MINUTES OF WORK SESSION OF THE CHAPEL HILL TOWN COUNCIL
MONDAY, OCTOBER 12, 1998 AT 5:00 P.M.
COMPENSATION
PRACTICES AND PAY PLAN
Mayor Rosemary Waldorf called the meeting to order at 5:00 p.m. Council Members in attendance were Flicka Bateman, Joyce Brown, Joe Capowski (5:10 p.m.), Pat Evans, Kevin Foy, Julie McClintock (5:10 p.m.), Lee Pavão, and Edith Wiggins. Stafff in attendance were Town Manager Cal Horton, Assistant Town Managers Sonna Loewenthal and Florentine Miller, Town Attorney Ralph Karpinos, Personnel Director Pat Thomas, Finance Director Jim Baker, Police Chief Ralph Pendergraph, Fire Chief Dan Jones, Transportation Director Bob Godding, Inspections Director John Davis, Engineering Director George Small, and Interim Town Clerk Joyce Smith.
Jill Pylant, Project Manager for Slavin Management Consultants, made the presentation.
Ms. Pylant presented a brief review of the purpose of the study and the methodology taken, the findings, and the recommendations as discussed in the Consultants’ Report to the Council.
Purpose of the Study:
· Define the compensation philosophy and values of the Town
· Collect and analyze data on the Town’s existing compensation system and how it evolved to its present state.
· Recommend a system to the Town which meets the Council’s goals and is responsive to employee concerns.
Project Methodology:
· Employee Meetings
· Employee Focus Groups
· Questionnaires
· Council Work Sessions
Ms. Pylant reported that 45% of the employees responded to the questionnaires and 89% of the Town Council responded. Council Member Brown apologized for not returning the questionnaire and said she would complete it immediately.
Findings—Philosophy:
· Both Council Members and employees want a simple pay structure which is:
1. Competitive with the market,
2. Recognizes and rewards loyal service and good performance, and
3. Provides career advancement.
Findings—Beliefs:
· Both Council Members and employees believe that long term employees should be paid more and/or receive greater rewards than employees who are relatively new to Town service.
· Both Council Members and employees believe the existing compensation system is confusing.
Ms. Pylant said that 21% of the employees are below the midpoint on the pay range and have been here for over five years; and that the existing compensation system had an evolutionary history that goes back twenty years and changes each year, which adds to the confusion.
Findings—Issues:
· Salary Compression makes the long term employee feel “devalued.”
· The linkage of performance to pay is the greatest problem with the Performance Management System.
Recommendations—Compression:
· Correct some of the current salary compression on a phased-in basis, by increasing the pay of any employee with 5+ years of service to the midpoint of the salary range, and those with 1-4 years service to 95% of the midpoint
An estimate of how much the correction would cost using the current pay structure is illustrated in a graph on page 5 of the Consultants’ Report.
Recommendations—Pay Structure:
· Set the pay ranges for all Town employees, not just the first four salary grades, to be competitive at the 75th percentile of the local employment market.
· Design the pay structure to include steps from minimum to midpoint, to assure that employees reach the market rate within a reasonable period of time
A graph on page 6 of the Consultants’ Report illustrates a minimum to maximum salary range example.
Recommendations—Cost Control:
· Salaries at or beyond midpoint should receive pay increases which are applied to base salary at 50% and 50% paid as a lump-sum.
· Salaries at the maximum of the salary range should receive all increases as a lump-sum payment with none of the increase applied to base salary.
A graph on page 11 of the Consultants’ Report illustrates the resulting savings difference between two different organizations, one which compounds the entire increase annually and the other which only compounds a portion of the increase.
Recommendations—Performance Link to Pay:
· Pay increases should be based on performance with the 10% cap on outstanding ratings removed and the “meets/exceeds” rating category divided into two separate categories.
· Pay increase amounts should be determined with a mathematical formula to assure that total award budget is not exceeded.
The formula for determining the merit award amounts is illustrated on page 85 of the Consultants’ Report.
An example of movement of salaries through the salary range is illustrated on page 12 of the Consultants’ Report.
An example of other options to the recommendations is illustrated on page 13 of the Consultants’ Report.
Ms. Pylant said that the recommendations tried to balance the cost with simplicity.
Discussion:
Council Member McClintock asked if the employee salaries were grouped around the midpoint, would some employees get to the midpoint faster because it was a simpler job to learn.
