Broadbanding, pay ranges and labor costs: An empirical test

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Organizations increasingly have chosen to replace pay ranges with broadbands. Broadbands collapse multiple ranges into a single large band with one minimum and one maximum. A broadband can be regarded as an exceptionally large range that encompasses many different jobs of varying worth to the organization. It is not uncommon for as many as 600 jobs to be grouped into as few as five broadbands. A broadbanded pay structure varies in a number of ways from a traditional structure. Most important, it has no midpoint. Supporters of broadbands suggest several advantages over traditional pay ranges. First, broadbands offer employers wide latitude in making compensation decisions because the band encompasses so many jobs of differing values. Under broadbands, managers retain greater power in making compensation choices. This enhanced freedom permits managers to shift the focus from paying for the job to paying for the person. Broadbands permit organizations additional flexibility in rewarding individual employees. A major implication for compensation is that pay decisions focus on the knowledge, skills and abilities of workers rather than what other organizations pay for the same job.

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