Pay for Performance
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Running head: Pay for Performance and Step Based Compensation
Evaluation of Pay For Performance and Step Based Compensation Systems
For the Green Valley Fire District
Charles J. Wunder Jr.
Green Valley Fire District, Green Valley, Arizona
August 2009
Pay for Performance
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CERTIFICATION STATEMENT
I herby certify that this paper constitutes my own product, and where language of other is set
forth, quotation marks so indicate, and that appropriate credit is given where I have used the
language, ideas, expressions, or writings of another.
Signed: ____________________________
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Abstract
The problem to be addressed in this paper was that the Green Valley Fire District senior
management team has been debating the idea of transitioning from a step based compensation
(SBC) system to a pay for performance (PFP) based compensation system for several years now.
The purpose of this research was to evaluate the question of whether the Green Valley Fire
District should consider moving from a step based compensation system to a pay for
performance compensation system. Evaluative research was utilized to help identify the
advantages and disadvantages of SBC and PFP based programs according to the compensation
industry, compensation practices being utilized by other fire districts and other government
entities in the state of Arizona were revealed, and potential labor management issues that could
arise from a switch to a PFP compensation model were answered. Research was conducted using
literature review in combination with two procedures which were data collection and analysis
and interviews. The evaluative research showed that step based compensation systems are the
predominant compensation model in both government entities and fire districts in the State of
Arizona. It also showed that while, conceptually, labor and management support the idea of pay
for performance, there are significant hurdles to a successful implementation of a PFP plan and
that poorly instituted plans may cause greater harm than good. It is recommended that the Green
Valley Fire District maintain their current step based compensation system until it can garner
additional labor support for the program, until they can offer the necessary training for their
management team in performance evaluation, and until there are financial resources in place that
can support the program at a level that employees would find motivating.
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Table of Contents
Abstract ………………………………………………………………………..page 3
Table of Contents ……………………………………………………….……..page 4
Introduction…………………………………………………………………….page 6
Background and Significance………………………………………………….page 6
Literature Review………………………………………………………………page 9
Procedures………………………………………………………………………page 20
Results…………………………………………………………………………..page 23
Discussion……………………………………………………………………….page 30
Recommendations……………………………………………………………….page 34
Reference List…………………………………………………………..……….page 37
Appendix A (Arizona Fire District Compensation survey)…………………….page 41
Appendix B (Interview Question Template)…………………...………………..page 53
Appendix C (Interview Template and Summarized Responses)...........................page 54
Appendix D (Summary Fire District and Government Entities
Compensation Model)…………………………………………………..…….….page 57
Appendix E (Board of Directors Presentation April 15th, 2002)………...……….page 59
Appendix F (Summary of Personal Interviews)…………………………………..page 69
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List of Tables
Table
1. Table 1: Summary table of advantages and disadvantages of PFP and
SBC compensation systems according to the compensation industry…….page 26
2. Table 2 : Government Compensation Model By Percentage………………page 27
3. Table 3: Fire District Compensation Model By Percentage……………….page 28
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Introduction
For several years, the Green Valley Fire District senior management team has been
discussing the strengths and weakness of its current step based compensation system in contrast
to the opportunities and challenges posed by a transition to a pay for performance based
compensation system. The specific problem is that the Green Valley Fire District senior
management team cannot decide whether the risks inherent in such a transition are justified or
not.
The ultimate purpose of this evaluative research is to determine whether the Green Valley
Fire District should change its current compensation system. Using evaluative research, the
following questions have been answered: What has the compensation industry identified as
advantages and disadvantages of a step based compensation system and a merit based
compensation system? What compensation practices are being utilized by other fire districts and
government entities in the State of Arizona? What labor management issues could arise from the
change to a merit based
compensation system from a step based compensation system?
Background and Significance
The Green Valley Fire District is a semi-rural fire district providing fire and EMS services to
approximately 32,000 people in the communities of Green Valley, Amado, and Sahuarita,
Arizona. Responding to more than 8,000 calls for service a year, the Green Valley Fire District
is the largest fire district between Tucson and the international border of Mexico.
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Governed by an elected Board of Directors and operating with a 2010 fiscal budget of
$8.3 million, the Green Valley Fire District uses 62 personnel to provide services from four fire
stations and one administrative headquarters. The Green Valley Fire District prides itself on its
high level of EMS experience, with greater than 65% of the suppression personnel trained as
paramedics. The Green Valley Fire District operates all ALS engine companies, with an average
response time of just under four minutes.
In addition to its outstanding EMS services, the Green Valley Fire District provides
hazardous materials response, both locally and as part of the Pima County Regional Hazmat
Team. The District also provides technical rescue response and specializes in wildland
firefighting. The District has an active fire prevention bureau that not only provides plans review
and code enforcement, but is also extremely active with public education in the communities
served by the District.
The Green Valley Fire District was formed in 1975. At that time the District owned one
single building and no fire apparatus. The District elected to contract with a private sector
company to provide fire and emergency medical services. Included in this contract were all
personnel, management, and additional apparatus needed to provide service. Over the next 25
years the District continued contracting for services with the same private sector company while
steadily increasing the District’s capital assets.
In July of 2001, the Green Valley Fire District ended its contract and started its own
independent operation which included all personnel, management, and capital assets necessary to
provide fire and emergency medical services to the Fire District.
This transition resulted in all but one of the private sector employees working in the Green
Valley Fire District becoming full time employees of the Green Valley Fire District. At the time
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of this transition the majority of the workforce was making less than market wages for the area
and working two extra days a month. These employees were also all part of a pay for
performance (PFP) based compensation system directly tied to their performance appraisals.
PFP ranges were assigned out each year by senior managers in the organization and typically
ranged between 2-5% (Davis, personal communication, May, 13th, 2009). Then local level
supervisors would use these allotment levels to reward their employees.
When the transition occurred from private sector to public sector employees, these
employees were all started at their current salary level from their previous employer. In an effort
to improve recruitment and establish better salary parity with other fire departments in the area,
the Green Valley Fire District moved to a step based compensation model in July of 2002.
Employees were placed into a step commiserate with their current salary. If the employee was in
between steps they were adjusted to the next highest step (Davis, personal communication, May,
13th, 2009). Based on employees entering the step system at higher rates and on various market
factors, the issue of salary compression has arisen, and demand by labor for adjustment to the
steps has increased. In addition, political and economic pressures have placed more scrutiny on
the organization causing management to wonder if the time is right for a change in compensation
strategy.
Another change that took place when the Fire District began its own operation and that
brought the compensation issue to the forefront was the addition of an Administrative Manager.
This Administrative Manager came from the private sector and was familiar with, and an
advocate for, pay for performance based compensation. As a member of the senior management
team, which includes four Battalion Chiefs, an Assistant Chief, and the Fire Chief, this manager
begin to introduce this idea as an alternative to the existing step based system. While this
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concept was not new to the majority of the workforce, it has been the subject of much debate
amongst senior staff members who wrestle with the pro’s and con’s associated with both types of
compensation models and are unable to reach any consensus conclusion on which type of
compensation system is best for the Green Valley Fire District. This research will more closely
analyze step and pay for performance compensation and provide recommendations that will have
a probable future impact of alleviating the stalemate on this issue.
The forcing of this question is directly in line with the United States Fire Administration
(USFA) operational objective “To respond appropriately in a timely manner to emerging
issues”,(U.S. Department of Homeland Security, 2009) as managing compensation and
controlling costs has clearly emerged as a challenge for fire administrators nation wide. In
addition, the possible transition from a step based compensation system to a pay for performance
based system is closely aligned with the Executive Development course objective which states,
“Recognize that the Executive Fire Officer (EFO) should be an agent of cultural and
organizational change” (U.S. Department of Homeland Security 2006, p.SM7-1).
Literature Review
Pay for Performance
Literature review was conducted to provide insight into the advantages and disadvantages
associated with step or seniority based compensation systems in contrast to pay for performance
or merit based compensation systems. Literature review was also utilized to help identify
potential challenges that may be encountered between labor and management when transitioning
from a step based system to a pay for performance based system.
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Pay for performance (PFP) or merit pay is simply defined as a salary increase directly
tied to an employee’s success in accomplishing certain goals that are established between the
management and the employee (McIntyre, 2009). PFP practices have grown in popularity over
the years and are now the predominant compensation method in the private sector with more
than 75% of US companies connecting some portion of an employees pay to performance
standards (Wikipedia, 2009). Pay for performance plans in the public sector are also more
prevalent then ever before. The federal government has lead the public sector charge with the
Civil Service Reform Act of 1978, the Performance Management and Recognition System in
1984, and more recently with the 2006 National Security Personnel System modifications which
have mandated PFP programs for certain federal employees (US Office personnel management).
PFP has increased in popularity over the years for a variety of reasons including
increased production, improved quality, use as a motivational tool, recruitment and retention, and
as an improved communication tool with employees (Caneel & Wood, 1992).
According to Roots (1988), financial incentives tied to performance encourage
employees to cooperate with higher production goals. This cooperation may be seen in a variety
of ways including less resistance to procedural changes, greater acceptance of work output
measurements, and improved quality control. In addition, Roots goes on to site several
unforeseen benefits which may include improved work processes, less sick time abuse, and
employee identification with organizational goals and objectives (Roots, 1988).
