Letter and Report - Annual Compensation Comparison, Human Resource Management (December 8, 2020)
Summary
A letter dated December 8, 2020 from Emily S. Elliott, Director of the Department of Human Resource Management (DHRM), to Luke E. Torian, Chairman of the House Appropriations Committee, Janet D. Howell, Chairman of the Senate Finance Committee, and Keyanna Conner, Secretary of Administration. It transmits the Annual Compensation Comparison Report pursuant to § 2.2-1202 of the Code of Virginia. The letter says DHRM, with assistance from Deloitte Consulting LLP, compared the compensation of classified Commonwealth employees to benchmark compensation data for the public and private sectors. It states that average base salaries are estimated to be 17% and 10% below market median for general industry and government data, respectively.
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James Monroe Building
EMILY S. ELLIOTT
DIRECTOR
COMMONWEALTH OF VIRGINIA 101 N. 14th Street, 12th Floor
Richmond, Virginia 23219
Department Of Human Resource Management Tel: (804) 225-2131
(TTY) 711
December 8, 2020
The Honorable Luke E. Torian, Chairman, House Appropriations Committee
The Honorable Janet D. Howell, Chairman, Senate Finance Committee
The Honorable Keyanna Conner, Secretary of Administration
Subject: Annual Compensation Comparison Report – 2020
The attached report is pursuant to § 2.2-1202 of the Code of Virginia, Review of employee compensation;
biennial report on employee recruitment and retention.
The Department of Human Resource Management (DHRM), with assistance from Deloitte Consulting
LLP (“Deloitte”), has compared the compensation of classified Commonwealth employees to benchmark
compensation data representing the public and private sectors and in response developed a
methodology that can be used to determine (i) the amount of funding that should be appropriated for state
employee salary increases each year and (ii) how to distribute that funding to address state agencies' most
significant workforce challenges.
Due in part to unpredictable employee increases, it is estimated that average base salaries are 17% and
10% below market median for general industry and government data, respectively. Total compensation
approximates the market median and is 7% below the market median for general industry and government
data, respectively. Lack of consistent pay increases and perceived inequities in pay have continuously
been cited as being a major driver of recruitment and retention challenges.
As noted as recommendations within this report in order to properly align the pay and benefits of the
statewide workforce and support agencies in addressing recruitment and retention challenges, the
Commonwealth of Virginia must commit to consistent pay increases that align with market data, promote
pay for performance in the Commonwealth’s compensation program and offer decentralized agency
mechanisms to address recruitment and retention challenges.
Please contact me if there are any questions.
Sincerely,
Emily S. Elliott
An Equal Opportunity Employer
The Commonwealth of Virginia
2020 Annual Report Comparing Compensation between
the Commonwealth’s Classified Workforce and the Public
and Private Sectors
October 1, 2020
Table of Contents
Introduction ................................................................................................................................................ 3
Report Findings .......................................................................................................................................... 4
Project Methodology ................................................................................................................................. 5
Recruitment and Retention Analysis ..................................................................................................... 6
Compensation Market Review ................................................................................................................ 8
Compensation Philosophy ........................................................................................................................ 9
Interview Feedback ................................................................................................................................. 12
Online Questionnaire Results ................................................................................................................ 15
Leading Market Practices ....................................................................................................................... 16
Salary Increase Guidelines .................................................................................................................... 17
Next Steps................................................................................................................................................. 21
Appendix A: Recently Enacted Amendments .................................................................................... 22
Appendix B: Market Review Methodology .......................................................................................... 24
Appendix C: Geographic Differential Analysis ................................................................................... 27
Appendix D: Sources for Market Practice Research ......................................................................... 28
Appendix E: Salary Increase Market Data ......................................................................................... 29
Appendix F: Employee Performance as a Factor in Salary Increases ......................................... 30
2
Introduction
The 2019 Session of the General Assembly of the Commonwealth of Virginia (“the
Commonwealth”) enacted amendments to the Code of Virginia with the intent to clarify the
goals and process of managing the compensation of the Commonwealth’s classified
workforce. The Governor and the General Assembly of the Commonwealth tasked the
Department of Human Resource Management (“DHRM”) with developing and implementing
an updated, collaborative and data-driven approach that provides ongoing reporting and
recommendations for the efficient and effective management of compensation for the
classified workforce. 1
DHRM, with assistance from with Deloitte Consulting LLP (“Deloitte”), has compared the
compensation of classified Commonwealth employees to benchmark compensation data
representing the public and private sectors. Deloitte drafted this report to document the
market study findings and answer these key questions:
Which Commonwealth occupations are the most difficult to recruit and retain?
How do base salaries and total compensation for a sample of classified Commonwealth
roles compare to public and private sector salaries?
What adjustments do Commonwealth leaders feel should be made to the
Commonwealth’s currently compensation philosophy?
What are the projected salary increases for the public and private sectors in 2020?
The outcome of this study was used to develop a methodology that can be used to
determine (i) the amount of funding that should be appropriated for state employee salary
increases each year and (ii) how to distribute that funding to address state agencies' most
significant workforce challenges.
The market data for this year’s compensation study, which includes projections for base
salary increases, was gathered from multiple published surveys. This year’s report also
presents findings from a review of the Commonwealth’s compensation philosophy and
recommendations for the Commonwealth’s base salary increase process.
1
See Appendix A for more details on the recently enacted amendments to the Code of Virginia regarding managing the
compensation of the Commonwealth’s classified workforce.
3
Report Findings
Recruitment & Retention, Compensation Values, Compensation
Philosophy Findings, and Salary Increases
Deloitte worked with the Commonwealth and, more specifically, DHRM to:
Analyze recruitment and retention metrics and trends from 2017-2019 to objectively and
quantifiably score occupations’ recruitment and retention activity,
Benchmark the compensation of 202 occupations (i.e., a position designation
representing a combination of Commonwealth employee role title and Standard
Occupational Classification (“SOC”) description) covering 32,029 employees using
market data illustrating organizations similar to and with which the Commonwealth
competes for talent,
Review the Commonwealth’s current compensation philosophy and update it to meet the
Commonwealth’s current workforce needs and compensation strategy, and
Develop an approach for distributing salary increase funds for Commonwealth classified
employees using the results of the recruitment, retention, compensation benchmark and
compensation philosophy analyses.
Key findings from the study are shown in Figure 1:
Figure 1
Recruitment & Retention
• Corrections, healthcare, and direct services (e.g., Certified Nursing Assistants) occupations
experience the most recruitment and retention challenges.
• Employees frequently cite the lack of consistent pay raises and the perception of not being
paid fairly for their efforts as reasons for leaving Commonwealth jobs.
Compensation Values
• Base salaries are 16.5% and 10% below market median private sector and public sector data,
respectively.
• Total compensation (“TC”, which is the sum of base salary, annual bonuses, and the total
value of benefits) approximates the market median and is 7% below market median
compared to public and private sector data, respectively.
Compensation Philosophy
• The Commonwealth last updated its compensation philosophy 20 years ago in 2000.
• Commonwealth leaders would like to see the compensation philosophy and strategy include:
− More frequent/annual increases,
− An attempt to meet or match market, and
− Pay tied to performance.
Salary Increases
• The Commonwealth has not awarded salary increases on a consistent basis.
• Commonwealth increases have generally lagged the market.
• Projections for average salary increases in 2020 were around 3%; market projections for
2021 are around 2.9%.
4
Project Methodology
Deloitte used the approach shown in Table 1 to help identify Commonwealth occupations
with recruitment and retention challenges, understand pay program competitiveness,
identify where changes to the compensation philosophy are needed, and develop salary
increase fund distribution recommendations.
Salary increase
Table 1 Recruitment and Compensation Compensation distribution
retention analysis study Philosophy Review guidelines
Score and rank four Select jobs to Understand the Use the following to
metrics serving as benchmark using: strengths of the develop salary
recruitment and The recruitment current philosophy and increase guidelines:
retention indicators and confirm where it needs The recruitment
for the retention to be updated and retention
Commonwealth 2 scorecards through: scorecards
Categorize each The number of An online The benchmark
metric score as incumbents in questionnaire to study results
high, medium, or each occupation; solicit feedback
low from agency Compensation
where possible,
Inputs
leaders philosophy gap
Create a total benchmark analysis findings
recruitment and occupations Interviews with key
retention score (“the covering a large cabinet leaders in Employee
R&R score”) for each number of the current performance 4
occupation based on employees administration Additional
a sum of the four Job levels; A review of information from
metric scores 3 benchmark a compensation commonwealth
diverse mix of philosophies from stakeholders,
management, other public sector as appropriate
professional, entities and
support, and private sector
technical staff companies
Benchmark
Outputs
Recruitment & Compensation Salary increase
retention Study Results Philosophy Gap recommendations
scorecards Analysis
2
Select Commonwealth agencies use systems that are not integrated with the Commonwealth’s primary recruitment, payroll, and
personnel systems. As a result, select agencies lack and do not report the data analyzed for the recruitment and retention analysis.
Some occupations in these agencies were therefore not included in the retention, recruitment and compensation analyses.
3
A combination of Commonwealth employee role title and SOC description.
4
Due to a lack of documented employee performance ratings, the proposed salary increase distribution guidelines were developed
assuming the Commonwealth implements a 5-point performance rating scale and there is a normal distribution of performance
ratings (i.e., 5% of employees receive the highest rating, 15% receive the second highest rating, 60% receive the third highest
rating, 15% receive the fourth highest rating, and 5% receive the lowest rating).
5
Recruitment and Retention Analysis
To identify occupations experiencing recruiting and retention challenges, Deloitte:
Reviewed data in the Commonwealth’s:
− Personnel Management Information System (“PMIS”),
− Recruitment Management System (“RMS”), and
− Payroll system. 5 6
Focused on the following four metrics as key indicators of recruitment and retention
activity and challenges:
− Overtime spend as percentage of base compensation spend,
− The number of employees receiving retention awards,
− Average annual voluntary turnover rate, and
− Total turnover rate.
Developed the following scoring system for each metric based on an analysis of the
results ranked by tercile:
− A High score (3 points) indicates an occupation ranked in the top third of a metric
analysis compared to other Commonwealth occupations.
− A Medium score (2 points) indicates an occupation ranked in the middle third of a
metric analysis compared to other Commonwealth occupations.
− A Low score (1 point) indicates an occupation ranked in the lower third of a metric
analysis compared to other Commonwealth occupations.
Totaled the metric score points to create a total Recruitment and Retention (“R&R”)
score for each occupation.
Categorized each occupation’s R&R score as shown in Figure 2.
Figure 2
Occupation Recruitment & Retention
Challenge Total Score:
10-12 points = HIGH
7-9 points = MEDIUM
4-6 points = LOW
5
All analyses focused on Commonwealth employee and occupation data from 1/1/2017 – 12/31/2019.
6
Occupations with less than five current incumbents were excluded from the analysis; the analysis focused on 747 unique
occupations. Including occupations with less than five employees skewed the overall results of the analysis. The scorecard can still
be used to develop an R&R score for occupations with less than five employees.
6
Recruitment and Retention Analysis (cont.)
Recruitment and Retention Scores
Figure 3 shows how Commonwealth occupations were assigned an R&R score:
Figure 3
SCORES ARE
Overtime The number of ASSIGNED A
spend employees Average
NUMBER OF
as % of base receiving annual
compensation retention voluntary Total turnover POINTS:
Example
spend 7 awards 8 turnover rate rate
(A) (B) (C) (D) Score Points
High 3
High Low Medium High
Medium 2
Low 1
Lack of consistent data across the Commonwealth prevents this
analysis for each Commonwealth occupation.
The findings from this analysis serve as a general indicator of
recruitment and retention challenges.
7
Overtime data for 20 of the 160 agencies was unavailable; these agencies do not use the Commonwealth’s standard payroll
system (CIPPS).
8
Select Commonwealth agencies do not offer retention awards due to budget constraints. DHRM also informed Deloitte that some
agencies do not record all instance of retention awards in the PMIS. 35 of 160 agencies did not report instances of retention awards
from 1/1/2017 – 12/31/2019.
7
Compensation Market Review
Base Salary and Total Compensation Findings – Overall Variance to
Market
Deloitte compared Commonwealth employee compensation to market data illustrating the
25th, median/50th, and 75th percentiles of public and private sector data.
Deloitte understands that select Commonwealth agencies have historically applied market-
based differentials to national market data to recognize differences in the local cost of labor
and recruiting difficulties for select occupations in certain locations. Deloitte did not apply
differentials to the market data used for this analysis. 9
Table 2 shows base salaries are: Table 2 shows total compensation is:
• 16.5% below the private sector • Aligned with the private sector median
median • 7% below the public sector median
• 10% below the public sector median
Table 2
Overall Variance to Market Median
Private Sector Market Data Public Sector Market Data
Base Salaries Total Compensation Base Salaries Total Compensation
-16.5% +0.6% -10.1% -6.8%
The Commonwealth’s variance to market improves when the value of benefits is included. 10
See Appendix B for the market review methodology.
9
See Appendix C for data illustrating the cost of labor compared to the national average in the ten most populated locations for
employees of the Commonwealth which geographic differential data exists.
10
Compared to the values of benefits as noted in the U.S. Bureau of Labor Statistics’ 2020 Median Employer Costs for Employee
Compensation.
8
Compensation Philosophy
Background & Current State
Deloitte is working with DHRM to review the Commonwealth’s 20-year-old compensation
philosophy for state employees, shown in Figure 4, to identify where changes are needed
and recommend updates.
Figure 4
… tie employee salary increases to individual
agency performance, team performance and
employee skill set accomplishment.
The Commonwealth of Virginia’s
Current Compensation
Philosophy
… focus on the value of total compensation, which
includes salary and non-salary benefits (e.g.,
Pay employees in a manner that healthcare, retirement, etc.).
supports and develops a high-
performance workforce that
provides quality services in a fiscally
responsible manner to the citizens
of Virginia and…
… establish base pay that is competitive with the
public and private sector labor markets.
The compensation philosophy also specifies how the Commonwealth’s Compensation
Management System must operate, which includes being market responsive, affordable,
and administratively efficient.
9
Compensation Philosophy (cont.)
Key Purpose and Elements of a Compensation Philosophy
A compensation philosophy serves as a framework for administering an organization’s pay
programs consistently and equitably.
Figure 5 shows that a sound compensation philosophy…
…should provide: …and contain:
Figure 5
A foundation for making consistent pay
An overall guiding statement on pay
program design decisions
Leading
Practice
for Language about the elements of total
Transparency about pay program use and
compensation, including benefits, and how
position in the market Compensation each is used
Philosophies
Support for:
• The overall mission
Identified talent markets that support the
• The talent strategy, and
talent strategy
• Recruitment, motivation and retention
efforts
A reflection of:
• Economic realities, such as budget A targeted pay positioning statement that
constraints, and reflects economic realities
• Values and beliefs
Information on the next page shows how the Commonwealth’s compensation philosophy
compares to leading market practice.
10
Compensation Philosophy (cont.)
The Commonwealth’s Current Compensation Philosophy
Table 3 shows the Commonwealth’s current compensation philosophy contains some
components of leading market practice and lacks others. 11
Table 3
Current Commonwealth Compensation
Component Analysis
Philosophy Content
“The Commonwealth’s compensation
philosophy is to pay employees in a
manner sufficient to support and develop a
high-performance workforce that provides
quality services in a fiscally responsible
manner to the citizens of Virginia…
The Commonwealth’s current
Guiding The following goals have been identified to guiding statement on pay
Statement on support and operationalize the provides a strategy and
Pay Commonwealth’s compensation framework for pay program
philosophy. decisions.
• To attract qualified employees.
• To retain qualified employees.
• To motivate employees by rewarding
sustained performance.
• To support management in the
realization of organization objectives.”
“The compensation philosophy was
developed based on the following
underlying principles: … The philosophy addresses
Benefits and • To focus on the value of total benefits at a high level while
Total compensation, which includes salary noting compensation encompass
Compensation and non-salary benefits such as non-salary benefits in addition to
Language healthcare, retirement, life insurance; regular wages.
disability insurance, annual and sick
leave.”
The Commonwealth’s
“The compensation philosophy was
compensation philosophy does
developed based on the following
Identified not address talent markets in
underlying principles: …
Talent depth, though language exists
• To establish base pay that is
Markets elsewhere in the
competitive with the labor market
Commonwealth’s Human
(public and private).”
Resources Management Manual.
Targeted Pay
Positioning [none] Not addressed.
Statement
11
Source: Chapter 4 of the Commonwealth of Virginia Human Resources Management Manual
11
Interview Feedback
Key Observations
Deloitte interviewed 17 key cabinet leaders in the current administration to identify the
strengths of the current compensation philosophy and confirm where it needs to be updated
to address talent demands.
Figure 6 shows the thoughts and suggestions interviewees provided about pay for
performance, the competitiveness of compensation, career progression, and the need to
address pay equity.
Figure 6
Pay for Total Career Pay Equity
Performance Compensation Progression
Competitiveness • There is a perception
• Use employee • Employees often do of pay inequities in
performance to not have a clear the Commonwealth.
• The Commonwealth
determine individual may lack funds to understanding of
salary increases and compensate its career progression • In addition to
eliminate across-the- employees similar to opportunities, which increasing diversity in
board increases. private organizations, may cause them to Commonwealth hiring
but should aim to pay seek employment practices, the
• Link performance to as close to elsewhere. Commonwealth
pay by differentiating competitors as should take steps to
pay increases among possible. • When recruiting assess pay equity on
high and low employees, bring the basis of gender,
performers. attention to the race, and ethnicity
• Existing healthcare
advantages of working and confirm if there
and retirement
in the public sector. are issues.
benefits are strong,
but may not be as
competitive as they • Highlight employee • If found, the
once were. participation in the Commonwealth needs
Commonwealth’s to address pay
overall mission of disparities.
helping people.
12
Interview Feedback (cont.)
What’s Working
Figure 7 shows the interviewees feel retirement benefits, mission-driven work, perceived job
security, workplace flexibility, and development opportunities are positive attributes of
working for the Commonwealth. 12
Figure 7
Retirement Mission-driven Job Security Development
Benefits Work and Workplace Opportunities
Flexibility
• The retirement • The Commonwealth’s • Challenging
package has an mission attracts • Perceived job security assignments and the
overall positive effect talent, especially provided by working opportunity to do
on employee among Millennials. for the meaningful work are
retention, notably Commonwealth and advantages of working
with those who have the Commonwealth’s for the
• Mission-driven
10+ years of service work/life balance are Commonwealth.
projects provide
with the key factors attracting
Commonwealth
Commonwealth. employees and
employees a sense of • The amount and scale
purpose. keeping them at the of responsibility
• The defined Commonwealth. attracts many to
benefit/defined public sector work.
contribution “hybrid” • The need for public
retirement benefit is a servants will never go • Employees get
particularly strong away. opportunities and
benefit that helps
experiences early in
retain employees.
• There is a toolbox of their career the
unique benefits private sector can’t
• Employees can move available for state provide. This often
between agencies or agency use, including positions employees
leave the VA529 contributions, for future success
Commonwealth and student loan outside the
maintain member repayment program, Commonwealth.
contributions and sign on bonuses and
service credit standing salary adjustments
in the Virginia within the employee’s
Retirement System; pay band. Use
this helps bring depends on agency
former employees funding.
back to the
Commonwealth.
12
Employees retain service credits in the retirement plan if they do not request a refund of their member contributions and interest.
13
Interview Feedback (cont.)
Opportunities for Enhancement
Figure 8 show the interviewees noted some aspects of the Commonwealth’s compensation
programs and workforce strategy work well, but there are opportunities to enhance
supporting processes, tools, and strategies.
Figure 8
Lack of Resources Processes and Tools Internal
Discrepancies
• It is difficult to balance the need • Many current hiring, talent and
to pay competitively with current pay processes and operations
• Perceived pay inequities may
budget constraints. are inefficient in select areas of
occur in agencies that lack their
the Commonwealth. Similarly,
own revenue streams.
