BROADBANDING
US study reveals broadbanding may lead to escalating payroll costs
A study by researchers in the US has found that base salary and total cash compensation are "significantly higher" in organisations with broadbanding than those using traditional salary structures.
Pros . . .
The attractions of broadbanding may appear compelling: it can support changes in organisation structure, while enhancing flexibility in managing the reward system and adjusting pay to market rate variables.
. . . and cons
But critics of broadbanding have suggested that it may be more difficult to control progression through the band in the absence of tightly defined and controlled grades. Payroll costs may therefore increase unless tight budgetary control is exercised.
Paucity of data
However, no study has directly examined whether organisations using broadbanding pay higher salaries for equivalent employees than companies using traditional salary structures. To fill this information gap, US researchers Charles Fay of Rutgers University, Eric Schultz of Eastern Michigan University and Mercer Human Resource Consulting's Steven E Gross and David van De Voort set out to test whether, in fact, labour costs are comparable under these two different pay structure models.
Their study is based on an empirical analysis of two large salary surveys of information technology workers, provided by Mercer Human Resource Consulting and conducted in 2000 and 2001.
The results
What emerges very clearly from the data gathered by the researchers is that firms using broadbanding approaches pay more for equivalent labour than firms using traditional structures. All of which leads to one inescapable conclusion: "Organisations without the appropriate knowledge and processes should consider carefully whether a broadbanded structure is worth the extra cost it may entail".
Key quote
"Proponents of broadbanding usually note that under a broadbanded system, organisations must manage to the person and to the budget rather than to the midpoint. Managing to the person requires good knowledge of the market rates of jobs (i.e. what salary each incumbent could command in the market), the changing role of each incumbent (i.e. whether the incumbent is taking on additional responsibilities and tasks) and the current and potential performance of each incumbent. Managing to the budget requires tight budgetary controls on salaries. Both require a well-trained management cadre who are held individually responsible for knowing the current and potential contributions of their direct and indirect reports, and who are rewarded (or not) depending at least, in part, on how well they manage to the person and to the budget. Both also require the availability of market data and HR and compensation units that can provide the training, data and administrative support needed by the manager." -- "Broadbanding, pay ranges and labour costs", by Charles Fay, Eric Schultz, Steven E Gross and David van De Voort, WorldatWork Journal, second quarter 2004.
Want to know more?
Title: "Broadbanding, pay ranges and labor costs", by Charles Fay, Eric Schultz, Steven E Gross and David van De Voort, WorldatWork Journal, second quarter 2004.
Availability: To subscribe to the quarterly WorldatWork Journal contact WorldatWork, 14040 N. Northsight Blvd, Scottsdale, Arizona, USA AZ 85260, tel: 001 480 951 9191 or email: worldatworkjournal@worldatwork.org
WorldatWork, formerly the American Compensation Association, is one of the HR professions oldest and most distinguished bodies. Founded in 1955, it is "dedicated to knowledge leadership in compensation, benefits and total rewards". WorldatWork is a not-for-profit association with a membership of more than 25,000 human resource professionals, consultants, educators and others, primarily in the United States and Canada.
For further details about WorldatWork visit www.worldatwork.org
Posted 16 July 2004