Classification and Compensation System Simplification

1. Classification and Compensation System Simplification What is it? How is it done? Why is it needed? IPMA - HR Conference September 2003

2. Agenda • Why consolidate class and comp systems • Different ways to consolidate • Outcomes and Issues • Lessons learned • Discussion by The Government of the District of Columbia • Discussion by the State of Washington 2

3. Typical Symptoms • You are receiving numerous requests for reclassification • The requests are pay changes in disguise • The distinctions between classes becomes meaningless • Class change decisions are based on minor (insignificant?) changes • Pay levels are below market by a significant amount • Managing the system takes increasing resources to maintain 3

4. Why Class Consolidation? • When the average number of employees per class titles is in the single digits • Most organizations have expanded the number of titles by an average of 10% per year • Jobs and technology have changed and will continue to do so • Most employees want their own job title • Individual job titles typically result in higher pay 4

5. Why Comp Consolidation? • When the number of pay ranges is greater than 40 • When pay exceptions increase • Add ons • Special pay ranges • Special skill pay • When hiring near the midpoint is barely enough to attract a new employee • When most employees’ pay is either below the 1st quartile or at the maximum • When special skills needed for the job results in a new classification because that is the only way to pay them extra 5

6. Different Ways to Consolidate • By occupational focus • Engineering • Finance • Human resources • Etc. • By department focus • Public Works • Purchasing • By salary grade 6

7. Entry Developmental Full Performance Master/Supervisory Basic skills, learns to do things “our way” Developing proficiency Fully competent to perform all aspects of job Recognized expert Four Levels of Work 7

8. Example Engineering Occupation Electrical Civil Environmental Chemical Nature of Work IV: Master - Recognized Expert III: Fully Performing - Supervisory Level of Work II: Developmental- Senior/ Lead(in some cases) I: Entry - Qualified 8

9. Resources • Dictionary of Occupational Titles or ONET • United States Office of Personnel Management • Handbook of Occupational Groups and Families • Standard Occupational Codes • States of Florida, New Mexico, South Carolina, Washington, Oklahoma, Virginia 9

10. Compensation Consolidation • By similarity of salary ranges • Broadening the salary ranges • By market analysis • Assessment of market difference by occupational group • Determination of salary range spreads and range characteristics • Do you really need more than 40 grades? 10

11. The Concept of Differences • How much of a difference makes a difference? • For classification issues • When the classification changes by 25% or more • Duties and responsibilities • Skills needed • Time distribution of responsibilities 11

12. The Concept of Differences • How much of a difference makes a difference? • For compensation issues • 3-4% is the minimal magic number for step differences • 7-8% is minimal magic number between grades • 10-15% is desired number for subordinate/supervisor differences 12

13. Outcomes-Positives • 50% reduction of classifications or more • More generic class descriptions • Easier management of personnel • Less administrative time spent on class reviews • Fewer pay grades • More flexible pay decisions 13

14. Outcomes-Negative • Employees don’t “see” their position in the class description • Employees treated more generically • Potential higher payroll (combining current lower level classes with current higher level classes) • Perceived pay compression of employees who used to be in different pay ranges are now in the same • Requires strong management • Requires simpler decision tools 14

15. Key Points • Not a panacea • Make sure the organization understands the implications and the strategic need to go through the process • Be prepared to communicate with stakeholders • It will take time to change the culture • Not everyone will be happy • Most organizations have found that benefits justify the effort 15

16. The Government of the District of Columbia Jo Ellen Gray Associate Personnel Director for Policy and Program Development, DCOP James Ivey President, AFSCME 16

17. Historical Review • A product of the negotiated Compensation Units 1&2 Agreement. Task Force met regularly since 10/25/2001 • Composed of Union Leaders, representatives from DCOP, DC OLRCB, Budget, Payroll, DHS, DPW, Library, DC Council • Part of joint commitment to invest in the rank and file workforce • Focused on occupational approach to consolidation 17

18. Prior System • 21 Schedules covering almost 7400 employees and almost 550 CBU/Service Code combinations • These pay schedules cover 6 pay plans (DS, SW, LW, RW, PW, TG) • 13 White Collar pay schedules • 8 Blue Collar pay schedules • Similar jobs covered under multiple schedules 18

19. Consolidation Process • Developed new pay schedules based on occupational groups • Determined employee placement on the new schedules • Based on minimum guarantees in CBA, determined amount of bonuses to be paid, if any • Calculated the overall cost of pay schedule consolidation • Planning implementation – 2nd quarter 2002 19

