COUNTY OF ALBEMARLE

 

EXECUTIVE SUMMARY

 

 

AGENDA TITLE:

Total Rewards Report

 

SUBJECT/PROPOSAL/REQUEST:

Request approval of recommended strategies brought forward by the Total Rewards Team

 

 

STAFF CONTACT(S):

Tucker, White, Suyes, Gerome

 

 

LEGAL REVIEW:  

 

AGENDA DATE:

September 1, 2004

 

ACTION:     X                        INFORMATION:

 

CONSENT AGENDA:

  ACTION:                             INFORMATION: 

 

ATTACHMENTS:     Yes

 

 

REVIEWED BY:

 

 

 

BACKGROUND:

At its June 26, 2003 meeting, the Board of Supervisors directed staff to begin the review of the County’s reward and  performance system to ensure that they are aligned with our high performance strategies for customer service, continuous quality improvement and the delivery of efficient and effective County services.   The County’s human resources systems must reward, motivate, and sustain customer service focused behaviors in order to achieve the strategic goal and objective listed below.  In response to the Board’s direction, a team was formed to develop a “total rewards” strategy. The team reviewed the County’s current merit compensation and performance management systems, solicited employees’ perceptions about the current system and evaluated changes that would support our pay and performance philosophy.   This report provides the team’s recommendation on the development of the County’s Total Rewards Strategy.

Note: The School Division chose not to participate in the development of a total rewards strategy at this time.  

 

STRATEGIC PLAN:

Goal 4.1 Provide effective, responsive and courteous service to our customers

Goal 4.1.3  By June 2005, the County will be recognized as a quality place of employment with a workforce of employees who continuously provide high quality, customer-focused service to its citizens.

 

DISCUSSION:

As the County pushes forward to become a high performance organization, one major concern is the ability to properly align employee rewards with organizational objectives.  Feedback from County leaders and employees indicate that our current compensation system, although considered a performance merit system, does not effectively link pay with performance and does not reward employees who continue to increase their skill levels and perform at an exceptional level. 

 

Team Process and Problem Analysis

To study these issues, a cross-departmental team was formed, which consisted of a BOS member, staff members from various departments and a community representative. Segal Consultants were selected to assist the County to develop specific recommendations for variable pay programs, which would reward high performing employees consistent with the County’s culture, philosophy and fiscal constraints. The consultants provided information on the trends and best practices in compensation, as well as advantages and disadvantages of different reward systems.  The team took the following steps:

 

·         Sent a communication about the total rewards initiative to all employees;

·         Reviewed Information from previous studies of compensation and performance management systems which included previous compensation studies by Hendricks & Associates, Slabaugh Morgan & White, and Palmer & Cay;

·         Evaluated current compensation and performance management systems;

·         Conducted interviews with key executives, managers and several members of the Board of Supervisors to ascertain their perspectives on the current systems;

·         Reviewed best practices of other public sector organizations;

·         Conducted an Employee Climate Survey, which included questions designed to get input on reward preferences;

·         Held cross-functional focus groups to get specific feedback on an employee recognition program.

 

Identified Problems/Key Issues

·         Managers do not have the flexibility under the current system to immediately reward those behaviors they wish to reinforce, since the merit increase only occurs once a year.

·         Employees do not know the potential reward commensurate with each performance level, since the merit pool varies each year.  When employees cannot see the potential rewards, they may be less motivated to put in the extra effort that contributes to high performance.

·         The system does not reward team values and accomplishments.

·         The current merit pay system is confusing for staff to understand and does not allow for adequate differentiation among performance levels.  Both managers and employees indicate confusion around how the merit plan works.  The lack of sufficient differentiation results in negligible differences in the amounts between performance levels.  For example, last year’s 3% merit pool resulted in the following typical pay increases:  an employee with a base salary of $29,809 at Paygrade 7 would have earned an annual increase of $970 at the “exceptional” rating level, but an increase of $646 at the “successful” rating, which is a difference of about $323 per year.  Managers have reported that this system is  a de-motivator, leading to a high level of cynicism and skepticism about the process.

·         There is difficulty successfully recruiting and retaining employees in some key occupational areas, such as Engineering and Fire and Rescue.

·         Long-term employees, even when they are scored as successful or exceptional performers often receive less than the market increase given to other employees.

·         An organizational climate survey indicated that 86% of respondents indicated a need to find better ways to reward exceptional performance.

·         Other rewards outside of compensation are not utilized to reward performance.

