Collective Bargaining Cost Restructuring

Transcription

1 6033 WEST CENTURY BOULEVARD, 5 TH FLOOR LOS ANGELES, CALIFORNIA T: (310) F: (310) MAIN STREET, 7 TH FLOOR SAN FRANCISCO, CALIFORNIA T: (415) F: (415) NORTH PALM AVENUE, SUITE 310 FRESNO, CALIFORNIA T: (559) F: (559) WEST "C" STREET, SUITE 620 SAN DIEGO, CALIFORNIA T: (619) F: (619) CAPITOL MALL SUITE 1260 SACRAMENTO, CALIFORNIA T: (916) F: (916) CALIFORNIA PUBLIC EMPLOYERS LABOR RELATIONS ASSOCIATION (CALPELRA) 2016 ANNUAL CONFERENCE Collective Bargaining Cost Restructuring 11/3/2016 PRESENTED BY: Kristi Recchia & Peter Brown

2

3 Collective Bargaining Cost Restructuring California Public Employers Labor Relations Association (CALPELRA) 2016 Annual Conference November 3, 2016 Presented By: Peter J. Brown, Partner & Kristi Recchia, Labor Relations Director Agenda What is Cost Restructuring? Evaluate Current Cost Structure Restructure Your Frame of Mind Cost Restructuring Solutions Examples Work Schedules Step Schedule Special Pay Other Alternative Ideas to Consider Reality of Restructuring 2 Cost Restructuring? Cost restructuring is modifying the manner in which you provide compensation in a way that results in a positive outcome for both the agency and the bargaining unit. Often, the bargaining unit members realize the positive impact immediately and the agency realizes long term financial health due to the restructuring. 3 1

4 Evaluate Current Cost Structure 1. Requires a costing model that includes all labor costs 2. Understand the bargaining unit demographics 3. Know the financial status of your agency and the five year financial forecast 4. Identify areas with automatic escalators 4 Restructure Your Frame of Mind Chief Negotiators, HR Managers and Finance are critical to success in cost restructuring The skills for success: Have an open mind Be creative Demonstrate leadership Have patience and persevere 5 COST RESTRUCTURING SOLUTIONS/EXAMPLES 2

5 Example #1: Civilian Work Schedules Labor Negotiations Scenario: Non-Sworn Police employees propose to work 3/12.5 hour schedule with one 10 hour day every 28 days. Challenges: Work schedule creates built in overtime 7 Civilian Work Schedules Opportunity: Find a solution that 1) Allows you to agree to the work schedule and 2) Doesn t increase the base cost to the agency Solution: Reduce the hourly rate of the salary structure to mitigate the increase in overtime. 8 Cut their Pay? WHAT!?!?!?! Reduce the hourly rate of pay for the classifications so that when the new schedule is implemented, the annual cost remains as close to the current cost as possible. How do you do this? 1. You have to do some math (sorry!) 2. Use the past twelve months of actuals and recalculate with the schedule change and reduced hourly rate. 9 3

6 How Do You Negotiate It? Spend all day in a workshop with the bargaining group Discuss EVERYTHING openly Show them the cost methods Impact to real overtime, retirement and other benefits (i.e. percentage based pay, life insurance) Impact to leave use & accruals Win-Win solutions require compromise; this cost restructuring was a win-win but it took some time, creativity, and patience to get the deal. 10 Example #2: Modify the Salary Step Structure Traditional salary structures include 5 steps with 5% differentials. Upon hire, a new employee is appointed at step 1, following six months moves to step 2, and annually thereafter moves one step each year. Step 5 and 20+% in salary growth is reached after 3.5 years. 11 Modify the Step Structure Move from 5 to 10 steps with smaller differentials Challenges: Ensure existing employees are not negatively impacted at the time of transition No one likes change Opportunities: Slower movement through the range which reduces the agencies cost over a long period of time Reset the mindset of employee expectations for salary growth 12 4

7 Salary Step Conversion Step Current Hourly 5% Differential Modified Hourly 2.5% Differential 1 $ $ $ $ $ $ $ $ $ $ $ $ $ $ New Step 9 =.24% above current step 5 10 $ New Step 10 = 2.74% above current step 5 13 How Do You Negotiate It? Explain the need for long term stabilization of salary growth Use Charts show exactly the step transition process; help them show their members Ensure that overall, the active members are not negatively impacted by the change Have this proposal be better than retaining the current salary structure with a traditional COLA 14 Example #3: Solutions for Special Pay POA negotiations are underway and the Council is willing to increase base pay but does not want the education pay to continue to increase. Education/POST pay is currently percentage based. BA/POST Intermediate = 3% MA or POST Advanced = 5% Base pay is $ $44.85.hour. 15 5

