AGENDA ITEM H-6 Human Resources STAFF REPORT City Council Meeting Date: 9/26/2017 Staff Report Number: 17-233-CC Regular Business: Approve the amendments to the Executive Management Benefits Plan document for unrepresented management personnel effective October 1, 2017 Recommendation Approve amendments to the Executive Management Benefits Plan document for unrepresented management personnel effective October 1, 2017. Policy Issues This recommendation aligns with the City’s goals of balancing continued fiscal prudence in planning for potential impacts of employee retirement benefits, while also continuing to align the City as a competitive employer in the increasingly robust job market of the Silicon Valley. Background The 2017-18 budget authorizes 22 management level classifications, collectively referred to as Executive Management or Unrepresented Management, who are unrepresented by an organized labor unit and serve as the City’s division level manager and department heads. Employees at this level serve at will and are largely responsible for ensuring delivery of City Council goals and policies at the department level. Given that these employees are not represented by an organized labor group, the City does not negotiate compensation with these classifications either as individuals or as a group. Rather, the City’s past practice has set forth a series of benefits determined by the City Council as providing a compensation package necessary to attract and retain employees, as documented in the Executive Management Benefits Plan document (Benefits Plan). The City Manager and City Attorney are not covered by this benefit plan however their contracts may reference this benefit plan as agreed upon in their respective contracts. Analysis On September 12, 2017, the City Council met in closed session to provide direction on amendments to the Executive Management Benefits Plan document (Benefits Plan). With recent tentative agreements reached between the City and both AFSCME Local 829 and SEIU Local 521 for all non-sworn represented employees, the terms of those agreements result in salary increases that narrow the salary differential between supervisors (AFSCME) and managers (Executive Management). If salary ranges for managers are not adjusted commensurate with the increase provided to supervisors, the City will experience wage compaction which impacts in-house employee’s desire to promote within the organization and the ability to City of Menlo Park 701 Laurel St., Menlo Park, CA 94025 tel 650-330-6600 www.menlopark.org PAGE 1179 Staff Report #: 17-233-CC retain and recruit highly qualified employees in the Executive Management ranks. The most recent adjustment to Executive Management salary ranges occurred in July 2016 to correspond with a cost of living adjustments provided to supervisory employees who are represented by AFSCME Local 829. With the exception of market rate adjustments provided to certain AFSCME and SEIU represented classifications as part of the classification and compensation study of 2015-16, Executive Management classification salary ranges have received adjustments equal to AFSCME to maintain salary differentials since 2015. The table to follow summarizes key changes to the Benefits Plan (Attachment A) and provides the fiscal impact of those benefit changes. Additional amendments are included in Attachment A that reflect current practice and/or provide for greater clarity in the administration of the Benefits Plan. Attachment B provides a “clean” version of the benefit plan inclusive of all changes highlighted in Attachment A. Key provisions and/or changes Fully Burdened Item Description Cost/Savings Salary ranges Assuming City Council approval of the proposed amendments on Section II.A.1 September 26, 2017, the Benefits Plan provides an across the board cost of living adjustment to all unrepresented classification salary ranges as follows: • 4.0%* effective the pay period beginning October 1, 2017* $100,700* • 3.0% effective the pay period following July 1, 2018 104,700 • 2.5% effective the pay period following July 1, 2019 89,800 *Mid-year implementation of the pay rate increase results in an annualized 25 $295,200 percent decrease in the rate adjustment. This results in only a 3% increase for this unit in fiscal year 2017-18. Unlike all other employees, Executive Management employees are not on a step system whereby cost of living adjustments automatically increase employee salaries. Executive Management only receive salary adjustments based on performance and set by the City Manager. Cost estimates are based on an weighted average change equal to that of the annual range adjustment. Automobile The automobile allowance is a non-pensionable management $29,200 Allowance benefit that provides employees an allowance to maintain a vehicle Section II.C.3 for official city purposes. The benefit was last increased in 2002 and has not been adjusted for the Consumer Price Index to offset the diminishing buying power of the 2002 dollars resulting from inflation. When CPI-U is applied on an annual basis