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R-97-02-27-10D - 2/27/1997WHEREAS, the City of Round Rock desires to retain professional services for an employee compensation review, and WHEREAS, Watson Wyatt has submitted an agreement to provide said services, and WHEREAS, the City Council desires to enter into said agreement with Watson Wyatt, Now Therefore BE IT RESOLVED BY THE COUNCIL OF THE CITY OF ROUND ROCK, TEXAS, That the Mayor is hereby authorized and directed to execute on behalf of the City an agreement with Watson Wyatt, for employee compensation review services, a copy of said agreement being attached hereto and incorporated herein for all purposes. RESOLVED this 27th day of February, 1997. ATTEST: E LAND, City Secretary 6:\ NPDOCS \RSSOLVII \RS70]27D.NPD /ecg RESOLUTION NO. R- 97- 02- 27 -1OD CHARLES C U L P $PI r Mayor City of Round Rock, Texas Watson Wyatt W orldwide January 29, 1997 Ms. Joanne Land Assistant City Manager City of Round Rock 221 E. Main Street Round Rock, TX 78664 Dear Joanne: Our Understanding of the Situation At this point in time, the City has 370 employees in 140 jobs. Watson Wyatt & Company Smte 2400 2121 San Jacinto Street DalIat,TX 75201 -2772 Telephone 214 978 3400 Pax 214 978 3650 RECEIVED JAN 3 p 1997 Subject: Proposal for Compensation System Update and Performance Management Redesign (Revised) I enjoyed speaking with you today regarding your questions about our approach to the compensation system update and performance management redesign. Watson Wyatt is pleased to submit this revised proposal in response to the needs and issues we discussed. The City currently has a step in grade salary structure which was put into place in the mid 1980's. Although appropriate at the time of installation, the current system is now cumbersome and difficult to understand. It is particularly difficult to explain how an employee would progress from one grade to another. The City has been growing at a rate of approximately 6% per year in recent years. Some of the growth is a result of "spurts" attributed to such companies as Dell Computer. The potential for job creation in the area is very strong. As a result, the competitive market in the immediate geographical area has changed significantly as the City has grown. There are concems that some jobs, especially the skilled trades, are not paid competitively at the City. Other concerns center around the fact that over time many of the jobs have changed because of the City's growth and technological changes. The City does have a performance appraisal system in place, and employee appraisals are conducted on an annual basis. Overall, however, merit increases are distributed so uniformly that the merit process is essentially an "across the board" increase for all but just a few employees. The City desires to have a more performance - related approach to distributing merit budgets than it currently has. The City has adopted a Total Quality approach. As such, the City would desire to have a high level of employee involvement in the redesign of its compensation systems. This would ensure that subject matter experts are involved as needed. A high level of employee involvement will also increase buy in. Ms. Joanne Land January 29, 1997 Page 2 Our Suggested Approach I. Project Planning At the onset of the project, we will meet with you and other essential contacts for a two to four hour meeting to establish a detailed action plan including timeframes and responsibilities. In addition, we will need to collect additional information, such as business plans, organization charts, performance evaluation forms, current job documentation, and employee information to broaden our knowledge of your compensation needs. To most efficiently complete the ensuing analysis, we will need to obtain data on employees and jobs in an electronic format via diskette. We will provide you a listing of the data we will need at the project planning meeting. II. Formalize Compensation Strategy In this step, we will formalize your compensation strategy. Your compensation strategy will provide the basis for designing your compensation systems. We will begin by interviewing key management (6 -8 interviews) to gather important information on your organization's strategic direction and the impact of the strategy on the compensation system. The following topics will be explored: • Short and long range organization goals • Competitive markets for employees • Desired market position of compensation to your competition • Pay for performance philosophy • Desired level of management and employee involvement in compensation administration We will also conduct six employee focus groups of 8 -10 employees each to increase our level of understanding of both the issues surrounding the current system and the employees' expectations of a new system. We will solicit input as to their perceptions of the competition for employees. We will learn about their attitudes regarding a pay for performance system. Following the interviews and the focus groups, we will summarize our findings by drafting a written strategy statement. We will then conduct a four hour meeting with key management to provide an overview of the information gathered from the interviews and the focus groups. The information will be summarized in such a way as to ensure that the confidentiality of specific individual comments is maintained. We will then work with those attending to gain consensus and to finalize the strategy statement. v(7 Ms. Joanne Land January 29, 1997 Page 3 111. Title Consolidation It is our understanding that you updated your job descriptions in 1993, and you are comfortable with the format of the descriptions. At this point in time, you will request further input from management on as "as needed" basis as to the accuracy of the descriptions. Watson Wyatt will not be involved in this process. Once the job descriptions have been reviewed, we will work with you to establish titling guidelines for the major levels and functions of jobs at the City. The guidelines will provide a foundation for assigning consistent job titles across the City and for reducing redundant titles. We would spend two days working with you to consolidate job titles. After all jobs titres have been established, we can begin the job evaluation phase working from the job descriptions. III -A. Employee Meetings (Optional Step) We would conduct one hour employee meetings to communicate the project overview. The meetings would increase employee awareness of the program. During the meetings, we would be able to temper expectations by relating our personal experiences as to the impact of a study of this type on individual pay. We would conduct up to 14 meetings over a two day period at your location. IV. Market Pricing and Development of Market -Based Job Evaluation System Based on our discussion with you, we recognize that it is critical for the City to understand how the current pay levels for its employees compare to opportunities in the competitive labor market. During the job evaluation process, we will determine your overall level of competitiveness. The process used will also form the basis for a market -based job evaluation system, which we feel would be the most appropriate method of job evaluation for the City. Such a system maintains the desired balance between internal and extemal pay equity. We recommend a primary emphasis on the external job market for valuing jobs with due consideration to internal equity. This type of system will involve management throughout the evaluation process and will be easy to implement, communicate, understand and administer. The steps to developing such a system are as follows: Ms. Joanne Land January 29, 1997 Page 4 A. External Evaluation: Competitive Market Analysis The job evaluation process begins with a competitive analysis of what other organizations are paying for jobs similar to those at the City. The extemal market data discussed in this workstep will be obtained from a number of published surveys in our data base and from any additional survey sources you currently utilize. We have found it best and most efficient if we jointly complete the market analysis with you. Doing so allows us to ensure accurate job thatches and access to needed data. The process familiarizes you with the surveys and provides you with the information you need to explain the job evaluations to management and to employees based on your "hands -on" experience. The time required for this analysis is based upon the number of jobs that you wish to price. Clients typically come to our office and assist in conducting the job matching step of market analysis process. Given the proposed market -based approach, we recommend that we obtain market data for as many of your jobs as possible, and we estimate it will take four days to market price your estimate of 150 jobs. B. Development of a Salary Structure Following the completion of the market analysis, we will develop a salary structure. We will consider such "design" issues as: • Range width • Midpoint differential • Number of grades • Number of salary structures Considered in the design will be organizational factors such as job design, career pathing and overall structure. We will develop an initial structure and review it with you prior to moving forward. C. Internal Evaluation In this step we analyze the market values of the market -priced jobs compared to the jobs' relative internal values. In addition, we determine the appropriate Ms. Joanne Land January 29, 1997 Page 5 grade for those jobs for which we could not find sufficient market data in relationship to those jobs for which we could. To conduct this internal analysis we recommend a process we call "chips and boards." Chips and boards is a process whereby jobs are initially slotted (based on their estimated market value) onto a job value matrix which will visually display the spread of jobs by grade and within each area of the organization. This process is completed by reviewing the slottings with management though an interactive process using movable position tiles (chips) on a matrix (board) with your grade levels. The result of this process will be a hierarchy that reflects the City's values and one that management can support. We will conduct the chips and boards process at your locations. We anticipate that the process will require two days of meetings. Upon completion of job placement, we will provide the City with detailed market reports summarizing the market data and final placement of all jobs considered_ V. Develop Performance Management System As we discussed, we suggest that the performance management system be designed by two project teams to ensure that the design reflects your unique culture, is more readily accepted, and has champions to facilitate understanding across the City. The project teams should include a mix of employees from across the City who are highly credible and respected, who will have broad objective perspectives, who will devote time to the project, and who will champion the recommendations. One team would be comprised of employees from "public safety," which includes police and fire. The other team would represent all other City