The idea of improved outputs or improved production through PFP is not a new concept
to either the public or private sector. The city of Orange California developed and implemented
an incentive based program in 1973 to pay police officers for specified reductions in crime.
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During the two year trial the city of Orange saw a 5.6 percent drop in four identified crime areas
and officers were awarded with performance increases (Dahl, Greiner, Hatry, & Millar, 1977).
Private sector companies have also experienced success with PFP plans. Private
insurance company MetLife placed all employees on a pay for performance system in 1998 and
saw return on equity jump from 7 percent in 1998 to 10.5 percent in 2000 (Wiscombe, 2001).
Pay for performance works. Companies with well formulated pay for perform polices perform
better than those that do not (Risher, 2002).
Improved production is not the only advantage of PFP plans. Improved employee
motivation is also identified as a strong advantage of PFP plans. The majority of the literature
reviewed recognized employee motivation as one of the greatest benefits of a PFP plan. Caruth
and Handlogten (2001) state, “employees are motivated when there are financial rewards directly
tied to their performance.”
Risher (2002) writes that there are three basic theories that explain the increased
motivation provided by PFP. First is the equity theory where workers compare their efforts and
work habits against other workers and want to be compensated accordingly. One of the driving
forces behind the equity theory of motivation is the increased competition amongst employees
(Caruth & Handlogten, 2001). Competition motivates and brings out the best in people with the
net result being increased production or improved performance levels for the organization. The
idea is that all people are competing at a higher level in an effort to out perform their counterpart.
Proponents of PFP plans believe that this competition is healthy and a distinct advantage to the
organization.
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There is also an expectancy theory, which says that people will behave based on their
perceived reward. Finally, there is the reinforcement theory, where the underlying principle is
that reinforced behavior will be repeated.
In addition to the above three motivation-based theories, improved recruitment and
retention is also sighted as a strong advantage of PFP plans (Risher, 2002). If an organization
consistently recognizes strong performers, then word will leak to the market place that this
organization appreciates and rewards above average performance. Employers that do not choose
a pay for performance plan are at a definite recruitment disadvantage because employees place a
high value on being recognized for their efforts (Risher, 2002). In another example, Howery, a
large law firm employing more than 600 lawyers, moved from a step based compensation system
to a PFP model in 2007, citing the goal of attracting and keeping the best people as its rationale
for this dramatic change from the industry norm (Ellison, 2007). “Businesses cannot change the
‘character and nature’ of the employees they hire, therefore this must be handled during
recruitment” (Wilson, 2003, p. 29). Pay for performance leads to recruitment of better
employees.
PFP plans also have the potential advantage of improving communication between line
employees and management. The evaluation or assessment process for a successful PFP
program requires the manager and the staff communicate frequently, openly, and honestly about
expectations and about performance (Shields, 2007).
Cultural change is also identified as a significant advantage of PFP plans. It sends the
message to the organization that there are no more free rides and reduces the entitlement
mentality that seems to be prevalent with step type programs. In fact, a Hay Group survey
showed that nearly a third of workers queried stated that poor performance was routinely
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tolerated. In contrast, interviewees in Caneel and Wood’s (1992) research stated, “Nobody
owes anybody anything. Nobody gets a pay raise unless they deserve one.”(p. 53). Armstrong
(1993) states it sends a message of accountability from the organization, and that the
organization has expectations and employees will have to produce and meet these expectations if
they want to receive a raise.
Conceptually PFP plans appear to be relatively straightforward and logical with many
advantages as sighted above. Unfortunately, the practice of PFP is much more complex than it
initially appears (Fay, Thompson, and Knight, 2001) and lends itself to inherent disadvantages.
For instance, Risher( 2002) emphasizes the importance of training and leadership for a
successful PFP program, suggesting that without these foundational elements that a PFP plan
will not succeed. He says that it is highly advantageous to have a leader who is able to articulate
the rationale and benefits of a PFP plan and continue to support this plan. He states this
normally should be the chief executive or someone who can speak for that executive. He also
says that senior managers must be committed to the plan and identify the plan as a top
management priority. If the plan is considered to be only a human resources initiative than it is
unlikely to be successful. (Risher, 2007) . It is also suggested the key labor personnel be
included in the planning, roll out, and continual review or a PFP plan. Bloedorn (Chingos &
KPMG,1997) further recommends a compensation committee work in conjunction with
management and HR so there is “buy in” from all levels of the organization (1997).
The literature review reveals that PFP plans require significant training and are very labor
intensive and challenging to manage (McIntyre 2009, July 10). “If PFP cannot be managed you
are better to use a ‘peanut butter’ approach to granting pay increases just as peanut butter is
spread evenly across toast…This approach is probably less offensive than a poorly managed PFP
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plan”( Henneman,1992.p21). “ Hay Group research finds that the culture and climate of an
organization –which are directly impacted by the immediate supervisor, account for 30% of the
discretionary effort of employees. Investing in manager training development produces direct
returns in enhanced employee performance” (Jensen, McMullen, & Stark, 2007, p. 21).
McIntyre (2009, July 10) sites not having adequately trained managers as a big mistake in
regards to PFP plans. This investment in time and resources should be carefully considered, as
these issues often make a PFP plan undesirable (Heneman,1992).
The vast majority of the literature reviewed identified managing and executing the
evaluation process or providing accurate feedback to the employee as one of the greatest
challenges with a PFP plan (Zeller, 2004) Conducting successful performance appraisals and
counseling sessions necessitates the use of skills that few managers possess. Thus, without the
necessary training there is the potential to ultimately do more harm than good (Armstrong &
Murlis,1988). Compensation expert Brenda Tranchina (personal communication, July 29, 2009)
noted this becomes a significant hurdle for some organizations to overcome, as they either don’t
make the commitment to training or cannot afford the training needed to successfully implement
the program.
Ted Weinberger, Compensation Director with Administaff, stated in an interview with
the author (personal communication, July 15, 2009) that pay for performance plans are
challenging because they are “dependent on observations and the ability to interpret these
observations.” He questions the whether a manager is getting opportunities to observe desired
behaviors and results and does the manager actually have the ability to discern these results from
his or her observations? He is also concerned that improper measurement tools lead to
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unfairness in the evaluation process going as far as to suggest that “integrity is suspect” in pay
for performance evaluations.
Motivation, competition, and communication were all discussed above as potential
advantages of a PFP plan, but they can also be a disadvantage as well. By increasing competition
for scarce resources you have the potential liability of reducing teamwork and creating conflict
(Henneman, 1992). Stanford University business school professor Jeffery Pfeffer agrees, stating
that with PFP plans “your people are going to be unhappy” (Zeller, 2004). He points out that
incentives that focus on individuals are going to create “vicious competition” (Zeller 2004). This
competition leads to employees becoming less motivated . An interesting contradiction noted in
the literature is the idea that the incentive of PFP actually works too well. Employees may spend
more time focused on projects that will increase their paycheck as opposed to the goals or needs
of the organization (Beer & Cannon, 2003).
In addition, successful communication is critical to the success of a PFP plan (Zeller,
2004). It is important that an organization communicate what the overall goal of the PFP plan
and identify measurable performance standards. These specific measurements or standards help
both the employee and the manager know when certain goals or objectives have been met
(McIntyre, 2009, July 20 ). These standards need to be clearly communicated to personnel or you
run the risk of your work force either becoming frustrated with the process, or as pointed out by
Brian Epstein, your employees spend an inordinate amount of time trying to justify their raise at
the expense of production (Margolis, 2004). Once these standards have been communicated,
then the organization needs to update its workforce on their success or failures in reaching these
standards and be open about what level or rewards can be expected (Chingos & KPMG, 1997)
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Lastly, lack of financial resources can be a disadvantage to a PFP program. Several
authors in the literature suggested an increase of anything less then 7% of an employee’s annual
salary will not result in a meaningful pay increase and fail to increase production significantly
(Shields, 2007, Zeller, 2004). Increases less than 7% this are not appreciable enough to separate
out your performers from your non-performers. Colter (2003) suggests that if you cannot afford a
large enough pay increase to accomplish this, then you should utilize a seniority based system
with annual increases and spend your managerial resources remediating or removing poor
performers who bring down the morale of the workforce.
To control costs associated with PFP plans as well as to assist with budgeting, managers
may place a flat allocation for PFP and require that this be shared amongst all employees.
Known as forced distribution or zero sum game (Shields, 2007, Wilson 2003), this system may
reward one employee at the expense of another. For example, if a manager has a fixed amount
of money he can allocate towards performance raises, and he or she has a super star performer,
they may allocate a larger percentage of their monies to this person who may be very deserving,
but to compensate for the large raise, they will in turn lower someone else’s rating. This can be
very upsetting to employees who feel they have performed at a higher level, but were scored
lower to balance the overall available allocation.
Step Based Compensation
Literature review was also focused on identifying the advantages and disadvantages of
step based compensation (SBC) plans as well. Much of the same literature reviewed on PFP
plans also addressed SBC plans in their analysis, as these concepts were frequently contrasted in
the literature review.