8 Special Pay Challenge: Good luck this one won t be easy. How can you restructure in a way that is a win-win? Solution: Modify percentage based pay to flat based and look long term to realize agency benefits. 16 How? Cost the current structure. Know the demographics. Understand the financial authority you have been given. Calculate the alternatives Cost the Current Structure 2 - Know the Demographics Base Monthly Pay BA/INT POST 3% # of BG MA/Advanced Members POST 5% # of BG Members Cost (annualized) $6,275 $ $ $ $6,620 $ $ $7, $6,984 $ $ $40, $7,368 $ $ $69, $7,773 $ $ $100, Base Cost $218, Medicare $3, PERS ER % $93, Total Cost $315, Bargaining unit members do not receive Education Pay 18 6

9 3 Understand your financial authority 4 Cost alternatives Council is willing to authorize up to 3.5% in total costs for base pay & Education pay as long as the education pay becomes a flat based pay. If unable to negotiate this change, the authority for salary with continued percentage base pay education is 2.5%. 19 Brainstorm & Cost Alternatives Current 3% Salary Increase & Flat Rate Education 2.5% Salary Increase; Keep % Based Education Base Pay $8,215,485 $8,461,950 $8,420,872 Education $218,760 $259,440 $224,229 Subtotal $8,434,245 $8,721,390 $8,645,101 Medicare $122,297 $126,460 $125,354 PERS ER $3,162,411 $3,747,494 $3,714,714 Total Cost $12,180,653 $12,595,344 $12,485,169 Cost as a % 3.4% 2.5% Education Value Top Step 3% = $233 5% = $389 Top Step Modify BA/Int. POST = $280 MA/Adv. POST = $410 Top Step 3% = $239 5% = $ How Do You Negotiate It? Step by step Explain your interest; encourage them to propose something in response Illustrate how the increase in the flat value of the education pay would not be realized for several years if a percentage base pay remains Leverage the benefit to those without education pay of at lower steps in the salary schedule 21 7

10 Cost Restructuring is a Problem Solving Tool A Case Study Scenario: CalPERS agency who is also in PEMHCA provides $1500/month toward medical, dental & vision via a Section 125 Cafeteria Plan Individuals who opt out with any type of medical plan alternative receive up to $500 cash-in-lieu 22 Case Study Issue: Cash provided under the plan is 23% of the plan s assets and results in both ACA compliance and FLSA overtime impacts (due to cash in lieu and the Flores decision) City Council wants these impacts reduced and wants all cash eliminated and/or options to consider to restructure this benefit and the cost impact 23 Can We Restructure These Costs? Need to understand all compliance issues in play: 1. Affordable Care Act: Affordability issue & opt out requirements 2. Section 125 requirements for one taxable option 3. FLSA regular rate impacts of (a) bona fide plan cash in lieu and/or (b) non-bone fide plan benefit contribution inclusion in the regular rate of pay 4. Maintain a solution to mitigate the PEMHCA equal contribution rules 24 8

11 25 Consider Solutions Restructure cost concepts: Tier cafeteria plan allowance (EE Only, EE+1, & EE+2) and reduce opt out to $100 Calculate savings and repurpose funds in to: Base pay Deferred compensation (e.g. 457 plans) HRA (Health Reimbursement Account) What needs to be considered? Compliance requirements with each alternative The impact an increase in base pay has on roll-up costs Short-term impacts and long-term objectives How Do You Negotiate it? Understand the cost analysis of the cost restructuring Consider the psychology of this type of modification for the conversation at the table Prepare to illustrate the advantages for employees Develop responses and rationale for the objections you may face 26 Overview of Other Ideas Use tiers for new hires and benefit amounts. Use FLSA 7(k) Safety work periods. Safety: One-time leave cash outs and reduction of maximums to reduce overtime costs. Move money into alternative areas: Non-pensionable to pensionable (e.g. car allowance to base pay). Provide percentage base contribution to a nonpensionable benefit (e.g., deferred compensation). 27 9

12 The Reality of Restructuring It is a challenge to restructure any type of compensation and/or benefit. It requires diligence, focus, and a genuine interest in working hard to accomplish a result. You have to be a leader in order to manage this type of process. Improving the long term health of your agency and in turn your employees can be accomplished with restructuring. 28 Thank You! Peter J. Brown Partner Los Angeles Office pbrown@lcwlegal.com Kristi Recchia Labor Relations Director Los Angeles Office krecchia@lcwlegal.com