ACA News, February 1994, Volume 37, Number 2
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Broadbanding gaining in popularity
But panel of experts cautions it’s not right for every company
By Michael A. Bennett
CHICAGO -- Broadbanding can make organizations more flexible and better able to
adapt to fast-changing markets, but it won’t work everywhere, according to
representatives of Philip Morris Management Corp., General Electric Co. and
Motorola, who were featured at a recent ACA workshop on the topic.
Organizations that thrive on the structure, rules and certainty provided by traditional
pay systems may find it difficult to switch to broadbanding, said Susan M. Dempsey,
a Compensation Analyst at Philip Morris, which studied broadbanding 1 1/2 years ago
but decided not to implement it.
However, organizations that accept the "ambiguity" of broadbanding can give their
work forces the creative freedom and energy needed to meet competitive challenges,
said Dan Gilbert, Staff Consultant, Compensation, at GE, which has implemented
broadbanding in nine of its 12 businesses during the past five years.
"Pay systems really do have to be customized," said workshop moderator Maggi Coil,
CCP, Compensation Director, Motorola, who described herself as "position-neutral"
with respect to broadbanding. "If you have managers who really do need that structure,
who need rules and lines that they can or cannot cross, it’s best not to implement
broadbanding."
Comparing Approaches
The Chicago workshop was designed primarily to compare and contrast approaches to
broadbanding used by GE and Philip Morris, which have similar views of the
practice’s advantages but have drawn different conclusions about its feasibility.
Motorola has implemented broadbanding in one location, and three of its businesses
are looking at broadbanding as an alternative to their traditional system.
Despite a relative lack of knowledge about best practices and likely effectiveness,
broadbanding has gained popularity among organizations interested in developing
flatter structures with emphasis on lateral career development in lieu of traditional
promotions. (See pdf file.) Under a basic broadbanding system, many salary grades
are compressed into fewer wide pay "bands." GE, acknowledged as a broadbanding
pioneer, has band widths that average approximately 130 percent, according to
Gilbert.
On the other extreme, Philip Morris uses 17 grades for 365 executives representing
six levels of reporting relationships, Dempsey said. The organization soon may band
its executives, and certain business units eventually may band exempt employees
down to the "Director" level, she said.
The rest of the organization will not follow suit right away. Before Philip Morris
implements broadbanding on a large scale, Dempsey said, the following situations
should exist:
The organization should face a significant precipitous event.
A sound performance-management system should be in place.
The organization should be "ready."
Top management should be committed to the system.
Line managers should be empowered to make compensation decisions without the
benefit of quartiles and midpoints.
The organization also will need to determine that the current grading system is not
effective, that the cost of extensive organizational analysis is warranted and that
broadbanding is the best alternative, Dempsey said.
"When we looked at broadbanding, we decided it wasn’t right for the organization at
the time," she said. "However, we will continue to look at it."
Broadbanding has been an important component of CEO John F. Welch Jr.’s drive to
make GE a "boundary-less organization," Gilbert said. By doing away with the
traditional structure, the organization can help employees move faster into the
positions where they are needed, he said.
Under the traditional pay structure, salary grades communicated employees’ relative
status in the organization, and people sometimes rejected moves that would be good
for themselves and for GE because the position level of the proposed role sent the
wrong message, Gilbert said.
"The old system slowed the organization down and, at times, inhibited businesses
from getting the best people for some jobs," he said. "At GE Plastics, where our
career bands got their start, managers felt the situation was crazy. The traditional
approach to compensation was slowing them down, and they couldn’t afford the loss
in productivity."
One consequence of broadbanding at GE has been to support a shift in employees’
perspectives from internal equity to external competitiveness. Gilbert called this shift
necessary in light of GE’s intensely competitive global marketplace.
"You can’t go out into the marketplace, be quicker, beat the competition, and spend a
lot of time focused inside the organization," he said.
Reflecting Values
All three presenters described broadbanding as a practice that closely reflects an
organization’s culture and values. Employees who are used to a highly structured
culture may resist the loss of promotions, assigned parking spaces and other
perquisites associated with traditional salary grades, but resistance can be reduced by
involving employees in the design and implementation process, Coil said.
"I don’t care what kind of program you want to put in place," she said. "If you don’t
involve the people who are going to have to live with it and pass ownership on to
them, I’m not sure it will ever work."
Implementation of broadbanding can cause anxiety for some employees because
bands remove the compensation structure that supports narrowly defined jobs. As a
result of this reduced structure, bands promote ongoing skill development and
risk-taking, Coil and Gilbert said.
"Historically, part of the notion of career development has been that employees
expected their companies to provide them with a ladder," Coil said. "Under
broadbanding, what we’re telling people is, ‘We don’t own your career, you do.’"
Gilbert said, "It isn’t GE’s job to create promotional opportunities for me. It is GE’s
job to create shareholder value by driving the value of our stock. GE needs people like
me to get the job done. Implementing broadbanding represents a message to me and
other employees to get involved, take risks and make something happen."
While Philip Morris chose not to implement broadbanding, it continues to study the
practice, Dempsey said. In the meantime, the organization is comfortable with a more
hierarchical structure.
"Several years ago, we spent a lot of time and money converting all of our operating
units to the Hay (job-evaluation) system," Dempsey said. "Even though our
organization is becoming flatter and more fluid, to modify the structure without a
sound rationale might be seen by our employees as a take-away."
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