• Agencies often compete for there is a lack of consistency in
Universities and agencies like the
salary increase budget dollars; the tools and systems used to
Department of Transportation
agencies are vying for limited manage these processes and
can create additional funds to
resources. programs.
deliver compensation; many
agencies lack these
• IT professionals have been • The Commonwealth needs to supplemental funds and must
adopt emerging technologies and rely solely on legislated
difficult to recruit and retain.
enhance the efficiency of front adjustments.
and back office operations.
− The Commonwealth often
cannot pay at private • Many agencies are experiencing
• Data and metrics used to guide salary compression, which de-
sector levels. compensation decisions need to
− Vacancies and turnover incentivizes employees who feel
improve to more accurately their work contributions are not
are high in IT; projects in administer future salary
this department often recognized or valued.
increases.
finish late or never get
started.
14
Online Questionnaire Results
Key Takeaways
DHRM and Deloitte developed an online questionnaire to ask Commonwealth agency heads,
HR directors, and each agency’s most senior budget or finance individuals about the
strengths and weaknesses of Commonwealth compensation program, its compensation
strategy, and the connection to employee recruiting and retention efforts.
The questionnaire was open from May 28 – June 12, 2020.
The questionnaire was completed by 185 employees representing 99 Commonwealth
agencies.
Table 4 shows respondent answers to questions about key components of the compensation
philosophy.
Current Total Rewards
Factors Driving
Table 4 Program and Market Positioning
Employee Pay
Workforce Strategy
• 31% and 20% of • 87% of respondents feel • 73% of total respondents
respondents cited the Commonwealth employee indicated that performance
benefits and retirement compensation generally should drive employee pay
package and workforce lags the market for all roles across the
flexibility, respectively, as Commonwealth
strengths of the • 81% noted the
Commonwealth’s total Commonwealth should • 28% of total respondents
rewards program and generally aim to pay at highlighted that individual
workforce strategy market performance should be the
Observations
number one factor driving
• A small number of • 17% feel pay should lead employee pay
respondents noted the the market 1
following as strengths of the • 25% feel market
Commonwealth: competitiveness should be
• 2% feel pay for
Commonwealth employees the number one factor
− Training and should lag the market influencing pay
development
opportunities (9% of
respondents)
− Transparent career
pathways (6%)
− Workplace culture (6%)
− The Commonwealth’s
brand (5%)
_________________
1
When asked for additional context on this response, several respondents cited leading the market for hard to hire or retain
occupations in order to attract and retain top talent.
15
Leading Market Practices
State Government Examples
Figure 9 provides excerpts of language other jurisdictions use to describe their
compensation philosophies. 13 14 15 16 17
Figure 9
13 See Appendix D for links to the full text of the state compensation philosophy examples.
14 Kentucky Personnel Pay website.
15 Delaware Compensation Commission 2017 Final Report.
16 Louisiana State Civil Service Compensation Administration Guide.
17 State of North Carolina 2018 Compensation & Benefits Report.
16
Salary Increase Guidelines
Historical Background
Deloitte compared the Commonwealth’s salary increase history to historical salary increase
market data over the past 25 years and found that Commonwealth salary increases have
generally been outpaced by the market. 18
Figure 10 shows the Commonwealth salary increases have been irregular. There have been
eleven years of no general increases for employees of the Commonwealth since 2001.
Table 5 shows 2020 market projections for salary increase budgets were just above 3.0%
for the public and private sectors. Data is not yet available on actual market practice for
salary increases in 2020.
Initial 2021 salary increase market projections are 2.0% for the public sector and 2.9% for
the private sector. 19
Figure 10
Historical Commonwealth and Market Salary Increases
6.0%
5.0%
Historical Data
4.0%
3.0%
2.0%
1.0%
0.0%
1995 2000 2005 2010 2015 2020
Commonwealth Increases General Industry Government Industry
Table 5
2020 Salary Increase Projection Ranges
2020 Projections
Increase Type Private Sector 20 Public Sector 19
General Increases/Cost of Labor Adjustment 0.9% - 2.0% 1.9% - 2.4%
Salary Increase Totals 3.0% - 3.3% 3.0%
See Appendix D for 2019-2020 salary increase market data details.
18
Source: Historical WorldatWork Salary Budget Surveys.
19
Sources: WorldatWork’s 2020-2021 Salary Budget Survey and Empsight Policies, Practices, and Merit Survey Report (August
2020). PayFactors has not released the 2020-2021 Salary Budget Survey as of September 4, 2020.
20
Sources include WorldatWork’s 2019-2020 Salary Budget Survey, PayFactors 2019-2020 Salary Budget Survey, and Empsight
Policies, Practices, and Merit Survey Report (August 2019).
17
Salary Increase Guidelines (cont.)
Key Leader Input
Key cabinet leaders in the current administration want to see the items show in Figure 11
considered for salary increases:
Figure 11
Link pay to employee performance
Provide more consistent salary increases
Salary Increase
Considerations
Try to match the market
Maintain agency discretion for salary
increases decisions
“As public servants, we don’t expect to get
wealthy, but we do expect to be treated fairly.”
