AGENDA #6d

 

MEMORANDUM

 

TO:                  Mayor and Town Council

 

FROM:            W. Calvin Horton, Town Manager

SUBJECT:       Recommended Salary Adjustments for Town Employees for Fiscal Year 2005-06

 

DATE:             June 27, 2005

 

PURPOSE

 

This report will describe differences between pay plans having steps of 3.78% and 3%; report estimated costs for each, and recommend a manner of implementing a plan with 3% steps if this is chosen by the Council. We recommend the pay plan with 3.78% steps be used until further study and discussions with employees have occurred. 

 

BACKGROUND

 

In materials presented to the Council on May 9 and June 15, 2005, we discussed the intent of the present pay plan design: to establish and maintain competitive ranges with the local labor market, to attract and retain good employees and to provide opportunity for advancement in pay over time.

 

The present pay plan was established with steps spaced 3.78% apart (after the probationary step). 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 whose pay rate is in the steps portion of the range are called Below Job Rate employees. Currently about 58% 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 42% 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 the Town employees reach the Job Rate at about five years service, 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 last budget work session, the Council requested a cost estimate of implementing a pay plan with steps 3% apart. A 3% 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% greater than the minimum. ( See Attachment 1 for a copy of the recommended pay plan.)

 

Such a pay plan would require 8 steps, two more than the current Town pay plan. (Attachment 2 shows a 3% steps plan.) Reducing the percentage difference between steps from 3.78% to 3% in the Pay Plan would enable the Council to fund a step by allocating funds for 3% of salaries. The 3% amount is a better match for the changes in the Cost of Living index in recent years. The Council could choose to approve a range change in addition to a step change in a given year more easily.

 

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 total $135,206: $92,848 for the General Fund for 12 months and $37,086 for the Transportation Fund.

 

Grade 26
	Step 0	Step 1	Step 2	Step 3	Step 4	Step 5	Step 6	Step 7	Open Range	Max
Plan under consideration
3.0% Steps	21,857	22,513	23,188	23,884	24,600	25,338	26,098	26,881	-	32,785
		A	B	C	D	E
Current Plan
3.78% Steps	21,857	23,168	24,044	24,953	25,896	26,875			-	32,785
	Step 0	Step 1	Step 2	Step 3	Step 4	Step 5			Open Range	Max
Note:          There are no  current employees at step 0
Employee A	At step 1- Current salary is $23,168
	New Step on 3% Steps would be Step 2, $23,188 (.09% increase)
Employee B	At step 2 - Current salary is $24,044
	New Step - Step 4, $24,600 (2.31% increase)
Employee C	At Step 3 - Current salary is $24,953
	New Step - Step 5, $25,338 (1.54% increase)
Employee D	At Step 4 - Current salary is $25,896
	New Step - Step 6, $26,098 (.78% increase)
Employee E	At step 5 - Current salary is $26,875
	New Step - Step 7, $26,881 (.04% increase)

 

 

Because of the mathematical relationships between the present pay steps and a 3% 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 in the chart below.

 

Adjustments Needed to Place Below Job Rate Employees into 3% Steps Plan

 

If at step 1 now:               .09% increase

If at step 2 now:            2.31% increase

If at step 3 now:            1.54% increase

If at step 4 now:              .78% increase

If at step 5 now:              .04% increase

 

The variations among total increases (after placing employees on new steps and awarding a 3% increase)would be as shown below:

 

Total of Pay Changes for Below Job Rate Employees in 3% Steps Plan

 

If at step 1 now:              .09% increase+ 3% step increase=     Total increase of 3.09%

If at step 2 now:            2.31% increase+ 3% step increase=     Total increase of 5.31%

If at step 3 now:            1.54% increase+ 3% step increase=     Total increase of 4.54%

If at step 4 now:              .78% increase+ 3% step increase=     Total increase of 3.78%

If at step 5 now:              .04 %increase+ 3% step increase=     Total increase of 3.04%

 

We believe it would be important to discuss and explain these varying changes in pay and the reasons for them with Town employees before they occur. It would be very challenging to accomplish this successfully this summer, as the time is short and there has been no opportunity for participation by and discussion with employees before this action occurs.

