HomeMy WebLinkAbout07/17/2001, B 7 - RECRUITMENT AND HIRING INCENTIVE PROGRAM Mangy ah
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agcnaa Report ��N� 87
CITY O F SAN LUIS O B I S P O
FROM: Ann Slate,Director of Human Resourcesav,
SUBJECT: Recruitment and Hiring Incentive Program
CAO RECOMMENDATIONS: Adopt a resolution establishing a Recruitment Incentive
and Hiring Program that provides home loan assistance, other incentives for new
employees and referral fees for City employees who refer successful candidates who are
ultimately hired for City employment.
REPORT IN BRIEF
Public employers in California are confronted with a recruitment crisis. It has become
exceedingly difficult to attract and recruit new employees,particularly in management positions.
In response to this challenge, cities are initiating a number of new strategies aimed at increasing
qualified applicants and providing incentives for accepting employment with their agencies.
Staff reviewed survey data from California cities that have implemented various recruitment
programs and recommend that the City Offer similar programs to our prospective employees.
Providing staff with a"toolbox"of recruitment incentives will result in attracting a larger
number of highly qualified applicants and in ensure that the City continue to hire the highest
caliber employee.
Staff is seeking conceptual approval of a housing assistance program that uses idle City funds to
provide home mortgages to new management employees who purchase a home in the City. In
addition, incentives that include reimbursement of moving and temporary housing expenses and
a signing bonus are recommended. Offering current City employees a referral fee for
encouraging a candidate to apply for a job who is ultimately hired is also a recommended
strategy.
Staff believes that these incentives can be made available within existing resources by using the
salary savings that occur when a position becomes vacant. Therefore,there is no need to
allocate a new appropriation for these programs.
DISCUSSION
Employers in California over the last few years have been experiencing difficulties in recruiting
new employees. The City of San Luis Obispo is no exception. Low unemployment,the high
cost of housing, and a shift in demographics that indicate fewer entries into the job market when
compared to those higher numbers retiring—these are among the factors contributing to the
recruitment problem. Recent City of San Luis Obispo management recruitments have been
filled primarily with promotions from within the City organization. The City has been fortunate
in having strong internal candidates. However, sometimes there are organizational benefits in
hiring from outside and internal candidates may not always be available in future recruitments.
Council Agenda Report—Recruitment Incentives
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Therefore, it is necessary to develop a program of incentives that will enable the City to continue
to select the most highly qualified candidates for employment.
The job market for public employees has become quite competitive. Some may argue that our
current salaries and benefits,particularly in management positions, are not attractive enough to
draw candidates from the broader statewide or national labor market. When that factor is added
to the high cost of housing in the City and fewer opportunities for spousal employment than
more urban areas, in addition to the factors listed above,we can anticipate increased difficulties
in attracting candidates to apply for City positions.
In the coming months and in accordance with the current management compensation resolution,
staff will be analyzing our compensation program and coming back to the City Council with
recommendations that should better position the City in terms of comparable and competitive
management salaries and benefits. However,-there are steps that can be taken now to enable staff
to strengthen our ability to recruit. By equipping
ing staff with a"tool kit'of recruitment incentives
and offering housing assistance,we are confident that we will experience greater success in
attracting a larger number of qualified candidates for City positions which,in turn,will give the
appointing authorities a broader range of choices when selecting employees.
What are other cities doing?
Staff conducted a survey of other California cities to determine what is being done elsewhere and
what are being offered as recruitment incentives. In addition to our survey, the City Managers
Department of the League of California cities also conducted a housing assistance survey, since
housing assistance has become a more widely accepted benefit.
Housing Assistance
In the 59 cities that responded to the housing assistance surveys, a variety of programs are being
offered. The survey data indicated in those cities that responded over half have some sort of
housing assistance program. Generally,the housing assistance programs are used for two
purposes: for recruitment/retention of city employees and for meeting community
improvement/affordable housing goals through programs administered by Community
Development, Planning,Redevelopment or Housing Departments.
In those cases where city employees can qualify for community development housing programs,
they can be used as recruitment/retention incentives. Unfortunately,many of the community
development programs are based upon income and target low or moderate-income families. City
employees typically earn more than the allowable income for those programs, so their usage as
recruitment incentives is fairly low. Some of these programs are targeted at public safety
employees to encourage them to live within the city they serve and presumably shorten their
response times for returning to work for an emergency callback.
To the extent that housing funds, either state or federal, can be used for programs that can serve
the recruitment incentive goal,there is less pressure on a city's general fund to pay for these
kinds of benefits. However,using housing funds to benefit city employees and reducing the
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funding that is available to other city residents can be an unpopular concept. And at least in the
current financial plan, the City of San Luis Obispo does not have funds allocated for this purpose
as part of its affordable housing efforts.
Housing assistance programs that are designed for recruitment/retention purposes fall into 6
major categories with some overlap between these categories and the community development
affordable housing programs discussed above. They are:
1. Down payment assistance
2. Mortgage assistance
3. Personal Loans
4. Ownership of affordable housing units
5. Bridge loans
6. Equity sharing
Staff recommends that the City venture slowly into this arena, given economic uncertainties and
our lack of experience in using housing assistance as a recruitment tool. Therefore, of the six
categories listed above, staff recommends limiting our initial efforts to mortgage assistance.
The other programs, for a variety of reasons, ranging from fairly heavy administrative demands
to unfavorable risk factors, are not being advanced as part of a potential housing assistance
program at this time. Staff believes that we should"test the waters"with a narrowly defined
program at first, since we are unable to predict who might participate in a mortgage assistance
program. Taking a cautious approach is advisable until we get a better handle on what our
experience might be.
The City has provided past City Administrative Officers with a short-term(3 years) mortgage for
home purchase as part of the initial employment contract. These loans enabled the previous two
CAO's to purchase a home within the City limits, a Charter requirement for the CAO. Other
than that, the City has not ventured into the home loan/mortgage assistance arena.
The cities of Cupertino,Ventura, Sunnyvale, Inglewood, San Leandro,Redwood City and San
Mateo assist employees with purchase money loans for housing within their City limits. Their
programs are separate and apart from affordable housing programs and are used to enhance
recruitment efforts.
If the City Council is agreeable, conceptually,with the development of a housing assistance
program to strengthen our recruitment capabilities, staff recommends that the City develop a
housing assistance program with the kind of flexibility and safety that is found in the City of
Ventura's program.
Ventura's Housing Assistance Program
The City of Ventura offers mortgage loan assistance"in those cases where it is deemed to be in
the best interests of the City as an essential motivating force necessary to attract and recruit
qualified and competent employees" in certain management positions. Their program is for
executives,managers and supervisors only.
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The need for assistance is reviewed on a case-by-case basis and is not deemed available as an
absolute right. The terms of each relocation assistance plan is negotiated based on the
circumstances surrounding the appointment of an eligible employee. The City Manager
authorizes the loan with notification to the City Council. It applies to newly hired employees
who do not live within a reasonable commute distance to Ventura. The property must be a
detached single-family residence or a condominium and located within the city. Mobile homes
are not eligible.
The loan amount is capped at$350,000; the term of the loan is not to exceed 10 years. The
interest rate is no lower than the variable interest rate based on the City's current average annual
earnings rate in its idle funds investment portfolio and can not be adjusted more than three
percentage points from the initial rate over the term of the loan.
The employee is required to make a down payment equal to 5% or greater of the purchase price.
The loan assistance amount shall be repaid in monthly installments in an amount equivalent to
monthly interest charges or greater. The payments can either be made directly by the employee
or through payroll deduction. If payments are consistently late, the city reserves the right to
establish a payroll deduction for payments. A late fee of 5%of the monthly payment amount is
imposed if the payment is more than 15 days late.
The loan is immediately due and payable if the employee terminates employment with the city,
irrespective of whether the termination was prompted by the employee or the city.
The employee must obtain a title report, which endorses the city as a beneficiary of the title
insurance policy, and the employee is required to obtain fire insurance extended coverage based
upon the replacement value of the residence. The loan is secured by a first deed of trust or other
form of security acceptable to the City Manager. At the end of 10 years the loan must be paid in
full. No extensions are allowed.
According to the Ventura Human Resources Director, after several years, most participants
refinance when the commercial interest rates are more favorable. This is due to the uncertainty
of what the City's interest rate could be at the end of the 10 years when the employee will be
required to pay off the City loan or refinance their resident at whatever the going interest rate is
at that time. Currently there are about 6 employees in the program.
Ventura is continually reviewing and strengthening their program. At one point Ventura staff
became concerned because the City had allowed employees to take out the maximum loan
($350,000) and an analysis revealed that several of the employees' earnings would not support
the monthly payments if they had to repay it at the going commercial interest rate.
Based upon that discovery,Ventura now does a credit check prior to talking to the employee(if
they have indicated an interest in the program). They roll the information into a spreadsheet that
determines the amount the employee could repay based on their projected income and amount of
their current debt. Then the City determines the amount they are willing to loan. In the past the
only limit was the$350,000 cap.
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Ventura's program strikes a balances between the interests of the City in recruiting quality
employees and establishing appropriate safeguards when loaning City funds and those of the
employee in providing him/her with an attractive home loan that is better than what they might
be able to get in the marketplace. Staff believes that a similar program in San Luis Obispo
would be extremely helpful in assisting new managers relocate to our community to accept a
position with the City. If the Council is supportive of developing such a program, staff
recommends that the staff be authorized to draft a program and return to the City Council with
the specifics. Staff envisions a program where the CAO has the flexibility within specific
guidelines to tailor housing assistance to the needs of the prospective employee while protecting
the City's financial interest consistent with existing fiscal policies.
Recruitment Incentives
In an effort to assist with the recruitment and retention of employees in particularly hard to fill
positions, e.g. information systems and engineering positions, the City recently began offering
incentives. For the information systems positions,the City now offers special skills pay and for
engineering positions,we implemented a career ladder that offers employees room for
advancement as they acquire needed certification and experience. It also enables us to advertise
engineering vacancies with a wider range of pay and qualifications. So far, our experience with
these strategies has been quite positive:
Staff is recommending that the program of providing incentives be further developed. By
establishing a"tool kit"of incentives,when negotiating the initial employment details with new
employees City staff can offer one or more of these incentives. Such things as reimbursing
actual moving expenses,providing some level of temporary housing payments and signing
bonuses—these are the kinds of things that employers both private and public are offering as
recruitment incentives.
A Limited Program
Staff is recommending that the expansion of recruitment incentives be limited to management
and Department head positions initially. Because we generally recruit management employees
from outside this area, relocation costs are more often a factor in management recruitments. We
recruit locally for the majority of our non-management employees so there are fewer relocation
issues associated with those positions. And, for the hard to fill non-management positions,we
have already taken steps to assist in recruitment, as described above.
Although many of our police officers and firefighters are not recruited locally, staff believes
restricting incentives to management employees is advisable,particularly since we have no
problems recruiting firefighters. By having a more narrowly defined program initially we would
avoid meet and confer obligations that we would have in trying to implement a program for our
represented employees who have expressed the legitimate concern that recruitment incentives
only benefit new employees and are not available to `veteran"employees. If, after gaining some
experience with the incentive program,we decide to expand it to non-management recruitments
we may want to consider the benefits of a retention component that would benefit longer-term
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employees. Therefore, again,with an eye to caution and starting slowly,we recommend offering
recruitment incentives to management employees initially.
Individualizing the Benefit
Because each individual applicant will have different needs and responding to those needs in as
flexible a manner as possible will be a better benefit, staff recommends that the City Council
authorize up to $10,000 in incentives per management employee and $15,000 in incentives per
Department Head being recruited. For example, a management employee could receive$4,500
in reimbursement for moving expenses, $3,000 in temporary housing(e.g. 2-3 months rent) and
$2,500 as a signing bonus. Compared to many private sector recruitment programs, these
incentive levels are modest.
It is important to note, also, that the cost of contracting with an executive search firm to conduct
a management or department head recruitment runs from$20,000 to $35,000 depending on the
position and the scope of work. Although the City of San Luis Obispo does not use
"headhunters"regularly, (i.e. 3 times in the last 12 %years)the recommended levels of
incentives are significantly lower than the costs associated with using executive recruiters.
