HD6 - Report on Salary Structure Study
Executive Summary: House Joint Resolution 153 requested the Department of Personnel and Transportation (DPT) to conduct a study of the current compensation structure of the Commonwealth to determine if any modification or restructuring is needed. This study is one of several recent reviews of the Commonwealth's methods of compensating its employees. Each of these studies, in addition to the subject Structure Study, addresses individual components of the overall compensation program for state employees. It is important that they be considered as complementary of each other and not mutually exclusive. The compensation plan of the Commonwealth is dynamic in nature so that the adjustment of one feature directly influences others. HJR 153 focuses on those employees at the maximum (step eight) of their assigned salary grades. The presence of employees at the maximum is a characteristic of any pay system such as that used by the Commonwealth. It is sometimes perceived as a problem, even though it is a common occurrence in most organizations. According to analysis conducted by the Department of Personnel and Training, the step eight population includes 30,234 employees, which is 40.9 percent of all employees under the Virginia Personnel Act. Data show that the proportion of step eight employees is fairly evenly distributed through all pay grades, except in the highest grades (grades 20 - 23). There is no evidence of high turnover among those employees at the maximum of their assigned salary grades. Data indicate that these employees perform no better or worse than other employees. The Commonwealth's classification structure provides significant opportunity for career progression and development for these and other employees. The current Commonwealth graded salary plan, consisting of 23 salary grades, each with eight steps approximately 4.56 percent apart, was established in 1980. The plan design is similar to many public sector compensation plans and is well understood and accepted by employees. The current range spread between minimum and maximum salary is uniform for each grade. This range spread, 36.6 percent, compares to an average range spread of 52 percent for other states and to approximately 49 percent for the private sector. This difference is further documented by the results of The Annual Salary Survey conducted by DPT. The pay structures of other state governments, the Federal Government, the private sector, and selected local governments were reviewed. Compensation literature and other professional compensation surveys were also reviewed. They indicate that there is no uniform or "textbook" approach to establishing and administering a compensation structure and plan. There are any number and variety of approaches, depending upon the mission and philosophy of the organization. Movement of employees through the pay range is also not uniform among organizations. Of those states or organizations that have salary steps to move employees through the range, the 4.56 percent difference between steps which the Commonwealth has established seems to be appropriate. Private sector employers tend to use a system that moves satisfactory performers through the range until the midpoint is reached. Then, advancement beyond the midpoint requires superior or exceptional performance. The Federal Government moves white collar employees through the range based on satisfactory performance. However, it takes much longer to reach maximum than for employees of the Commonwealth. Longevity pay, defined broadly as additional pay for time in service, is a varied practice. Such payments are based strictly on time in service regardless of whether employees are at the maximum. Payments are not built into the employee's base salary. In general, the private sector does not employ longevity systems. In the states reviewed, only Georgia has formal longevity steps incorporated into its pay plan. Three states use flat dollar amounts or percentages of base salary, as an annual lump sum payment. There is no longevity provision in the Federal system. The longevity practices of nine local governments were reviewed. One local government has longevity steps that allow employees at the maximum to advance after a specified number of years of earning an exceptional performance rating, another has proposed a similar system to its governing body. Only four of the local governments reviewed did not have longevity pay. DPT did not find characteristics of step eight employees to be any different from the rest of the work force. However, if special action for this group is thought to be necessary, there are three major alternatives that can be considered. A. Adding Steps to the Maximum There is no uniformity of practice or professional opinion on the correct compensation structure of an organization. The current Commonwealth graded salary plan seems to be functioning well and serving its purpose. Extending the range would place the Commonwealth in an improved competitive position with regard to the range maximum. However, there is no compelling evidence that the Commonwealth is at a competitive disadvantage because of the range length. B. Granting Longevity Pay to Employees with Extended Lengths of Service Longevity systems are viewed as retaining employees who have acquired knowledge and expertise that, in many cases, would be difficult to replace. However, compensation literature does indicate that non-performance based longevity systems tend to promote mediocrity and may actually provide a disincentive for top performers in an organization. C. Revising the Number of Steps or Percentage between Steps in the Existing Salary Grades Survey data show that the majority of large organizations have 24 or fewer grades in their salary plans. The 4.5 percent difference between steps in a pay grade in the Commonwealth plan is consistent with other comparable organizations. It is also consistent with the 5.0 percent merit increases reported for private organizations. There does not appear to be any compelling reason to redesign the entire structure. CONCLUSION Any one issue, such as that of employees at the maximum, is but a single aspect of the overall compensation plan for state employees. The presence of employees at the maximum is a common characteristic of any pay system such as that used by the Commonwealth. It is sometimes perceived as a problem, even though it is a common occurrence in most organizations. Any proposals developed to address this perception must take into consideration the impact on the overall compensation system. |
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