that bands have particularly wide spams and that different roles are included under the
same band heading, it could reveal to be objectively tricky for managers to properly
administer their staff salaries whilst trying to attain pay fairness and equality (Arnold
and Scott, 2002).
This is actually the same reason for employers finding it harder making external market
comparisons too; especially when the majority of the other organizations operating in
the same market do not use broad-banded structures. It will surely reveal to be
extremely demanding and difficult trying to compare the internal salaries of the people
included in the same broader band with those associated with roles which are differently
distributed throughout several grades of other firms’ pay structures. The circumstance
bands do not have a mid-point can only contribute to make things harder (Arnold and
Scott, 2002). Much of the time saved not carrying out the job evaluation exercise might
thus be absorbed by the attempt to identify the right match between internal bands and
external grades. Additionally, managers will need to compare external salaries
essentially linked to roles with internal salaries basically associated with individuals,
rather than roles. All of that will clearly contribute to make things the harder and harder.
The comparison between internal pay levels and external labour market and benchmark
data may even reveal trickier to perform in practice by reason of the circumstance that
broad-banding implementation also entails that individuals within the concern develop
additional skills and cross-function capabilities (Arnold and Scott, 2002). It may hence
reveal even virtually impossible for reward managers compare an internal role with an
apparently similar role existing in the labour market in that individuals performing that
role within the business employing a broad-banded pay structure have surely developed
additional competencies vis-à-vis those developed by individuals carrying out the same
role within organizations using more traditional pay structures. This should actually
represent no cause for surprise, after all, differently from traditional pay systems, broad-
banded systems aim to tailor pay to individuals and not to roles. It clearly transpires that,
even putting bias and risk of unfairness aside, determining the correct level of pay for
each direct report may reveal to be an objectively difficult feat to achieve for managers,
especially whether precise and clear guidelines have not been provided by the employer.
In theory, the introduction of broad-banded structures should contribute to let
individuals feel more engaged and motivated, both for the wider variety of skills and
capabilities they are put in the position to gain and for the frequent opportunities for
horizontal development offered to them as a matter of course. All of that in turn will
clearly contribute for these individuals being more appreciated by their current
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employers and to increase chances of success should these decide to look for other job
opportunities in the labour market.
Broad-banding, favouring individuals horizontal development, also enables line managers
to create more occasions to implement effective job design and job enlargement
practices and initiatives as well as favouring teamwork. This approach leaves hence
managers a very high degree of latitude both as regards the organization of the work
and the salary increase decision-making process. As averred by Mondy et al (2002),
broad-banding emphasizes thus structure and control. Notwithstanding, the introduction
of such a system could reveal to be remarkably detrimental for an organization whether
just a very few managers should use their considerable degree of leeway to make biased
and unfair decisions, irrespective of the circumstance that these would be associated
with individuals development or pay increases.
Managers prejudiced decisions do not represent the only risk employers are exposed to
as a consequence of the introduction of broad-banded pay structures. Indeed, also the
lack of opportunities for career advancement could very likely reveal, over time, to be a
serious cause for individuals disappointment and disaffection with the employer and
demotivation for their job. These feelings or change of mood, which can ultimately cause
employees to leave the organization, can in many occasions be identified by managers
who, in order to avoid people to leave, may react showing an indulgent behaviour during
performance appraisal meetings at best, or offering salary increases or complementing
base salary with some forms of unjustified contingent pay at worst (Arnold and Scott,
2002). In the unavoidable aftermath of all of these events, employers will invariably find
themselves facing remarkably increased personnel budgets. Yet, an unjustified obliging
managers’ behaviour during performance appraisal meetings will clearly be in open and
sharp contrast with the scope this meeting has, particularly within organizations where a
broad-banded structure is operated. In this case performance review is actually even
more critical and crucial to sustain and support the arguments justifying salary increases
and the salary levels achieved by each individual.
Managing salary levels when broad-banded structures are in place is very likely to reveal
particularly hard for managers even though when broad-banded structures are
supplemented with contingent pay schemes. Even more so, whether clear and objective
guiding principles and procedures have not been devised by employers in order to
identify salary of new entrants and manage movements throughout the band of existing
employees. In order to curb the effects of the likely downsides associated with this
aspect, employers use to segment bands introducing zones within these, which in the
end basically work as grades (Milkovich and Newman, 2002). It clearly appears pointless
introducing broad-bands and hence splitting these into grades, it would make no
difference to this point introducing narrow-graded or broad-graded pay structures.
