Memorandum  

City of Lawrence

Human Resources Division/City Manager's Office

 

TO:

Thomas M. Markus, City Manager

FROM:

Marlo Cohen, Compensation Analyst

C:

Lori Carnahan, Human Resources Manager

Casey Toomay, Assistant City Manager

DATE:

January 28, 2019

RE:

2019 Compensation Study Staff Memo

 

Summary

The City hired McGrath Human Resources Group in 2018 to conduct a classification and compensation study.  The comparative study applied to benefit-eligible positions.  Staff has reviewed the recommendations of the consultant and is requesting the City Commission receive report and authorize an amendment to the 2019 Budget, if necessary, to implement the following recommended changes:

 

Background

To maintain a highly qualified work force, one of the ongoing programs of the Human Resources Division is to maintain a competitive compensation program. A competitive compensation program includes salaries that are “at market” or above. The current pay structure for positions in the study went into effect four years ago on December 27, 2015.  Structures have life cycles from 3-5 years.  The current structure requires a re-set with the market to maintain market competitiveness. To achieve this goal, the division contracted with McGrath Human Resources Group in 2018 to conduct a classification and compensation study.  The comparative study applied to benefit-eligible positions. Recommendations for positions covered under a memorandum of understanding were included in separate reports.

 

Consultant Recommendations for the General Schedule

The consultant’s recommended pay structure is appropriate. It will bring the City to market competitiveness and align with recruitment and retention efforts. The recommended structure addresses pay compression by adding six pay grades and strategically placing positions within them. (Pay compression is a situation that occurs when there is only a small difference in pay between employees regardless of their skills or experience.)  Another feature of the recommended structure is to bring the minimum and market rates in each pay range closer together. This will enable employees to reach the competitive market rate as they become fully proficient in their positions (4-6 years) and thereby reduce the risk of losing trained employees to other employers for better pay.

 

Pay Structure Maintenance and Employee Pay Adjustments (GWA)

The consultant recommends that a formal market survey and analysis be completed once every 2-3 years.  In the years for which a market salary survey and analysis is not conducted, the consultant recommends updating the pay structure by using a market indicator to adjust pay ranges. The human resources division concurs and will incorporate an annual review of various economic indicator indices to recommend as part of the budget process an annual pay plan adjustment.  The City traditionally refers to this type of pay plan adjustment as a general wage adjustment (GWA).

 

Annual Employee Performance Adjustments (Merit Increases)

The consultant recommends suspension of performance-based increases until such time as the City can fully implement the pay structure and place employees at the appropriate location in the pay range.  If the program is not suspended, the consultant recommends a flat rate per pay grade be awarded to those who are “Effective” or greater in their performance rating, not in a performance trial period or on a performance improvement plan. Furthermore, as part of the second phase of implementation in 2020, the consultant recommends that additional adjustments be provided to employees with 8 or more years in their current assignment that are below the market rate.  Following this, those with 4-7 years in their current assignment should be given additional adjustments until they reach the market rate.    

 

Only after the second phase is complete should available funds be incorporated into a performance-based system.  When performance-based increases are re-instituted, the criteria should consider the employee’s rate within the range as well as performance level, and not be applied as a percentage of the employee’s pay rate.  In support of this recommendation, division staff will perform a yearly analysis to ensure employees are on track to reach the market rate as they become fully competent in their assignments.

 

Going forward, the human resources division will annually, as part of the budget process, recommend the amount of additional funding required to carry out an effective merit program as outlined by the consultant.

 

Annual Budget Recommendation

Each year as a part of the budget process, the human resources division will prepare a recommendation for additional funding to the employee compensation program that will accomplish the following objectives, listed in order of priority:

1.   Pay ranges established at a market competitive level.

2.   Salaries for those employees that are below the recommended pay range are brought to the minimum of the assigned pay range.

3.   Salaries for those employees who are fully trained and competent in their position and are performing effectively are awarded salary increases that will place them near the market rate of the pay plan.

4.   Salaries for those who are at or above the market rate and are performing at an effective level or greater be given a salary increase that are merit based.

This might be a combination of general wage adjustments or merit increases with the elements listed above incorporated into the merit allocation structure or both.

 

There is discussion internally regarding the timing of the market adjustments versus performance adjustments, possibly flipping the two between January and July in 2020 and beyond. A final recommendation will be contained in the 2020 budget memo.  Preliminary forecasts estimate 2020 costs at $1,000,000 for a salary schedule adjustment and $1,000,000 for merit adjustments.

 

Implementation

Position placement. Following two independent meetings with department directors and several meetings with human resources staff, the consultant determined position placement onto the recommended pay structure. A procedure manual was also provided to staff outlining a procedure for evaluating position placement going forward.  HR is continuing to review the recommended position placement and reserves the right to adjust the consultant’s recommendation related to a handful of positions. 

 

Employee placement.  Implementation of the recommended pay structure includes placing employees on the schedule at the minimum rate if their current rate is less.  The annualized estimate (including salary and benefit) is $536,658. Implementation at the beginning of the second quarter, on pay date April 5, 2019, lowers the estimate to $412,814. 

 

The 2019 budget included $75,000 for compensation adjustments.  In addition, the 2019 budget included $83,193 for longevity not needed due to the longevity formula change.  The remaining difference of $254,621 will be funded through spending down 2018 fund balance or by reducing other 2019 budgeted expenditures. 

 

 

It should be noted that fourth quarter 2018 and 1st quarter 2019 reclassifications and corresponding salary increases for Municipal Services and Operations, Information Technology and City Manager’s Office are not included in the implementation total.  This amount is approximately $108,217.

 

Other Consultant Recommendations

In addition to recommendations for the pay plan, maintenance of the pay plan and corresponding employee salaries, the consultant made recommendations for practices that support an effective compensation program. They include providing employees with individualized benefit statements, review and revision of the performance appraisal document and training for supervisors on the effective use of a performance appraisal tool.  A summary of the work that is already underway related to these recommendations is provided below.    

 

Benefit Statements.  The human resources division regularly provides employees with individualized benefits statements through our employee portal.  These statements indicate not only salary but also the city’s cost for benefits provided.  By providing this information, employees have a more complete understanding of their full compensation. 

 

Revision of the Performance Appraisal.  The City is currently undergoing a phased performance appraisal update that will likely accomplish the recommendations of the consultant as well as align with the City’s established values. 

 

Training on Performance Appraisal.  There is annual training for new supervisors on the appraisal tool itself.  Quarterly training for all supervisors on a variety of supervisory topics, including at least one session on performance evaluations, is also provided annually.  The division has continued to work with departments to implement strategies for consistent performance evaluation across supervisors, primarily within a department.  While there is room for improvement in this arena, it is progressing.

 

Action

Staff recommends the Commission receive the report from McGrath Human Resources Group (McGrath) on the Classification and Compensation Study and authorize an amendment to the 2019 Budget, if necessary, to implement the following recommended changes: