Compensation Program for Executive,

Management, and Exempt Employees

The Administration Committee recommends the adoption of the following joint report (November 29, 1999) from the Chief Administrative Officer and the Executive Director of Human Resources:

Purpose:

The Administration Committee at its meeting held on November 2, 1999 directed that the Chief Administrative Officer submit a report, through the Personnel Sub-Committee, to the meeting of the Administration Committee scheduled to be held on November 30, 1999 on the "first compensation program for executive, management and exempt staff of the new City of Toronto".

This report presents the recommendations from the Hay Consulting Group (HayGroup) for a Compensation Program for Executive, Management and Exempt employees. The compensation plan is one component of an integrated human resources program that includes performance management, recruitment and selection and training and development. The key elements of the proposed plan include a job evaluation for internal equity, salary rates based on comparison to the public/private sector markets and compensation adjustments based on performance.

Given that negotiations with CUPE Local 79 are still ongoing, this report will not deal with the issue of across-the-board wage increases for management and exempt staff. This issue will be brought back for consideration by Council once a settlement has been concluded with CUPE Local 79.

Financial Implications:

There are three elements to the proposed approach which have financial implications:

(1) Cost to Move to the Minimum of the New Range:

The estimated cost to move individual incumbents to the minimum of the new salary range is estimated at up to 2.2 percent of total management/exempt payroll or a maximum of $2 million. This cost will be spread over the year 2000 and 2001 as job evaluation is completed for all positions and will be budgeted in those years.

(2) Cost of Pay for Performance:

Performance Adjustments will be budgeted through the normal operating budget process.

(3) Savings from Downward Adjustments:

Staff have recommended red circling of incumbents who would otherwise be subject to downward adjustment because they are above the maximum of the new range. Thus, savings related to downward adjustment would not be realized until after the proposed period of salary protection and are impossible to quantify at this time.

It should be particularly noted that these are estimates at this time and subject to refinement as job evaluation and performance management progresses.

Recommendations:

It is recommended that:

(1) the proposal from the HayGroup for a single compensation structure for all City non union jobs be approved (i.e., the eight levels of work and sixteen pay grades) and replace any existing compensation programs for non-union positions;

(2) (a) the City's pay grades be priced relative to respective levels of pay of comparable external markets as defined by the HayGroup in their report, and

(b) the comparable level be defined as the 75^th percentile of the public sector in the Greater Toronto Area;

(3) the proposal from the HayGroup for a pay-for-performance practice for salary adjustments be approved; that incumbent progression through the pay grade ranges no longer be based on automatic step-rate progression but rather solely on a performance based increment process;

(4) staff submit a further report to Council in 2000 recommending the appropriate increment progression rate;

(5) the proposal from the HayGroup for a re-earnable lump sum award for those who have reached or are near the maximum of the salary range be approved subject to a future report to Council in 2001 once the results of job evaluation are known, the incumbents have been placed into the appropriate salary range and the performance management process is further developed;

(6) the proposal from the HayGroup for special pay plans be approved for limited situations that require special pay over-and-above the pay grade;

(7) a red circling policy be implemented which provides for salary protection for those situations where the job is adjusted downward;

(8) a further report be submitted to Council on the application of negotiated across-the-board wage increases to the management and exempt employees at the conclusion of collective bargaining with CUPE Local 79;

(9) starting in 2001 an annual GTA review based on the comparable external market be conducted to ensure that the City maintains competitive salary ranges to the external marketplace; and

(10) staff be directed to consult with COTAPSAI, on a confidential basis, on the recommendations contained in the staff report and the proposal submitted by the HayGroup and that the results of such consultation be conveyed to City Council for its meeting on December 15, 1999.

Background:

At its meeting of Feb 4 and 5, 1998 City Council approved the Human Resources Principles and Strategic Directions. Consistent with this a Project Plan was approved to establish a new compensation program applicable to Executive, Management and other Excluded employees.

The project plan requirements were for a compensation program that:

(i) is fair, equitable and gender neutral and compliant with applicable legislation;

(Pay Equity, Employment Equity)

(ii) promotes, recognizes and rewards exceptional performance;

(iii) recognizes management accountability and fiscal responsibility in achieving results; and

(iv) ensures appropriate competitive positioning related to high performing broader public sector and private sector organizations and therefore is able to attract and retain exceptional employees.

A key requirement for the design of the compensation program was that it be fully integrated with other human resource programs (including performance management, recruitment and selection, training and development and, promotion and succession planning), based upon the values and competencies required by the corporation.

Following a competitive tendering process, the contract for compensation consulting services to support the project was awarded to Hay Management Consultants.

The HayGroup was selected because it had the experience necessary and an appropriate project plan to meet the identified requirements.

Comments:

The report from the Hay Group is attached, which contains a proposal for an Integrated Human Resources Program for the non-union group of employees.

The components include: Job Evaluation;

Compensation;

Performance Management;

Recruitment and Selection; and

Training and Development.

The proposed design that integrates these programs has been incorporated in the City's human resources program. Additional development to implement the proposals is ongoing for the program components of performance management, recruitment and selection, and training and development.

More finalized and detailed program design is presented in the HayGroup report for the job evaluation and compensation program components specifically. These are the areas requiring Council consideration and approval.

The HayGroup will present their recommendations as summarized in this report in presentation format to the Personnel Sub-Committee on November 29, 1999 and to the Administration Committee on November 30, 1999.

Issues:

Over the past two years staff have been placed in the new city positions at the executive, management and exempt levels based on interim salary practices and policies adopted by City Council in February 1998. These practices and policies were to be adopted on a short-term basis pending the development, approval and implementation of a new compensation program. Interim pay levels were based on the weighted-average of similar positions from the former municipalities.

While reasonable in the short-term, it was never expected or anticipated that the implementation of a new compensation program would take three years. It has become clear that the continuation of this short-term approach is unworkable.

The issues with the interim salary levels are:

(i) The weighted-average approach, and consequent interim salary policies, led to inconsistencies and inequities between job levels and for individuals from different municipalities. Staff continue to be paid at varying levels although they are performing the same job as other individuals in the organization.

(ii) Many staff accepted new city positions on the understanding that the compensation plan would address the inequities evident in the interim approach, through a new compensation program which was intended to be introduced by early 1999. Staff have been remarkably patient and yet are becoming increasingly frustrated with the lack of progress on the review of salary levels.

(iii) There is a growing concern over the city's ability to retain staff. Key individuals are leaving the organization to secure better paying positions in a robust job market. This trend, albeit small at this point, will continue to accelerate:

- as the job market grows in strength;

- as the city's salaries fall further behind market rates;

- as the lack of fairness and equity in the interim salary approach continues;

- as experience in amalgamation activities drives the marketability of staff upward and their skills become in hotter demand.

(iv) The city is also experiencing difficulty in attracting individuals into city positions from the outside market place due to the current salary levels. This is particularly prevalent in professional occupations, such as engineers, planners, lawyers and finance, and at the managerial levels.

(v) A recruitment process is underway for two executive positions. The city has not established a salary scale for these positions - not even at the interim level. It will be difficult to attract qualified, competent and suitable candidates given the lack of this fundamental condition of employment.

(vi) The city is experiencing a downward spiral in employee morale, notably in the management and non-union ranks. While some of this can be attributed to the pace and complexity of amalgamation activities, the absence of fair and equitable salary levels has been cited repeatedly through employee consultation or communication sessions as the primary contributor to low morale. In this environment, it is expected that productivity and commitment will decline at a steady or accelerated pace.

(vii) Due to financial constraints, many of the former municipalities did not keep pace with the market place in terms of its salary levels. There were also widely varying salary levels for like positions between the former seven municipalities. All these factors have contributed to salary levels which have dropped significantly below the market value for the skills and responsibilities of municipal employees.

(viii) An interim approach has been adopted for performance increments, which is neither satisfactory nor sustaining. The delayed introduction of a performance-based approach for salary increments contributes to complaints, increased employee dissatisfaction, low morale and declining productivity.

For these reasons, it is recommended that Council adopt the compensation structure as presented by the HayGroup. An expedited implementation of the new compensation program is required to correct the inequities in the current system, to address the mounting concerns around retaining and attracting employees and to introduce a new performance-based approach for salary increments.

Implementation Requirements - Compensation Plan:

In order to implement the recommended compensation plan, all management and exempt positions will be evaluated on the basis of skill, effort, responsibilities and working conditions. Jobs will then be rank-ordered to ensure internal equity at various levels. Staff have been working with the HayGroup to develop the specific job evaluation methodology and tools. The actual process itself will take at least one year to complete.

