Aug 17, 2008

Broad banding and Skill based Pay

Reader Poonam asks:

Dear Gautam,
I am a frequent visitor of your blog and enjoy reading the articles posted on it. I wanted your reflections on the "Difference between Broad Banding and Skill Based Pay" and how can this difference between the two be understood in the context of a start up organisation with an expanding employee strength.
Looking forward to your views on the topic.
I'm really not a compensation and pay expert what I do know is that broadbanding  refers to clubbing various pay levels into a smaller number of broad pay bands. According to this site:

Broadbanding is still around, although it is getting far less press than it did in the nineties. Like all tools, it's great for achieving specific outcomes, but can cause great damage when misapplied.


Broadbanding (or 'broad grades') is the consolidation of traditional pay structures, consisting of many, narrow pay ranges into a few, wider ranges or bands.


Broadbanding is intended to support agile, flatter, faster-paced, de-bureaucratized organizational cultures.


Broadbands are imperative for companies with competency-based pay programs, but are also used in companies with longevity- and performance-based pay programs. Companies employ broad banding to:
  • facilitate change
  • avoid multiple pay structures
  • drive pay decision-making downward (empowering managers)
  • provide greater latitude in management pay decisions
  • promote lateral moves or in-grade promotions
  • reduce use of promotions to increase pay
  • promote career development / learning
  • reduce the need for precise job analysis/evaluation
  • promote fewer, broadly-defined jobs
  • focus on the person instead of the job
  • facilitate quick responses to changing goals and circumstances
Any one has experience working in a broad band pay environment? How does that compare with a traditional system? My guess is that people in such an organization must get used to a new culture.

While Skill based pay according to this website is as follows. Prima facie it seems like a good fit with broadbanding pay. Any thoughts?

The payment of additional salary or hourly pay to employees for learning, and being able to perform, additional tasks or skills. It is sometimes expanded to compensate employees for demonstrating relevant competencies.


  1. Wow, Gautam, I'm impressed. For a guy who doesn't do comp you did a very nice job answering the question.'

    Since my work is in leadership and organization development I'd be hesitant to try and add anything...but maybe you have a new specialty on the horizon:-)

    Keep up the fine work here. . .

  2. The difference I see is skill based pay has some definition of what to pay for what skill, where as in broadband the award amounts within the band are primarily driven by the manager discretion.

  3. Thank you for replying to my question. After going through your views and studying the links provided by you, I have gathered that the base pay reflects the skills inherent in the employee and the variable pay is performance based so in this context broadbanding implies that as there will be a fewer number of grades and similar jobs will be clubbed together it implies that to progress within the grade the employee will have to enhance his skill sets and to move from one grade to another the employee will have to excel on the performance front.

    Is this conclusion correct?

  4. This post is really helpful for all those who would like to become or are in the process of competency based organization !!