the knowledge and necessity point in the organizations. In many cases, the implementation of the broadbanding pay system can be just the desire to keep up with the innovative payment systems, and not the real necessity of the organization. Before making the decision to restructure the pay system, the company should make the market survey and critically evaluate all other opportunities to improve the traditional existing pay system. It is impossible to claim with the complete conviction that the broadbanding is the pay technique that can be effective just during the particular time period, but it cannot be equally called the universal mean of solving organization challenges with the pay system.
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