Compensation 265
The following sections provide brief descriptions of alternative pay
systems that are used to enhance traditional pay systems.
Longevity Pay Longevity pay rewards employees who have reached pay
grade maximums and are not likely to move into higher grades. Its pur-
pose is to reduce turnover as well as reward employees for continuous
years of service. It may be a percentage of the employee ’ s base pay, a fl at
dollar amount, or a special step increase based on the number of years the
employee has spent with the organization.
Broadbanding or Paybanding There has been a movement away from using a
system of many pay grades. Instead, salary grades are being collapsed into
broader bands with wider ranges. The use of broadbands or paybands
eliminates having to maintain many narrow salary grades. Broadband-
ing was introduced by the federal government out of frustration with the
infl exible federal classifi cation and pay system and to increase fl exibility,
managerial control, and accountability (Risher & Schay, 1994). Two naval
research and development laboratories found it diffi cult to recruit and
retain scientists and engineers, so the laboratories designed a new clas-
sifi cation and compensation system that would give their managers the
fl exibility needed to compete with the private sector. Today, twenty - two
federal agencies have implemented paybanding (Thompson, 2007).
Broadbanding grants managers the discretion to offer a variety of
starting salaries and reward employees with pay increases or different
job assignments as needed to fulfi ll the agency ’ s mission. Advocates of
broadbanding claim that it simplifi es pay administration, helps to facili-
tate career development, creates a performance - driven culture, and links
compensation with SHRM.
Skill - Based Pay or Pay for Knowledge In skill - based or pay - for - knowledge pay
plans, pay is determined by the number of tasks or jobs or the amount of
knowledge an employee masters. It is a compensation system based on
paying for what employees can do, for the knowledge or skills they possess.
Under skill - based pay, employees can be expected to perform a broad range
of duties. Benefi ts attributed to skill - based pay from an organizational
standpoint include developing a cross - trained and more fl exible workforce,
improving the fl ow of information throughout the organization, placing an
emphasis on the work to be done rather than on the job itself, encouraging
the acquisition of skills needed to perform a variety of jobs, and increas-
ing employees ’ interest in and commitment to their work. Benefi ts from