Memorandum
City of Lawrence
Personnel Division of Administrative Services
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TO: |
Dave Corliss, City Manager Debbie Van Saun, Assistant City Manager
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FROM: |
Marlo Cohen, Management Analyst Lori Carnahan, Personnel Manager
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CC: |
Frank Reeb, Administrative Services Director
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Date: |
May 10, 2007
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RE: |
City Commission Emails Dated 04/25/07 Regarding 2007 Compensation Survey Report and 2008 Health Plan Recommendations
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On April 25, 2007, City Commissioner Rob Chestnut requested additional information regarding the 2007 Compensation Survey Report and 2008 Health Plan Recommendations. The responses are contained within this memo. Additional information may be obtained from the City of Lawrence Compensation Objectives (Attachment A) and Employee Benefit Policy (Attachment B).
The Personnel division of the Administrative Services department dedicates considerable resources to the compensation and benefit programs for the City of Lawrence. We have implemented three committees whose directives are:
· To set compensation and benefits objectives
· Survey and monitor market trends
· Monitor plan expenditures
· Market our plans to vendors on a routine basis
· Make recommendations for plan design and vendor selection
We have a Compensation Committee, that completed a comprehensive Compensation Study Report in 2003 with a plan for program changes, a Health Care Committee which has been comprehensively monitoring our health care program since 1998, and a Benefits Committee that completed an comprehensive Benefit Review Report in 2004 and developed a plan for a regular program review cycle based on those results.
We are pleased that Commissioner Chestnut has a strong interest in our work. His questions and statements represent over a decade of work by these various committees. We will try to summarize the committee and division work below.
Compensation, Wages and Ranges
The 2007 Compensation Survey Report excluded the calculation of compa-ratios because they are only a useful indicator as to how actual wages lead, lag, or match the labor market when pay ranges are at the market average. The compensation survey findings showed that our pay ranges are consistently below market average. Therefore, this statistic is not a useful tool to evaluate our pay structure at this time.
We agree that the distribution of actual wages is important in order to cost out the impact of various wage and range adjustment options. The current Compensation Survey Report is only the market analysis piece which was all that could be completed with the accelerated deadline for the project. The concluding statement during the division’s meeting with the City Manager indicated that cost analysis for various options was the next step and requested general direction regarding those options in order to move forward with the report.
While we agree that comparison of midpoint to the market median midpoints is a form of compensation analysis and that targeting actual salaries based on an objective of keeping most wages near the midpoint of ranges is a compensation philosophy, the City currently is operating under a different set of compensation objectives that were presented and approved by the City in 2003. The current objective is to be at the median of the market for our range minimums and maximums. We also currently have a compensation policy that encourages new hires to enter a pay range at or near the minimum step. Once on board, employees can progress through the range to the range maximum based on their personal performance evaluations. This is largely a tenure driven plan which we determined needed to be maintained through the implementation of Phase I of the Compensation Study recommendations. This type of program is also consistent with our market city pay practices. We therefore disagree with City Commissioner Rob Chestnut’s viewpoint that the pay plan does not have a significant issue for a pay grade when its midpoint falls below the market average (e.g. 4%), but actual wages for the range are near the range maximum. It is not consistent with the philosophy of the organization’s current pay system. If a range maximum is below market median, the organization is at risk of losing its most qualified and experienced employees to other local governments in the region. Additionally if range minimums are below market median we will have difficulty attracting qualified applicants. We have acknowledged that we compete with our market cities for qualified talent. We believe that ranges are as important as actual wages of existing staff.
Group Health Plan
The Health Care Committee (HCC) was formed in 1998 to assist in the management of the Group Health Care Plan. The HCC remains current on health care trends and is involved in utilization review and analysis, plan design, the renewal process and budgeting.
On an annual basis, the HCC considers charging employees a premium for single coverage to meet the objectives of raising plan revenues and, more importantly, reducing claims costs through a reduction in single contracts. Such a reduction may be reasonably expected as some number of employees may waive coverage due to having other coverage under another group plan. However, the HCC has identified and struggles with certain disadvantages of charging a premium for single coverage.
The Employee Benefit Policy states that benefit programs should be competitive within the City’s primary market in order to attract, motivate, and retain a qualified workforce to support the organization’s goals. Based on health premium survey data collected in 2006 from local governments that are considered our primary market competition, only City of Lenexa charged a premium for single coverage. The City’s current practice of fully funding single coverage matches the market standard. Instituting a premium for single coverage would cause this benefit program to lag the market standard and not meet benefit program objectives.
The HCC had an extensive discussion on the topic of charging employees for their coverage under the plan versus charging employees to cover their families under the plan. There is a strong sentiment among employees and staff that our primary objective is to provide coverage for our employees with a secondary objective of providing coverage for our employee’s families. Currently those who carry family coverage receive a far greater benefit from the program (approximately $730 per month) while those with individual coverage receive a benefit of approximately $305 per month. We believe that we should charge more for employee’s to cover their families under our plan before we charge our employees to cover themselves.
Additionally, the HCC would not want to implement any strategy that would unintentionally increase the Kansas uninsured population, and ultimately drive the cost of health care upward. The potential exists for lower paid employees to waive their right to participate in the Group Health Care Plan without having coverage under another group plan to avoid the expense of a premium for single coverage. This potential might also exist if employees were offered a cash incentive to waive their rights to participate. Furthermore, determining an effective cash incentive would require an in-depth analysis of other employer plans. It is likely, in the opinion of the HCC, that the incentive would be higher than $20 per month.
Another discussion the HCC has annually is whether to change from a 2-tier coverage level structure (employee or family) where the family premium is the same regardless of the number of dependents covered to a 4-tier structure (employee, employee/dependents, employee/spouse, or family) where the cost of dependent coverage increases as the tiers progress. The 4-tier structure could meet our objective to reduce claims costs by providing employees more affordable options to enroll only those family members that do not have other coverage. According to BCBSKS, most of their ASO contracts have instituted 4-tier structures. Another advantage to a 4-tier structure would be increased affordability to retirees for coverage. Nearly all retiree contracts would qualify for the lower costing employee/spouse tier.
The primary disadvantage to changing to a 4-tier structure is that the cost for family coverage will increase significantly, and plan census data indicate that the majority of current family contracts will still qualify as such. Therefore, instituting a 4-tier structure would not necessarily benefit the majority of plan participants affected by the change.
It is important to recognize strategies are in place to aid in the reduction of claims without impacting the level of benefits provided. Cost containment strategies include employee education and outreach (through wellness program funding), care management, and offering preventive services. Additionally, plan costs have beaten national and regional trends consistently. The primary market accepts the City of Lawrence Group Health Plan and its management by the HCC as an effective model.
The HCC does not recommend moving to a flat dollar prescription co pay program. Our current percent pay program allows the increasing costs of prescription drugs to be equally born by employees and the plan automatically as expenses increase. One of the significant problems with flat co pay plans is that they need to be adjusted upward frequently to adjust for inflation and increased prescription drug prices. We agree that it is important to guide employees to utilize generic drugs whenever possible. To date, the HCC has recommended we use employee education tools to achieve this goal as shown below we continue to have a positive affect on our generic to brand name ratio through this method. The HCC is currently in the process of reviewing of out-of-pocket expenses.
The Group Prescription Drug Plan most recently went through an in-house Request for Proposal (RFP) process in 2004 for the 2005 benefit period. This benefit was carved out from the ASO contract with Blue Cross and Blue Shield of Kansas (BCBSKS) and awarded to MedTrak Pharmacy Services, LLC. In 2005, a benefits consultant was contracted to market the Group Health and Dental Plan for the 2006 benefit period (see 2005 Group Health Executive Summary attached separately). The City’s arrangement with BCBSKS was determined to be the most market competitive overall, and BCBSKS retained the ASO contract serving as claims administrator, network provider and stop-loss insurer. Additionally, individual stop-loss (ISL) for medical was increased from $75,000 to $100,000 (dental and prescription drug claims are not applied to ISL). Aggregate stop-loss (ASL) remained at 120%.
To maintain a maximum four-year review cycle, the Group Health, Dental and Prescription Drug Plans will be expected to go through another RFP process no later than 2009 for the 2010 benefit period. It is likely that 2007 and 2008 budgeting constraints will delay the process until 2009, as it will be necessary to contract a benefits consultant to manage the process due to staffing and time constraints.
Other Benefit Programs
The Benefits Committee was created in 2004 as an ongoing committee charged with comprehensively reviewing current City benefit programs and developing recommendations as appropriate per the Employee Benefit Policy. Elements of the benefit program are reviewed every 2-4 years.
In 2004 the Benefits committee recommended adjustments to the Vacation accrual system which were implemented in phases between 2005-2007. In 2005 the city’s package of life insurance products was reviewed and revised. 2006 the committee began a comprehensive process to review the 457 deferred compensation program which resulted in a vendor change which took place this month. The Personnel division will likely do a competitive bid for flexible spending program vendors in 2008.
Total Compensation and Benefit Package
The Personnel division agrees with Commissioner Chestnut’s comments regarding the need for analysis of the total compensation and benefit package to make sure we are market competitive. For the past three years the division along with the Benefits committee has completed a benefits survey in conjunction with the wage and range survey. The first two years it was a comprehensive benefits survey and in 2006 is was a selective survey to get specific information on programs we intended to review in 2006. Due to division time constraints it was decided we would only conduct the wage and range survey this spring. We also know that benefit programs change at a much slower pace than compensation and we were relatively sure benefit programs (outside health care) were likely to be similar to recent surveys. We also participate in and are in possession of regional benefit surveys conducted by third parties. A summary of the benefit program compared to our market is contained in the Benefit Study of 2004. We are competitive in most areas and have outlined a plan to address the areas we lag behind. The one significant area we are ahead of our market (in benefit design) is our health care plan. We do not feel that our benefit package provides adequate compensation to make up for our wage shortfalls when compared to market cities. We believe that we have a competitive benefit package for Lawrence employers which makes up for wage deficiencies for those positions for which we compete for personnel only on a local level.
Specifically Commissioner Chestnut has inquired about the total organizational investments in benefits and compensation compared to our market. The Benefits Committee attempts to survey the primary market for benefits as a percentage of payroll and per capita basis annually in an effort to determine trends relating to funding allocation practices. The Benefits Committee is pioneering the collection of specific data for comparison purposes. The primary market collectively does not have methods in place to capture pertinent data. It is an ongoing effort of the Benefits Committee to request this information to develop useful statistics.
Conclusion
The Personnel division continually seeks ideas and comments regarding our compensation and benefit programs. Many of our program advances have come from ideas submitted by employees and committee members. We would be happy to review any of our programs in greater detail at any time. Please contact any staff listed above with questions or concerns.
CITY OF LAWRENCE KANSAS
COMPENSATION OBJECTIVES
The purpose of the compensation objectives of the City is to set out both short term and long term core design objectives for the City’s compensation program. These objectives have been oriented around six key topics to provide a structure for the objectives. Each of the six core topics is explained below. The compensation objectives for the City then follow the explanation.
The six key topics are:
CITY OF LAWRENCE KANSAS
COMPENSATION OBJECTIVES
a. The primary market is defined as a set of organizations that both share the City’s labor market and have a high number of matches with City benchmark positions. The primary markets used for comparison of wages for the City of Lawrence will be the cities of:
i. Topeka
ii. Unified Government of Wyandotte County/Kansas City, Kansas
iii. Olathe
iv. Shawnee
v. Overland Park
vi. Lenexa
b. The secondary market for comparison of wages is defined as those organizations who share the City’s labor market but have relatively few matches to benchmark positions or organizations that have some matches to benchmark positions but the labor markets do not significantly overlap. The secondary markets for comparison of wages for the City of Lawrence will be the following:
i. Johnson County Government
ii. Douglas County Government
iii. State of Kansas
iv. University of Kansas
v. Big 12 cities
vi. Springfield, MO
vii. Champaign, IL
c. The private sector markets are the primary private employers within the City of Lawrence. In 2003, data is unavailable but should be periodically tested to see if data becomes available. Survey data for Lawrence is incomplete.
d. The primary market comparison values for the City of Lawrence will be the salary range minimum and maximum for similar positions. In addition, where possible, differentials or supplemental payments (eg: differentials for various college degrees, clothing allowances, certifications) will be taken into account in determining the relevant market value of the positions.
e. Currently the City of Lawrence will attempt to position its pay grades at approximately the median level of the pay for positions contained within a particular pay grade. As resources become available and the performance programs indicate it is appropriate, the City will attempt to incrementally increase its market position based on the overall performance of the City and the expectations for City services. In median level will be determined a grade minimum and grade maximum.
i. The City will continue to use the job evaluation system developed and implemented by Ralph Andersen & Associates in 1996. The system is a point factor system using the following factors (listed in order of significance):
1. Expertise (education/training and complexity)
2. Decision Making (consequences/impact and independence)
3. Supervisory Responsibility (level of supervision, nature of group supervised and number of people supervised)
4. Contacts (purpose and type)
5. Working Conditions (environment and effort)
ii. A job evaluation committee will administer the job evaluation plan.
iii. The primary weight will be given to the results from the job evaluation plan.
iv. Where the market data indicates that an individual job classification would be placed in a salary range two pay grades higher than the job evaluation rating for the position, the position may be placed in a higher grade for the duration of the time that the market supports such a change. Whenever the market data no longer supports such change the position would revert to the grade based on the job evaluation plan.
