These levels of achievement will certainly help redirect an employee’s focus toward becoming world class. However, the manager’s efforts at career redirection will be forever hindered if all of the pay signals are telling the employee to look upward.
Although each of us is motivated by money in different ways, the fact of the matter is that few of us are repelled by money. All of us may not hunger for it, but only a tiny minority of us find money positively distasteful. Therefore the simple truth is that it will be much easier for managers to redirect employees toward alternative career paths if some of those paths involve a raise in pay.
The ideal pay plan would allow the company to compensate the person in direct proportion to the amount of expertise she showed in her current role—the more she excelled, the more she would earn. In practice this ideal plan is complicated by the fact that some roles are simply more valuable than others. On balance, a pilot is probably more valuable than a flight attendant. A principal is more valuable than a teacher. A restaurant manager is more valuable than a waiter. Any pay plan must take these value differentials into account.
But before we design our plan, there is one final twist to consider. Some roles performed excellently are more valuable than roles higher up the ladder performed averagely. An excellent flight attendant is probably more valuable than an average pilot. A brilliant teacher is more valuable than a novice principal. A superstar waiter is more valuable than a mediocre restaurant manager. The perfect pay plan must be sophisticated enough to reflect this overlap.
Simple and effective, it is called broadbanding. For each role, you define pay in broad bands, or ranges, with the top end of the lower-level role overlapping the bottom end of the role above.
For example, at Merrill Lynch the top end of the pay band for financial consultants is over $500,000 a year. In contrast, the bottom end of the branch manager pay band is $150,000 a year. This means that if you are a successful financial consultant and you want to move into a manager role, you might have to endure a 70 percent pay cut. The upside for the novice manager is that the top end of the manager pay band runs into the millions. So while you may have to stomach the 70 percent pay cut initially, if you prove yourself to be excellent at managing others, then in the end you will reap significant financial rewards.
The Walt Disney Company takes a similar approach. As a brilliant 114server in one of their fine-dining restaurants, you might earn over $60,000 a year. If you choose to climb onto the manager career path, your starting salary will be $25,000 a year. Again, once you start to excel as a manager and are promoted up and through the various supervisory levels, your total compensation package can take you far above $60,000. But, initially, your pay packet will be sliced in half.
Even traditional, hierarchical organizations are starting to experiment with broadbanding. Martin P., the chief of police for a state capital in the Midwest, describes the conventional career path from police officer to police sergeant—the front-line supervisor role—to police captain (he removed the lieutenant role a couple of years ago) to assistant chief to police chief. “Time was,” he says, “when the only way to earn more money was to move into management—to go from officer to sergeant. Now all my pay grades overlap. If you are a superb police officer, you don’t need to get promoted to sergeant to earn more. The fact is, my very best police officers earn more than their captain does.”
On the surface, broadbanding appears disorienting. Front-line employees earning two or three times what their managers earn? This is a world turned upside-down. On closer scrutiny; however, broadbanding makes sense.
First, with its broad bands of pay, it provides a way to value world- class performance in a particular role very differently from average performance in that role. As with levels of achievement, wherever individual excellence is revered, we see broadbanding. In professional sports, no matter what the position, the superstars at that position earn multiples greater than the average players in the same position. This also applies to actors, musicians, artists, singers, and writers. In all of these professions the broad range in pay encourages the person to refine his talents and so become world class. Great managers advise us to apply the same logic to all roles.
Second, with its overlapping bands of pay, broadbanding slows the blind, breathless climb up. It forces the employee to open her eyes and ask, “Why am I angling for this next promotion? Why am I pushing so hard to climb onto the next rung?” Without broadbanding, the answer to these questions is clouded by her knowledge that the next rung brings more money. With broadbanding the employee can answer only by examining the content of the role and weighing the match between its responsibilities and her strengths. Her answers will be more honest and more accurate. She will make her career choices based at least as much upon fit as upon finances.
Some companies take broadbanding to its limits. At Stryker, a $2 billion medical device manufacturer, the pay band for salespeople ranges from $40,000 for a novice to $250,000 for the best of the best. If you decide to move into the manager ranks, you have to take a 60 percent pay cut—the starting salary for a new regional manager is just under $100,000 a year. What is intriguing is that the top end of the manager band—about $200,000 in total compensation—is lower than the top end for salespeople. The best regional manager in the company can never earn as much as the best salesperson. Why would Stryker choose to do this? All manner of reasons: They value their best salespeople very highly; they want to entice their best salespeople to stay close to the customer for as long as possible; they want each employee to think long and hard before climbing onto the manager ladder. Whatever their reasons, their pay plan has proven very successful. Powered by the best salespeople and the best managers in the business, Stryker has achieved 20 percent annual growth in sales and profit for the last twenty years.
Broadbanding is a vital weapon in the arsenal of great managers. It gives teeth to their commitment that every role, performed at excellence, will be valued. And if the Stryker example appears a little extreme, remember this: During Gallup’s interviews with great managers, we found a consistent willingness to hire employees who, the managers knew, might soon earn significantly more than they did.
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