Classification and Compensation System Simplification by nhz10206

VIEWS: 31 PAGES: 52

									 Classification and
Compensation System
   Simplification

What is it? How is it done?
   Why is it needed?

  IPMA - HR Conference
     September 2003
                      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
                    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
                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
                   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
               Different Ways to Consolidate

• By occupational focus
  –   Engineering
  –   Finance
  –   Human resources
  –   Etc.
• By department focus
  – Public Works
  – Purchasing
• By salary grade
                                           6
                     Four Levels of Work

• Entry                  • Basic skills, learns to
                           do things “our way”
• Developmental          • Developing
                           proficiency


• Full Performance       • Fully competent to
                           perform all aspects of
                           job

• Master/Supervisory     • Recognized expert
                                                     7
                                            Example

Occupation                              Engineering



Nature of Work    Electrical        Civil     Environmental    Chemical


                 IV: Master - Recognized Expert


                 III: Fully Performing - Supervisory
Level of
Work
                 II: Developmental- Senior/ Lead (in some cases)


                 I: Entry - Qualified

                                                                          8
                           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
              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
                  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
               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
                 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
                   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
                        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
  The Government of the District of
            Columbia
                  Jo Ellen Gray
Associate Personnel Director for Policy and Program
               Development, DCOP
                    James Ivey
                President, AFSCME


                                                  16
                       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
                    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
               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
                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
                         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
                       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
                               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
                           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
               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
Classification and Compensation
  Reform in Washington State


            Christina Valadez
         HR 2005 Project Manager
 Washington State Department of Personnel


                                            26
                      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
                    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
                         Organization Facts
                                       Potential application
Unions    Negotiations      Master       within agencies
                           Contracts




         Negotiations
         with State’s
            Chief
          Negotiator




                                                               29
                    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
              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
                                             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.
                        Broadly structured reflecting occupational categories
HR Professionals   5%    13%               31%                        40%


      Managers     6%       18%                  36%                     27%



           Not Important          Somewhat Important      Important         Very Important

                                                                                             32
                                           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.

                       Additional Bases for Assigning/Adjusting Salaries
                                                       84%
       81%                     81%
             74% 73%                                               75%
                                           72%
                                                             61%
                                     58%

                                                                           Managers
                                                                           Employees
                                                                           HR Professionals



    Factor in Performance      Competency           Stronger Position or
                              Development &            Special Needs
                              Demonstration
                                                                                              33
                    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
                      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
                            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
                   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
              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
                    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
                 Proposed Classification Structure

• Consolidating 2,400 current job classes into
  broad occupational categories.
• Four levels within most                  Number of Job Classes


  occupational categories:                 2400
  –   Level 1 – Entry
  –   Level 2 – Journey/Developmental
  –   Level 3 – Senior/Fully Performing
  –   Level 4 – Supervisory/Expert                       1000

• Goal was to yield approx.
  800-1,200 job classes.                  Current      Proposed


• Currently at about 150 categories.
                                                                   40
                             Examples of New Structure
    Current General Govt &              Audit Occupational
    Higher Ed Classes                   Categories

Labor and Industries Auditor 1
Industrial Insurance Underwriter        A. Entry
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
                                                             41
                      Examples of New Structure

Old General           New General    Current GG &        Human Resources
Govt Classes          Govt Classes   Higher Ed Classes   Occup Category

Affirmative Action    Human          Human                B. Journey/
Officer 1             Resource       Resource             Developmental
                      Consultant 1   Consultant 2
Personnel Assistant
                                     Equal
Human Resource                       Opportunity
Dev. Spec 1                          Compliance
Personnel Officer 1                  Investigator 2
Personnel Analyst                    Apprenticeship
                                     Coordinator 1
                                     Human
                                     Resource
                                     Represent. II


                                                                     42
                  Advantages Expected

• Substantially reduces number of job classes
• Minimizes process and administrative time
  and 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
                  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
                            Proposed New System


    Band 8


             Band 9

                  Band 10


                       Band 11
 83 existing
  salary ranges      Band 12
  will be replaced with
  fewer, broader bands.
                         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
                    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
                          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
                       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
                  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
                            Communication

• Open communications and customer involvement have
  been a priority from the beginning.
• Publications are distributed in both print and electronic
  media, to reach widest possible audience.
• Extensive use of listservs, e-mail, and electronic
  newsletters to provide regular updates.
• In past year, DOP has held over 200 presentations and
  information/feedback sessions throughout the state.
• You are invited to watch our progress by monitoring
  our web site at http://hr.dop.wa.gov/hrreform.

                                                          51
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    Question and Answer Session


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