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A step based compensation system is a compensation system where the employee earns a
raise by advancing through a series of steps. Steps represent some period of time, typically a
year, (Caruth & Handlogten, 2001) and are not dependent on performance. Therefore the longer
an employee has been with an organization, the higher his or her rate of pay. Caruth &
Handlogten go on to explain that the underlying theory behind step increases is that the longer an
employee performs his or her job, the more competent they are assumed to have become. Your
employees who have been on the job the longest are presumably your most competent
performers and deserve the highest rates of pay.
SBC plans have several distinct advantages (Caruth & Handlogten, 2001). First, is that
they are very easy to administer and management oversight is minimal. Steps are predetermined
so there is no need to establish performance measurements or calculate merit pay outs. The
salary adjustment is already predetermined
Second, there are very little communication issues surrounding step programs. Step
programs are easy to understand. The number of steps is easily identified, and the length of time
to progress from step to step is predetermined.
Last, budgeting is easy to accomplish, as estimates for the next year’s budget can be
easily derived by looking at anniversary dates and steps to determine allocations.
Recruitment and retention are also strengths of the step based compensation system.
Perspective employees have a good understanding of what their earning potential is and how
long it will take them to get there. There is security in this, and this security is what leads to
improved retention. Employees can plan and budget their personal lives around anticipated
raises (Green Valley Fire District, 2002).
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Closely tied and identified as an advantage by Shields (2007) are the psychological
implications associated with a step based compensation system. He theorizes that by meeting the
security and safety needs of employees they will in turn be motivated to address the tasks
assigned to them. He also says that this type of pay system shows a commitment to an employee
and that the employee is more likely to exhibit behaviors such as loyalty and good citizenship to
the organization.
Step based compensation systems are not without their disadvantages as well. Gary Reid
(2007) challenges the underlying theory that organization’s most senior people and most highly
paid are your most qualified and productive. Reid contests that while employees may bring
increased value and better performance during their early years of their career, productivity does
not necessarily keep pace with salary increases and actually begins to drop off later in their
careers, thus making it difficult to justify the high salaries and continual increases at the same
rate.
In addition, one of the most identified disadvantages identified with SBC plans is that the
plans are inflexible, meaning that there is little to no discretion for managers to reward
employees because everyone is locked into the same system (Bertlet & Cravens, 1991). Without
a carrot to dangle, there is little short term incentive for employees to improve performance.
This inflexibility also has a negative impact on the budget, as the employer is forced to
pay out a pre-determined salary increase regardless if the employee’s performance (Shields 234).
This inflexibility also may make it difficult to adjust to changing market conditions (Armstrong
& Murlis, 1988), as well as hurt recruitment and retention. Performers in an organization,
especially young ones, may become discouraged and seek employment elsewhere (Shields,
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2007), and potential employees may find that salary scales don’t always keep up with market
rates and elect employment elsewhere (Armstrong, 1993, Cannel & Wood, 1992).
Motivating employees under a SBC plan may also become a challenge. Fredrick Taylor
(1911, p. 19), founder of the school of scientific management sums this problem up nicely when
he said,
“The common tendency to ‘take it easy’ is greatly increased by bringing a number of men
together on similar work and at a uniform standard rate of pay…When a naturally
energetic man works for a few days beside a lazy one, the logic of the situation is
unanswerable. Why should I work hard when the lazy fellow gets the same pay that I do
and does only half as much work?”
SBC plans also lend themselves to issues with salary compression where employees have no
promotional opportunities and they have topped out in their step range making it easy for the
employee to become frustrated and lose motivation (Armstrong, 2003, Caneel & Wood, 1992). It
is further argued that SBC plans actually breed an entitlement mentality where employees come
to expect a raise even if they have not earned it (Wilson, 2003).
The literature was also reviewed to identify what potential labor management issues
could arise from the change from a SBC compensation model to a PFP compensation model.
This review showed that many of the potential issues that could occur from a change in plans
have already been highlighted in addressing the authors’ first research question in the literature
review. These issues include: perceived issues of fairness on performance evaluations, issue
regarding employee morale, communication issues, and teamwork and cooperation issue related
to increased competition amongst employees.
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The only additional issue that was identified in the literature was the issue of trust
between management and labor (Risher, 2002). Trust between these groups could seriously be
eroded by some of the previously mentioned pitfalls of a PFP model, including issues related to
fairness, poor communication, or lack of proper funding for the program. The damage that this
mistrust could cause to the organizational culture should be given serious consideration.
Hyde(2008) sites an example of this mistrusted management in a Washington Post article in
2004 in which 76 % of Transportation Security Administration (TSA) executives received a pay
bonus and only 3 % of “rank and file” received a bonus for the same time period. The article
goes on later to sight the inspector general who says that this issue represents a “substantial
inequity” in favor or management. A July 10th, 2009 article in the Federal Times reflects this
frustration with management and the PFP system as evidenced in HR 1881, the Transportation
Security Transportation Enhancement Act currently being discussed in Congress. This bill would
provide collective bargaining rights to TSA employees and remove them from the pay for
performance system they are currently working in (Losey, 2009).
This literature review has provided the author with a foundational knowledge base
of the advantages and disadvantages associated with PFP and SBC compensation plans as well as
some brief insight into potential labor management issues that may arise from a transition to a
PFP plan for a SBC plan
Procedures
The procedures employed to complete this ARP included data collection and review, in
combination with personal interviews. The information garnered from these two procedures was
utilized to identify the advantages and disadvantages of SBC and PFP compensation plans, to
identify what compensation methods are being utilized by other fire department’s and
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government agencies in the State of Arizona, and what potential challenges could arise from a
change in compensation practices.
Data collection was facilitated through telephone and email requests for information.
Data collection was focused on gathering statistical information to support research question 2.
Most of the information acquired in regards to Arizona State government employees was
obtained from the State of Arizona Department of Administration. However, information
gathered from the State of Arizona left out four significant government employers, including the
three state universities and the Arizona Department of Public Safety. To obtain this missing data,
follow up telephone calls were placed to these agencies and members of their human resource
departments provided necessary data to support the research.
Information was also gathered from all 15 county governments in the State of Arizona, as
well as 30 city or town governments in Pima and Maricopa Counties, the two largest counties in
Arizona. Cities and towns were selected based on being incorporated in either Maricopa or Pima
County and having populations of over 5,000 people.
In addition, telephone calls were placed to 30 fire departments to verify data provided in
the Arizona Fire District Association Suppression Wage and Benefit Survey (Appendix A) was
accurate, and to ascertain the compensation model being utilized by the fire departments not
covered in the survey. This data was then tabulated to support research question 2.
Personal interviews were also utilized as a research tool. All interviews were based off a
seven question template (Appendix B) created by the author and were answered by all
participants. Questions were designed specifically to help address the listed research questions.
Question 1 and question 2 in the template provided foundational knowledge of the interviewees’
understanding of PFP and SBC compensation plans. Question 3 established background and
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foundation for support of the remainder of the interview questions. Questions 4-7 were
specifically targeted at answering the established research questions.
Interviewees included two subject matter experts in human resources and compensation
management and three Arizona Fire Chiefs who are experienced with issues regarding SBC and
PFP plans. In addition 20 employees of the Green Valley Fire District were interviewed in the
hopes of identifying potential labor management issues that might arise from a transition to a
PFP plan from a SBC plan.
The sample population interviewed included members of the Green Valley Fire District
Board of Directors, members of senior staff, Captains, Engineers, Firefighters, Inspectors, and
Administrative Staff. The population represented all three divisions in the organization and
considered various years of experience, both genders, and a range of ethnicities for balanced
representation. It should also be noted that two members of the Green Valley Fire District Local
429 Executive Board were included in these interviews. In an effort to encourage truthful and
open responses, interviewees from the Green Valley Fire District were advised their responses
would be confidential.
There are several assumptions and limitations of this research. As the author is a member
of the senior staff, it is assumed that answers provided were truthful and not geared toward
pleasing the questioner. It is also assumed that data provided by technical experts from the State
of Arizona, other government agencies, and associations is accurate and up to date. Limitations
of this research include the fact that only Green Valley Fire District employees were interviewed
in support of research question 3. Another limiting factor was that the author did not survey city
or town governments outside of Maricopa and Pima Counties. The last limiting factor was that
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data in regards to PFP and SBC plans was only collected on full time fire districts that run in
excess of 1,000 calls per year.
Results The evaluation of PFF and SBC plans has led the author to be able to answer the three research questions. Question 1: What has the compensation industry identified as advantages and
disadvantages of a step based compensation system and a pay for performance based
compensation system?
Several advantages of an SBC plan were identified through this research. First is the fact
that this type of compensation plan is easy to administer and requires minimal management
oversight (Caruth & Handlogten, 2001). This type of plan follows a series of steps that an
employee advances through on a certain time interval and is easily communicated to the
employee. This is contrasted to the PFP model where management oversight is very labor
intensive and it is difficult to communicate measurable performance standards (McIntyre, 2009,
July 10). Green Valley Fire District Chief Simon Davis says this is exactly why he moved the
District into a SBC system in 2002. “Pay for performance is a fairer system, but causes so many
problems for management that it is not worth it.” (personal communication, August 10, 2009).
SBC plans also provide for improved recruitment and retention (Green Valley Fire
District, 2002, April 15) by establishing a clear earnings expectation prior to employment and by
fulfilling personal security needs through long term employment and reliable pay increases. Ted
Weinberg states that “stability and longevity” are big advantages of the SBC system. Similarly,
proponents of PFP say that recruitment and retention are also a benefit of PFP plans. (Risher,
2002) They say that by providing additional incentives to those employees that out perform
others, you are sending a clear message that an employee’s work and contributions are valued.
Pay for Performance
24
This will help recruit new employees who want the opportunity to be rewarded quickly for their
performance, while current employees will be more motivated and want to work for an employer
who recognizes performance (Risher 2007).
SBC plans are also easier to budget for (Caruth and Bandlogten, 2001). Budget planners
are aware of what the next step is for each employee and simply need to identify their step or
annual increase date for planning. Budgeting for a PFP plan is more complex. Fire Chief
Alexander states that it is difficult to accurately budget for a PFP plan. He says that his
department utilizes a PFP plan and he budgets enough to cover the maximum merit increase for
each employee. There is one potential budget related downfall of SBC systems and that it the
risk of salary compression and employees not having the ability to promote.
A frequently sighted attribute of the SBC system is that it is fairer than the PFP plan, and
it eliminates bias issues in evaluations. The evaluation of employees and the ability to accurately
measure performance are the most sighted disadvantages of a PFP program. As previously
pointed out in the literature review, the ability to provide a good performance appraisal and good
communication with an employee regarding expectations, is a skill most managers don’t have
(Armstrong & Murlis,1988). Employees often feel bias or perceived favoritism, not
understanding why certain employees get better evaluations then others (B.Tranchina, personal
communication, July 29, 2009). This claim is supported through the analysis of responses from
Green Valley Fire District employees where 100% of employees acknowledged fairness and
subjectivity issues as a concern, and 75% did not believe Green Valley Fire District officers
could accurately and effectively evaluate performance. (Appendix C)
Chief Alexander disagrees. “How is it fairer to reward your strong performers the same
as your non-performers?…it’s not.” Recognizing the concerns associated with evaluation
Pay for Performance
25
processes, he said that this issue can be rectified through training. He states his organization has
checks and balances in its systems to reduce the issues associated with fairness and overall PFP
is a fairer system that motivates your workers to do a better job. Chief Alexander stated
emphatically that, “I see no advantages to a step based system”(personal communication, August
,2009).
Chief Alexander is supported by Chief Brown of the Mayer Fire District who also
believes that PFP plans are best for employees and best for the fire service (personal
communication, August 18, 2009). There are those employees who “show up and shuffle their
feet” and expect to get a pay check. SBC plans reward this kind of behavior. PFP plans are
designed to address this issue. Chief Brown fully acknowledges that personalities and biases
can be an issue when it comes to employee evaluations. “There is no way to keep personalities
out.” He says you simply have to manage this system understanding this limitation. Like Chief
Alexander, Brown believes that training is key for a successful PFP program.
The final advantages of a PFP plan identified by the research are improved employee
motivation, increased production, and a change in organizational culture. Organizational culture
is changed to a culture of accountability (Armstrong, 1993) where employees that do not meet
expectation will not be rewarded. This in turn motivates others who know they are going to be
held accountable.
Listed in Table 1 is a summary of the advantages and disadvantages of PFP and SBC
compensation systems according to the compensation industry.
Pay for Performance
26
Table 1 Summary table of advantages and disadvantages of PFP and SBC plans according to the
compensation industry.
Step Based Compensation Pay for Performance Compensation Advantages Ease of administration Improved production Minimal management oversight Increased motivation Easy to Plan and Budget For Improved recruitment and retention Improved recruitment and retention Improved communications Psychological benefit of job security Cultural change Disadvantages Infexible Subject to many budget constraints No incentives for strong performers Management intensive
Possible salary compression Risk of reducing motivation for other employees
“ Entitlement mentality" Issues of fairness surrounding evaluations Significant amount of training required Decreased teamwork and cooperation Required financial commitment for success
Question 2: What compensation practices are being utilized by other fire districts and
government entities in the State of Arizona?
The author conducted an evaluation of 44 government entities and 30 fire districts from
the State of Arizona to evaluate what compensation models were most common in the State of
Arizona. The State of Arizona is the single largest government employer with 37,744 employees
being administered under the State Personnel system. According to data provided from Senior
Compensation Analyst Travis Butchart (personal communication, August 3, 2009), 5,557 state
employees are currently operating on a step based compensation plan with the majority of these
employees working for the Department of Corrections. The remaining 32,187 employees are on
a pay for performance plan. Butchart pointed out that in addition to these respective plans, all
State employees are technically on an additional pay for performance plan based on HB 2661
that passed in 2006. Under this provision, state employees are eligible for up to an additional
2.75% of their base rate if performance objectives are met.
Pay for Performance
27
Lastly, Butchart did point out the fact that Arizona’s three state universities and the
Arizona Department of Public Safety were not included in this data. These agencies are state
employees, but are not managed by the State Personnel system. Contact with Carol Hurst
(personal communication, August 17, 2009) revealed that state university employees work under
a combination system of PFP and SBC, while Arizona Department of Public Safety utilizes a
SBC system with the additional 2.75% available from HB2661 (S.Karloff, personal
communication, August 18, 2009).
To summarize, a thorough analysis was conducted on government agencies around the
state of Arizona. Data was collected from a total of 44 different agencies. Data analysis of these
numbers showed a more moderate balance between SBC and PFP plans, as shown by Table 2.
Table 2 Government Compensation Model By Percentage
Government Compensation Model By Percentage
Governments SBC39%
Governments PFP43%
Other18%
After statistics were compiled from general state agencies, the remainder of the inquiry
focused on identifying whether fire agencies were specifically using PFP, SBC, or some other
Pay for Performance
28
type of compensation system. An organization was assigned to one of three categories. They
were either utilizing a PFP program, a SBC program, or some other type of compensation model.
(Appendix D) includes a break out of each fire agency and how they were classified.
Table 3 Fire District Compensation Model By Percentage
Fire District Compensation Model By Percentage
Fire District SBC80%
Fire Districts PFP10%
Fire Districts Other10%
Data was collected on 30 fire districts around the state of Arizona. Analysis shows that
of those 30 fire districts analyzed only three or 10% of the fire districts are using PFP plans.
Three fire districts are using some other type of plan, while the vast majority, 24 or 80% of the
fire districts are using SBC plans.
Question 3: What labor management issues could arise from the change to a pay for
performance compensation system from a step based compensation system?
Senator Daniel Akaka said “Employee buy in is essential to the government’s
effectiveness and efficiency.” He continued that, “If employees are not involved and their
concerns are not addressed, morale will drop and hinder agency mission” (Rosenberg, 2008, ¶ 7).
Interviews with Tranchina, Brown, and Alexander all agreed, saying that including labor
participation in the planning and implementation process is key to having a successful PFP
Pay for Performance
29
program. Chief Brown and Chief Alexander both say that their respective labor groups are in
favor of the PFP plans that they have in place, and it is because they are included in all aspects of
the process.
Brenda Tranchina specializes in human resource issues pertaining to fire departments.
She says there is always the potential for trust issues between labor and management. These
issues arise from perceived fairness issues. If a line personnel does not believe the plan is being
implemented fairly or consistently, or that there is inadequate support from management for the
program, then organizational trust is compromised.
Chief Brown (personal communication, August 18, 2009) said, “that PFP programs are
not the source of labor management issues, but rather change.” Change in any organization can
present challenges and this change has to be clearly communicated and participatory for it to
move forward smoothly. “The issues that arise from change will be your labor management
issues.” Morale, issues surrounding fairness and consistency, and issues with trust are all
potential issues with any kind of change.
Chief Alexander (personal communication, July 29, 2009), identified potential issues
such as morale and trust concerns that result when things are not perceived as being fair, but also
emphasized that a transition may present an opportunity for improved communication. He says
that labor has communicated closely with management which has increased support for the
program.
Green Valley Fire District interviews revealed several points. First, Green Valley Fire
District employees have an understanding of the difference between PFP and SBC plans. 19 out
of the 20 interviewed recognized that PFP was based on performance and 20 out of 20 were
familiar with SBC plan. Next, employees are keenly aware of fairness and equity issues as they
Pay for Performance
30
pertain to performance evaluations. All 20 personnel questioned sighted this concern. In
addition, 75% of the group expressed concerns about supervisors being able to effectively and
accurately evaluate employees in a PFP system. Even the two respondents who stated that they
felt officers did have the ability to conduct fair evaluations, qualified their response “with the
proper training.” Trust, morale, financial resource concerns, and recruitment rounded out the rest
of the common answers. Six people interviewed said that they think PFP is a better system and
more fair to all concerned, but supported SBC systems for today’s fire service and the Green
Valley Fire District. Responses indicate that employees believe failed plans or poorly executed
plans reduce morale as well as perceived bias issues related to performance evaluations.
In summary, the five items identified as potential labor management issues from a
transition to a PFP plan from and SBC plan are: Morale, organizational trust, recruitment and
retention, fairness and equity issues, and financial resource issues.
Discussion
The information gathered through this research has shown that the issue of PFP and SBC
compensation plans is a complicated one, with no definitive right or wrong answers. Although
pay for performance plans are prevalent in the private sector and gaining popularity in the public
sector, no conclusive data was found in the research to validate the success of one plan over
another This research, however, has successfully provided answers to the research questions
posed.
Research question 1 guided the author to find the advantages and disadvantages of SBC
and PFP plans according to the compensation industry. The results discovered during literature
review were very consistent with what the author discovered during discussions with other
subject matter experts. Brenda Tranchina, President of Human Resources Strategies (personal
Pay for Performance
31
communication, July 29 2009) says while she supports the idea of pay for performance
conceptually, she finds that it is very difficult to implement, especially in the fire service. Her
conclusions are nearly identical to Robert Henneman who says, “Although merit pay is straight
forward in concept, it becomes much more complex in practice” (Fay, 2001, p.448). Tranchina
goes on to say that she understands that SBC plans have the potential to breed mediocrity, but
she frequently recommends them to the fire service because of issues surrounding fair and
objective evaluations, improperly trained managers, and organizational cultures that differ from
the private sector. Tranchina actually recommended that the Green Valley Fire District adopt a
SBC plan in a presentation to the Green Valley Fire District Board of Directors on April 15th,
2002 (Appendix E), sighting career growth, compensation security, and recruitment as major
advantages of this type of compensation plan.
The author did take note that while the information remained consistent between
literature review and discovery, there has been very little change in the perceptions about the
advantages and disadvantages associated with these compensation plans over the last 30 years.
He also noted that there has been very little new research on this subject for the last 10 years.
For example, in the 1976 book, Managing Compensation, Gary Berg points out the fact that there
are few books “that are anything else other than revised editions of older ones (1976, p.2). The
author has come to the same conclusion 33 years later.
This is not to say there is still isn’t plenty of discussion and commentary on this issue.
While it was outside the scope of this research, the author was intrigued, for example, by how the
political climate of the nation affects the attention and perhaps the momentum of these issues.
When conservatives have the balance of power in Washington, PFP plans are pushed to the
forefront and policies and procedures are constructed to push this agenda. George W. Bush and
Pay for Performance
32
his administration “created the largest pay for performance system in the government”
(Davidson, 2009, March 9, ¶8) with the creation of the National Security Personnel System
during his tenure, with over 205,00 personnel participating in the system. When the power
shifted this past year, the pendulum began to swing the other way, and a more liberal agenda has
emerged with President Barack Obama stating, “He would consider an overhaul or ‘complete
repeal’ of the merit system” (WSJ.com, 2009, April 11, ¶ 7).
Research question 2 showed a fairly balanced split with the use of PFP and SBC plans by
various government agencies in the State of Arizona. An unintended and interesting finding was
presented to the author during research of this question. While analyzing data and discussing
with Senior Compensation Analyst Travis Burchart, he highlighted that nearly 100% of state
employees, in actuality, received performance pay to some extent, based on the 2.75%
discretionary funding allowed under HB2611. When question furthered he said that agencies
approve performance pay based on meeting certain goals and objectives that they establish. He
says that agencies “set their own bar so to speak” (personal communication, August 3, 2009).
According to implementation guidelines reviewed by the author, each state agency is to establish
their own performance measures, will do their own data collection, and establish their own
benchmarking for success (State of Arizona, 2009) leaving the author to question if those
agencies claiming to use strict SBC principles are really able to adhere to them in the end.
Research question asked, what potential labor management issues could arise from a
switch to a PFP plan from a SBC plan?
Pay for Performance
33
"It was clear from the beginning that the SEC's merit pay system lacked fairness,
credibility and transparency," said NTEU President Colleen Kelley. "This case is another
example that the best way for agencies to deal with sensitive, complex matters such as
merit pay and the range of diversity issues is to work with employees and their
representatives, and not to try to go it alone" (Rosenberg, 2008,Oct 7, ¶3).
The aforementioned quote is in response to a settlement between the National Treasury
Employees Union and the Securities and Exchange Commission regarding a suit over the
agencies merit system. This response from the union is consistent with what was discovered as
potential labor management issues arising from a transition from SBC to PFP by this research. It
is clear the fairness and consistency issues, along with communication, and trust were definite
concerns of Green Valley Fire District employees in regards to PFP plans.
During this research the author was torn back and forth between the merits and
challenges posed by both types of compensation systems. At first glance the implementation
challenges look daunting and insurmountable for a PFP system. Virtually every other fire
district in the state utilizes SBC, the management commitment appears to be exhausting and the
potential for failure appears high, but as the author visited with Fire Chiefs Alexander and
Brown, he was inspired by their enthusiasm and confidence in the system and by the success
stories they proclaim. A more accountable culture in which everyone is motivated to work
towards the betterment of the organization is attractive on multiple levels.
Time will tell, how Green Valley Fire District will handle their compensation problem,
but the opportunities presented from this research are far more reaching than simply this issue of
compensation practices. The research has invited The Green Valley Fire District to step forward
and address issues with managerial training, morale and trust issues, and organizational culture.
Pay for Performance
34
The author has provided some bold ideas in the next section of this paper in support of his role as
a change agent.
Recommendations First and foremost, the Green Valley Fire District or any other organization, private or
public, should not institute a PFP plan if it is not in a financial position to support the plan.
Clearly identified in the research is the need for secure financial resources to support a PFP plan.
As the research shows, the downside risks associated with a failed plan may do more harm than
good. Implementing change in organizations is difficult enough without putting up additional
barriers.
Second, it is recommended that the Green Valley Fire District develop a more inclusive
compensation committee to address compensation issues. This Applied Research Project was
started with the original problem being that Green Valley Fire District senior management is
having trouble deciding if it should switch from its step based compensation to a PFP system.
This issue is not a management issue. It is an organizational issue that requires input, support,
and understanding from all levels of the organization.
Next, the Green Valley Fire District needs to provide training to all levels of management
in regards to performance appraisals and employee feedback. Research supported an existing
manager bias or competency issue under the current SBC model. This discrepancy needs to be
rectified prior to considering any transition.
An interesting concept introduced to the author in the literature review, but not addressed
by this research, is team pay for performance. This is where performance awards are based on
the overall success of the team in reaching pre-established goals or objectives. It would be
interesting to explore the potential advantages and disadvantages of this type of system for the
Pay for Performance
35
fire service. The idea that each engine or ladder company, or perhaps each shift or division,
earns its raises based on the success of the team is intriguing and worthy of more research.
Intuitively, it would seem that team work and esprit-de-corps would be an obvious benefit, yet
there are sure to be downsides that are similar to individual performance awards.
A recommendation “outside the box” would be to implement a mock “pay for
performance plan” and use it as a research and training tool. Mock or simulated training is a
widely accepted practice in the fire service. Why not try it on a “soft skill” like pay for
performance? The Green Valley Fire District performance evaluations already lend themselves
towards a PFP model with five ranges within the evaluation. Marks above the midline would
earn PFP increases at a pre-established rate, while performance at or below midline would earn
modest or no increase in the mock system. Additional training would be necessary for
management, as the research identified that employees did not feel their managers possessed the
necessary skills to evaluate them fairly. An investment in this type of training is warranted to
correct this deficiency, regardless of plan implementation, as fair and objective evaluations are
currently an expectation of management.
Recognizing that this idea has serious limitations without having an actual financial
liability or significant personal accountability, it could still provide some tangible benefits and
help with future decision making. For example, management might be able to more clearly
identify weaknesses with the program through the naysayers who would be quick to point out
discrepancies and problems with the system. These issues could be addressed with focused
training before a real system was actually implemented.
This mock or simulated exercise would also have the benefit of evaluating management’s
commitment to the process. Research clearly identified strong leadership and organizational
Pay for Performance
36
commitment as a key component of a successful PFP plan. If commitment levels are strong and
leadership support can manage an exercise well, then it sends a strong message of potential
success managing a real system.
Labor, in turn, would have a chance to sample the program without the risk. Strong
performers would have an opportunity to see what their earning potential might be, and
substandard performers would be put on notice that their performance is viewed as below
expectations. This mock concept could be directed out of the compensation committee that was
previously recommended.
In the game of chess, a stalemate is created when two opposing players are presented
with a scenario where a player, whose turn it is, cannot move without putting him or herself in
check. The end result being a draw where neither player wins or loses. In this scenario the
players simply clear the board and start again. The Green Valley Fire District now has the
opportunity to start again.
