IPMA HR Annual Conference (PowerPoint)

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					IPMA-HR Annual Conference
   Pay For Performance
   Jim Fox, PhD, IPMA-CP
Bruce Lawson, CCP, IPMA-CP
  Gary O’Bannon, IPMA-CP
    Tom Briggs, IPMA-CP
 Michael Kitchen, IPMA-CP

      October 2, 2007

• Pay Philosophy
• Merit Pay
• Performance Evaluation
• The Kansas City Experience
• Questions and Discussion
            WHY PEOPLE WORK

• People work for rewards -monetary
  and other
• Rewards must be internally
  equitable and externally
             PAY PHILOSOPHY

• Base Pay
• Pay Progression
• Variable Pay
                  BASE PAY

• To provide Employees with
  compensation that reflects the
  fundamental value of the job to
  the organization.
                 BASE PAY QUESTIONS

• What pay level do you target as your level
  of competitiveness with the market? Do you
  lead, lag, or match the market?
• Do you manage pay around an established
  job rate or market guide?
• Is base pay maintained with automatic
  increases for market value, cost-of-living, or
  a combination?

• Does the current pay system reward
  employees for performance, longevity, or a
  combination of both?
• Does the City consider productivity, new
  skills, or knowledge acquired in
  determining additions to base pay?
• Does the current pay system include base
  building rewards for both individual and
  team performance?
• How are salaries treated for employees that
  have reached the maximum of the pay

• Do you offer short and long-term
  incentives in addition to base pay?
• Do you offer non-base building cash
• Do you offer employees non-cash
  recognition programs?
                   MERIT PAY

• Align performance with business
• Recognize and reward top performers.
• Achieve higher levels of individual,
  team, and organizational performance.
                 MERIT PAY

• Strategic Focus
• Changing Values
• Pay Delivery
                     STRATEGIC FOCUS

• Alignment of compensation with the goals
  and objectives of the organization.
• Creating “ownership” value.
• Flatter organizational structures – focus on
  performance of the whole, not just its parts.
• Establishing higher standards for
  performance and rewards.
  – Clearly defined goals.
  – Differentiation in pay based on performance.
• Management discretion and accountability.
                    CHANGING VALUES
• Public sector movement away from
  automatic, “entitlement” pay.
• Pay for job skills and qualifications – flexible
  hiring practices.
• Management desire to recognize and
  reward outstanding performers.
• Organizational demographics.
   – Shorter term employees – loyalty to career, not
     the organization.
   – Aging workforce and decreasing talent pool.
   – Entry-level work skills and experience.
                       PAY DELIVERY

•   Mix of reward vs. entitlement pay.
•   Base pay and salary structure(s).
•   Individual vs. team/group incentives.
•   Performance measurement.
•   Plan administration and management.
•   Employee perceptions.
                                    PAY DELIVERY
                                  Merit Pay*

                                  General Increase

                Base Pay          Progression Steps
                                  Skill-Based Pay*
Individual                        Other

                                  Gain Sharing*
                                  Goal Sharing*

               Variable Pay       Skill-Based Pay*
               Also called:       Recognition/Achievement*
               Incentive Pay
               Alternative Pay    Bonus Plans*

*Pay for performance-type plans                Source: Seminar PS201, “New Strategies & Applications for
                                                Public Sector Compensation,” WorldatWork/IPMA, 2000.

• Budgeting Strategies
• Management Commitment
• Communication
• Training
                  BUDGETING STRATEGIES
• Zero-based vs. “fixed” budgets.
  – Eliminate automatic pay increases.
  – Flexibility appropriate to business needs.
• Funding meaningful rewards to distinguish
  levels of performance.
• Budgeting market vs. actual salaries -
  managing pay around a market control
• Alternative rewards.
  – Non-cash incentives.
  – Lump-sum bonuses.
• Alignment of business goals, performance
  measures, communication and feedback,
  and rewards for performance.
• Developing the performance appraisal
  – Organization wide objectives.
  – Common criteria and standards for measuring
    employee performance.
• Review and revision of performance
  appraisal process to ensure consistent
  outcomes and performance improvements.

• Performance management is an on-going
  process, not a one-time event.
• Requires clear definitions of goals and
• Linking measurements to rewards and
  consequences – requires consistency and
• On-going communication and feedback.

