Broward County Classification and Compensation Study Executive Briefing October 2015

Transcription

1 Page 1 of 9 Broward County Classification and Compensation Study Executive Briefing October 2015 Recently, an employee classification and compensation study was completed for all staff positions under the County Administrator. The purpose of this document is to provide an executive summary of the reasons for and substantive results of this study. I. BACKGROUND The Job Classification and Pay Study is a comprehensive, comparative assessment of Broward County s current job classifications and pay grades relative to the competitive employment market. In May 2013, the Board of County Commissioners authorized the study by an external consultant. In September 2013, Management Advisory Group, Inc. (MAG) was awarded the contract to conduct this study and prepare recommendations. The classification and compensation study has two main components: (1) to provide an updated classification system that accurately represents the nature of the duties being performed under each job classification; and (2) to establish a compensation structure that is both competitive in the marketplace, and fair and equitable internally. II. REASONS FOR REVIEW Organizations, whether in the public or private sector, utilize some type of job classification and compensation system. As with any administrative process, there is a continuing need to ensure that the system meets the needs of the organization. Best Practice - Reviewing an organization s classification and compensation system every three to five years is considered a Best Practice for a variety of reasons, including identifying and bridging gaps between the County and the competitive market, reducing the County s exposure to claims of pay discrimination, improving the County s regulatory compliance, and assessing the impacts of new policies, procedures, management initiatives, technologies, and business process changes. While the County has conducted some partial ad hoc reviews internally, it has been over 20 years since the County has had an external consultant conduct a comprehensive County-wide classification and compensation study. The many benefits of the study s recommendations will only be achieved with a full implementation of the proposed classification/compensation structures, as opposed to a partial or piecemeal implementation which will not significantly mitigate current issues in hiring/retaining quality employees and may, in the long run, exacerbate problems already affecting the County relative to employee morale and retention. 1

2 III. CURRENT CONDITION OF CLASSIFICATION AND COMPENSATION SYSTEMS Due to the length of time since the last classification and compensation study and the lack of systematic changes over the years, there are multiple areas of the current classification and compensation system that are in need of adjustment. Classification - Currently, the County has almost 1,000 job classifications with an employee headcount of around 5,200 total benefit-eligible employees. The result is that there is approximately one job title for every five County employees. It is reasonable to state a 1:5 ratio is high, especially compared to Miami-Dade County s 1:14 ratio, Orange County s 1:8 ratio, and Hillsborough County s 1:7 ratio. Palm Beach County has a ratio similar to Broward. Broward County s excessive number of job classifications is difficult to maintain and keep current. In some cases, the distinctions between job classifications are minute. In other cases, changes in job duties and responsibilities are not reflected. Compensation The County s current compensation plan is comprised of 250 pay grades. This number is significantly excessive considering Miami-Dade County only has 80 pay grades for 28,000 employees and Palm Beach County has 60 for 5,200 employees. Orange and Hillsborough counties have 117 and 25 pay grades, respectively. Further, the County s current pay ranges are not standardized and range from 29% to 83% in width from minimum to maximum rates (by way of example, a $50,000 minimum with a $75,000 maximum would result in a range width of 50%). Additionally, there is no methodology to explain the distance between pay grades, with some pay grades being distinguished by only $1 on an annual basis. The lack of a consistent and standardized pay plan makes effective administration of the compensation system virtually impossible, and serves both to undermine employee morale and employee retention efforts. Simply put, our current classification and compensation systems are in significant need of adjustment. Page 2 of 9 IV. ATTRACTING AND RETAINING TALENT County s Position in Marketplace - The County wisely responded to the economic downturn with a number of conservative compensation-related actions. Position pay ranges have not been adjusted for the last five years. During the economic downturn, the County has maintained its current ranges so the minimum pay established back in FY09/10 is still the same today. This has resulted in the County s pay plan lagging behind the competitive market. Furthermore, the County s individual salary increases have also lagged behind the competitive market. During the last five years, since FY09/10, the County had only two increases to an employee s base salary. These increases were offset by furloughs, insurance cost increases, and new individual contributions to the state pension plan. The 2

3 net effect is that County employees salaries have not kept up with the rate of inflation. (See Table 1). Table 1 Comparison of Changes in Employees Net Compensation to Benchmark Indexes Page 3 of % 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 2.0% 4.0% 6.0% Comparison of Changes in Employees Net Compensation to Benchmark Indexes FY10 FY15 FY09/10 FY10/11 FY11/12 FY12/13 FY13/14 FY14/15 Net Base compensation change CPI Adjustment ECI ( State & Local Government) While keeping pace with the cost of inflation is important, due to labor market and other conditions, it is increasingly more important that the County remain competitive in the marketplace. To this end, it is important to note that generally, the County s current pay system does not provide for increases for annual performance (merit) or step increases, unlike many of our local public sector counterparts. This is an important factor as some other local public sector agencies continued providing annual merit or step increases during the economic downturn, increasing individual salaries even when there was no across the board increase. This factor further contributes to the County s pay plan and individual employee s pay lagging behind the competitive market. Attracting Talent - Attracting talent is a critical issue facing employers in both the public and private sector. As the economy recovers the labor market will continue to tighten, which means the County, like other employers, will have trouble finding workers to fill openings for a wide range of jobs, not just those requiring the most skills. In addition, as the economy continues to recover, Baby Boomers are considering retirement. The loss of these employees negatively impacts the County s performance in terms of institutional knowledge and experience and in the time it takes to bring new hires through the learning curve. The County will need to attract talent from Gen Xers and Millennials to replace the Baby Boomers. In either situation, the tightening labor market or retirement of Baby Boomers, the County will need to be prepared to compete for these critical resources. To attract quality, high performing applicants, the County must position itself as a strong competitor and an employer of choice. A competitive compensation plan with a job 3

