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Home My WebLink AboutSS2 - Executive Class and Compensation StudyAgenda Item No. SS2 September 25, 2012 �it Gallagher Benefit Services, Inc. thinking ahead Newport Beach, Decision Band Method TM - Executive Classification and Compensation Study Management Report to City Council September 251 2012 GFox Lawson & Associates a Dtvtstm of CaUagl r Benefit Snveres, 6c. CmoVUMM and ff n n Beromet Spry dvet Challenges Facing the City's Executive Compensation Program Narrow Salary Rages City salary ranges are considerably narrower than other employers in the labor market (see below) Typical Malket Range Width -50 %) 1 ; 1 1 I 1 MIN MAX Newport Beach Range Width )_22 %) 2. High Executive Turnover ✓ Nearly all Department Director positions have turned over in the past 5 years ✓ The City has frequently hired outside established salary range to attract /retain highly qualified personnel 3. Misaligned with the Market ✓ Salary ranges are not anchored to competitive market practices ✓ Market position (i.e. 50th, 75th percentile) has not been formally established 4. Inconsistent Executive Benefits ✓ Supplemental benefits (e.g. car allowance, etc.) are not uniformly applied to Executive staff 5. CalPERS Compliance ✓ Ranges have not been formally adopted under newer PIERS regulations 6. No Verified Classification /Compensation Structure ✓ The City has never established and formally verified a classification /compensation structure for Executive positions GFox Lawson u Associates . Ometiam of GA6,6 14.cfn Sm.im, 1. Consistent with Compensation Philosophy Resolution (June 14, 2011) the Study Provides: r r A job evaluation system with reliable and objective methodology that ensures internal consistency among departments (Philosophy #3) Market competitiveness that includes examination of public and private sector data (where applicable) and that generally compensates at market median (Philosophies #1 and #2) A simplified job classification and pay structure that offers greater management flexibility and control (Philosophy #6) Review of pay and benefits through a total compensation analysis to include medical, retirement /pension, deferred comp, and other pays (Philosophy #1) City Council Defined Labor Market Anaheim Carlsbad Costa Mesa Fullerton Huntington Beach Irvine Orange Long Beach Oceanside Santa Ana Torrance Orange County Fire Authority /Sheriff's Dept Private sector where appropriate GFox Lawson u Associates FLA Hired by City to Conduct Executive and City -wide Studies: In 2011 -12 FLA hired to conduct a preliminary assessment of City's class and comp structure, review Executive Compensation practices, and conduct a comprehensive City -wide study ➢ FLA client list includes both private companies (large and small) and public sector agencies ➢ First phase in process is to establish classification and compensation standards for Executive level positions ➢ FLA proprietary Decision Band MethodTM provides foundation for developing the new classification and compensation structure ➢ In advance of concluding the City -wide study, recommendations for creating classification and compensation structure and DBM ratings for Executive level positions will be formally proposed at a future meeting GFox Lawson u Associates . Mw. .1Gm6ykvrBuat Sm. u ,1R'. Decision Band MethodTM of Job Evaluation Provides: A fair and competitive salary structure that strikes a balance between internal equity and market parity ✓ Market parity by benchmarking the competitive labor market and using the data to anchor the salary structure ✓ The flexibility of a City- defined pay philosophy for establishing the salary structure (i.e. range widths, etc.) and its competitive position within the market (i.e. market 50th percentile) A three step process ensures fair and equitable salaries: ✓ The value of a job should reflect the importance of the job to the City ✓ The importance of a job is directly related to the decision - making requirements of the job ✓ Decision- making is common to all jobs ✓ Decision - making is measurable GFox Lawson u Associates . Mw. .1Gm6ykvrBuat Sm. u' 1R'. JOB EVALUATION - DBM BANDING Determine Determines Develops Interprets Plans manner and speed how and appropriate programs into strategies, to perform when to process to operational programs defined perform accomplish plans and and allocates steps of an steps of operations deploys resources to operation processes of programs resources meet goals Organization scope, direction, and goals 5 ➢ Executive Level Positions Provide the Top Structure within the Organization Band F - Highest level decision - making within the organization Band E - Overall program responsibility for a major organizational function Band D - Program interpretation and implementation Within Each Band is a "Grade Assignment" and "Subgrade" v The three -step process examines each job considering the elements below: Step 1 - Banding (Bands A - F) The job is evaluated relative to its level of decision- making within the organization Step 2 - Grading (Supervisory /Non Supervisory) Jobs are distinguished by those having