Classification and
Compensation System
Simplification
What is it? How is it done?
Why is it needed?
IPMA - HR Conference
September 2003
Agenda
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Why consolidate class and comp systems
Different ways to consolidate
Outcomes and Issues
Lessons learned
Discussion by The Government of the
District of Columbia
• Discussion by the State of Washington
2
Typical Symptoms
• You are receiving numerous requests for
reclassification
• The requests are pay changes in disguise
• The distinctions between classes becomes
meaningless
• Class change decisions are based on minor
(insignificant?) changes
• Pay levels are below market by a significant
amount
• Managing the system takes increasing
resources to maintain
3
Why Class Consolidation?
• When the average number of employees per
class titles is in the single digits
• Most organizations have expanded the number
of titles by an average of 10% per year
• Jobs and technology have changed and will
continue to do so
• Most employees want their own job title
• Individual job titles typically result in higher
pay
4
Why Comp Consolidation?
• When the number of pay ranges is greater than 40
• When pay exceptions increase
– Add ons
– Special pay ranges
– Special skill pay
• When hiring near the midpoint is barely enough to
attract a new employee
• When most employees’ pay is either below the 1st
quartile or at the maximum
• When special skills needed for the job results in a new
classification because that is the only way to pay them
extra
5
Different Ways to Consolidate
• By occupational focus
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Engineering
Finance
Human resources
Etc.
• By department focus
– Public Works
– Purchasing
• By salary grade
6
Four Levels of Work
• Entry
• Developmental
• Basic skills, learns to
do things “our way”
• Developing
proficiency
• Full Performance
• Fully competent to
perform all aspects of
job
• Master/Supervisory
• Recognized expert
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Example
Engineering
Occupation
Nature of Work
Electrical
Civil
Environmental
Chemical
IV: Master - Recognized Expert
Level of
Work
III: Fully Performing - Supervisory
II: Developmental- Senior/ Lead (in some cases)
I: Entry - Qualified
8
Resources
• Dictionary of Occupational Titles or ONET
• United States Office of Personnel Management
– Handbook of Occupational Groups and Families
– Standard Occupational Codes
• States of Florida, New Mexico, South Carolina,
Washington, Oklahoma, Virginia
9
Compensation Consolidation
• By similarity of salary ranges
– Broadening the salary ranges
• By market analysis
– Assessment of market difference by
occupational group
– Determination of salary range spreads and
range characteristics
• Do you really need more than 40 grades?
10
The Concept of Differences
• How much of a difference makes a difference?
• For classification issues
– When the classification changes by 25% or more
• Duties and responsibilities
• Skills needed
• Time distribution of responsibilities
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The Concept of Differences
• How much of a difference makes a difference?
• For compensation issues
– 3-4% is the minimal magic number for step
differences
– 7-8% is minimal magic number between grades
– 10-15% is desired number for
subordinate/supervisor differences
12
Outcomes-Positives
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50% reduction of classifications or more
More generic class descriptions
Easier management of personnel
Less administrative time spent on class
reviews
• Fewer pay grades
• More flexible pay decisions
13
Outcomes-Negative
• Employees don’t “see” their position in the
class description
• Employees treated more generically
• Potential higher payroll (combining current
lower level classes with current higher level
classes)
• Perceived pay compression of employees who
used to be in different pay ranges are now in
the same
• Requires strong management
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• Requires simpler decision tools
Key Points
• Not a panacea
• Make sure the organization understands the
implications and the strategic need to go
through the process
• Be prepared to communicate with stakeholders
• It will take time to change the culture
• Not everyone will be happy
• Most organizations have found that benefits
justify the effort
15
The Government of the District of
Columbia
Jo Ellen Gray
Associate Personnel Director for Policy and Program
Development, DCOP
James Ivey
President, AFSCME
16
Historical Review
• A product of the negotiated Compensation Units
1&2 Agreement. Task Force met regularly since
10/25/2001
• Composed of Union Leaders, representatives from
DCOP, DC OLRCB, Budget, Payroll, DHS, DPW,
Library, DC Council
• Part of joint commitment to invest in the rank and
file workforce
• Focused on occupational approach to consolidation
17
Prior System
• 21 Schedules covering almost 7400
employees and almost 550 CBU/Service
Code combinations
• These pay schedules cover 6 pay plans
(DS, SW, LW, RW, PW, TG)
• 13 White Collar pay schedules
• 8 Blue Collar pay schedules
• Similar jobs covered under multiple
schedules
18
Consolidation Process
• Developed new pay schedules based on
occupational groups
• Determined employee placement on the
new schedules
• Based on minimum guarantees in CBA,
determined amount of bonuses to be paid, if
any
• Calculated the overall cost of pay schedule
consolidation
• Planning implementation – 2nd quarter 2002
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Consolidation Process
• Public Roundtable (February 2002)
• Council Consideration (March 2002)
• Newsletters to employees (following
Council consideration)
• Programming payroll system with new pay
schedule structure (ongoing through March
2002)
• Individual letter to employees (early April)
• Paychecks to employees – retro, bonus and
new rate (April 16 or 19, 2002)
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Timeline
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•
•
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Presentation to City Council
