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McGrath - Sample_Final_Executive_Report_3.12.20
1 MCGRATH HUMAN RESOURCES Classification & Compensation Study Executive Report for City of Alcoa March 2020 2 MCGRATH HUMAN RESOURCES McGrath Human Resources Group, Inc. P.O. Box 190 Wonder Lake, IL 60097 Office (815) 728-9111 Fax (815) 331-0215 www.mcgrathconsulting.com ©Copyright 2020 McGrath Human Resources Group. All rights reserved. No part of this document may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopy, recording or otherwise without the expressed written permission of McGrath Human Resources Group, Inc. 3 MCGRATH HUMAN RESOURCES Table of Contents Study Overview ................................................................................................................................................. 5 Current Compensation Systems ........................................................................................................................ 5 Employee Demographics .................................................................................................................................. 6 Methodology .................................................................................................................................................. 10 Data Collection ............................................................................................................................................ 10 Labor Market ............................................................................................................................................... 10 Market Data Solicited .................................................................................................................................. 11 Pay Range Market Analysis ............................................................................................................................. 12 Minimum Salary Comparison ....................................................................................................................... 12 Market Rate Salary Comparison ................................................................................................................... 13 Midpoint Analysis ........................................................................................................................................ 14 Maximum Analysis ....................................................................................................................................... 15 Summary ..................................................................................................................................................... 15 Other Considerations ................................................................................................................................... 18 Fire Department & Meals ............................................................................................................................ 19 General Operational Guidelines ...................................................................................................................... 19 Annual Adjustments .................................................................................................................................... 19 Life Cycle of Salary Schedule ........................................................................................................................ 19 Benefit Statements ...................................................................................................................................... 20 Benefit Analysis .............................................................................................................................................. 21 Health Insurance .......................................................................................................................................... 22 Plan Design Overview ............................................................................................................................... 22 Premiums ................................................................................................................................................. 23 Time Off Benefits ......................................................................................................................................... 23 Vacation ................................................................................................................................................... 23 Sick Time .................................................................................................................................................. 24 Holiday ..................................................................................................................................................... 24 Time Off Payouts ......................................................................................................................................... 25 Alternative Paid Time Off Program .............................................................................................................. 25 Summary ......................................................................................................................................................... 26 Definitions....................................................................................................................................................... 27 Table of Tables Table 1: Turnover Rates 2016-2018 .................................................................................................................. 7 Table 2: Comparable Organizations ................................................................................................................. 11 Table 3: Average Market Rate Summary Full-time Positions ............................................................................ 13 4 MCGRATH HUMAN RESOURCES Table of Figures Figure 1: Alcoa Demographics by Years of Service.............................................................................................. 8 Figure 2: Alcoa Demographics by Age Group ..................................................................................................... 8 Figure 3: Alcoa Demographics Years of Service .................................................................................................. 9 Figure 4: Minimum Market Analysis................................................................................................................. 13 Figure 5: Incumbent to Market Rate Analysis ................................................................................................... 14 Figure 6: Step 5 to Average Market Rate .......................................................................................................... 15 5 MCGRATH HUMAN RESOURCES Study Overview McGrath Human Resources Group, Inc., an organization that specializes in public sector consulting, was commissioned by City of Alcoa to conduct a Classification and Compensation Study of all non-union City positions. The purpose of this study is to: ✓ Guide the City in creating or confirming the pay philosophy including desired position in the market, recognition of tenure, recruitment and retention priorities, usage of performance-based pay, and other aspects of a sound compensation philosophy. ✓ Develop a cooperative plan of action utilizing the basic methodology, outlined in this proposal, and tailored to your specific project. ✓ Obtain and establish compensation within the external market through a survey of mutually identified, comparable entities. ✓ Obtain information on each job title for a job audit through position description questionnaires, existing positions descriptions and employee interviews. ✓ Establish internal equity among positions within the City. ✓ Complete a compression analysis and, if found to be a problem, develop strategies to address compression during the design and implementation of the new system. ✓ Integrate the data from the external market, internal market, and job audit to a tailored classification and compensation system(s). ✓ Conduct a benefit analysis. ✓ Support implementation of approved compensation system. ✓ Provide a plan for on-going maintenance of the system(s), in accordance with all applicable compensation practices by the City (movement through the range; COLA; merit, etc.) including projections for a projection of the ongoing budget commitments necessary to provide a sustainable and consistent compensation system. The Consultant would like to extend appreciation to the Human Resources staff for their time, cooperation, and sharing of information and perceptions with McGrath Human Resources Group. Current Compensation Systems The City technically has one salary schedule; however, in the past year or so, the electric division and water treatment plant have moved to a step system that has a progression plan. The general City salary schedule consists of 27 pay grades or skill levels. The electric and water treatment plant divisions have developed, with the assistance of human resources, a step model. The movement to each step takes into account the achievement of required ce rtifications and increased job responsibilities. 6 MCGRATH HUMAN RESOURCES The salary system has not been adjusted on an annual basis. Although human resources have attempted to work with the schedule to ensure market competitiveness; however, that has been difficult. In 2018 and 2019 the salary schedule was first adjusted by approximately 2%. Employees in the general system move – in the past couple of years – based upon the entire schedule adjustment and then a 2.5% increase. Employees who are above the salary schedule and have received an exceptional performance rating, received the equivalent of the 2.5% increase in a lump sum payment. Compression Compression is when salaries of job classifications of a higher rank or authority are paid less than positions of a lower rank or authority. With this in mind, the recommended schedule was constructed to help minimize the compression between subordinate and supervisory personnel. The Consultant has made some recommendations to a few positions that normally would qualify as exem pt – salaried positions per the Fair Labor Standards Act. However, due to compression with overtime, these are recommended to be hourly to help increase the distance between the supervisor and subordinate position. Employee Demographics Turnover Employee turnover refers to the number or percentage of employees who leave an organization and are replaced by new employees. Turnover often has a negative connotation, yet turnover is not always a negative event. For example, desirable turnover occurs when an employee whose performance falls below the organizations expectations is replaced by someone whose performance meets or exceeds expectations Employee turnover also has a direct impact on budgets. One such cost to the City is Turnover Cost, the actua l financial cost to the City when an employee vacates, and a new hire is brought in for replacement. Turnover can be calculated as Total Payout Cost + Recruitment Cost + Replacement Compensation/Benefit Cost + Training Cost. Turnover Costs will typically calculate around 1.5 times the cost of the original position, but given the significant amount of training and equipment associated with public safety positions, turnover costs 7 MCGRATH HUMAN RESOURCES can be as high as double the cost of the original positions; which is in addi tion to the impact to operations that can be felt to its constituents over time. The generally accepted industry standard for an organization is approximately 10% turnover each year. However, even a 10% turnover rate may not be a healthy percentage if t he employees who are leaving are strong performers. Healthy turnover is described as employment separation from low performers, which then cultivates an engaged and high-performing workforce. In addition, the Bureau of Labor Statistics (BLS) reports state and local government turnover rates (excluding education) at 