TOTAL COMPENSATION ANALYSIS Cost vs. Relative Value

Transcription

1 TOTAL COMPENSATION ANALYSIS Cost vs. Relative Value NCPERS Public Safety Employees Pension and Benefits Conference Joseph Adler, DPA, SPHR October 26, 2015 Senior Consultant, Segal Company Copyright 2015 by The Segal Group, Inc., parent of The Segal Company. All rights reserved.

2 What is the Philosophic Difference? The competitiveness of total compensation can be measured on both an employer cost basis or a relative value basis The cost basis measures annual employer costs associated with salary, health benefit, defined benefit and defined contribution retirement plans and Social Security The relative value perspective takes into consideration employer costs for base pay, benefits and the relative richness of benefit plan design 1

3 Cost Basis Elements of Employer Cost Annual Salary (at the pay range midpoint) Medical, Dental, and Vision Plan Employer Costs (weighted based on the clients medical plan enrollment distribution) Employer Contributions to a Defined Benefit Retirement Plan Employer Contributions to Defined Contribution or Deferred Compensation Retirement Plans and Social Security 2

4 Relative Value Basis Elements of Employer Cost Annual Salary (at the pay range midpoint) employer costs for all health related benefits (medical, dental, vision and HSA, as applicable) The Client s weighted current medical plan enrollment distribution by tier of coverage The current employer normal costs associated with the defined benefit retirement plan Maximum employer contribution to both defined contribution and deferred compensation plans The relative value of medical plan design differences The relative value of retirement plan design differences 3

5 Relative Value Basis Elements of Employer Cost continued Medical Plan data elements used to derive relative values: Plan Type/Name Enrollment by Plan/Tier of Coverage Cost of Plan Employer/Employee Cost Split Annual Deductible Annual out-of-pocket Maximum HRA/HSA Employer Contribution Copays/Coinsurance Retirement Plan data elements used to derive relative values: Normal Cost of Benefits for Client and Peers Retirement Benefit Formula Early or Alternative Retirement Benefit Options DROP Service Related Death Benefits Service Related Disability Benefits Cost of Living Adjustments 4

6 Cost Basis Methodology To determine the total compensation employer costs we calculate the following: The midpoint for the base pay range (average of the minimum and maximum base pay rates) employer cost for all health related benefits, weighted by the Client s current enrollment distribution among coverage tiers The current employer normal costs associated with the defined benefit retirement plan, based on the most recent plan valuation Maximum employer contribution to both defined contribution and deferred compensation plans and Social Security 5

7 Cost Basis Methodology Employer Health Cost Example Police Health Costs Health Percent of (Medical Insurance, Dental Insurance, and Tier of Coverage Enrollment Vision Insurance) Weighted ER Annual Contribution Employee Only 1,808 46% Your Houston Jurisdiction Market Average Family 2,146 54% $12,000 $9,727 3, % Tier of Coverage Your Jurisdiction Houston Monthly Cost Houston Monthly (EE + ER) Cost (ER Cost) (ER Cost) (EE + ER) Enrollment Statistics Employer Monthly Health Cost per Tier of Coverage Enrollment % Austin Dallas El Paso Fort Worth San Antonio Market Average Weighted Average Monthly Cost Health Employee Only $559 $467 46% $549 $377 $299 $592 $621 $488 $224 and Welfare Family $1,879 $1,454 54% $1,127 $652 $916 $1,275 $1,459 $1,086 $586 Your Jurisdiction s Houston Weighted Average $1,272 $1,000 Tot. H&W $811 PPO Employee Only $519 $467 46% $510 $377 $282 $592 $578 Family $1,766 $1,454 54% $1,061 $652 $882 $1,275 $1,369 Your Jurisdiction s Houston Weighted Average $1,193 $1,000 Dental Employee Only $32 $0 46% $39 $0 $11 $0 $44 Family $100 $0 54% $65 $0 $28 $0 $90 Your Jurisdiction s Houston Weighted Average $68 $0 Vision Employee Only $8 $0 46% $0 $0 $6 NA NA Family $13 $0 54% $0 $0 $6 NA NA Your Jurisdiction s Houston Weighted Average $11 $0 6