Should a new management employee receive those amounts, they would agree to stay with the
City at least three years,unless the employee failed probation or the City decided to terminate
the employment relationship. Failure to honor the commitment to stay would require the
employee to return 50%of the incentives to the City should they decide to leave during the
initial three year period.
Because our intent is to tailor the incentives to the individual's needs,we would advertise
generally that we offer a variety of relocation assistance benefits. By not overly focusing on
those benefits and not presenting them as an absolute right, we will be able to maintain the most
flexibility and, hopefully, avoid recruiting applicants who are more attracted by the benefits than
by what employment with the City otherwise offers in terns of public service and career
advancement.
Staff in the Human Resources(HR)Department, as part of the current employment process,
makes the initial job offer and negotiates the starting salary. With an expanded recruitment
incentive program, HR staff would explore with final candidates their relocation needs and
negotiate the various incentives based upon the individual's needs within the predetermined
parameters. The CAO would have the final authority to approve the incentives. Again, the
incentives are not an absolute right and would be based upon the City's interests first..
Referral Bonus
Because employees that are already a part of the City organization can be some of our most
effective"recruiters"staff is recommending that we offer our employees a referral bonus.
Survey results indicated that such programs are being offered in the cities of Fremont and
Fountain Valley. Fremont pays a$500 referral fee to an employee who refers a candidate at the
time of hire and another$500 when the referred employee passes probation.
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All employees have a circle of contacts that are potential job applicants--their neighbors,
colleagues, and members of their church,the parents of their children's friends. If employees are
motivated and rewarded to encourage their contacts to apply for City jobs,particularly local
contacts because that may eliminate the relocation issues associated with a new hire, the City's
applicant pools should improve.
Last year the City conducted 32 recruitments for regular, full-time positions. The first six
months of this year have yielded 24 recruitments, so we are experiencing a significant increase in
recruitments. Last fiscal year,HR spent $94,000 on recruitment related activities and supplies,
e.g. advertising,printing,oral board expenses. This was up from$66,700 the previous year.
Staff is proposing that when a current employee refers a prospective candidate to apply for a City
position and that individual is ultimately hired, the employee would receive a referral fee of
$500. This would apply to referrals for regular positions only,not temporary positions.
Appointing authorities and temporary employees would not be eligible.
It will encourage employees to recruit others for City positions and to become ambassadors for
city employment. Who better can speak first hand about the benefits of City employment and
working in a desirable community? Because all employees have.a stake in creating a positive
and well-qualified workforce, the referral bonus should be extended to all regular City
employees in all classifications. If this concept is approved by the City Council, staff will then
work with the various bargaining units to develop an acceptable program.
Again, as in the other options described above for recruitment incentives, it is difficult to
estimate the exact cost of a referral bonus program. To the extent that an employee refers a
successful candidate to the City and we avoid having to re-recruit or advertise as extensively as
we would otherwise have to, the recruitment cost savings will offset the costs of a referral fee.
For example, a one-time ad in the LA Times of simply three lines and a reference to our on-line
application system costs almost$500.
SammaKy
The City is having difficulties filling our regular positions. Over the past few years,we have
implemented a number of enhancements to our process, (e.g. on-line applications,job hot-line,
and increased advertising including the internet). We have created special skills pay and career
ladders for hard-to-fill classifications in information systems and engineering. We have had
success with those activities. However, our management recruitments are yielding fewer and
fewer qualified applicants. Staff is recommending that the City take some additional steps to
enable us to continue to attract the most highly qualified job applicants. These steps include: the
development of a mortgage assistance program to attract and recruit management and department
head employees, the development of additional recruitment incentives to assist with relocation
expenses and a referral fee program for City employees who refer an applicant who is ultimately
hired by the City. Staff believes that by utilizing these new recruitment tools we should have
greater success in attracting and recruiting the most highly qualified and motivated employees to
our organization.