Council Member Wiggins asked if the recognition of longevity would be the bonus. Ms. Pylant said that both performance and longevity rewards were not meant to be punitive, but was a system used by the private sector.
Council Member McClintock said that she liked a system based more on Cost of Living Adjustment (COLA) and less on merit and could the COLA be designed to go beyond midpoint.
Council Member Brown asked, referring to the graph on page 12, whether the employees at the top of the range would have their increases based on bonus, merit pay and a lump payment and whether these were synonymous. Ms. Pylant explained that the top employees would receive all their performance increases as bonus pay.
Council Member Brown asked what would that do to their retirement. Mr. Horton said that in North Carolina the retirement pay is based on what money has been received not on base pay.
Council Member Bateman asked if there were or could be steps to the high point for salary increases. Ms. Pylant said that it can be done, but it could be very confusing.
Mayor pro tem Capowski wondered what the employees thought about the salary/base pay increases not compounding. Ms. Pylant did not know but guessed that they would not like it. She said that it would be very difficult to do a cost-wise compounding increase.
Council Member Foy asked whether the purpose for applying the mathematical formula (page 85 in Report) meant no cap. Ms. Pylant said that the formula ratings are applied before the budget is set.
Mayor Waldorf asked what were the reasons for the recommendations for the 75th percentile and if Ms. Pylant had heard any complaints from the employees. Ms. Pylant said that employees had talked about it and that there needs to be an equity relationship within the work hierarchy. She noted the current structure sends a message to the high level employees that they are worth less than other employees. Ms. Plyant added the 75th percentile will put the Town in the competitive market. It could be expensive to implement.
Council Member McClintock said that setting the rates at the 75th percentile would make it possible to hire the very best workers with a balancing act between merit and base pay. Ms. Pylant felt that it would help with retention of workers. Council Member McCormick said that she liked the Correction for Compression recommendation.
Mayor Waldorf wanted to know what the package of proposals would cost. Ms. Pylant said that they could do salary surveys and other studies and that they were trying to phase the recommendations in over three years.
Ms. Thomas said that they could do a general estimate of costs of a 50th percentile versus a 75th percentile. She noted they had done a 75th percentile study of the four lower grade levels two years ago and found that it was about 5%.
Council Member Brown asked what is the market. Ms. Pylant said that would depend on what positions were being recruited., adding that some positions would be recruited in the local or regional market, some recruited from the government or private section, and at the top level, on a regional or national level
Council Member Evans said that the employees seemed to respond favorably to the benefit package, and wondered if the survey looked at a total package or just base salaries in determining the 75th percentile recommended. Ms. Pylant said that would be hard to determine on a dollar value because benefits vary from one company to another, such as health and life insurance. She noted some packages are better than others in certain respects and not in other respects.
Mayor pro tem Capowski said that the Town has a variety of employees and wondered if any of the categories particularly needed adjustment. Ms. Pylant said that the survey did not look at that market and had only collected data in-house.
Council Member McClintock liked the way the 75th percentile interacts with the chart on page 85 and the fact that there is even percentages for each employee, which they can understand. Ms. Pylant said that the majority of the employees perceive that they are performing at a better level than standard.
Council Member Foy wondered if the recommendation to modify the pay structure could be modified to 70th percentile. Ms. Pylant said that she would strongly recommend that if this were done it would be done for the whole structure and not just those above grades 5. Council Member Foy said that what he meant was that the other recommendations could be implemented at any level, and not be contingent on just the 75th percentile.
Ms. Pylant said that the 75th percentile makes the 50/50 and lump sum after mid point more palatable. She advised the Council that they must consider how the organization is going to react. (1) The employees know that something is happening since the Town has hired Slavin Management Consultants; (2) as the “step system” is going away in most organizations, she feels that the Town needs to balance the pay package with something good along with the bad, so that employees don’t feel a total loss. She said the 75th percentile sends a message that the Town values its employees, that the Town is trying to attract the best and brightest candidates, and sends a quality message to the community.
Council Member Wiggins felt that she did not quite understand the recommendations and asked what’s next with the report. She asked is it possible to provide the advantages and disadvantages of the recommendations, and how similar or dissimilar to what the Town has, with some examples of salary categories. She felt that clarification would help the employees to better understand the proposed changes.
Ms. Pylant continued with the Next Steps in the Report:
· Comments and Cost Implications from Town Management
· Comments from Employees
Council Member Wiggins felt that the Report should state more clearly that when the organization saves money with this new system, the employees will get less money and it will impact on the retirement benefit for employees who have been with the Town for a number of years. She said that retirement will be based on base pay, and the bonus is not part of base pay.
