2018 2:00:00 PM

Monday, September 10, 2018 2:00 PM
Council Chambers, Legislative Bldg, 745 4th St., Sparks, NV

General Business: 9.5

Title: Consideration, discussion, possible approval and adoption of a classification system and compensation program including the acceptance of the June 2018 Korn Ferry Hay Group Compensation Study with a financial impact of $212,500 in FY19, of $608,000 in FY20 and of $920,000 in FY21.

Petitioner/Presenter: Stephen W. Driscoll, ICMA-CM/Mindy Falk, Human Resources Manager

Recommendation: The City Manager recommends approval and adoption of a classification system and compensation program including the acceptance of the June 2018 Korn Ferry Hay Group Compensation Study.

Financial Impact: The financial impact for FY19 is estimated to be $139,000 to the General Fund and $73,500 in other funds; the financial impact for FY20 is estimated to be $393,000 in the General Fund and $215,000 in other funds; and the financial impact for FY21 is estimated to be $609,000 in the General Fund and $311,000 in other funds. The cost to implement HAY is outlined by resolution and/or collective bargaining unit in each of the respective agenda items in public hearing.

Business Impact (Per NRS 237):
A Business Impact Statement is not required because this is not a rule.

Agenda Item Brief:

The City Council approved funding for a classification and compensation study in the budget for FY17, with the expectation that the study and a proposal of implementation be presented to City Council upon completion. The final report outlining the study and its recommendations was received by the City in June of 2018. This report, known as HAY, is before City Council today. Council is asked to consider, discuss and possibly approve the report and the associated implementation of a classification system and compensation program for the City’s full-time employee resolutions and employee collective bargaining agreements.

A classification system and compensation program are considered a business best practice and recognized in the industry as a standard for an organization of this size. Using a classification and compensation program is important to the City because it creates an impartial process for determining pay. Pay is tied to essential job requirements regardless of gender, race, nationality, disability, and other federal/state recognized groups; creating a structure of internal and external equity.

Background:

City Council previously approved funding for a classification and compensation study. The study was necessary to assist the City in creating and implementing a dynamic, systematic and modern classification and compensation system. The City will be well served through the establishment of such a system because it will provide internal pay equity, external competitiveness, be affordable and legally defensible. Additionally, such a system will support city management in three (3) areas: succession planning, organizational analysis and career development. Succession Planning efforts will be improved via a better understanding of the relationships between roles in our organization. Leadership will be able to conduct more effective organizational analysis to identify gaps in our structure. Adoption of a formal system will serve as a tool for employees and managers alike to better understand possible career paths.

The study was undertaken in order to ensure internal and external equity in the evaluation of job descriptions, job design and assignment of pay to jobs within the City. To accomplish this study, the City hired the Korn Ferry HAY Group (HAY), a vendor with 70 years of experience in the field of structuring classification and compensation systems. HAY was the first company to develop a comprehensive point system to allow companies to evaluate internal and external equity across different types of positions within an organization. To this day, HAY is the industry leader in this field.

Analysis:

The classification and compensation study was undertaken in two (2) main phases. The first phase was the establishment of a classification system. Descriptions of 188 city jobs, covering the breadth of our positions, were updated and used to establish the new classification system. The updating process was accomplished through employee surveys, department and employee meetings and interviews by HAY personnel of city employees and supervisors.

HAY took the gathered information and applied their proprietary points-based classification system to assign City jobs to the appropriate classification levels. The levels range from 8 to 26. Level 8 consists of entry level positions in the City and 26 was assigned to the position of City Manager. HAY’s level determination is based upon their proprietary model, and their expertise and experience in this field. City management has no discretion to change the assignment once HAY leveling has been completed. In broad terms, the model considers the education and experience required to perform a job, the complexity of problems faced by each job and amount of judgement required to solve those problems. The model also considers the size of the organization, job responsibilities and the organizational impact of each job to measure the relative size of jobs. City reliance on the HAY classification system promotes and maintains a fair and legally defensible system of internal equity.

The second phase of the project linked compensation (pay) to the levels established in phase one. Pay equity with the outside job market was established by using benchmark data from a market comparison to create pay ranges for each level. The outside comparators used to establish the job market were Reno, Washoe County, Carson City and Douglas County. HAY used their expertise to create the recommended pay level mid-points contained in the June report. Upon determination of the compensation mid-points, HAY then provided the City guidelines to develop pay ranges from the mid-points and to create an implementation plan of the new classification and compensation system.

Pay Range Design

Human Resources staff recommended to the City Manager a tiered system of pay ranges by business unit. The suggested pay range width of +/-12% was assigned to the Operating Engineers Non-Supervisory unit and the Confidential Resolution.

Pay range widths of +/-15% and +/- 20% were assigned to Operating Engineers Supervisory unit and the remaining full-time employee resolutions, respectively.

To calculate pay ranges, the recommended mid-points from HAY are used as a middle value, and the appropriate percentage is either added (for top of range) or subtracted (for bottom of range).