going back to 2003, the 2017 inflation adjusted auto allowance increases from $147.69 to $210 per pay period. The adjustment is recommended to take effective October 1, 2017 with automatic annual inflation adjustments going forward, beginning July 2018, based on CPI-U for the San Francisco-Oakland-San Jose region as measured from February to February. City of Menlo Park 701 Laurel St., Menlo Park, CA 94025 tel 650-330-6600 www.menlopark.org PAGE 1180 Staff Report #: 17-233-CC Uniform The uniform allowance is not a new benefits but was previously - Allowance omitted from the Benefits Plan document. Section II.C.4 Key provisions and/or changes Fully Burdened Item Description Cost/Savings Education The Benefits Plan has been enhanced to provide education expense $44,000 Reimbursement reimbursement of up to $3,600 per year per employee, pending City Section II.C.5 Council budget appropriations, for expenses incurred by the employee in the previous twelve months. The first reimbursement period will be for the twelve month period ending September 30, 2017, pending City Council budget appropriation and documentation of expenses by the employee. Subsequent reimbursements shall occur in October of each year for the twelve months ending September 30th. Eligible education expenses for reimbursements include tuition expenses for classes or programs taken in pursuit of a degree program, certificate program, or other education that enhances the employee’s service to the community. Additional eligible education expenses for reimbursement include post-secondary education student loan debt that the employee incurred either during or prior to his or her employment with the City. The 2017-18 estimated cost of this benefit is between $29,000 and $44,000 depending on the number of employees seeking reimbursement. General Leave The recommendation is to combine floating holiday and general - Section II.G.1 leave into a single biweekly pay period accrual and round the accrual up resulting in an increase from 12.81 hours to 13.00 hours for a total of 338 hours per year, up from the current 333 hours per year. This leave is eligible for annual cash out as elected by the employee in the prior calendar year and in compliance with constructive receipts. The annual cash out is non-pensionable compensation. Administrative The Benefits Plan includes a new paid time off provision, 80 hours of - Leave Administrative Leave, to bring the City’s paid time off benefit to Section II.H market median with comparable cities. Other agencies provide Executive Management employees paid time off buckets of vacation, floating holiday, sick leave, and management/administrative leave. The median sum of all paid time off banks is 419 hours per year. City of Menlo Park 701 Laurel St., Menlo Park, CA 94025 tel 650-330-6600 www.menlopark.org PAGE 1181 Staff Report #: 17-233-CC The City currently provides 333 hours per year. The leave caries no cash value upon separation. Additionally, the leave cannot carry over from year-to-year. The compensation changes outlined above, in conjunction with the current City Council approved Benefits Plan, provides a competitive compensation package that maintains the current salary differentials between executive management and supervisory employee represented by AFSCME Local 821.. In addition, the recommended Benefits Plan meets the labor negotiations principles set out by the City Council in the negotiations with organized labor units as follows: 1. Principle #1 – Service to the Community. Service to the community requires a skilled workforce that is committed to providing the level of customer service and responsiveness expected by the City Council, residents, and businesses in Menlo Park. Executive Management employees carry the significant responsibility of ensuring high quality delivery of service to the community, delivering City Council work plan initiatives, and exercising discretion to ensure that taxpayer resources are expended effectively and responsibly. 2. Principle #2 – Fiscal Sustainability. One measure of fiscal sustainability is the relationship between the proposed changes and inflation as measured by the Consumers Price Index, All Urban Consumers (CPI-U), for the San Francisco – Oakland – San Jose region. For budgeting purposes, the City measures CPI-U based on the annual change as measured in February of each year. From February 2016 to February 2017, the CPI-U recorded an increase of 3.4%. Subsequent measures of the year-over-year change in CPI-U were 3.8% and 3.5% in April and June, respectively. Another measure of fiscal sustainability is the cumulative fiscal impact of the proposed changes and the relationship of that impact to the 2017-18 budget’s 10-year forecast. As discussed in the budget document, the amount available for salary increases takes into consideration increasing costs for employee pension and inflationary assumptions for non-salary items. The proposal provides for an increase of 4% to salary ranges effective October 1, 2017, 3% effective t July 9, 2018, and 2.5% effective July 7, 2019.