4 classification system that illustrates the potential for career advancement are significant factors that will contribute to the County s ability to attract quality talent. Retaining Talent - It is also critically important for the County s efforts to retain quality talent. Younger workers are more likely to change employers if they are not satisfied with their current job. While job satisfaction also includes other factors, compensation and career advancement opportunities are among the most important factors considered by employees. Retaining staff is important for the County to reduce costs, retain institutional knowledge, and maintain productivity. When employees leave the County for better opportunities, hiring and training costs increase, institutional knowledge evaporates, productivity decreases and often policy and program initiatives suffer development and/or implementation delays. Current Conditions, Indicators, and Implications for the Future (A) Non-Retiree, Voluntary Resignations and Turnover When reviewing turnover, the County has focused on non-retiree and voluntary resignations, also known as the quits rate, as they are more likely impacted by compensation. The County has seen a sharp increase in its quits rate, which has almost doubled since FY09/10 (from 131 to 248) (Table 2). The resulting turnover quits rate has increased from 2.4% to 4.6% (Table 3) and increased 28.5% from last year. This turnover quits rate is significantly higher (over three times higher) than those reported in the National Quits rates for State and Local governments, as reported by the Bureau of Labor Statistics (BLS), which only increased 9.3% between June 2014 and June In addition to the high quits rate, which in part can be attributed to compensation rates, anecdotal discussions among hiring managers at all levels throughout the County further confirms that non-competitive compensation has been a significant factor in attracting and retaining talent. Examples of difficulties at all levels of the organization include, but are not limited to, the following: Page 4 of 9 Managerial - 4 Senior Managers in GFLCVB leaving for significant wage increases resulting in significant productivity issues and loss of knowledge. Professional - 5 Accountants left; 3 declined offers for compensation reasons, after multiple recruitments in Port Everglades. Technical - Numerous IT employees leaving for more money, including 6 in Public Works alone, which delays major projects. Trades/Maintenance - 10 Trades and Maintenance employees in Aviation taking positions elsewhere for a higher salary; similarly, Parks also lost several employees, coupled with an inability to hire new ones due to salary considerations. Front line employees - 9 individuals declined the RTT Specialist position for compensation reasons after multiple recruitments. 1 Bureau of Labor Statistics (BLS). (June 2015). MONTHLY LABOR REVIEW: Job Openings reach a new high, hires and quits also increase. Retrieved from 4

5 Page 5 of 9 Table 2 Total Resignations (non-retiree, voluntary, benefit-eligible) 300 TOTAL VOLUNTARY RESIGNATIONS non retiree, benefit eligible employees FY10 FY15* FY09/10 FY10/11 FY11/12 FY12/13 FY13/14 FY14/15* Table 3 Turnover Rates of Non-Retiree, Voluntary Resignations 5.0% 4.5% 4.0% 3.5% TURNOVER PERCENTAGE RATES non retiree, voluntary resignations, benefit eligible employees FY10 to FY15* 3.5% 4.6% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 2.4% 2.3% 2.8% 2.8% 0.0% FY09/10 FY10/11 FY11/12 FY12/13 FY13/14 FY14/15* *Data through September 28,

6 First Year Turnover Another indicator relative to turnover is the number of individuals who do not complete one year of service for any reason (whether voluntarily or involuntarily). This measure indicates whether we are able to attract the right employees and retain them. We have seen a sharp increase, more than double, in the number of employees who left the County during their first year (from 3.93% to 9.49%) (Table 4). This would suggest that we are either spending the time and cost to train individuals who then leave for better opportunities or we are not hiring the right individuals to begin with. In either case, the result is an increase in turnover which has a substantial cost. Table 4 First Year Turnover as Percentage of New Hires Page 6 of 9 FIRST YEAR TURNOVER (Benefit Eligible) as % of New Hire FY10 to FY15* 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 9.49% 4.31% 4.44% 3.93% 2.72% 1.05% FY09/10 FY10/11 FY11/12 FY12/13 FY13/14 FY14/15* *Data through September 14, 2015 High Cost of Turnover While there are different methodologies to calculate the cost of turnover, it is widely accepted that turnover has a significant cost. The cost of turnover includes the direct costs associated with hiring and replacing staff, as well as the indirect costs of lost productivity, training, etc. According to a Society for Human Resource Management Report (SHRM), the total cost of replacement can range from 90 to 200 percent of an employee s annual salary. 2 In FY14/15 (through September 28, 2015), the County had 248 voluntary quits at an average salary of $49,357. Using the range from SHRM, the total cost of turnover would range from $11 million to $24.5 million. Even using a factor of 150%, which is in the middle of the range and often used, the cost of turnover for the County would be $18.4 million. These estimated costs of turnover well exceed the cost of implementing the consultant s recommendations. 2 Drive Turnover Down, Adrienne Fox; Society for Human Resource Management; July 1, ( 6

7 Upcoming Retirements Another factor to review when looking at retention is the potential for retirements. Since most of the retirements will need to be replaced, the County will need to enter the marketplace to replace these retirements and will need to have competitive pay. Based on the number of employees already in the Florida Retirement System Deferred Retirement Option Program (DROP) and those employees eligible to retire based on age and years of service, the County could potentially lose up to a staggering one third of its workforce over the next five years and will be needing to attract high quality replacement talent. (B) Declinations of Job Offers and Job Offer Acceptance Rate The number of job offers that were declined is an indicator of a more competitive labor market. Over the last five years, the County has averaged almost 500 job offer declinations for benefit eligible positions (Table 5). Job offer acceptance rates over the same period is between 50% and 60%. This means almost one out of every two job offers is declined. While there is no standard Job Acceptance Rate to benchmark against, research indicates the rate should be higher with some authors suggesting around 80% or even higher. 3 In any event, with one out of two offers being declined, it is clear that the County is falling behind in its ability to attract the best candidates. Page 7 of 9 (C) Ability to Hire at Minimum Rate Another indicator that the County s compensation system is in need of adjustment is reflected in the difficulty hiring qualified individuals at the existing minimum rates of the position pay range. Again, the County has not increased its minimum pay ranges since FY09/10. Over the last five years, approximately 50% of new hires were hired at a starting salary that was on average 25% above the minimum pay rate established for that position. The rate increases to over 60% if new hires subject to contractual agreements to hire at the minimum of the pay range are excluded. It should be noted that some of the hiring above minimum is due to significant experience and education that exceeds minimum requirements, but the rest is clearly due to our current low minimum salaries as compared to employment market demands. V. PROJECTED COST OF STUDY AND DISTRIBUTION The overall projected cost of the implementation of this study as recommended by the consultant is approximately $10.4 million of which $5.7 million is from the General Fund with the remaining amount being absorbed from Enterprise, Grant, and other non-tax dollar Funds (See Table 6). This amount represents a 3.81% increase over current payroll, which is less than the amount the County employees individual salary increases have lagged behind benchmark inflationary indexes (See Table 1). The number of employees receiving a pay adjustment (to new minimum or decompression adjustment) is approximately 50% of the total workforce. 3 Offer Acceptance Rate, Society for Human Resources Management; September 1, ( ); What is Your Offer Acceptance Rate? ; Liu, Peyton ( is your offer acceptancerate.html), January 28,

8 Page 8 of 9 Table 6 Cost Projections for Implementation of Study Recommendations COST PROJECTIONS Cost to bring employees to the minimum of their new pay grade GENERAL FUND ENTERPRISE/ GRANTS/ OTHER FUNDS TOTAL $2.5M $2.8M $5.3M Cost to move employees to minimize compression (decompression adjustment) $3.2M $1.9M $5.1M Total Cost $5.7M $4.7M $10.4M Percentage of Current Payroll ($272.1M) 2.1% 1.7% 3.8% EMPLOYEE IMPACT Number of impacted employees Percentage of impacted employees 30.5% 20.2% 50.7% Of equal importance, is that the recommended adjustments impact the lower end of the County s current pay scale. If the recommendations are implemented, more than three quarters of the adjustment dollars will go to employees making less than $50,000 and more than 50% of the dollars to those making less than $40,000. Table 7 shows the distribution of funds by current salary range. Table 7 Allocation of Funds by Current Salary Range Allocation of Funds based on Current Annual Salary >$80K $70K to 80K $60K to 70K $50K to 60K $40K to 50K $30K to 40K <$30K 1% 2% 4% 16% 23% 23% 31% 0% 5% 10% 15% 20% 25% 30% 35% 8

9 Page 9 of 9 Lastly, approximately 90% of the adjustment dollars go to individuals in represented classifications. V. SUMMARY A review of the classification and compensation system is a necessary part of any organization. There is much value to conducting such a study, which is considered a best practice. The County s current systems are cumbersome and not competitive in the marketplace, which is evidenced by the retention and recruiting issues the County has been experiencing. If the County wants to have the ability to be competitive in the marketplace to retain and hire talented employees, implementing the consultant s full recommendations is critically important. By implementing the consultant s recommendations, the County should expect to see turnover reduced. Also, the number of declinations should likewise be reduced with a related increase in our acceptance rates. Once implemented, the County, through its Human Resources Division, will continue to monitor these market indicators. 9