For example, using simple math for illustrative purposes, consider the following.

EXAMPLE
Midpoint Salary = $75,000
+/- 10% is $7,500
Bottom of Range	=	$75,000
	-10%	$7,500
Total		$67,500
Top of Range	=	$75,000
	+10%	$7,500
Total		$82,500
Final pay range is $67,500 - $82,500

Attached to this Agenda Item are the recommended new pay ranges for each unit using the HAY mid-points and the above methodology. The only exception is level 8 where a narrower pay range width more accurately reflects the limited breadth of job duties and responsibilities. For level 8 the midpoint was used at the top of the range.

Implementation

Human Resources recommends the following implementation of the new classification and compensation system. This schedule is woven into both of the Operating Engineer’s Collective Bargaining Agreements (Non-Supervisory and Supervisory) and the Employee Resolutions to be considered at the September 10, 2018 City Council meeting:

Effective October 1, 2018, all jobs in affected bargaining units and resolutions will move to the new classifications;
Employees whose pay rate is below the new minimum pay range will see a base pay increase to bring their salaries to the new minimum rate;
The new pay ranges will apply for new hires and promotions;
The new maximum pay range will be applied on the employee’s annual review date to calculate a merit increase; and
No employee pay will be reduced even though the new pay range maximum may be lower than the employee’s current pay.

An employee’s pay that is above the new pay range maximum will not receive a cost of living increase beginning July of 2019, and as such, that position will be considered Y-Rated. A Y-Rated salary will not be increased until such time as a cost of living adjustment or a range adjustment moves the maximum rate above the employee’s rate of pay. At no time will a cost of living adjustment cause an individual rate of pay to exceed the maximum of the pay range.

Outliers

A natural step in the implementation of a classification and compensation system is to re-evaluate the classification (leveling) for positions where the compensation (new pay range) differs significantly from the existing pay range. The City prioritized the positions most negatively impacted as first to have their leveling re-reviewed. Of 188 positions evaluated, 16 were identified as outliers for immediate review because the new pay range was 15% or below the existing pay range. Fourteen of the sixteen outlier positions have been submitted to HAY. Two positions are in the internal review process and will be sent to HAY after completed. If the results of the outlier processes impact the classifications, the resulting changes to the associated Appendix A will be returned to City Council for re-consideration.

System Maintenance

In the Spring of 2019, Human Resources recommends that the City implement a Job Review Advisory Committee consisting of employees from the participating resolutions and bargaining units to conduct position reviews. The appointees to the Job Review Advisory Committee will receive training in the HAY system and the application of that system to the City. To maintain the integrity of the system, HAY will continue to level a small portion of the reviewed positions to assure consistency and HAY will also provide a second level review as an appeal mechanism.

Positions will be reviewed when the City adds new titles to the employee complement; when positions are re-organized; and when an employee’s request for a review is approved. In addition, about 10% of the positions in the City will be reviewed each year to keep the system accurate and fresh. In the beginning, Human Resources will use HAY for this function until the Job Review Advisory Committee is established. For example, in August 2018, the City sent four (4) new positions to HAY for leveling. The resulting changes and applicable Appendix A’s will be returned to City Council for consideration once the leveling is received from HAY.

Market Data (pay associate with leveling)

Human Resources recommends that the City review the market data every 5 to 7 years depending on economic conditions and other outside forces.

Affected Groups

The implementation plan discussed has been presented to the City’s Collective Bargaining Units and the City and Operating Engineers have come to an agreement. This will be discussed in a public hearing later today. City Council will also consider changes to the Employee Resolutions relating to the adoption of the classification and compensation system as implemented in resolution language. The resolutions have all been amended and are before you today in separate agenda items.

Financial Impact

The cost to implement HAY is outlined by resolution and/or bargaining unit in each of the resolution agenda items, as well as, in the two agenda items discussing the Operating Engineers- Supervisory and Operating Engineers Non-supervisory labor contracts.

However, the total cost estimate to implement the new classification and compensation system in the General Fund for FY19 is $139,000 and $73,500 in other funds. For FY20, the cost for the General Fund, estimate is $393,000 and $215,000 for other funds. In FY21, the cost for the General Fund, estimate is $609,000 and $311,000 for other funds.

Alternatives:

The Council may choose to approve and adopt the classification system and compensation program including the acceptance of the June 2018 Korn Ferry Hay Group Compensation Study.
The Council may choose not to approve and adopt the classification system and compensation program including the acceptance of the June 2018 Korn Ferry Hay Group Compensation Study.
The Council may choose not to approve and adopt the classification system and compensation program including the acceptance of the June 2018 Korn Ferry Hay Group Compensation Study and direct the City Manager toward another alternative.

Recommended Motion:

I move to approve and adopt the classification system and compensation program including the acceptance of the June 2018 Korn Ferry Hay Group Compensation Study.

Attached Files: