City of Palo Alto (ID # 3219)

City Council Staff Report

Report Type: Meeting Date: 10/15/2012

City of Palo Alto Page 1

Summary Title: Public Discussion of Employee Pension, Health Care,
Compensation and Other Benefits
Title: Public Discussion of Employee Pension, Health Care, Compensation and
Other Benefits and Strategies for the Future
From: City Manager
Lead Department: Human Resources

Executive Summary

In a Colleagues Memo dated June 15, 2012 and approved by the Council, a series of public
sessions by the Council were to be scheduled to discuss how to ensure that Palo Alto has a
flexible workplace with highly skilled employees with a passion for public service, balanced by a
sustainable model of employee compensation, retirement, and benefit options. This report lays
a foundation for those discussions and any subsequent policy direction from Council regarding
compensation and benefits, alternatives in health benefits, pensions, compensation and other
aspects of employment.

Many of these issues are subject to collective bargaining with the Citys recognized bargaining
units. Many issues are subject to legislation including the California Public Employee Pension
Reform Act (PEPRA) that was just passed by the Legislature and signed by the Governor,
effective Jan. 1, 2013. One purpose for these public sessions is to ensure broader
understanding of what ability the City has in making changes and where the City Council is
restricted in its decision making authority by State Law, court rulings, or the requirements of
membership within CalPERS.

Council invites input at these sessions from resident, employee, and city management
perspectives.


9

City of Palo Alto Page 2


Recommendation

Staff recommends that the Council receive input and provide guidance, over the course of three
(3) public discussions, on issues related to the Citys strategy for reforms and innovations in
employee pension, medical, compensation and other benefits related to employee
engagement, recruitment and retention strategies. Staff requests Council direction over the
course of the three discussions including:

1. Exploration of the dynamic between salary, benefits, and other employee motivators,
with residents, experts, and representatives from the Citys staff and represented and
non-represented employee groups
2. Education of the public and our employees about the recently enacted pension reform,
and enumerate what the City is able to accomplish or not, given our participation in the
CalPERS system
3. Exploration of alternatives in offering savings, retirement, health care, employee
wellness, paid time off, and other flexible benefits
4. Creation of or updating a set of policies to plan for pension and health benefit
contingencies such as reserves, flexible benefits and deferred compensation
5. Exploration of strategies to retain, attract and engage employees who are passionate
about city work and want to make a difference in the community

Organization of the Report

The three (3) topics covered in the Colleagues Memo, Employee Engagement, Pensions, and
Health Care will be covered in separate reports and discussions with the Council. The first
report, Employee Engagement, Productivity and Culture, will be followed by Pensions on Nov.
13 and Health Care on December 10. This report and Council discussion will review the
pressures for pension reform and benefit restructuring, an initial review of the Pension
Reform legislation passed by the State, and a review of the changes the City of Palo Alto has
instituted. We will explore further changes in those areas in subsequent sessions.

We turn though to the subject of Employee Engagement, Productivity and Culture for in-depth
discussion at the start because despite the fiscal pressures to make benefit and compensation
adaptations, in the end we are concerned with not only managing costs but support for a high
quality of life in Palo Alto through the delivery of quality services. This requires an effective and
committed workforce of skilled employees. The Citys ability to attract, retain and

City of Palo Alto Page 3

appropriately compensate and reward its employees, not just financially but in the nature of
work itself and through the environment and culture of our organization are key to high
performance, job satisfaction, and service to the community. Restructuring of compensation
and benefits, and the financial pressures of structural cost and revenue challenges put pressure
on services, workforce size, and workload and productivity. Therefore, understanding of
adaptation in jobs, work culture, and practices that will be required to foster more innovation,
more productivity and less bureaucracy, and higher employee and citizen satisfaction is the
appropriate starting point for these Council sessions.

Report I, Employee Engagement, Productivity, and Culture includes:

o Employee demographics and designing benefit packages for those with varying needs
o Attracting and retaining employees to devote their career to public service
o Review of recent research about employee motivation in public service
o How training, job flexibility, at-will employment, and seniority could operate to foster a
desirable workplace during changes to traditional benefits
o Alternative considerations on establishing a healthy work place, fostering job
satisfaction and saving costs thru non-economic employee benefits
Background The structure and level of salary, benefits and non-monetary rewards are a key
component in the Citys ability to recruit, engage, and retain the high-performing workforce
needed to accomplish City goals. A good measurement of employee engagement is the rate of
voluntary turnover. Palo Altos rate of voluntary turnover, aside from retirement, is low at
between 1% to 2%. Employees generally stay with the City until they retire.

Employment. Employees are grouped into regular, full time benefitted, regular part-time
benefitted and hourly employees with limited benefits. Per the FY2013 Adopted Budget, Palo
Alto has 1,014 (not including hourlies) full time equivalent positions and including budgeted
vacancies. Exhibit A shows current actual headcount next to the Adopted Budgeted FTE
numbers.

Demographics of current and future employees show that there will be a nearly complete
turnover in staff over the coming ten years. Looking at the period from 2007 to today, half of
the City employees have retired and been replaced. The average age of City employees is 45.4,
with almost 30% already retirement eligible. Given these anticipated levels of turnover, it will
be prudent for the City to consider employee benefits that are pertinent to employees with
varying lifestyles and challenges, especially for those who replace retirees.


City of Palo Alto Page 4

Recruitment. Opportunities with the City are sought after, as evidenced by high numbers of
applicants:
an average of 80 applicants for each job opening
Interviewing panels and background checks ensure quality candidates.
The City currently has 45 open recruitments
Recruitments take on average 90 days to fill
Critical hard-to-fill positions such as dispatchers, utility operators, planning and,
finance/budget administration take longer to fill
Palo Altos total compensation, consisting of salary, employee and family health coverage,
pension and retiree/family health care, is at market rate according to a 2011 compensation
survey commissioned by the HR department. However, Palo Alto has been a leader among
neighboring benchmark cities in pursuing pension and health care employee contributions.
Once PEPRA is fully implemented in 2018, however, Palo Alto will be on a similar footing with
neighboring agencies for new employee pension formulas, for those in the new Tier III upon
PEPRA implementation. However, those in Tier II could get a better pension deal in cities that
have higher than 2@60 pension formulas.

Value of Salary, benefits and pension.
The average employee in the City receives:
o Salary $85,715
o Medical and non-salary benefits $29,034
o Defined-benefit pension $21,308.
Exhibit B shows employee salary and benefits broken down by employee group: fire, fire
management, police, police management, SEIU, Utility management and non-represented
Management & Professionals.

Cost trends. In recent years, the cost of providing employees with competitive salaries,
benefits, and pensions has risen dramatically for the City. The proportion of dollars paid for all
employee benefits to salaries rose from 23% in 2002 to 54% in 2010, to 63% in FY2012. This
means, for example, an employee in 2002 with a salary of $50,000 received benefits valued at
$11,500. Those benefits are valued at $31,500 today. Appendix D shows the trending costs of
benefits.

Benefits Benchmarking. The International Public Management Association (IPMA) published a
2011 benchmarking study of 430 agencies titled Benefits in the New Economy. This report
states that public sector jobs generally pay less but require more education on average

City of Palo Alto Page 5

compared to private sector jobs. Public employees are twice as likely to have college or
advanced degrees. Relevant findings are:

o 25% report that their cities will experience layoffs in 2012
o 34% are reducing benefits or shifting costs to employees
o 38% made changes to their pensions, raising the employee contribution, increasing the
retirement age, or increasing time to vest in the pension
o 66% of respondents have cut training budgets
o Use of Paid Time Off (PTO) programs in lieu of separate sick and vacation banks, have
grown in the public sector by 50% from 2002 to 2012
o 25% indicated that they have a voluntary telework program for some employees and
positions, and 66% offer flexible work schedules or alternate work schedules to
potential hires. Alternative work arrangements are a win-win since they provide
work-life balance and are cost-neutral.
Palo Alto has already addressed shifting medical and pension costs to employees by asking
employee groups to pay the full employee share of PERS and make a 10% contribution towards
medical expense, including into retirement. Palo Alto has chosen to invest in employee
training and development, having added $50,000 each to the General Fund HR training budget
and the Enterprise Fund training budget for FY 2013. In Palo Alto, sick leave can be
accumulated to 600 hours; however, it is not paid out upon retirement nor is it added to the
last years salary for pension purposes, except for a very few employees who were hired prior
to 1983 (and for these few it is paid out only, not added to retirement).

Palo Altos use of the 9/80 scheduling is a time tested recruitment advantage. Employees are
able to achieve greater personal balance while giving the traditional 80 hours to work over two
weeks. The 9/80 schedule also supports Councils goal of environmental sustainability as
commute days are reduced.

Private Sector Comparison. Municipalities are frequently cited for spending a high percent on
employee benefits. By way of comparison, the Bureau of Labor Statistics (BLS) reports that
overall, organizations in 2011 spent an average of 49% of an employees annual salary on
benefits: 19% on mandatory benefits (such as unemployment, workers compensation, Social
Security), 19% on voluntary benefits (such as medical plans, dental plans, prescription coverage,
flexible spending accounts, vision plans, survivor benefits) and 11% on pay for time not worked
benefits (regular rate of pay for a nonworking period of time, such as vacations, holidays,
personal, bereavement and sick leave). It should be noted that only one in five employers in
the private sector offer a defined benefit retirement plan. The BLS Study is attached as Exhibit
C.

City of Palo Alto Page 6


Employee Engagement
Palo Alto seeks to attract and engage employees who are passionate about municipal work and
want to make a difference in the community. According to the Corporate Leadership Council,
the various elements of employee engagement should each be maximized. These include the
extent to which employees enjoy and believe in what they do, and feel valued for doing it.
Many factors can influence engagement including:
The package of total compensation
Commitment to the citys purpose
Satisfying work environment
Satisfaction with the individual job itself
Fully engaged public sector employees are twice as likely to stay in their current job, 2.5 times
more likely to feel they can make a difference, and 2.5 times more likely to recommend their
workplace to others.
Total Compensation. Elements commonly associated with total compensation include cash
salary and benefits to provide for personal well-being, safety and security of the workplace.
Additional factors include wellness programs to provide preventive health measures, exercise,
and positive mental health, flexible work scheduling and telecommuting.

Commitment to purpose. Serving the public with integrity was cited as the most
distinguishing engagement factor for public sector employees, according to a recent
International Public Management Association (IPMA-HR) Employee engagement study. The
Study is attached as Exhibit D.

Satisfying work environment. Satisfying work entails good job design, accountability (owning
the piece of the work), appreciation for a job well done, and recognition from ones peers and
supervisor. Job design can affect work satisfaction by providing some level of autonomy
(meaning accountability for ones work), skill mastery and continuous learning. Some ways to
provide a satisfying work environment include feedback and regular check ins with supervisor,
the ability to make and implement suggestions, and continuous learning offered to employees
though classes, stretch assignments, participation in task forces or other departmental
exchange work and participation in process improvement efforts. The ability to work in flexible
ways such as telecommuting or flex schedules also contributes to a satisfying work
environment. In Palo Alto many staff are challenged by long work hours, heavy job demands
after layoffs, and the number of night meetings.

City of Palo Alto Page 7


Satisfaction of the work itself. According to research, the top reason given for staying in an
organization is Work. I like the work that I do. This finding is in line with career development
research, which indicates that the people look for work that is meaningful or challenging before
considering tangibles like finances or promotions. The secondary reason is My job conditions.
I have flexible hours, good commute, etc. In contrast, the number one reason for leaving an
employer is My career. I dont have the opportunities to grow or advance here. Thus
engaged employees stay for what they can give they like their work and are able to
contribute. Conversely, disengaged employees may stay for what they can get a secure job in
an unfavorable economic environment.

Research shows that when asked to name one thing that would improve job satisfaction, the
top three categories are more opportunities to do what I do best, Career development
opportunities and training, and more flexibility, control over how my work is done, flex time,
etc. The research cited above is summarized in Exhibit E.

