Classification and Compensation System Simplification

1
Classification and Compensation System
Simplification

• What is it? How is it done? Why is it needed?
• IPMA - HR Conference
• September 2003

2
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
3
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
  maintain

3
4
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
  pay

4
5
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
6
Different Ways to Consolidate

• By occupational focus
• Engineering
• Finance
• Human resources
• Etc.
• By department focus
• Public Works
• Purchasing
• By salary grade

6
7
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 expert

7
8
Example
Engineering
Occupation
Electrical
Civil
Environmental
Chemical
Nature of Work
IV Master - Recognized Expert
III Fully Performing - Supervisory
Level of Work
II Developmental- Senior/ Lead (in some cases)
I Entry - Qualified
8
9
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
10
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
11
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
12
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/superviso
  r differences

12
13
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
14
Outcomes-Negative

• Employees dont 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
15
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 effort

15
16
The Government of the District of Columbia

• Jo Ellen Gray
• Associate Personnel Director for Policy and
  Program Development, DCOP
• James Ivey
• President, AFSCME

16
17
Historical Review

• A product of the negotiated Compensation Units
  12 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
18
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 schedules

18
19
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
20
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
21
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
22
Communication

• Consolidated 21 primary (with dozens of related
  supplemental) pay schedules into 10 unique
  schedules, based on 9 occupational groups
• Clerical/Administrative
• Corrections and Others
• Health Care
• Information Technology
• Legal
• Maintenance/Trades/Labor
• Protection and Enforcement
• Science/Engineering

22
23
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
24
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

24
25
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

25
26
Classification and Compensation Reform in
Washington State

• Christina Valadez
• HR 2005 Project Manager
• Washington State Department of Personnel

26
27
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
28
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

28
29
Organization Facts
29
30
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
31
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.

31
32
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.

Somewhat Important
Not Important
Important
Very Important
32
33
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.

33
34
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
35
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
36
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 80s
• no raises for a four year period

36
37
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
38
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
39
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.

39
40
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.

40
41
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 - LI Auditor 3
A. Entry
41
42
Examples of New Structure
Old General Govt Classes
New General Govt Classes
Current GG Higher Ed Classes
Human Resources Occup Category
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
42
43
Advantages Expected

• Substantially reduces number of job classes
• Minimizes process and administrative timeand
  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
44
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
45
Proposed New System

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

46
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
47
Proposed Compensation System

• After the transition, an employees 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.

47
48
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
49
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

49
50
Thoughts Recommendations

• Need to get attention, support from states
  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, its not enough.

50
51
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/hr
  reform.

51
52
?
?
?
Question and Answer Session
?
?
?
?
?
?
?