FEBRUARY 26, 2005 EMPLOYEE COMPENSATION FEBRUARY 26, 2005 EMPLOYEE COMPENSATION

TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL

FROM: ASSISTANT CITY MANAGER/CITY CLERK

DATE: FEBRUARY 26, 2005

SUBJECT: EMPLOYEE COMPENSATION

RECOMMENDATION

1) Include an adjustment to the City’s salary ranges in the FY 05-06 draft budget equivalent to the March 2005 Consumer Price Index; 2) Include a merit pool in the FY 05-06 draft budget equivalent to 7% of payroll; and, 3) Include funding in the FY 05-06 draft budget for the employee bonus and tuition reimbursement programs that is equivalent to 1.5% of annual payroll.

Salary Range Adjustments

Experts in the field of personnel, both in the private and public sector, report that the success of any compensation plan depends on keeping it updated to reflect market conditions. Rather than completely update the salary study each year, it is possible to make periodic adjustments to the ranges based upon the Consumer Price Index (CPI) or other factors. In the last 10 years the City has conducted three salary surveys (1995, 1999 and 2002). In years when no survey is conducted, the City Council has adjusted employee salary ranges in an amount equal to the Consumer Price Index as reported in March of each year for the preceding twelve-month period. The Council has adjusted employee salary ranges by resolution adopted at the same meeting that the Budget for the next fiscal year is approved.

Because staff is not recommending to conduct a salary survey this year, staff suggests that the Council adjust the current salary ranges based on the March 2005 CPI, which will be available by the time the Council considers adopting the budget on May 31, 2005. Currently, CPI data is only available through December 2004. The chart below indicates the change in the CPI during the last quarter:

The Twelve Month Period Ending:

Change in Consumer Price Index

October 2004

4.53%

November 2004

5.24%

December 2004

4.39%

Merit Compensation Pool

In 1996, the City replaced the previous step compensation system with a merit pay plan. As part of the merit plan, employees are eligible to receive compensation increases based upon their job performance during the previous review period. Each fiscal year, the City Council establishes a specific amount for the merit pool as part of the adopted budget. Actual increases are approved by the City Manager based upon the recommendation of the department head regarding each employee's individual performance. City employees do not receive automatic cost of living adjustments (COLA), which are common in most other local jurisdictions.

Over the last two fiscal years, the merit pool has been 3.9% of annual payroll, based on the March 2003 CPI. In terms of dollars, the merit pool in FY 04-05 is $105,000. By tying the size of the merit pool to the CPI over the last two years, most employees have received merit increases at or just slightly higher than what would normally be considered a cost of living increase. The result has been that City employees have not advanced significantly within their salary ranges. Ideally, an employee who has been with the City for several years and has grown in professional ability would receive a pay raise greater than the CPI. Therefore, in order to properly reward employees for providing the City with excellent service, staff recommends a 7% merit pool in FY 05-06. With CPI currently running around 4.5%, this would provide our best performing employees with the possibility of receiving an actual merit increase of realm of 2.5%. This would translate to a merit pool in the amount of $198,000 in FY 05-06.

Merit Pool

Rate:

4.5%

7.0%

Amount:

$128,000

$198,000

Bonus and Tuition Reimbursement Programs

These two programs were established in FY 94-95. The City Manager is responsible for determining the amount and distribution of employee bonuses. Consistent with the program guidelines, a bonus is based on criteria such as exceptional customer service, development of a cost saving innovation or idea, completion of a difficult or complex assignment or report, or excellent work performance on an on-going basis. Tuition reimbursement is limited to $500 per year per employee participating in the program.

The City typically budgets an amount equal to 1.5% of the annual payroll to fund these two programs. With the last two-year budget, the Council reduced the amount to 1% of annual payroll. Using the current rate, in FY 05-06, the amount to fund both programs would be $28,500, $22,500 of which would be used for the Employee Bonus Program and $6,000 for the Tuition Reimbursement Program. A 1.5% rate would equate to $42,500, $36,500 for bonuses and $6,000 for tuition reimbursement.

 

@1% of Payroll

@1.5% of Payroll

Bonus Program

$28,500

$36,500

Tuition Reimbursement Program

$6,000

$6,000

FISCAL IMPACT

All costs associated with the City’s employee compensation programs are paid for out of the City’s General fund. The chart below summarizes the estimated costs of staff’s recommendation, as outlined in this report:

Program

Cost

Salary Range Adjustments

$0

Merit Pool

$198,000

Bonus Program

$36,500

Tuition Reimbursement Program

$6,000

Respectfully submitted:

Carolynn Petru

Assistant City Manager/City Clerk

Reviewed,

Les Evans

City Manager