Staff intends to use insights from these studies in order to develop a recruitment and retention
strategy that focuses on a high-performing workforce and combines appropriate levels of
training, education, job flexibility, and at-will employment to build a 21
st
century employment
program in Palo Alto during a time of changes to traditional benefits. Staff intends to continue
open dialog with employees about the factors that promote engagement and retention,
including surveys, focus groups and interviews.
Attachments:
Exhibit A - Employee Head Count (PDF)
Exhibit B - Citywide Average Salary & Benefits FY 2013 (PDF)
Exhibit C - BLS Study (PDF)
Exhibit D - IPMA Study (PDF)
Exhibit E - Blessing White Study (PDF)
Attachment A 07-02-2012 CCM EXCERPT ITEM 9 BENEFITS (PDF)
Department
Full-Time
(positions)
Part-Time,
Benefitted
(positions)
All Hourly
(positions)
Total
(positions)
FY 2013
Adopted Full-
Time FTEs**
City Attorney 8 4 12 9
City Auditor 6 6 4
City Clerk 5 1 1 7 6.75
City Manager 8 8 10.05
ASD 53 3 13 69 39.15
CSD 60 8 *343 411 73.75
Fire 109 19 128 119.24
HR 16 3 19 16.00
IT 29 7 36 31.55
Library 34 4 53 91 41.25
Planning 38 1 7 46 47.55
Police 140 2 31 173 154.00
PWD 185 2 17 204 161.38
Utilities 221 6 22 249 253.76
Capital 26.07
Print/ Mail 1.67
Special
Revenue
2.65
Vehicle
Replacement
16.53
TOTAL
912 27 520 1459 1014.35
** Includes budgeted but unfilled vacancies