• A successful performance management
  system takes time;
• A clear understanding of business
  objectives as they relate to employee
• Ability to set goals and measure
• A review of measures to assure reliability
  and appropriate balance of all objectives;
• Training, training, and more training.
                      PAY SYSTEM DESIGN

• Alternative reward approaches.
  – Broad banding
  – Skill based pay
  – Individual incentives
  – Group based incentives
Advantages           BROAD BANDING

• Flatter organizational structure – collapses
  multiple salary ranges into fewer broad bands.
• Wider ranges – supports recognition of
  different levels of employee contributions.
• Greater flexibility in employee resources to
  meet organizational goals – encourages
  broadening of skills.
• Less focus on titles and grades – supports team
• Greater responsibility of managers to
  “manage compensation.”
Disadvantages           BROAD BANDING
• Less traditional cost control measures.
   – Elimination of control points (midpoints).
   – Higher salary range maximums.
• More responsibility for administration by
  Human Resources and management.
• Requires effective communication/education
  of the system relative to individual pay.
• Doesn’t work if current incentives and benefits
  are tied to pay grade.
• Requires new job evaluation and market
Advantages           SKILL BASED PAY

 • Pay is directly related to definable and
   measurable skills acquired and applied in
   the work setting.
 • Individually based pay vs. job based pay.
 • Encourages skill and career development.
 • Encourages cross training and creates
   staffing flexibility.
 • Reinforces teamwork and employee
 • Higher output and quality over the long-
Disadvantages          SKILL BASED PAY
  • Skill blocks can be difficult to define and
  • Best for trades jobs, can be effective for
    public safety jobs.
  • May result in paying for skills not used.
  • Requires established certification process.
  • Requires time and money for training.
  • More employees can “top out.”
  • Greater administrative complexities.

• Encourages employees and management to
  work together in solving problems of cost,
  quality, and efficiency.
• Rewards documented improvements.
• Emphasis on teamwork and employee
• Encourages higher productivity and quality.
• Lower staffing levels needed.
• Measures of improvement can be financial,
  operational or a combination.

 • Difficulty in setting measurable objectives.
 • Rewards may not be large enough to
   motivate change in behavior.
 • Public distrust of pay for improvements.
 • Bonus formulas can be overly complex.
 • Requires significant time to set up.
 • Requires good baseline performance
 • Emphasis is on individual performance or
 • Consistent with historical values of pay and
 • Includes a variety of recognition programs.
 • Relatively easy to install.
 • Can establish clear measures for success.
 • Top performance can be distinguished from
   regular duties.
 • Encourages on-going communication and
                   INDIVIDUAL INCENTIVES
  • Difficult to set measurable performance
    criteria for many jobs.
  • Encourages individual performance at
    expense of group.
  • May be perceived as unfair because of
    subjective nature.
  • Fails if managers do not distinguish between
    different levels of performance.
  • Fails if organization does not allocate funds for
    meaningful rewards.
  • Administrative systems must be monitored.
      Welcome to
    Variable Pay Plan
                         Variable Pay Plan

Phase I     Phase II       Phase III         Phase IV

          Negotiating      Implementation     Challenges
          the Variable     of the Variable    and
          Pay Plan         Pay Plan           Lessons
                  PHASE I: Pre-Negotiations

• Began laying the ground work during previous
  (2003/04) negotiations by including language
  acknowledging the parties intent to move to a
  P4P system.

• Agreement that parties would begin separate
  P4P negotiations.
                  PHASE I: Pre-Negotiations

2003-2005 Agreement :
  Outlined the basic structure of plan, which
   • Combination of “longevity” and performance increases
     added to employees’ base pay.
   • Incentives for attainment/demonstration of Knowledge,
     Skills & Competencies.
   • Individual and Group Awards.
   • Gain-sharing
               PHASE II: Negotiating the Plan

Reviewed previously agreed upon language with Union.

Select members of both negotiating teams attended a Gain-
Sharing Conference sponsored by AFSCME.
                   PHASE II: Negotiating the Plan

 Searched for “Low Hanging Fruit” and common
 areas of agreement.
Both sides desired a system that would:
 Reward high achievers.

 Reward employees who attain/demonstrate valued knowledge, skills
 and competencies

 Avoided discussing monetary increases.
                     PHASE II: Negotiating the Plan

   Both sides desired a system that would:
Encourage and reward employee input.

Allow employees to share in savings/increased revenue resulting from
employee input
                      PHASE II: Negotiating the Plan

What to call the new system (Variable Pay vs. Pay for

Areas to be included in incentive plan
   Safety, Attendance, Customer Service, etc.

   How would performance expectations be established and measured
               PHASE II: Negotiating the Plan

Based pay increases vs. one-time payments

Amount of base pay increases

Amount of cash incentives
                 PHASE II: Negotiating the Plan

Union’s concern regarding pay systems utilized for other
City bargaining units and employee groups


Incentive period (especially as it related to group awards).
                       PHASE II: Negotiating the Plan
In an effort to overcome certain hurdles we:

  Provided Union with financial information.

  Had budget Officer attend a negotiation session to discuss financial
  picture and answer questions.

  Informed the Union leadership that failure to reach agreement could result
  in loss of positions.
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                     PHASE III: Implementing the Agreement

Provided Managers/Supervisors with training regarding the P4P plan.

Managers communicated plan to Front-line employees
                         PHASE III: Implementing the Agreement

Communication/training included:
• Traditional classroom type training.

• Training posted on intranet.

• Development of a supervisory guide book with handout materials.
                  PHASE IV: Lessons Learned

Plan Ahead.

Look for Ways to “give” Union perceived wins when possible.

Keep elected Officials informed and onboard!
             PHASE IV: Lessons Learned

Control Information

Be Flexible but Firm

Identify Champions of your Goals
(Management & Union)
               Part I
        Base Pay Compensation

A. Performance Appraisal Increases

B. Variable Base Pay Incentive Awards
                Merit Increases

 Based on attaining an overall rating mark of Meets

 Paid as merit increase

 Pay anniversary date remains the same
                 Variable Base Pay
                 Incentive Awards

                Award Period

          December 1 to November 30

* First award period - February 1, 2006 through
   November 30, 2006.
            Variable Base Pay
            Incentive Awards

1. Sick Leave        4. Citizen Satisfaction

2. Safety/Customer   5. Exceeds
   Service              Expectations

3. Cross–Training
              Variable Base Pay
              Incentive Awards

 Must “Meet Expectations” overall to be
  eligible for additional incentives to the base.

* A Meets Expectation in any trait does not
  guarantee the receipt of an incentive award.
             Sick Leave Incentive
• Eligible if use 41 hours or less of scheduled or
  unscheduled sick leave

• Employees who work significant amounts of
  overtime are entitled to use more sick leave
  (Appendix SL in MOU)
Sick Leave Incentive – 41 hours

OT Hours       Add’l S/L      Total S/L
160-319        4              45
319.1-479      8              49
479.1-639      12             53
639.1-799      16             57
799+           20             61
                          Safety Incentive

Employee is eligible for Safety Incentive award if:
 In a position designated as Safety Incentive Eligible
  by HR
 Had no Safe Work Practice Violations
 Had no preventable vehicular or non-vehicular
 Had no incidents of failing to report accidents and
  injuries immediately in accordance with Safety
        Customer Service Incentive
Eligible if:
 Not in a Safety Incentive Position
 Received a rating mark of “Exceeds Expectations” in
  Customer Service trait
   (Non-Exempt rating form to be revised to CS)
 Had no substantiated complaints during the award
 Had no discipline or written counseling regarding
  customer service performance during the award period
                        Cross-Training Incentive
Eligible if:
    Demonstrates ability to perform regular job duties of at least
     one other position/assignment of an equal or higher level in a
     proficient manner
    Performs those duties when requested

Note: Employees must meet the MQs of the position in which
    they are cross-trained to perform.
                      Cross-Training Incentive

 Each employee must be         Length of training should
  offered at least one cross     be of reasonable duration
  training opportunity
                                Remain eligible in
 Training may be formal or      subsequent years if remain
  informal                       proficient and performs
                                 duties when requested
 Previous cross-training
  experience may qualify
                 Citizen Satisfaction Incentive

Eligible if:
 Increase of 3% or more in the “Overall Quality of
  Customer Service” trait in the City Auditor’s Office’s
  Annual City Services Performance Report

*All eligible employees will receive this award if met.
                   Base Pay Incentive Award

               Exceeds Expectations
Awarded to employees who meet at least three of the
 four incentives.
•   Sick Leave
•   Safety/Customer Service
•   Cross Training
•   Citizen Satisfaction
      Part II

Cash Incentive Awards
                        Cash Incentives

1. Education Recognition

2. Workers’ Compensation Reduction
    [AFSCME Only]

3. Department Approved Certifications
                           Education Incentive

Eligible if:
 Overall performance appraisal rating of at least “Meets

 Possess educational level beyond that which is required for
  their position

 Degree is reasonably related to their position or enhances
                    Education Incentive

 Incentive is paid monthly

 Monthly Education Incentive Award began
  May 1, 2006.