In order to test the appropriateness of the proposed system, and to gather estimates for its financial implications, the consultant and city compensation staff have "benchmarked" jobs based on preliminary job evaluation results for approximately 600 positions. Since the benchmarking process does not provide definitive results, estimates for the financial implications are preliminary and will be quantified further as the process is completed.

From this benchmark process, it has been determined that the implementation of new first salary scales will result in upward adjustments to the minimum of the new range for some positions, and downward adjustment below the maximum of the new range for others. Upward adjustments will be required for individuals who are below the minimum level of the new salary scale and whose salary will need to be adjusted into the range. Adjustments will be made effective the introduction date of the new scale, notwithstanding that job evaluation could take a year or more to complete. This is consistent with job evaluation and compensation policies of the former municipalities.

In the case of downward adjustments, a period of red circling is typically provided through a red circling policy. It is recommended that, in these cases, the salary be frozen at the time the job evaluation results are known until market adjustments to the salary range catch up with the incumbent's salary level. This, again, is consistent with the compensation policies of former municipalities and is standard in comparator organizations.

Council has previously considered a recommendation to apply the wage increase negotiated with CUPE Local 416 to the management and non-union group of employees. A recommendation was adopted by Council to defer consideration until after a settlement was reached with CUPE Local 79. Thus, this issue will be the subject of a future report.

Implementation Requirements - Performance Management:

During 1999, a new performance management approach was introduced for implementation in two phases.

Phase 1 - implemented in 1999 - is a results-based method of appraisal which focuses on the achievements of individual non-union and management employees toward divisional, departmental and corporate objectives. As part of the process, the individual and his/her manager also agree on objectives for the coming period, training and support requirements and measurement and timeframe considerations. Pending the implementation of a compensation program, interim performance increments were awarded at the one year anniversary date of the employee if he/she met or exceeded expectations in accomplishing results. The authorization for salary movement was signed off by the manager one level higher than the employee's immediate supervisor.

This is consistent with the HayGroup proposal. With the introduction of the new salary scales, and in keeping with the recommended pay-for-performance approach, staff will be submitting a further report to Council in 2000 to recommend the percentage rate of progression through the salary range for individuals whose performance merits an increment.

Phase II incorporates results-based objectives plus the extent to which the employee is demonstrating the competencies required for the position. HayGroup has proposed an approach to the development of competencies in the design of the performance management process.

To allow the appropriate time for the development of competencies, acceptance by staff and training of staff to meet the competencies, this phase is scheduled for implementation in 2002.

It makes sense to introduce the re-earnable lump sum award proposed by the HayGroup, for employees at or near the maximum of the new salary ranges, once the job evaluation process is completed and once the impact of placement of individual staff within the new salary range is known. Staff will submit a further report to Council during 2001 on specific policy issues.

Harmonization of Wages:

It should be particularly noted that the introduction of new salary scales is not wage harmonization.

The proposed compensation structure will only affect those employees who are below the minimum or above the maximum of the recommended range. There will be an as-yet-undetermined number of employees whose current salary falls within the recommended range. As such, individuals performing the same or similar jobs will continue to be paid different salaries within the same salary band.

A process will have to be implemented to recognize this disparity. It is suggested, however, that staff continue to explore options and develop an approach once the actual impact of the new compensation plan, through job evaluation and consequent salary decisions, is known. Although different approaches may be employed this will be paced with the process for pay rate harmonization for unionized employees.

Consultation with COTAPSAI and Management/Exempt Staff:

Staff, including COTAPSAI representatives, have been provided an opportunity for input on the development of competencies and the performance management program, including the pay-for-performance strategy. Further opportunities will be available during development of several other program components.

Due to the confidential and sensitive nature of many of the recommendations in this report, consultation with COTAPSAI and management and exempt staff has been limited in the compensation area.

Council's direction was that COTAPSAI be consulted when terms and conditions of employees were changed from those specified in the now terminated Memorandum of Understanding. In order to conform with the direction, while respecting the confidential nature of the reports, it is recommended that the Administration Committee direct staff to consult with COTAPSAI representatives on a confidential basis, between November 30 and December 15, the date of consideration by City Council. COTAPSAI input will be submitted to the Council meeting.

Conclusion:

The City is committed to treating its employees equitably. The interim salary practices and policies, designed as a short-term approach, have led to inconsistencies and inequities. It is essential to implement a new compensation program that is fair, equitable, gender neutral and complies with legislation, and that recognizes exceptional performance.