“We don’t have to be paid at private sector
levels, but need to be near those levels to
compete for top talent.”
See Appendix F for considerations on including employee performance as a factor in
salary increases.
18
Salary Increase Guidelines (cont.)
Overall Recommendations
After a collaborative, iterative design process with DHRM, Deloitte recommends that the
Commonwealth:
1. Appropriate funds each year for annual salary increases; use market data for merit
budgets to determine the general Commonwealth merit budget.
2. Allocate budgets to each agency.
3. Instruct agencies to award increases based on performance, market position and
recruitment and retention considerations.
Figure 12 shows how this process would work at a high level.
Figure 12
Appropriate Funds & Establish Agency Merit
Budgets
Market: 3%
Allocate Funds to Address Allocate Funds to Address
Performance and Market Adjustments Recruitment and Retention Challenges
Recommended: 2/3 of Budget Recommended: 1/3 of Budget
Consider:
Consider: • Overtime rates
• Performance ratings • The amount of retention
• Variance vs market target awards
Also use to address compression • Voluntary turnover
• Total turnover
See Appendix E for salary increase market data details.
19
Salary Increase Guidelines (cont.)
Agency Recommendations
Individual Commonwealth agencies have the ability to make salary increase decisions on an
individual employee basis. Under the proposed recommendations shown in Figure 13,
agencies will need to review employee performance, compare employee pay to market, and
consider unique recruitment and retention needs to award salary increases.
Figure 13
Illustrative Example
Table 6 shows how the salary increase guidelines would work. In this scenario:
1. The employee is compensated below the market median base salary and at least met all
performance expectations.
2. The employee received the second highest performance rating.
3. The employee’s occupation has experienced recruitment and retention challenges.
1 2 3
Table 6
Performance Multiplier 3
Employee Salary versus Market Recruitment and Retention
Median Merit Range Challenge Merit Addition
Performance Rating Multiplier
Highest Rating 1.15x
Above 1.0% - 1.95% No 0%
2nd Highest Rating 1.05x
3rd Highest Rating 1.00x Yes 1%
Below 2%
4 th
Highest Rating 0.95x
Lowest Rating 0.85x
Proposed Salary Increase: = (2% x 1.05) + 1% = 3.1%
20
Next Steps
Using the data analysis, feedback from the key leader interviews, the observations from the
online questionnaire, and the market practice research, DHRM will be confirming the
following:
Recruitment and retention challenge indicators for agency salary increase decisions;
The Commonwealth’s market target for employee compensation, which is currently a
mix of the public and private sectors, in line with pending updates to the
Commonwealth’s compensation philosophy;
Proposed updates to the compensation philosophy for adoption; and
Salary increase guidelines for future salary increase decisions and activities that also
consider the results of the Pay Equity Study (to be completed in October 2020).
21
Appendix A: Recently Enacted Amendments
The 2019 Session of the General Assembly of Virginia recently enacted amendments to the
Code of Virginia clarifying the goals and process of managing the compensation of the
Commonwealth’s classified workforce. 21
Be it enacted by the General Assembly of Virginia:
1. That § 2.2-1202 of the Code of Virginia is amended and reenacted as follows:
§ 2.2-1202. Review of employee compensation; biennial report on employee
recruitment and retention.
A. It is a goal of the Commonwealth to compensate its employees at a rate
comparable to the rate of compensation for employees in the private sector of
the Commonwealth in similar occupations, and consistently recruit and retain
the most suitably qualified employees. To achieve this goal, the Director of the
Department (of Human Resource Management) shall annually review (i)
recruitment and retention trends, (ii) the functions performed by each classified
job role, (iii) the number of employees and distribution of classified job roles
across state agencies, and (iv) how the salaries for each classified job role
compare to salaries paid by other employers in the Commonwealth and, as
appropriate, to comparable salaries at a regional or national level.
B. The Director of the Department shall, on or before September 1 of each odd-
numbered year, submit a report on (i) the classified job roles that should receive
higher salary increases based on identified recruitment and retention challenges,
(ii) the appropriate amount by which the salary of such classified job roles should
be increased, and (iii) cost estimates for funding any salary increases to the
Governor and the Chairmen of the House Committee on Appropriations and the
Senate Committee on Finance.
21
Source: 2019 Session of the General Assembly of Virginia: Chapter 424. (2019, March 18). Virginia’s Legislative Information
System. https://lis.virginia.gov/cgi-bin/legp604.exe?191+ful+CHAP0424&191+ful+CHAP0424
22
Appendix A: Recently Enacted Amendments (cont.)
Updates to the Appropriation Act also now require DHRM to administer and perform the
following activities on an ongoing basis 22 :
Item 81
M.1. The Department of Human Resource Management shall convene a workgroup
(the “compensation workgroup”) to develop a methodology that can be used to
determine (i) the amount of funding that should be appropriated for state employee
salary increases each year and (ii) how to distribute that funding to address state
agencies' most significant workforce challenges.
2. The methodology should be data-driven and include (i) recruitment and
retention trends for each job role in the state workforce, (ii) how salaries and
total compensation for each job role compare to similar jobs at other employers,
(iii) the extent to which recruitment and retention challenges can be addressed
by salary increases, and (iv) the impact of recruitment and retention challenges
in each job role on state agency operations.