 

Total Rewards Findings/Options

Based on the consultant’s recommendations and the team’s evaluation of various options, the Total RewardsTeam recommends the following four compensation and reward systems to be implemented over the next three years: (see Attachment #1 for more detail on the following four proposals):

 

1). Proposal 1:  Employee Recognition Program   (Proposed implementation in mid FY05)

To successfully design a recognition program, employee input was gathered through an employee survey.

 

Program Objectives.

·         Provide a set of standards for acknowledging, rewarding, and reinforcing exceptional performance;

·         Give managers the tools and means to reward exceptional performance on an ad-hoc basis using monetary and non-monetary rewards;

·         Align with high performance organizational goals, particularly on customer service and continuous process improvement;

·         Ensure program is linked to recruitment and retention efforts;

·         Decentralize program administration to provide department manager’s with flexibility and control;

·         Maintain consistent standards throughout the organization.

 

Performance Criteria

The team reviewed the survey data from employees and organizational best practices, including Chesterfield County’s Reward Program to determine the types of performance that should be recognized. The most frequently identified type of performance that employees’ believe should be rewarded is providing exceptional customer service.   Other recognition criteria include:

 

·         Exceptional performance beyond the call of duty;

·         Reduction in operating costs (loss control, monetary savings, etc);

·         Quality and/or productivity improvement (effectiveness and efficiency);

·         Excellence in creating safe work practices.

 

Specific criteria will be developed and departments will be encouraged to define those standards at the departmental level so that consistent, clear expectations of performance are established.

 

Types of Rewards

Based on survey data, the types of recognition should be as follows:

 

1)       Non-monetary recognition with minimal cost would include thank you cards, letters of appreciation, designated parking space, web/newsletter recognition, etc.;

2)       Non-monetary recognition with some cost would include gift certificates, custom certificate of recognition, framed picture of county scene, etc.;

3)       Non-monetary recognition with some cost would include time-off based on department director approval;

4)       Monetary recognition-direct cash bonus in $100 increments up to $1000 subject to department director approval.

 

Funding

Funding for this program will be provided at the departmental level, based on the number of FTE’s in the department. The approval process will depend on the type of reward.  Based on a similar program in Chesterfield County, the total annual costs for Albemarle are estimated to be approximately $50,000.  The team is recommending that the program be implemented in January, 2005, which would cost approximately $20,000 through the end of the fiscal year.

 

2.  Proposal 2:  Merit Pay for Performance  (Proposed implementation in FY 06)

Currently, eligible employees receive an annual merit increase, effective July 1.  The amount of the increase is based on a formula that includes the following factors: an employee's performance evaluation rating, an employee's salary in relation to the midpoint of their paygrade, the merit pool percentage increase, and the available funding within their departmental pool. Available funding is now calculated by multiplying the proposed market adjustment by the salary mid-points.  Based on employee and manager feedback, the following issues have been identified with regard to the current merit plan:

 

·         The formula is complicated and difficult to understand due to the number of factors in the formula and the pool concept;

·         Employees are not able to establish the link between their performance and the reward due to the variable pool;

·         Available funding can impact the merit pool for a department which then impacts the merit amount received by employees.

·         The small pool amount does not adequately differentiate performance.

·         The merit system is not consistent with the Board strategy to pay employees who “meet performance expectations” at the market rate. The FY03/04 merit data indicated that employees above the mid-point of their range, who successfully “met expectations” on their performance evaluation, received an average 2.23% increase or less than the 3% market rate increase.

·         The merit system is not consistent with the Board strategy to pay employees who “exceed performance expectations” at least a market rate increase. Employees above the mid-point of their range, who “exceeded expectations” on their performance evaluation, received an average 3.14% salary increase, which is a marginal increase above the market adjustment.    Additionally, since 3.14% is an average, many high performing employees received less than the 3% market increase.

·         The current merit system is not consistent with the Board strategy to help move new employees toward mid-point. Employees below mid-point who successfully “met expectations” on their performance score, received an average 3.12% increase, only 0.12% over the established market rate increase,  which does not substantially move them closer to their range mid-point.

 

Based on these inherent problems in the current merit system, the team proposes the following:

Continue to reward employees with an annual salary increase based on the market data and Worldatwork. In addition, a fixed merit amount will be added to the salary increase, based on  the relation of the employees salary to midpoint  and the level of performance. This proposal is consistent with the Joint Board adopted strategy to pay employees at market rate and ensure that high performing employees whose salaries may be may be at or above the midpoint will not receive less than the market increase. This option is also simple to communicate and administer.