Pay for Performance
37
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APPENDIX A
AFDA ARIZONA FIRE DISTRICT ASSOCIATION
2009 SUPPRESSION WAGE & BENEFIT SURVEY
SURVEY REPORT PREPARED FOR:
GREEN VALLEY FIRE DISTRICT
Pay for Performance
42
DISTRICT DEMOGRAPHICS
Area Type of
Department Annual Budget Assessed Value #F/T Supp. Employees
Daisy Mountain 4 Career $12,690,222 $647,197,516 88 Sun City West 4 Career $12,233,855 $505,223,198 83 Sun City 4 Career $12,014,246 $507,612,939 71 Sun Lakes 4 Career $7,789,228 $296,836,517 37 Bullhead City 5 Career $14,619,967 $553,076,308 83 Northwest 6 Career $64,062,301 $1,205,607,329 178 Apache Junction 6 Career $15,219,507 $598,690,330 91 Green Valley 6 Career $8,316,591 $424,067,570 56 Drexel Heights 6 Career $14,110,099 $264,061,268 81 Golder Ranch 6 Career $14,075,122 $753,709,983 110 Central Yavapai 7 Career $15,839,290 $906,891,063 69 Sedona 7 Career $14,885,784 $799,458,751 74
Pay for Performance
43
FIREFIGHTER/EMT:
Minimum
Annual Wage Maximum
Annual Wage # of Steps % Between
Steps Golder Ranch $39,844 $53,395 7 5.0%
Daisy Mountain $34,320 $54,080 9 4.5% Sun City $42,179 $59,215 7 5.0%
Sun City West $45,149 $63,508 8 5.0% Sun Lakes $48,510 $61,912 6 5.0% Bullhead City $40,529 $55,236 10 3.5%
Apache Junction $45,176 $60,540 7 5.0%
Drexel Heights $39,083 $50,029 5 5.0% Green Valley $39,844 $53,395 7 5.0% Northwest $40,515 $55,674 10 5.0% / 2.5%
Central Yavapai $41,023 $62,567 7 5.0% Sedona $40,983 $54,921 7 5.0%
Min. Annual Wage
Max. Annual Wage
Average $41,430 $57,039 75th $42,922 $60,883 50th $40,756 $55,455 25th $39,844 $53,909
Sun City: 5% between steps 1 through 6; 10% between steps 6 and 7. Central Yavapai: Steps 1 – 7 are 5%, and an employee must receive an Exceeds Standard performance rating to receive the step increase; in addition to these 7 steps, there are steps 8 – 20 that are 1%, and an employee must receive a Meets Standard to receive the step increase.
Pay for Performance
44
ENGINEER
Minimum Annual Wage
Maximum Annual Wage # of Steps
% Between Steps
Golder Ranch $47,362 $63,469 7 5.0% Sun City $62,317 $68,549 2 10.0%
Sun City West $58,305 $70,893 5 5.0% Sun Lakes $53,484 $68,261 6 5.0%
Daisy Mountain $54,080 $68,640 8 4.0-5.0% Bullhead City $48,634 $66,284 10 3.5% Apache Junction $49,867 $66,826 7 5.0% Green Valley $47,362 $63,469 7 5.0% Northwest $55,674 $67,843 9 2.5%
Central Yavapai $51,488 $78,527 7 5.0% Sedona $49,181 $65,906 7 5.0%
Min. Annual Wage
Max. Annual Wage
Average $52,523 $68,061 75th $54,877 $68,595 50th $51,488 $67,843 25th $48,908 $66,095
Central Yavapai: Steps 1 – 7 are 5%, and an employee must receive an Exceeds Standard performance rating to receive the step increase; in addition to these 7 steps, there are steps 8 – 20 that are 1%, and an employee must receive a Meets Standard to receive the step increase.
Pay for Performance
45
FIRE CAPTAIN
Minimum
Annual Wage Maximum
Annual Wage # of Steps % Between
Steps Golder Ranch $62,143 $72,063 7 2.5% Daisy Mountain $66,560 $81,120 8 4.0-5.0% Sun City $72,140 $79,354 2 10.0%
Sun City West $70,953 $82,165 4 5.0% Sun Lakes $62,435 $79,685 6 5.0% Bullhead City $56,740 $77,331 10 3.5% Apache Junction $59,275 $79,435 7 5.0% Drexel Heights $60,956 $70,690 6 2.5%
Green Valley $65,289 $75,715 7 2.5% Northwest $64,554 $78,637 9 2.5% Central Yavapai $61,606 $93,958 7 5.0% Sedona $59,017. $79,088 7 5.0%
Min. Annual Wage
Max. Annual Wage
Average $63,472 $79,103 75th $65,607 $80,044 50th $62,289 $79,221 25th $60,536 $76,927
Central Yavapai: Steps 1 – 7 are 5%, and an employee must receive an Exceeds Standard performance rating to receive the step increase; in addition to these 7 steps, there are steps 8 – 20 that are 1%, and an employee must receive a Meets Standard to receive the step increase.
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BATTALION CHIEF
Minimum Annual Wage
Maximum Annual Wage # of Steps
% Between Steps
Golder Ranch $81,537 $94,578 7 2.5% Daisy Mountain $79,040 $87,360 5 4.0-5.0% Sun City $85,897 $109,380 5 See below
Sun City West $88,032 $112,354 6 5.0% Sun Lakes $81,894 $104,520 6 5.0% Bullhead City $70,925 $96,664 10 3.5% Apache Junction $73,754 $98,838 7 5.0%
Drexel Heights $78,030 $95,070 8 2.5% Green Valley $81,537 $94,558 7 2.5% Northwest $85,351 $98,849 See below Central Yavapai $79,703 $121,559 7 5.0% Sedona $73,771 $98,860 7 5.0%
Min. Annual Wage
Max. Annual Wage
Average $79,956 $101,049 75th $82,758 $105,735 50th $80,620 $98,844 25th $76,965 $94,947
Sun City: 5% between steps 1 through 4; 10% between steps 4 and 5. Northwest: 2.5% between steps 1 through 5; 5% between steps 6 through 10. Central Yavapai: Steps 1 – 7 are 5%, and an employee must receive an Exceeds Standard performance rating to receive the step increase; in addition these 7 steps, there are steps 8 – 20 that are 1%, and an employee must receive a Meets Standard to receive the step increase.
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BATTALION CHIEF
Exempt or Non-exempt?
If exempt do they receive overtime? If so, explain the circumstances:
Golder Ranch Exempt Yes: Allowed to work extra shift in place of a Captain and are paid at the Captain's OT rate.
Daisy Mountain Non-exempt Sun City Non-exempt
Sun City West Exempt
Yes: If a BC is required to cover a complete 24 hour shift and all other options have been completely exhausted to obtain alternative coverage, then the BC will receive overtime.
Sun Lakes Non-exempt No
Bullhead City Exempt
Yes: Straight time for shift backfills and inter-facility transports. No additional pay for off-duty meetings, etc.
Apache Junction Exempt No
Drexel Heights Exempt No
Green Valley Exempt
Yes: Receive overtime only on special duty assignments such as wildland fires; these circumstances are paid at their OT rate.
Northwest Exempt No: See comment below
Central Yavapai Exempt Yes: If a BC backfills a 24-hour shift, they receive OT pay.
Sedona Exempt Yes: Paid straight time compensation for OT hours worked due to covering an operational shift
Northwest: BC’s work a 48 hour week; if they fill in for another Battalion Chief and exceed their normally scheduled 48 hours, they earn a flat rate.
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PARAMEDIC INCENTIVE PAY
Pay Per Year Ranks Eligible for Medic Pay
Sun City West $6,010 FF, Eng, Capt
Sun City $6,060 FF, Eng, Capt
Sun Lakes $6,552 FF, Eng, Capt
Daisy Mountain $7,475 FF, Eng, Capt, BC
Bullhead City $5,700 FF, Eng, Capt
Apache Junction $5,600 FF, Eng, Capt
Drexel Heights Paid as a rank FF, Capt
Green Valley $6,500 FF, Eng, Capt, BC
Northwest $4,007 FF, Capt Central Yavapai $5,000 FF, Eng, Capt, BC
Sedona $6,070 FF, Eng, Capt
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PARAMEDIC PAY AS A RANK
FF/CEP1 Minimum Annual Wage
Maximum Annual Wage # of Steps
% Between Steps
Golder Ranch $42,907 $57,500 7 5.0% Drexel Heights $45,324 $64,042 7 5.0%
FF/CEP2 Minimum Annual Wage
Maximum Annual Wage # of Steps
% Between Steps
Golder Ranch $47,362 $63,469 7 5.0%
Fire Captain Minimum Annual Wage
Maximum Annual Wage # of Steps
% Between Steps
Golder Ranch $68,594 $79,548 7 2.5% Drexel Heights $64,042 $78,029
Battalion Chief
Minimum Annual Wage
Maximum Annual Wage # of Steps
% Between Steps
Golder Ranch $81,537 $94,578 7 2.5%
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OUT OF RANK/ACTING PAY
Ranks Eligible for Out of Rank
Pay When is an employee entitled to Out of Rank Pay, and how is it structured?
Golder Ranch Eng, Capt, BC
If appointment is for longer than 10 shifts for suppression employee, the employee's base rate of pay shall be adjusted a minimum of 5.00% over their current salary.
