UK: The pay band wagon.

UK: The pay band wagon. - For all its merits, if companies introduce broadbanding for the wrong functions or without explaining why, trouble lies ahead.

by Arabella McIntyre Brown.
Last Updated: 31 Aug 2010

For all its merits, if companies introduce broadbanding for the wrong functions or without explaining why, trouble lies ahead.

Over the past decade, companies have been in a state of flux as they downsized, de-layered and re-engineered. Employers want their people to be multi-skilled, take charge of their own development, accept short contracts and, above all, be flexible. In the old-style pyramid-shaped organisation with its numerous grades and narrow salary ranges, people would normally expect to move up steadily from grade to grade and pay rise to pay rise. But now that the pyramid has been squashed, the prospects for promotion have often disappeared too, and companies have had to develop new pay systems to cope.

One solution is broadbanding, a system developed in the US to simplify highly fragmented and hide-bound public sector organisations. Essentially broadbanding collapses a large number of hierarchical tiers or grades into a few bands with often very wide salary ranges. But broadbanding is not just about salary levels; it encompasses job evaluation, training and development, and almost always involves a radical rethink of how roles are described and what an individual employee can potentially offer the organisation. The aim is to encourage teamworking and lateral career development over formal job grading. An essential feature of broadbanding is that pay rises are not dependent on promotion to a higher band - individuals can progress within their band, with pay rises for expanded roles or for new competencies (not to be confused with qualifications).

In practice this means devolving responsibility for pay decisions to the line managers, who are supposedly better placed to monitor and evaluate their people than the human resources department. The danger, as Oonagh Ryden, pay policy adviser at the Institute of Personnel and Development (IPD), warns, is that many line managers will be managing their own pay budgets for the first time and, without proper training and support, can go badly adrift. Along with a greater emphasis on individual performance, broadbanding also makes more use of market data to track rates of pay outside the organisation and then uses this information to position individuals within a band. 'Success here,' says Ryden, 'will depend upon the quality of external market data.'

There has been some confusion over the use of the terms 'paybanding' and 'broadbanding'. The latter always refers to the wider bands described above, the former tends to be used rather loosely - it can mean broadbanding but it may also refer to the salary ranges that accrue to individual jobs within a broad band. Thus, while a salesman and an accountant may be within the same broad band, their salaries could also be determined by more specific pay bands which reflect the going rate in the market for their jobs.

When an organisation opts for broadbanding, a single wide band usually replaces the salary range formerly covered by several grades. The Inland Revenue had around 120 different grades; its new structure has just five broad bands. Band E (administrative staff), for example, has a salary range of £7,150-£14,550, while band B (tax inspectors) extends from £13,250 to £46,350 - the wide range here taking in graduate trainees on the fast track to a senior role. Bass Brewers' broadbanding structure applies to about 3,000 staff on salaries ranging from £7,000 to £60,000. Thirteen grades were collapsed to the following five broad bands: support 2 (£7,000-£12,500) through support 1 (£10,000-£15,500), professional/technical (£13,000-£25,000), management (£20,000-£38,000) and senior management (£30,000-£60,000).

It should be stressed that there are no hard and fast rules to broadbanding - it is a concept rather than a rubric and may be applied as a manager sees fit.

Citibank has introduced it for everyone except senior managers; conversely BP uses it only for its top 100 managers; at Glaxo Wellcome and Bass, broadbanding applies top to bottom.

The key to effective installation of broadbanding is proper communication - which means comprehensive consultation with employees, and making the mechanics of the new system very clear. The pitfalls of failing to plan the new structure properly, or of failing to resource and manage it properly once in place, can be escalating payroll costs, higher staff turnover, inequities and discrimination. Having such wide salary ranges within each broad band (£15,000-£50,000 is by no means exceptional) can give employees unrealistic expectations of how much they can earn. Expectations need to be managed very carefully to avoid disappointing staff.

Breaking down hierarchies is all very well but there needs to be some way of recognising people's contribution and giving them a sense of their place in the order of things. Shirley Pointer is group personnel director for Abbey National, which is in the process of rolling out broadbanding after two successful pilots. 'One of our key concerns was how people would react to the loss of grades, but there was less resistance than we expected,' she says. 'We used to have customer service assistants, senior customer service assistants, customer service team leaders, and so on. Now they are all customer service advisers, albeit with different roles and salaries.'

The broad bands themselves can be defined by role specifications or levels of competency, instead of the traditional grade definitions (usually denoted by numbers or letters) which use scores derived from qualifications, experience, length of service and degree of responsibility. The traditional ladder of seniority may no longer be relevant to a re-engineered organisation with multi-skilled, cross-discipline teams. Supervisors and managers are not necessarily worth more to the company than technical specialists or professionals, and broadbanding can redress inequities here.The old hierarchy at Bass, for instance, was structured around 'vertical function chimneys', with individuals rising through, say, the marketing department or the distribution department. The new structure uses cross-functional project teams; one of the new core processes is logistics, which brings together production and distribution, and where technical expertise is now judged alongside managerial attitudes and other behaviours.