Employee newsletters
Personalized letter to each employee
Series of meetings with Human Resource
Advisors, Labor Liaison, budget office
representatives
• Telephone hotline
• DCOP web page
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Communication
• Consolidated 21 primary (with dozens of related
supplemental) pay schedules into 10 unique schedules,
based on 9 occupational groups
 Clerical/Administrative
 Corrections and Others
 Health Care
 Information Technology
 Legal
 Maintenance/Trades/Labor
 Protection and Enforcement
 Science/Engineering
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Results
• As part of pay schedule consolidation, each
employee received a minimum of ½ percent in
one of three forms:
 Paid as a bonus, a base salary increase or a base
salary increase plus a bonus
• No reductions in the maximum salary for any
schedule
23
Reactions
• Pay Consolidation was very successful based
on the limited number of employee concerns
that needed to be addressed
• Individual letters were extremely important
and alleviated employee questions
• Selecting classification series for specific pay
schedules needed to have more upfront input
from classifiers
• Massive data clean-up issues
24
Thoughts & Recommendations
• Labor-Management Task Force approach was a
critical component of the process
• Establish guiding principles and goals upfront
• Change effort must be “owned” and
“controlled” by the key stakeholders
• Get commitment and buy-in from union and
management leadership up front
• Communicate frequently and in different forms
with employees and other stakeholders
• Keep the process open
25
Classification and Compensation
Reform in Washington State
Christina Valadez
HR 2005 Project Manager
Washington State Department of Personnel
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Organization Facts
• Civil Service Reform law was passed
by Legislature in April 2002.
• Contains 3 key components:
– Full scale collective bargaining
– Competitive contracting
– New civil service system
• All components must be in place by
July 2005.
• Will require dramatic modifications to
central personnel/payroll system.
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Organization Facts
• Washington has approx. 58,000 state
employees in general government
• Approx. 16,800 classified higher education
employees
• Approx. 60% currently covered by collective
bargaining
• Higher education institutions may bargain on
their own or through state negotiation
• Classification is a permissive topic for
bargaining
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Organization Facts
Unions
Negotiations
Master
Contracts
Potential application
within agencies
Negotiations
with State’s
Chief
Negotiator
29
Customer & System Research
• Summer of 2002, the Department of
Personnel conducted extensive research of
trends and best practices among other
employers, including:
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All 50 states
Federal and local governments
Other countries
Selected universities and private sector companies
HR organizations
Dozens of reports, articles, books, and web sites
• Report available at
http://hr.dop.wa.gov/hrreform
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Customer & System Research
• Did extensive surveying of state employees,
managers, and human resource staff to
determine needs and preferences
• Developed concepts, and held focus groups
and other discussion forums with managers,
HR professionals, and employees.
31
Research Findings
• Overall trend in other states is towards reducing the
number of job classifications (some now have 250-500).
• A common approach is to use occupational groupings.
• About two-thirds of Washington State managers and HR
professionals favored some type of broader
classification system.
Broadly structured reflecting occupational categories
HR Professionals
5%
Managers
6%
13%
Not Important
18%
31%
40%
36%
Somewhat Important
27%
Important
Very Important
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Research Findings
• Majority of Washington State survey participants felt
other factors need to be considered in determining
salary, instead of or in addition to longevity.
Additional Bases for Assigning/Adjusting Salaries
81%
84%
81%
74% 73%
75%
72%
58%
61%
Managers
Employees
HR Professionals
Factor in Performance
Competency
Development &
Demonstration
Stronger Position or
Special Needs
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Current System
• Each position is placed into a narrowly
defined job classification.
• There are currently 2,400 separate job
classes for general government and
higher education.
• Each job class is assigned to one of 83
narrow salary ranges.
34
Current System
• Each salary range is approx. 25-28%
wide from minimum to maximum salary.
• Each salary range has 11 pre-defined
steps (A-K) that are approximately 2.5%
apart.
• Employees receive approx. 5% step
increases annually, based on longevity.
• From step A, it takes 4 1/2 years to reach
the top step, after which employees
receive only legislative cost of living
increases.
35
Current System
• History of across-the-board raises from
the Legislature.
• Variable tie to market rate
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average 15-16% behind market
a few jobs are paid above market
many jobs 25-30% and even up to 50% behind market
partial survey implementations to bring jobs to no less
than 25% behind have not been comprehensive or always
funded
– last salary survey implementation was in the early 80’s
• no raises for a four year period
36
Difficulties with Current System
• Customers have said the system is too
complex, cumbersome, and rigid.
• System provides little flexibility to
reorganize or change job responsibilities
based on changing technologies, customer
needs, etc.
• System encourages proliferation of classes.
– Incentive to create new classes in order to obtain salary
increases
• It does not facilitate employee mobility/
career paths.
37
Difficulties with Current System
• Rigid compensation system is obstacle to
recruiting and retaining top performers or
those with special skills.