20% nationwide for the year 2018, which has been constant over the last several years. In reviewing the City’s turnover for the time period 2016-2018, the following Table summarizes the City’s turnover per year. This includes all reasons for separation. Table 1: Turnover Rates 2016-2018 Reason* 2016 2017 2018 Retired 6 7 9 Resigned 1 12 7 Terminated 7 5 3 Other 1 1 0 Total 15 25 19 % Turnover 5.84% 10% 7.39% *All reasons for separation provided by City Overall, the City’s turnover is under the industry standard, and less than reported turnover from the Bureau of Labor Statistics for local government. However, turnover has an increasing trend from the p revious year, so the City is recommended to continue to monitor this metric in future years, as the City should be focusing on ways to retain its current workforce. Employee Demographics In reviewing the City’s employee demographics, the tenure of the organization ranges from new hire to long term employees with 40 years. The overall tenure average of employees is 12.56 years. The current national average in the public sector is currently 6.8 years (Local Government-Bureau of Labor Statistics, September 2018), so the City is above average in overall tenure, which is very positive. However, in order to have a full picture of Alcoa, one needs to explore those demographics further. These findings are found in the following Tables. 8 MCGRATH HUMAN RESOURCES Figure 1: Alcoa Demographics by Years of Service Figure 2: Alcoa Demographics by Age Group 18-29 30-39 40-49 50-59 60+ Avg Yrs of Service 2.22 5.98 13.16 18.4 20 2.22 5.98 13.16 18.4 20 AVERAGE YEARS OF SERVICE BY AGE GROUP AVERAGE YEARS OF SERVICE: 12.5 18-29 30-39 40-49 50-59 60+ Number of Employees 36 59 93 78 31 % of Employees 12%20%31%26%10% PERCENTAGE OF EMPLOYEES BY AGE GROUP AVERAGE AGE: 45 9 MCGRATH HUMAN RESOURCES Figure 3: Alcoa Demographics Years of Service The above Tables illustrate that those in age groups 40-65+ have the longest tenure of the organization and represent 67% of all employees. However, what is interesting is that 43% of employees have less than 10 years of service. This would indicate that as the City hires, it is not catering to the ‘younger’ population or the millennials; rather the new workforce is hiring individuals above the age of 30, and one would anticipate employees with experience. This will have an impact on the salary structure, as more flexibility is nee ded in hiring higher in the salary range. Further, the City should expect steady turnover due to retirements over the next decade, without concern of “spikes” of turnover. Approximately 23% of the employees are currently or will be eligible for one of the retirement plans. The City is recommended to continue to monitor its demographics periodically to properly respond to shifts within the organization as needed. Human resources currently tracks and monitors employee retirement eligibility on an annual basis. 0-9 10-19 20-29 30+ Number of Employees 127 103 58 9 % of Employees 43%35%20%3% AVERAGE YEARS OF SERVICE AVERAGE YEARS OF SERVICE: 12.5 10 MCGRATH HUMAN RESOURCES Methodology Data Collection The project involved several steps: collection of data, and interviews with specific administrative and department personnel. The first step of this Study involved the gathering of data that pertains to current compensation practices within the City of Alcoa. The Consultant received information relating to current salaries, collected market data, specific policies, and current job descriptions. This provided a basis on which to build a compensation system. Interviews were conducted with department heads within the City representing the various job titles within the organization. The purpose of these meetings was to first, gain an understanding of the municipality’s current compensation practices and philosophy; second, solicit ideas and input from these stakeholders for future compensation methodologies and practices ; and finally, determine if there were any ‘problem’ positions within the City that were difficult to recruit, retain, or were ‘unique’ in the positions responsibilities. Labor Market In order to gain information from the external market, the City , through interviews with the City and department heads, established a list of comparables. A survey was established and sent to the following organizations. The organization either completed the survey or provided the Consultant information as to where on the website the information could be ascertained. In those situations, McGrath Human Re sources had better control of the data as it completed the survey. The following organizations were utilized: 11 MCGRATH HUMAN RESOURCES Table 2: Comparable Organizations Belle Meade Blount Co Brentwood Cleveland Clinton Farragut Franklin Gatlinburg Johnson City Kingsport Knoxville LaFollette Lenoir City Maryville Morristown Oakridge Pigeon Forge Sevierville City of Athens Utilities only Fort Loudon Electric Sevier County DNP Athens Utilities DNP KUBnoxville Utility Board Lenoir City Utility Board DNP Greeneville Light & Power Market Data Solicited Salary data was solicited for 141 different positions. Data included the minimum, midpoint and maximum, as well as the average salary of the incumbents. Positions with less than two (2) participants were excluded since it was considered an insufficient sample size. When computing the statistical average or the 50 th percentile, salaries that were considered statistically too high or low were eliminated. A percentile is a measure that defines where a given percentage falls. Thus, the 50th percentile is the point of comparison as to where the data falls – either higher or lower than 50%. 