Review of Unclassified Pay Plan

1. State of New Hampshire Review of Unclassified Pay Plan February 1, 2007

2. Prepared by: Neville Kenning National Director State Government Consulting Practice Scott Afable Associate Consultant Kamaron Durocher Technical Analyst

3. Table of Contents • Introduction to Hay Group • Background • Review Objectives • Review Steps • Analysis • Salary Structure Movement • Unclassified Plan Step Structure Placement • Changes in Benefits • Salary Compression Between Unclassified and Classified Employees • Salary Movement in the Relevant Comparator Markets • Recommendations

4. Established inPhiladelphia in 1943 47 countries/88 cities 2,370 employees 10,000+ clientsWorldwide Introduction to Hay Group

5. State of Alabama State of Idaho State of Louisiana State of Minnesota Comm. of Kentucky State of Maine Comm. of Pennsylvania State of South Dakota State of Mississippi State of New Mexico State of Oklahoma State of South Carolina State of Delaware State of Kansas Comm. of Massachusetts State of Oregon Introduction to Hay Group (cont’d) • Hay Group understands the issues associated with the development of a classification and compensation plan through the experience gained in working with a wide range of State Governments such as:

6. Background • During 2000-2001, a comprehensive review of the pay and benefits for Unclassified employees was conducted. • As a result of that study, a new salary plan for Unclassified employees was adopted at the end of FY2001 to be reflected in FY2002. Features of the plan included: • One grade structure and three salary structures, being: • Professional medical positions that are “hourly” rate positions; • Unclassified Attorneys for which a broad band structure with market anchors to encourage professional progression rather than promotion; and • The remaining Unclassified positions, which are primarily managerial in nature (hereinafter referred to as the “general pay plan”).

7. Background (cont’d) • Salary structures that were aligned at an appropriate level of competitiveness with contiguous States and in-State employers. • The Legislature of that time showed its commitment to the plan by funding the implementation of the plan recommendations. However, it was recognized at the time of implementation that further action would be required to bring the salary structure and pay into alignment with the relevant comparator market.

8. Review Objectives • The objectives of this review as set out by the State have been: • Review the changes to compensation and benefits for Classified and Unclassified employees since 2001; • Analyze salary movement in the relevant market for Unclassified employees since 2001; • Conduct an analysis of the current step placement of Unclassified employees; and • Prepare a report setting out findings and recommendations. • The focus of the review has been on the Unclassified Officer “general pay plan.”

9. Review Steps • The following steps have been undertaken in conducting this review: • Meeting with the State to agree on the review process and set out data requirements; • Gathering of relevant data for Unclassified and Classified employees within the State; • Gathering of market data; • Data analysis; and • Preparation of this report.

10. Analysis – Salary Structure Movement • Set out below is a table showing the movement in the salary structure (ranges and steps) for Unclassified and Classified Employees since the time the Unclassified plan was adopted.

11. Analysis – Salary Structure Movement (cont’d) • This shows that since FY2003, the salary structure movement for both plans has been the same. However, the key difference was in FY2002. • In addition, Classified employees had 3 steps added to the top of their pay ranges in FY2002. This means that Classified employees have step increases available for 3 more years than an Unclassified employee. These three additional steps provide a pay opportunity of between 9-13%. • This can contribute to salary compression issues between a Classified and Unclassified employee in a direct reporting relationship.

12. Analysis – Unclassified Plan Step Structure Placement • When the plan was adopted in FY2001, employees below the range minimum were moved to the range minimum. • Those whose current salary was already above the new range minimum were placed on the next highest step as compared to their current salary. • The intention of the plan was that employees who were not on the top step would get a step movement on an annual basis until they reached the top step. • Set out on the table on the following page is a table showing a comparison between the distribution of Unclassified employees in FY2001 as compared to the current distribution.

13. Analysis – Unclassified Plan Step Structure Placement (cont’d)

14. Analysis – Changes in Benefits • While there have not been a significant number of changes to benefits for Unclassified and Classified employees since 2001, set out in the table on this page is a comparison of the changes in benefits for both groups since 2001.

15. Analysis – Salary Compression Between Unclassified and Classified Employees • It is the experience of Hay Group that the issue of salary compression between Classified and Unclassified employees is an issue faced in numerous States. Reasons include some or all of the following: • Bargaining unit representation for Classified employees; • “Political palatability” for the dollar amount of higher level salaries; • Different levels of funding for the various pay plans; • Different construct of the pay structures; • Different means by which pay moves; and • Insufficient recognition of the differences in job content.

16. Analysis – Salary Compression Between Unclassified and Classified Employees (cont’d) • To determine the extent to which this is an issue in the State’s pay structures and practices, Hay did the following analysis: • Comparison of the pay ranges for Classified employees in ranges 31-35 of the Classified pay structures (it should be noted that the selected Law Enforcement and Nursing positions have pay ranges that are ~10% and 20% above the general Classified structure) with that of the Unclassified pay structure for employees who are in a direct reporting relationship. • Comparison of the actual pay of Classified and Unclassified employees who are in direct reporting relationships.

17. Analysis – Salary Compression Between Unclassified and Classified Employees (cont’d) • This analysis shows the following: • The salary range minimum for these Classified employees is, on average, 85% of the salary range minimum for the Unclassified employee to whom they report. • The salary range maximum for these Classified employees is, on average, 87% of the salary range maximum for the Unclassified employee to whom they report. • The actual salary for these Classified employees is, on average, 80% of the salary for the Unclassified employee to whom they report. • However, there are 4 Classified employees whose actual pay is higher than that of the Unclassified employee to whom they report.

18. Analysis – Salary Compression Between Unclassified and Classified Employees (cont’d) • The data on the previous page also needs to be considered with the fact that 84% of Unclassified employees are at the maximum of their current salary ranges. • While Hay does not know the percentage of Classified employees who are at their top step, it is our opinion that actual salary compression is likely to continue to be an issue. • The major downside of compression is that it can lessen the desire of an employee to accept a position of greater responsibility and accountability. • In addition, Classified employers have additional compensation opportunities through overtime, terminal pay and other enhanced benefits.

19. Analysis – Salary Movement in the Relevant Comparator Markets • When the market analysis was conducted for the 2000-2001 study, it showed that the gap between the “at that time” salary structure for Unclassified Officers and that of the chosen market was a lag of 22%. • The recommended and adopted salary structure was intended to halve that gap between the State’s pay structure and that of the relevant comparator market. • Set out in the table on the following page is a summary of the market movement in the relevant markets as compared to the State’s movement since 2001.

20. Analysis – Salary Movement in the Relevant Comparator Markets (cont’d)

21. Analysis – Salary Movement in the Relevant Comparator Markets (cont’d) • The data on the previous page needs to be considered with the statement made on page 18. • The significance is that the structure adopted in 2001 lagged the average of the market and since that time, the salary structure movement has been less than the relevant comparator markets. • Accordingly, the structure has now fallen in terms of level of competitiveness to that which is approaching where it was prior to the 2001 study.

22. Recommendations Based on the analysis as set out in this report, Hay recommends the following: • Increase the pay structure for Unclassified Officers by no less than 10% • Move Unclassified Officers to the same step on the new structure to which they hold on the existing structure. • Adopt the same terminal pay upon retirement formula as that offered to Classified employees.