Supporters of broad-banding argue that this approach enables employers to reward
individuals for lateral movements or horizontal development. However, as suggested by
Arnold and Scott (2002), whether individuals lateral movements aim to enable them to
more effectively carry out their duties, paying them just for this reason will practically
constitute a mere waste of money; whereas if this lateral movement throughout a band
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should aim to reward performance, this objective could better be achieved by means of
contingent pay schemes, taking as axiomatic that performance appraisal procedures
would be operated properly and effectively. Additionally, whether pay upgrades should
be linked to jobs size and individuals being paid within the same grade perform a wide
variety of jobs and tasks, it will appear even harder for managers differentiating and
discerning jobs sizes within the same band.
But this is not all; the list of arguments on the flip side of broad-banding is still fairly
long. Albeit it was originally supposed that broad-banding would have enabled employers
to attain a better personnel costs control, as we have seen, risks that managers would
mismanage employees pay is instead very high. This can be associated both with biased
salary increases and with unjustified salary drifts caused by genuine confusion and lack
of clarity about pay management. The impact of broad-banding over the personnel
budget can also be amplified by the mismanagement of contingent salary schemes
usually supporting broad-banded structures.
The appeal of broad-banding over the years
Since its origin, broad-banding has caught the keen interest of many employers and it
actually still appears to be fairly beguiling. However, after having boosted in the early
1990s in the US, the fortune of this approach has appeared to be less promising
thereafter.
Between 1993 and 1999 the number of employers planning to introduce broad-banded
structures in the US decreased from 39 per cent to 18 per cent, whereas the number of
organizations having recourse to the approach raised from 10 per cent in 1993 to 21 per
cent in 1997. However, between 1997 and 1999 the number of employers using broad-
banded structures increased of a tiny 2 per cent in that reportedly only 23 per cent of
employers claimed to use this approach in 1999 (HR Focus, 2000).
Findings of a survey carried out amongst 360 firms in the US (95 per cent of the panel)
and Canada (5 per cent of the panel), in 2010, revealed that albeit the vast majority of
employers (74 per cent) used market pricing methods to design salary range structures,
only a measly 7 per cent used broad-banded structures, whereas 82 per cent had
recourse to more traditional salary structures and 9 per cent employed hybrids of
traditional and broad-banded structures (Culpepper, 2010). Similar results emerged
from the findings of a more recent study carried out by WorldatWork and Deloitte (2012).
The study revealed that broad-banding (range spreads of 80 per cent to 200 per cent -
no mid-point) was only used by 12 per cent of employers, whereas market-based salary
structures (range spreads of 30 per cent to 80 per cent - mid-point progression of 10 per
cent to 15 per cent) were employed by 64 per cent of businesses and traditional pay
structures (range spreads of 20 per cent to 40 per cent - mid-point progression of 5 per
cent to 10 per cent) by 23 per cent of the firms covered by the investigation.
In the UK, findings of a survey carried out by the IPD in 2000 revealed that albeit 16 per
cent of the concerns having introduced broad-banded structures were considering
implementing changes, less than 1 per cent of them intended to abandon the approach.
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It also emerged that 22 per cent of the employers participating to the study were
considering introducing broad-banded pay structures. Employers seemed to be fairly
satisfied with the mechanism typical of broad-banding insofar as 14 per cent of them
regarded as fully attained the intended objectives for introducing the approach, whereas
58 per cent considered that objectives had been, albeit not entirely, mostly achieved.
Employers, who had experienced some problems with this method, also seemed to be
fully aware of the reasons for not having attained the intended results, which they
deemed to be linked to the inappropriate performance management system in place (26
per cent) and to the managers non having been properly trained (18 per cent). Five
years later the new National Joint Council (NJC, 2005), argued that broad-banding was
widespread amongst many types of organizations, including the civil service, adding that
the approach remained however still “uncommon.” Employers having developed and
introduced such a scheme, still according to the NJC, have experienced problems for
equal-pay related reasons, insofar as many of them have reconsidered to come back to
more traditional salary structures in order to ensure transparency to their pay practices.