12 MCGRATH HUMAN RESOURCES Pay Range Market Analysis The City’s minimum salary range was compared to the average market minimum salary; and the average incumbent salary of Alcoa employees was compared to the average market data for incumbents in a similar position. The analysis of the salary range gives an initial indication if salaries are within an acceptable market range. For this purpose, 50% is utilized as the basis for comparison – or is considered the average market rate. However, compensation practices look at a range around the average market rate that an employee should be at by the time the employee is fully functioning within his/her position. Traditionally, organizations establish a 5%-10% range around the market rate. Thus, if an employee is making between 40%-60% of the market rate, the employee is fairly compensated. Minimum Salary Comparison Minimum starting salaries below the 40% Comp Ratio would require further evaluation. It could be an indication that the minimum of the salary range has fallen below the market average. However, a starting salary below the average market minimum may not necessarily be a problem, depending upon the speed in which individuals advance to the established market rate. Overall, the City’s salary schedules initially appears to have fared well in comparison to the external market whereas 61% of the minimum are in line (between the 40% – 60% Comp Ratio). • There are 39% of the positions that are in need of some adjustment (below the acceptable range). • When looking at positions in the lower part of the acceptable range , 73% of the City’s benchmark positions are at or below an acceptable starting rate. 13 MCGRATH HUMAN RESOURCES Figure 4: Minimum Market Analysis Based upon this analysis, the salary schedule needs to be adjusted to bring the minimum salaries in line with the external market. Market Rate Salary Comparison The next step in developing a compensation structure is to compare the current incumbent’s salaries to average of external incumbents currently in the position. For this purpose, positions where there is more than one (1) incumbent, an average of the current City employees is utilized. Table 3: Average Market Rate Summary Full-time Positions Comp Ratio % of Positions 0-29 14% 30-39 13% 40-44 15% 45-49 7% 50-59 21% 60-69 10% 70+ 20% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 0-29 30-39 40-44 45-49 50-59 60+ 0-29 30-39 40-44 45-49 50-59 60+ % of Positions 32%41%18%5%2%3% 14 MCGRATH HUMAN RESOURCES Figure 5: Incumbent to Market Rate Analysis Of the benchmark positions: • 27% of the positions appear to have fallen below the 50th percentile of market rate (below 40%). • Whereas, 73% of the positions are at or above the 50th within the acceptable range of 40-60%. • There are an additional 15% that are in the lower end of the acceptable range. Although they are currently within the acceptable range, if nothing is done to the salary schedule, 42% of the incumbents are below the average market rate. Much of this analysis indicates that employees are moving through the salary schedule to an average market rate. One reason for the number of incumbents within the lower portion of the acceptable range and below could be due to the tenure of the staff. This could be disconcerting if the City is experiencing a lot of turnover. Thus, the salary schedule, is in need of adjustment to ensure that it is market competitive. Midpoint Analysis The current salary system has a salary range. One would assume that the midpoint represents the average market rate. An analysis of the City’s current midpoint to the average external market rate is illustrated below. 0% 5% 10% 15% 20% 25% 0-29 30-39 40-44 45-49 50-59 60-69 70+ 0-29 30-39 40-44 45-49 50-59 60-69 70+ % of Positions 14%13%15%7%21%10%20% 15 MCGRATH HUMAN RESOURCES Figure 6: Step 5 to Average Market Rate • If the midpoint represents the average market rate, 50% of the benchmark positions are below the acceptable range (below 40%). • There are an additional 16% that are in the acceptable range, but in the lower end and will most likely be falling below acceptable if the City does not do anything to the current compensation practices. • Thus 61% of the positions are at or below the average market rate. Thus, the City needs to develop and adopt a compensation system that provides realistic salary ranges that maintain the City as a competitive employer. Maximum Analysis Typically, in compensation studies, an analysis of the maximum does not yield informa tion that is pertinent as compensation systems vary so significantly. Thus, no analysis of the maximums to the average market maximums has been conducted. Summary When evaluating the position of the salary schedule minimums and midpoint to the external average market rate, the salary schedules have not kept pace. This is indicative as the City is having problems with 0% 5% 10% 15% 20% 25% 30% 0-29 30-39 40-44 45-49 50-59 60-69 19% 26% 16% 10% 23% 6% 0-29 30-39 40-44 45-49 50-59 60-69 % of Positions 19%26%16%10%23%6% 16 MCGRATH HUMAN RESOURCES recruitment, and to some extent retention. In addition, when comparing current incumbent salaries to the average salary of external incumbents, the City is not that far behind the market. However, this could be more in relation to the tenure of the employee, rather than the compensation system. In order to attract and retain a qualified workforce – to provide the services citizens expect, the City needs to develop a more competitive compensation system. Pay Philosophy A compensation philosophy is an organization’s commitment of compensation for its employees. The goal of a compensation philosophy is to attract, retain, and motivate qualified people. A consistent philosophy sets the direction for determining the compensation package to offer employees. The City is in business to provide services to the citizens, businesses and visitors of the community. It does that through hiring qualified employees who lend their skills and talents to various positions within the organization. Without those individuals, the City would cease to provide adequate roads, parks, safety, recreation, and process the necessary functions to keep those systems in place. In order to be competitive for retention of existing personnel and have successful recruitment efforts, the City needs to be competitive with targeted comparable organizations. Employees expect a compensation system that pays a fair wage for the skills, education, and