Classification and Compensation System Simplification by nhz10206


									 Classification and
Compensation System

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

  IPMA - HR Conference
     September 2003

• 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
                    Typical Symptoms

• You are receiving numerous requests for
• The requests are pay changes in disguise
• The distinctions between classes becomes
• Class change decisions are based on minor
  (insignificant?) changes
• Pay levels are below market by a significant
• 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

                   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
               Different Ways to Consolidate

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

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

• Full Performance       • Fully competent to
                           perform all aspects of

• Master/Supervisory     • Recognized expert

Occupation                              Engineering

Nature of Work    Electrical        Civil     Environmental    Chemical

                 IV: Master - Recognized Expert

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

                 I: Entry - Qualified


• 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

              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?
                  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

               The Concept of Differences

• How much of a difference makes a difference?

• For compensation issues
  – 3-4% is the minimal magic number for step
  – 7-8% is minimal magic number between grades
  – 10-15% is desired number for
    subordinate/supervisor differences


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


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

                       Historical Review

• A product of the negotiated Compensation Units
  1&2 Agreement. Task Force met regularly since
• 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

                    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
               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
• Calculated the overall cost of pay schedule
• Planning implementation – 2nd quarter 2002
                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
• Individual letter to employees (early April)
• Paychecks to employees – retro, bonus and
  new rate (April 16 or 19, 2002)

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


• 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

• 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


• 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

               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
Classification and Compensation
  Reform in Washington State

            Christina Valadez
         HR 2005 Project Manager
 Washington State Department of Personnel

                      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.
                    Organization Facts
• Washington has approx. 58,000 state
  employees in general government
• Approx. 16,800 classified higher education
• Approx. 60% currently covered by collective
• 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

         with State’s

                    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                             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.

                                             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

                                           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
       81%                     81%
             74% 73%                                               75%

                                                                           HR Professionals

    Factor in Performance      Competency           Stronger Position or
                              Development &            Special Needs
                    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.

                      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%
• 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
  – last salary survey implementation was in the early 80’s

• no raises for a four year period
                   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
• It does not facilitate employee mobility/
  career paths.
              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
  – 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.
                 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.
                             Examples of New Structure
    Current General Govt &              Audit Occupational
    Higher Ed Classes                   Categories

Labor and Industries Auditor 1
Industrial Insurance Underwriter        A. Entry
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
                      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
Human Resource                       Opportunity
Dev. Spec 1                          Compliance
Personnel Officer 1                  Investigator 2
Personnel Analyst                    Apprenticeship
                                     Coordinator 1
                                     Represent. II

                  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
• Provides flexibility for new compensation tools
• Addresses customer concerns and preferences
                  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
                            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
• 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
  –   Extraordinary position-specific circumstances such as
      locality, recruitment/retention, etc.
  –   Hiring incentives
• Will also have option for one-time lump
  sum recognition award.

• 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

• Short time frames
• A desire to track back to existing classes
  and salaries and to limit future salary
• 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
• Central coordination/governance is critical for multiple
• 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
• Communications is critical. No matter how much you
  do, it’s not enough.                                       50

• 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

    Question and Answer Session



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