3. In developing the methodology, the workgroup shall incorporate data from
the Personnel Management Information System, the Department of Human
Resource Management's employee exit survey, and data from Occupationally
Based Data Services.
4. The workgroup shall include representatives from the Department of Human
Resource Management, the Department of Planning and Budget, House
Appropriations Committee staff, Senate Finance Committee staff, and human
resources staff from multiple state agencies.
5. The methodology developed by the workgroup shall be used to develop the
biennial report required by House Bill 2055 of the 2019 General Assembly Session.
23
Notwithstanding the provisions of House Bill 2055, the first biennial report
using this methodology shall be due by December 1, 2019
22
Source: 2019 Session of the General Assembly of Virginia: Budget Bill HB1700 (Chapter 854). (n.d.). Virginia’s Legislative
Information System. https://budget.lis.virginia.gov/item/2019/1/HB1700/Chapter/1/81/
23
Source: 2019 Session of the General Assembly of Virginia: Chapter 424. (2019, March 18). Virginia’s Legislative Information
System. https://lis.virginia.gov/cgi-bin/legp604.exe?191+ful+CHAP0424&191+ful+CHAP0424
23
Appendix B: Market Review Methodology
Deloitte confirmed market matches for 202 occupations using published compensation
surveys and publicly available information on the Commonwealth of Virginia's website
that documents the following:
− Job content,
− Overall level of responsibility,
− Supervisory responsibilities,
− Educational requirements, and
− Years of experience.
The Commonwealth’s employee headcount and salary data are effective as of
December 31, 2019,
The survey data were aged from the effective date of each to July 1, 2020, at an annual
rate of 3.4% for the public sector and 3.3% for the private sector 24,
There were 15 occupations (e.g., law enforcement and correctional officers) that are
only found in government organizations that were compared to public sector data only,
With the exclusion of the U.S. Bureau of Labor Statistics (“BLS”) data, the market data
reflect similarly sized organizations based on the total FY20 annual operating budget of
the Commonwealth 25,
The market value of benefits was derived from the U.S. BLS’ 2020 Median Employer
Costs for Employee Compensation. The median total employer cost of benefits data were
added to the market TCC data to calculate market TC values for each benchmark
occupation
Deloitte calculated estimated Total Compensation values for Commonwealth employees
as follows:
− Deloitte used publicly available Commonwealth of Virginia Employer Fringe Benefits
Rates for the following employer contributions to: 26
o The Virginia Retirement System
o Social Security
o Medicare
o Group life insurance
o Health insurance
o Retiree health insurance
o Virginia Sickness and Disability Program (“VSDP”) and long-term disability
insurance
o The defined contribution plan
o Deferred compensation match payments
24
Source: WorldatWork 2019-2020 Salary Budget Survey.
25
The U.S. BLS data represent a collection of federal, state, and local government organizations of all sizes; the BLS is not scoped
based on operating budget.
26
Source: FY 2021 Start-Up Budget Instructions published by the Virginia Department of Planning and Budget.
24
− Deloitte converted the value of benefits as a percentage of salary to an annual
dollar value.
− Deloitte averaged the employer cost of "Family" coverage among the
Commonwealth’s five health insurance plans to derive an average medical benefit
value for each Commonwealth employee. Not all employees select the Family
option, but this option represents the maximum benefit the Commonwealth offers
its employees for medical benefits. 27
− Deloitte aggregated the dollar value of all benefits to derive a total value of
benefits.
− Deloitte added the total value of benefits to each employee’s salary.
All market data used in the analysis were gathered before the pandemic of 2020.
The exact impact that COVID-19 and the resulting economic impact will have on
market data reported in 2020 published surveys is not yet known.
27
The five plans include COVA Care, COVA High Deductible, HealthAware, Kaiser Permanente, and Optima Health Vantage.
25
Appendix B: Market Review Methodology (cont).
Salary Surveys Used
Economic Research Institute (ERI) 2020 Salary Assessor
Empsight International
− 2018 "The Works" Survey
− 2019 "The Works" Survey
Mercer
− 2017 All Modules excluding Manufacturing Report
− 2017 Healthcare Individual Contributors Report
− 2017 Physician Practices/Clinics Report
− 2018 Finance, Accounting, and Legal Report
− 2018 Information Technology Report
Payfactors (data effective as of 6/1/2020)
Sullivan, Cotter & Associates 2019 Manager and Executive Compensation in Hospitals
and Health Systems
U.S. Bureau of Labor Statistics 2019 Survey
Willis Towers Watson
− 2017 Accounting & Finance Compensation Survey
− 2017 Financial Services Middle Management, Professional and Support Compensation
Survey
− 2017 Health Care Clinical and Professional Survey
− 2017 Human Resources Compensation Survey
− 2017 Marketing & Communication Compensation Survey
26
Appendix C: Geographic Differential Analysis
Deloitte compiled cost of labor data for the ten most populated locations for employees of
the Commonwealth for which geographic differential data exists to understand how the cost
of labor varies across the Commonwealth. Table 7 contains the market data findings. 28 29
Deloitte generally recommends that geographical differentials be applied to national market
data for occupations below the executive level when the cost of labor in a city is greater
than 10% above or below the U.S. national average.
