What is the Impact on Your Recruitment and Pay Strategy?

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Last month, we talked about equity adjustments and the benefits to an organization of addressing total compensation inequities. In examining total rewards, historically, the public sector has done a good job of using discretionary dollars to (1) enhance an employee’s total compensation package; (2) keep pace with inflation through COLA’s; and (3) within fiscal constraints, do their best to maintain their employees’ purchasing power.

There have been numerous changes in public sector human resources practices as agencies move forward to comply with California Public Employees’ Pension Reform Act (PEPRA). One goal of PEPRA is to reduce the future pension liability obligations for public agencies by implementing standard retirement formulas, reducing benefits costs to a sustainable level, and increasing public sector employee accountability for funding their own retirement. The changes caused by PEPRA create disparities between individuals who are long-term employees and eligible for pension programs that were in place before PEPRA, and individuals who may be new employees and are not classic members of a pension program but perform the same work long-term employees perform. These two groups of individuals, in effect receive different levels of compensation for the same work. With this in mind, you may ask yourself, should an agency take action to “bridge this gap” by increasing pay for new employees? Or should the agency acknowledge the fact that the world of public sector pensions has changed and devise a different type of attraction strategy?

This may be the time to evaluate the short and long term impact on your total rewards and recruitment and retention practices. For example, in the period leading up to January 1, 2013 (the date PEPRA went into effect for most agencies), many agencies implemented a new retirement tier with a lower benefit level as a replacement for the higher benefit plan. In these agencies, the bulk of employees continue to have the higher retirement benefit and with the potential for pension portability reductions they may be less inclined to leave the agency. These changes affect the cultural dynamics of the agency and create a number of issues such as (1) the potential challenge of attracting new talent; (2) the likelihood that employees in a more generous plan are not going to trade down to a lower level plan thereby increasing employee retention (which may or may not be the right strategy); (3) the need to balance institutional knowledge, innovation, and creativity with a more sustainable and effective government; and (4) as mentioned above, the possibility that new employees will consider the lower retirement plan inequitable as they work beside their more tenured peers who enjoy higher retirement benefits but are performing the same work.

In order to weigh the options available to an agency in terms of compensation, external market equity, and internal organizational equity, here are some questions an agency might ask themselves to evaluate whether current practices are going to meet their future needs and which goal should have priority in driving compensation plan adjustments:

  • What is your number one priority, employee retention or attracting new talent?
    • What makes you an employer of choice?
    • What leverage do you have to attract new employees?
    • What steps have you taken to retain employees?
    • What strategies or initiatives can be offered to create a more equitable environment for current and new employees?
    • How do you define your “total rewards package” which is typically comprised of a variety of monetary and non-monetary elements that meet family lifestyle and security needs?
  • Where are your successful job applicants coming from: other public agencies or the private sector?
    • Has that changed over the last ten years?
    • Has it changed for all jobs or just some jobs?
    • How have you changed your strategy to attract employees from the private sector, where health care cost sharing and retirement plan practices are significantly different than the public sector?

Contact us to discuss how we can help address your organization’s need to balance organizational fiscal sustainability with creative recruitment and retention practices.

Posted: March, 2016

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