MINUTES ON A WORK SESSION OF THE CHAPEL HILL

TOWN COUNCIL WITH PAY PLAN CONSULTANT

ON SATURDAY, NOVEMBER 21, 1998, 9:00 AM

Mayor Rosemary Waldorf called the meeting to order at 9:08 a.m.

Council Members in attendance were Flicka Bateman, Joyce Brown, Joe Capowski, Kevin Foy, Julie McClintock, and Edith Wiggins. Council Members Pat Evans and Lee Pavão were absent, excused. Also in attendance were Town Manager Cal Horton, Assistant Town Managers Sonna Loewenthal and Florentine Miller, Assistant to the Manager Ruffin Hall, Transportation Director Bob Godding, Personnel Director Pat Thomas, Senior Personnel Analyst Bunny Spadaro, and Interim Town Clerk Joyce Smith.

Pay Consultant Jill Pylant, Project Manager for Slavin Management Consultants, Inc. made the presentation.

Ms. Pylant reviewed the Pay Plan process of several months, and the findings from the October Council meeting and the meetings with employees. She returned today with changes to be made to the original recommendations of the Compensation Study. Ms. Pylant reviewed the goals: (1) be a simpler system, (2) be market competitive, (3) provide career advancement, (4) reward good performance, (5) correct compression, (6) value long-term employees, and (7) be affordable. She noted that the three most important of these were simplicity, valuing long-term employees, and it be an affordable plan. Ms. Pylant said that she felt that the recommendations have met all of these goals, especially the three most important ones. She said that the recommendations fall into three categories: (1) market competitiveness and the actual pay structure, (2) compression, and (3) performance management.

Recommendations:

1. To maintain market competitiveness by bringing the midpoint of all salary ranges to the 75^th percentile of the market. Retain the current range widths of 32% to 46% depending on salary grade. (Original recommendation was to reduce all pay ranges to 35%.) The cost of this recommendation would be approximately $124,000 in FY 2000-2001.

2. Compression—correct salary compression by bringing all employees with 5 or more years of service, whose salary is not at the midpoint, to the midpoint; and, by bringing all employees with 1-4 years of service, whose salary is not at 95% of midpoint, to 95% of midpoint. The cost of this recommendation would be approximately $150,000 for FY 1999-2000. The Manager’s Report suggested adjusting years of service to 2, 3, and 4 years of service and Ms. Pylant saw no problem with this suggestion.

3. Compression—create steps in the pay ranges from minimum to maximum to ensure that employees move to the midpoint and eliminate future compression problems.

4. Compression—apply performance increases to base salary with the exception of employees with salaries above the midpoint for whom an “Outstanding” rating is earned. The portion of the increase above the “Exceeds Standards” increase should be paid in a lump sum and not added to base salary. This is a modification of the original suggestion. The Consultant recommendation is now saying that all performance increases should be applied to the base salary with the exception of those who have an “Outstanding” rating, who should receive the difference between “Exceed” and “Outstanding” as a lump sum payment. Thirty-five percent is not essential. The Council should keep the original 24-46% range widths.

Mayor Pro Tem Capowski asked 24-46% of what? Ms. Pylant responded, percent of the minimum salary.

Ms. Pylant continued reviewing the remaining recommendations, saying that these were critical.

5. Performance Management—split the performance category “meets/exceeds standards” into two ratings and provide a high level of pay increase to performance which exceeds standards. They are two different things and employees said that it caused problems. Chapel Hill’s standards are higher than other employers.

6. Performance Management—provide variable pay awards based on level of performance using a mathematical formula to determine the amount of each level of performance award. Based on the number of employees in each rating level, the formula will determine the amount of increase for each level.

Council Member McClintock asked if the award money would be built into the base pay or paid separately. Ms. Pylant said that it would be built into the base pay except for the “Outstanding” rating.

