Total Compensation: What Should Be Included Today? John R. Yeh Burke, Williams & Sorensen, LLP Association of California School Administrators Negotiators’ Planning Retreat Palm Springs, California June 25, 2015: 10:00 a.m. & 2:30 p.m. 1

Deconstructing Employee Compensation Collateral connotations of employee compensation Used as a barometer for … From the inside: A school district’s level of “respect” for employees Relative desirability of school district as employer Sign of school district’s fiscal health From the outside : Sign of school district’s fiscal responsibility A proxy for oversized, wasteful government? 2

Today’s Objectives Basic legal principles governing employee compensation Different components of employee compensation (salary, benefits, STRS/PERS) Methodologies for assessing economic value of different compensation components Bargaining strategies for deconstructing compensation in economic terms 3

COMPONENTS OF COMPENSATION 4

Components of Compensation “Direct wage compensation”(according to salary schedule) Stipends for extra/adjunct duty STRS/PERS contribution Health and welfare benefits (medical, dental, vision) What else ….. ? 5

Components of Compensation Government Code section : Factfinding Criteria Comparison of the wages, hours, and conditions of employment of the employees involved in the factfinding proceeding with that of other employees performing similar services and with other employees generally in public school employment in comparable communities. The consumer price index for goods and services, commonly known as the cost of living. The overall compensation presently received by the employees, including direct wage compensation, vacations, holidays, and other excused time, insurance and pensions, medical and hospitalization benefits; the continuity and stability of employment; and all other benefits received. 6

SALARY: BASIC LEGAL PRINCIPLES 7

The Salary Schedule Education Code section 45028: Each certificated employee “shall be classified on the salary schedule on the basis of uniform allowance for years of training and years of experience.” Exception: Negotiated non-uniform schedule “Employees shall not be placed in different classifications on the schedule, nor paid different salaries, solely on the basis of the respective grade levels in which such employees serve.” 8

The Salary Schedule Education Code section 45028: District can “grant any employee hired after a locally specified date differential credit for prior years of experience or prior units of credit for purposes of initial placement on the salary schedule of the district.” Exceptions: teachers of special day and evening classes in elementary schools, teachers of special classes for elementary pupils, teachers of special day and evening high school classes and substitute teachers. Agreement to move all teachers in Steps back to Step 17, to allow more rapid advancement of all unit members to highest step, violated uniformity requirement. (Adair v. Stockton Unified School Dist. (2008) 162 Cal.App.4th 1436) 9

THE ECONOMICS OF WAGE ACCRUAL 10

11 O“Scoresheet”V Year 1: Higher Starting Salary Year 5: Faster Progression Year 9: Gap Widens to approx. $5,000/Year Year 9: Step Advancement Does Not Top Out Year 15: Takes 15 Years for V to Reach top of O Year 15 and Beyond: Continued increases Source: ausd.org/Portals/ 5/Certificated%2 0Salary%20Sche dules/14- 15%20SY%20Ce rtificated%20Sala ry%20Schedule %20(Teacher%2 0Speech%20The rapist%20Nurse %20Counselor).p df Source: us/hr/SalarySched/CESALAR YSCHEDULETchr.pdf

Side-by-Side Cumulative Impact 12

13 WORK YEAR IS 184 DAYS Source: cms/lib/CA /Centricity/ Domain/94/salaryschedules/Affected%20Jan%201%202013/Teachers.pdf Source: 898/Centricity/Domain/58/ %20Salary%20Schedule%20- %20Group%203_Board%20Approv% _CERTIFICATED.pdf SD “Scoresheet” DM Year 1: Higher Starting Salary Year 5: Faster Progression Year 7: Gap Widens to approx. $9,000/yr Year 7: Step Advancement Does Not Top Out Year 16: Takes 15 Years for SD to Reach top of DM Year 17 and Beyond: Salary Schedule tops out at higher salary

Side-by-Side Cumulative Impact 14

Factors Impacting the Economics of Salary Schedule Progression Starting salary Increases between steps Number of years to reach maximum step Maximum salary at highest step Step at which salary maxes out How long employee works at school district 15

IMPACT OF LOCAL CONTROL FUNDING FORMULA (LCFF) 16

LCFF – The Basics Base Grants replace revenue limits Base Grant adjustments replace categorical programs (CSR, Career Technical Education, supplemental grants, concentration grants) Supplemental and Concentration Funding based on Unduplicated Pupil Count (Free-and-Reduced Lunch, English Language Learners and Foster Children) Funding allocated based on K-3, 4-6, 7-8, and 9-12 (similar to current charter school funding model) Annual appropriation not determined by state statute 17