 Awards paid during first pay period for
  previous month
 Not included in employee’s base pay
                     Monthly Educational

• Employees who possess      • H.S. Diploma/State-
  a diploma/degree while       issued GED
  in a job class that does          $25
  not require a
                             • AA Degree
  diploma/degree, or does
  not allow for the                  $50
  substitution of a          • BA/BS Degree
  diploma/degree may               $100
  receive:                   • Master’s Degree
 Cash Awards

Workers’ Compensation
AFSCME Group Award
                       Reduction in Workers’
                        Compensation Costs

Eligible if:
 Worked for City                No preventable vehicular
  continuously for at least 1     or non-vehicular accidents
  year prior to end of award
  period.                        No Safe Work Practice
 Received a rating of
  “Meets Expectations” in        Not found to have failed
  Safety on last                  to report an
  performance appraisal           accident/injury
                  Reduction in Workers’
                   Compensation Costs

 City shares each 20% reduction with eligible
  bargaining unit employees

 Reduced expenses split 50/50 between City
  and eligible employees

 Divided equally among all eligible employees
Department Approved Certifications, Licenses and
  Eligible If:

   Possesses certifications, licenses and/or registrations
    not required for their position

   Deemed beneficial to their position by the Department
Department Approved Certifications, Licenses and

   Awarded at the employee’s annual
    performance appraisal

   Remains eligible each year as long as
    certification, license or registration is
    maintained and deemed relevant

  Note: Appendix C2 in MOU lists currently
        approved certifications
Overview of Compensation Plan

             Year One
 May 1, 2005 through April 30, 2006
                    Base Increases- 1st Year

               Not at Top of Range
 First Year=3.25% paid out on pay anniversary date

                 At Top of Range
 First Year = 2.5% paid out on pay anniversary date
 One time cash bonus of $1750.00
Overview of Base Compensation Plan

            Year Two &Three
    May 1, 2006 through April 30, 2008
   Employees Not at the Top of Their Pay Range – Years 2
              May 1, 2006-April 30, 2008

  Annual Salary
                                   Incentive Pay to Base Salary

                              Safety /                               Exceeds     Base
Overall     Base      Sick                Cross –       Citizen
                             Customer                                Expect-   Increase
Rating    Increase   Leave                Training    Satisfaction
                              Service                                 ations    Possible

Meets       2.25     0.50      0.33         0.46          0.46        0.25       4.25
                    Base Increase

        Not at Top of Range

Second & third year = 2.25% plus any
  earned incentives
Employees at the Top of Their Pay Range – 2nd
           Year of the Agreement
        May 1, 2006-April 30, 2007
Annual Salary Increase             Incentive Pay to Base Salary
                  Base                                                       Annual
                Increase              Safety /                                Base
   Overall                  Sick                 Cross –       Citizen
                  OR                 Customer                               Increase
    Rating                 Leave                 Training    Satisfaction
                  Cash                Service                                Possible

   Meets          1.00     0.50        0.40        0.40           0.46        2.76

Note: No additional increase for meeting at least 3 of the incentives or
“exceeds expectations”
  Employees at the Top of Their Pay Range – 3rd
             Year of the Agreement
          May 1, 2007-April 30, 2008

Annual Salary Increase              Incentive Pay to Base Salary
                   Base                                                        Annual
                 Increase              Safety /                                 Base
   Overall                   Sick                  Cross –       Citizen
                   OR                 Customer                                Increase
   Rating                   Leave                  Training    Satisfaction
                   Cash                Service                                 Possible

    Meets          1.00     0.50        0.50         0.50          0.46         2.96

 Note: No additional increase for meeting at least 3 of the incentives or
        “exceeds expectations”
 These increases will not increase the maximum of the pay range.
                YEAR 2 REVIEW PERIODS

Year 2 – Performance Appraisal
May 1, 2006-April 30, 2007
  – Paid on anniversary date

Year 2 – Variable Pay Incentives
February 1, 2006-November 30, 2006
  – Paid in January 07
     • (Pay anniversary dates between May and December 06)

Year 3 – Performance Appraisal
May 1, 2007-April 30, 2008
  – Paid on anniversary date

Year 3 – Variable Pay Incentives
December 1, 2006-November 30, 2007
  – Paid in January 08
     • (Pay anniversary dates between May and December 07)

Tracking for annual incentives starts February 1,
  2006 and ends Nov. 30, 2006.

Departments must report to HR which incentives
 employees met by December 8, 2006.
                                Supervisors Need to:

• Set annual performance goals for      • Document cross training,
  “Meets Expectations” for all traits     including:
  and “Exceeds” for Customer
                                           – Who was trained
                                           – What training included
• Tell employees to submit                 – When training was held
  documentation of education levels
                                           – Who was asked to
  to HR Consultants/Liaisons for
  entry into PeopleSoft
                                             perform tasks for which
                                             they were cross-trained
                                             & employee’s response.
                       Supervisors Need to:

• Document incidents of:    • Document Customer
  – Safe Workplace            Service Complaints:
    Violations                – What was the complaint
  – Preventable Accidents     – How was it investigated
  – Failure to report           and substantiated (or not)
    accidents or injuries

• Track OT hours
      Licenses, Certificates & Registrations

Departments should:
• Compile a list of relevant licenses, certificates
  and registrations
HR will:
• Compile a list of standardized award amounts
  for various licenses, certificates and
  registrations (i.e. CDL, CPR/First Aid)

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