Mr. Horton said that the base pay would not move up as much each year, therefore the retirement would begin at a lower level as the amount for the retirement system is lower. He added that this is a more expensive pay plan, so the employees total will be higher, but they will end up with more money than with the current policy.
Council Member Wiggins stated that these were the kinds of clarifications that the employees needed to grasp and understand.
Mayor Waldorf said that the employees need to know, “How will this affect me?” Ms. Pylant said that she would be meeting with the employees the next day. She said the four meetings were by invitation, not required, and she would be attempting to explain how the new system works.
Mr. Horton said, explaining Council Member Brown’s question, that Ms. Pylant needed to explain that the cost for the first year would be higher, but after the initial corrections were made, the costs would even out.
Council Member Brown asked Ms. Pylant to clarify that the 75th percentile would make the pay package higher, but the rise in cost would not be as great in later years.
Mayor pro tem Capowski wanted to know whether the employees want a conservative approach, with job security and a lower increase, or risk a higher increase. He said the conservative approach would build all increases into the COLAs, benefits and base pay. Mayor pro tem Capowski added the more risky would be to do all increases as bonus, and asked what do the majority of the employees want? Ms. Pylant said that she did not know.
Mayor pro tem Capowski would like to know how much of the Town budget would be allotted to the package. Ms. Pylant said that she would find out tomorrow, but would speculate that the employees would want the conservative approach.
Mayor Waldorf said that it was hard to find certain employees because of the tightness of the labor market. She wondered how much of a problem is this and is there a way around the vacancy problem. Ms. Pylant said that the pay structures can have flexibility, and can use more than minimum salary to attract employees hard to find. She cautioned that new employees should not be paid more than the older employees.
Ms. Thomas said that care must be taken for equity concerns, that more flexibility would make it easier to respond to individual situations. She said it would be helpful to have more money.
Mr. Horton said that the Town had chosen targeting the middle of the market, which means to people, mediocre — and in a tight labor market employees were hard to find. He said that bonuses were not effective. In his opinion, employees want a more stable pay in order to pay their own bills.
Council Member Foy wondered if hiring bonuses were effective. Ms. Thomas said that staff was looking at that policy and had inquired of other municipalities about their policies.
Ms. Pylant said that most local governments don’t offer hiring bonuses, adding this is typically done in high level professional positions where there are not enough people to fill the positions.
Ms. Pylant continued the Next Steps in the Report:
· Council Work Session to discuss Comments Received and Revisions to Recommendations.
· “Public Hearing” for Employees with Council.
· Finalizing implementation Recommendations and Guidance given to City Manager for budget preparation for FY 98-00.
Ms. Pylant said that she feels that this is a good plan, but does not fit in with the philosophy voiced by the Council. The plan is designed for the going market rate, and does not fit with the philosophy voiced by the Council to reward long-time employees and to recognize longevity. She said she believes that the Council needs to adopt a compensation philosophy, and does not hear a consensus coming from the Council at this time.
Mayor Waldorf said that she would like to hear, in one session, reactions to the Recommendations of the Report from the Town Manager and Personnel Director, the employees and from Ms. Pylant from her meetings with the employees and her meeting with Council.
Council Member Wiggins felt that the Town Manager and the Personnel Director would be very helpful to Council in understanding the Recommendations of the Report. She felt that the Council was not ready yet to make decisions.
Mayor Waldorf did not think that the Council had a coherent philosophy and needed time to digest and study the Report.
Ms. Pylant said that the Council does not have a consensus, and that maybe the Recommendations would force a consensus.
Council Member Foy wanted to know what time frame the Town Manager needed. Mr. Horton said the staff would need guidance from the Council and would like to get started by early December. The staff will need a decision by late spring. He can get all the information requested in one month.
Ms. Pylant asked if the Council wanted alternative recommendations. Council agreed by consensus that they would.
Mr. Horton said that he was not sure that all issues could be settled in one meeting. He needs minimal guidance from the Council to get started. He felt that the Council should consider what was best for the community and felt that time spent in more meetings would be well spent in settling the issues.
After discussion of when was a good time to reconvene the personnel pay package discussions, Mr. Horton said that the staff would poll the Council to schedule the next meeting.
The hearing adjourned at 6:45 p.m.