Broadbanding

What broadbanding is

Broadbanding (النطاقات الواسعة للأجور), also written broad banding, is a way of designing a pay scale in which a large number of narrow grades is replaced by a small number of wide bands. The levels become fewer, and the distance between the bottom and the top of each level grows.

Both changes have to happen together. Cutting the number of grades alone produces a shorter table, not broad bands. Widening the grades alone while keeping their number produces a table in which grades overlap for no reason. The term describes the result of the two changes combined: an employee spends years inside one band, and during those years their pay moves while their place in the table stays where it is.

Broadbanding changes two numbers, not one

A pay table is described by two figures: how many levels it has, and how wide each level is. Width is the difference between the top and the bottom of a level divided by the bottom. A grade running from SAR 5,000 to SAR 7,000 therefore has a width of 2,000 divided by 5,000, or 40%. How that width is measured for a single range, and what it does to overlap between neighbouring grades, is the subject of range spread. Broadbanding is a decision about the whole table rather than about one range.

Take an existing table of 12 grades. Each grade has a width of 40%, and the midpoint of each grade is 10% above the midpoint of the grade below. Because every grade has the same width, each minimum is also 10% above the one before. Grade 1 runs from SAR 5,000 to SAR 7,000. Grade 3 has a minimum of 5,000 multiplied by 1.1 twice, which is SAR 6,050, and a maximum of 6,050 multiplied by 1.4, which is SAR 8,470.

Now merge every three grades into one band. The table becomes 4 bands instead of 12 grades. The first band runs from SAR 5,000 to SAR 8,470, and its width is 3,470 divided by 5,000, or 69.4% in place of 40%. That is the change in arithmetic form: the number of levels falls to a third, and the width of each level rises to about 1.74 times what it was.

These figures are an arithmetic example, chosen to show how the quantities move when grades are merged. They are not a recommendation, and they are not a standard taken from any source. We set no preferred number of bands and no preferred width for broadbanding.

Broadbanding cuts the number of moves before it touches pay

In the old table there are 11 moves between the first level and the last. In the new one there are 3. An employee who moved up one grade every two years now moves roughly once every six years, because each band holds three of the old grades. More of the increase they receive in those years comes from movement within the band than from moving between bands. How the number of grades in a scale changes the count of promotions an organisation records is examined under career path ratio.

This is where the gain and the loss sit together. The gain is that the organisation no longer needs a nominal promotion to justify an increase, because the band has room for the increase without a move. The loss is that the employee no longer receives a signal they used to recognise, the sense of having moved up. It was a signal that cost nothing, and the organisation benefited from it without realising.

So the first question to settle before approval is not how many bands to have. It is what will replace the move as a signal. Until that is answered, employees can see the wider bands as the end of progression rather than a reorganisation of it. We found no published measurement, for the Saudi market, of the effect of broadbanding on employee turnover or satisfaction on which to base a claim in either direction.

How broadbanding changes what the compa ratio says

An employee’s position within a level is measured by the compa ratio, which is pay divided by the midpoint of the range. In a grade 40% wide that figure carries a clear meaning, because the distance between the two limits is short to begin with.

When the band widens to about 70%, the limits move apart. Two employees in the same band can then be separated by a distance that, in the old table, lay between two grades. A low ratio may then describe a recent hire placed correctly, or a longer serving employee left behind their peers, and the ratio alone cannot tell the two apart.

One remedy is to divide each broad band internally into written zones: an entry zone, a middle zone and an upper zone, each with a description of what qualifies an employee for it. Without that division a broad band is only a wide space in which personal judgement moves with no reference point, which is the opposite of what internal pay equity is built on. One way of writing the rule for movement inside a band, a matrix that shares an increase budget by performance and by position within the range, is described under salary review.

How long it takes to cross a band under broadbanding

The width of a band is not a geometric description. It is a length of time that an employee spends in it. Someone who enters the first band at SAR 5,000, with a ceiling of SAR 8,470, has SAR 3,470 to travel before reaching the ceiling. Assume the organisation’s annual increase is 4% of current pay. The increase in the first year is SAR 200, in the second SAR 208 and in the third SAR 216.32. The distance cannot be covered by simple division, because each increase is calculated on a larger base than the one before.

At that rate pay is SAR 8,325.37 after 13 years, still below the ceiling, and SAR 8,658.38 after 14, above it. In the old table the same employee reached the ceiling of the first grade, SAR 7,000, in the ninth year, at SAR 7,116.56, and then moved into a grade that opened a new ceiling. Broadbanding has not raised this employee’s pay. What it has removed is the move that redefined their ceiling every few years. What happens to the gap between pay levels when one employee stops at a ceiling while others keep rising is covered under pay compression.