Council Member McClintock said that one of her concerns was that this defeated the purpose of trying to simplify the pay plan, but felt that separating the awards would be easier to understand. Ms. Pylant said that that was the original suggestion but the employees felt that rewarding long-term employees was more important than simplicity. Ms. Pylant said that by separating performance pay from base pay this created an area where the employees’ goals and the Council’s goals were in conflict.

Personnel Director Pat Thomas said that the idea of not building performance awards into the base pay was that to do so would have very quickly brought everybody’s base pay to the midpoint, and there was no difference in the base pay for those who had been employed five years or twenty-five years. She said that the employees felt that there should be a different base pay.

Ms. Pylant compared this to the cost-of-living-increases which move the whole structure up.

Mr. Horton said that the original recommendation took a system of compression below the midpoint and raised it to the midpoint. He noted that there would be no limit on the number of persons who could receive an “Outstanding” rating. Mr. Horton said that the dollar amount could be larger or smaller depending on how many received the “Outstanding” rate. He also said that all of the monies for “Outstanding” would be a bonus and not put into the base pay.

Council Member McClintock said that, although the Town Council had control of a certain pot of money, it is still built into the basic pay of each employee and that, over time would cost the Town money. Ms. Pylant said that this was a matter that the Consultants and the employees have been trying to resolve. Ms. Pylant noted that the only bone of contention in the recommendations is the conflict over whether or not the Council wants to pay the going rate. Ms. Pylant noted that paying the going rate would compress salaries at midpoint and the employees felt that compression at the midpoint devalues them. Ms. Pylant also said that this is a serious issue to the Council and there is a need to find what will work.

Council Member Bateman asked about the differences of ways to increases between below midpoint and above midpoint. Ms. Pylant said that with the new recommendations both sides of midpoint would be equal.

Council Member Foy asked why not have a fourth category to reward longevity? Ms. Pylant said that could be done, but most organizations are turning away from that. She noted that the Town already has a longevity system and the Consultants assume not changing the system.

Mayor Waldorf asked that the longevity system be defined, to refresh the Council’s understanding. Ms. Thomas reviewed the policy: An award paid annually on December 1, and not paid into base pay was for: 5 years--$500, 10 years--$650, 15 years--$800, 20 years--$1,000, and 25 years--$1,200. Ms. Thomas said that a lump sum means a greater percentage would go to the lower-salaried workers. Ms. Thomas also noted that 60% of the work-force have more than 5 years service.

Ms. Pylant said that if that plan was applied to the base pay, it would disrupt any hope of step pay and create equity-compression in the lower grades. She noted that it creates inequities regarding responsibility.

Mayor pro tem Capowski asked what effect this would have on the employees. He also asked how it would be explained to the employees. Ms. Pylant discussed the difference between steps and grades and asked the Personnel Director to explain.

Ms. Thomas said that there might be 2% steps for performance, and those exceeding expectations would more quickly get to midpoint.

Council Member McClintock said that that got back to her primary concern that employees might believe that they are not appreciated by their supervisors and that could cause problems. Ms. Pylant said that one of the recommendations is to develop specific performance standards and have the supervisors trained to use these standards.

Council Member Brown asked if there was any place that had a good pay system that gets at some of these objectives without a step system. Ms. Pylant said that the system could be accomplished without a step system but that the Town would have to allocate a larger amount of funds to the performance system.

Council Member Bateman said that if she was an employee she would be baffled by the explanation. Mr. Horton said that he apologized for not giving a better explanation of the system and rather than try to do it at this meeting, he asked if the Council would allow the staff to come back at a later meeting with explanations based on real situations.

Mayor pro tem Capowski thanked Mr. Horton for this suggestion and asked that the staff not use the words "step” or “grade” in the explanation.

Council Member Brown asked if the employees understood? She also asked if it was more complicated than before. Ms. Pylant felt that the employees understood it well.

Council Member Wiggins said that she would applaud a more simplified explanation, but that the Council should not underestimate the intelligence level of the employees. She felt that she could understand it because it was similar to the State system.

