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092208 CC WS AgPCITY OF SHOREWOOD CITY COUNCIL WORK SESSION MONDAY, SEPTEMBER 22, 2008 AGENDA 1. 2. CONVENE CITY COUNCIL WORK SESSION A. Roll Call B. Review Agenda COMPENSATION PHILOSOPHY (Att. -Administrator's memorandum) 5735 COUNTRY CLUB ROAD SOUTHSHORE CENTER 6:00 P.M. Mayor Lizee Woodruff Turgeon Bailey Wellens 3. ADJOURN _ ~ ~, 5755 COUNTRY CLUB ROAD ®SHOREWOOD, MINNESOTA 55331-8927 • (952) 474-3236 FAX (952) 474-0125 • www.ci.shorewood.mn.us • cityhall@ci.shorewood.mn.us MEMORANDUM TO: City Council `'~~ s' `' ~~_~ FROM: Brian Heck, City Administrate .- 1 / r CC: Staff `°~~~~~° Pf DATE: September 18, 2008 f~'~ SUBJECT: COMPENSATION PHILOSOPHY The City Council adopted an overhauled compensation, classification and evaluation program in 2007 following a study completed by a consultant in 2006. The stated purpose of the evaluation was to bring compensation closer to the market average, ensure compliance with the Minnesota Pay Equity Act, and to implement a merit based compensation to replace the standard step system based on years of service. I reviewed the report by the consultant, the policy manual, and information on the implementation of the existing plan. The plan, as implemented, is what I would refer to as a hybrid system in that all staff are provided with annual increases and have the opportunity to receive additional compensation based on their performance. The additional increase is between 1 % and 2% and this increase becomes part of the employees base. Furthermore, employees who reach 100% of market can earn additional compensation above market for "superior" performance. The amount over market is capped at 10%. As with the other merit increases, this increase,. if awarded, becomes part of the base. In the compensation study report, the consultant discusses the need and importance of a "Pay Philosophy". The pay philosophy of an organization guides the design and implementation of the compensation plan and generally explains how the compensation plan supports the long term strategic goals of the organization. One stated objective of the compensation plan and the key philosophical ideal of the new compensation plan was to develop a compensation plan based on individual employee performance. The adopted "philosophy" in the Personnel Policy is: 1) Competitive wages for the labor market 2) Compliance with the Minnesota Pay Equity Act (also known as the "Comparable Worth Act"), to insure equitable compensation relationships among positions within the City 3) Providing incentive and recognizing good performance 4) Providing appropriate flexibility. in administration va ~®a® PRINTED ON RECYCLED PAPER These four items are excellent goals and ideals to have as part of the compensation plan and these are possible with the new plan. However, the component of merit based compensation is not contained in the items above. The merit component is not addressed or found until later when the policy discusses that an employee may move through the range if his/her performance is better than "meets expectations". For the City to move forward and migrate to a pure merit based compensation system, several changes are required. The first change to make is in the performance review system. The current system really focuses on ability to perform tasks contained in the position description and a second part evaluates generic "traits" and is conducted annually. Amore in-depth evaluation is required in order to give credibility to a merit based system. Such a system includes I) core attributes of the organization and the specific position, such as analytical thinking, custotnerorientation, efficiency, information sharing, attention to detail, etc., 2) Technical knowledge and skills, 3) interpersonal skills, 4) job-related goals, key objectives, and assignments. I also like to include information about personal and professional goals for growth and development. Second is to ensure all supervisors receive proper training in conducting reviews. A system such as this is not effective if those tasked with carrying it out do not have the necessary knowledge and tools. The third component required is patience. Making a dramatic change such as this requires time as it involves a significant cultural shift and a new way of working and interacting with staff. Rather than anm~al evaluations, to make this program work, supervisors need to conduct several informal reviews and discussions with staff throughout the year to ensure that each person knows and understands the expectations and requirements. Recommendations I recommend the council modify the existing compensation program to a pure merit or performance based system. I recommend this as a means to create an organization that values creative thinking and problem solving to meet changing needs of the community and challenge staff to take reasonable risks in developing better and more efficient ways to provide the necessary essential and desired services to the customers we serve. I recommend the program be implemented beginning in 201.0. This will give staff time to work out the details in the review process and form and allow for the proper training of staff in conducting evaluations. Delaying the full implementation until 2010 allows for amending the policy manual to inchlde language related to increases associated with different levels of performance and will also coincide better with the budget process (see Appendix for example of possible merit increases). As I indicated, going to this type of system is a major change and significant undertaking. 3. I recommend the market adjustments for those employees identified as below market be addressed independent and not as part of the performance compensation. A position below market is there for reasons other than an employees performance in the job. Although not necessarily a "compensation" related item, I recommend the City develop a formal recognition program that provides modest awards for employee's years of service. Most municipalities provided years of service awards, but following a State Auditors opinion that city funds could not be used for service awards, many cities discontinued the practice. A year or so ago, state law was changed to allow cities to purchase and provide years of service awards. While small, these awards improve the moral and positive feelings in difficult time. - 2 - September 18, 2008 APPENDIX The City of Shorewood values the residents and promotes developing creative and innovative ways to provide services to its residents and customers using municipal facilities. To encourage creative thinking, innovative ideas, and reasoned risk taking in developing and implementing programs and services by employees, compensation is based on individual employees performance in meeting these core values and other position specific responsibilities, knowledge, skills, and abilities. The city further values continuing education and encourages individual employee development as a necessary means to achieve the goals and objectives of the City. Compensation Plan Compensation ranges in each band are established using the average for the market in each band. 100% of the market average is considered the top of the range and the start of the range for each band shall be 76% of the market average. The Mid-Point shall be 87% of the market average. Additionally, employees who reach 100% of the market average shall be eligible for additional compensation. Additional compensation in the form of a lump-sum payment of up to 3% of current salary can be achieved for exceeding the expectations in the job for two consecutive years. The formal evaluation of an employee shall take place annually and the results of the evaluation will determine the size of the increase, if any, for the next year. The evaluation will determine if the employee 1) fails to meet expectations, 2) meets expectations, or 3) exceeds expectations. Employees who fail to meet expectations shall be placed on a formal improvement and development program and shall receive no increase in wage. 1f after 6 months, satisfactory improvement is made, the employee is eligible for an increase not to exceed 1.5%. An employee who meets expectations is eligible to receive an increase equal to the amount the wage bands were increased, however the increase shall. not exceed 3%. An employee whose performance is judged to exceed expectations is eligible be receive an increase of 2% over the amount the wage bands were increased, however the total increase shall not exceed 5%. If an employees wage is at 100% of the market average (i.e. top of the scale) any amount over the general increase applied to the table shall be paid as a lump sum. Budget Restrictions Department heads are responsible to ensure performance increases for staff do not exceed the amount allotted in their budgets for said increases. Market Stability The City shall conduct a market analysis every three years to ensure the wage table remains at the market average.