designing and implementing compensation plans

Designing and Implementing Compensation Plans

Local Government Academy

March 19, 2008

Michael Weir, Ph.D.

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Outline

• Determining external competitiveness– Use of existing survey data– Conducting a survey– Comparing similar jobs and communities

• Determining internal consistency– Equity– Techniques– Pitfalls

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Association Surveys

• International City/County Managers Association – last year, 2005

• Pa State Association of Boroughs– Borough Employee Salary and Benefit

Survey, Borough Police Salary and Benefit Survey, Police Collective Bargaining Study

• PA State Association of Township Supervisors - 2006

• Job listings in municipal association news letters

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Bureau of Labor StatisticsLocal Pay

• May 2006 Metropolitan and Nonmetropolitan Area Occupational Employment and Wage Estimates Pittsburgh, PA– http://www.bls.gov/oes/current/oes_38300.htm

– Interactive, can click on jobs to get more information

– Can get brief job descriptions

– Not specifically designed for pay setting purposes

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43-6014 Secretaries, Except Legal, Medical, and Executive

Perform routine clerical and administrative functions such as drafting correspondence, scheduling appointments, organizing and maintaining paper and electronic files, or providing information to callers. Exclude legal, medical, or executive secretaries and administrative assistants

43-6011 Executive Secretaries and Administrative Assistants

Provide high-level administrative support by conducting research, preparing statistical reports, handling information requests, and performing clerical functions such as preparing correspondence, receiving visitors, arranging conference calls, and scheduling meetings. May also train and supervise lower-level clerical staff. Exclude "Secretaries"

BLS Job Descriptions

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Bureau of Labor StatisticsLocal Pay

• Pittsburgh–New Castle, PA National Compensation Survey January 2007

– http://www.bls.gov/ncs/ocs/sp/ncbl0943.pdf

– For pay setting purposes

– Includes mean and median hourly wages, breakdown by union and non-union and other detail

– Table 4. State and local government workers – But primarily teachers

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Bureau of Labor Statistics

• May 2006 National Industry-Specific Occupational Employment and Wage Estimates

• NAICS 999300 - Local Government (OES designation)

• These national industry-specific occupational employment and wage estimates are calculated with data collected from employers of all sizes, in metropolitan and nonmetropolitan areas in every State and the District of Columbia, in NAICS 999300 - Local Government (OES designation).

• http://stats.bls.gov/oes/current/naics4_999300.htm

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Designing a Survey

• Picking comparable communities with in the area

• Survey design

• Techniques for getting a response

• Using the results

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Survey of Comparable Communities

• Should be of similar size and provide similar services

• Other important factors are population, median family income, and other indicators of wealth within the community – Census Bureau - http://www.census.gov/

– The State Tax Equalization Board - http://www.steb.state.pa.us/ – The Department of Community and Economic Development -

http://www.newpa.com/ – Many municipalities have websites

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Survey Design

• Establish and stick to specific goals

• Begin with brief introduction – can be in cover letter

• Be as clear and brief as possible

• Pay attention to format

• Pre-test

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Sample Survey Form All data gathered in this survey will be held confidential and will be used for statistical purposes only. The final report will not permit the identification of data for individual governments. The final report will be provided at no costs to all of the governments that complete the survey. Municipality: Individual completing surveyTitleTelephone NumberEmail address Number of employeesFull timePart timeSeasonal Budget for Year XXXXGeneral FundAll Funds Type of governmentMayor-councilManager-councilCommissionOther

Salary Survey

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Salary Survey and Instructions 

Position title

If different, your title

Salary Range Actual Salary

W-2 Pay Bonus Years in Position

Minimum Maximum

Manager 

Assistant Manager

Police Chief

Etc.              

Position title: When job matching, place the emphasis on the job content rather than the titleMatching Title: List the position title in your organizationSalary Range: If you have established a formal salary range for the position, report the minimum and maximum as of XX/XX/XXActual Salary: The salary for this position as XX/XX/XXW-2 Pay: The compensation reported on the XXXX W-2Bonus: Report any bonus for the year XXXXYears in the Position: Report years as of XX/XX/XX

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Additional Consideration

• Add brief job descriptions if there could be uncertainty – Consider using the BLS job descriptions where

they are applicable.

• Take the opportunity to ask additional questions – but only if you intend to use the information

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Health Insurance Benefits

  Monthly Premium Paid by Employee

Individual Husband/Wife Family

Medical      

Dental      

Vision      

Outpatient prescription

Other      

Benefit Survey

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  Monthly Premium Paid by Employer

Individual Husband/Wife Family

Medical      

Dental      

Vision      

Outpatient prescription

Other      

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Employer Paid Life Insurance

Paid Leave

  Number of Days Annually

Holidays    

Sick Leave    

Vacation 5 Years Service

  10 Years Service

  15 Years Service

  20 Years Service

Retirement

Defined Benefit PlansEmployee Contribution as Percent of SalaryMinimum Retirement AgeMinimum years of serviceMinimum Benefit as Percent of Salary

Defined Contribution PlansMaximum Employee Contribution as Percent of Salary Maximum Employer Contribution as Percent of Salary

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Techniques for Getting a Response

• Expect to get about one-quarter to one-third of the surveys back. This means that you should plan to send out thirty to forty to get ten back.

• Address the survey to a specific individual who should fill out the survey, otherwise it could get lost. The person should be the top appointed or elected official.

• Call the official when the survey is in the mail to inform them that the survey is coming. Do not ask for permission. It is already in the mail.

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Techniques for Getting a Response

• Promise to share the survey results. The results should not include salary information identified by individual municipalities.

• Set a deadline• Provide a self addressed, stamped envelope• Provide a Fax number• Call back if the survey is not returned by the

deadline

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Using the Results

• Two measures– The mean - the average - can be skewed by a

few outliers– The median - the mid point – usually a better

measure

• Compare with the association and government surveys

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Determining Internal Consistency

• Equity– internal– individual– process

• Techniques– Job worth hierarchy– Compensation matrix

• Pitfalls

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Internal Equity

• Worth of the job relative to other jobs in the organization– Skill– Effort– Level of responsibility– Working conditions

• Can be based on job descriptions

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Individual Equity

• Focus on merits of person holding job, not the job itself

• Reward for effort and output

• Potential problems– Overqualified for job, or– Overwhelmed by job– Unappreciated

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Process Equity

• Equity in administration of compensation system

• Considerations– Openness– Communication– Participation– Grievance procedures

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Job Worth Hierarchy

• Establishes position relative to other positions in organization

• Input– The organization chart– Job analysis based on job descriptions– Rating by employees

• Line and staff distinctions

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A Compensation Matrix

• Establishes a grade and steps within the grade for each position

• Based on job hierarchy

• Should have face validity– Avoid fitting the numbers to existing pay

structure– May result in red circled pay rates for some,

raises for others

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A Compensation Matrix

Step 4.0%Grade 15.0%

Step Minimum 2nd 3rd 4th 5th MaximumGrade

1 18,500 19,240 20,010 20,810 21,642 22,508 2 21,275 22,126 23,011 23,931 24,889 25,884 3 24,466 25,445 26,463 27,521 28,622 29,767 4 28,136 29,262 30,432 31,649 32,915 34,232 5 32,357 33,651 34,997 36,397 37,853 39,367 6 37,210 38,699 40,246 41,856 43,531 45,272 7 42,792 44,503 46,283 48,135 50,060 52,063 8 49,210 51,179 53,226 55,355 57,569 59,872

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Using a Matrix

• Each job has a grade

• Steps – automatic increases or used to reward performance

• Adjust whole matrix upward to reflect negotiated raises

• Longevity pay a separate issue

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Pitfalls

• Gender differences

• Technical expertise– Planners, finance directors, recreation

specialists, code officers

• Stuck in the top step