Budget Working Paper

 

TO:                  W. Calvin Horton, Town Manager

 

FROM:            Pam Eastwood, Human Resources Director

 

SUBJECT:      Pay Plan with 2.5 Percent Steps

 

DATE:            April 24, 2006

 

 

PURPOSE

 

As per the Council’s request during the April 5, 2006 budget meeting, this report will describe differences between pay plans having steps of 3.78 percent and 2.5 percent.

 

BACKGROUND

 

The present pay plan was established with steps spaced 3.78 percent apart. It was intended that employees advance through the steps annually through merit pay increases, with the goal of reaching the Job Rate or midpoint at about five years of employment with the Town. Employees with a pay rate in the steps portion of the range are called Below Job Rate employees. Currently, about 35 percent of Town employees are in this group.

 

Once the Job Rate is attained, employees’ pay is in the open range (without steps) where pay increases are earned based on job performance ratings. These increases may continue (as the Council authorizes them) until the employee reaches the maximum rate for the job. No employee is paid above the maximum rate. These employees are called At or Above Job Rate employees. Currently about 65 percent of Town employees are in this group.

 

When the Council authorizes a range change, the dollar value of all steps from minimum through Job Rate and the maximum in the pay plan are increased by the percentage the Council approves.

 

The Job Rate of each range is intended to reflect the average pay in the labor market for the job, and the amount of pay for the Job Rate is intended to be competitive in the area with experienced competent employees with about five or more years of service.

 

If the Town’s Job Rates are aligned properly with the labor market and if employees can see that they can progress through their pay range over time, we believe Town employees would be reasonably satisfied with their pay levels and less likely to leave Town employment for similar jobs at other organizations.

 

In the April 5, 2006 budget work session, the Council requested information regarding the cost for a pay plan with steps 2.5 percent apart. A 2.5 percent Steps plan would have the same structure: a minimum, Job Rate and maximum for each range. The distance between all steps would be set at equal intervals from minimum to Job Rate and the maximum would be approximately 50 percent greater than the minimum.

 

Such a pay plan would require 8 steps, two more than the current Town pay plan. (Attachment 1 shows a 2.5 percent steps plan.)

 

The transition process to place all current Below Job Rate employees on one of the new steps, (the one which represents the amount closest to but not less than their current annual salary), would be as shown below. Changes to put employees on new steps would cost $180,000 annually.

 

Employee A

At step 0 – Current salary is $22,324

 

 

New Step with 2.5% Steps would be Step 0, $22,324

(0% increase)

 

 

 

Employee B

At step 1- Current salary is $23,168

 

 

New Step with 2.5% Steps would be Step 2, $23,454

(1.24% increase)

 

 

 

 

 

 

 

Employee C

At step 2 - Current salary is $24,044

 

 

New Step with 2.5% Steps- Step 4, $24,642

(2.49% increase)

 

 

 

 

 

 

 

Employee D

At step 3 - Current salary is $24,952

 

 

New Step with 2.5% Steps- Step 5, $25,258

(1.22% increase)

 

 

 

 

 

 

 

Employee E

At Step 4 - Current salary is $25,896

 

 

New Step with 2.5% Steps - Step 6, $26,536

(2.47% increase)

 

 

 

 

 

 

 

Employee F

At step 5 - Current salary is $26,875

 

 

New Step with 2.5% Steps- Step 7, $27,200

(1.21% increase)

 

Because of the mathematical relationships between the present pay steps and a 2.5 percent steps plan, the actual amount of pay increase for employees on steps would vary as shown, depending on the step at which the employee is currently paid. The variation is summarized below.

 

Adjustments Needed to Place Below Job Rate Employees into 2.5 Percent Steps Plan

 

If at step 1 now:

1.24% increase

If at step 2 now:

2.49% increase

If at step 3 now:

1.22% increase

If at step 4 now:

2.47% increase

If at step 5 now:

1.21% increase

 

If the Council decided to convert to a pay plan with 2.5 percent steps, as described above, estimated costs would be $180,000 for all employees on step.

 

RECOMMENDATION

 

We continue to recommend that the Council maintain the present pay plan, and approve the Manager’s recommendation to award the 3 percent range increase for all eligible employees on steps and an average of 3 percent for those employees at or above the job rate.

 

These increases, along with the small group of Special Pay Adjustments in the Fire and Inspections Departments, would prevent the Town’s pay falling significantly below the market average and would send a positive message of appreciation and recognition to Town employees for the high-quality work they perform for citizens.  We believe that changing to a 2.5 percent steps plan would result in added expense, and would be perceived negatively by employees.

 

If the Manager’s recommendations are approved, we believe the Town’s pay ranges and average employee pay will maintain the excellent workforce which delivers the high-quality service levels expected by the citizens of Chapel Hill.