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HomeMy WebLinkAbout15 - Fox Lawson Exec. Mgmt Class & Comp StudyQ SEW VoR� CITY OF p d City Council Staff Report Agenda Item No. 15 November 13, 2012 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: City Manager's Office Dave Kiff, City Manager 949 - 644 -3001 dkiff(a)newportbeachca.gov Human Resources Department Terri L. Cassidy, Deputy City Manager /HR Director 949 - 644 - 3303, tcassidy(a)newportbeachca.gov PREPARED BY: Terri L. Cassidy, Deputy City Manager /HR Director APPROVED: TITLE: Fox Lawson & Associates' Executive Management Classification and Compensation Study ABSTRACT: Via Resolution 2011 -55, City Council adopted a compensation philosophy that seeks to establish clear guidelines for compensating City of Newport Beach employees. In August 2011, Fox Lawson and Associates, a Division of Gallagher Benefits, Inc., was hired to review the City's classification and compensation structure, beginning with Executive Management positions, due to significant turnover /anticipated recruitments and the desire to retain key employees. The firm was also retained in July 2012, to perform the first city -wide classification /compensation study of all full -time positions, which is now in process. The Fox Lawson study revealed that the City of Newport Beach does not have a competitive or progressive Executive Management pay /benefits plan reflective of the City's thinking regarding recruitment/retention with fair total compensation. This item asks Council to set salary ranges with data compiled using "peer cities" as identified by the City Council, looks at private /public market comparison factors and establishes a framework to attract and retain high performing employees. The Executive Pay plan is the first step in establishing a balanced comprehensive compensation structure. Fox Lawson & Associates' Executive Management Classification and Compensation Study November 13, 2012 Page 2 RECOMMENDATION: Review the results of Fox Lawson & Associates (FLA) classification and compensation study and adopt Executive Compensation Plan ranges at either the FLA recommended percentile (50% or 60 %) with or without an accompanying merit -based incentive program for the specified 14 positions. This action will not result in any change in costs at this time, but rather, would grant the authority to the Council or City Manager (depending upon the supervisory chain of command) to adjust compensation at the appropriate date via the appropriate mechanism (one -time bonus, etc) if earned on the basis of merit. FUNDING REQUIREMENTS: There is no impact to the FY12 -13 budget. The proposed salary structure included in this report does not impact current Executive Management employees since there is no recommendation for individual pay increases. DISCUSSION: Classification and compensation structures are developed partly in response to state labor laws and partly to stay competitive to the market. Classifications must be organized in a logical, flexible manner to reflect the levels of qualifications required, while creating career ladders for talented employees. The establishment of salary structures of individual job classes should reflect the value of the particular function to what the market bears. The City of Newport Beach has an excessive number of classifications (250 classifications for 745 employees) compared to the labor market. In addition, salary ranges have not been structured systematically, having some ranges with 5 salary steps, some with 8 salary steps and some salaries being set as a position classification is created or a vacancy occurs. One of the initial findings of the Fox Lawson review of Executive Management compensation was that salary ranges for these positions were too narrow (only a 22% range between the lowest step and the highest) compared to the marketplace (more commonly, the same range is 50 %). In addition, several ranges were not competitive with the labor market including those positions appointed by the City Council (City Manager, City Attorney and City Clerk). In order to review the Executive positions, the consultants studied the top 14 positions (all department directors, Council appointees and the Chief Information Officer) to determine a methodology consistent with the City Council philosophy as expressed in Resolution No. 2011 -55 (Exhibit A). z Fox Lawson & Associates' Executive Management Classification and Compensation Study November 13, 2012 Page 