Broadbanding is the combination of a number of related job classifications into a single pay band, for which a broad range of compensation levels is allowed. This approach gives management a wider pay range within which to pay employees.
One reason why an employer might resort to paying whatever rate seems necessary is that management feels constrained by the use of a job ranking system that only allows a small range of pay for a certain job position. When an employee has clearly superior skills, management may want to pay a considerably larger amount than is indicated by the market rate for that person’s job description.
As an example of broadbanding, the engineering department might combine all job classifications for engineers into a single “engineering” band, for which the allowed compensation ranges from the pay level of the least-skilled job to that of the highest-skilled job.
The benefit of broadbanding is a much greater amount of latitude in setting compensation levels, particularly for those people whose skill levels are higher than the jobs they currently occupy. However, given this tendency, the total compensation expense will likely increase when broadbanding is employed. Also, the practice can result in wide variations in pay levels amongst the employees within a designated band, which can cause resentment.