v. Where the results of the job evaluation plan indicate that the positions of the superior and subordinate would be placed in the same salary range, it is appropriate to adjust one or the other of the salary ranges to recognize the difference in the positions. The assigned pay grades of supervisor and subordinate may overlap and it is acceptable in certain situations that a subordinate’s wages are higher than a supervisor’s.
i. This evaluation should be routinely done every three years
ii. New positions and positions with substantially changed responsibilities should be evaluated as needed.
iii. Positions where an employment agreement with the employee is involved should be evaluated however the job evaluation process will be subordinate to the provisions of the agreement.
iv. Positions covered by a Memorandum of Understanding with the City will should be evaluated, however the City will subordinate the job evaluation process to the process for developing the Memorandum of Understanding.
i. Base salary- a range of monetary compensation that is attainable by everyone in assigned to a job classification.
ii. Skill or Productivity pay- Skill pay is monetary compensation available to or attainably by an individual or group of individuals who achieve and use in the course of their employment a specific skill, certification or production goal which is not needed by or available to everyone in the job classification. Production pay is a specific pay program designed to provide a monetary reward for achieving specific goals contained in the production pay program.
iii. Benefits-non monetary programs provided to employees that add value to their total compensation package.
i. Skill Pay is defined as an additional pay over base pay that when awarded will be maintained as long as the employee maintains the skill and remains in the job classification the skill pay is attached to.
1. For specific job classifications, when specific significant skills or competencies would be beneficial to the City but are not required to effectively perform the position duties.
2. An incentive to obtain these skills is beneficial to the City.
3. There is a significant effort needed by an employee to obtain the skills or competencies.
4. Skill based pay should never exceed 20% of the employee’s base pay.
5. When calculating pay differentials between supervisors and subordinates the City, appropriate skill based pay and average amounts of overtime should be taken into account. When determining pay equity between similar positions, appropriate skill based pay should be taken into account.
6. Skill based pay should never create inappropriate wage compression between subordinates and their supervisors or other job classifications in their job series that are in a higher pay grade.
ii. Productivity Pay
1. Where the specific outputs of an individual or work group are measurable in financial terms and a broad based effort can be undertaken to measurably and demonstrably improve performance, an incentive program to reward improved productivity may be developed. Such incentive plan should:
a. Reward the participants or unit who has achieved the productivity improvement
b. Yield demonstrated savings over a longer course than a single year
c. At least 50% of the productivity improvement must be reinvested by the City to benefit the recipients of the services of the unit.
i. The performance outcomes of the employee’s performance.
ii. The employee’s tenure with the City.
i. reduce the greatest compression, retention or recruitment problems;
ii. positively affect the greatest number of employees.
City of Lawrence
Administrative Policy
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Subject Employee Benefit Policy |
Applies to: Eligible City Employees |
Effective Date October 1, 2004 |
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Approved by City Commission 9/21/04 |
Total Pages 5 |
Policy Number 100 |
a) Purpose
The City of Lawrence provides a benefit program, a component of the compensation package, for its employees. The City recognizes that qualified employees are one of the organization’s greatest and largest resources, lending support to the organization’s mission to provide excellent city services to the Lawrence community. Geographically, the City competes against leading organizations (public and private) in the state for qualified workers. The benefit program is considered an investment in the continued maintenance and productivity of the abovementioned resource, the organization’s employees. Therefore, it is the policy of the City of Lawrence to provide a competitive employee benefit program designed to attract, motivate, and retain a qualified workforce to support the organization’s goals. The benefit program should be fair, equitable, and promote goodwill.
Benefits are defined as monetary or non-monetary programs provided to employees in whole or in part by the City of Lawrence, in addition to wages paid for hours worked, that add value to their total compensation package. Benefits are categorized into groups, including legally mandated benefits, health and welfare, retirement, paid time off, and other miscellaneous benefits, which together comprise the total benefit program.
The benefit program is managed by the Personnel Division of the Administrative Services Department. With the assistance of the City’s Benefit Committee, the Personnel Manager reviews the benefit programs on a regular basis. The Benefits Committee is selected by the Administrative Services Department and comprised of employees from throughout the organization that represent various employee groups such as the ERC, IAFF, LPOA, supervisors, and division managers. Recommendations for change to the City’s benefit program will be submitted by the Benefit Committee to the City Manager for review and further action, as appropriate. If recommended changes have a financial impact, the City Commission will review and act upon the changes as a part of the following year’s annual budget process.
b) Benefit Program Goals and Objectives
1. The benefit program should be competitive within the City’s primary market.
c) The primary market as defined by the 2003 Compensation Study is “a set of organizations that both share the City’s labor market and have a high number of matches with City benchmark positions.” Those organizations[1] have been identified as:
i. Lee’s Summit
ii. Lenexa;
iii. Olathe;
iv. Overland Park;
v. Shawnee;
vi. Topeka; and
vii. Unified Government of Wyandotte County/Kansas City, KS.
d) The benefit program should rank at approximately the average level of the primary market for benefits as a percentage of payroll and per capita spending. As resources become available, the City will attempt to incrementally increase its position within the primary market.
e) For informational purposes, the benefit program may be compared to those of other local and regional employers outside of the primary market.
f) Elements of the benefit program should be reviewed every 2-4 years or more frequently, if necessary, to ensure they are comparable with other similar organizations. See the attached schedule A.