responsibilities of the position. In order to be competitive for retention of existing personnel and have successful recruitment efforts to replace future turnover, the City needs to be competitive with targeted comparables. The following compensation philosophy has been developed for the City: The City of Alcoa strives to attract and retain an engaged, skilled, flexible workforce to serve the residents of our community by providing market -competitive compensation and benefits, and opportunities to self- motivate the enhancement and advancement of their career with the City. 17 MCGRATH HUMAN RESOURCES Recommended Salary Schedule The recommended compensation system is a 14-step schedule. The salary schedule has been provided to human resources. The schedule is built off the 50th percentile of the market, which is at Step 6 of the recommended salary schedule. The steps range from 3% to 2% and decrease the farther above the average market rate of Step 6. The current salary range is considered larger than normal and as a result, there is significant overlap with positions. The recommended schedule reduces the range; however, in doing so, there are a number of employees above the recommended schedule. Thus, five (5) additional steps have been added. Therefore, reducing the number of employees above the schedule. All current employees who, upon implementation of the salary schedule, are placed at the top of the recommended salary schedule may move into the grandfathered range – provided acceptable performance. All new and current employees placed on the schedule below the top of the schedule will max out at step 14. A separate salary schedule has been developed for Electrical Line personnel (Appendix B). The schedule is in line with what is commonly scene within the industry. Based upon experience, a new employee will be hired at the level and step commensurate with his/her certification and experience. Placement Positions have been placed into the recommended compensation based on three (3) factors: • Point factor analysis • Minimum and market analysis • Consideration of compression – movement from a level I to a level II The Point Factor System is a system that evaluates a position based on 15 competencies. The System evaluates a position on the following criteria: • Records, Reports & Programs • Problem-Solving/ Decision Making • Impact of Decisions 18 MCGRATH HUMAN RESOURCES • Planning • Confidentiality • Personal Contacts & Purpose of Contacts • Equipment, Machines & Tools • Technology • Budget, Cash Handling / Fiscal Responsibilities • Supervision of Others • Education & Certifications (required) • Experience & Training • Working Conditions (includes non-traditional work hours/ evening/ weekends) • Physical Requirements • Adjustment for the labor market This Point Factor System will remain confidential. Often when supervisors and employees know the Point Factor System, an objective evaluation of the position becomes suspect, as the position questionnaire is written to the points rather than the true responsibilities of the position. The City must understand that it is the combination of the minimum salary, market salary, points, and maintaining a sufficient spread between positions that makes up the recommended compensation plan – it is not just one factor. For purposes of implementation, employees currently below Minimum of the new pay range Step 1 will be placed on Step 1. Employees above Step 1 are placed on the step closest to their current salary without a decrease. This may not be a significant increase and shoul d only be viewed as a wage adjustment to move onto the new salary schedule. It is not considered a performance increase, rather a re-set of the schedule. In most organizations, this type of placement proves problematic, as employees feel that if they have more tenure in the position, they should be higher within the salary range. Although there is merit to this argument, placement on the schedule by years in the position proves to be very costly – something most municipalities cannot afford. Other Considerations 19 MCGRATH HUMAN RESOURCES During the course of the study, the Consultant worked with some department directors and human resources to develop professional development levels. Further, job titles may have been changed to align within the organization, as well as with the external market. Fire Department & Meals Section §553.223 of the Fair Labor Standards Act allows for time off for mealtime if the employee is completely relieved of duty for the allotted period. The Fire Department currently does not pay for an hour of mealtime. The Department should track the mealtime and ensure that ‘most’ of the time the mealtime period is uninterrupted. There may come a time when the time all 24 hours should be counted as work time. General Operational Guidelines Annual Adjustments Each year (suggested July 1st), the City should adjust the salary schedule, taking into consideration cost of living increases. The amount of the schedule increase plus the percent step increase should be close to some defined index – such as CPI-U, or similar economic index. Without maintaining the Schedule, salaries w ill fall behind the market, and the City will be in a position of expending dollars to keep up. Employees then advance to their next step on January 1st (or their anniversary date) based upon acceptable performance standards are met. Separating the schedule lift, to maintain the market, from the performance step allows a clear separation from a cost of living adjustment (COLA) and performance. If the City, in the future, wants to move toward a performance-based system, this will provide the groundwork for such a system. Further, from a financial perspective, it allows for the two increases to occur, as the entire amount is not being placed at the start of the fiscal year. Life Cycle of Salary Schedule One of the main concerns in any salary schedule is the ability to keep it current. Often, an organization spends a lot of time and money to review and re -evaluate their salary schedule, resulting in giving