supervisory or coordinating responsibility and those that do not Step 3 - Subgrading Each job is assessed based on the level of complexity, relative to other jobs in the same band GFox Lawson u Associates .Mw. .1CA6,6v B at Sm.u, 1. Current Job Description Title W, DRAFT DBM Rating Band F: Band F decisions determine the scope, the direction, and the overall goals of the whole organization They are subject to few constraints other than those imposed by law and /or economic conditions, and they take into consideration all the major divisions or departments, the limits of funds available to each, and the scope of their programs. CITY MANAGER F101 Band E: Band Ed ecisions deal with the means of achieving the goals established by top City leadership at Band F. These decisions are concerned with formulating or adjusting programs for the major functions /divisions /departments, and allocating resources (facilities, people, money, materials) among these groups. CITY ATTORNEY E84 ASSISTANT CITY MANAGER E83 FIRE CHIEF E83 POLICE CHIEF E83 PUBLIC WORKS DIRECTOR E82 COMMUNITY DEVELP DIRECTOR E82 DEPUTY CITY MANAGER /HUMAN RESOURCES DIRECTOR E82 FINANCE DIRECTOR E82 MUNICIPAL OPERATIONS DIRECTOR E81 LIBRARY SERVICES DIRECTOR E81 RECREATION & SENIOR SERVICE DIRECTOR E81 CHIEF INFORMATION OFFICER E81 Band D: Decisions in Band D require the incumbents to interpret and carry out the programs or objectives developed at higher levels. These decisions specify what is to be done in lower Bands, and how the resources allocated by higher levels are to be deployed. CITY CLERK D62 Fox Lawson u Associates . Mw. ofCA6Je Ik, tSw. �'1. Initial Findings - Retirement Trends • The majority of surveyed organizations report increasing employer costs for existing PERS plans (all participating organizations participate in a PERS plan for their Executive and Department Head staff). • In an effort to manage increasing PERS costs, the majority of surveyed organizations (70 %) have introduced two- tiered plans that shift employer costs to the employee for new hires ➢ Prior to 2011/2012, the average employer PERS cost was 20.69% ➢ After 2011/2012, the average employer PERS cost is projected to be 19.27 %, a reduction of 1.42% The majority of this cost shifting has occurred via reduced employer pick -ups of employee contributions (3,03% to 1.325 %) • All new employees, including executives, will be hired under a new lower benefit formula (2 %960 for laterals and 2% 962 for new PERS members) and will be required to pay the full member contribution Supplemental Benefits • There was limited reporting of supplemental executive benefits in the defined labor market; trends indicate a movement away from supplemental benefits in the public sector. • The following occurrences and cost of supplemental executive benefits were reported in the defined labor market: ➢ Personal Car Allowance: Five organizations; average annual cost of $6,290 Executive Physicals: Four organizations; average annual cost of $580 Personal Cell Phone: Three organizations; average annual cost of $1,220 ➢ Professional Dues: Two organizations; average annual cost of $1,112 ➢ Supplemental Life Insurance: One organization; annual cost of $1,030 Supplemental Tuition Reimbursement: One organization; annual cost of $1,300 GFox Lawson u Associates .Mw. .1CA6'6v B at Sm.u'1. Alternative Compensation Options - Short and Long Term Incentives ■ Short- term (STI) and Long -term (LTI) incentive programs are distinguished by the length of the performance period ✓ STI - Under one year ✓ LTI - Greater than one year (3 -5 years being most common) ■ Public sector incentive programs are more conservative than their private sector counterparts, with maximum earn -outs in the 15 -20% range for top leadership ■ Maximum incentive levels can be benchmarked against established market compensation levels to ensure consistency with public sector pay practices: ✓ Ex. If an organization has targeted their base salaries against the market 50th percentile, the maximum incentive payout could be anchored against the market 75th such that the individual incumbent's total cash compensation does not exceed the market 75th GFox Lawson u Associates .Mw. .1Gm6ykvrBuat Sm.u, 1R'. Additional Considerations: • Confirm desired market position The City may pursue alternative options that combine base salary with contingent bonus payments in order to achieve a desired market position ■ Determine salary policy needs, for example: How will incumbents progress through the salary range (longevity vs. performance)? What controls, if any, will be used for the placement of new hires (hiring range)? Will any portion of pay be contingent on individual /organizational goals? ■ Consider possible impact of AB340 (Public Employees' Pension Reform Act) and other second tier benefits on ability to attract and retain talent How might multi -tier benefits effect internal equity? • Supplemental findings, including recommendations for executive level salary ranges, to be presented at a future City Council meeting • Any additional questions? GFox Lawson u Associates . onyx a CBliykz &.cfn $avNV; i