COUNTY OF ALBEMARLE

 

EXECUTIVE SUMMARY

 

 

AGENDA TITLE:

Total Compensation  Report

 

SUBJECT/PROPOSAL/REQUEST:

Approval of budget development projections for

FY 06-07 and proposed Wellness Initiatives

 

STAFF CONTACT(S):

Mr. Tucker, Ms. White, Mr. Trank, Ms. Suyes, Mr. Zimmermann, Ms. Gerome

 

LEGAL REVIEW:   Yes

 

AGENDA DATE:

October 11, 2006

 

ACTION:    x          INFORMATION: 

 

CONSENT AGENDA:

  ACTION:              INFORMATION:        

 

ATTACHMENTS:    Yes

 

REVIEWED BY:

 


 

BACKGROUND:

In November 2000, the School Board and Board of Supervisors approved a Total Compensation Strategy to target employee salaries at 100% of market median and benefits slightly above the market.  The adopted market approved by the Boards is shown in Enclosure #1.  

 

This report details the supporting analysis for the recommendations to achieve the adopted strategies for FY07-08 and for the Boards to consider in giving budget guidance to the County Executive and Superintendent.  These projections are presented to the Boards for their consideration in providing direction for FY07-08 budget preparation.  It is noted that all final funding is subject to, and based upon, available revenues and Board direction.   This report provides information on:

1)       Compensation Strategies

2)       Benefits Strategies

3)       Update on Compensation Initiatives

4)       Living Wage

 

DISCUSSION:

To maintain competitive compensation based on the adopted strategy, two separate, but related actions are required. 

1)   Ensure a competitive salary scale so that the County is able to attract and recruit new employees. 

 

2)   Ensure current employees are rewarded for performance by maintaining internal equity in their pay range and also maintaining market competitiveness for similar skills.

 

To adhere to the Boards' adopted strategy, the following processes are implemented each year:

1)       Annually survey the adopted market to determine the salary scale adjustment implemented in those localities/schools for the current fiscal year.

2)       Annually survey the adopted market to determine the average total salary increase granted employees in those localities/schools for the current fiscal year.

3)       In addition, on a tri-annual basis, the process includes surveying our adopted market not only on scale adjustments, but gathering information on ranges and actual average salaries of a number of benchmark positions. This data identifies positions that may need further review, and is used to set priorities for the long term classification plan. The benchmark survey occurred this year.

4)       The data from steps 1, 2 and 3 is used to determine if the budget actions implemented in the current year have achieved competitive positioning.

5)       The data from steps 1, 2 and 3 is analyzed to ascertain where the salary scales (both classified and teacher) for Albemarle County stand relative to the market and arrive at recommendations for next year’s salary increases.

6)       Obtain data on what other organizations are projecting for salary increases for the next fiscal year through a compensation database (WorldatWork. Eastern Region).  This data is used to project the merit pool increase and develop the teacher scale, including step increases.

 

In March 2004, the Joint Boards adopted compensation strategies for different positions to address competitiveness in certain areas as follows:

1)       Teachers - Target market position at top quartile of adopted market.

 

2)       Positions recruited for outside of our adopted market - identify competitive market as the specific localities within our adopted market that may be competitors for those positions.  This subset of our adopted market should address cost of living issues and target competitive market position.  These localities represent areas that are in Metropolitan Statistical Areas (MSA), both above and below Albemarle in cost of living and currently include: Hanover County, Loudoun County, City of Charlottesville, Prince William County, Spotsylvania County, Chesterfield County, City of Chesapeake, City of James City County, and City of Roanoke.  

 

Section 1:  Board Adopted Process for Compensation Strategy:  Market Analysis and Projections 

The following information is provided to both Boards to consider in providing guidance for the development of the FY07-08 budget.

 

Step 1:  FY06-07.  Survey the market to determine if the scale adjustment implemented for classified/administrator and teacher pay scales achieved the strategy.

 

Classified / Administrator Scale Adjustments-Target median of adopted market

A competitive scale is important in attracting new hires.  For classified employees, the scale adjustment impacts new hires and any employees with pay rates below the new minimums. The Albemarle County scale was adjusted by 2.5% in FY 06-07.  In reviewing the salary scale data for FY06/07, our adopted market median scale adjustment was 3%, therefore our current scale is slightly below market by 0.76.%. 

 

Step 2:  FY06-07.   Survey the market to determine if the total salary increase for classified pay implemented achieved the strategy.

 

Classified Total Salary Increases -Target median of adopted market

Our salary increase for the FY 06-07 merit was 3.95%. The median salary increase amount implemented by our adopted market in FY 06-07 was 4%, which results in our 06-07 salaries being below market by 0.35%. 

 

Teacher Scale Adjustments-Target top quartile (75th percentile) of adopted market

For teachers, the scale adjustment impacts actual salaries.  Data indicates that our teacher scales are in the top quartile at the following steps: minimum, 5 year, 25 year, and 30 year however, we did not reach the top quartile at the following steps: 10 year, 15 year and 20 year.  Enclosure # 2.