Two effects follow, and both should be calculated before approval. First, the number of employees reaching the top of their band will fall in the early years and then build up all at once after a decade. Second, a uniform annual increment becomes the main instrument of movement in a broad band, when it used to be one of two.

The cost of moving to broadbanding shows in the first year

Converting a table into bands moves the limits of the levels, and some employees end up below the minimum of the band they are placed in. Take an organisation of 60 employees in which 9 fall below the minimum of their band, with an average shortfall of SAR 400 a month each:

• The monthly cost: 9 multiplied by 400 is SAR 3,600.
• The annual cost: 3,600 multiplied by 12 is SAR 43,200.
• The cost is permanent, not a single payment, because the raise becomes part of pay and later increases are built on it.

If the organisation decides to close the shortfall over two years, half in each year, the cost in the first year is SAR 21,600. A similar amount remains for the second year, plus whatever the market has moved in the meantime. Pay below the minimum of its grade is known as green circled pay. The opposite case, pay above the maximum of the grade, is known as red circled pay.

The figure is calculated before the announcement, not after it. Announcing a new table and then postponing the correction for those who fall below it means that the first thing an employee learns about the bands is that they are outside them.

What broadbanding leaves in place

Widening the bands does not remove the need to establish the relative value of jobs. A band is a container for jobs that have been evaluated, and job evaluation is what decides which job enters which band. Job classification, one approach to job evaluation, defines the grades in writing first and then places each job in the grade whose description fits it. An organisation that widens its bands in order to escape evaluation has only widened the room for decisions that come with no reasons.

A band also says where a job sits vertically, but it says nothing about what kind of work the job is. That is the role of a job family. A single band can bring together jobs from families that are far apart, and this is intended rather than a defect, because what unites them is their value, not their content.

In what we have read of the Saudi Labor Law (نظام العمل), its Implementing Regulation (اللائحة التنفيذية) and the model work regulation (النموذج الموحّد), we found no provision setting the number of pay grades or their width. Where a particular pay element sits, within the basic wage (الأجر الأساسي) or the actual wage (الأجر الفعلي), is a question with its own sources, and the design of the bands does not decide it.

How broadbanding differs from a salary structure, grade placement and a pay rise

Each of these neighbours is separated from broadbanding by what it acts on.

• A salary structure is the name for the pay table whatever its shape, and broad bands are one of its shapes. Saying that an organisation has a salary structure says nothing about how many levels it has or how wide they are.
• Grade placement acts on people. It puts employees into levels once the levels have been drawn, whereas broadbanding is a decision about how the levels themselves are drawn. Placement recurs with every hire; broadbanding happens once and is reviewed years later.
• A pay rise acts on an individual’s pay, and widening a band raises nobody’s pay. It raises the maximum of the band. An employee who sees a higher maximum in the new table and takes it as an entitlement has read the table as a promise, and a pay table is not a promise.

Where broadbanding does not fit

• An organisation with few employees. One with 20 employees may have no need to reduce its levels if too many grades is not its problem. Broadbanding is a response to a table that has swollen, and where there is no swelling there is nothing for it to address.
• Where the reason for movement within a band is not written down. A wide space with no written rule is run on judgement, and undocumented judgement produces differences that nobody can explain two years later.
• Where managers change from year to year. Movement within a band rests on a judgement of the employee built up over time. A new manager each year starts from a blank sheet, and the wide space becomes a series of disconnected decisions.
• Where promotion was the only tool for motivating employees. Removing eight of eleven moves in an organisation that has no tool other than the move takes that tool away; it does not simplify the table.

Before a broadbanding table is approved

Broadbanding buys flexibility in pricing a single job, and it pays for that flexibility with clarity about progression. The trade is acceptable in an organisation where roles change faster than its pay tables are reviewed. It is not acceptable in an organisation where employees measure their progress by the name of their grade.

The practical test is a single question asked before the decision. If a manager in the organisation were asked why one member of their team received an increase and a colleague in the same band did not, would they have a written answer that existed before the question was asked? If the answer is no, the problem is not the number of grades, and widening them will not solve it.

This is an explanation of the concept, not legal advice.

Related terms

• Job Classification
• Career Path Ratio
• Salary Review
• Pay Compression
• Wage Drift