3 Bruce Lawson reported to the City Council at the Study Session of September 25, 2012, along with Deputy City Manager /Human Resources Director Terri Cassidy, the preliminary findings of the review by the consultants. The City Council requested that Fox Lawson & Associates provide a supplemental report with a proposed classification structure using the Decision Band TM Methodology (DBM), Fox Lawson's proprietary job evaluation methodology, make compensation recommendations and provide Council options for incentive compensation based upon performance. This item and presentation fulfill that request. Key Findings The City of Newport Beach has experienced a good deal of turnover at the Executive level during the past three years. As part of a continuing effort to review the positions to create a "smaller, faster, smarter" organization, job classifications and salary have been reviewed with each vacancy. This has led to the combining of the Building and Planning Departments into a Community Development Department, the promotions of internal Deputy Directors to Directors of Finance and Public Works, promotion of the Public Works Director and Human Resources Director to positions in the City Manager's Office and consolidation of General Services and Utilities into the Municipal Operations Department. The study looked at the relative value of jobs (value & importance, decision making & managerial responsibility) using the Decision Band TM Method. This is a highly effective method of job evaluation originated by Professor Emeritus Thomas Paterson in the 1970s and refined by Ernst and Young and then Fox Lawson. The basic premise is that the value of a job is based extensively on its decision - making requirements. Decision - making is a logical and equitable basis for comparing jobs, because all jobs require the incumbents to make decisions of some kind while performing their duties, whether they are line or staff, supervisory or non - supervisory. The DBM method distinguishes six levels of decision- making or Decision Bands ranging from the most far - reaching decisions on organizational goals to the simplest decisions. The six bands (A -F) are continuous, with each band derived from the one above it. The decisions in the upper three bands (D, E, F) are "adaptive" decisions since they deal with adapting the organization to new circumstances. The DBM process accommodates all current Executive Management job classifications, with the City Manager being the highest at the Band F level. (Please see Exhibit B). Subcategories within each band reflect a more refined level of Decision Structure. Based upon the DBM categories the positions below indicate the groupings of the City's Executive Management structure (Exhibit C): 3 Fox Lawson & Associates' Executive Management Classification and Compensation Study November 13, 2012 Page 4 • Band F101 City Manager • Band E 84 City Attorney 83 Asst City Mgr, Police Chief, Fire Chief 82 Public Works, CDD, Finance, Deputy City Manager 81 MOD, HR, Library, Recreation /Senior Services, CIO • Band D 62 City Clerk A salary review was conducted comparing Newport Beach to twelve public sector agencies (if a comparison was a match using the job description and follow up conversations with agencies), as well as the private sector, as appropriate. (Exhibit D) Market data suggests that the salary ranges were too narrow (22% v. industry standard of 50 %) and that the highest level positions were compensated below market. In addition, some Directors /Chiefs were at the top of the current or outside the current salary range. In order to meet CalPERS requirements for salaries to be within published salary ranges, the City Council must adopt new ranges. Further, the Compensation Philosophy states that salaries should be set to the median (50th percentile or 2nd /3rd quartile) as well as requiring a total review of all ranges for internal as well as external equity. Developing the Compensation Structure will be discussed more in detail, but Exhibit E displays the recommended approach, comparing current ranges with new ranges at the market 50th percentile and utilizing a 50% range spread. Further, Exhibit F reflects both the current Newport Beach structure (minimum, midpoint and maximum) as well as the DBM recommended minimum, midpoint and maximum. Council requested that the consultant also review the concept of performance incentive pay as a method of both rewarding and holding Executives accountable for continued