Sun City West FF, Eng, Capt
An employee must be on the promotion list for the position and complete 120 hours each fiscal year in the move-up position to qualify for Move-up pay. Upon completion of the requirements, employees will receive a stipend for completed 24 hour shifts in the following increments: $50.00/shift (engineer), $75.00/shift (captain), $100.00/shift (battalion chief).
Daisy Mountain FF, Eng, Capt
On a regular shift day, a member must work at least 12 hours out of rank for the pay; overtime paid hour for hour. Pay is at least a step higher than the base pay in the member’s respective rank.
Sun City FF, Eng, Capt
Sun Lakes FF, Eng, Capt, BC
Move-up pay = 12 hours or more “out of class” = 5.0% increase above base pay; Assignment pay = 30 days or more “out of class” = 10.0% increase above base pay
Bullhead City FF, Eng, Capt
When an employee temporarily fills an acting position of a higher level on their own shift or filling in on another shift in an overtime position, the employee shall be entitled to an additional stipend: Acting Engineer $1.25/hour; Acting Captain $1.45/hour; Acting BC $1.87/hour
Apache Junction As determined by Fire Chief; long-term only.
Northwest FF, Eng, Capt
If employee is temporarily assigned to a budgeted higher ranked position for more than 7 consecutive scheduled work days and is on eligibility list for that position, pay is adjusted by 5.0%, or to starting pay rate within wage guidelines for that position, whichever is greater. If employee is not on eligibility list, pay will be adjusted by 5.0%.
Drexel Heights FF, Capt Increased to hourly rate of position.
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Green Valley FF, Eng, Capt, BC
Employee is entitled to acting pay when the assignment exceeds 9 consecutive shifts. Employee’s pay is adjusted to the closest step in the new pay range that is at least 5.00% higher than their regular pay, but not exceeding the max step.
Central Yavapai FF, Eng, Capt
$25.00 per 24 hour shift whenever employee steps up a rank
Sedona FF, Eng, Capt, BC
No additional pay for routine “move ups.” For long-term, temporary assignment or special detail assignment, 5.0% increase for the duration of assignment. The rate of pay will be increased in the specific manner of regular promotion (minimum of 5.0% to appropriate step of assigned position), only if it is for a pre-determined amount of time and pre-approved by the Fire Chief.
Note: Districts not included do not provide out of rank or acting pay.
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SPECIALTY PAY (Annual)
Hazardous Materials
Technical Rescue Wildland
Peer Fitness Trainer Other
Sun City West $1,300
Sun Lakes See
comments Bullhead City $600 $600 $600 Apache Junction $1,800
See comments
Northwest $2,003 $2,003 Green Valley $1,800 $1,800 $1,800 $1,800 Central Yavapai $2,000
See Comments
Sun City West: “Other pay” is for EMS Supplies Program Manager Sun Lakes: “Other pay” is for performance, merit, and fitness pay. Eligible employees must be “topped out” in steps and pass their fitness exam and meet standards on annual performance appraisal. Pay is 2% of base rate. Bullhead City: “Other pay” of $600 is for miscellaneous expenses. Green Valley: “Hazardous Materials pay” is through the rank of Battalion Chief; “Other pay” is for SCBA and is through the rank of Captain. Apache Junction: Inspector: $1,100 for 1 year, $2,100 for 2 years, and $1,600 for 3 years. Also, there is a Fitness Incentive of 2% of base pay. Central Yavapai: “Wildland pay” is based upon number of hours worked; “Peer Fitness Trainer pay” is $25.00 per hour if not on duty; “Other pay” is for Specialty Duty and is $25.00 per hour. Note: Districts not included do not provide any specialty pay.
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APPENDIX B
Interview Template Step Based Compensation/ Pay For Performance Compensation
Name: Title: Organization: Interviewed: Question # 1. How do you define a step based compensation system? Question #2. How do you define a pay for performance compensation system? Question #3. Do you have experience with participation in, or implementation of, either of these types of compensation systems? Please explain? Question #4. What do you see as the advantages and disadvantages of each of these types of compensation systems? Question # 5. Do you believe department officers can effectively and accurately evaluate personnel in a pay for performance plan? Question #6 What is your opinion of which of these two types of compensation systems is better for today’s fire service and the Green Valley Fire District? Question #7 Do you have any other experiences or insights that may be beneficial in my research of step based and pay for performance compensation systems?
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APPENDIX C
Interview Template and Summarized Responses Question # 1- How do you define a step based compensation system?
1. Automatic pay increase every year, based on the budget and if you are off probation. 2. End of year you get your step increase. Eval no reflection on step 3. Seniority based system 4. Every year you move up a step regardless of performance 5. Automatic increase based on a predetermined system 6. Automatic raise based on seniority 7. Progressive series of salary increases at specific time intervals 8. Not merit based. If you do your job you get a raise 9. Annual increase not based on performance 10. Each year depending on budget you get step increase 11. Time in position or time in general and you get raise 12. Years of service get you a raise. At some point you top out 13. Anniversary date you get a raise if you meet minimum requirements on evaluation 14. Steady increases over period of time 15. Years in service you move to next step 16. Everyone receives same predetermined raise 17. Progressive series of steps over period of time 18. Set pay increases 19. Established scale. As long as you meet eval you get increase 20. Pay raise each year tell you top out.
Question # 2- How do you define a pay for performance based compensation system?
1. Subjective pay increase based on performance and supervisor’s opinion 2. Set percentage pay increase based on your evaluation 3. Based on performance 4. Based on evals for raise 5. Raises based on your performance 6. Based on evaluation by supervisor and you receive percentage increase 7. Performance based 8. Defined by performance on annual review. Usually some scoring system 9. Earn points by job performance. Points can be good points or demerit points 10. Salary increase based on job performace 11. System that is not guaranteed 12. Increases based on your performance 13. Based on performance. At or above average you get raise. Nothing mandatory 14. Heavily based on performance 15. Performance throughout the year determines raise
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16. Not sure 17. Raises where supervisor decides how much you get. 18. Performance based on supervisor’s analysis 19. Based on annual review. Meet or exceeds mark employee is rewarded with salary
increase. 20. Pay raise based on overall performance
Question # 3- Do you have any experience with, or implementation of, either of these two types of systems?
1. Step Based Compensation (all employees currently in step based system) 2. Pay for Performance- 18 respondents indicated they had previous experience in this type
of system. 2 respondents had no experience with pay for performance system. Question #4- What do you see as the advantages and disadvantages of each of these types of systems?
1. Advantage Step a. Easy to manage (4) b. Fairer system (7) c. Recruitment and Retention (8) d. Easy to understand (7) e. Easy to budget for (5) f. Regular guaranteed pay increase (7) g. No advantage h. Job safety or security i. Clear road map11 j.
2. Disadvantage Step
a. Builds “entitlement mentality” (6) b. Decreased motivation (12) c. Unfair as everyone rewarded the same (9) d. Only qualification is time e. Does not create performance based work environment f. Burnout employee g. Topping Out
3. Advantage Pay for Performance
a. More fair (11) b. Rewards Performers (12) c. Motivate employees (6) d. More money potential e. Gives officers more flexibility and credibility
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4. Disadvantage Pay for Performance
a. Fairness and consistency (20) b. Trust (4) c. Morale (4) d. Possibility of lower raises (5) e. Don’t work in public sector f. Labor intensive (3) g. Difficult to budget for (3) h. Need for more training i. Normalization of evaluations
5. What is your opinion of which one of these two types of compensation systems is better
for today’s fire service and the Green Valley Fire District? a. Step Based (5) b. Pay for Performance Based (15)
6. Do you believe department officers can effectively and accurately evaluate employees in
a pay for performance system? a. Yes (5) Two answers qualified with “proper training” b. No (15)
7. Do you have any other experiences or insight that may be beneficial to my research of
step based and pay for performance compensation systems? a. Performance standards difficult to define in pay for performance system. I would
recommend having higher merit increases require higher level of approval authorities
b. Unions are highly suspicious of pay for performance plans c. Pay for performance success based on the quality of the people managing it d. Consider combination of system e. Needs coaching or mentoring component for success f. Needs to have backing all the way up the chain of command
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APPENDIX D
Summary Fire District and Government Entities Compensation Model
Fire Districts Compensation Model Governement Entities Compensation Model
Apache Junction SBC Arizona State Government PFP
Avra Valley SBC Apache County Government Other
Buckeye Valley PFP City of Avondale PFP Bullhead City SBC City of Casa Grande SBC Camp Verde SBC City of Chandler SBC Central Yavapai Other** City of Glendale PFP Chino Valley SBC City of Goodyear SBC Daisy Mountain SBC City of Mesa SBC Drexel Heights SBC City of Peoria Mix Eloy SBC City of Phoenix SBC Fort Mohave PFP City of Scottsdale PFP Fry Fire Other** City of South Tucson SBC Golden Valley SBC City of Surprise Other Golder Ranch SBC City of Tempe PFP Green Valley SBC City of Tucson Mix Lakeside SBC Cochise County Other Mountain Vista PFP ** Coconino County SBC Northern Arizona Consolidated SBC Gila County SBC Northwest SBC Graham County Other Picture Rocks SBC Greenlee County Other Pinetop SBC La Paz County SBC Rio Rico SBC Maricopa County PFP Sedona SBC Mohave County SBC Show Low SBC Navajo County SBC Sun City SBC Pima County other Sun City West SBC Pinal County Other Sun Lakes SBC Santa Cruz County SBC Threee Points SBC Town of Carefree PFP Tubac Other** Town of Cave Creek PFP Verde Valley SBC Town of El Mirage PFP Town of Fountain Hills PFP Town of Gilbert PFP
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Totals Town of Marana PFP Fire District SBC 3 Town of Oro Valley PFP Fire Districts PFP 3 Town of Sahuarita PFP Fire Districts Other 24 Yavapai County SBC Total 30 Yuma County SBC Governments SBC 17 Apache Junction SBC Governments PFP 19 Buckeye PFP Other 8 City of Gila Bend SBC Total 44 Guadalupe SBC Litchfield Park PFP Paradise Valley PFP Queen Creek PFP Tolleson PFP Wickenburg Other
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APPENDIX E
Board Of Directors Presentation April 15th, 2002
8/21/2009GFVD Salary Plan
Development of GVFD Salary Plan
Brenda TranchinaHuman Resource Consultant
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8/21/2009GFVD Salary Plan
Goals/Objectives Create an equitable and competitive salary
plan for GVFD employees Fairly compensate employees in a way that
provides for career growth and compensation security
Allow for GVFD to recruit “the best” Position GVFD as a solid employer, not a “stepping
stone” department
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8/21/2009GFVD Salary Plan
Today’s Situation
No established salary scale Employees currently paid at their former
RM rate Not a systematic approach, therefore
some inequities exist Need to develop a plan and place current
employees on the scale
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8/21/2009GFVD Salary Plan
How have we arrived at the proposed plan?