 

Step 3:  Projections for FY07-08.   Based on current market position and scale/salary projections, determine the changes necessary to achieve the Board approved strategy using the WorldatWork, Eastern Region data. 

 

Classified / Administrator Scale Adjustments

The scale adjustment impacts new hires and any employees with pay rates below the new minimums.

·         Adopted Market Salary Scale Median:                      3%

·         Albemarle Scale Relative to Market:                  - 0.26%

·         Worldatwork projection:                                        2.8%

·         FY 07/08 Recommended scale adjustment:           3%  

 

Classified / Administrator Salary Increase (merit pool)

·         Adopted Market Median increase:                                                                     4%

·         Albemarle Salary Increase Relative to Market:                                               -0.35%

·         Worldatwork projection for Eastern Region( including Virginia):                         3.65% 

·         FY 07/08 Recommended increase:                                                                 4%  

    

Teacher Scale and Teacher Average Salary Increase

The teacher scale is based on the projected total increase obtained from WorldatWork. This survey projects a 3.65% salary increase.  Any increase would include the step increase.  Our strategy regarding the teacher scale has been to target $1000 above at minimum.  The teacher scale will be designed with an emphasis on reaching

top quartile, with particular attention to those areas that we did not meet top quartile and on improving competitiveness within the top quartile where the variance is significant. Specific scale recommendations will be brought forth as part of the budget process.

 

Section 2:  Benefits Strategy:  Projections for Medical and Dental Insurance Premiums

The Joint Board adopted benefits strategy is to maintain a benefit program that is slightly above market.  As the medical plan is a critical component of the benefits package, the plan design and employee premium levels of our medical plan are carefully reviewed annually.  

 

FY06-07 Plan Year

The Boards approved the 2006-2007 medical insurance premiums and annual budgeted Board contribution of $6153.  Three different medical plans are offered to allow employees plan options and premiums to best meet their needs.   Claims were stable for most of this year with the exception of the last two months.   Consistent with a focus on wellness, several plan changes were implemented to include coverage of physicals and well-baby exams at no cost.

 

FY07- 08 Plan Year Projection- Medical and Dental

Based on claims data and reserve balance, along with trend information provided by our benefits consultant, Tom MacKay with Keiter, Slabaugh, Penny & Holme, LLC our estimated medical costs increase for FY 07-08 is 10%.  Dental insurance costs increase is estimated at 5%.  As we have just started the new plan year, staff will continue to monitor claims experience and develop recommendations for both plan design and premiums as part of the County Executive's and Superintendent's budget proposals.

 

Wellness

A comprehensive wellness program has been developed as a multi-phase approach allowing for various levels of implementation. The wellness initiatives are as follows:

The total costs associated with the program covering phases one through three is $227,500.  The Health Care Executive Committee identified that surplus monies in the Health Care Reserves could cover the costs of the program.  The return on investment varies based on the overall health of the employee population and the creation of a supportive wellness environment.  However, generally data indicates that companies have seen 27% decrease in health care costs, 15% increase in productivity and a 22% decrease in absenteeism after implementing a progressive wellness program.   It will be critical to the success of the program to define measurable outcomes in order to:

Examples of such metrics include total weight loss, number of participants, health care costs, sick time utilized and overall workers’ compensation experience.

 

Section 3:        Update on Compensation Initiatives

 

Long Term Classification Plan

To ensure that positions are appropriately classified, a schedule for comprehensive review of all departments on an ongoing basis was started July 2004. Priorities are set based on identified internal equity issues, substantial changes in position descriptions and market data.  Reviews were completed on all positions in the following departments over the past fiscal year: School Technology and Local Government Information Technology, and Human Resources. Departments scheduled for this year include Social Services, Pupil Personnel Services, and Finance.

 

Total Rewards

In order to support the School Division and Local Government’s strategic objectives, it is recognized that

our human resources systems must reward, motivate, and sustain customer service focused behaviors. Total Rewards teams were formed both for School Division and Local Government.  These teams 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. As a result, several initiatives have been implemented as follows:  

 

Employee Recognition Program   (Implementation occurred mid FY05 for Local Government, pilot implementation scheduled for mid FY 07 for School Division)

The Employee Recognition Program is one component of the Total Rewards strategy that addresses the need to acknowledge extraordinary employee contributions.  Program objectives are as follows:

·         Provide employees a set of performance criteria so that they may identify exemplary, deserving behaviors;

·         Give options to formally recognize and reward employees for exceptional performance. 

·         Provide individual departments with the flexibility and guidelines to exercise this program that best fits that department’s functions and culture.

Funding for this program is provided to the Departments based on the number of FTE’s in the department and standards are defined at the departmental level so that consistent, clear expectations of performance are established.  

 

Merit Pay for Performance 

Local Government piloted a revised performance management system to include; competency based performance evaluation forms, a five point scale and a merit matrix in FY 05/06.    This new performance management system allows for differentiation between good performance and great performance and provides specific behavioral descriptors of performance levels.  Feedback collected from employees and managers indicates that:

·         The merit formula is no longer complicated and difficult to understand due to the number of factors in the formula and the pool concept;

·         Employees are now able to establish the link between their performance and the reward;

·         There is opportunity to adequately differentiate performance;

·         The merit system is now consistent with the Board strategy to pay employees who “meet performance expectations or exceed expectations” at the market rate.