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FISCAL IMPACT
Mortgage Assistance
Because the mortgage assistance program will rely on the use of idle City funds for employee
mortgages,there is no need to make a new appropriation of funds to cover this program. It will
require the Finance Department to recharacterize funds that are currently in the City's investment
portfolio as relatively liquid"cash" assets to those of a longer-term asset with a yield that should
be comparable to what the City would expect from investments held in the State of California
Local Agency Investment Fund(LAIF). Staff will be returning to the Council with specifics of
the housing assistance program that will include more details on rates, terms and loan
administration. The program will not jeopardize the City's financial standing or weaken the
City's financial position. City funds invested in a housing assistance program will not earn less
than what the funds would normally earn if they continued to be invested in LAIF(currently at
5.98%) and the loss of liquidity can be taken into consideration when determining a mortgage
loan rate.
Recruitment Incentives
Staff is not requesting a new appropriation for this program either. There are existing resources
available to cover the incentives primarily through salary savings. Since we normally experience
some salary savings when positions are vacant while we recruit for replacement,we anticipate
there will be adequate funds to pay for incentives. Should additional funding be required, staff
will return to the City Council with a request for a new appropriation.
Referral Fee
Based on the recruitment activity to date,we anticipate 50 recruitments for the coming fiscal
year. Fremont, approximately three times the size of San Luis Obispo,has had a referral system
in place for all City employees since October of 2000. They have paid approximately 12 to 16
referral fees since the system's inception. If San Luis Obispo has a similar experience we can
anticipate 4 to 5 referrals in the coming year for a total of$2,500. Again, it is our belief that
salary savings will be able to cover the referral fee, particularly since salary savings from non-
management vacancies where recruitment incentives will not be available can be used to offset
the cost. Again, as stated above, if existing resources prove inadequate, staff will return with a
request for additional funding. If at that time,the costs are unacceptable to the Council, any of
the programs defined above can be discontinued or scaled back based upon our actual
experience.
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ALTERNATIVES
1. The City Council can take a more cautious approach by approving only one or more of
the described programs. Staff believes that for the recruitment tools to be truly effective
they need to be implemented as part of a comprehensive strategy. Taking tiny"baby
steps"at this time will prove less effective in attracting qualified candidates as the
recruitment challenge continues to confront us.
2. No nothing. Staff believes that if we simply maintain the status quo we will become even
less effective in filling our management vacancies. With the anticipated retirements and
normal turnover,the City will be seeing many vacancies in key positions over the next
couple of years. While management positions are vacant, important City objectives are
not being met and remaining staff has to carry the additional burden of increased
workloads. Ultimately,productivity, accuracy and quality of service will suffer.
ATTACHMENTS
Resolution
7-Y
RESOLUTION NO. (2001 Series)
A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
ESTABLISHING A RECRUITMENT AND HIRING INCENTIVE PROGRAM
WHEREAS, recruiting and hiring highly qualified employees is essential to maintaining
a productive and quality workforce; and
WHEREAS, traditional methods of recruitment are not proving effective in the current
economic environment; and
WHEREAS, cities in California are developing new and innovative approaches to
attracting qualified candidates that include incentives to assist with relocation expenses; and
WHEREAS, increases in the cost of housing throughout California and particularly in
coastal communities has outpaced the increase in wages; and
WHEREAS, housing costs are creating a barrier to those who might otherwise be willing
to relocate to San Luis Obispo to take a new job;
BE IT RESOLVED by the Council of the City of San Luis Obispo as follows:
SECTION 1. The City shall establish a Recruitment and Hiring Incentive Program.
SECTION 2. The Program shall include a mortgage assistance component that will
enable the City to offer home mortgages to new management and Department head employees.
The details of the mortgage assistance program will be developed by City staff and approved by
the City Council.
SECTION 3. Other program components shall include incentives not to exceed $10,000
for new management employees and $15,000 for new Department Head employees to assist with
relocation expenses such as temporary housing, moving costs and signing bonuses. The City
Administrative Officer shall approve the use of these incentives on a case by case basis, uniquely
tailored to the needs of the individual employee at the time of hire.
SECTION 4. City employees shall be eligible for a referral fee of$500 if they refer an
applicant for a regular City position who is ultimately hired.
Upon motion of , seconded by ,
and on the following roll call vote:
AYES:
NOES:
ABSENT:
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Resolution No. (2001 Series)
Page 2
the foregoing resolution was adopted this day of 92001.
Mayor Allen Settle
ATTEST:
Lee Price, City Clerk
APPROVED AS TO FORM:
PYA.
Jo Ci Attorney