AGENDA #2a

BUDGET WORKING PAPER

TO:                  W. Calvin Horton, Town Manager

FROM:            Patricia W. Thomas, Human Resources Director

SUBJECT:       Recommended Salary and Pay Structure Increases for FY 2001-2002

DATE:             April 25, 2001

The information in this paper summarizes the compensation increases recommended for Town employees for implementation October 5, 2001.  As discussed below, the recommendations are consistent with market trends and projections for salary increases of other employers. If approved as recommended, overall payroll costs would increase by about 4.4% in 2001-2002.

Summary of Recommendations

Last year the Council completed a two-year process to update the Town’s pay structure and adopted a pay plan with three primary key goals:

·    a pay structure that provides a simpler and more predictable system for granting and communicating increases,

·    a pay structure that provides for career advancement and recognition of performance, and that will prevent future compression of salaries, and

·    a pay structure with pay ranges that are competitive in the Triangle labor market.  This goal follows the Council’s resolution setting the policy of competing at the 75^th percentile (top quartile) of the local market.

The new pay plan and pay structure were implemented October 20, 2000. Town turnover rates are down and, although unemployment rates in Orange County remain low at 1.7%, recruiting to fill vacancies has been easier. We believe that paying more competitive salaries and providing possibilities for salary advancement are among the key reasons for improved recruitment and retention.

We recommend implementing salary increases continuing to follow the simplified pay plan adopted last year, and continuing the policy of competing at the 75^th percentile of the market.   The recommendations have 3 components, each addressing a key pay system goal:

      (1) 2.75% pay range adjustments: The hiring rate, probationary step, other steps and maximum rate in each of the salary ranges would be adjusted by 2.75%.  This adjustment would maintain hiring rates and ranges that are competitive as salaries in the area market change.

      (2)  Regularly scheduled pay step adjustments for employees below the Job Rate: Consistent with the adopted pay structure, employees whose performance is satisfactory and whose salaries are below the Job Rate employees would have their salaries adjusted to the next step in the salary range.  This adjustment would meet the goal of providing career advancement and preventing future compression of salaries.

      (3)  Performance increase for employees above the Job Rate:  An average merit increase of 4.5% would be granted to employees whose salaries are above the Job Rate, with the amount that individual employees would receive varying based on their performance rating.

If approved, 380 employees with salaries below the Job Rate would receive items 1 and 2, with satisfactory performance; the remaining 220 employees with salaries above the Job Rate would receive item 3.   Salary increases would be implemented on October 5.

Costs for pay increases and related benefits, implemented as of October 5, are estimated to be $1,074,000 for all funds, an overall pay increase of 4.4%.

Importance of Salary Increases

If the Town is to continue to attract and retain good workers, it is important that the Town's wages be competitive and that employees at all levels of the organization who perform well receive a reasonable increase in their pay.  

The employment market in the Triangle area remains competitive because of the continuing low unemployment rate.  Wages at both the 75^th percentile and the average salary will continue to increase.  Although we are ahead of other area governments in our budget schedule and do not have data from them on projected salary increases, projections from area private sector employers show that they anticipate a pay increase averaging at least 4% for their workers.  We will report on area governmental data as it is available.

We look forward to answering Council questions about these recommendations and to providing further information as requested. 

Attachments:  Information in support and explanation of these recommendations follow on the remaining pages of this report:

ATTACHMENT 1

INFORMATION ON LOCAL LABOR MARKET TRENDS

In 1999 the Council adopted a policy saying that the “approximate third quartile of market data shall be used to determine local market comparability for Town positions.”  (99-6-14/R-22).  Following an extensive classification and labor market review during 1999-2000, new salary ranges were implemented October 20, 2000, with salary ranges based on the 75^th percentile of the local market.

These more competitive salary ranges have helped the Town reduce turnover rates by 20%:  the turnover rate in the first two quarters of this year was 10.1%, compared to 12.6% the same period last year. Although unemployment rates remain low in Orange County (1.7% in March of 2001) Departments have reported that they are able to fill positions quicker with qualified employees. 

We believe these data show that a 2.75% adjustment to the Towns’ pay structure and 4.5% average merit increase are justified based on current salaries paid in the market and based on salary growth that will continue to occur from now through next fiscal year.

(1) Changes in market since data was collected last year:

In order to maintain a salary plan with ranges that are competitive, the salary plan should be adjusted each year.  The Town’s salary ranges that are currently in effect were implemented on October 20, 2000 and were based on the wage market reflected in salary data collected in late 1999 and early 2000.   Salaries have continued to increase during the time since those data were collected.  For example:

The North Carolina League of Municipalities publishes an annual survey of town and city salaries.  Comparing positions similar to Town jobs from data collected in July, 1999 to July, 2000 across North Carolina:

·    in the cities of similar size to Chapel Hill, hiring rates increased an average of 13% and the average of salaries actually paid increased by 6%

·    in the 5 largest cities, hiring rates and the average of salaries actually paid each increased by 7%

Capital Associated Industries in Raleigh conducts an extensive annual survey of private sector organizations in Eastern and Central North Carolina.  Comparing positions similar to Town jobs in the Research Triangle area:

·    salaries at the 75^th percentile increased 4.8% between April 2000 and April 1999

·    the weighted average of salaries had increased 7.8% between April 2000 and April 1999

The US Bureau of Labor Statistics publishes data which tracks changes from month to month in employers’ costs for salaries and for benefits.  The most recent “Employment Cost Index” from BLS shows an increase in wages since least year of 3.8% to 4%.

(2) Current market competitive measures:  

The compiled data from the surveys discussed below follows at the end of this report.

Area governmental market – state and local governments:  

The Town’s Human Resources Department surveyed other Research Triangle area governmental organizations and compared Town hiring rates and Job Rates on 25 benchmark positions to the hiring rates and salaries actually paid by these organizations.  Summaries of the data showed that:

·    for general  positions, the Town’s current Job Rates were 1.3% lower than the 75^th percentile of the market, while hiring rates are currently competitive

·    for department head positions, the Town’s current Job Rates were 9% below the 75^th percentile of the market, although the Town’s listed hiring rates are 6.25% higher.

Private sector jobs:

Capital Associated Industries in Raleigh conducts an extensive annual survey of private sector organizations in Eastern and Central North Carolina.  Comparing 40 positions similar to Town jobs to data in the most recent Capital Associated Industries survey for the Research Triangle area:

·    Town positions averaged 6.1% below the 75^th percentile of the market

·    Town positions averaged 1.1% below the weighted average of the market

(3)    Projections for future salary increases:

As the following summaries of salary surveys show, a variety of state and national sources anticipate organizational increases of 4% to 4.6%:

SUMMARY

We believe these data show that

·    the recommended 2.75%  adjustment to the Towns’ pay structure (affecting employees below the Job Rate)  and

·    the 4.5% average merit increase (affecting employees above the Job Rate)

are justified based on current salaries paid in the market and based on salary growth that will continue to occur from now through  next fiscal year.

ATTACHMENT 2

SUMMARY OF THE COMPONENTS OF THE TOWN’S PAY SYSTEM

AND RECOMMENDATIONS FOR 2001-2002

1.  2.75% Pay Range Adjustments:

We recommend salary range adjustments in response to changes in the labor market and in inflation. The recommended adjustments would maintain hiring rates and ranges that are competitive with the 75^th percentile of the local market.

We recommend a 2.75% increase to the rates in the salary schedule; if approved, on October 5^th all of the rates in the current schedule would change by 2.75%.  For example, in salary grade 29, which includes Bus Drivers, Sanitation Equipment Operators, and Administrative Secretaries, the current and new ranges would be as shown below:

Sample from salary schedule showing current and proposed schedule rates:

The recommended ranges would allow the Town to recruit at salaries that are 2.75% higher, and would help adjust for the effects of market changes and inflation. 

Some of the bases for this recommendation include market data, projections and economic indicators.  For example:

Local market data:  A survey by Capital Associated Industries of private sector employers in the Research Triangle area showed that the average organizational increase granted in 2000 was 4.1% for non-exempt or hourly workers, 4.4% for salaried workers, and 4.8% for executives. (Information from NC governmental and Triangle area market data is summarized later in this report.)

Projections:   At the national level, in July the Conference Board in New York said that based on their surveys,  “grades will increase 3 percent for all employee categories in both 2000 and 2001.” 

Economic indicators:  The US Bureau of Labor Statistics’ data that shows that wage growth has consistentlyoutpaced inflation.  For example this year, the annual change in the cost of living (Consumer Price Index or CPI) has been 3.5%, while the increase in the Employment Cost index in the same period was 4.1%.

Summary: The Manager’s recommended 2.75% schedule change would adjust the salary schedule reflecting most of the changes in general employment and market trends.  Had more funds been available in the 2001-2002 budget, and schedule change of 3-3.5% likely would have been recommended.

2.  Regularly scheduled step adjustments for employees below the Job Rate:

Regularly scheduled step adjustmentsfor employees below the Job Rate provide career advancement during the first years of employment while employees are learning and demonstrating proficiency in their jobs.  These step adjustments also help prevent future compression of salaries (a frequently mentioned concern of the Council and employees during the 1998-99 pay system study) and provide predictable salary movement.

In accordance with the pay policies established by the Council, employees with salaries below the Job Rate would advance to the next step in the new salary range. For example, a Bus Driver whose current salary is in step 1 would advance to step 2 on October 5^th:

Example:  Bus Driver currently paid at step 1, advancing to step 2:

26,624

There are approximately 380 employees who have completed probation and have salaries on the probationary step, step 1, 2, or 3.  These employees would be eligible to receive a step adjustment of 3.78%, in addition to the range adjustment of 2.75%.

3. Performance increases for employees above the Job Rate:

For 220 longer-term employees whose salaries are above the Job Rate, the pay plan adopted by the Council provides for salary advancement in recognition of performance.  The amount individual employees would receive would vary based on their performance rating. This year we recommend an average 4.5% performance increase for these longer-term workers. 

Prior to October 5^th, supervisors would conduct performance evaluations and assign one of 5 rating levels to each Performance Range employee’s work during the completed fiscal year.  Then, a mathematical formula would be used to allocate merit ratings so that the average granted does not exceed the 4.5% approved by Council.  If the distribution of ratings is similar to those in the fall of 2000, the 4.5% average merit would be allocated in increases such as:

                        Rating                                 Salary increase

                  Below Expected Level:                   0

                  Needs Improvement:                      2%

                  Meets Standards                            3.75%

                  Exceeds Standards                   4.25%

                  Outstanding:                                   4.25% plus 1% one-time payment

                  TOTAL                                    Averages 4.5%

         For example, if a Bus Driver having a current salary in the open range at  $30,700 is rated Exceeds Standards, he/she would receive a 4.25% increase to a new salary of $32,005.

Increases for employees above the Job Rate are important because the salary advancement provides incentive for longer-term employees to continue employment with the Town. 

SUMMARY:

If the Town is to continue to attract and retain good workers, it is important that the Town's wages be competitive and that employees at all levels of the organization be able to receive a reasonable increase in their pay.   The employment market in the Triangle area remains competitive because of the continuing low unemployment rate.  Wages at both the 75^th percentile and the average salary will continue to increase.  Projections from area private sector employers show that they anticipate a payroll increase averaging at least 4% for their organizations.  

ATTACHMENT 3

Distribution of Costs of the Various Components:

Costs in 2001-2002 for recommended pay increases and related benefits, implemented as on October 5, are estimated to be $1,074,000 in all funds, about a 4.4% increase in overall payroll costs:

Cost by fund October 5, 2001-June 30, 2002

ATTACHMENT 4

MARKET TRENDS: TABLES and DATA

The data on the following pages was used as the basis for pay recommendations:

1.  How salaries changed between 2000 and 2001:

Current Town salary rates were based on survey data collected in late 1999 and early 2000.  The first 4 tables of data show how salaries continued to increase in the one-year period between 2000 and 2001 in the public and private sectors:

Public Sector data – Source, NC League of Municipalities surveys

·     In cities of comparable size to Chapel Hill, average hiring rates and average pay on jobs similar to those with the Town workforce each increased by 7% (page 11)

·     In the 5 largest cities, average hiring rates increased by 13% and the average pay increased by 6%. (page 12)

Research Triangle area Private Sector data – Source, Capital Associated Industries surveys  

·     Comparison of jobs similar to those in the Town workforce shows that the 75^th percentile increased by 4.8% (page 13)

·     Comparison of jobs similar to those in our workforce shows that the average paid increased by 7.8% (page 14)

2.  How current Town salaries compare to the market:

Public Sector data – Source, survey conducted by Town of Chapel Hill Human Resources Department

·     General positions:  Comparison of Town salaries to the 75^th percentile of the Triangle public sector market shows that the Town’s pay is approximately 1.3% below the market in salaries paid, while hiring rates are currently even with the 75^th percentile of the current market (page 15).

·     Department head positions:  Comparison of Town salaries to the 75^th percentile of the Triangle public sector market shows that the Town’s pay is approximately 9% below the market in salaries paid, while current hiring rates are 6.25% higher than the 75^th percentile of the market (page 16).

Private sector data – Source, Capital Associated Industries survey

·     Comparison of Town salaries to similar jobs in the Research Triangle area shows that Town salaries are approximately 6% lower than the 75^th percentile of the market (page 17)

·    Comparison of Town salaries to similar jobs in the Research Triangle area shows that Town salaries are approximately 1% lower than the average paid in the local market (page 18)

ATTACHMENT 5

"A RESOLUTION REGARDING SALARY SURVEYS AND WAGES:  (99-6-14/R-22)"

BE IT RESOLVED by the Council of the Town of Chapel Hill that the following policies will apply in determining market comparability of Town positions:

(1)  Data Collection:   The primary governmental organizations  which shall be surveyed and considered in determining labor market and pay comparability of positions of the Town are:

      The State of North Carolina (especially UNC-CH campus and hospital), Durham, Durham County, Orange County, Carrboro, OWASA, Raleigh, Cary, and Wake County

Local governments in other parts of the State of North Carolina or in other states in the region may be surveyed and data from these organizations considered in determining comparability of managerial and specialized positions.

Data from private industry and from other organizations will be obtained and considered to the extent such data is made available to the Town.

(2)  Data analysis:  The approximate third quartile of market data shall be used to determine local market comparability for Town positions.

(3) Other:

Salary policies are subject to modification by Council at the time any budget is adopted or at other times as determined by the Council

Previous policies or resolutions in conflict with this resolution are hereby repealed.

This the 14^th day of June, 1999