The School Division has implemented a revised competency based performance evaluation and the merit matrix for FY 06/07.

 

Skill Based Pay

This program is currently being developed to reward employees who take the initiative to increase their job worth by gaining job-related knowledge, behaviors, and skills that significantly enhance their value. Department Directors will work with HR to identify certifications, skills and licenses relevant to specific positions and determine appropriate stipend level.

 

 Section 4: Options for Retirees

At the request of the Board of Supervisors, Human Resources reviewed the following options to provide additional benefits to retirees:

1)       VRS Health Credit

2)       VERIP-extension of benefits

3)       Employer Match to Deferred Compensation Plan

Based on current trend data and GASB implications, staff recommendation was not to develop any new programs at this time.  The Board of Supervisors supported this staff recommendation.

 

Section 5:  Living Wage

The Board of Supervisors and the School Board were presented information regarding the living wage back in March and April of 2006.  The living wage is an annual income (or the equivalent hourly wage) that enables a person working full-time to meet their family’s basic needs.  These basic needs adjusted for the costs in a given locality include the combined annual costs of housing, food, childcare, healthcare, transportation, taxes and other necessities.  Two different methods for calculating the living wage were provided:

 

1. The Economic Policy Institute (EPI), a non-partisan think tank, bases its analysis on seven categories of need shown below and estimates that a family income for two working adults and two children needs to be $44,592 for the Charlottesville Metropolitan region. When this annual income is divided by full-time work or 2080 hours, the living hourly wage is $10.72

 

2.  Federal Living Wage Responsibility Act, 2003. The federal government defines the living wage as consisting of two factors:

(1) an hourly wage (or salary equivalent) sufficient for a worker to earn, while working 40 hours a week on a full-time basis, the amount of the Federal poverty level for a family of four (as published in the Federal Register by the Department of Health and Human Services under the authority of section 673(2) of the Community Services Block Grant Act (42 U.S.C. 9902(2)); and

(2) an additional amount, determined by the Secretary based on the locality in which a worker resides, sufficient to cover the costs to such worker to obtain any fringe benefits not provided by the worker's employer.

 

For 2006, the official poverty threshold across all 48 states for a family of four is $20,000, which for a full-time worker equates to $9.62 an hour. It is important to note that the $9.62 reflects wages only. The cost of benefits a worker would need if they were not offered them by their employer is estimated by the federal government to be an additional $2.50 an hour for a total wage of $12.12.

 

3. Market Competitiveness

The University increased their lowest entry wage to $9.37 per hour and will be increasing that wage to $9.75 in December.    The City of Charlottesville recently raised their lowest entry wage to $9.72 per hour based on the 2005 federal living wage standard and their salary scale adjustment.  Albemarle County’s lowest pay rate for entry level positions is currently $8.84 an hour.

 

Financial Impact of a Living Wage Adjustment

The Joint Boards requested that staff provide information on the financial impact of each of these three options, to include not only increasing employees below that minimum amount, but also adjusting to address compression issues.  The costs are preliminary costs, based on employee data as of September 20, 2006.  These preliminary costs do not include increased FICA or benefits costs (such as VRS).  A compression model was developed to impact employees below midpoint of the impacted paygrades and impact is indicated in the following chart:

 

Impact of Living Wage

Option 1- $10.72

Option 2- $9.62 

Option 3- $9.75

Paygrades Affected

1 thru 6

1 thru 5

1 thru 5

# Employees currently below living wage

213

79

89

# Employees above living wage, but impacted by compression

283

259

250

Local Government

 Annual Cost

$17,122.02

$4,869.90

$5,917.91

School Division (includes self-sustaining programs)

Annual Cost

$278,444.29

$59,133.96

$81,394.73

Total Annual Cost of bringing employees to living wage, with graduated compression

$295,566.32

$64,003.86

$87,312.64

Note:  As the impact on the self sustaining programs is significant, these costs are indicated below:

Child Nutrition Annual Cost

$61,288.61

$25,428.25

$29,666.30

Extended Day Enrichment Program Annual Cost

$16,535.30

$6,741.48

$7,898.94

 

 

RECOMMENDATIONS:

Budget Development Projections for FY 07-08 based on adopted methodology:

These projections are presented to the Boards for their consideration in providing direction to both the County Executive and Superintendent for FY07-08 budget preparation.  It is noted that all final funding is subject to, and based upon, available state and local revenue.

1)       3% increase in the classified salary scale.

2)       4% merit increase for classified staff.

3)       Fund teacher increases to reach and/or maintain top quartile (including 3.65%) to be distributed along the scale.

4)       Continuation of a longevity increase for teachers.

5)       Anticipate a 10% increase in medical plan costs.

6)       Anticipate a 5% increase in dental plan costs.

7)      Approve $227,500 for wellness initiatives to be funded out of health care reserves.

 

ATTACHMENTS

1-Competitive Market List

2-Teachers’ Scale – Top Quartile Graph                                                                                                                                 

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