Broadbanding definition
/What is Broadbanding?
Broadbanding is the combination of a number of related job classifications into a single pay band, for which a broad range of compensation levels is allowed. This approach gives management a wider pay range within which to pay employees. One reason why an employer might resort to paying whatever rate seems necessary is that management feels constrained by the use of a job ranking system that only allows a small range of pay for a certain job position. When an employee has clearly superior skills, management may want to pay a considerably larger amount than is indicated by the market rate for that person’s job description. This approach tends to reduce the pressure for someone to be promoted, since broadbanding allows a person to be paid more without a promotion.
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Advantages of Broadbanding
The benefit of broadbanding is a much greater amount of latitude in setting compensation levels, particularly for those people whose skill levels are higher than the jobs they currently occupy.
Disadvantages of Broadbanding
There are several disadvantages associated with the use of broadbanding, which are as follows:
Expenses increase. The total compensation expense will likely increase when broadbanding is employed, since there is a much higher pay cap within a pay band.
Employee resentment. The use of broadbanding can result in wide variations in pay levels amongst the employees within a designated band, which can cause resentment.
Employee confusion. A more traditional pay structure has a well-established midpoint and a modest amount of variation around that point. Broadbanding results in a much broader amount of variation around this midpoint, resulting in employee confusion about whether a midpoint even exists, and what it means for their future wage growth.
Example of Broadbanding
As an example of broadbanding, the engineering department might combine all job classifications for engineers into a single “engineering” band, for which the allowed compensation ranges from the pay level of the least-skilled job to that of the highest-skilled job. Similarly, the accounting department could combine all job classifications for accountants into a single “accounting clerk” band.