Table 7 Salary Comparison Levels vs US Average
Cities in Virginia $25,000 $50,000 $75,000 $100,000 $125,000 $150,000
Charlottesville 96.8 96.4 96.8 97.4 97.7 98.0
Chesapeake 90.4 91.7 93.6 95.5 96.8 97.7
Chesterfield 93.5 95.5 97.0 97.9 98.4 98.8
Christiansburg 95.5 98.1 99.7 100.8 101.3 101.7
Fairfax 106.6 113.2 116.1 116.3 115.4 114.1
Harrisonburg 92.2 92.3 93.4 94.9 95.8 96.4
Norfolk 94.5 96.5 98.0 99.0 99.4 99.7
Richmond 96.9 98.8 100.3 101.4 101.8 102.1
Roanoke 91.0 91.3 92.6 94.1 95.1 95.9
Staunton 92.0 93.0 94.3 95.7 96.5 97.2
Average 94.9 96.7 98.2 99.3 99.8 100.2
Overall Average 98.2
28
Source: Economic Research Institute (ERI) 2020 Geographic Assessor.
29
Nottoway, Wise, and Dinwiddie did not have geographic differential data available within the ERI 2020 Geographic Assessor
27
Appendix D: Sources for Market Practice Research
Organization Source
State of Delaware https://dhr.delaware.gov/personnel/class/docs/comp/dcc-report-2017.pdf
State of Kentucky https://personnel.ky.gov/pages/pay.aspx
https://www.civilservice.louisiana.gov/files/HRHandbook/Updates/2018-
State of Louisiana
0001%20CAG.pdf
https://files.nc.gov/ncoshr/documents/2018-Compensation-Benefits-Annual-
State of North Carolina
Report-20190118.pdf
28
Appendix E: Salary Increase Market Data
Deloitte provided DHRM with current market practice information on annual salary increases
and salary structure adjustment practices in the public sector and in the private sector to
assist with the development of salary increase budgets.
Deloitte reviewed three sources of market data containing calendar year 2020 salary
increase projections. The data represent the public sector (Table 8) and the private sector
(Table 9) are specific to salary structure adjustments, cost of living adjustments (“COLA”),
special competitive adjustments, merit increases, and total increases. 30
Table 8
Public Sector Industry Survey Source
Increase Type WorldatWork 31
PayFactors 32 Empsight 33 34
Salary Structure Adjustments 2.0% 1.6% N.R.
General Increases/COLA 2.4% 1.9% N.R.
Merit Increases 3.0% 2.6% N.R.
Total Increases 35
3.0% 3.0% N.R.
Table 9
Private Sector Survey Source
Increase Type WorldatWork 27 PayFactors 28 Empsight 29 30
Salary Structure Adjustments 2.2% 2.0% 2.0%
General Increases/COLA 2.0% 0.9% N.R.
Special Competitive Adjustment 36
N.R. N.R. 0.75%
Merit Increases 3.0% 2.9% 3.0%
Total Increases 35 3.3% 3.2% 3.0%
30
The data have not been scoped based on number of organization employees or organization annual budget/revenue.
31
Market Data Source: WorldatWork’s 2019-2020 Salary Budget Survey. WorldatWork includes Public Administration data. All data
reflect medians.
32
Market Data Source: PayFactors 2019-2020 Salary Budget Survey. All data reflect medians and exempt employees. The survey
reports data based on employee-type level (i.e. Exempt, Non-exempt); it does not present data on an overall basis.
33
Market Data Source: Empsight Policies, Practices, and Merit Survey Report (August 2019). All data reflect medians.
34
Many of the participants in Empsight’s survey are Fortune 500 companies; 80% have annual revenues greater than $3 billion.
35
Total Increases: The sum of increases granted over the course of the year.
36
Special Competitive Adjustment was not explicitly defined in Empsight’s Policies, Practices, and Merit Survey Report.
29
Appendix F: Employee Performance as a Factor in
Salary Increases 37
Leading Market Practice Information
Figure 14 shows a majority of organizations use individual performance to determine salary
increases.
Figure 14
90% The percentage of organizations in
2019 using individual performance
to drive base salary adjustments
Advantages Disadvantages
• Helps organizations and motivates employees • Requires a strong, well-understood and
to accomplish goals by incentivizing and consistently used performance management
reinforcing desired levels of performance and rating system
behaviors
• Small merit budgets allow for little variation in
• Removes bias and subjectivity from pay salary increases for top performers compared to
decisions “meets expectation” performers
• Provides a foundation for pay program actions • Merit budgets can be more difficult to manage
compared to an across-the-board/cost of living
• Helps employees feel they are treated more increase that provides all employees the same
equitably when rewards match contributions percentage increase
• Helps attract high performers that can see the
connection between performance and rewards
37
Source: “Merit Increase Budgets Expected to Hold Steady” by Brett Christie. Published by WorldatWork in August 2019.
30
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