individuals or pay grades significant increases because either the position or the schedule is out of sync with the external 20 MCGRATH HUMAN RESOURCES market. Therefore, when developing a salary schedule, one must build in some mechanism for maintaining the System with the average cost-of-living increases. A salary schedule has a typical life span of three to five years, at which time market conditions typically dictate a review. The City can attempt to prolong the life of the schedule if it commits to maintaining its competitiveness with the external market. Benefit Statements Employees, especially in government where salaries and/or benefits have traditionally been above those in the private sector, may not realize the true cost to the municipality for providing benefits. It is suggested that the City provide benefit statements to employees that details the total cost of compensation for an employee and confirm it includes all of the following benefit information: Gross Salary +Employer cost of FICA, FUTA +Employer cost of federal and state taxes +Employer cost of insurances (health, STD, LTD, etc.) +Employer cost for employees to participate in a sponsored EAP +Employer cost of unemployment +Employer cost of worker’s compensation +Employer cost of pension fund(s) +Employer cost of other benefits provided =Total compensation for the employee This often has a dramatic effect on employees who only see their net pay, rather than the total cost an employer actually pays for an employee. 21 MCGRATH HUMAN RESOURCES Benefit Analysis The relationship between compensation and benefits is important because benefits are tools used to assist in attracting, motivating, and retaining a quality workforce. Benefits do not, however, put food on the table, so there needs to be a balance between wages and benefits, to support the overall compensation philosophy of an organization. There are fewer workers to replace retiring employees, the economy is stronger so there is more competition for qualified human capital, the workforce is more mobile, younger generations in the workforce have different work behaviors than older generations, and there is an increasing push for flexibility and freedoms from the workforce that does not yet align with most traditional government roles. Many government organizations are not prepared for this and strive to maintain tradition, to a detriment. Traditionally, government has offered average wages with a generous benefit package. Over the last 10+ years, the tide in the United States has shifted such that publ ic sector benefits are simply average given rising costs to health care and pensions, and most wages are held at market to maintain competitiveness as much as possible, but employees feel they lose ground. So, while an organization is considering market competitive wages, the question is sometimes asked if wages can be lower if balanced with enriched benefits. This is not typically recommended unless the benefits are very enriched, which is not the case with the City of Alcoa. As a result, a comparison of various benefits was conducted based on information provided by the comparable organizations. The following is a summary of these comparisons. It should be noted the recommendations contained in the Benefit Analysis will take time to evaluate with a benefits broker, and most cannot be quickly changed. 22 MCGRATH HUMAN RESOURCES Health Insurance Plan Design Overview The City currently offers one (1) heath plan option, designed with a $1,500/$3,000 in -network deductible. The employees are responsible for a flat rate premium contribution which equates to 2% of the single premium contribution, and just under 5% of the family premium contribution. The City also provides for a contribution to a Health Reimbursement Account (HRA) up to $500/$1,000 based on wellness activity participation. The City has introduced the concept of lower premiums in exchange for higher financial risk (higher deductibles) based on actual utilization. It is becoming more common for municipalities to have lower employee contribution amounts for higher deductible plans because employees can save on monthly premium costs, which then shifts their financial responsibilities from that of a guaranteed monthly premium deduction, to an actual expense should they need to use the health plan while being a g ood consumer of health care. In addition, the City is offering the Health Reimbursement Account (HRA) to provide for a financial cushion to the employee, although the account was described as not being portable after termination of employment. HRA’s are an attractive benefit for recruitment/retention, as these types of health plan models are now becoming a standard plan design model throughout the United States although few others were reported within the City’s comparable market. The City may wish to consider allowing the HRA to be a portable benefit, so employees may grow their accounts for future retirement health care costs. The City also has an onsite health care clinic for minor injury/illness, chronic disease maintenance, and vaccinations/immunizations, and some prescription dispensing for a low or no cost to employees. Onsite clinics normally result in reducing health care costs for both the employee and employer, improve employee access to health care, and is considered an attractive benefit for recruiting purposes. Although onsite clinics are not normally the reason applicants consider employment with a respective employer, employers may be viewed as more flexible and strategic toward employee benefits, which is important in this recruiting environment. 