excellence. There are two methods being presented for Council consideration: 1) Individual Target Approach; and 2) Total Cash Compensation Approach. These will be explained in more detail by Bruce Lawson; however the option of achieving higher compensation based upon merit could be accomplished through incentives or by expanding the ranges to the 60`h percentile, should the Council prefer that option. In any event, the creation of a classification and compensation system that is modern, flexible and reflective of private /public sector trends is an approach that should serve the City well into the future, regardless of changes in the Executive staff. The plan will continue to be reviewed for market comparability and viability as the City organization continues to change. 4 Fox Lawson & Associates' Executive Management Classification and Compensation Study November 13, 2012 Page 5 ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act ( "CEQA ") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly. NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). Submitted by: ) .n A D e Kea i City Manager 2 Terri L. Cassidy Deputy City Manager /HR Director Exhibits: A. City Council Compensation Philosophy B. DBM Definitions C. DBM Decision Structure D. Survey Agencies E. Comparison of Proposed Range to CNB Current F. Proposed Salary Ranges at Market 50th Percentile 5 Exhibit A RESOLUTION 2011 -55 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH RELATING TO A TOTAL COMPENSATION! PHILOSOPHY WHEREAS, the City is desirous of attracting, motivating, and retaining a highly competent; efficient and effective workforce at all levels; and WHEREAS, the City also seeks to maintain its fiscal condition by appropriately compensating its employees as well as maintaining strong reserves, infrastructure, programs and services; and WHEREAS, the City appreciates the strong partnership it has had with its employees and employee associations as employees and management have stepped forward to address rising pension obligations through additional employee contributions and a "2nd Tier" for new employees; and WHEREAS, the City believes that its compensation should be measured and compared in terms of "Total Compensation" (not salary alone) cost to the City, including salaries, performance -based incentives and other short-term cash compensation, deferred compensation, special incentive pays, and other benefits including but not limited to medical, post- retirement medical and pension contributions; and WHEREAS, the City Council is desirous of adopting and following a Total Compensation Philosophy and approach that would guide the Council and the City into the future, an approach that should be regularly reviewed over time to ensure that it meets the needs of the City, the employees; and residents; now, therefore be it: RESOLVED by the City Council of the City of Newport Beach that it adopt and memorialize the following Total Compensation Philosophy: 1. Total Compensation for individual positions will be measured with respect to market surveys, including both municipal and relevant private sector comparisons as appropriate. 2. Total Compensation brackets for individual positions will be set with reference to the median compensation for each position, generally falling within the second and third quartiles. 3. The City will seek to establish and maintain compensation practices that are comparable and consistent across all departments. 4. The City's goal is to limit annual increases in its compensation structure (including its union contracts) to a maximum of the rate of consumer inflation. 5. The retirement benefits portion of Total Compensation will be structured over time to achieve a 50/50 cost sharing between the City and the employees, including the implementation of defined contribution programs in the event such programs are authorized for the City's use. 6. The City will seek to simplify its job classifications and pay practices over time to achieve greater flexibility in job assignment, better comparability to market surveys, fewer and broader job classifications and minimal special pay complexities. 7. Pay for individual employees will be established and maintained based on qualifications, experience and job performance as reflected in regular and timely performance evaluations. 8. The City's compensation structure will be reviewed and revised from time to time to assure competitiveness versus the relevant market. 9. The City s Compensation Philosophy will be publicly reviewed from time to time, to assure meaningful public input and maintain relevance as circumstances change. 10.The City will aggressively advocate for legislative and regulatory changes necessary to maximize the tools available to achieve the principles embodied herein. ADOPTED this 14`h day of June, 2011 ATTEST: -A&-, - LEILANI I. BROWN City Clerk )L, - MICHAEL F. HENN Mayor of Newport Beach STATE OF CALIFORNIA COUNTY OF ORANGE CITY OF NEWPORT BEACH } 1, Leilani 1. Brown, City Clerk of the City of Newport Beach, California, do hereby certify that the whole number of members of the City Council is seven; that the foregoing resolution, being Resolution. No. 2011.55 was duly and regularly introduced before and adopted by the City Council of said City at a regular meeting of said Council, drily and regularly held on the 14th day of June, 2011, and that the same was so passed and adopted by the following vote, to wit: Ayes: bill, Rosansky, Gardner, Selich, Curry, Daigle, !Mayor Kenn. Noes: None Absent: None Abstain: None IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the official seal of said City this loth day of June, 2011. �i'AKW Q � v� City Clerk Newport Beach, California (Seal) D Exhibit B DBM BAND DEFINITIONS BAND F G POLICY These are decisions that determine the scope, the direction, and the overall goals of the whole enterprise. They are subject to few constraints other than those imposed by law and /or economic conditions, and they take into consideration all the major functions of the enterprise. Such decisions also set the goals of the major functions, the limits of the funds available to each, and the scope of their programs. Band F decisions are the kind typically made by the Board /Council or top executive level. BAND E G PROGRAMMING Band E decisions deal with the means of achieving the goals established at Band F. These decisions are concerned with formulating or adjusting programs for the major functions, specifying goals for the constituent functions of these major functions, and allocating resources (facilities, people, money, materials) among these constituent functions. The executives at Band E are typically in charge of or responsible for advising line executives heading up such major functions as marketing, administration, production, finance in private sector organizations, and major departments in public sector organizations. BAND D G INTERPRETIVE At Band D, the decisions interpret and carry out the programs of Band E. These decisions specify what is to be done in lower Bands, and how the allocated resources are to be deployed. If circumstances change, or if there is uncertainty about information or outcome, a Band D decision is required to establish what is to be done in similar circumstances in the future. Band D decisions are typically made by middle managers in various functions. BAND C G PROCESS Decisions in Band C involve the means or process of achieving the ends established by Band D decisions. They are subject to the limits imposed by the available technology and resources, and to the constraints set by Band D. Selecting the process is a decision that must precede the carrying out of the operations that constitute the process. The process decision specifies what is to be done at Band B. These are typically decisions made by "professionals" and functional supervisors as defined by the Federal Government in the Fair Labor Standards Act. BAND B G OPERATIONAL These are decisions on the carrying out of the operations of a process specified by a Band C decision. There is, within the limits set by the specific process, a choice as to how the operations are carried out, but not as to what operations constitute the process. BAND A G DEFINED Band A decisions are confined to the manner and speed of performing the elements of an operation. There is, within the limits set by the prescribed operation, a choice as to how the elements are performed, but not as to what elements constitute the operations. Fox Liwson &, Associates F E U C 3 /.1 Exhibit C D13M DECISION STRUCTURE Grade Sub -grade Policy 11 Coordinating 2 1 3 10 Non - Coordinating 2 1 Programming 9 Coordinating or 2 (5) (Technical) 1 (4) 3 8 Non - Coordinating 2 1 Interpretive 7 Coordinating or 2 (5) (Technical) 1 (4) 3 6 Non - Coordinating 2 1 Process 5 Coordinating or 2 (5) (Technical) 1 (4) 3 4 Non- Coordinating 2 1 Operational 3 Coordinating or 2 (5) (Technical) 1 (4) 3 2 Non- Coordinating 2 1 Defined 1 Coordinating 3 2 3 0 Non - Coordinating 2 1 Fox Lawson t; Associates a OIMO.. of Q113,1m kn tk &+vim. Inc. 10 Exhibit ID City of Newport Beach List of Comparison /Survey Agenices Anaheim Carlsbad Costa Mesa Fullerton Huntington Beach Irvine Long Beach Oceanside Orange Santa Ana Torrance OC Sheriff/OC Fire Authority 11 5700.000 $250.000 $900.000 3150.000 $IWWO $50.800 Comparison of Proposed Ranges at 501h Percentile with Current CNB Ranges City of Newport Beach, CA Executive and Administrative Staff - Market 501h Salary Structure DBM Value Exhibit E o Newport Salary —ll em (Newport SaWryl QCurtenl Fangea 51 Maantl F.mrpof 12 Exhibit F PROPOSED RANGES BASED ON DBM RATINGS - AT THE 50TH MARKET PERCENTILE Job Title DBM Newport Minimum DBM Minimum Newport Midpoint DBM Midpoint Newport Maximum DBM Maximum CITY MANAGER 1`101 $185,390 $188,214 $208,572 $235,267 $231,754 $282,320 CITY ATTORNEY E84 $173,035 $157,485 $194,667 $196,856 $216,299 $236,227 ASST CITY MANAGER E83 $154,648 $149,814 $171,538 $187,267 $188,427 $224,721 FIRE CHIEF E83 $168,230 $149,814 $186,607 $187,267 $204,984 $224,721 POLICE CHIEF E83 $165,256 $149,814 $183,321 $187,267 $201,386 $224,721 COMMUNITY DEVELOPMENT DIRECTOR E82 $147,160 $142,143 $163,249 $177,679 $179,338 $213,215 DEPUTY CITY MANAGER /HR DIRECTOR E82 $151,417 $142,143 $167,921 $177,679 $184,425 $213,215 FINANCE DIRECTOR /TREASURER E82 $147,160 $142,143 $163,249 $177,679 $179,338 $213,215 PUBLIC WORKS DIRECTOR E82 $147,160 $142,143 $163,249 $177,679 $179,338 $213,215 CHIEF INFORMATION OFFICER E81 $133,349 $134,472 $147,888 $168,091 $162,427 $201,709 MUNICIPAL OPERATIONS DIRECTOR E81 $143,562 $134,472 $159,256 $168,091 $174,949 $201,709 LIBRARY SERVICES DIRECTOR E81 $133,349 $134,472 $147,888 $168,091 $162,427 $201,709 RECREATION & SENIOR SERVICE DIRECTOR E81 $133,349 $134,472 $147,888 $168,091 $162,427 $201,709 CITY CLERK D62 $91,333 $96,073 $102,742 $120,091 $114,150 $144,109 w A5 GGallagher Benefit Services, Inc. D chinking ahead Newport Beach, Supplemental Management Report to City Council Executive Management Classification and Compensation a Fox Lawson & Associates a Division of Gallagher Benefit services, Inc. Cnroprrnatinn oral Hum... Reswnra.Sperialiia Decision Band MethodIm of Job Evaluation Provides: ✓ A fair and competitive salary structure that strikes a balance between internal equity and market parity ✓ Market parity by benchmarking the competitive labor market and using the data to anchor the salary structure -' The flexibility of a City- defined pay philosophy for establishing the salary structure (i.e. range widths, etc.) and its competitive position within the market (i.e. market 50th percentile) Executive Level Positions Provide the Top Structure within the Organization Band F — Highest level decision - making within the organization Band E — Overall program responsibility for a major organizational function Band D — Program interpretation and implementation Within Each Band is a "Grade Assignment" and "Subgrade" CWD fox Lawson n Associates umuon ui (%Ilaaher &•nOit 4xdcv ;, Inc Internal Equity Analysis The first step in developing a classification structure is to evaluate the validity of the job evaluation ratings. In this case, we have conducted a regression analysis of current City salaries using the proposed DBM Job Evaluation ratings as the independent variable. To confirm validity, we look for (1) a logical visual fit and progression of the data, and (2) an adjusted r- squared value greater than 0.70. In this case, we confirm both the visual fit and an r- squared value exceeding 0.84. Simply stated, these findings validate the salary structure from a statistical perspective and help to ensure compliance with Pay Equity laws. City of Newport Beach, CA Executive and Administrative Staff - Internal Equity Analysis - I i i a2w.aro 1 -- -- -- -- - • ---° i R' = 0.84604 52oo,wo I- EW {tidi ' = 0.86233 Newport Salary i V " — Lineor (Newport Salaryt $ fryl 15o.OW �-- �F— ^— -- --Poly. (Newpod Salary) M 0 0 SIWM +_ - - -- ---'- - - - - -- — '-- - -` - -- —" D £ F DBM Yalu. rox Lawson K Associates r Drv.iun u! Gllaa:mr 8crc!rt S,•:dccy Inc. Market Salary Analysis City salaries are indicated in blue, while the market 501h and 60th percentiles are in red and green, respectively. Current City salaries are generally consistent with market values. $700,000 $250.000 $200.000 $150.000 $100.000 $50.000 City of Newport Beach, CA Executive and Administrative Staff - Market Salary Analysis DBM Value O Newport5alary Linear (Newport Salary) — Linear (Market 50th) —Linear (Market 60th) u Pox Lawson & Associates a Drvisica of f Ilaybcr ticn:ni Somas, Inc. Salary Structure Development In order to balance both internal equity and market parity, salary ranges for each DBM rating are anchored directly to the market trend line. The ranges shown here approximate the market 50th percentile, and utilize a standard 50% range spread. All current City salaries would tit within the new salary ranges, resulting in no implementation cost. $250.000 $209.000 $150.009 $100.00' City of Newport Beach, CA Executive and Administrative Staff - Market 50th Salary Structure $50.000 + 0 E F DBM Value Newport Salary -- Linear (Ne pod Salary) QConenl Ranges Proposetl Fanger Fox Lawson x Associates a UNieian ul (GIIayLar Ikne!it &n -i.cs, Inc. 601h Percentile Salary Structure Comparisons The following table provides comparisons between the City's current salary range minimums, midpoints and maximums and that of the 601h percentile DBM -based market ranges. All new range maximums exceed current maximums. Newport DBM Newport Job Title DBM Minimum Minimum Midpoint DBM Newport DBM dpoint Maximum Maximum CITY MANAGER F101 $185,390 $195,742 $208,572 $244,678 $231,754 $293,613 CITY ATTORNEY E84 $173,035 $163,784 $194,667 $204,730 $216,299 $245,676 ASST CITY MANAGER E83 $154,648 $155,806 $171,538 $194,758 $188,427 $233,710 FIRE CHIEF E83 $168,230 $155,806 $186,607 $194,758 $204,984 $233,710 POLICE CHIEF E83 $165,256 $155,806 $183,321 $194,758 $201,386 $233,710 COMMUNITY DEVELOPMENT DIRECTOR E82 $147,160 $147,829 $163,249 $184,786 $179,338 $221,744 DEPUTY CITY MANAGER /HR DIRECTOR E82 $151,417 $147,829 $167,921 $184,786 $184,425 $221,744 FINANCE DIRECTOR /TREASURER E82 $147,160 $147,829 $163,249 $184,786 $179,338 $221,743 PUBLIC WORKS DIRECTOR E82 $147,160 $147,829 $163,249 $184,786 $179,338 $221,743 CHIEF INFORMATION OFFICER E81 $133,349 $139,851 $147,888 $174,814 $162,427 $209,777 MUNICIPAL OPERATIONS DIRECTOR E81 $143,562 $139,851 $159,256 $174,815 $174,949 $209,777 LIBRARY SERVICES DIRECTOR E81 $133,349 $139,851 $147,888 $174,814 $162,427 $209,777 RECREATION & SENIOR SERVICE DIRECTOR E81 $133,349 $139,851 $147,888 $174,814 $162,427 $209,777 CITY CLERK D62 $91,333 $99,916 $102,742 $124,895 $114,150 $149,873 Fox Lawson & Associates v Urvi.unul C. b,hx , Itcnfi, 4:nas�, Inc, Option #1 - Individual Target approach One of the most common approaches to developing incentive compensation targets against a desired market percentile (60th in this case) is to identify the aggregate difference between the market 50th and 60th percentile salaries. For the City's defined labor market, this factor is approximately 4% for all job levels. > For example, the City could apply a one -time 4% bonus target for all executive positions. This bonus target would be above the current practice of a performance based increase (average performance based increase is 5 %). Another alternative to this model would be to vary the target percentage based on the level of the position. Specifically, when examining all market data, we generally find positions evaluated at higher DBM levels (e.g. E and F) to have higher incentive targets than those at lower levels. Following the level- dependent approach, we would recommend the following bonus targets for the City: Executive Directors: 3% - 5% r Council Appointees: 5% - 6% Considerations b Target bonuses would be paid in accordance with each incumbent's current base salary Bonuses would be treated as a one -time cash payment and not rolled into employee base pay The City could chose to pay bonuses that exceed the target percentage for exceptional performance jFox Lawson & Associates a Ui•ldun of Ciiln;iScr Ikndii Scnicn, Inc. Establish the proposed classification ®Bibs ratings and adopt new salary ranges for Executive level positions: Option 1 - Anchor ranges to the 50th percentile of the market Option 2 - Anchor ranges to the 60th percentile of the market Consider adopting an Executive level incentive pay plan: •' Establish the "Individual Target Approach" and provide bonus incentives of 3% - 5% for Executives and 5% - 6% for Council Appointees; Establish a "Total Cash Compensation" approach and provide incentives based on maximum and anchor at the 60th percentile Request additional options or alternatives for Executive level compensation and /or classification Pox Lmi on n Associates tihy�..� a C'allaEhcr L'cemdi $mac_., fnc.