1. Building Effective Compensation and Classification Systems to Attract and Retain Talented Employees 5050 Quorum Drive, Suite 625, Dallas, Texas 75254 800.899.1669 www.watersconsulting.com Presentation to the Board of Directors The Woodlands Township October 14, 2009 THE WATERS CONSULTING GROUP, INC. Dallas  Austin  Seattle  Cleveland

2. 2 ©2009 The Waters Consulting Group, Inc. Who is WCG? The Waters Consulting Group, Inc., (WCG) is a management consulting firm specializing in:  Services to municipalities, counties and other public and private sector entities nationwide since 1988  Local government compensation and related HR systems  Comprehensive wage and salary studies  Development of alternative compensation programs  Innovative performance management systems

3. 3 ©2009 The Waters Consulting Group, Inc. Strategic Questions  How competitive are the organizations’ pay structures? What is the appropriate “market” with which to compare?  What is the best approach to ensure that jobs that are similar in the separate organizations are treated fairly in the combined organization?  What benefits should the new organization provide?  What compensation strategies will support the mission and goals of The Woodlands Township? What compensation and classification system is appropriate for the combined organization?

4. 4 ©2009 The Waters Consulting Group, Inc. Key Objectives  Consistent with organizational structure  Complementary to the management style and objectives  Internally equitable  Externally competitive  Easily understood  Flexible to meet the changing needs of the Township  Financially sound  Effectively and efficiently administered An effective total compensation system must be…

5. 5 ©2009 The Waters Consulting Group, Inc.  Point factor job evaluation system to ensure internal equity  Customized Salary Survey and Benefits Review  Market-based pay structures  Recommended benefit offerings  Final Report with guidelines and formal recommendations for implementation Project Deliverables

6. ©2009 The Waters Consulting Group, Inc. 6 Project Overview Position Analysis Questionnaire Salary Structure Point Factor Job Evaluation System Administration Management Philosophy Salary and Benefits Survey =$=$ COMMUNICATION

7. ©2009 The Waters Consulting Group, Inc. 7 Communication Strategy Involvement and Communication at all Levels Dedicated Email Address: thewoodlandsproject @watersconsulting.com Dedicated Toll Free #: 24 hours/7days week 866.901.0620  Steering Committee/Project Team (Communication Sessions, General Project Planning and Administration)  Employees (Communication Sessions and Position Analysis Questionnaires (PAQ’s). And Job Audits)  Management and Supervisors (Review of Employee Questionnaires and Job Descriptions, Completion of Job Evaluation Manuals)  Department Heads (Review of Job Evaluation Manuals, PAQs. Participation in the Job Evaluation process.)  Project Director, Executive Team, and President (Preliminary Findings, Review of Results, Administrative Guidelines, Budget Approval)

8. ©2009 The Waters Consulting Group, Inc. 8 Addressing Jobs Point Factor Job Evaluation  A system that compliments and co-exists with a market approach to structure development  Evaluation of jobs based on eight factors  Review individual ratings and overall structure  Use of a Job Evaluation Team (JET) and subject matter experts  Preliminary classification structure Internal Equity PAQ Salary Structure Goals & Objectives Job Evaluation System Administration Salary Survey

9. ©2009 The Waters Consulting Group, Inc. 9 Job Evaluation Factors Formal Education This factor measures the minimum formalized training or education that is required for entry into the position. Experience Based on the minimum education required for the job, this factor measures the degree of experience required for entry into the position. Human Collaboration Skills This factor measures the job requirements of interaction with others outside direct reporting relationships. Management/Supervision This factor measures the managerial requirements for achieving results through people. Technical Skills This factor measures the job difficulty in terms of the application of the knowledge required by the job. Working Conditions This factor measures the surroundings or physical conditions under which the work must be performed. Freedom to Act This factor measures the degree of freedom to exercise authority as well as assesses the impact of actions. Fiscal Responsibility This factor measures the accountability for the annual budget for department or assigned area of responsibility.

10. ©2009 The Waters Consulting Group, Inc. 10 Market Definition Benchmark Organizations Date of Data Collection: January, 2009, Aged to date of implementation Use of Geographic Index Key Factors in Participant Review  Competition for Jobs  Economic Variables  Geographic Area  Surrounding Organizations  Demographic Variables City of Allen City of Bellaire City of College Station City of Conroe City of Denton City of Flower Mound City of Frisco City of Highland Park City of Houston City of Lewisville City of McKinney City of Mesquite City of Missouri City City of North Richland Hills City of Richardson City of Round Rock City of Southlake City of Sugar Land City of West University Place Utilized some private sector data

11. ©2009 The Waters Consulting Group, Inc. 11 Market Results Employee Group Actual SalariesPay Ranges Non-Exempt-2.7%-7.9% Exempt-7.1%-8.1%

12. ©2009 The Waters Consulting Group, Inc. 12 Key Considerations Customized Salary Structure  Desired competitive position and ability to pay/compete  Relationship of new structure with survey statistics  Strategic design of new structure- width of ranges and number of grades, number of structures  Analysis of current employees in new structure PAQ Salary Structure Goals & Objectives Job Evaluation System Administration Salary Survey

13. ©2009 The Waters Consulting Group, Inc. 13 Structure Development Designing Proposed Structures  Use market average actual salaries as midpoint target  Positions placed in grades based on internal evaluation and market data  Structures competitive with market data- Ranges designed using 100% of benchmark average salaries

14. ©2009 The Waters Consulting Group, Inc. 14 Structure Development Designing Proposed Structures: Example for Human Resources Specialist  Average market salary for HR Specialist = $42,154  Average market salary for all surveyed positions in that same grouping = $39,340  Establish midpoint of Salary Range = $38,320  Build Range with 50% Spread: $30,656 - $38,320 - $45,984

15. ©2008 The Waters Consulting Group, Inc. 15 Structure Development

16. ©2009 The Waters Consulting Group, Inc. 16 Structure Development

17. 17 ©2009 The Waters Consulting Group, Inc. Benefits Review  Comparison to public organizations utilized in salary survey  Gathered data on benefit offerings  Focused on major benefits: Health Retirement Time Off

18. 18 ©2009 The Waters Consulting Group, Inc. Recommendations Based On  Benefits currently offered by The Woodlands organizations  Benefits that are prevalent in the market  Changes that negatively impact the least number of employees  Values of the organization, especially regarding future liability

19. 19 ©2009 The Waters Consulting Group, Inc. Benefit Recommendations  Health Insurance Utilize plan currently provided  Pension FICA 457b/401a 2:1 match up to employee contribution of 7%  Time Off “Paid” time off Limited accrual and no payout

20. ©2009 The Waters Consulting Group, Inc. 20 Discussion of Benefits Recommended Benefits Industry Standard (Public Sector) Defined Contribution Plan - Benefit received = contributions and earnings - Voluntary contributions - Insignificant future liability Defined Benefit Plan - Benefit received = calculated pension for life - Mandatory contributions - Significant future liability Paid Time Off - Limited accrual - No pay out - Insignificant future liability Vacation and Sick Time - Accrual - Pay out - Potential significant future liability Short- and Long-Term Disability - Limited time at full pay - Pay reduction for long-term Sick Leave - No time limit at full pay, until sick leave is exhausted

21. 21 ©2009 The Waters Consulting Group, Inc. Proposed Implementation  Adopt proposed pay structures effective January, 2010  Provide an increase to Township employees to offset FICA deduction  Increase employee pay to minimum of proposed range  Provide “Time in Position” adjustment  Cap increases at 10%

22. 22 ©2009 The Waters Consulting Group, Inc. Cost of Salary Increases (2010) Cost% of Total Payroll Employees to Minimum $67,457.7% Time in Position Adjustment $103,6081.1% Special Adj.$7,200.1% Cost of Study Implementation $178,2651.9% 2% on 4-1-2010 (9 month cost) $141,4661.5% 2010 Salary Increases $319,7313.4%

23. Final Report Maintain plan in the future Procedures for market adjustments and movement within range Training for HR staff Administrative guidelines 23 ©2009 The Waters Consulting Group, Inc.

24. Building Effective Compensation and Classification Systems to Attract and Retain Talented Employees 5050 Quorum Drive, Suite 625, Dallas, Texas 75254 800.899.1669 www.watersconsulting.com Presentation to the Board of Directors The Woodlands Township -END OF SLIDE SHOW- THE WATERS CONSULTING GROUP, INC. Dallas  Austin  Seattle  Cleveland