Is your job architecture holding you back?

Posted by Ian Dawson and Jennifer Kwech on September 15, 2017.

Structured job hierarchies with defined roles, responsibilities, reward systems, and career paths may have supported business and HR needs in the past. But with the emphasis on “employee experience,” the modern workforce is demanding greater mobility and flexibility in their careers, with more focus on team-based learning, and a greater breadth of opportunity within the organization. High-performing companies have been able to address these evolving employee demands by examining and restructuring their company’s job titles, reward programs, and career paths. The result is often a flatter, more dynamic organization.

Traditional structured job hierarchies were developed based on rigid frameworks, with narrow pay grades and distinct roles/responsibilities for each job, and as such, generally lack flexibility and discourage mobility. Employees in these structures often perceive making lateral movements or moving between teams as having a negative impact on their career progression, which can inhibit learning and growth. Furthermore, it is often challenging to differentiate and reward the highest performers in a meaningful way (outside the general merit/inflation pay increase). Employees tend to perceive promotion to the next “level” in the defined career path as “differentiation”, which further prevents lateral mobility and can have the unintended consequence of distorting the performance management process.

While the hierarchical approach may continue to be appropriate in industries where the need for specialization outweighs the need for mobility, these legacy practices may prevent organizations from pushing toward a more flexible, team-centric model—so often the hallmark of modern, high-performing companies.

Getting past a rigid hierarchy
Implementing a flatter, more team-oriented job architecture by reducing the number of levels, titles, and pay grades in the organization and introducing fewer, broader pay bands (“broadbands”) can benefit companies and completely transform the employee experience. Companies can gain the flexibility to deploy people around the organization for projects or special assignments without dramatically impacting pay, and employees can gain greater breadth of experience and improved learning opportunities without the negative connotations often associated with lateral moves.

What does a “flatter” pay structure look like?
Flat pay structures are characterized by a series of relatively few, wider salary bands. This approach is inherently flatter than a more traditional hierarchical pay structure as it typically encompasses just 8–10 bands, compared to 20+ under the more traditional approach.

Broadbands provide less formal structure and typically have range spreads of 80 percent to 200 percent with no defined midpoints. Broadbands reduce grade distinctions between jobs, allowing for broader workforce skills, easier movement between assignments, and career development among employees as they reduce grade distinctions between jobs. Additionally, the need to distinguish between jobs with prescriptive titles and accompanying job descriptions and pay administration, such as job evaluations, salary structure maintenance, and merit pay increases, is reduced, thereby creating far greater flexibility for both the employee and employer.

However, if a company is not quite ready to move from a traditional pay structure to broadbands, they could consider phasing in a broader “modified” market-based structure (typically with pay range spreads of 40 percent to 80 percent and midpoint progressions of 10 percent to 20 percent), which falls somewhere between traditional and broadband structures. Market-based structures are often characterized by range spreads wide enough to encompass the market 25th, 50th, and 75th percentiles, while still providing a level of control over unreasonable pay rates.

Flexible rewards
A flatter job structure with fewer, wider pay bands provides far greater flexibility to reward employees. Removing the hierarchy of the traditional job architecture means replacing the often unwieldy, restrictive, and narrow job/level-specific pay grades, with fewer, broader bands that encompass market rates and critical skills for all jobs in the band. This additional flexibility helps companies to advocate a true pay-for-performance philosophy by differentiating and rewarding the highest performers based purely on their performance, rather than on the narrow market range associated with a given job title.

What about performance management?
To be able to get the most out of this flatter structure, not only should leaders reinforce and empower employees to make lateral moves, take risks, and broaden skill sets, but they should also support it with robust performance management.

Rather than annual reviews based on narrow goals closely correlated to specific job titles, identifying the highest performers involves regular touch points between employees and managers, including quality conversations that are focused on actual performance and development needs (rather than abstract year-end ratings) and defining what great performance looks like.

Employees should be assessed and rewarded based on the impact and breadth of their contributions to the company, and on pre-defined core competencies associated with each level/band. The focus shifts to rewarding employees for their skills, abilities, and contributions, and away from their position title and the corresponding “market rate.”

Salary administration time and expense can be expected to dramatically decrease (since there will be less focus on job evaluations and grade placement). But using fewer, broader bands does demand strong governance to control compensation costs, and greater discipline among managers to ensure that differentiation within the band reflects performance, contribution, and impact.

Is a flat structure right for your organization?
Broadbands may not be right for all organizations, and the more traditional, hierarchical organization structure still has significant advantages associated with it—particularly at companies that place a premium on control over flexibility.

Flatter structures typically appeal to organizations in a dynamic, fast-moving environment, and can help meet the increasing demand from both employers and employees for a more mobile workplace. Companies must be able to react to these demands in order to compete effectively in today’s competitive global talent market. By shifting the emphasis of HR from control and structure to more creative and entrepreneurial ways of working, companies can promote a flexible and team-oriented culture that is aligned with the organization of the future—which looks increasingly flat.

Ian Dawson and Jennifer Kwech are senior managers in Deloitte Consulting LLP’s Actuarial, Rewards & Analytics practice. They work with management and boards of directors of both privately held and publicly traded companies on a wide range of executive, broad-based, sales, and board compensation matters.

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