SECTION A

ATTACHMENT 1

 

REPORT AND RECOMMENDATIONS FOR EMPLOYEE COMPENSATION FOR FISCAL YEAR 2003-2004

INTRODUCTION

Each year the Town reviews pay in the defined labor market for Town jobs and makes recommendations to the Council for changes which will maintain competitive rates for hiring and retention of employees. We present this report and its attachments to the Council with our findings and recommendations on this important topic.

Survey Respondents

The Town Human Resources staff conducted a pay survey in March and April 2003. Responses were received from the ten organizations identified by the Council in 1999 as peer organizations. These include:

·                                Town of Carrboro

·                                 Cary

·                                Durham County

·                                Raleigh

·                                Orange County

·                                Wake County

·                                OWASA

·                                The University

·                                UNC Health Care

Data on 34 benchmark positions representing a cross-section of Town jobs were received and analyzed.

Detailed Information

 We have included detailed information and background materials for the Council’s use in reviewing this report. These are found in the attachments which are organized into five sections. Included are definitions of key compensation terms (Section D, Attachment 1) and an article on Competitive Pay Policy (Section D, Attachment 2) which may be useful in considering the data.

     Council Goal for Employee Pay

We are pleased to report to the Council that the recommendations for action proposed in this report would place the Town of Chapel Hill average employee pay and pay ranges at the 75th percentile of the defined labor market.

The goal of maintaining employee pay at the 75th percentile was first defined by the Council in 1999 to help the Town be more successful in recruiting and retaining employees, as a reflection of the Council’s concerns about high living costs in Chapel Hill and its recognition that the Town depends in large part on a commuter workforce. Please see Section D, Attachment 5, for the full text of this resolution establishing the Council’s pay policy. Maintaining employee pay at the 75th percentile will help to position the Town as an employer of choice.

DISCUSSION

 

We will outline four actions proposed to accomplish this goal of maintaining employee pay at the 75th percentile. Each will be addressed with reasons for and benefits of taking the action and consequences and disadvantages of not doing so. We have attached a number of documents for Council review and consideration, supporting our reasoning and the basis for our recommendations.

First Action    

We propose raising pay ranges by 2%. The cost for fiscal year 2003-2004 would be $141,500. The annual cost would be $188,700. Survey results show that a number of Town pay ranges have fallen behind the labor market. Since the new Pay Plan was implemented in October 2000, range adjustments have been

·                                   1.5 % in 2001

·                                    0 % in 2002

Labor market movement during this time has not been constant for all job groups; pay has moved by a greater amount for some than others. Steady movement of ranges is important in maintaining a reasonable position with the labor market. The negative impact imposed by budget constraints in difficult years will be minimized if range adjustments have been regular at other times.

Having ranges well-aligned with the labor market is important:

·                                   it sends a message to employees that there is scope for future advancement in the job, if they remain employed; if employees reach the range maximum quickly, they do not perceive opportunity for growth.

·                                   ranges aligned with the labor market will provide appropriate means for hiring less-experienced and more-experienced employees and differentiating between their pay in recognition of differences in skill or experience. The lack of this pay differential, often referred to as “pay compression,” leads to employee discontent among those more-experienced people who are paid the same, or nearly the same, as clearly less-experienced people in the same job. If the range is too low, there is not sufficient room to place the more-experienced and higher-performing employees at a significant distance from the newly hired, junior or lower-performing group because the upper part of the range must be used in hiring to recruit any employee.

To maintain the grade/step structure of the Pay Plan, all ranges must be moved by the same amount. We believe 2% is the best factor to use for these reasons:

·                                it moderates the effect on those grades where market movement has been small

·                                based on survey results, it is the best fit with the step amount built into the Pay Plan (3.78%) for pay adjustments intended to move employees through the lower part of the range

 

Second Action:

We propose granting the scheduled step amount (3.78%) to employees below the job rate of their range. The cost for fiscal year 2003-2004 would be $ 267,500, the annual cost would be $ 356,700. The Pay Plan structure provides for regular step increases for the employee group paid between the hiring rate and the job rate of each range. This group is 294 people (47% of the 620 Town employees) in jobs covering all of the Town’s 28 pay ranges. The goals of these regular increases are:

·                                   to prevent pay compression between new hires and longer-term employees by moving current employees up in the range

·                                   to provide recognition of employee growth and developing of skills and competencies over time. These concepts are outlined in the article in Section D, Attachment 2, which discusses competitive pay philosophy and concepts

·                                   taken together, the 2% range increase and the 3.78% step increase serve to keep current employees at the appropriate point in the new pay range and also to provide an increase in recognition of continued service, skills development in the job, and progress through the range

Third Action:

We propose granting performance increases averaging 4.5% to employees at or above the job rate of their range. The cost for fiscal year 2003-2004 would be $510,700. The annual cost would be $ 680,900. The Pay Plan provides for performance increases to employees paid in the open portion of their range (between the Job Rate and the maximum).This group is 326 people (53% of 620 Town Employees) in jobs which are spread across all of the Town’s 28 pay grades.  The actual amount of these increases would vary depending on the number and distribution of the performance ratings among this employee group, and will average 4.5% of salaries for this group. The goals of these increases are:

·                                to provide recognition of employees’ performance

·                                to continue movement of the longer-term employees through the pay range and allow differences between pay of this group and newer employees, to avoid pay compression

·                                to maintain competitive pay to retain these employees

 

The longer-term employee group provides many benefits to the Town. These include:

·                                continuity and stability in the work force

·                                a sense of “organizational history” and knowledge of practices and standards

·                                mentoring and informal leadership toward newer employees

·                                capability of performing “above the job description” when required, whether for multiple job skills or for critical situations and projects

·                                capability for backup and interim leadership

·                                high levels of expertise and well-developed job skills, leading to higher productivity and top quality results

Regular and reasonable pay increases for this group are important for retention, employee morale, and to prevent pay compression between this group and newer employees. Please see Section D, Attachment 4 for an example of the cumulative effect over time of varying levels of increases for these two groups.

Fourth Action:

We propose providing special pay adjustments for the nine employee groups whose pay would remain below the 75th percentile of the market after the general increases were applied. The cost for 2003-2004 would be $120,900. The annual cost would be $161,200. If the three actions proposed above are implemented as recommended, several small groups of employees still would remain below the appropriate level for their new pay ranges because of the size of the change required to align the ranges with the labor market. These are described in Section B, Attachment 1: Data Analysis Supporting Proposal for Range Changes and Special Pay Adjustments.

The goal of these special adjustments is to place current employees at an appropriate point above the entry rate in the new pay range to allow upcoming hires to be recruited at a competitive entry level. If this is not done, new hires would come in at the same pay as longer-term employees and pay equity among the group would not be achieved, with potential for pay compression, low morale and higher turnover.

Summary of Recommendations for Action

Considered together, these proposed actions will achieve a number of Town goals:

·                                to recruit and retain high quality, productive employees

·                                to minimize turnover and gaps in services

·                                to maintain the reputation of the Town as a quality employer

·                                to maintain competitive pay and ranges at the 75th percentile of the market

Attachment E summarizes the proposed changes: Attachment 1 shows the proposed Class List, Attachment 2 shows the Grade and Title Changes proposed and Attachment 3 shows the proposed ranges to the Pay Plan for 2003-2004.

TOTAL COSTS FOR ALL ACTIONS PROPOSED FOR ALL FUNDS

ACTION                                             2003-2004                   2004-2005

Range adjustment of 2%                       $ 141,500                    $ 188,700       

Step increase of 3.78%                         $ 267,500                    $ 356,700                   

Performance increase of 4.5%  $ 510,700                    $ 680,900       

Special Pay Adjustments                       $ 120,900                    $ 161,200       

Total                                                    $ 1,040,600                 $ 1,387,500

           

We believe these recommendations will accomplish the Council’s goal of maintaining employee pay at the 75th percentile with wise use of resources and fair and equitable treatment for all employees. We appreciate the opportunity to provide the Council with our findings and recommendations and are ready to offer any further information which might be helpful.