23 MCGRATH HUMAN RESOURCES Premiums It is extremely difficult to compare health insurance, as the number of plans and the plan designs are significantly different among organizations . What can be compared is the amount the City contributes toward the cost of that insurance. As the City is aware, the cost of health insurance is a large budget item for any organization. Health insurance is also often the single largest benefit looked at by potential new hires with the City, so a review of employee contributions to this benefit is imperative for offering a comprehensive benefit package. The Consultants compared the contribution of the City against comparable municipalities, when reported. Overall, employee contributions for comparable organizations for single coverage ranged from 0% - 22%, which puts the City in a market competitive place with their 2% contribution. Family coverage contributions paid by employees in comparable organizations ranged from 3%-40%, which puts Alcoa’s employee contribution rate for family coverage also in a competitive market placement with their 5% contribution. This outcome, in combination with an average market compensation system will help the City maintain overall average total compensation. Wellness Program The City does offer a third-party Wellness Program for employees by offering an annual Health Risk Assessment and Biometric Screening (located internally in the City’s clinic). A Wellness Program is an effective method to promote health and wellness amongst employees and spouse/dependents. The City is commended for the program they offer its employees and dependents. Time Off Benefits Vacation The City’s vacation schedule consists of three (3) levels of accrual that increase based upon years of service. Accruals range from the minimum of 80 hours during the first year, up to a maximum accrual that results in 160 hours of vacation per year at 16 years and beyond. 24 MCGRATH HUMAN RESOURCES Based on reporting municipalities, the City is generally in alignment with other organizations in terms of vacation. However, most other comparable organizations reported higher maximum ranges, so the City of Alcoa is on the low end. It appears the City adjusted their vacation accruals in 1994, reducing them from 200 down to 160, yet grandfathering current employees. The City may wish to consider adding a fourth level of accrual back to the vacation schedule, to provide for 176-200 hours of vacation at 20 years of service and beyond. This will not only put the City at the top end of vacation maximums but will also bring parity between the multiple vacation schedules. In addition, it is not uncommon for department directors to receive additional vacation at a higher amount than all other positions. This would be an enhancement above what the comparable organizations currently offer in this area. This is often the single difference in benefit offered to these high -level positions. As a result, each department director should be provided an additional three (3) days of vacation annually. Sick Time The City accumulates sick time at the rate of 8 hours per month, or 96 hours per year. This is a standard accrual in the public sector, and the comparable organizations. Sick time maximums range between 1200 - unlimited hours from the comparable market. The City has no limits to accrue but holds the payout at time of a qualified retirement to a maximum of 640 hours. Most reporting organizations provide some type of percentage or formula payout, which is consistent with the City. No sick time changes are recommended, other than an option for payouts, which will be discussed in a separate section of this Report. Holiday The City currently has ten (10) observed holidays, one of which is designated by the City Manager. Participating comparable organizations reported a range of holidays between 9 days – 12 days. As a result, the City is comparable with the market. It should be noted the City does not currently designate December 24th as a holiday. This is often a day many employees seek time away from work as it is a significant day for 25 MCGRATH HUMAN RESOURCES many people. The City is recommended to consider this day as a future designated holiday, after considering operational need and minimum staffing required to conduct those operations, if necessary. In addition, the City is recommended to consider a floating holiday, in which the employee determines the day off, in lieu of the City Manager. Floating holidays can then be used by the employees as they desire, including time off for a holiday that is not observed by the City, but is important to the employee. Both the floating holiday and December 24th designation are enhancements to the current benefit program. Time Off Payouts Currently, the City’s payout provisions for vacation and sick is in the form of cash. This payment is then considered taxable to the employee, and the City pays related employment taxes on these amounts. Further, these payments need to be recorded as liabilities on the City’s financial statements. The City could consider enhancing the payout provisions in a way that will assist employees with their future health care needs since the main reason employees choose not to retire is because they financially are not able to or cannot afford to continue health care coverage. These payouts could be developed to create a post -employment medical trust for the employee in which deposits are tax free for both the employe e and employer, is not considered income to the employee, and is to be used for medical expenses by the employee/qualified beneficiaries. Alternative Paid Time Off Program The City currently has vacation, sick, and bereavement programs, as well as ot her basic time off polices, in which there are various rules for the use of each type of leave category. The City also has a vacation buy back and vacation conversion to sick time policy in place. Having the rules and variations may be confusing and frustrating for employees and managers, and it is very likely a significant administrative burden to the administrative staff who setup and monitor the use of these forms of leave. Many organizations add rules for the use of benefits to help the employees manage their personal situations, but that often makes programs difficult to manage. Paid Time Off (PTO) is a single bank of time off, which is then used for sick, vacation, and bereavement time, instead of having different banks of time for different purp oses. Some organizations include holidays into this 26 MCGRATH HUMAN