Variable Pay in Government

1
Variable Pay in Government

• IPMA-HRs Benchmarking Committee Conducted a
  Study in 2007
• More than 640 people responded, representing
  millions of employees
• Sponsored by Fox Lawson Associates

2
Variable Pay in Government

• Who took the survey?
• 640 individuals from
• Local municipalities
• Counties
• States
• Federal
• Special districts
• Colleges/universities
• Towns Townships

3
Variable Pay in Government

• Benchmarking Committee focused on variable pay
  because
• Compensation is at the heart of HR
• Affects ability to recruit/retain employees
• Struggle to compete with private sector means pay
  programs are more important

4
Variable Pay in Government

• Compensation Systems
• Most organizations have a defined pay philosophy
  78 percent.
• This is a 14 percent increase from 2000, when
  only 64 percent of respondents said they have a
  defined pay philosophy.

5
Types of Compensation Systems

• Grade and Step Most popular
• Grade and Open Range Next most popular
• Steps to Mid-Point and the Open Range to Max
• Market-Based
• Broadbanded

6
Types of Compensation Systems
7
Special Pay

• Some of the most popular special pay programs
• Uniform Allowances 74
• Temporary Assignment Differentials 60
• Shift Differentials 59
• Employee Recognition Rewards Program 56
• Longevity Pay 53
• Tool or Equipment Allowances 32

8
Variable Pay

• Less than half of survey respondents report
  using any type of variable pay.
• Individually based programs are more common than
  group based programs in the public sector

9
Variable Pay
10
Variable Pay

• Pay for performance is the most popular 88
• The other types are far less so
• Skill-Based Pay 22
• Spot Awards 16
• Competency Based Pay 10
• Team-Based 6
• Gainsharing 5

11
Variable Pay by Type of Government
12
Funding Levels
13
Funding Levels by Type
14
Funding Levels

• Take a look at the data another way

15
Funding Levels

• Whats interesting?
• We expect to see that the Federal Government
  spends the most on funding variable pay
• What we didnt expect to see was that so many
  other forms of government fund variable pay
  programs at more than 5 of payroll
• Does it matter?

16
Funding Success?

• The data showed that funding at a level of less
  than one percent was not effective its just too
  little money to change behavior
• Funding between 1 and 7 percent of payroll
  yielded the greatest return with more people
  indicating that the program helped their
  organization become higher performing

17
Funding Success?

• Little change in the impact seen between levels
  of 1 and 7 percent
• Greatest level of impact seen with funding at
  levels greater than 7 percent of payroll
• At this level, effectiveness takes a big jump,
  probably because the monetary awards are great
  enough to impact behavior

18
Program Effectiveness
19
Program Effectiveness

• Respondents said the variable pay program had
  been very successful in achieving certain
  objectives
• Providing a better link between pay and
  performance - 29
• Improving employee understanding of critical
  performance areas 27

20
Program Effectiveness

• Respondents said the variable pay program had
  been unsuccessful in achieving certain
  objectives
• Improving job security 41 said not at all
• Reduced portion or all of base salary increase
  41 said not at all

21
Program Design

• Pay for performance
• The number of levels of performance an
  organization has is important when designing a
  program
• Most organizations have four levels, with three
  levels being the next most common response
• The number of levels did not vary much based on
  the occupational category or by the level of
  government

22
Program Design

• Skill Based Pay
• Are skills assessed using a specific test?
• Yes 53
• No 47
• Are skills rewarded one at a time or multiple
  skills at one time?
• One at a time 45
• Multiple 55

23
Program Design

• Spot Awards
• Usually given as a bonus that is not added to
  base pay
• Usually limited to a dollar amount not a
  percentage

24
Program Design

• Gainsharing
• 13 organizations said they have a gainsharing
  program
• More popular in the private than public sector
• Usually organization-wide, not just by department
• Both unionized and non-unionized workforces have
  gainsharing

25
Program Design

• Gainsharing
• Rewards
• Are usually based on a combination of individual,
  group and agency performance
• Average payout for each employee was about 4
  percent of the employees base pay

26
Broadbanding

• Approximately 15 of respondents said they have
  broadbanding
• More likely at the higher levels of the
  organization
• Cities and counties are more likely than the
  federal government to have broadbanding at all
  occupational levels.

27
Broadbanding

• When a system is broadbanded, one of the main
  objectives is to reduce salary ranges within a
  job family. The broadband could be considered
  successful if it reduces the salary ranges.
• The majority of organizations in our survey have
  been successful, especially in the area of
  management/supervisory employees.

28
Broadbanding
29
Broadbanding

• Salary range widths should increase with
  broadbanding

30
Broadbanding

• How much has broadbanding helped the organization
  become higher performing?
• To a great extent 6
• To a moderate extent 50
• To a small extent 24
• Not at all 9

31
Broadbanding

• How much has broadbanding helped the organization
  become higher performing?

32
Conclusion

• The use of variable pay programs, especially
  group-based pay programs, is not as popular in
  the public sector as the private sector.
• When adequately funded, variable pay programs can
  be powerful tools to achieve employers
  objectives