 

In discussion with the Council during the Budget Work Session on June 15, 2005, the Council indicated willingness to allocate the full amount in the recommended budget as a part of changing to a pay plan with 3% steps and requested that we make a recommendation on how the remaining funds would be applied.

 

During the meeting, we initially had suggested that the amount remaining after employees had been placed on new steps be used to make a small adjustment in the ranges.

 

After further consideration, we would recommend that this remaining amount ($85,998) be included in the funds for merit increases for the At and Above Job Rate group of employees. This would provide a more equitable balance between the increases for Above Job Rate and Below Job Rate employees. (The Below Job Rate employees, as shown above, would receive increases which vary based on their current step but which all would exceed 3%.)

 

Thus the average merit adjustment for those longer-term employees in each pay grade who are at or above the job rate would average slightly more than 3% (3.16% on average). This would help maintain the pay differences between newer and longer-term employees in the same job.

 

When pay differences between employees with significant differences in service or experience are reduced, pay compression increases and this generally has a negative effect on employee morale.

 

Employees feel their service and higher level of knowledge and/or expertise is not valued when their pay is close to that of more recently-hired employees in the same job. These longer-term employees bring more depth of experience and understanding about their jobs and also often serve as mentors or lead workers for more junior employees.

 

If the Council approved converting to a pay plan with 3% steps, as described above, estimated costs would be as shown below:

 

 

 

Cost of a 3.78% Merit Increase in  the Present Pay Plan

The cost of a one step merit increase for eligible employees below the Job Rate and an average increase of 3.78% for employees at or above the Job Rate is described below.

 

 

Comparison Costs

The total cost for implementing either the 3.0% steps plan or the Manager’s recommendation is the same: $914,003.

 

The tax rate equivalent for the costs of pay increases in the General and Transportation Funds are shown below.

 

 

 

RECOMMENDATION

 

We continue to recommend that the Council maintain the present pay plan with 3.78% steps, change the 6% difference between step 0 and step 1 to 3.78% (eliminating the new hire and promotion probationary increases), and approve the Manager’s recommendation to award merit pay of 3.78% for all eligible employees on steps and an average of 3.78% for those employees at or above the job rate.

 

These increases, along with the small group of Special Pay Adjustments in the Fire, Police and Engineering Departments, would prevent the Town’s pay falling 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.

 

If these 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.

 

We believe Town employees would desire and appreciate the opportunity to discuss, voice their opinions and concerns and participate in the process of considering changes to the Town pay plan before any actions are taken to change the present pay plan. We believe open and thorough discussion and communications before the Council decides on any changes would result in better understanding and acceptance by employees.

 

We recommend that the Council enact the following Ordinance amending the Position Classification and Pay Plan effective July 1, 2005, and authorizing pay changes effective October 1, 2005.

 

If the Council wishes to change the pay plan to 3% steps, effective October 1, 2005, we have attached a resolution A which would direct the Manager to prepare an Ordinance for the Council’s consideration in September.

 

If the Council wishes to conduct further study of a pay plan having 3% steps during the coming year, with consideration of such a plan for possible use during the 2006-07 budget process, we recommend adoption of resolution B.

 

ATTACHMENTS

 

1. Present Pay Plan with No Probationary Step (p.9).
2. 3.0% Steps (p. 10).

RESOLUTION A

 

A RESOLUTION DIRECTING THE MANAGER TO PREPARE A PAY PLAN WITH 3% STEPS FOR COUNCIL CONSIDERATION TO BE EFFECTIVE OCTOBER 1, 2005 (2005-06-27/R-15a)

 

BE IT RESOLVED by the Council of the Town of Chapel Hill that the Manager prepare and present for consideration by the Council a pay plan with 3% steps to be effective October 1, 2005, such plan to be presented to the Council for action on September 12, 2005.

 

This the 27^th day of June 2005.

 

RESOLUTION B

 

A RESOLUTION DIRECTING THE MANAGER TO CONDUCT FURTHER STUDY OF A PAY PLAN HAVING 3% STEPS FOR DISCUSSION AS A PART OF THE 2006-07 BUDGET PROCESS (2005-06-27/R-15b)

 

BE IT RESOLVED by the Council of the Town of Chapel Hill that the Manager is directed to conduct such studies as are necessary including review by employees, of a pay plan having 3% steps in time for consideration as a part of the 2006-07 Budget Process.

 

This the 27^th day of June 2005.