Broad banding or narrow banding ? – part II

Broad banding or narrow banding (pt 2)

Yesterday I covered broad banding for one of my readers. He wanted some feedback on whether to decide for narrow or broad banding when redesigning their pay structures.

As you have read, unless in some specific situations, I am not a big fan of pure broad banding.

But that does not necessarily mean that I believe that narrow banding is the solution in all cases either.

Narrow banding is derived, most often, from traditional job grading based on assigning points for each factor in the job evaluation method used by the company. The jobs are grouped together in relatively small clusters of similar levels of responsibility.

The progression between each grade is usually linked to a 15-20% increase in responsibility (the so-called “step” between midpoints). Given how tight the job levels are, the salary ranges are normally also quite narrow as the market data underpinning them will be, logically, little dispersed. Hence the name “narrow bands”.

Narrow banding has multiple advantages :

  • It gives a clear vision to employees of what the next step in job evolution is
  • Given the narrow salary ranges, there is in-built cost control in the approach because the salary can’t be higher than the maximum of the range, and the maximum is usually only 20% or 25% higher than the midpoint in traditional banding.
  • In view of the high number of grades in the organisation, there is opportunity for regular, relatively frequent promotions for employees (of course, not mandatory as promotions should be based on performance and potential, but at least the opportunity is more likely than in broad banding, where the focus is more on lateral career moves).

In fact, the advantages are so important that the majority of organisations use this system.

I like this approach when a company has a very classic pyramidal structure with lots of employees in junior levels, especially if they are young and need encouragement and some tangible, external signs of their progress in the structure.

Now, there are a number of cases when narrow banding may not be the solution most adapted to the structure of the organisation:

  • In industries like investment banking, professional service firms (lawyers, consultants etc), the organisation recognises tenure every year in the job provided performance is at the expected levels, and promotions to the next level happen less frequently. So for instance, Analyst I to Analyst II to Analyst III (always called “analyst” on the business card, as the overall job responsibilities don’t progress much), then, finally, a move to Senior Analyst I, then II, then III and so on.
  • When jobs progress to the managerial level, responsibilities become wider, and the individual experience, past and profile of the job holder takemore importance. Jobs of the same level can have more difference in terms of responsibilities – and that is not easy to recognise in a traditional, narrow banding approach.

So what do you do ?

I believe in a flexible approach to grading and salary structures. For instance, at one of my previous organisations, we implemented a hybrid approach.

We had traditional bands for the more junior levels of the company. And then at the managerial level we implemented grades that were wider, though not broad banding : we clubbed together 2 traditional grades to create one managerial grade. Obviously, the salary bands associated with these grades were also wider than traditional salary ranges.

These “fat grades” allow for more individualised pay at a level where individual performance and profile make more of a difference to the organisation than in junior grades. They also allow for salary progression over the years even if a manager does not get a promotion to the next level up but rather, makes some lateral moves in the organisation.

In short, my answer to the question from my reader is : I think there is no “one size fits all” approach which should apply by default to all organisations. What matters is to understand the organisation chart, how you want to manage careers, development and progression in the company, and then design a system that suits your culture.

What do you think ? Did you ever change the grading structure in your organisation, and what were the drivers for the change ?


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