Finding of a more recent investigation (CIPD, 2011), however, revealed that in the UK
broad-banding is still one of the most frequently used approach to manage base pay,
especially in the private sector services and manufacturing and production industry. By
contract, broad-banding is much less frequently used within the public sector services
and non-for-profit organizations. Differently from what it is actually occurring in the US,
in the UK broad-banding seems to still hold firm or even progressing; it in fact
represents the second most popular approach to base pay (24.7 per cent), second only
to individual pay rates/ranges/spot salaries (30.1 per cent). Narrow-grading (11.7 per
cent) is, in contrast, the approach to which employers reportedly have less recourse.
Findings of the investigation also revealed that market rates (52.4) represent the second
factor employers consider to manage base pay progression after individual performance
(61.4). Indeed, although for senior management positions pay is nearly exclusively
determined by means of individual arrangements, the base pay of middle managers is
equally determined by means of individual agreements and broad-banding (27.1 per
cent in both cases). As the 2000’s IPD Study concluded, it can still be said that, at least
in the UK, “it seems that broad-banding is here to stay.”
Proceed with caution
Albeit broad-banding could reveal to be consistent with both organizational culture and
strategy, before introducing this type of scheme employers and reward managers should
invariably ensure that some additional activities have been properly and carefully
performed.
The introduction of broad-banded structures clearly has or may have a remarkable
impact over the overall reward management practices so that not only has it to be
consistent with these, but also with the reward management philosophy. It is hence of
paramount importance that broad-banding fits the overall reward management strategy
in order to eventually address or readdress total reward strategy and make the
necessary arrangements accordingly. All of this entails that the introduction of such an
approach has to be associated and amalgamated with the overall employer reward offer.
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Contingent pay schemes and benefits programmes need to be reassessed in order to
ensure not only continuity and consistency of all of the available forms of reward, but
also that synergy, which should be ensured by bundling, is attained too.
As usual, but even more in this case, the role of line managers for the successful
execution of this approach is of paramount importance. As seen earlier, this scheme
attributes to managers an even more important role in reward management and a
higher degree of autonomy in pay determination, so that these need to be made aware
of and prepared for this. Appropriate and specific training also needs to be provided to
managers in order to enable them to more appropriately manage individuals’
development and growth (WorldatWork, 2004).
Apply broad-banding globally
Essentially, the main reasons for employers deciding to have recourse to broad-banding
are to downsize organizations, flatten hierarchies and attain higher levels of productivity
and performance. These reasons, especially when the economic and financial scenery
appears to be rather grim, tend to be globally common, so that these may essentially be
behind the decision made by a European, an American and an Asian employer as well.
However, as averred and contended in many occasions earlier, the one-size-fits-all is
totally unlikely to succeed. Yet, since the introduction and execution of a broad-banded
pay structure has to be matched with an organization’s culture, differences cannot be
considered only between continents, countries or regions; indeed, even two different
organizations operating in the same area could make different, but consistent, decisions
as regards broad-banding their pay structure. As properly suggested by WorldatWork
(2004) the best approach to broad-banding is hence “to think globally, but act locally.”
Companies operating in different countries need to consider local values, beliefs and
cultures. Needless to say, duly considering local regulation is mandatory and of
paramount importance as well. Albeit broad-banding can also be extended to a number
of business units, factories or plants across different countries, the approach will need to
be tailored and adapted to the circumstances. This diversified approach can even be
applied within a single organization, where an employer might find it useful to broad-
band pay only for a category or grouping of employees in order to readdress existing
specific salary issues or simpler because broad-banding enables employers to better
manage pay of a specific group of employees or function by reason of its specific
peculiarities.
Compa-ratio and salary range penetration
One of the hardest tasks managers have to carry out is that to make decisions about
individuals pay increases. Normally, the broader the pay ranges, the harder to take
control of pay progression. The identification of reference points in narrow-graded
structures and the introduction of control systems such as threshold, reference point and
segment controls in broad-graded structures aim at enabling managers establishing a
firm and clear frame of reference within grades in order to keep under control individuals’
pay progression. However, this objective is much more difficult to attain when pay
progression have to be managed under a broad-banded pay system.
