One decision every compensation manager must make is whether to have narrow or broad salary bands.
In other words do we have a lot of job grades which allows us to make fine distinctions, or do we go with broad bands that may be easier to administer? Each position has its advocates.
People sometimes get passionate about the merits of broad banding or narrow banding and lose sight of the big picture, which is, that neither approach eliminates the fundamental dilemmas of compensation management.
Shifting between broad and narrow banding changes appearances, but as my old boss used to say, “In HR you cannot solve problems, you can only move them around.”
Mapping the Pros and Cons of narrow and broad salary bands
The table below highlights some of the pros and cons of narrow and broad salary bands.
The inevitable catch 22
Going from narrow to broad salary bands eliminates a number of vexing problems — but introduces new ones. Returning to narrow bands removes the new problems at the cost of reintroducing the old ones. The size of the bands does not matter as much as many people seem to think.
You should choose what feels comfortable for your organization, expect problems to arise, and learn how to manage them. What matters most is not the size of the bands you choose, it is having good processes and technology in place for managing the problems.
Managing the problems
If you have narrow ranges you need:
- A decision-making process that can make fast judgements about small differences. If you know a job should be put in either grade 4 or 5 (but definitely not 3 or 6) then you simply have to make a decision, not split hairs.
- If you do a lot of lateral transfers, then have processes so that someone can be shifted to a lower grade job without losing status or opportunity for pay increases.
- A willingness to ‘hold the line’ on pay increases when someone hits the top of their band.
- Where it makes sense, mechanisms like job ladders, that make it relatively easy for people to move up between grades.
If you have broad bands you need:
- Ways to recognize status differences and create “promotions” even when someone is not changing pay grades.
- Strict control of salary increments, so that everyone does not end up at the top of a broad band.
- A strong and credible process for making decisions about what to do when a job falls near the boundary of two grades.
Narrow job grades can work, so can broad salary bands. They each create problems. Consider what is most comfortable for your organization and then get ready to deal with the inevitable pressures. In the end HR’s ability to make credible decisions under pressure is what will make the difference between successful and unsuccessful pay structures.
For more total rewards insights and strategies, read: Employee benefits work when they have real intent and purpose.