With 23,000 employees, the City has become one of the country's largest employers. To deliver services and lead an organization of this size, it is important to retain and attract talented, motivated, experienced and appropriately compensated staff. The HayGroup has presented a unique plan that introduces an integrated Human Resources program, linking components such as job evaluation, compensation and performance management.

The implementation of the compensation strategy will address many of the issues outlined in this report and will position the City as an employer that places high priority on the fair and equitable treatment of its employees and on the measurement and reward of exceptional performance in the delivery of municipal services.

The Administration Committee submits the following report (December 6, 1999) from the Executive Director of Human Resources and Acting Commissioner of Corporate Services:

In considering the subject report at its meeting of November 30, 1999, the Administration Committee requested the Acting Commissioner of Corporate Services to submit a report to the Special Meeting of the Administration Committee on the following:

(I) Indicating the current pay scales for Executive, Management and Exempt employees.

Appendix I presents the interim salary ranges that have been used for new city jobs. These were based upon weighted averages of salaries from the former municipalities.

(II) On not only the current salary ranges but a comparison of what the ranges were in the former municipalities:

Appendix II presents the salary schedules for the former municipalities.

(III) On a mixed model of incremental increases (automatic plus pay for performance):

A mixed model would involve combining two opposite pay philosophies in one model. Methods to do so could include:

(a) Moving individuals automatically through steps up to the middle of the range with increases beyond the midpoint based upon performance, or

(b) Splitting the annual step increase between automatic percentages and pay for performance, for example; 2 percent automatic plus an additional 3 percent based on performance.

These methods are not recommended for the following reasons:

- A mixed message would be sent to employees with respect to the importance of performance;

- The opportunity is missed or diminished to reward for performance; budget dollars would instead be used to support automatic step increases;

- The opportunity is missed to create a high performing organization, one of the primary objectives of the compensation review; and

- A hybrid model would be administratively complex.

It should be noted that under the pay for performance model proposed by HayGroup, an annual GTA review based on the comparable market would be conducted to maintain competitive salary ranges and take into consideration cost of living changes. Under this scenario the salary range is adjusted to reflect the changes in the market and the employee has the opportunity to move through the adjusted range based on performance.

(IV) On commitments that have been made or implied regarding the effective date of the new salary range:

Employees placed into new City jobs were aware from the postings that the salary was under review. To the best of our knowledge no commitments were made or implied as to the effective date of future adjustments.

Communication bulletins about the compensation review did not address this issue.

(V) On the total payroll amount required based on the recommendations contained in the aforementioned report:

The current payroll for non-union staff is approximately $200 million. Based on the benchmark information, a total payroll of $202 million is required for the introduction of the new salary scale. The additional $2 million has been estimated by the Chief Financial Officer and Treasurer and is required to adjust individual salaries to the minimum of the new range.

Performance increases for movement through the salary range will be budgeted in the program operating budgets in accordance with normal practices.

It is not possible to quantify the pay-for-performance budget requirements until:

(1) job evaluation is completed for each of the 3,000 positions to determine the salary scale grade of the individual; then

(2) based on placement in the range the individual will or will not have the opportunity for further salary movement; and

(3) a report is submitted and recommendations are adopted by Council relative to pay-for-performance adjustments.

It should be noted that these will generally replace costs already incurred.

To assist the Committee, four information documents are attached to this report:

(1) Quick Facts;

(2) A Briefing Note;

(3) A Backgrounder; and

(4) Compensation Definitions.

Contact Name:

Alison Anderson

Director, Employment Services

Phone No.: 392-5028

Fax No.: 392-3920

Email address: Aanderson@toronto.ca

________

Mr. David Neil, President, City of Toronto Administrative, Professional Supervisory Association, a Incorporated (COTAPSAI) appeared before the Administration Committee in connection with the foregoing matter.

(A copy of "The City of Toronto - Human Resources Report", was forwarded to all Members of Council with the December 8, 1999, agenda of the Administration Committee; and the report (December 6, 1999) from the Executive Director of Human Resources and Acting Commissioner of Corporate Services, with the attachments respecting Interim Salary Ranges, Executive Level and non-union positions was forwarded to all Members of Council on December 8, 1999. A copy of the joint confidential report (November 29, 1999) from the Executive Director of Human Resources and the Chief Administrative Officer and the confidential material attached thereto was forwarded to all Members of Council on November 30, 1999, and copies of the aforementioned reports and materials are also on file in the office of the City Clerk.)