MEMORANDUM. Honorable Mayor and City Council Members. Warren Hutmacher, City Manager Mary Ann Haskins, HR & Support Services Director

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1 Related Policy: Employee Compensation To: From: Honorable Mayor and City Council Members Warren Hutmacher, City Manager Mary Ann Haskins, HR & Support Services Director Date: July 11, 2016 Subject: Employee Compensation & Retirement Benefits 1. Policy Summary: The City of Johns Creek Employee Handbook ( Handbook ) provides information regarding the City s Human Resources function and conforms to the guidelines established by the City Manager and the City Council. The City Manager, working with the Human Resources & Support Services Director (HR Director), shall have the responsibility for the establishment and administration of the City Personnel Rules and Regulations. The City Manager and HR Director shall be responsible for interpreting the various provisions contained in the Handbook. Any section or provision of the Handbook can be amended or changed by the City Manager with or without notice. (a) Compensation/Pay Plan The Employee Handbook states that the City s Pay Plan shall provide a pay structure which is externally competitive, maintains internal relationships among positions based on relative duties and responsibilities and recognizes performance as the basis for pay increases within established pay ranges. Each job within the City has a set pay range that starts at Step 1 and goes to Step 10. The steps are 3.3% apart. New employees are hired within the pay range for a position, and unless there is an exception, employees remain with the pay range. Employees pay can change if (1) a merit increase is earned, (2) COLA is budgeted and approved, (3) the employee is promoted, (4) the pay range for a position is updated after a comprehensive HR review, or (5) a demotion results in a lower rate of pay. If an employee is rated as performing his/her duties well during the annual review process, a 3.3% merit increase is awarded up to Step 10 on the pay range. The new rate is effective as of the employee s anniversary date. Because the City initially hired an experienced workforce in 2007 and 2008, only forty-five percent (45%) of employees are eligible for a merit increase. For those employees who have reached Step 10, they are eligible for a Special Bonus in Lieu of Merit equaling 3.3% of their base pay following a successful performance review. This Special Bonus is not added to the base pay. It may be deferred partially or completely into the employee s 457 Plan retirement account or Health Savings Account with any remaining funds

2 Page 2 paid in cash. This practice acknowledges the employee s continued good performance and also keeps pay for each position in check. Fifty-five percent (55%) of employees who have been with the City more than a year do not receive a merit increase but receive a Special Bonus if eligible. Should an employee be rated as not meeting job performance expectations, the supervisor will work with Human Resources to create a Performance Improvement Plan (PIP). Note that a PIP may begin whenever needed, not specifically tied to the employee s annual review. The PIP will outline all areas of deficiency, will state specific instructions of what must be done to be considered meeting the requirements of the job, and will include a deadline for successful completion. If an employee is on a PIP, his/her performance evaluation will be delayed until if and when the PIP is successfully completed, and the merit will be effective as of the conclusion of the PIP rather than his/her anniversary date. The employee will be terminated if he/she fails to meet the PIP requirements. (b) COLA is only paid if approved during the budget process each fiscal year. A new practice was established with the FY2016 budget to tie the recommended COLA to the All Urban Consumer Price Index (CPI) annual average inflation figure as of June. The approved COLA was 0.1% for FY2016. (c) Retirement Benefits All fulltime employees will be enrolled in the City of Johns Creek 401(a) Retirement Plan and 457 Plan at the first of the month following six months from date of hire. Once an employee is eligible, the City contributes 12% of the employee s base salary to his or her 401(a) retirement account. The City matches an employee s voluntary contribution to the 457 plan dollar-for-dollar ($1:$1) up to 5% of the employee s base salary. The City s match is deposited into the employee s 401(a) plan. 2. Analysis: The City will not match dollars for lump-sum Special Bonuses, rollovers from other retirement plans, or other payouts deposited into the defined contribution programs. Overtime earnings, bonuses, vehicle allowances, mileage reimbursements, housing stipends, vacation payout upon termination, paramedic incentive pay, travel reimbursement, moving expense reimbursement, tuition/education reimbursement, gym reimbursement, or other special pay are excluded from the City s calculation for its contribution. (a) Compensation The original compensation processes and structured 10-step pay tables for all City positions were created in late 2007/early The inaugural Council approved the City s current pay plan, which includes a 3.3% merit increase (3.5% for department heads) up to Step 10 of the pay range for employees who continue to meet or except job performance expectations as determined on their anniversary date performance review. Once at Step 10, the

3 Page 3 employee s base pay will not increase unless the Council approves a COLA. Employees at the top of their pay range who meet performance expectations, which equates to 55% of employees at this time, will receive a Special Bonus equal to the merit percentage that can be taken in cash, deposited into their retirement 457 Plan, deposited into their HSA, or a combination of cash and deposit(s). The City does not match any Special Bonus funds deposited into the 457 or HSA. The inaugural City Council authorized the City Manager to set the initial pay ranges at approximately 15% more than amounts that neighboring cities were paying like positions in 2008 to attract and retain the best workforce possible. The City hired experienced workers to meet the citizens service expectations. Since that time, other cities have increased their pay ranges. There is not a perfect pay plan, and different pay practices have their pros and cons. The current pay plan is straight-forward and easy for employees and job candidates to understand. This helps with retention and recruitment. Rather than employees spending time trying to figure out how to be in good graces with their manager to receive the highest merit percentage, managers struggling with what to give an employee, and HR making certain our increases are handled without discrimination, the current merit practice does allow all to remain focused on doing their job to the best of their ability. Supervisors are trained on how to evaluate employees and do so effectively. The City defines a promotion as moving from a current position to one that is ranked at a higher level, i.e., Fire Sergeant to Fire Lieutenant. Police and Fire promote from within their respective departments. Promoted employees receive a 5% increase and are place on a step within the higher rank s pay range, always going up to the next highest step. This results in a 5% to 8% pay increase. (b) Retirement Benefits When the City designed its 401(a) defined contribution plan and 457 employee deferral plan that started December 2007 and January 2008, the plans were structured to provide a retirement benefit that would look almost as attractive as the pension programs that other cities and counties offer. The City s goal was to expense retirement contributions as they are made, to avoid large future liabilities that are found with traditional pension plans, and to give City employees, especially public safety employees, the ability to afford to retire from service prior to age 65. Typically sworn firefighters and police officers plan to retire around age 50. The City does not need to budget for current and future pension funding requirements, and it does not show a liability on our balance sheet, which would negatively impact a bond rating. Unfunded pension liabilities are one of the main reasons why municipal finances have become so precarious in recent years. The City expenses retirement costs each month.

4 Page 4 Using the same broker and plan service provider, the City mirrored the Sandy Springs 401(a) and 457 Plans. To date, Johns Creek funds 12% into its 401(a) Plan for each employee s base pay and match $1:$1 up to 5% for base earnings deferred into the employee s 457 Plan. Employees are eligible to participate at the first of the month following six months of employment. Information on neighboring cities retirement plans: Sandy Springs funds 12% into their 401(a) Plan for each employee of his/her base pay and match $1:$1 up to 5% for base earnings deferred into the employee s 457 Plan. Brookhaven matches $2:$1 of the first 5% (total of 10%). Brookhaven offer a Social Security replacement plan that gives employees a 6.2% employer contribution, which amounts to a 6.2% salary increase for employees because there is no deduction for social security. Dunwoody contributes 10% of the employee s pay into the 401(a) and also has a Social Security replacement plan with a 6.2% City contribution, which amounts to a 6.2% salary increase for their employees. Dunwoody does not offer a match at this time. Their 457 is optional for employee contributions. Roswell s defined contribution plan was effective as of March 1, Roswell contributes 10% plus matches $1:$1 up to 5%. Previously-hired employees have grandfathered status in their traditional pension plan. Alpharetta offers both defined benefit and defined contribution plans. Alpharetta matches $1:$1 up to 5% and contributes 10% to its defined contribution plan. 3. Financial Impact: (a) Compensation The City budgeted for 54.3% of employees to receive a merit increase in the coming year, and that number changes annually based upon each employee s current position on his/her pay range. The remaining merit budget is for a Special Bonus in Lieu of Merit equal to 3.3% of base pay for those employees who are at Step 10 (3.5% for Directors).

