Classification and Compensation System

Simplification

What is it? How is it done? Why is it needed?

IPMA - HR Conference September 2003

Agenda

• Why consolidate class and comp systems

• Different ways to consolidate• Outcomes and Issues • Lessons learned• Discussion by The Government of the

District of Columbia• Discussion by the State of Washington

2

Typical Symptoms

• You are receiving numerous requests for reclassification

• The requests are pay changes in disguise• The distinctions between classes becomes

meaningless• Class change decisions are based on minor

(insignificant?) changes• Pay levels are below market by a significant

amount• Managing the system takes increasing

resources to maintain3

Why Class Consolidation?

• When the average number of employees per class titles is in the single digits

• Most organizations have expanded the number of titles by an average of 10% per year

• Jobs and technology have changed and will continue to do so

• Most employees want their own job title• Individual job titles typically result in

higher pay4

Why Comp Consolidation?

• When the number of pay ranges is greater than 40• When pay exceptions increase

– Add ons– Special pay ranges– Special skill pay

• When hiring near the midpoint is barely enough to attract a new employee

• When most employees’ pay is either below the 1st quartile or at the maximum

• When special skills needed for the job results in a new classification because that is the only way to pay them extra

5

Different Ways to Consolidate

• By occupational focus– Engineering– Finance– Human resources– Etc.

• By department focus– Public Works– Purchasing

• By salary grade6

Four Levels of Work

• Entry

• Developmental

• Full Performance

• Master/Supervisory

• Basic skills, learns to do things “our way”

• Developing proficiency

• Fully competent to perform all aspects of job

• Recognized expert7

Example

Engineering

Electrical Civil Environmental Chemical

IV: Master - Recognized Expert

III: Fully Performing - Supervisory

II: Developmental- Senior/ Lead (in some cases)

I: Entry - Qualified

Level of Work

Nature of Work

Occupation

8

Resources

• Dictionary of Occupational Titles or ONET• United States Office of Personnel

Management– Handbook of Occupational Groups and Families– Standard Occupational Codes

• States of Florida, New Mexico, South Carolina, Washington, Oklahoma, Virginia

9

Compensation Consolidation

• By similarity of salary ranges– Broadening the salary ranges

• By market analysis– Assessment of market difference by

occupational group– Determination of salary range spreads

and range characteristics

• Do you really need more than 40 grades?

10

The Concept of Differences

• How much of a difference makes a difference?

• For classification issues– When the classification changes by 25% or

more• Duties and responsibilities• Skills needed• Time distribution of responsibilities

11

The Concept of Differences

• How much of a difference makes a difference?

• For compensation issues– 3-4% is the minimal magic number for step

differences– 7-8% is minimal magic number between grades– 10-15% is desired number for

subordinate/supervisor differences

12

Outcomes-Positives

• 50% reduction of classifications or more

• More generic class descriptions• Easier management of personnel• Less administrative time spent on

class reviews• Fewer pay grades• More flexible pay decisions

13

Outcomes-Negative

• Employees don’t “see” their position in the class description

• Employees treated more generically• Potential higher payroll (combining current

lower level classes with current higher level classes)

• Perceived pay compression of employees who used to be in different pay ranges are now in the same

• Requires strong management• Requires simpler decision tools 14

Key Points

• Not a panacea• Make sure the organization understands

the implications and the strategic need to go through the process

• Be prepared to communicate with stakeholders

• It will take time to change the culture• Not everyone will be happy• Most organizations have found that

benefits justify the effort15

The Government of the District of Columbia

Jo Ellen GrayAssociate Personnel Director for Policy and

Program Development, DCOPJames Ivey

President, AFSCME

16

Historical Review

• A product of the negotiated Compensation Units 1&2 Agreement. Task Force met regularly since 10/25/2001

• Composed of Union Leaders, representatives from DCOP, DC OLRCB, Budget, Payroll, DHS, DPW, Library, DC Council

• Part of joint commitment to invest in the rank and file workforce

• Focused on occupational approach to consolidation

17

Prior System

• 21 Schedules covering almost 7400 employees and almost 550 CBU/Service Code combinations

• These pay schedules cover 6 pay plans (DS, SW, LW, RW, PW, TG)

• 13 White Collar pay schedules• 8 Blue Collar pay schedules• Similar jobs covered under multiple

schedules18

Consolidation Process

• Developed new pay schedules based on occupational groups

• Determined employee placement on the new schedules

• Based on minimum guarantees in CBA, determined amount of bonuses to be paid, if any

• Calculated the overall cost of pay schedule consolidation

• Planning implementation – 2nd quarter 2002 19

Consolidation Process

• Public Roundtable (February 2002)• Council Consideration (March 2002)• Newsletters to employees (following

Council consideration)• Programming payroll system with new

pay schedule structure (ongoing through March 2002)

