Utah League of Cities and Towns

Making Life BETTER

Human Resources Manual

A City Recorder from a particular community called with questions related to employee compensation posed by the City Council and Mayor.

While the League does not employ a compensation guru on staff, one of our strengths is finding experts to answer your questions. In that vein, I placed a call to Karen Suzuki-Okabe, former Director of Human Resource Management for the State of Utah and long-time friend of the League (she has been a featured lecturer at our Annual Convention, Mid Year Conference and Road School for years).

Specifically, this community was wrestling with issues surrounding cost-of-living-adjustments (COLA), merit increases, bonuses, performance appraisals and pay scales for city employees.

Karen walked the Council through a discussion of the philosophy of compensation. In a nutshell,Karen explained that a community’s compensation plan should balance between interests of operating within the fiscal budget and attracting, developing, retaining and rewarding high quality staff through wages and salaries that are competitive with the
prevailing market rates for similar positions. Although this particular community is somewhat small in size (population 4,000), its Weber County location means that the city competes with employers in Weber and Davis counties for quality employees. Therefore, the market comparisons for wages in this community cannot necessarily be limited to
other communities of like-size that may not be competing in the same market. Karen suggested that market competition concept is especially key given Utah’s continued low rates of unemployment.

As with many communities, the community we visited currently uses a “step” system for compensation. For each position classification, Step 1 is the beginning of the range and Step 20 is the end. The percentage increases between steps are 3% or 5%, depending upon the step. The City Council recently issued a COLA, which adjusted the all steps by
a certain percentage. Karen suggested to the Council that the “step” system creates a scenario under which employees are granted 3% or 5% raises as they move from one step to another without a clear relationship to performance and no flexibility to give increased except in the 3 and 5 percent increments. She told the Council that a “salary range” system provides more flexibility to supervisors in tying the level of the increase to employee performance. The range for each position classification can differ based on market analysis. A range definition usually includes designation of entry level, mid range (market) and high range. The goal of a range compensation system is to move employees more rapidly to market (mid range) through larger adjustments and then slow the adjustments once the employee is compensated at the market rate (mid range).

Karen also suggested to the Council that bonuses and incentives are nice ways to reward employees for a job well done without building the cost of the reward into the base salary. A base salary adjustment rewards the employee again and again while a bonus is a one-time reward for a particular achievement. If a community has adopted a “market compensation philosophy” i.e. has decided to pay employees a wage that is competitive with like positions in the defined job market,bonuses and incentives may be the preferred method of rewarding outstanding performance. Karen cautioned,however,that if bonuses are predictable (i.e. given the same time each year and to all employees in
similar amounts) the bonus or incentive loses its impact. Cash awards should be tied to some event,achievement or the like. If bonuses and incentives aren’t granted across the board and aren’t predictable (always given in December), they are an excellent means of rewarding jobs well done without adding ongoing costs to a community’s bottom line.

Council Members wondered aloud where they could obtain market information for job classifications,short of conducting a salary survey. The Utah Department of Workforce Services has developed an occupational wage database on a county by county basis for Utah. You can use it as a guide for your market based compensation. It should be noted that this information includes private sector employers. There may be some differences between
private sector and public sector wages. Many times, private sector firms may pay a higher wage, yet fail to offer the same range of benefits that are offered by public sector employers.

The value of benefits was another topic covered by Karen. She advised the Council to find ways to make employees aware of their total compensation package, including salaries, wages, and city-paid benefits (insurance, retirement, 401K etc.). She used the example of an employee making $7.00 per hour. When the benefits package (often 25-30% of salary) is considered, this employee’s total compensation is actually $8.75 – $9.10 per hour. Employees often forget about the benefits package when discussing compensation issues.

Our ninety minutes in northern Utah was productive. The City Council and Mayor seemed pleased with the information provided and I met my newsletter goal for this month!

Cities and towns can also access the State’s Human Resource web page for more policy, compensation and related information.