A Case Study in Broadbanding

Transforming a traditional salary structure into a broadbanding system is a well-documented trend in the field of compensation. But with all the emphasis on designing the perfect broadbanding system, it can be easy to forget about practical pay delivery issues. Now that the bands have been defined, the jobs have been slotted, initial market pricing has been performed, and the new system has been tested, how does one administer the broadbanding system?

Mitsubishi Motor Sales of America, the exclusive U.S. marketer and distributor of Mitsubishi vehicles, developed and implemented a new broadbanding program for its 750 employee population. Jim Covington, Mitsubishi's Compensation and Benefits Manager, shared his experience at the 1998 ACA International Conference and Exposition. "When deciding how to deliver pay," advised Covington, "keep in mind why you are a broadband organization and what behaviors you want to support or motivate with the program."

Why are you a broadband organization? For Mitsubishi, intense industry competition required employees to act faster and "wear more hats" than ever before. Within this environment, Mitsubishi turned to broadbanding for the following reasons:

• The former system no longer met organizational needs. Mitsubishi's former grade system lacked flexibility and consistency, was an administrative burden and minimized increases for high performing "high-in-range" employees.
• Broadbanding offered many benefits. Anticipated benefits included broader job design, greater ability to reward performance and expanded opportunities for professional growth.

Mitsubishi wanted to promote the following behaviors: 

• Remove an unhealthy focus on grades;
• Promote teamwork;
• Discourage the creation of layers; and
• Encourage lateral "developmental" moves. 

What is the basis for pay decisions? To assist management in making appropriate pay decisions, Mitsubishi maintains "Market Reference Points" (MRPs) for all jobs. MRPs are established by extracting market data from several reputable salary surveys. Each job in the organization is matched to a survey benchmark position or to an equally-valued internal position that is matched to a survey. Job matches are reviewed annually with senior management and MRPs are communicated to employees in annual merit memos. 

In addition to the MRP, the following factors are considered when making pay decisions at Mitsubishi:

• Performance level,
• Performance and pay of others,
• Experience, education and job skills, and
• Budget.

Offering alternative types of increases is critical in broadbanding to reinforce desired behaviors," said Covington. Mitsubishi's pay delivery program includes the following eight pay delivery methods: 

(1) Annual merit reviews. Mitsubishi's merit program, held in conjunction with a performance review, is based on a comparison of the pay decision factors and pay. According to current merit guidelines: 

• If the relationship of those factors is in balance with the current pay level, an increase of 2-4% is recommended.
• If the pay level is higher than would be appropriate based upon those factors, an increase of 0-2% is in order.
• If the relationship of those factors is high compared with the pay level, an increase of 4-8% is appropriate. This allows Mitsubishi to appropriately reward high performers that may have been above midpoint under the former grade system. 

(2) Equity adjustments. Mitsubishi's equity adjustment is designed to assist management in bringing pay rates into line with performance and market. It is not a replacement for management awarding appropriate developmental and merit increases. Employees are eligible for adjustments toward their MRP if they: 

• Have been in their job or equivalent classification for 4 or more years (This is based on the philosophy that it takes 4 years to fully learn a job);
• Demonstrated strong performance; have generally received merit increases greater or equal to the budget (This suggests a pay problem if the pay level is still below market); and
• Have a current pay rate that is less than 95% of their MRP. 

(3) Job rotations. Mitsubishi's job rotation program allows employees to "swap" positions for the purpose of broadening skills. Department management and human resources agree in advance on the length of the rotation, the measures of success and the amount of developmental increase (if any). "The increase is based on the belief that changing jobs increases organizational effectiveness and adds value to the organization," explained Covington. Increases range from 0-5% and are awarded after demonstrating the new skills. Generally, the longer it takes to acquire the new skills, the greater the increase. 

(4) Degrees and special certifications. To complement its tuition reimbursement program, employees obtaining degrees or special certifications are eligible for salary increases. The degree or certification must be relevant to current job duties and require a substantial investment of the employee's personal time. "We believe the brighter the employee, the more efficient and productive the employee is," said Covington. Increases normally range from 0-4% of pay. 

(5) Job family increases. When an employee moves from one level to another in an established job family (e.g. Accountant I to Accountant II), a job family increase of 0-5% may be awarded. To initiate this action, managers submit documentation to human resources indicating what higher level duties will be performed and how the employee meets the minimum requirements for the new position. "Although broadbanding encourages lateral movement, we still have some levels in jobs to maintain an appropriate link to the market and industry," explained Covington. 

(6) In-band promotions. In-band promotions are moves to open positions in the same band with greater responsibilities and higher MRPs. Increases typically range from 0-10%. 

(7) Band-to-band promotions. Band-to-band promotions are moves to open positions in another band with greater responsibilities and higher MRPs (e.g. Senior Analyst to Manager). Band-to-band promotional increases generally range from 0-12%. 

(8) Transfers. Transfers are moves to open positions with similar or lower MRPs. Employees that transfer may be eligible for a developmental increase of 0-5%. 

How are increases budgeted? Equity, job rotation, degree/special certification and job family increases are all rolled into Mitsubishi's regular salary planning system and appear as separate line items in the merit budget. Because promotions and transfers occur due to turnover or approved additional headcount, they are not budgeted for. 

What needs to be communicated? "Communication needs to be a continuous process and not an event," advised Covington. Mitsubishi developed and conducted training programs to roll out its new broadbanding system. Initial training revolved around the new system, job descriptions, and the MRP. "We initially failed to communicate the specifics of pay delivery and are currently conducting training on these issues," stated Covington. 

Are there any universal truths about broadbanding? According to Covington, "Broadbanding is working well for Mitsubishi, especially for information systems jobs where MRPs have increased tremendously. Management is getting used to the flexibility and we are beginning to witness more differentials among increases. Although companies turn to broadbanding for various reasons, there are some universal truths I can share," closed Covington. 

• Remember why you changed to broadbanding;
• Make sure your pay delivery system supports that change;
• Realize that a successful roll out is only half the job, remember the administration; and
• Communicate pay delivery issues and continue to communicate.

Reprinted with permission. © CCH