MEMORANDUM

AGENDA #2a

BUDGET WORKING PAPER

TO: W. Calvin Horton, Town Manager

FROM: Pam Eastwood, Director Of Human Resources

DATE: April 28, 2004

SUBJECT: Update and Review of Employee Pay Recommendations for FY 2004-05

INTRODUCTION

The purpose of this document is to review the information provided to the Council in January on the annual Town pay and benefits survey and recommendations for employee pay increases for Fiscal Year 2004-05.

BACKGROUND

The full text of the materials presented to and discussed with the Council at the annual Retreat on January 16, 2004, are provided in Attachment 1.

Summary of Findings

Pay Survey

The analysis of this data indicates that the Town’s current pay ranges compare favorably with the 50^th percentile or market average of the organizations surveyed.

The current pay ranges do not achieve the Council’s goal of paying at the 75^th percentile of the labor market (comprised of area organizations with whom the Town competes for employees).

Benefits Survey

Analysis of this data indicates that the Town employee benefits programs currently rank 11^th among the 14 organizations surveyed.

The Human Resources staff will research and develop proposals for the Council’s consideration which would improve the ranking of the Town’s benefits program among area organizations with whom the Town competes for employees.

PROPOSAL FOR EMPLOYEE PAY INCREASES FOR FY 2004-05

We recommend the following actions to be effective October 1, 2004:

a. Adjust all steps in the pay plan to 4% apart rather than the current 3.78% by adding .22% to each step. This action would simplify the pay plan, improve employee understanding and ease of administration, and make the Town’s steps more like those of other employers using pay steps. Authorize for all eligible employees below the job rate (355 employees, 55% of the employee group) a .22% increase to place them on the new steps.

b. Authorize a one-step increase of 4% for all eligible employees below the job rate (355 employees, 55% of the group) to move them through the pay range of the job.

c. Authorize an average 4% merit increase for all eligible employees above the job rate (295 employees, 45% of the group), based on performance ratings, to reduce pay compression between the two groups.

COST OF RECOMMENDED ADJUSTMENTS

:
	A	B	C	Additional	Cost if
	0.22%	4.00%	4.00%	Annual	Implemented
	BJR	BJR	AJR	Cost	October 1, 2004
General Fund	21,005	381,901	514,704	917,610	688,207

Transportation	7,557	137,391	108,858	253,805	190,354

Housing	740	13,461	18,183	32,383	24,288

Parking	719	13,074	6,933	20,726	15,545

TOTAL	30,020	545,827	648,677	1,224,525	918,393

Key to Abbreviations	BJR: Below Job Rate	BJR: Below Job Rate	AJR: Above Job Rate

Changes Recommended in Pay Structure and Pay Policies

We propose deleting the hiring step from the Pay Plan and using the next step (now called the probationary step) as the new minimum for each range. No cost is associated with this action because departments calculate and budget the full amount needed for the year. This change would assist the goal of moving the Town’s ranges toward the 60^th percentile range by improving the Town’s pay minimums at no additional cost. (This especially would be beneficial in the Fire and Police Departments where most new employees, those with no prior job experience, begin at the hiring step.)

If the above action is approved, we propose to cease the current policy of providing a one-step pay adjustment at the completion of six months probation for new employees. No cost is associated with this action because departments calculate and budget the full amount needed for the year. This change would improve the Town’s ability to make the most attractive initial offer when hiring. No current employees would be affected by these proposed changes. The new policies would apply only to persons employed after October 1, 2004.

We propose that the Council revise the Town pay goal from the 75^th percentile to the 60^th percentile of the labor market, as this may be more practical in the current economic climate. This would provide a pay philosophy which would support the Town in recruiting and retaining a group of employees who could provide high-quality results in delivery of essential Town services to citizens.

Information on Changes in Cost of Living for Town Employees

· Increased Costs of Employee Health Insurance

The Town’s current provider of group health insurance has provided a quote for renewal of the contract which represents a 12% increase in premiums. This means that if employees who provide health insurance for their families do not receive a pay increase, their current income will go down. (The premium increase in the 2003-04 Fiscal Year was 8 % and employees received pay increases of 3%.)

Examples of actual impact on current Town employees carrying family coverage for the 2004-05 Budget Year

Job Title	Current Salary	Current Salary After Current Insurance Deduction	Current Salary After New Insurance Deduction	Decrease in Salary as Dollar Amount and Percentage
Transit Operator II	$31,111	$27,879	$27,491	$388--1.4 %
Police Officer III	$41,692	$38,460	$38,072	$388-- 1 %
Planner	$46,776	$43,544	$43,156	$388-- .8 %
Master Firefighter	$34,269	$31,037	$30,649	$388 --1.3 %

Demographic Changes Among Town Employees and Related Costs

An indicator of the competitiveness of Town pay is the ability of Town employees to live within the community of Chapel Hill. The chart below shows a continuing trend of the decreasing number of Town employees who live within the Chapel Hill zip codes. Only about 20 % of Town employees currently live within the Town limits.

This creates higher commuting costs for employees, higher levels of traffic and pollution, and longer response times to Town needs in emergencies and adverse weather conditions. We believe that the pay increases recommended would improve Town employees’ ability to live within the community. A related issue which would affect this situation is the availability of affordable housing in the community.

Town Employees Living in Chapel Hill Zip Code Areas

	Percent by Year
Residence	1995	2002	2004
Inside Chapel Hill Zip Codes¹	41%	32%	30%
Outside Chapel Hill Zip Codes¹	59%	68%	70%

¹Chapel Hill zip codes are 27514, 27516 and 27517; these areas extend outside the Town Limits and include areas in southern Orange County, southwestern Durham County and northern Chatham County.

Recent Trend in Employee Turnover

A report was presented to the Council on March 4, 2004, on the turnover rate among Town jobs for the last two years. The full report is found in Attachment 2.

Turnover rates for four largest departments (comprising 75 % of Town employees) is:

Department	2002 Rate	2003 Rate
Fire	2.7%	6.8%
Police	11.2%	10.9%
Public Works	6.3%	6.2%
Transportation	4.5%	4.7%

The increased rate of turnover in the departments is attributable to several factors; the primary ones being service and disability retirements and voluntary resignations. The severity of the current economic situation has minimized the rate of employee departure during this period. We would anticipate that as the economy improves, this pattern may change. Maintaining competitive pay ranges would be a positive action to retain these employees once this change begins.

CONCLUSION

These recommendations are based on pay survey results and are presented as our best proposal for achieving competitive pay levels and employee pay for the Town in the upcoming budget year. We believe that approving and implementing this proposal will enable the Town to recruit and retain excellent employees with the skills and abilities required to carry out the Town’s goals and objectives effectively in the coming year.

ATTACHMENTS

1. January 15, 2004 Pay Survey and Benefits Survey (p. 6).

2. March 30, 2004 Report on Turnovers (p. 14).