LCFF – Impact on Revenue and Spending Grasping the basic reality of the new Local Control Funding Formula LCAP must provide “an explanation of how expenditures of such funding meet the LEA’s goals for its unduplicated pupils in the state priority areas.” (5 CCR section 15496(a).) Where does your district stand with respect to the receipt of supplemental and concentration funding? Supplemental and Concentration Funding based on number of students in priority areas Difference could be as much as 40% between districts, according to School Services How does your district’s LCAP call for the distribution of LCFF funding? 18

LCFF – Impact on Peer Benchmarks LCFF will impact the usual benchmarks for compensation: Consumer Price Index/“COLA” Ability to pay Teacher attraction/retention/competitiveness Comparability Do the usual indicators of comparability still apply? Demographics, student achievement, geography Does LCFF funding model create new “peer” districts? “Winners” & “losers”? Does the district’s LCAP supplant the utility of comparables? 19

HEALTH AND WELFARE BENEFITS 20

Health and Welfare Benefits – Fundamentals What should the contract specify? Eligibility When eligibility triggered Pro-ration for partial FTE? When eligibility terminated Suspension without pay? Leave of Absence? Resignation/Dismissal? Types of coverage offered Medical, dental, vision PPO/HMO/Self-Insured? 21

RETIREE HEALTH AND WELFARE BENEFITS 22

Retiree Health and Welfare Benefits Requirements for eligibility? Years of service Types of and scope of coverage Same coverage as current employees, or Coverage in effect on date of retirement Retiree contribution Frozen at date of retirement, or Changes with current status quo At what level, cost, and type of benefits does the retiree “vest?” 23

Retiree Health and Welfare Benefits Recognized in Education Code section 7000 et seq. enacted in 1986, though a small number of school districts negotiated retiree benefits prior to that date Pension benefits have been defined through legislation Not historically part of bargaining Up until recently, employer rates have been unchanged 24

RETIREMENT / PENSION BENEFITS 25

Retirement Benefits - Pension Future retirement benefits and related costs are part and parcel of overall compensation See County of Sacramento (2008) PERB Dec. No M. Government Code requires factfinders to consider, weigh, and be guided by overall compensation, including pensions and all other benefits received Gov. Code, Section Pension costs represent a large portion of overall compensation 26

Retirement - Employer Contributions 27 Current – 8.25% 2014/15 – 8.88% 2015/16 – 10.73% 2016/17 – 12.58% 2017/18 – 14.43% 2018/19 – 16.28% 2019/20 – 18.13% 2020/21 – 19.10% Current – % 2014/15 – % 2015/16 – 12.6%* 2016/17 – 15.0%* 2017/18 – 16.6%* 2018/19 – 18.2%* 2019/20 – 19.9%* 2020/21 – 20.4%* CalPERSCalSTRS * Projected - CalPERS Circular * Assembly Bill 1469

Retirement Costs 28

Capturing Retirement Costs Look at employers’ cost of providing retiree benefits Assign value to retiree benefits as a percent of total compensation Determine means of assigning value to retiree benefits As percent of salary Net dollar value Cost to school district Include retirement costs when comparing year-over-year compensation increases 29

THE ECONOMICS OF HEALTH AND WELFARE BENEFITS 30

Health and Welfare Benefits – Economics “Premium” v. “Employee Contribution” Definition of “Premium:” “Agreed upon fees paid for coverage of medical benefits for a defined benefit period. Premiums can be paid by employers, unions, employees, or shared by both the insured individual and the plan sponsor.” (Source: Bureau of Labor Statistics “Employee Contribution:” Traditional Forms Co-Pays Deductibles Premium contributions Caps on employer contributions 31

Health and Welfare Benefits – Economics Levels of Coverage Single Employee + 1 Family 32 Source: Orange Unified School District

Health and Welfare Benefits – Economics Ways of determining value of health care coverage Employer Contribution Employer Premium: Average cost of coverage plus administrative costs Cafeteria Plan: Amount of employee’s monthly/annual allocation IRS Guidelines Actuarial Value: “The percentage of health care costs that the plan, on average, is expected to cover.” ( 33

TOOLS FOR TRACKING TOTAL COMPENSATION 34

Total Compensation Comparison 35

Individual District Snapshot 36

Measuring Compensation Against CPI 37

OTHER COMPONENTS OF EMPLOYEE COMPENSATION 38

Other Components Additional leave time (negotiated in contract) Personal Necessity Leave Catastrophic Leave Sabbatical Leave Credit for prior service Opportunity for adjunct duties Professional development Prep time Transfer, reassignment and priority rights as to vacancies 39