RESOURCES program, while others do not. Generally, PTO has a larger overall rate than vacation, but less than vacation and sick time combined, and there is an overall payout on the benefit. The benefit has administrative ease, simplification, and new flexibility for employees. Often, the biggest challenge is transitioning accumulated sick and vacation hours into a new program, but this can be done successfully. Organizations that have done this are satisfied with the end result, once the transition is complete. Although the City’s comparable organizations did not identify PTO as a program they offer, the City may wish to research the concept of PTO, as the new generation of employees prefer flexibility within t heir benefits. Summary Overall, the City’s salary schedule has not kept pace with the external market. As the City begins to experience turnover due to retirements, with the current tight labor market, it will find it increasingly difficult to attract employees with the current salary ranges. Although longer tenured employees may fare well within the salary range, newer employees are not moving through the range with sufficient increases. The City’s benefits may need a little tweaking – the City must consider that if it attempts to attract ‘younger’ employees, these benefits do not have the same incentive as generations from the past. With that said, increasing the salary schedule to being more competitive and maintaining/enhancing vacation/holiday benefits, will assist the City in attracting more experienced employees . 27 MCGRATH HUMAN RESOURCES Definitions In order to ensure that all parties are ‘speaking the same language’, the following are definitions that helped guide the development of the compensation system for the City of Alcoa. Benchmark Position: A job that is commonly found and defined, used to make pay comparisons, either within the organization or to comparable jobs outside the organization. Classifications: Job titles Compensation System: A system developed to compensate employees. This system includes a balance between internal equity and external competitiveness. Compensation Data: Data derived from information regarding the salary range and the rate of pay of the incumbent(s) holding a benchmark position of the identified labor market. Comp Ratio: The ratio of the current salary range minimum, midpoint, and maximum (numerator) to the market data (denominator). The Comp Ratio is used to measure and assess the comparability of the City’s pay range in relation to the external market. Positions were evaluated based upon the 50th percentile (+/- 10%). Compression: Pay differentials too small to be considered equitable. The term may apply to differences between (1) the pay of supervisors and subordinates; (2) the pay of experienced and newly hired personnel of the same job; and (3) pay range midpoints in successive job grades or related grades across pay structures; and (4) limited movement through the pay range. CPI-U: Consumer Price Index – Urban: A measure of the average change over time in the prices paid by urban consumers for a market of consumer goods and services. It reflects spending pattern for two population groups: all urban consumers and urban wage earners and clerical workers. This group represents approximately 87% of the total U.S. population. Labor Market: A location where labor is exchanged for wages. These locations are identified and defined by a combination of the following factors: geography; industry; education, expe rience and licensing or certification required; and job responsibilities. Market Data: The technique of creating the financial value of a position based on the ‘going rate’ for benchmark positions in the relevant labor markets. Minimum Salary Range (Minimum): The minimum amount of compensation the organization has deemed appropriate for a position. Maximum Salary Range (Maximum): The highest amount of compensation the organization has deemed appropriate for a position. 28 MCGRATH HUMAN RESOURCES Market Rate (Market): The organization’s best estimate of the wage rate that is prevailing in the external market for a given position. Market Range: A pay range in which the minimum and maximum of the range is established around the 50th percentile. Merit Increase: An adjustment to an individual’s base pay rate based on performance or some other individual measure. Pay Grade: The grade, or placement of a position within the salary structure. Pay Grade Evaluation: The (re)assignment of a job to a higher or lower pay grade o r pay range in the salary structure due to a job content (re)evaluation and/or significant change in the average market rate in the external labor market. Percentile: A percentile is a measure that defines where a given percentage fall. For example, the 50th percentile is the point of comparison as to where the data falls – either higher or lower than 50 percent. Point Factor: A quantitative form of job content evaluation that uses defined factors. Each factor / competency is weighted according to its importance to the organization. Position Questionnaires (PQ) is used to compare to the definitions of the factor levels and corresponding points are awarded to the job and added for all factors/competencies to determine the total job score. The total scores are used to help create a job worth hierarchy. Promotion: The (re)assignment of an employee to a position in a higher pay grade or range in the organization’s salary structure. Salary Schedule Adjustment: An adjustment to the salary structure; the increase or decrease of a pay range, minimum – maximum. This is a method to maintain the salary range in relation to external market conditions. Step Schedule: Standardized progression pay rates that are established within a pay range. To move to the next step, one must have met acceptable performance standards. Salary Schedule: The hierarchy of job grades and pay ranges established within an organization. Spread: The range of pay rates, from minimum to maximum, established for a pay grade. Typically used to set individual employee pay rates.