5 Page 5 As of 06/10/2016, 112 of the 201 fulltime employees with the City for at least one year were at Step 10 (55.7%), and these employees do not receive a merit pay increase. Mayor s Office = None (1 employee) City Manager = Step 10 City Clerk = Step 10 Communications/Community Relations = Step 10 Facilities = Step 10 Finance = Step 10 Human Resources = Step 10 IT = Step 10 Municipal Court = Step 10 Fire = Step 10 Police = Step 10 Public Works = Step 10 Recreation & Parks = None (b) Of the 192 fulltime employees who are eligible to participate in the 401(a) and 457 Plans, 87% receive the full 5% match. Below is a breakdown of those receiving the City s match and the percentage received as of a recent pay date: 14 employees = 0% (no match) 1 employee = 0.65% 4 employees = 1% 1 employee = 2% 2 employee = 3% 3 employees = 4% 167 employees = 5% (full match) The above percentages do not reflect the amounts deferred, as many who are in the 5% number contribute above that amount. There is no match above 5%. It is important to note that these percentages fluctuate, as employees can change their deferrals monthly. (c) Headcount and Cost Comparisons A method that has been used by benefit consultants to estimate the total number of employees a city typically has is 1 employee per 100 citizens, assuming the city is a full-service city (with utilities). Johns Creek s FY2016 budget has 210 fulltime employees plus approximately 80 fulltime contractors. The City has undertaken a project to create an open Compensation Portal, which is currently in testing mode. All Metro Atlanta and other Georgia cities and counties were invited to

6 Page 6 participate. The goal is to provide up-to-date actual salary data as needed. Sample reports of comparison data with neighboring cities are included with this memorandum. The City of Dunwoody conducted a survey in February 2016 of certain positions pay ranges. Results were shared with the ten participating cities, which were Alpharetta, Duluth, Dunwoody, Johns Creek, Marietta, Milton, Roswell, Sandy Springs, Smyrna, and Suwanee. The following chart compares the maximum pay (not actual pay received) for Johns Creek s positions against the other cities. COJC Pay Range Maximum Compared to Dunwoody and Other Cities (02/2016 Dunwoody Survey Results) [Used "Average Annual Pay" if no "Range Maximum" given.] General Role [Not Title] COJC's Maximum Pay Ranking Delta Between Highest & COJC If COJC 1st, $ Above Next Closest Assistant City Manager* 1st out of 9* $ $ 9, Assistant City Manager 4th out of 9 $(28,127.65) Finance Director 1st out of 9 $ $ 6, HR Director 1st out of 9 $ $ 8, HR Generalist* 2nd out of 9* $ (2,115.50) $ HR Generalist 8th out of 9 $(24,046.43) $ Municipal Court Clerk 4th out of 9 $(14,901.92) $ Deputy Court Clerk 6th out of 7 $(18,397.69) $ Police Chief 4th out of 10 $(28,888.50) $ Police Major 1st out of 9 $ $ 5, Police Lieutenant 1st out of 8 $ $ 8, Police Sergeant 2nd out of 9 $(11,553.40) $ Police Officer 8th out of 10 $ (9,012.40) $ Executive Assistant 3rd out of 8 $ (4,769.69) $ CSI Technician 7th out of 8 $(16,021.00) $ *Senior-level position at Johns Creek

7 Page 7 Out of 13 positions (15 for comparison purposes because of two senior level roles) that were analyzed in the 02/2016 Dunwoody study, Johns Creek s maximum (not actual) pay was: Ranked 1 st 4 times Ranked 3 rd 1 time Ranked 5 th n/a Ranked 7 th 1 time Ranked 2 nd 2 times Ranked 4 th 3 times Ranked 6 th 1 time Ranked 8 th 2 times 4. Compensation and Retirement Considerations: In comparison to other cities and counties in the area, Johns Creek is competitive and stands as the exception in its compensation and rewarding of its excellent employees. Since the City s inception, other cities and counties have adjusted their pay ranges, and now Johns Creek s pay ranges are not always the highest. Administrative staff comprises only 25% of the total headcount and total salaries and benefits budget. Part of this number includes staff members who work within Police and Fire (Police Records, Municipal Court, and Assistants) and those at City Hall who primarily support Public Safety. We cannot differentiate between administrative staff within Public Safety and those at City Hall that would be discriminatory. It is staff s belief based on experience that treating administrative staff as lesser employees than Public Safety employees may result in resentment and unfair treatment complaints. City Management is not aware of any Metro Atlanta city or county that has separate benefit plans for administrative staff and Public Safety. Council should be aware there are anticipated future challenges facing the City regarding retention and recruitment. Based upon current employees ages, HR expects almost 60 Public Safety employees plus two administrative managers to retire within the coming ten years. There is a new city starting (Tucker) and potentially another will be formed in the near future. With new cities, Johns Creek may lose some employees. These factors will put an even greater importance on the City s compensation structure and benefits, as we will need to retain our best employees and recruit top talent in a competitive job market. 5. Staff Recommendation: Staff recommends the Mayor and Council set a maximum percentage of growth in the overall personnel expense during each budgeting process, to which the City Manager and Departments will manage. Using the ten-year financial model, staff anticipates this number will be less than three percent (3%), excluding any addition of new positions. Attachments