Along with the change in band widths and the switch from grades to roles goes a radical shift in the way individuals are assessed. The old point-scoring, box-ticking job evaluation has gone in most broadbanding organisations, but new methods vary considerably. At Volkswagen UK, the principle is that 'people are paid for what they can influence'; at Glaxo Wellcome, 'progress will be based on the demonstration of competencies rather than as a result of time in the grade'. Which is all very well, but what exactly does that mean for employees? 'Competencies,' says Ryden at the IPD, 'is about what people do, how they behave when they are carrying out their roles well. People are fully competent when they use their knowledge, skills - and expertise - effectively and have the personal attributes required to achieve the results expected of them.' But she adds: 'The only behaviour that counts is that which delivers results. Competency is ultimately about performance.'

Bass has three tiers of competency - managerial, technical and core.

A core competency is 'a displayed behaviour or attitude identified as key to the success of the business and is shared by everyone at every level. It is a reflection of knowledge, skill and personal qualities.' The seven core competencies are putting the customer first, teamwork, dedication to quality, bias to action, commercial focus, fairness and decency, and communications; the four managerial competencies are problem-solving, focus on results, interpersonal skills, and managing people.

But, like all fashionable management tenets, the case for competencies can be overstated. 'Abbey National is still focused on rewarding contribution rather than competency,' says Pointer. 'If people increase their competency it must be in a way that can be applied to the company's benefit, or we can't reward them for it.' If a warehouse packer takes a course in public speaking, for instance, it may be commendable, but it is unlikely to be used for the employer's benefit - so how can a pay rise be justified?

Paradoxically,, one of the great risks of broadbanding is that it appears to restrict career opportunities for many employees. Ann Knell, manager of human capital services for consultants Arthur Andersen, makes the point that there are large numbers of people whose scope for advancement is limited. 'There is always a need for people to carry out basic jobs - whether they are clerical staff or middle managers. These jobs can only be done so well, and people doing them can get stuck at the bottom of the heap - or at the bottom of their pay band, which is not good for morale.

They can feel disillusioned and cheated of the chance to progress. Under the old grades, they might at least make it one or two steps up the ladder.'

This is perhaps why in a survey last year of 69 companies operating broadband pay systems, consultants Watson Wyatt found the thing that most companies would do differently was not to apply broadbanding to low-level manual or clerical jobs, 'where loss of promotion opportunities were most keenly felt'. Other changes would be to consult more with employees and managers, to spend more time communicating the goals of broadbanding rather than the actual mechanics of the process, and to take more advice from other organisations with broadbanding in place. The survey also provides a warning for those who think of broadbanding as a cost-cutting measure: 89% of organisations said the impact of broadbanding on their payroll was 'cost neutral'.

ROYAL AUTOMOBILE CLUB - RAC LOSES ITS STATUS-DRIVEN MENTALITY. Along with its chic new logo, the Royal Automobile Club (RAC) can also boast an up-to-the minute broadband pay structure. The change - which has affected over 700 managers was part of a wider review. Explains HR director, Diana Palmer: 'Effectively we had a very status-driven, hierarchical structure with a number of tiers that no longer fitted - we needed to make a quantum shift.'

So the RAC set up a working party with representatives from every part of the organisation - 'We were very open and spent a lot of time explaining what it meant to our staff,' says Palmer - and employed management consultants Hay as independent advisers. In 1995, the 11 old style grades were replaced by five broad bands, with far less focus on status. Under the new structure, says Palmer, 'you'd be very unlikely to report to someone in the same band - what was key was weeding out the false hierarchy.' With the flattened pyramid, there is now a much greater emphasis on cross-functionality and people are far more orientated towards roles, contributions and teamwork. 'Instead of perhaps 10 job titles where the essence was team leader, there is now just one title: team leader.'

Along with status, pay is the other key area of change: with traditional salary scales, explains Palmer, 'it can be very difficult to accomodate the high-flyers. We are very market conscious and track salaries around the median but we aren't constrained by artificial cut-offs.' The RAC's overall wages bill has remained about the same but, according to Palmer, 'we use the money better'. The initiative is ongoing - 'it has to be a living system,' she adds. Since its inception, the number of bands has fallen from five to four and the organisation is looking at extending it to all staff. And, although staff have now been won over by broadbanding, Palmer cautions: 'Managers tend to be very status-conscious. This is big cultural stuff - it takes time and you really have to stick with it.'.

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