 

The proposed merit plan is compared below to the County’s current plan:

 

Merit Plan Factor

Current

Recommended Plan

Accelerates employees to midpoint, which is important for retention.

Yes

Yes

Performance evaluation score is factor

Yes

Yes

Employees know increase amount and can see the tie between performance and reward.

No

Yes

 

Employees who meet or exceed expectations receive a competitive market increase.

No

Yes

 

Simple to communicate and administer.

No

Yes

Differentiates among performance levels.

No

Yes

Budgeted dollars for merit pool is easy to project

Yes

No

 

Additionally, the team recommends that the number of performance rating categories be expanded in FY 05-06 from three to five to allow managers more flexibility in differentiating performance.  Once new performance standards are in place, managers will be held more accountable for differentiating levels of performance among employees.  The table below provides an example of this performance matrix based on five performance ratings:

 

Position in Pay Grade Range

Fails to Meet Expectations

Needs Development

Successfully Meets Expectations

Meets and Occasionally Exceeds Expectations

Exceptional

Below Midpoint

No Increase

Market - 1%

Market + 1%

Market + 1.5%

Market + 2%

Above Midpoint

No Increase

Market - 1%

Market

Market + 0.5%

Market + 1%

 

Funding

Although the proposed merit plan will allow managers to reward, motivate and retain high performers, the annual budget amount may be difficult to project, since the distribution of the performance evaluation scores will not be known at the time funds are budgeted.   To estimate the funding required to implement  these changes, staff ran the proposed merit plan using the FY03/04 merit data. Assuming the same distribution as FY03/04, the proposed changes to the merit system would cost an additional $231,381 over the FY04/05 cost of $663,924.

 

3) Proposal 3:  Skill and Competency Differentials  (Proposed implementation in FY 06)

This skill- based compensation system provides stipends for employees who attain job-related skills, such as licensing, certifications, or completion of formalized training.  Skill based pay rewards specific, specialized skills that improve an employee’s ability to perform their job and provide increased value to the County.  Department Directors will work with Human Resources staff to develop criteria specific to the Department’s needs similar to the skill-based compensation system that has been in place for many years in the Police Department.

 

4) Proposal 4:   Broadbanding   (Proposed implementation in FY07 – possible pilot program in FY06)

Broadbanding is a compensation and classification system that provides greater flexibility for career and skill development by grouping jobs into wide pay bands.  Broadbanding encourages and rewards individuals for learning and using skills that are valued by the organization and may change the basis for pay progression from longevity to performance value-added.

Human Resources staff will obtain best practices from other localities who have successfully implemented broadbanding systems and continue to evaluate this as an option for FY 06/07 implementation (possible pilot program may be implemented in FY05/06).

 

RECOMMENDATION:

·         Approve implementing an Employee Recognition Program in January, 2005 at a cost of $20,000 for the current fiscal year and an anticipated cost of $50,000 for FY06.  If approved by the Board, staff will include $20,000 in the reappropriation request that will come to the Board for approval in October. Because the State Code requires the payment of bonuses to be approved by ordinance, the Employee Recognition Program will be incorporated into the County’s personnel policies and brought back to the Board for approval prior to implementation.

 

·         Approve a revised Merit Plan for FY06, which will provide less than a market salary increase for employees who do not meet expectations, a market salary increase for employees who meet expectations, plus a 1% accelerator increase for those employees below mid-point.   Employees who receive an “exceeds expectations” or “exceptional” performance will receive a market salary increase plus a merit increase, plus the 1% accelerator increase for employees below mid-point. The market increase will keep employees meeting expectations inline with the market. The merit will reward employees who are exceptional performers. The 1% accelerator will continue to move below mid-point employees closer to mid-point.    Staff estimates that the additional annual cost of these proposed changes to the County will range from $220,000 to $250,000.

 

·         Approve development of skill and competency differentials for implementation in FY 05/06.

 

·         Approve continued evaluation of Broadbanding for implementation in FY 06/07 (possible pilot in FY05/06).

 

The Total Rewards Workgroup members are:

Roxanne White - County Executive’s Office                      Joyce Robbins - Community member 

David Wyant - Board of Supervisors                                  Kimberly Suyes - Human Resources

Dan Eggleston - Fire Department                                     John Beta - Human Resources

Heather Welcher - Finance Department                            Wendy Roberman - Human Resources

John Shepherd - Zoning Department                                 Lorna Gerome - Human Resources

Kathy Ralston - Social Services

 

View Attachment

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