8 Cost Basis Methodology Employer Retirement Cost Example A B C D E F G H Police Retirement Defined Benefit Defined Contribution 401(a) Deferred Compensation 457(b) Contribution Retirement Plan Employer Contribution Peer Employers Employer Normal Cost Employer Contributions Employee Contributions Automatic Employer Contributions Employer Match Automatic Employer Contributions Employer Match Employer Contribution Employer (A+D+E+F+G) Contribution (% of pay) (% of pay) Your City of Jurisdiction Houston Market Average (% of pay) (% of pay) (% of pay) (% of pay) (% of pay) (% of pay) 20.83% 8.18% Austin, TX 8.78% 21.63% 13.00% NA NA 0.00% 0.00% 8.78% Dallas, TX 11.49% 27.50% 8.50% 0% % 0.00% 11.49% El Paso, TX 3.89% 18.00% 13.89% NA NA NA NA 3.89% Fort Worth, TX 4.00% 19.74% 8.73% NA NA 0.00% 0.00% 4.00% San Antonio, TX 12.72% 24.64% 12.32% NA NA NA NA 12.72% Overall Market Average 8.18% Your City of Jurisdiction Houston 20.83% 36.01% 10.25% NA NA 0.00% 0.00% 20.83% 7

9 Cost Basis Methodology Compensation Calculation Benchmark Title Police Level A (Cadet) Police Level B (Probationary Officer) Police Level C (Police Officer) Police Level D (Senior Police Officer) Houston Your Jurisdiction Vs. Market vs. Market Figures shown in red are below market (less than 95% of the market average) Figures shown in black within the market range (95% to 105% of the market average) Figures shown in blue are above market (more than 105% of the market average) A B C D Base Salary Overall Pay Range Calculated Midpoint Annual Employer Cost of Benefits Weighted Health Cost Retirement Benefits Compensation Costs (A+B+C) Your Jurisdiction $35,810 $12,000 $7,459 $55,269 Market $39,066 $9,727 $3,194 $51,987 You as % Mkt 92% 123% 234% 106% Your Jurisdiction $28,819 $12,000 $6,003 $46,822 Market $43,776 $9,727 $3,579 $57,082 You as % Mkt 66% 123% 168% 82% Your Jurisdiction $50,549 $12,000 $10,529 $73,078 Market $63,329 $9,727 $5,178 $78,234 You as % Mkt 80% 123% 203% 93% Your Jurisdiction $62,312 $12,000 $12,980 $87,291 Market $79,080 $9,727 $6,466 $95,273 You as % Mkt 79% 123% 201% 92% C = Employer Retirement Contribution % x A (Your Jurisdiction = 20.83%, Market Average = 8.18%) 8

10 Relative Value Basis Methodology To determine the total compensation costs on a relative value basis calculate the following: The midpoint for the base pay range (average of the minimum and maximum base pay rates) employer costs for all health related benefits weighted by your jurisdiction s current enrollment distribution across coverage tiers adjusted for the relative value of differences in plan design among peer employers The current total normal cost associated with the defined benefit retirement plan, based on the most recent plan valuation, adjusted for the relative value of differences in plan design, multiplied by peer employer cost sharing Maximum employer contribution to both defined contribution and deferred compensation plans as a percent of pay and Social Security, as applicable 9

11 Relative Value Methodology Health Costs A B C D E F Peer Primary Plan(s) Relative Value Relative Value Medical Costs Peer Cost Sharing %- Single Coverage (Employer Cost) Single Coverage Relative Value Calculation Peer Cost Sharing %- Family Coverage (Employer Cost) Family Coverage Relative Value Calculation Weighted Average Medical Cost Austin, TX PPO 60% / UHC HMO 40% % $6,523 67% $14,865 $11, Dallas, TX 75/25 HRA Medical Plan % $4,167 53% $9,390 $6, El Paso, TX Aetna - Buy-up POS Plan % $5,839 78% $20,654 $13, Ft. Worth, TX Aetna - Basic POS Plan % $6,525 69% $17,016 $12, San Antonio, TX CitiMed - PPO % $8, % $28,381 $19, Assumed Enrollment Distribution 46% 54% Cigna EPO (Base Your Jurisdiction Houston, TX (Client) Plan) % $5,604 82% $17,448 $12, C = A x B x annual health cost for your Jurisdiction s single coverage plan ($519) x 12 E = A x D x annual health cost for your Jurisdiction s family coverage plan ($1,766) x 12 F = (C x 46%) + (E x 54%) Find the Relative Value and Weighted Average cost for each peer. Repeat the same process for Dental and Vision Plans. 10

