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Companies are always challenged with improving operations so that they remain competitive. A pay system should support the change that the organization is trying to make. So when considering which compensation program to use, it is important to assess the organization in terms of where it is and where it needs to go.
Broadbanding is a salary structure that consolidates many pay grades into a few broad bands. Career banding is also a salary structure that reduces the number of pay grades. It is competency based. In this program, compensation is dependent upon the knowledge, skills, and abilities of the employees. It has three competency levels with each given a pay range based on market salary rates (Riccucci, 2012, pp. 122-123). As employees acquire more skills, they advance to a band with higher pay. They have similar advantages. Both broadbanding and career bands allow flexibility for organizations which is critical for success. They are implemented to simplify a complex organization as they group many jobs together and make compensation more flexible and responsive. Both are applauded for the relative ease with which employees can be rewarded for performance with money without being reclassified. As employees broaden their skillset, they become more valuable to the company and can be awarded accordingly. They both result in a more skilled workforce which increases productivity because they make it advantageous for employees to learn. Broadbanding system may be easier to manage when an organization is in flux. The broad grades allow employees to perform lesser duties without loss of pay (Riccucci, 2012, p. 123). Because it pays market rate, the career bands system will keep the company competitive as it can attract and keep the best employees.
There are disadvantages as well. Maintaining pay equity can be difficult as employees doing the same work can be compensated differently because of the broad bands. Broadbanding typically has a 100 percent difference between its minimum and maximum pay. Pay equity can also be difficult with career bands as advancement is dependent upon manager’s discretion. People with similar skills can be compensated differently if the managers have different opinions as to whether are possessed and to what degree. Both also reduce promotion opportunities because there are fewer salary ranges and fewer categories. Promotions are key to people’s perceptions of their career advancement. Lack of promotions can affect employee morale.
With broadbanding, it is possible that supervisors will end up in the same band as their subordinates.
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"A Company's Pay System Must Help to Improve Competitivenes." 123HelpMe.com. 16 Jul 2019
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Both are intended to reduce administrative costs. However, the implementation of a new system will cost at first even if it evens out in the long run. Career banding, in particular, can be costly because the established pay bands equal market rate, which can increase pay and production costs. The other and most important difficulty is employee reaction. Employees are usually resistant to change especially if it affects their standing or salary due to a lack of trust. For a compensation system to be effective or motivating, employees must trust that the organization will deliver (361). It is difficult to trust in the midst of instability.