The term "broadbanding" refers to the melding of job clusters or tiers of positions into relatively wide bands of pay ranges for the express purpose of gaining flexibility in managing career growth and administering base pay. In effect the bands are implemented as an alternative to traditional pay grade structures.
Banding collapses a number of pay ranges in a traditional structure into a few broad bands, each spanning the pay opportunity formerly covered by several separate pay ranges. Companies adopting this approach generally have reduced the number of pay ranges by one half to two thirds.
In many organizations, employees are facing fewer advancement opportunities. This is due to a number of factors, such as the wave of baby boomers bottlenecked in middle- management jobs. Also, as organizations become leaner and flatter, many promotional opportunities have disappeared as a result of mergers, restructuring and downsizing. Broadbands help reset employee expectations and create realistic career aspirations by redefining promotional opportunities.
With fewer bands, employees recognize that promotions (as only defined by a change to higher grade level) will occur less frequently than before. Also, since the broadbands are typically further apart than traditional ranges, employees recognize that they must assume significantly greater job responsibilities to warrant placement in a higher band.
Traditional ranges may inhibit skill acquisition and cross training since jobs are narrowly defined and employees have come to expect a higher pay grade (i.e., promotion) for assuming new or different duties and responsibilities. Employees may be reluctant to acquire new skills or consider a new job if the change does not offer a promotion to a higher grade and range. By removing the numerous and visible classifications among jobs, broadbanding systems encourage employees to evaluate skill acquisition and cross-training opportunities in terms of their potential for professional development and personal growth--rather than simply trying to move get me into a higher grade.

Traditional pay structures link an individual's pay through such processes as job evaluation, market pricing and structure design. This linkage implicitly assumes that the set of responsibilities and specifications for a job is relatively stable and that there is a "fit" between the employee and the job. However, most jobs are dynamic, and it is not unusual to find that employees in the same job possess different skills and qualifications.
Traditional systems overlook the influence an individual has over the content of his or her job and thus mismatches can and do occur. A banding system provides a wider spread of pay opportunity in which to recognize and reward different levels of individual contribution. There is room for employees to enhance or enlarge their jobs without bumping into the grade range maximum. Broadbands enable companies to base pay decisions on the person performing the job instead of on the job itself.
The temptation by managers to request the reevaluation of jobs, based on minor changes in job responsibility, has increased in recent years due to relatively "tight" merit increase budgets. Compensation staff and other managers are seeking to reduce the time required to analyze such minor job changes and to focus instead on jobs that are undergoing significant redesign as might occur in an organizational restructuring.
In a broadbanding system, jobs still need to be classified. But with fewer groupings, the task of evaluating jobs becomes easier. Companies may not need complex job evaluation systems such as point-factor plans to measure and value their jobs. Instead, they may use a combination of ranking-to-market and whole job slotting to complete this task. Of course, companies using these methods should not stop documenting the content of jobs, as job descriptions remain useful and valuable management tools.
There are some aspects of broadbanding that potentially are problematic. First, traditional pay grades form clear and distinct boundaries within organizations. These boundaries often delineate eligibility for management incentives, perquisites or other similar rewards, and there may be resistance to a new set of rules.
Broadbands will also send different messages to employees with regard to job values. Employees formerly in higher grade levels may think broadbanding has devalued their jobs by placing them into a group with formerly lower level employees. Employees formerly in lower grade levels may mistakenly anticipate a windfall pay increase because of the wider range for the assigned band and the fact that they share the band with previously higher graded employees or with their immediate supervisor.
Also, under a traditional structure, narrow range spreads serve as an automatic cost-control mechanism for base pay. Employers need to be aware that with broadbanding there is the potential for all employees to float to the maximum, which for many jobs in the band would be much higher than market value. As such, employers adopting broadbanding need to develop other cost-control and total payroll planning strategies.
Competitive pay analyses present a special difficulty under broadbanding. The use of market pay data increases, and there is a greater need for market comparisons and the ability of non-HR managers to use and interpret market data.
The single biggest issue related to broadbanding is the loss of the pay range midpoint as a barometer of external competitiveness and as a control point for salary planning.
As an alternative to midpoints, some companies establish specific zones or control points within a band. These reference points, sometimes called "targets," frequently become the primary if not sole guidance for managers making pay decisions. For example, presume there is a salary band from $20,000 to $42,000. There could be two target jobs within this salary band: Target Job A with a minimum target of $31,500, a maximum target of $38,500 and an external value of $35,000; and Target Job B with a minimum target of $22,500, a maximum target of $27,500 and an external value of $25,000. Unlike traditional ranges, it is possible for employees in Job A or B to be compensated outside of these targets without the need for special approvals or procedures. The targets are intended as guides, not mandates, for managers making pay decisions.
For most companies, broadbanding represents an extraordinary cultural change. They introduce broadbands because they believe bands make better business sense.