• Individual letter to employees (early April)

• Paychecks to employees – retro, bonus and new rate (April 16 or 19, 2002) 20

Timeline

• Presentation to City Council• Employee newsletters• Personalized letter to each employee• Series of meetings with Human Resource

Advisors, Labor Liaison, budget office representatives

• Telephone hotline• DCOP web page

21

Communication

• Consolidated 21 primary (with dozens of related supplemental) pay schedules into 10 unique schedules, based on 9 occupational groupsClerical/AdministrativeCorrections and OthersHealth Care Information TechnologyLegalMaintenance/Trades/LaborProtection and EnforcementScience/Engineering

22

Results

• As part of pay schedule consolidation, each employee received a minimum of ½ percent in one of three forms:Paid as a bonus, a base salary increase or a

base salary increase plus a bonus

• No reductions in the maximum salary for any schedule

23

Reactions

• Pay Consolidation was very successful based on the limited number of employee concerns that needed to be addressed

• Individual letters were extremely important and alleviated employee questions

• Selecting classification series for specific pay schedules needed to have more upfront input from classifiers

• Massive data clean-up issues

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Thoughts & Recommendations

• Labor-Management Task Force approach was a critical component of the process

• Establish guiding principles and goals upfront• Change effort must be “owned” and

“controlled” by the key stakeholders• Get commitment and buy-in from union and

management leadership up front• Communicate frequently and in different

forms with employees and other stakeholders• Keep the process open

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Classification and Compensation Reform in Washington State

Christina ValadezHR 2005 Project Manager

Washington State Department of Personnel

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Organization Facts

• Civil Service Reform law was passed by Legislature in April 2002.

• Contains 3 key components:– Full scale collective bargaining– Competitive contracting– New civil service system

• All components must be in place by July 2005.

• Will require dramatic modifications to central personnel/payroll system.

27

Organization Facts

• Washington has approx. 58,000 state employees in general government

• Approx. 16,800 classified higher education employees

• Approx. 60% currently covered by collective bargaining

• Higher education institutions may bargain on their own or through state negotiation

• Classification is a permissive topic for bargaining

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Organization Facts

Unions Negotiations Master Contracts

Potential application within agencies

Negotiations with State’s

Chief Negotiator

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Customer & System Research

•Summer of 2002, the Department of Personnel conducted extensive research of trends and best practices among other employers, including:

– All 50 states– Federal and local governments– Other countries– Selected universities and private sector companies– HR organizations– Dozens of reports, articles, books, and web sites

•Report available at http://hr.dop.wa.gov/hrreform 30

Customer & System Research

•Did extensive surveying of state employees, managers, and human resource staff to determine needs and preferences

•Developed concepts, and held focus groups and other discussion forums with managers, HR professionals, and employees.

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Research Findings

•Overall trend in other states is towards reducing the number of job classifications (some now have 250-500).

•A common approach is to use occupational groupings.

•About two-thirds of Washington State managers and HR professionals favored some type of broader classification system.Broadly structured reflecting occupational categories

18%

13%

36%

31%

27%

40%

6%

5%

Managers

HR Professionals

Not Important Somewhat Important Important Very Important

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Research Findings

•Majority of Washington State survey participants felt other factors need to be considered in determining salary, instead of or in addition to longevity.

Additional Bases for Assigning/Adjusting Salaries

81% 81% 84%

74%

58% 61%

73% 72% 75%

Factor in Performance CompetencyDevelopment &Demonstration

Stronger Position orSpecial Needs

Managers

Employees

HR Professionals

33

Current System

• Each position is placed into a narrowly defined job classification.

• There are currently 2,400 separate job classes for general government and higher education.

• Each job class is assigned to one of 83 narrow salary ranges.

34

Current System

• Each salary range is approx. 25-28% wide from minimum to maximum salary.

• Each salary range has 11 pre-defined steps (A-K) that are approximately 2.5% apart.

• Employees receive approx. 5% step increases annually, based on longevity.

• From step A, it takes 4 1/2 years to reach the top step, after which employees receive only legislative cost of living increases.

35

Current System

• History of across-the-board raises from the Legislature.

• Variable tie to market rate– average 15-16% behind market – a few jobs are paid above market– many jobs 25-30% and even up to 50% behind market– partial survey implementations to bring jobs to no less

than 25% behind have not been comprehensive or always funded

– last salary survey implementation was in the early 80’s

• no raises for a four year period36

Difficulties with Current System

• Customers have said the system is too complex, cumbersome, and rigid.

• System provides little flexibility to reorganize or change job responsibilities based on changing technologies, customer needs, etc.

• System encourages proliferation of classes. – Incentive to create new classes in order to obtain

salary increases

• It does not facilitate employee mobility/career paths. 37

Difficulties with Current System

• Rigid compensation system is obstacle to recruiting and retaining top performers or those with special skills.