12 Relative Value Methodology Health Costs continued Add the weighted average plan costs for Medical, Dental, and Vision Plans to get the total health cost on a relative value basis. Weighted Average Health Plan Costs Peer Medical Dental Vision Austin, TX $11,028 $617 $0 $11,645 Dallas, TX $6,988 $0 $0 $6,988 El Paso, TX $13,839 $533 $44 $14,416 Ft. Worth, TX $12,191 $0 NA $12,191 San Antonio, TX $19,164 $819 NA $19,983 Market Average $13,045 Use your Jurisdiction s weighted annual total health employer contribution previously calculated in the cost basis methodology for the total compensation calculations ($12,000). 11

13 Relative Value Methodology Retirement Costs A B C D E F G H Cost Employer Contributions- Normal Cost (% Employee Contributions Plan Cost (E + C) Employer's share of ER Percent of Employers DC Employer Retirement Plan Relative Value of Pay) (% of pay) Contribution Pay RV Basis Contribution Contribution Austin Police % 13.00% 21.78% 40% 14.56% 0.00% 14.56% Dallas Police & Fire Pension System % 8.50% 19.99% 57% 12.36% 0.00% 12.36% El Paso Police % 13.89% 17.78% 22% 6.27% NA 6.27% Fort Worth Police % 8.73% 12.73% 31% 8.27% 0.00% 8.27% San Antonio Fire and Police % 12.32% 25.04% 51% 20.75% NA 20.75% Market Average % 11.29% 19.46% 40.38% 12.44% 0.00% 12.44% Your Jurisdiction's Pension System % 10.25% 31.08% 67.02% 0.00% 20.83% E = B / D F = A x Your Jurisdiction s Plan Cost (31.08%) x E H = F + G 12

14 Relative Value Basis Methodology Compensation Calculation Benchmark Title Police Level A (Cadet) Police Level B (Probationary Officer) Police Level C (Police Officer) Police Level D (Senior Police Officer) Your Jurisdiction vs. Market A B C D Base Salary Overall Pay Range Calculated Midpoint Annual Employer Cost of Benefits Weighted Health Cost (Relative Value Basis) Retirement Benefits (Relative Value Basis) Compensation Costs A+B+C Your Jurisdiction $35,810 $12,000 $7,459 $55,269 Market $39,066 $13,045 $4,860 $56,971 You as % Mkt 92% 92% 153% 97% Your Jurisdiction $28,819 $12,000 $6,003 $46,822 Market $43,776 $13,045 $5,446 $62,267 You as % Mkt 66% 92% 110% 75% Your Jurisdiction $50,549 $12,000 $10,529 $73,078 Market $63,329 $13,045 $7,879 $84,253 You as % Mkt 80% 92% 134% 87% Your Jurisdiction $62,312 $12,000 $12,980 $87,291 Market $79,080 $13,045 $9,839 $101,963 You as % Mkt 79% 92% 132% 86% C = Employer Retirement Contribution Percentage x A 13

15 Implications Comparing the Overall Average for each basis of analysis Overall Average Cost Basis Houston Your Jurisdiction s Range Range Midpoint Midpoint as % of Overall as % Pay of Overall Range Pay Range Midpoint Midpoint Your Houston Jurisdiction as of % as Market % of Annual Market Annual Employer Employer Cost of Cost Benefits of Benefits Weighted Health Cost Retirement Benefits Houston Your Jurisdiction as of % as % of Compensation Compensation Costs Costs 79% 123% 201% 93% Overall Average Relative Value Basis Houston Your Jurisdiction s Range Range Midpoint Midpoint as % of Overall as % Pay of Overall Pay Range Range Midpoint Midpoint Your Houston Jurisdiction as of % as Market % of Annual Market Annual Employer Employer Cost of Cost Benefits of Benefits Weighted Health Cost Retirement Benefits Houston Your Jurisdiction as of % as % of Compensation Compensation Costs Costs 79% 92% 132% 86% Your Jurisdiction is more competitive from a Cost Basis. The weighted total health costs are above market vs. below market from a relative value basis Retirement benefits are also more competitive 14

16 Discussion 1920 N Street, NW, Suite 400 Washington, DC Joe Adler jadler@segalco.com 15