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					To:       Mayor and City Council                               Date:   April 21, 2010

From:     Janet Smith
          Human Resources Director

          Cathleen Gleason
          Budget and Research Director

         COSTS FOR 2010-11

  As you know, we have outstanding labor-management relationships at the City of
  Phoenix. This year, we negotiated approximately $100 million in employee concessions
  over the next two years in the form of reduced wages and benefits. These reductions
  averaged 3.2%. Specifically, $50.3 million less than the original amount budgeted for
  next fiscal year.

  Merit raises, also commonly referred to as step increases, are provided to non-
  management employees. Provided employees meet required performance standards,
  they are eligible each year to advance to the next step within their pay range until they
  reach the top step. A series of steps is used as part of a sound compensation program
  that establishes a relationship between work and reward by incrementally increasing the
  pay of employees as they gain skills and experience, and thereby become more
  valuable to the organization. For example, a rookie police officer starts at the bottom of
  the pay range and receives a raise to the next step after his or her annual review, but
  only if he or she meets required performance standards. The logic is that a police
  officer with several years experience is more valuable than a first year officer.

  The estimated budget for merit/step increases in 2010-11 is approximately $12.8
  million. About 4,000 general city employees and 2,000 sworn public safety employees
  will be eligible to receive a merit increase next year. Managers and executives, who are
  on a different pay-for-performance system, did not receive raises in 2009-10 and will not
  receive them again in 2010-11. The wage and benefit concessions made by middle
  managers and executives equal 8.9%, or almost three times that of our other

  Longevity is provided to employees who have achieved the top step of their pay range
  and it is designed to retain long-term, experienced and productive employees. It
reduces employee turnover and saves the City time and money in recruiting and
training. This benefit was negotiated 27 years ago, and for 2010-11 will average about
$2,200 per eligible employee. The citywide estimate for longevity payments in 2009-10
is $15.5 million, and for 2010-11 is $16.8 million, therefore the increase to longevity is
$1.3 million. These amounts are spread over approximately 4,600 general city
employees and 2,900 sworn public safety employees.

City employees as a group will receive substantially less compensation next year than
they did this year; conservatively estimated at $35 million less in pay and benefits.

C:     David Cavazos
       Ed Zuercher

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