Conducted a market survey of fire departments around the state (municipal and district)
Identified a need to be competitive with the Tucson market so as to be able to attract qualified candidates
Built a scale based on FF position, comparable to TFD starting FF rate
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8/21/2009GFVD Salary Plan
7-Step Scale w/ 5% Steps
Common plan in fire service Allows for growth within a position Also allows for controlling top end Some overlap between positions makes it
more affordable (as opposed to stacking) Encourages employees to promote
and/or acquire additional skills
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8/21/2009GFVD Salary Plan
Implementation Current staffPlace on scale based on years of
experience in current positionDetermine necessary wage
adjustments Approximately ½ of staff will receive an
adjustment for placement on the scale
Others may already be at top step or higher, therefore would not receive adjustment (Note – will not decrease anyone’s salary)
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8/21/2009GFVD Salary Plan
Implementation
Two year phase in planEmployees due wage
adjustments on the new plan will receive 50% of the adjustment on 7/1/02Remaining adjustment 7/1/03,
plus move to next step
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8/21/2009GFVD Salary Plan
Costs of Implementation
2002/2003: 50% of adjustments will cost approximately $79,000 Equal to approximately 4.6% of current payroll budget
2003/2004: Remaining 50% adjustment will cost approximately
5% of payroll Included in that amount is movement to next step
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8/21/2009GFVD Salary Plan
Implementation
New HiresWill be hired in at step oneWill avoid compression with
existing employeesWill be easier to recruitWill be more likely to stay
because wages are competitive
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APPENDIX F
Interview Template Step Based Compensation/ Pay For Performance Compensation
Name: Simon Davis Title: Fire Chief Organization: Green Valley Fire District Interviewed: July Question # 1. How do you define a step based compensation system? Step based compensation system is one where raises are based on you seniority. You survive you get a raise. Question #2. How do you define a pay for performance compensation system? A for performance compensation system is where your raises are based on your performance. Supervisors can allot various increments depending on well you performed. Question #3. Do you have experience with participation in, or implementation of, either of these types of compensation systems? Please explain? I have worked in both systems and implemented our current system. Question #4. What do you see as the advantages and disadvantages of each of these types of compensation systems? Adv Step- Easy to manage and budget for. Little issues come up with fairness. Can be good for recruitment. Disadv step- breed mediocrity. No reward for strong performers. Adv PFP- Awards performers, more flexibility for officers, I like this better when I was a company officer. Disadv PFP fairness and equity issues. More difficult to manage. Budget related issues. Question # 5. Do you believe department officers can effectively and accurately evaluate personnel in a pay for performance plan? I think they are qualified. It is just difficult to leave out personal feeling and be objective.
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Question #6 What is your opinion of which of these two types of compensation systems is better for today’s fire service and the Green Valley Fire District? Step. Question #7 Do you have any other experiences or insight that may be beneficial in my research of step based and pay for performance compensation systems? I don’t think so.
Interview Template Step Based Compensation/ Pay For Performance Compensation
Name: Mark Alexander Title: Fire Chief Organization: Buckeye Valley Fire District Interviewed: July 29th, 2009 30 minutes Question # 1. How do you define a step based compensation system? Step you get a raise for showing up. Step is based on seniority and typically given on your anniversary date. Question #2. How do you define a pay for performance compensation system? A for performance compensation system is where your raises are based on your performance. These systems reward and motivate personnel. They should be significant enough to provide motivation. Question #3. Do you have experience with participation in, or implementation of, either of these types of compensation systems? Please explain? I have worked in both and pay for performance is the way to go. Question #4. What do you see as the advantages and disadvantages of each of these types of compensation systems? Adv Step- No advantages to the step. It is terrible. I guess people would say budgeting and predictable raises. Disadv step- everyone is paid the same regardless of how well you perform. This is not right. No reward for strong performers. Adv PFP-Incentive for guys to work harder. More fair then step. Disadv There are issues with subjectivity, but nothing that training and mentoring can’t work out. PFP is the way to go.
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Question # 5. Do you believe department officers can effectively and accurately evaluate personnel in a pay for performance plan? Yes I do. They do it. It requires training and monitoring, but they can definitely do it. Question #6 What is your opinion of which of these two types of compensation systems is better for today’s fire service and the Green Valley Fire District? PFP no question Question #8 Do you have any other experiences or insights that may be beneficial in my research of step based and pay for performance compensation systems? Just that I have had good luck with this system. The union is supportive of the process and I appreciate that.
Interview Template Step Based Compensation/ Pay For Performance Compensation
Name: Glenn Brown Title: Fire Chief Organization: Mayer Fire District Interviewed: August 18, 2009 30 minutes Question # 1. How do you define a step based compensation system? Step based system is a seniority system. You get paid every year. Question #2. How do you define a pay for performance compensation system? A for performance compensation system is where your raises are based on your performance. Top performers get more that your other performers Question #3. Do you have experience with participation in, or implementation of, either of these types of compensation systems? Please explain? I have worked in both and prefer pay for performance. Question #4. What do you see as the advantages and disadvantages of each of these types of compensation systems? Adv Step- Ease of management, easy to budget Guys like it. Disadv step- mediocrity. We have guys that just show up and shuffle their feet. This does not benefit anyone. Adv- Pretty obvious it rewards performers. Motivates employees. Dis- Fairness issues. There are always going to be personal opinions in the mix You can’t get around it.
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Question # 5. Do you believe department officers can effectively and accurately evaluate personnel in a pay for performance plan? Yes I do. Question #6 What is your opinion of which of these two types of compensation systems is better for today’s fire service and the Green Valley Fire District? Pay for performance. Question #8 Do you have any other experiences or insights that may be beneficial in my research of step based and pay for performance compensation systems? The issue really isn’t about steps or merit it is about change. This is no different then any other change issue. It has to be communicated well, you have to include people, and try to make it is fair as possible.
Interview Template Step Based Compensation/ Pay For Performance Compensation
Name: Brenda Tranchina Title: President Organization: Human Resources Strategies Interviewed: July 29th, 2009 30 minutes Question # 1. How do you define a step based compensation system? Step based system is a seniority based systems with a series of progressive steps you move through earning a salary increase with each step. Question #2. How do you define a pay for performance compensation system? It is a performance based system where those employees that excel get rewarded and those that don’t contribute don’t see a raise. Question #3. Do you have experience with participation in, or implementation of, either of these types of compensation systems? Please explain? I work with both, but primarily step with fire departments. Question #4. What do you see as the advantages and disadvantages of each of these types of compensation systems? Adv Step- It’s easy. Budgeting management, fairness recruitment and retention are all easier with a step. Downside is that it breeds mediocrity
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PFP plans reward performance but their downside is intense management oversight and expense as well as dealing with fairness and equity issues. Question # 5. Do you believe department officers can effectively and accurately evaluate personnel in a pay for performance plan? Anyone with the right training can do this. It takes practice and time to get good at evaluations and have the ability to communicate concerns with personnel. Question #6 What is your opinion of which of these two types of compensation systems is better for today’s fire service and the Green Valley Fire District? Step Question #8 Do you have any other experiences or insights that may be beneficial in my research of step based and pay for performance compensation systems? Conceptually I believe in pay for performance systems. They are what I would want to work in, but my experience with the fire service shows that they are very difficult to manage. Leadership and training are key. Without this and continued monitoring and evaluation a PFP plan won’t work. This is why I frequently recommend them to fire departments.