employees from "public service." We will spend time at each phase of the project to educate the project teams on the pertinent technical issues so that they can make informed decisions. The role of the teams will be to develop a recommendation to management. A. Project Team Startup Meeting hi an initial meeting with the project teams, we will spend almost a full day with the team to do the following: • Team introduction/start up activity • Background on pay for performance • Discussion of related key compensation issues including the compensation strategy 11,77 Ms. Joanne Land January 29, 1997 Page 6 • Establish the goals for the new pay for performance system • Identify barriers to achieving goals and things going for you • Outline strategies for overcoming the barriers • Establish a work plan, including setting meeting dates and identifying responsibilities We would one meeting which would be attended by both teams, the public safety team and the public service team. B. Design System With Project Teams Through three to four half -day meetings with each project team, we will design the pay - for - performance system. This process will include the following: • Establish the general methodology for the new system • Determine performance criteria and levels that are best suited for the City • Establish plan policies and procedures including necessary forms and guidance • Identify organization changes required to successfully implement the pay for performance system This will be an iterative process with a constant linking back to the compensation strategy developed during the compensation system update. We anticipate that we may need some involvement with fmance as we establish performance and reward targets. Our assumption is that we would guide the design process but that the team would complete the administrative ta cks of gathering data, costing, etc. VL Develop Policies and Procedures Once the job evaluation and performance management systems have been developed, we will work with you to update your compensation policies and procedures or to develop new policies and procedures if needed These will provide the City with a means by which future compensation issues can be addressed, a consistent, equitable approach to job evaluation, and a sound method of ensuring overall pay equity within the organization. Topics typically included in compensation policies and procedures include: • Evaluating new jobs Ms. Joanne Land January 29, 1997 Page 7 • Promotions/Demotions • Managing pay and pay for performance • Re- evaluating existing jobs • Salary structure development and maintenance We will work with human resources (and other management, if desired) in a one half -day session to identify the policies or practices that should be updated or developed We will bring a sample policy as a guideline for discussion if desired. The final update would be completed by the City based on the outcomes from the meeting. VII. Develop Implementation Plan Costing Scenarios We will next work with you to develop an implementation strategy for the job evaluation and pay for performance systems. Implementation issues resolved typically include: • Implementation date. • Employees whose salaries fall outside the range; below minimum or over maximum. • Inequities within the range(s). • Implementation scenarios and associated base salary costs. We will overlay your existing employees' salaries on the recommended salary structure and will develop costing scenarios for implementation. We assume that our discussions during this step will be conducted by phone. VIII. Develop Communication and Training Strategy We will work together to develop a communication and training strategy. While the City will be responsible for creating and producing the actual communications, Watson Wyatt will be available to review the communications ensuring the accuracy of the content. This will help to: • Ensure that employees feel their pay is equitable. • Ensure that all employees understand the mechanics of the compensation and performance management systems. • Build positive perceptions of the system. • Communicate why the systems support the City's strategy and values. Key considerations of the communication plan are: v7/7 Ms. Joanne Land January 29, 1997 Page 8 • Identification of key audiences • What information should be communicated • What skills do managers and employees need • How it can best be delivered • What media would be most appropriate • Tunefiame for communications and training • Responsibility • Management's understanding of relevant issues and skills training needs. We will work with you in a one day meeting with human resources, other management (if desired), or even the task force to develop a strategy. If you desire, the meeting will be attended by a member of Watson Wyatt's communication and organizational effectiveness consulting staff. Depending on the outcome of this phase, Watson Wyatt can provide assistance with developing the appropriate communication and training vehicles. The scope of this proposal includes the development of a strategy only. The development of the actual materials would be an addition to the scope of this proposal. IX. Present Overall Plan to Executive Management and/or the City Council We will present to management the final details of the compensation and performance management/pay for performance systems for their review and approval. X. Develop and Deliver Management Training In this final step, we would develop a one day training session for management on the compensation and performance management systems. We anticipate providing training for up to 25 managers at one time in a one day session. We estimate that we would conduct the training for all managers over a two day period. XL Benefits Comparison Analysis (Optional) As we discussed, Watson Wyatt maintains an extensive database called COMPARISONTM. COMPARISON is an advanced diagnostic tool which enables us to compare your total benefits program to those of other employers. We would conduct a high -level overview of your benefits compared to other employers. We would review the following aspects of your benefits programs: Retirement: Defined benefit, defined contribution Health: Medical, dental, security, life insurance, AD &D, short term disability ti� Ms. Joanne Land January 29, 1997 Page 9 Paid Time Off: Vacation, holidays, sick leave. The analysis would highlight any problematic areas and would enable you to determine opportunities for strengthening the competitiveness of your package. Compensation Administration Software While not required for the administration of the compensation program developed, Watson Wyatt is proud to offer REWARDTM, one of the most powerful, flexible, user - friendly compensation planning and administration softwares available on the market today. In brief, REWARD can: • Support the ongoing administration and modification of both traditional and alternative reward programs. • Store and analyze data on employees, jobs and market surveys. Employee and job information gathered in project will be included in system. • Help manage a total compensation approach. • Develop and maintain job descriptions from a database (optional module) We would be pleased to demonstrate REWARD at your convenience. Costs associated with REWARD are as follows: • Base Software (stand alone version) $10,000 • Optional Job Description Module $2,000 • Local Sales Tax TBD • Annual Maintenance fees 15% of software cost • System customization and training Varies based upon clients needs, $5,000 - $7,000 is common. 4:� Ms. Joanne Land January 29, 1997 Page 10 Project Team This project will be managed out of the Dallas office of Watson Wyatt with the following individuals on the team: Jamie Hale: Regional Compensation Practice Leader, will provide overall direction and quality control. Sarah Hutchinson: Senior Compensation Consultant will provide day -to-day project management and consulting. Mark Herndon: Organizational Effectiveness Consultant; will provide assistance with development and delivery of management training. Dennis Ackley: Regional Communication Practice Leader, will provide direction and guidance for communications strategy. v.V Ms. Joanne Land January 29, 1997 Page 11 Estimated Fees It is our experience to bill based on the professional billing rates of the individual staff members mentioned above and the time required to complete each project workstep. Based on our experience with other similar projects and the timeframes estimated within the worksteps, we estimate the fees as follows: Workstep Estimated Fees Job Evaluation I. Project Planning $6,000 — 7,200 IL Compensation Strategy 8,500 — 11,200 III. Title Consolidation 8,400 — 9,800 IIIA. Employee Meetings (Optional) 8,600 — 10,400 1V. Market Pricing and Job Evaluation System 21,700 — 25,600 V. Develop Performance Management System 30,000 — 35,000 VI. Policies & Procedures 3,900 — 4,600 VII. Implementation Plans 3,700 — 4,300 VIII. Communication and Education Strategy 7,700 — 9,200 IX. Final Presentation to Management/City Council 5,000 — 6,000 X. Management Training (includes development and 2 days of 8,800 — 10,600 delivery) XI. Benefits Comparison Analysis (Optional) 2,500 - 3,000 The estimated fees above are for professional services only. In addition Watson Wyatt charges separately for out -of- pocket expenses for travel, special mailing, etc. Lastly, Watson Wyatt follows the standard practice for our industry and charges an additional Technical and Administrative Services fee of 5 %. This charge helps to recover our ongoing investment in technical and administrative services (i.e., computer systems, software, hardware) that enable us to work more effectively and efficiently on our clients' behalf. Watson Wyatt bills monthly. All invoices are payable on receipt; a monthly fmance charge of one percent will be applied to all invoices remaining unpaid after 30 days. Ms. Joanne Land January 29, 1997 Page 12 Summary Joanne, we appreciate the opportunity to work with the City on this important assignment. We feel that the type of approach and system we have proposed will provide you with the desired balance between ease of administration and subjectivity. Sincerely, Sarah Hutchinson, CCP, SPUR Consultant sth References Ms. Sandra L. Egland Vice President - Human Resources Excel Telecommunications, Inc. 214 -664 -3500 Ms. Elizabeth German Vice President - Human Resources Community Credit Union 972 -596 -3300 Ms. Diane White Salary Administration Personnel Services Houston Independent School District 713 - 892 -7400 Mr. Louis Martinez Compensation Manager University of Houston 713- 743 -5783 Mr. Joe T. Lunt, Jr. Personnel Director City of Shreveport 318 - 673 -5199 DATE: February 25, 1997 SUBJECT: City Council Meeting - February 27, 1997 ITEM: 10.D. Consider a resolution authorizing the Mayor to execute an agreement with Watson Wyatt for City employee compensation review services. STAFF RESOURCE PERSON: Joanne Land STAFF RECOMMENDATION: This resolution authorizes the retaining of Watson Wyatt & Company to provide a Compensation System Update and Performance Management Redesign for City employees. A presentation was made earlier in the meeting.