20. Consolidation Process • Public Roundtable (February 2002) • Council Consideration (March 2002) • Newsletters to employees (following Council consideration) • Programming payroll system with new pay schedule structure (ongoing through March 2002) • Individual letter to employees (early April) • Paychecks to employees – retro, bonus and new rate (April 16 or 19, 2002) 20

21. Timeline • Presentation to City Council • Employee newsletters • Personalized letter to each employee • Series of meetings with Human Resource Advisors, Labor Liaison, budget office representatives • Telephone hotline • DCOP web page 21

22. Communication • Consolidated 21 primary (with dozens of related supplemental) pay schedules into 10 unique schedules, based on 9 occupational groups • Clerical/Administrative • Corrections and Others • Health Care • Information Technology • Legal • Maintenance/Trades/Labor • Protection and Enforcement • Science/Engineering 22

23. Results • As part of pay schedule consolidation, each employee received a minimum of ½ percent in one of three forms: • Paid as a bonus, a base salary increase or a base salary increase plus a bonus • No reductions in the maximum salary for any schedule 23

24. Reactions • Pay Consolidation was very successful based on the limited number of employee concerns that needed to be addressed • Individual letters were extremely important and alleviated employee questions • Selecting classification series for specific pay schedules needed to have more upfront input from classifiers • Massive data clean-up issues 24

25. Thoughts & Recommendations • Labor-Management Task Force approach was a critical component of the process • Establish guiding principles and goals upfront • Change effort must be “owned” and “controlled” by the key stakeholders • Get commitment and buy-in from union and management leadership up front • Communicate frequently and in different forms with employees and other stakeholders • Keep the process open 25

26. Classification and Compensation Reform in Washington State Christina Valadez HR 2005 Project Manager Washington State Department of Personnel 26

27. Organization Facts • Civil Service Reform law was passed by Legislature in April 2002. • Contains 3 key components: • Full scale collective bargaining • Competitive contracting • New civil service system • All components must be in place by July 2005. • Will require dramatic modifications to central personnel/payroll system. 27

28. Organization Facts • Washington has approx. 58,000 state employees in general government • Approx. 16,800 classified higher education employees • Approx. 60% currently covered by collective bargaining • Higher education institutions may bargain on their own or through state negotiation • Classification is a permissive topic for bargaining 28

29. Organization Facts Potential application within agencies Unions Negotiations Master Contracts Negotiations with State’s Chief Negotiator 29

30. Customer & System Research • Summer of 2002, the Department of Personnel conducted extensive research of trends and best practices among other employers, including: • All 50 states • Federal and local governments • Other countries • Selected universities and private sector companies • HR organizations • Dozens of reports, articles, books, and web sites • Report available at http://hr.dop.wa.gov/hrreform 30

31. Customer & System Research • Did extensive surveying of state employees, managers, and human resource staff to determine needs and preferences • Developed concepts, and held focus groups and other discussion forums with managers, HR professionals, and employees. 31

32. Research Findings • Overall trend in other states is towards reducing the number of job classifications (some now have 250-500). • A common approach is to use occupational groupings. • About two-thirds of Washington State managers and HR professionals favored some type of broader classification system. Somewhat Important Not Important Important Very Important 32

33. Research Findings • Majority of Washington State survey participants felt other factors need to be considered in determining salary, instead of or in addition to longevity. 33

34. Current System • Each position is placed into a narrowly defined job classification. • There are currently 2,400 separate job classes for general government and higher education. • Each job class is assigned to one of 83 narrow salary ranges. 34

35. Current System • Each salary range is approx. 25-28% wide from minimum to maximum salary. • Each salary range has 11 pre-defined steps (A-K) that are approximately 2.5% apart. • Employees receive approx. 5% step increases annually, based on longevity. • From step A, it takes 4 1/2 years to reach the top step, after which employees receive only legislative cost of living increases. 35

36. Current System • History of across-the-board raises from the Legislature. • Variable tie to market rate • average 15-16% behind market • a few jobs are paid above market • many jobs 25-30% and even up to 50% behind market • partial survey implementations to bring jobs to no less than 25% behind have not been comprehensive or always funded • last salary survey implementation was in the early 80’s • no raises for a four year period 36

37. Difficulties with Current System • Customers have said the system is too complex, cumbersome, and rigid. • System provides little flexibility to reorganize or change job responsibilities based on changing technologies, customer needs, etc. • System encourages proliferation of classes. • Incentive to create new classes in order to obtain salary increases • It does not facilitate employee mobility/career paths. 37

