AGENDA #5a
BUDGET WORKING PAPER
TO: W. Calvin Horton, Town Manager
FROM: Pam Eastwood, Human Resources Director
SUBJECT: Information on Human Resources Issues
DATE: April 22, 2005
PURPOSE
The purpose of this paper is to provide additional information on some of the items presented in the Citizens Budget Committee report and the Maximus Report about Human Resources issues.
DISCUSSION
The Citizens Committee reviewed and considered the information provided in the Maximus Report and commented or supported some of the recommendations found therein. I have listed these below and offer additional information which may help the Council as they consider these issues.
Citizens Report Items: Presented in the same order as in the report
The citizens committee expressed a bias for greater increase in the salaries of employees at the lowest pay levels.
The Council has taken action several times in past years to increase the salaries of the lowest paid jobs by a greater amount than the salaries for the jobs at other levels.
Some data from the Town Pay Survey may help to illustrate the current situation: all Town jobs surveyed which are paid in the five lowest pay grades have range midpoints which now are 3% to 10% above the weighted average of the area labor market.
When jobs at all levels in the organization are not adjusted proportionally, pay compression is increased with each action to bring the lower jobs up by a greater amount than others. The result is that first-line crew leaders may make less than the employees they supervise, and recruitment for the next higher groups of jobs in the pay plan becomes more difficult as pay ranges fall behind the labor market. We believe it is important to maintain the relationships established in the Town Pay Plan and that these pay ranges are fair and equitable for the employees in these jobs.
The citizens committee suggested consideration of the idea of a one-time bonus instead of a small annual increase for Town employees.
A one-time bonus is viewed as a short-term gesture by employees as it does not provide a dependable basis for their future planning. The effect of a bonus is short-lived and the effect on employee morale and satisfaction is minimal. We believe that awarding a base-building increase has a significantly greater effect on morale and satisfaction and results in employees feeling that their efforts are appreciated.
The citizens committee recommended that the Council consider delaying pay increases to reduce costs.
The Council has selected varying effective dates for pay increases in past years and this is a decision which has an effect on costs. Deferral of an effective date in one fiscal year results in delay of full-year costs until the next year, a ratchet effect. Delaying the increase also has the effect of separating pay changes from performance evaluations by a greater amount of time, which reduces the significance of the performance review to the employee.
The citizens committee recommended implementation of two pay systems: one for management and one for non-management employees.
The incentive-based pay programs common in the private sector are not often found in the public sector, particularly in municipalities. There are many reasons why we believe this is not a good model for the Town; the most important one being that the Town of Chapel Hill operates with a team-based philosophy of common objectives and recognizes that good results are achieved only through the efforts and commitment of all employees to the Town's goals.
When an organization like the Town is dependent on the good work and good will of every employee, creating a reward system which rewards a few employees more than the many does not accurately reflect how successful outcomes are achieved here. Town employees at all levels have chosen to work in this environment rather than in the private sector where the goals, philosophy and rewards are different; Town employees expect to be treated equitably and to receive appropriate recognition and reward for their efforts. We do not believe that different incentive-based pay systems would achieve this and believe that such a system would negatively impact morale and performance.
The citizens committee recommended that the Town require employees to pay part of employee coverage cost, increasing copays on prescriptions and doctor visits, increasing deductibles and reducing the portion of dependent premiums paid by Town.
The Human Resources staff has been talking with employees about the necessity of changes in the medical insurance plan to minimize cost increases. The employees understand and accept this need; the specific changes the staff has identified and will propose are intended to affect as few employees as possible while achieving the goal of reducing the costs. The Human Resources department was successful last year in achieving a significant cost reduction from the initial estimates. This was accomplished by vigorous negotiation and a change of carriers. We believe a significant reduction from the initial estimate can be achieved this year without requiring employees to pay a greater portion for insurance coverage for them and their dependents. We will have better information on actual proposed costs for the coming budget year after the competing bids are received and reviewed next week.
The Citizens Committee stated in their report that 100% employer payment of premiums is not a standard public or private practice.
We believe employer payment of 100% of the employee premium for medical insurance and a portion of the premium for the cost of dependent coverage in fact is the standard practice in the public sector. All of the area organizations in the Town pay survey( 6 municipalities, 3 state agencies, 3 counties and 1 non-profit), which are peer employers with whom the Town competes for employees, pay 100% of the employee-only medical insurance premium. With regard to payment for dependent coverage, 2 pay 70%, 2 pay 60%, 2 pay 50%, 2 pay 40%, and 5 pay none. Three of the five which pay none are state agencies. We believe a decision to alter this would create a serious disincentive for the Town in recruitment and retention.
The Citizens Committee recommended a pay increase of 3% for Police Officers only.
The Police Chief and the Human Resources Director have reviewed the core issues affecting recruitment and retention in the Police department and have developed a comprehensive plan we believe will address these successfully. We believe providing a larger increase for all police officers than for other employees is not necessary at this time.
The Citizens Committee reported that the Town has a history of pay increases in both good and bad times.
The Town depends on employees to carry out essential services to citizens and maintaining a competent and productive staff is critical to accomplishing this goal. The Council has identified the area employers with whom the Town competes for qualified employees and the Human Resources department staff gathers and reports each year to the Council on how the Town’s employee pay and benefits programs compare with these employers, so that the Council may assure that pay and benefits are sufficient to attract and retain good employees.
The amount and type of pay increases has varied from year to year as the Council has addressed varying economic situations, but for most years. Pay adjustments have been small in some years and moderate in others. The Council has seen employee pay increases as an important part of keeping Town operations viable and vigorous.
We believe the Council also has recognized that taking action each year to make small adjustments has prevented the need for periodic large increases to bring the Town’s pay into alignment with the area labor market. The Council’s actions have succeeded in keeping the Town reasonably competitive with the area labor market and have maintained the Town’s reputation as a quality employer. Once such a reputation and perception by jobseekers is lost, it is difficult to regain. We believe that the increases we are recommending for this year are essential to support the Town’s goals and needs.
The citizens committee and the Maximus report recommended that the Town require all employees to use direct deposit.
A number of area employers require direct deposit for all employees and retirees. Larger employers such as UNC, UNC Health Care, Duke and others have established this requirement for reasons of administrative efficiency and cost. The Town of Chapel Hill does not require that all employees use direct deposit. Approximately 196 employees do not use this service. If the Council decides to make this mandatory, it would be resisted by some employees who do not use checking or banking accounts. If this is implemented as a requirement, it would be helpful to give these employees an advance notice period in which to set up a checking or other bank account to which their check could be deposited. The Human Resources staff will provide information and assistance to employees on finding low-cost options for this.
The citizens committee recommended that an outside company be engaged to conduct a pay and benefits survey as a confirmation of the survey conducted by the Human Resources department staff.
We welcome the validation of our work by an objective outside party. The estimate we have received for a market study report on employee pay and benefits to confirm the work done by the Human Resources staff is approximately $18,000. If the Council wishes to authorize and fund such a study, we will be happy to provide the consultant with the information they would need to complete the work. The consultant we would recommend is the same one used by the Orange Water and Sewer Authority.
CONCLUSION
We hope this additional information will assist the Council in considering both the recommendations of the Citizens committee and the Maximus report. We are happy to provide further information at the Council’s request.