05-11-09 WSMEMO
Date: May 5, 2009
To: Mayor & Council
From: City Administrator Mike Robertson
Re: Review of Salary Plan
Council has set two workshops to review the current salary
system. One at the end of the Council meeting on Monday, May
11th and one on Monday, June 1st at 5:30 p.m. that personnel
consultant Sherrie Le has been invited to. To help focus
discussion I have listed the types of salary plans that Finance
Director Gary Groen, Personnel Consultant Sherrie Le and I are
aware of and what we feel are the pros and cons of each.
OPTION 1 - Determine salary increases yearly based on Council
discussion as part of the annual budget.
PROS: It provides maximum flexibility for the City Council by
not locking them into any system.
CONS: Staff wonders what information Council uses to make the
salary determinations, which makes it difficult for employees to
understand how their performance relates to their pay. It does
not provide for individual discussion based on merit or
performance unless we close the meeting or violate State Data
Practices laws. There is a tendency to treat all employees the
same, without regard for differences in how they perform and how
long they have worked for the City.
Having Council set salary increases without the supervisor's
evaluation of employees minimizes the supervisor's role.
Supervisors are paid to evaluate employees because they assign
and review their work and direct and observe their performance
on a daily basis. There is also greater potential to fall out of
compliance with the State Pay Equity law and increase exposure
to pay discrimination lawsuits. Having no pay system makes it
very difficult to maintain internal equity or external
comparability which can create employee unrest and turnover.
OPTION 2 - Grant supervisors the authority to yearly divide
among their employees a set amount of dollars awarded to each
department based on Council discussion.
PROS: Council maintains control of the total cost of pay
increases while supervisors make the determination who gets what
share based on their more comprehensive understanding of an
employee's performance. Provides an incentive for employees to
perform well above expectations. Allows supervisors to reward
higher performers and lower performers differently.
CONS: Some supervisors don't like to make these types of
distinctions about their employees. Some employees feel this
gives too much power to their supervisor. This could create
hard feelings between employees because when one employee gets
more, the rest get less because it is a defined amount per
department. This does not take into consideration the length of
time an employee is with the City. There is greater risk of
potential pay discrimination lawsuits. It does not take
internal equity into consideration and so it may impact Pay
Equity compliance.
OPTION 3 - Determine salary increases yearly based on market
comparable salary ranges with defined steps whereby employees
advance a step yearly based on satisfactory performance. The
salary step system is updated annually based on market
conditions and budget considerations.
PROS: It is easy for supervisors to define for staff what the
salary system is and how they can improve their salaries. There
is a rational, predictable systematic method, which pays an
employee more over time as they learn, grow and increase their
value to the organization. It is easier to defend the City from
pay discrimination lawsuits. An employee whose performance is
below satisfactory is not rewarded with a pay increase. It can
easily be calculated by the Finance Department, well ahead of
budget discussions. It provides for the salary ranges to be
updated to remain comparable to the relevant labor market.
CONS: Some Council members feel there are not enough
requirements for people to earn their step increase, that it is
too automatic. Having automatic step increases based only on
time in position and a "pass/fail" performance system does not
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reward the truly strong performers. It does not provide an
incentive to perform at a higher level than satisfactory. It
does not integrate internal equity as measured by an objective
job evaluation system as required by the State Pay Equity law.
OPTION 4 - Determine salary increases yearly based on market
comparable salary ranges in a salary step system whereby
employees advance in pay based on satisfactory performance AND
satisfaction of performance criteria and goals listed in the
annual performance review plan. The salary step system
periodically is changed based on market conditions.
PROS: It is easy for supervisors to define for staff what the
salary system is and how they can improve their salaries, while
at the same time it provides objective criteria tying pay to a
defined set of performance expectations. It is easier to defend
the City from Pay Discrimination lawsuits. It allows for
specific, timely annual goals to be considered along with more
general performance consideration such as communication skills,
teamwork, customer services, etc. It does not reward poor
performers.
CONS: It does not provide an incentive to perform above
satisfactory. It does not integrate internal equity as measured
by an objective job evaluation system as required by the State
Pay Equity law.
OPTION 5 - Establish salary ranges that align reasonably well
with comparable positions in other cities as well as internal
equity using a job evaluation system as required by the State
Pay Equity law. Provide defined steps that provide an increase
from date of hire through 7 or 8 years of employment. Keep the
salary ranges in line with the overall market by using the
League of MN Cities Salary Survey data every five years. Review
the salary ranges annually to maintain comparability to the
market, providing cost of living increases to the ranges as
appropriate based on budget considerations as well as market
factors.
Adopt a pay for performance component that ties step increases
to performance, allowing differentiation between below
satisfactory, fully satisfactory and superior performers - with
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the first category receiving no pay increase, the second one
step and the third one and one half steps - up to the salary
range maximum. Performance will be evaluated using the
performance evaluation form, career development programs and
specific annual goals for each position.
PROS: Provides a professional, objective pay system that rewards
employees who learn, grow and contribute to the success of the
department and organization. This type of system provides an
incentive for superior performance. Below satisfactory
performance is not rewarded. The pay system remains market
comparable with consideration to the budget.
Employees in more responsible, complex jobs, requiring higher
level knowledge and planning are paid more than those who are in
less demanding jobs. Provides a method for determining pay that
rewards employees who do a great job, while maintaining
compliance with relevant State and Federal laws. Provides for
clear communication of performance expectations and strengthens
the supervisor's role in evaluating employees who they
supervise.
CONS: Requires the supervisor to establish specific goals and
expectations and evaluate employees based on a number of
criteria. Is more time consuming for supervisors.
DISCUSSION - The City used to determine salaries based on Option
1 until 2006 when an Option 3 salary step system was set up.
Right now Otsego officially uses Option 3 and we have developed
performance criteria to change to Option 4. Last fall though,
the Council departed from the step system and went back to
Option 1. Option 5 is a more comprehensive approach
incorporating internal equity as measured by a job evaluation
system and a greater degree of pay for performance. Sherrie Le
is familiar with this type of pay system and recommends it.
Department heads are willing to work under any system and would
like to have one system firmly established. However, they would
prefer an understandable, objective system that considers both
internal equity and what other comparable cities pay for similar
positions be adopted. That would allow employees to be able to
plan for increases in pay so they can better manage their own
finances. The extent to which performance is tied to pay is up
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to the City Council.
A system with salary ranges that are aligned with the market and
provide for increases over several years from date of hire helps
attract and retain better employees and assists in fostering
good employee morale. A system that incorporates internal equity
ensures compliance with the State Pay Equity law and provides
employees with a sense of equity. A performance pay component
provides the ability to reward those who clearly perform above
expectations, while not rewarding those who do not meet
expectations.
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