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Variable Step Rate
A variable step-rate program is similar to an automatic step-rate program, but it includes a performance modifier. Typically, there are 5-10 steps under a variable step-rate program, with a 2-5% difference between each step, and a time schedule for the review. This program works well for repetitive jobs where a step program is common in the labor market, but a company wants to differentiate based on performance.
Example variable step program:
| Performance Achievement: | |
|---|---|
| Exceeds Standards: | 2 Steps |
| Meets Standards: | 1 Step |
| Sometimes Meets Standards: | 0-1 Step with Delay |
| Does Not Meet Standards: | 0 Step |
Example step structure:
| Step | Date Since Last Increase | Rate Per Hour (USD) |
|---|---|---|
| 7 | 12 months | $16.08 (+5%) |
| 6 | 12 months | $15.31 (+5%) |
| 5 | 12 months | $14.58 (+5%) |
| 4 | 12 months | $13.89 (market) |
| 3 | 12 months | $13.23 (-5%) |
| 2 | 6 months | $12.60 (-5%) |
| 1 | New Hire | $12.00 (-5%) |
Broadbanding
In the 1980s, many large organizations collapsed their salary administration ranges down into a few "broad" ranges.
Broadbanding was promoted with a host of positive attributes, including the major argument that it would lessen the amount of unhappiness and complaints associated with traditional salary or range systems. But in reality, it comes with its own share of issues.
What was really going on?
Broadbands are typically designed with very wide range spreads of 80% to 200% with a few wide bands that encompass all of the jobs within the organization. They offer much more flexibility in terms of differentiating pay for varying skill or performance levels within the same grade. They also increase the ability of organizations to match market rates for various jobs within the band.
In the example below, the band basically combines three salary grades into one band using the range minimum for an Engineer 1 at $52,000 and the range maximum for an Engineer 3 at $96,000. This equates to a 185% width in the band.
| Band | Minimum | Maximum | % Spread |
|---|---|---|---|
| 2 - Professional | $52,000 | $96,000 | 185% |
Typically, midpoints are not used in a broad band program.
Disadvantages of broadbanding are:
- Lack of structure creates the need to further define market ranges or zones within the bands
- More sophisticated levels of compensation expertise are needed to identify market rates for jobs within the band
- Lack of structure requires a significant amount of guidance from human resources
Today, only about 5% of companies use broadbands for their base pay structure.