• Longevity-based increases provide no
recognition for excellent performance.
• It is de-motivating for good performers who
are paid same as poor performers in same
job class.
• Nearly two-thirds of classified employees are
at step K, with no room for salary growth
unless promoted or reallocated.
38
Proposed New System
• Personnel Reform Act called for a new
classification system that would:
– Improve effectiveness and efficiency of service delivery.
– Substantially reduce the number of job classifications.
– Facilitate the most effective use of state personnel
resources.
– Be responsive to changing technologies, economic and
social conditions, and needs of citizens.
– Value workplace diversity.
– Facilitate reorganization and decentralization of services.
– Enhance mobility and career advancement.
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Proposed Classification Structure
• Consolidating 2,400 current job classes into
broad occupational categories.
• Four levels within most
occupational categories:
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Level 1 – Entry
Level 2 – Journey/Developmental
Level 3 – Senior/Fully Performing
Level 4 – Supervisory/Expert
• Goal was to yield approx.
800-1,200 job classes.
Number of Job Classes
2400
1000
Current
Proposed
• Currently at about 150 categories.
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Examples of New Structure
Current General Govt &
Higher Ed Classes
Audit Occupational
Categories
Labor and Industries Auditor 1
Industrial Insurance Underwriter
Assist.
A. Entry
Revenue Auditor 1
Audit Specialist 1 - Transportation
Industrial Insurance Underwriter 1
Assistant State Auditor 1
Labor and Industries Auditor 2
Political Finance Specialist 1
Business and Professions Auditor 1
Apprentice - L&I Auditor 3
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Examples of New Structure
Old General
Govt Classes
Affirmative Action
Officer 1
Personnel Assistant
Human Resource
Dev. Spec 1
Personnel Officer 1
Personnel Analyst
New General
Govt Classes
Human
Resource
Consultant 1
Current GG &
Higher Ed Classes
Human
Resource
Consultant 2
Human Resources
Occup Category
B. Journey/
Developmental
Equal
Opportunity
Compliance
Investigator 2
Apprenticeship
Coordinator 1
Human
Resource
Represent. II
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Advantages Expected
• Substantially reduces number of job classes
• Minimizes process and administrative time
and cost
• Easily decentralized
• Enables users to respond to changes
• Enhances mobility and career growth
opportunities
• Provides flexibility for new compensation tools
• Addresses customer concerns and preferences
43
Consolidation Process
• Initial staff work based on existing job classes
• Refinement of occupational groupings, using
existing job classes and salary structure
• Review of proposed changes by agencies,
labor, and employees
• Refinement of occupational groupings and base
salary structure based on input
• Formal public process for additional input
• Final classification and compensation structure
and rules
44
Proposed New System
Band 8
Band 9
Band 10
Band 11
 83 existing
Band 12
salary ranges
will be replaced with
fewer, broader bands.
Transition to New System
• Employees would transition at current
salary.
• If not at top step of current range, would
continue to get longevity increases until
reaching salary equivalent to top step.
• Subsequent adjustments based on factors
such as:
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Retention/market/geographic issues
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Sustained exceptional performance and/or successful
demonstration of valuable new skills
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Incremental increases in duties and responsibilities
46
Proposed Compensation System
• After the transition, an employee’s salary
spread within the band could be based on
analysis of factors such as:
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–
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Internal alignment and equity
Special competencies, skills, and experience brought to the
job
Extraordinary position-specific circumstances such as locality,
recruitment/retention, etc.
Hiring incentives
• Will also have option for one-time lump
sum recognition award.
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Timeline
• June ’02 - March ’03: Research and concept
design options
• April ’03 - June ’03: Validation of concepts
and selection of options
• July ’03 - Dec. ’03: Development of new
structure and rules
• Jan. ’04 - Sept. ’04: Contract negotiations;
Formal input and adoption of new system
• Oct. ’04 - June ’05: Preparation for full
implementation
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Challenges:
• Short time frames
• A desire to track back to existing classes
and salaries and to limit future salary growth
• Inherent conflict between creating a new
structure and maintaining cost neutrality
• Fiscal concerns of today may affect pay
options for the future
• Inability to fix compensation problems
before implementing the new system
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Thoughts & Recommendations
• Need to get attention, support from state’s executive
management.
• Central coordination/governance is critical for multiple
projects.
• Need to establish statewide priorities and strategies.
• Extensive customer research and involvement means
more support and acceptance of proposed changes.
• Employees and managers alike have expressed need
for extensive training, especially in performance
management.
• Communications is critical. No matter how much you
do, it’s not enough.
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Communication
• Open communications and customer involvement have
been a priority from the beginning.
• Publications are distributed in both print and electronic
media, to reach widest possible audience.
• Extensive use of listservs, e-mail, and electronic
newsletters to provide regular updates.
• In past year, DOP has held over 200 presentations and
information/feedback sessions throughout the state.
• You are invited to watch our progress by monitoring
our web site at http://hr.dop.wa.gov/hrreform.
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Question and Answer Session
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