Council Member Foy asked what the other benefits would be for the employees. He also asked what the advantage of getting to the midpoint would be. Mr. Horton explained that midpoint is where the Town would be to be competitive with the market place.

Council Member Brown said that it was not necessary to have a complicated evaluation system.

Mayor Waldorf said that, in her perception, she could see some conflicts in the goals because of the spectrum they covered.

Ms. Pylant said that the employees, with the exception of Transit, thought that the performance evaluations were fair and their supervisors were fair, and that performance evaluations were important. She told the Council that these need to be done right.

Ms. Pylant continued with the review of the recommendations.

7. Performance Management—eliminate the cap on “Outstanding” ratings through the use of the mathematical formula. No matter how many “Outstanding” ratings there were they should all be rewarded.

Council Member McClintock asked why? Ms. Pylant responded that no matter how many there were, the awards should not be denied because of a limit on the funds available.

Council Member McClintock asked how grade inflation would be avoided. Ms. Pylant responded that managers have to manage supervisors and so on down the ladder of responsibilities. Ms. Pylant said that written performance evaluations were necessary, with defined standards for all parts of the performance. Ms. Pylant noted that the danger would be if performance standards were written for too low expectations.

Council Member Foy said that this proposed system was based on written standards instead of peer standards.

Mayor Waldorf said that the Council was not ready yet to make a decision and asked Ms. Pylant to continue with the recommendations.

Ms. Pylant continued:

8. Performance Management—allow employees at the top of the salary range to receive performance awards as a lump sum payment not added to base salary, and awarded annually.

9. Performance Management—develop and/or revise standards for all levels of performance for task/work performed by all employees to use in performance management. Train all supervisors in performance management, which is presently not working in the manner in which it is being performed because demerits start at 100% and work to a lower point throughout the year. It begins with a negative and carries down in a negative form.

Ms. Thomas reviewed the Manager’s comments on costs and the system components of the Slavin Management report.

In category number 1 – Desired Objective: address salary compression—the Manager suggests that Slavin Management consider a modification to their recommendation which would increase the salaries of employees with 1-4 years of service to 95% of the range midpoint, to adjusting the proposals to differentiate between current employees with 2, 3, and 4 years of service.

In category number 2 – Desired Objective: provide for career advancement—commenting on the salary steps suggested by Slavin Management, Ms. Thomas said that the Manager suggests that the Consultant consider allowing employees who exceed expectations to receive a larger step increase than those who meet expectations, believing it would be advantageous to allow employees below the midpoint to receive variable increases tied to their performance.

Council Member McClintock asked how the Manager’s suggestion differed from the Slavin Management recommendation.

Ms. Thomas replied that the Consultants recommended only one step each year and the Manager’s recommendation would allow different stages of steps for different performance, including new employees.

Council Member Bateman said that she preferred the system that, until the employee reached the midpoint, he/she would go up one step per year. She noted that this would be clear and predictable. Council Member Bateman said that bonuses could be sorted out and added to, later. She said that her main priority is simplicity and predictability.

Ms. Thomas said that the key point would be the steps to midpoint, so the employee could see how salary increases would move up.

Council Member Brown asked that, when the suggestions come back to the Council from the staff, if they could include how objectives could be achieved, still keeping the method simple. Ms. Thomas said that she felt that the Consultant’s recommendations did that, and that the staff would devise a picture to explain to employees how the system will work.

Ms. Thomas continued to review the Manager’s comments.

In category number 3 – Desired Objective: reward long-term employees over newer employees. The initial Slavin Management recommendations for pay increases above the midpoint was that future market and merit pay increases of employees whose salaries are above the midpoint would be paid with 50% to base pay and 50% as a lump sum, the advantage being long-term cost controls. Because of the concerns of the Council and the employees to reward long-term employees more than employees with shorter tenure, Slavin Management revised the original recommendation. The revised recommendations would provide base pay salary increases for employees at or above the midpoint. The amount of the “Outstanding” increase would be paid as a bonus, and the full increase for employees at the pay range maximum would be paid completely as a bonus. Other increases would go toward base pay. The main difference between the original and the revised recommendation were that the salary ranges would increase visibly over a period of time, rather than compressing.

Ms. Thomas discussed the cost calculations. The cost to the Town, using either of the recommendations, would be similar in the early years of application. The cost savings under the original recommendation—50% base/50% bonus, would accrue in later fiscal years, after 2004, when the Town’s base payroll would be 4% to 7% lower if half of the salary increases were paid as bonuses, rather than in base pay. The savings from the 50/50 policy, however, could result in turnover among the most experienced, long-term employees.

Ms. Thomas said that the Consultant was still recommending the original recommendation.

Council Member McClintock said that she liked the original recommendation.

Council Member Foy said that he liked the original recommendation of 50/50. He said that under this system the employee would get the extra money, rather than it being buried into salary, and could invest the money any way he/she chose. Council Member Foy said that he did not see this policy as a disincentive to the long-term employee.

Mr. Horton said that he agreed with Council Member Foy, and this identified some of the key positives to the 50/50 recommendations. Mr. Horton said that the key negative was that the 10-year employee and the 25-year employee would be making exactly the same thing.

Ms. Thomas said that by the cost calculations over the years, the long-term employee would make less money, because based on salary, less had been added to the base pay over the years. She noted that this saves the Town money, but at the expense of the long-term employee’s base salary.

Mayor pro tem Capowski asked how longevity pay fits in. Ms. Thomas said that was a bonus payment.

Mayor pro tem Capowski said why not just add the bonus to longevity pay and make a higher slope on the longevity curve. Mayor Waldorf said that as a matter of policy the long-term employee should be rewarded for doing a good job, not just for being long-term. Ms. Thomas said that the policy was a trade-off. Ms. Thomas also said that the cost implications would be more in increase in base pay, but it rewarded the long-term employee.

In category number 4 – Objective: maintain market competitiveness—Ms. Thomas said that setting salaries at the 75^th percentile of the market for all jobs would not cost as much as had been anticipated, the average being 4 or 5% to reach that goal. The cost estimates would be approximately $124,000.

In category number 5 – Desired Objective: reward good performance—Ms. Thomas said that there were advantages and disadvantages in the elimination of the 10% cap on the “Outstanding” rating. One advantage would be to eliminate one of the major sources of employee dissatisfaction with the current system linking pay and performance. The Council would still maintain cost controls on performance ratings. One disadvantage would be that the employee could not be told how much money would be involved at the time of the rating discussion, and there could be less money to go around. The training for evaluations would involve much work and take a couple of years to develop.

In category number 6 – Desired Objective: provide a system that is affordable—Ms. Thomas said that the staff felt that the system was affordable. The Council would still have control of the money. In the early years some additional spending would likely be required to correct current salary compression and to move to the 75^th percentile, but in later years the annual funding should be sufficient to maintain and fund the system.

In category number 7 – Objective: provide a simpler system—Ms. Thomas said that for many years in the 1980s the salary steps were used, making it easy to see where each employee moved. Over the years, changes had been made. She felt that the key point was to have a system and to stick with it so employees would get used to and understand it.

Mayor Waldorf said that she wanted to be sure she understood the costs. She was surprised that the system, as calculated, didn’t add to the costs, except to correct salary compression and to move to the 75^th percentile. Mayor Waldorf said that the first thing the Council should discuss was moving all employees to the 75^th percentile.

Mayor pro tem Capowski wanted clarification of how the money was to be distributed.

Mr. Horton said that if the step system was adopted it would give predictability even if the market did not change.

Mayor Waldorf said that the Council should now go through Slavin Management’s recommendations.

Council Member Wiggins asked that the staff test the suggestions on the employees to be sure that they understood, and she would like feed-back on the salary increase issues.

Mr. Horton said that the staff could not be ready to present the answers requested by the Council by January 27^th, as had previously been expected. He will get back to the Council to set a date.

Council Member Brown wanted to hear comments from some of the employees attending today’s meeting.

Former Transit employee, Beth Kell, spoke to the Council from the floor. There was no mike, so her comments could not be transcribed.

Council Member Wiggins asked if there was something different about the Transportation Department.

Mr. Horton said that the system grew out of a system that was unique to the Transportation Department. He said that the demerit system used by the Department should be abandoned, as it was negative.

Council Member Wiggins said that she felt it was the Council’s goal to have the same system throughout all the Town departments.

Mr. Horton said that the pay system would be the same throughout, but the Transportation evaluation system would have to be changed. He also said that not all jobs could be evaluated in the same manner, as many jobs differed and needed separate standards.

Council Member Wiggins said that what she meant was that the basic performance evaluation system would be the same.

There were more comments off-mike, from Transit employees Teresa Oliver and Joyce Booth. These were not audible for transcription.

Mayor Waldorf asked if there were any more comments on the 75^th percentile issue.

Council Member McClintock asked Ms. Pylant if the costs were correct.

Ms. Pylant responded the costs were projections.

Mr. Horton said that there was not that much of a difference between the 50^th and 75^th percentile in a tight labor market.

Council Member McClintock said that she feels much more strongly about the compression issue than about the 75^th percentile issue.

Mr. Horton said that the key issue is that the Town needs employees worthy of the 75^th percentile and must continue to attract them.

Council Member Bateman asked what the difference in cost for the compression and was told $10,000. She said that she favored the Consultant’s recommendation rather than the staff’s.

Mayor Waldorf next asked the Council how it felt about splitting the performance category “meets/exceeds standards” into two ratings.

Council Member McClintock said that she agreed with the split, but would like to explore doing away with the “Outstanding” category.

Mayor pro tem Capowski said that he agreed, that he did not like the idea of categorizing people so much. He asked if the ratings could be done on a 1-10 basis.

Mr. Horton said that would be comparing people to people rather than to job standards, which can be explained by using written standards.

Mayor Waldorf said that she felt that category number 6 was a good recommendation, adding that it was fair and predictable and took away arbitrariness, stress, and unnecessary discretion.

Council Member McClintock said that there were advantages to categories, but that the Federal Government had done away with the “Outstanding” category.

Mayor Waldorf asked for feedback from the employees on the “Outstanding” category.

Council Member Brown said that she would like the staff to indicate how they got the feed-back from the employees. She also asked how the questions were asked.

Mayor Waldorf said that there were differing opinions on the Council on category number 8.

Mr. Horton clarified by explaining that this was a method for people at the top or the range to be recognized.

Mayor Waldorf said that the Council needs to discuss with the Manager the idea of hiring a consultant when the pay study is undertaken and when redoing evaluations.

Mr. Horton said that a consultant would definitely be needed to assist in the development of a system for the Transportation Department, which needed to start from scratch. He said that he felt that the other departments did not need that much help.

Council Member McClintock felt that an outside consultant should be hired for an over-all fresh look at the basic structure of the system, and for procedures in other categories of the system.

Council Member Brown felt that in addition to the Transportation Department other departments should have a closer look.

Mr. Horton said that he had been planning to recommend engaging a consultant to assist on the general review of the framework for the evaluation system. He said that the Transportation Department would cost a lot more money and time than the other departments.

Council Member McClintock requested feedback from the Consultant on the pros and cons of the differences between the original recommendation on 50/50 and the second recommendation.

Mayor Waldorf said that when time permits, the staff would bring back recommendations for hiring a consultant, as recommended by Mr. Horton.

Mr. Horton said that the staff will work with the Consultant, get an explanation drawn up to present to the employees and feed-back from them, answer the questions posed by the Council, and work out a time for another work session with the Council.

Mayor Waldorf said, after that, a hearing would be scheduled with the employees.

The work session was adjourned at 11:15 a.m.