2. Modifications to the benefit program should consider industry best practices as well as current actual applications by the primary market.
3. The benefit program should fairly consider the needs of the workforce.
a) The makeup of the benefit program should address the needs of the majority of the workforce.
b) Benefit programs should take into consideration the demographic makeup of the workforce (i.e. single wage vs. dual wage earning households, married vs. single households, average age of workforce, etc.).
g) Employees should be surveyed periodically to:
i. Identify their needs;
ii. Allow employees to prioritize the relative value of specific benefits; and
iii. Rate their satisfaction with and quality of current benefits.
4. The benefit program should attract and retain employees and reward continued employment.
a) The benefits package should be competitive with the primary market in order to attract prospective qualified employees.
b) Elements of the benefit program, as deemed appropriate should provide enhancements triggered by length of service to recognize the value of tenured employees and encourage the long-term retention of employees.
c) The benefit program should encourage employees to remain employed past the date they are first eligible to retire.
5. All full time regular employees should have similar and in most cases equal benefit programs.
a) Differences in benefit programs should be implemented only when job related needs are identified or when survey data shows a difference in benefit programs between work groups.
b) Program structures should remain equitable (well-balanced) across the groups.
c) Elements of the benefit program may be made available to part time regular and extraboard employees on a prorated basis when fiscally feasible.
d) Elements of the benefit program are generally not available to full- and part-time employees in temporary positions.
6. The benefit program should be consistent with current City Commission, City Management, and Department Goals and Objectives.
a) Return on Investment (ROI) should be calculated whenever possible in determining enhancements to benefit programs.
b) Elements of the program should be consistent with City policies i.e. overtime pay, attendance, return to work, etc.
c) The benefit program should not be used by City management as punitive measures to correct employee behavior or performance.
d) Likewise, availability to elements of the benefit program should not be used as the indicator of minimum acceptable performance by employees.
7. The benefit program should be funded consistent with the level of resources available.
a) A survey of the primary market for benefits as a percentage of payroll and per capita benefit spending will be done on an annual basis.
b) The recommended funding for the benefits program will be designed as per 1(b).
c) Funding within the benefits program will be determined by:
i. Employee demographics, needs, and values; and
ii. Identified needs to meet organizational goals.
d) The allocation of benefit program resources will be based on the following criteria:
i. Benefits which are of most value to the greatest number of employees and in their relative priority as identified by employee surveys;
ii. Benefits that have been identified as below market competitiveness; and
iii. Program enhancements that will have a positive affect on the greatest number of employees.
8. The specific benefits within the benefit program may either be fully funded by the City of Lawrence, partially funded, or not receive any funding (sponsored). Qualifications for full or partial funding or sponsorship are:
a) Full funding
i. Impact at least 2/3 of all full time city employees;
ii. Be a value to 2/3 of city employees;
iii. Have value to the city;
iv. Be considered a necessity to the value or quality of quality of life or well being of the employee; and
v. Provide for the family of a city employee in case of lost wages.
b) Partial funding
i. Serve the majority of city employees;
ii. Be a value to the majority of city employees;
iii. Have some benefit to the city;
iv. Be a benefit that is not generally affordable to employees to pay all of the cost; and
v. Be considered a necessity to the value or quality of life or well being of the employee.
c) Sponsorship
i. Benefit a group of city employees and/or their family;
ii. Facilitates things not normally affordable to employees;
iii. Support City or Community initiatives;
iv. Provide a convenience to city employees;
v. Offers group discounts;
vi. Work toward meeting city objectives or current goals; and
vii. Aid employees in current trends or technology.
9. Regular communications with all employees concerning the benefit program should be practiced.
a) The City should strive toward regular feedback from employees regarding the benefit program (at least on an annual basis).
b) The benefit program should be designed to be understood by all employees and should be communicated to all employees so that each employee has an opportunity to understand the benefit program of the City of Lawrence.
[1] The organizations listed represent the combined primary markets of the Primary, Police, and Fire Pay Plans.