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“What Is New and Cutting Edge in Employee Pay?”

Session at the 2011 ICMA Conference Sponsored by Women Leading Government


Ideas generated by session moderator Linda Barton, city manager of Livermore, are captured by ICMA Senior Advisor Jan Perkins.

A packed house participated in this engaging session – with more than 300 people in attendance. The session description was: “The world of local government compensation is changing – in light of drastically reduced resources. How are public agencies moving to new compensation realities with their employees? What are the compensation models of the future? How is performance and merit being incorporated into pay plan administration? Hear strategies that are working in reining in employee costs and creating new compensation models.”

Linda Barton, WLG board member and City Manager of Livermore, CA moderated the session.  Two city managers and one compensation expert presented their experiences and advice.    The panelists were:

  • Betsy Fretwell, City Manager, Las Vegas, NM
  • Cindy Johnson, City Manager, City of Richland, Washington
  • Bruce G. Lawson, Managing Director, Fox Lawson & Associates  

Following their presentations, Linda invited people in the audience to discuss at their tables the strategies they are using to change their compensation systems.  Audience members shared some of their ideas and Jan Perkins, ICMA Senior Advisor and WLG Board Member recorded their ideas on a flipchart.

Key Comments from Bruce Lawson:

Given the world in which we now live, public sector organizations must rethink the underlying basis for their compensation program.  It is critical that each organization understand and articulate what it is you are paying people for (time in service, results, skills, etc.).  Until there is an understanding of what you are paying for, it is virtually impossible to appropriately establish a compensation program that is appropriate.  The second critical question that must be addressed is how flexible do you want the system to be.  Given that change is the norm and not the exception, it only seems appropriate that the classification and compensation systems need to be sufficiently flexible to accommodate on-going and continuous change.

The “new normal” includes:

  • Flexible job bands and broader pay ranges with defined criteria regarding placement within a range (skill or competency based pay, performance based pay)
  • More market focused in terms of overall pay levels with market being defined differently for jobs by level and occupational grouping
  • Greater emphasis on results and less on longevity or “seat time”
  • Emphasis on total compensation (including health care, alternative work schedules and locations, and retirement)
  • Flatter pay structures – fewer pay levels and fewer job classes
  • Fewer employees to do the work more efficiently
  • Pay for performance model tied to evaluation tool

KEY COMMENTS FROM BETSY FRETWELL:

Within the context of declining revenues and annual budgets, the city made it a priority to offer compensation and benefits that are sustainable, affordable by our community and are more in line with the private sector. The city of Las Vegas is doing this with a number of programs. The city recently implemented a class/comp study by making adjustments to 400 job classifications that would put compensation more in line with comparable public sector agencies. Over 1250 individual employee salary ranges were adjusted to match industry comparables, saving the city an estimated  $500,000 over the next year and approximately $9 million at full implementation. One of the programs currently being rolled out for non-represented employees is restructuring leave benefits. When employees separate from the city, they currently are paid for all of their accrued sick leave up to 840 hours based on their current vesting level which tops out at 100% after 20 years. The city will pay appointive employees for the sick leave they would have been given had they separated in January and will no longer pay out sick leave after this initial buyback. This will reduce the city’s outstanding liability by $5 million with the hope that the city’s four bargaining units will do the same the next time their contract is negotiated. The class/comp study and the sick leave buyback are just two examples of efforts the city of Las Vegas is taking to provide more sustainable compensation and benefits.
 
Final comment: It is time for all local governments to revaluate all their compensation strategies given the reset in the economy. One participant indicated that it was interesting to him that the strategies we discussed weren’t really cutting edge, but that it just seemed like we were finally doing what everyone acknowledged needed to be done years ago.

Key Coments from CinDy Johnson

With increasing public scrutiny about how public employees are compensated, recognized, and rewarded, managers must drive for change. Granted, it is a slow and deliberate process, but change can be made and it can be proved.  The City of Richland has moved from a traditional step-based merit system to one that is based on performance and tied to goals defined by the city council through their strategic leadership plan.  We challenged the old model by redefining our leadership team; developing a competency model that would define expectations for performance; creating internal task teams to develop a new rating model and redefining “successful” as a performance measure.  Our strategic leadership plan provides focus for our budget and performance so that accountability is key. Support from Council, driven by the City Manager and created and implemented by task teams at the supervisory and management team level, our performance system has provided a way to compensate employees based on performance  rather than less accountable, traditional methods.    It is hard work and takes a lot of time but well worth it.  Declining resources and increasing requests for services demands that cities look internally for efficiencies and effectiveness.  Pay for performance provides a means to recognize employees for success as well as the accountability path for those employees who need additional attention.

Final note:  It’s hard work, is time consuming, nerve wracking and so worth the effort.  That’s what we do….

Other Ideas Shared at the Conference Session:

- Have a compensation philosophy and strategy

- Ask these key questions:

  • What are you paying people for?
  • What is your management philosophy?
  • How broad or narrow is your job classification system and what problems are you experiencing?
  • How entrenched is past practice in the way the system works?

- Changing benefit programs:

  • Employee choice with consumer driven health care
  • New benefit programs with cafeteria style options
  • Wellness coaches

- Performance tied with strategic plan

- The “new normal” includes:

  • Flexible job bands and broader pay ranges with defined criteria regarding placement with a range (skill or competency based pay, performance based pay)
  • More market focused
  • Greater emphasis on results and less on longevity or “seat time”
  • Emphasis on total compensation (including health care, alternative work schedules and locations, and retirement)
  • Flatter pay structures – fewer pay levels and fewer job classes
  • Fewer employees to do the work more efficiently
  • Pay for performance model tied to evaluation tool
  • Negotiated labor concessions

- Specific expected competencies identified or supervisors, managers and executives, building on foundational competencies (such as technical expertise, accountability for performance, excellent customer service, effective communications, safe work practices)

- Regular meetings with managers and supervisors to reinforce expectations

- Leadership structure that drives organizational change

Results achieved by cities/counties using new compensation methods include:

  • Health care costs have remained stable while the national trend has been 10% increase per year for the past three years
  • Sick leave savings from non-represented employees
  • Over $500,000 savings resulting from a classification and compensation study
  • Reduced labor costs from negotiated concessions
  • Participation by employees in creating their own performance plans
  • Linkage of employee performance goals to the city’s strategic plan

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