38. Difficulties with Current System • Rigid compensation system is obstacle to recruiting and retaining top performers or those with special skills. • Longevity-based increases provide no recognition for excellent performance. • It is de-motivating for good performers who are paid same as poor performers in same job class. • Nearly two-thirds of classified employees are at step K, with no room for salary growth unless promoted or reallocated. 38

39. Proposed New System • Personnel Reform Act called for a new classification system that would: • Improve effectiveness and efficiency of service delivery. • Substantially reduce the number of job classifications. • Facilitate the most effective use of state personnel resources. • Be responsive to changing technologies, economic and social conditions, and needs of citizens. • Value workplace diversity. • Facilitate reorganization and decentralization of services. • Enhance mobility and career advancement. 39

40. Proposed Classification Structure • Consolidating 2,400 current job classes into broad occupational categories. • Four levels within most occupational categories: • Level 1 – Entry • Level 2 – Journey/Developmental • Level 3 – Senior/Fully Performing • Level 4 – Supervisory/Expert • Goal was to yield approx.800-1,200 job classes. • Currently at about 150 categories. 40

41. Examples of New Structure Current General Govt & Higher Ed Classes Audit Occupational Categories Labor and Industries Auditor 1 Industrial Insurance Underwriter Assist. Revenue Auditor 1 Audit Specialist 1 - Transportation Industrial Insurance Underwriter 1 Assistant State Auditor 1 Labor and Industries Auditor 2 Political Finance Specialist 1 Business and Professions Auditor 1 Apprentice - L&I Auditor 3 A. Entry 41

42. Examples of New Structure Old General Govt Classes New General Govt Classes Current GG & Higher Ed Classes Human Resources Occup Category Affirmative Action Officer 1 Personnel Assistant Human Resource Dev. Spec 1 Personnel Officer 1 Personnel Analyst Human Resource Consultant 1 Human Resource Consultant 2 Equal Opportunity Compliance Investigator 2 Apprenticeship Coordinator 1 Human Resource Represent. II B. Journey/ Developmental 42

43. Advantages Expected • Substantially reduces number of job classes • Minimizes process and administrative timeand cost • Easily decentralized • Enables users to respond to changes • Enhances mobility and career growth opportunities • Provides flexibility for new compensation tools • Addresses customer concerns and preferences 43

44. Consolidation Process • Initial staff work based on existing job classes • Refinement of occupational groupings, using existing job classes and salary structure • Review of proposed changes by agencies, labor, and employees • Refinement of occupational groupings and base salary structure based on input • Formal public process for additional input • Final classification and compensation structure and rules 44

45. Proposed New System Band 8 Band 10 Band 9 Band 12 Band 11 • 83 existing salary ranges will be replaced with fewer, broader bands.

46. Transition to New System • Employees would transition at current salary. • If not at top step of current range, would continue to get longevity increases until reaching salary equivalent to top step. • Subsequent adjustments based on factors such as: • Retention/market/geographic issues • Sustained exceptional performance and/or successful demonstration of valuable new skills • Incremental increases in duties and responsibilities 46

47. Proposed Compensation System • After the transition, an employee’s salary spread within the band could be based on analysis of factors such as: • Internal alignment and equity • Special competencies, skills, and experience brought to the job • Extraordinary position-specific circumstances such as locality, recruitment/retention, etc. • Hiring incentives • Will also have option for one-time lump sum recognition award. 47

48. Timeline • June ’02 - March ’03: Research and concept design options • April ’03 - June ’03: Validation of concepts and selection of options • July ’03 - Dec. ’03: Development of new structure and rules • Jan. ’04 - Sept. ’04: Contract negotiations; Formal input and adoption of new system • Oct. ’04 - June ’05: Preparation for full implementation 48

49. Challenges: • Short time frames • A desire to track back to existing classes and salaries and to limit future salary growth • Inherent conflict between creating a new structure and maintaining cost neutrality • Fiscal concerns of today may affect pay options for the future • Inability to fix compensation problems before implementing the new system 49

50. Thoughts & Recommendations • Need to get attention, support from state’s executive management. • Central coordination/governance is critical for multiple projects. • Need to establish statewide priorities and strategies. • Extensive customer research and involvement means more support and acceptance of proposed changes. • Employees and managers alike have expressed need for extensive training, especially in performance management. • Communications is critical. No matter how much you do, it’s not enough. 50