FINDING THE RIGHT BALANCE EMPLOYEE COMPENSATION SYSTEMS FOR ROAD COMMISSIONS FINDING THE RIGHT BALANCE Municipal Consulting Services LLC

Municipal Consulting Services LLC TOPICS TO BE COVERED The fiscal environment and trends in compensation The importance of an up-to-date pay grade structure In-house vs. consultant usage Components of a compensation plan and development How to implement a compensation system Municipal Consulting Services LLC 1

THE FISCAL ENVIRONMENT The economy is still recovering Cost containment is a huge concern Particularly acute for road commissions MTF revenue trends have been negative and road funding is in flux – local, state and national Must focus on doing more with less Municipal Consulting Services LLC 2

TRENDS IN COMPENSATION - MACRO CPI-U July 2014/July 2015 = 0.2% July 2015 Unemployment Rate: 5.3% reduces slack Compensation per Hour (non-farm): 3.1% (first quarter) Up from 1.1% in 2013 Municipal Consulting Services LLC 3

WHAT DOES IT MEAN FOR YOU? Limitations on what you can do fiscally However, there are downsides to not being competitive Challenges in recruitment and retention Particularly problematic with professional positions and top performers Municipal Consulting Services LLC 4

Municipal Consulting Services LLC BOTTOM LINE Pay decisions in your environment must be made from an informed basis An up-to-date pay grade structure is the foundation to do this Based on both internal and external conditions The starting point for deciding when and how to expend scarce dollars Municipal Consulting Services LLC 5

WHO CAN DEVELOP THE PAY GRADE STRUCTURE/PAY SYSTEM? Can we do it in-house? Some HR Directors can do it Many agencies use a consultant for design An overview of the process may help with that decision or evaluating/selecting a consultant Municipal Consulting Services LLC 6

HOW TO DEVELOP A PAY SYSTEM – 4 PHASES Understand each job explicitly “front end philosophy” Understand the labor market Develop a pay grade structure Implement the pay system Municipal Consulting Services LLC 7

PHASE ONE: UNDERSTAND EACH JOB A lot has changed since 2008 Employee involvement, participation, transparency Employees or supervisors to review job descriptions Update duties, reporting relations, education, experience and job descriptions in general Good job description templates available if needed Some communities/departments are more difficult Municipal Consulting Services LLC 8

PHASE TWO: UNDERSTAND THE LABOR MARKET Different jobs have different markets Local vs. national, public vs. private, etc. Design market survey for multiple markets and sources Primary market may be other road commissions and public works operations and secondary market may be local employers Municipal Consulting Services LLC 9

Municipal Consulting Services LLC Continued… Primary data source: written survey to other public employers Secondary market: possibly canned data Secondary data sources: ASE, TEA, BLS, Chambers, COGs, local employers, peer surveys What is the lateral labor market for each position? Who are we competing with? Municipal Consulting Services LLC 10

PHASE TWO: SURVEY DESIGN Briefly describe each job and salient characteristics (PE) Determine benefits to be surveyed Overview of total compensation Mail or electronic surveys or both Canned data won’t require a survey – careful review Municipal Consulting Services LLC 11

PHASE 3: DEVELOPING PAY GRADES Developing pay grades: point factor, market value or arbitrary assignment Point factor is the consultant’s approach Typically 8-10 job factors Municipal Consulting Services LLC 12

POINT FACTOR: A BASIS FOR GRADE PLACEMENT Education & Experience Judgment & Independence Internal & External Relations Supervisory Responsibility Job Complexity Responsibility for Others Information Technology Impact on Operations Environmental Factors Municipal Consulting Services LLC 13

DEVELOP GRADE STRUCTURE Each job evaluated based on each factor Grades are then cut from the results Grade Point Parameters 1 1200-1400 2 1401-1600 3 1601-1800 4 1801-2000 Grades can also be set 5 2001-2200 based on market data Municipal Consulting Services LLC 14

PHASE THREE: DEVELOPING SALARY RANGES Use the market data to develop pay ranges Work from midpoint or maximum depending on sample Typically 30% range width for administrative jobs Municipal Consulting Services LLC 15

DEVELOP PAY GRADE STRUCTURE Point Parameters Average Market Wage Salary Range 1 1200-1400 $37,551 $32,653-$42,449 2 1401-1600 $42,245 $36,735-$47,755 3 1601-1800 $44,357 $38,572-$50,143 4 1801-2000 $48,793 $42,429-$55,157 5 2001-2200 $54,892 $47,732-$62,052 Municipal Consulting Services LLC 16

Municipal Consulting Services LLC PHASE 3: Result…. Final product: Pay grade structure is the foundation for your compensation system Municipal Consulting Services LLC 17

PHASE 4: IMPLEMENTATION Perform compa-ratio for individual employees and the group as a whole Municipal Consulting Services LLC 18

EVALUATING THE RESULTS A Balance Sheet (Grade 1 Example) 32,653 36,912 42,449 Current Wage/MID = Compa-ratio (e.g. 35,000/36,912 = .95) Municipal Consulting Services LLC 19

EVALUATING THE RESULTS – ASSESSING YOUR OPTIONS Consider implementation options If steps: consider how many and how high Rationale for steps may differ from organization to organization Municipal Consulting Services LLC 20

STEP/RANGE MOVEMENT OPTIONS Automatic step increases Automatic step increases to midpoint only Performance evaluation Municipal Consulting Services LLC 21

AUTOMATIC STEP INCREASES Unionized application Study provides starting point for negotiations Range is typically narrower Administrative application Easier to administer Municipal Consulting Services LLC 22

AUTOMATIC STEP INCREASES TO MIDPOINT ONLY Recognizes learning curve Provides structure for possibly rewarding exemplary performers Municipal Consulting Services LLC 23

RANGE MOVEMENT: PERFORMANCE BASED How to evaluate performance can be a quandary Municipal Consulting Services LLC 24

PHASE 4: PERFORMANCE EVALUATION Ideally links performance to compensation – not easy to do Municipal Consulting Services LLC 25

ISSUES IN PERFORMANCE EVALUATION Content: What are you measuring? Public vs. private – different approaches Bias: A multiple rater issue Budget: How do you administer it? Municipal Consulting Services LLC 26

PERFORMANCE EVALUATION – WHAT I SUGGEST Walk before you run Check professional associations for templates Establish acceptance before linking to wages Municipal Consulting Services LLC 27

PHASE 4: GOING FORWARD PAY SYSTEM ADMINISTRATION A living system Annual update of pay ranges Reclassification and new position insertion – use the tools Municipal Consulting Services LLC 28

QUESTIONS AND COMMENTS Municipal Consulting Services LLC 29