• Longevity-based increases provide no recognition for excellent performance.

• It is de-motivating for good performers who are paid same as poor performers in same job class.

• Nearly two-thirds of classified employees are at step K, with no room for salary growth unless promoted or reallocated.

38

Proposed New System

• Personnel Reform Act called for a new classification system that would: – Improve effectiveness and efficiency of service delivery. – Substantially reduce the number of job classifications.– Facilitate the most effective use of state personnel

resources.– Be responsive to changing technologies, economic and

social conditions, and needs of citizens.– Value workplace diversity.– Facilitate reorganization and decentralization of services.– Enhance mobility and career advancement.

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Proposed Classification Structure

• Consolidating 2,400 current job classes into broad occupational categories.

• Four levels within most occupational categories: – Level 1 – Entry– Level 2 – Journey/Developmental– Level 3 – Senior/Fully Performing– Level 4 – Supervisory/Expert

• Goal was to yield approx.800-1,200 job classes.

• Currently at about 150 categories.

2400

1000

Current Proposed

Number of Job Classes

40

Examples of New Structure

Audit Occupational Categories

Current General Govt & Higher Ed Classes

Labor and Industries Auditor 1

Industrial Insurance Underwriter Assist.

Revenue Auditor 1

Audit Specialist 1 - Transportation

Industrial Insurance Underwriter 1

Assistant State Auditor 1

Labor and Industries Auditor 2

Political Finance Specialist 1

Business and Professions Auditor 1

Apprentice - L&I Auditor 3

A. Entry

41

Examples of New Structure

Affirmative Action Officer 1

Personnel Assistant

Human Resource Dev. Spec 1

Personnel Officer 1

Personnel Analyst

Human Resource Consultant 1

Human Resource Consultant 2

Equal Opportunity Compliance Investigator 2

Apprenticeship Coordinator 1

Human Resource Represent. II

B. Journey/ Developmental

Old General Govt Classes

New General Govt Classes

Current GG & Higher Ed Classes

Human Resources Occup Category

42

Advantages Expected

• Substantially reduces number of job classes• Minimizes process and administrative time

and cost• Easily decentralized • Enables users to respond to changes • Enhances mobility and career growth

opportunities• Provides flexibility for new compensation tools• Addresses customer concerns and preferences

43

Consolidation Process

• Initial staff work based on existing job classes• Refinement of occupational groupings, using

existing job classes and salary structure• Review of proposed changes by agencies,

labor, and employees• Refinement of occupational groupings and

base salary structure based on input• Formal public process for additional input• Final classification and compensation

structure and rules 44

Proposed New System

Band 12

Band 11

Band 10

Band 9

Band 8

83 existing salary ranges will be replaced with fewer, broader bands.

Transition to New System

• Employees would transition at current salary.

• If not at top step of current range, would continue to get longevity increases until reaching salary equivalent to top step.

• Subsequent adjustments based on factors such as:– Retention/market/geographic issues

– Sustained exceptional performance and/or successful demonstration of valuable new skills

– Incremental increases in duties and responsibilities

46

Proposed Compensation System

• After the transition, an employee’s salary spread within the band could be based on analysis of factors such as:– Internal alignment and equity– Special competencies, skills, and experience brought to

the job– Extraordinary position-specific circumstances such as

locality, recruitment/retention, etc.– Hiring incentives

• Will also have option for one-time lump sum recognition award.

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Timeline

• June ’02 - March ’03: Research and concept design options

• April ’03 - June ’03: Validation of concepts and selection of options

• July ’03 - Dec. ’03: Development of new structure and rules

• Jan. ’04 - Sept. ’04: Contract negotiations; Formal input and adoption of new system

• Oct. ’04 - June ’05: Preparation for full implementation

48

Challenges:

• Short time frames• A desire to track back to existing classes

and salaries and to limit future salary growth

• Inherent conflict between creating a new structure and maintaining cost neutrality

• Fiscal concerns of today may affect pay options for the future

• Inability to fix compensation problems before implementing the new system

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Thoughts & Recommendations

• Need to get attention, support from state’s executive management.

• Central coordination/governance is critical for multiple projects.

• Need to establish statewide priorities and strategies.

• Extensive customer research and involvement means more support and acceptance of proposed changes.

• Employees and managers alike have expressed need for extensive training, especially in performance management.

• Communications is critical. No matter how much you do, it’s not enough.

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Communication

• Open communications and customer involvement have been a priority from the beginning.

• Publications are distributed in both print and electronic media, to reach widest possible audience.

• Extensive use of listservs, e-mail, and electronic newsletters to provide regular updates.

• In past year, DOP has held over 200 presentations and information/feedback sessions throughout the state.

• You are invited to watch our progress by monitoring our web site at http://hr.dop.wa.gov/hrreform.

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Question and Answer SessionQuestion and Answer Session

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