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The tools most widely used to control pay progression are compa-ratio and salary range
penetration. More in particular, considering that a compa-ratio can be expressed when a
grade mid-point has been identified, this could more widely be used when narrow-
graded and broad-graded structures are in place, whereas the salary range penetration
may reveal to be more useful and effective in those cases in which base pay is managed
by means of broad-banded structures.
Compa-ratio
This approach is essentially based on the idea that pay comparisons can be made using
expressly identified ratios. These ratios can be calculated after having identified a
common reference point within each grade of a pay structure. The reference point used
to calculate compa-ratios is the grade mid-point. Salaries of different individuals will be
thus compared on the basis of the position these have within the grade range vis-à-vis
the mid-point. A compa-ratio provides as such indication about the pay of an individual
with reference to a grade mid-point salary level or, as suggested by Armstrong (2010), it
expresses an individual pay as a percentage of a range mid-point. Whether the compa-
ratio of a salary is hence 100 per cent, or 1.0, it means that the salary in question
coincides with the mid-point.
The formula for calculating a compa-ratio is very simple; it suffices to divide a given
salary by the mid-point salary. Considering £35,000 as the mid-point salary (grade
range: £30,000 - £40,000) and £33,000 the salary under investigation, the compa-ratio
will be 33,000 : 35000 = 0.942857, this entails that this salary is 94 per cent of the mid-
point salary.
Helping to calculate, rank and monitor employees’ salaries, compa-ratios can enable
managers to gain a clear insight of staff pay levels and immediately identify individuals
whose salaries are sensibly higher and lower than the mid-point salary and to what
degree.
Considering that mid-point salaries are in general aligned to the external market data,
compa-ratio can also reveal to be an important indicator and predictor of employees
turnover. Whether an individual compa-ratio remains for a relatively long length of time
sensibly below the mid-point salary, it is likely that the person in question may decide to
leave the concern. By contrast, a compa-ratio remarkably higher than the mid-point
salary should be properly investigated, the risk being that the organization is paying
fairly more than it should and that a salary drift is actually the cause for that
inappropriate salary level. In the event personnel data should reveal that turnover is
very low despite there are many individuals with a remarkably low compa-ratio in the
organization or that turnover is relatively high albeit many people have a sensibly high
compa-ratio, pay market data should carefully be checked in that it is very likely that
these have become obsolete and as such no longer reliable.
Compa-ratio can also effectively be used to determine salary levels of new entrants in a
role vis-à-vis the mid-level and hence the market rate salary level. Whether a senior
employee on a given role might be paid for instance 115 per cent to 120 per cent of the
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mid-point, hence 15 per cent to 20 per cent higher than the market rate for a fully
competent person in that role, a newcomer could be paid at, for instance, 80 to 90 per
cent of the mid-point grade salary level.
In general, employers should also identify a period of time within which an individual
should become fully competent in his/her role and reach hence the mid-point salary. The
fact individuals receive a salary with a fairly low compa-ratio or a salary whose compa-
ratio remains below 1.0 or 100 per cent for an exceedingly long period of time might
account for these never reaching the level of salary currently received by the other more
experienced colleagues. Whether labour market rates should increase annually,
employers might find it particularly difficult to grant employees, whose salaries have
remained unchanged for many years, salary increases which might have an impact over
their compa-ratio. An increase of, for instance, 4 per cent in the market if replicated in
an individual salary will suffice only to keep the individual compa-ratio unchanged, in
order to increase the individual compa-ratio employers should hence offer a salary
increase comparatively higher to that offered in the external market. Clearly, the longer
the period an employee’s pay will be kept unchanged the more costly would reveal
increasing the percentage value of his/her compa-ratio.
All-in-all, it clearly appears that the calculation of compa-ratios can definitely reveal to
be very important for employers for checking consistency between external labour
market data and internal base pay data, as well as to predict staff turnover. Reward
managers and professionals should annually calculate and monitor employees’ compa-
ratios data and provide managers with the relevant information enabling them to
effectively administer their employees’ base salaries and careers.
Salary range penetration
Salary range penetration is usually used in combination with compa-ratios. Indeed, for
its peculiarities and characteristics, this approach is much more suitable and can reveal
to be particularly effective as a base pay management tool when a broad-banded pay
structure is in place.
Differently from compa-ratio, range penetration does not explore the correlation
between a given salary and a salary taken as a reference p