EMPLOYEE HEAD COUNT BY DEPARTMENT AS OF 09/ 20/ 12
*as of 09/ 01/ 12. Number of CSD hourlies can go as low as 299. (Total number of filled
positions in CSD can range from 367 to 411)
Exhibit A
CATEGORY
Mgmt/
Professional
Utilities
Mgmt/
Professional
FireChief
Association
FireFighters
PoliceMgmt
Association
PAPOA SEIU
Weighted
Average
Notes
FullTimeEquivalent(FTE) 200.35 41.00 4.00 100.00 7.00 82.00 580.00 1,014.35
%ofCity 20% 4% 0% 10% 1% 8% 57% 100%
Salary* $113,864 $123,266 $150,098 $93,569 $143,972 $102,529 $70,490 $86,877 salary,includes11holidays
InLieuHoliday n/a n/a n/a $5,124 n/a $3,042 $3,834 $2,943 inlieuholiday
IncentivePay n/a n/a n/a $768 n/a $3,213 $349 $535
FLSAcharges;nightshift
differential;K9pay;fieldtraining
premium
Overtime n/a n/a n/a $16,244 n/a $8,958 $4,288 $4,777 overtime
ManagementLeave $4,379 $4,741 $5,773 n/a $5,537 n/a n/a
annualmanagementleave80
hours/year
PERSEmployer
Misc22.97%;Safety30.05%
$26,155 $28,314 $45,104 $28,117 $43,264 $30,810 $16,192 $21,308
citycontribution
PERSEmployee
Mgmt0%;SEIU 0%
PMA9%;PAPOA0%
FCA&IAFF0%
$0 $7,396 $0 $0 $12,957 $0 $0 $388
employeecontributionpaidbycity
Medicare $1,651 $1,787 $2,176 $1,357 $2,088 $1,487 $1,022 $1,260 1.45%ofsalary
Medical $10,937 $26,073 $16,842 $13,949 $11,108 $14,037 $13,338 $13,494
basedonemployeecensusasof
spring2012;includesoptout
expense
Dental/Vision $1,959 $1,982 $2,357 $2,192 $1,585 $1,921 $1,905 $1,948
basedonemployeecensusasof
spring2012
RetireeMedicalLiability $6,578 $6,578 $13,079 $13,079 $11,861 $11,861 $6,578 $7,708
portionofARCforactive
employeesonly;assumedcost
basedonpercentageoflabor
group
Workers'Comp $1,499 $1,109 $0 $11,109 $0 $10,735 $1,792 $3,329
basedonprioryear'sactuals
assumeFire'swasIAFFandmost
ofPDwasPAPOA;allocated
remainingbasedonsplitbetween
percentagesplitofmgmtandSEIU
LIFE/LTD/SUI $405 $467 $460 $460 $460 $460 $460 $449 lifeinsurance,longtermdisability,
stateunemploymentinsurance
NonsalaryBenefits** $3,054 $4,054 $2,554 $54 $4,054 $54 $54 $846 excludedtheadmincosts
AverageSalary&Benefits $170,481 $205,767 $238,443 $186,022 $236,886 $189,107 $120,302 $145,861
*SalaryforthePoliceManagementAssociationisbasedonaveragecontrolpoint.Thisamountdoesnotincludetheassociatedpaydifferential
betweenmanagersanddirectreports.
**NonsalaryBenefitsincludeprofessionaldevelopment/tuitionreimbursement,employeeassistanceprogram,commuterprogram,and
managementexcessbenefit.ExcludedadministrativefeesfortheGeneralBenefitsandWorkers'CompensationFund
SummaryofChangesfromtablepresentedinAdoptedBudget(p.25)
MGMT:increasesalary3%;eliminatedcitypaidemployeepensioncontributionof6%;reducedprofessionaldevelopmentby$1,000
savingswillbereducedfromthebudgetduringthemidyearbudgetprocess
FCA:eliminatedcitypaidemployeepensioncontribution;eliminatedtuition/trainingreimbursement;eliminatedVMC
savingsisincludedintheFY2013adoptedbudget
PAPOA:reducedsalaryby1.33%;eliminatedcitypaidemployeepensioncontributionof9%;eliminatedtuition/training;reduced3holidays
$1.5MsavingsisincludedintheFY2013adoptedbudgetasabudgetoffsetintheGeneralFundNonDepartmentalbudget.Thissavings
willbeallocatedtothePoliceDepartmentduringthemidyearbudgetprocess.
SEIU:increasedsalary1.65%;adoptedbudgetalreadyassumed10%medicalcontribution;reducedmedicaloptoutexpenseeffective10/1;
eliminatedcitypaidemployeepensioncontributionof2.25%
savingswillbereducedfromthebudgetduringthemidyearbudgetprocess
ExhibitB
CitywideAverageSalary&Benefits
FiscalYear2013
AdjustedAssumesFullYearofCostUnderRevisedLaborAgreements(asofSeptember2013)
10/10/2012
Exhibit C
ExhibitD
IPMAStudy
A review of recent research about employee motivation. A September 11, 2012 study by
ADP and the International Public Management Association for Human Resources (IPMA
HR) surveyed current levels of employee engagement among public sector employees at
the state and local level. The survey, which polled over 2,200 public sector employees
found that just 58 percent of public sector employees are fully engaged in their jobs. In
addition, 38 percent of all respondents said they were either very, or somewhat likely, to
leavetheirjob,ifworkingconditionsdontimprove.Ahighernumberofyoungworkers
47percentofthose34yearsofageandyoungersaidtheywereeithervery,orsomewhat
likely,toleavetheirjob,ifworkingconditionsdonotimprove.
Thestudywasconductedtobetterunderstandwhichcomponentsarevitaltoengagement.
Withnumerousstudiespointingtoastrongcorrelationbetweenworkerengagementand
organizational productivity, performance and talent retention, its clear that employee
engagementisoneofthetopissuesconfrontingHRdecisionmakerstoday,saidTerrence
McCrossan, general manager, ADP Human Capital Management. Just as in the private
sector,publicsectororganizationscanbenefitfromhavingaclearerunderstandingofwhat
motivatesandsatisfiestheirworkforce,andfromhavingasysteminplacetotrackwhether
theirengagementlevelsaretrendingupwardornot.
Based on more than 2,200 individual online survey responses collected in June, 2012, the
study canvassed a broad base of government employees, including management and staff,
union and nonunion employees, key government verticals and functions, and state and
localities. As numerous studies have shown, there is a direct correlation between
employeeengagementandhighperformanceintheworkplace,aswellastalentretention,
said Neil Reichenberg, executive director, IPMAHR. Opportunities exist now for public
sector HR professionals to better understand what motivates and inspires workers, and
thenformulatestrategiesforenhancingengagementatalllevels.
Additionalkeystudyfindingsinclude:
Servingthepublicwithintegritywascitedasthemostdistinguishingengagement
factor for public sector employees and is the single highest performing element in
theentiresurvey,with98percenttotalagreement.
Serving the public with integrity was a nearly universal response; however
employees34yearsoryounger,employeesofallagesandtechnologyworkerswere
below average on identifying making a difference as a key component in
engagement.
Fullyengagedpublicsectoremployeesare:
o Twiceaslikelytostayintheircurrentjob
o 2.5timesmorelikelytofeeltheycanmakeadifference
o 2.5timesmorelikelytorecommendtheirworkplacetoothers
o Threetimesaslikelytoreportbeingverysatisfiedintheirjobs
This study was conducted by the Governing Institute among a sample of 2,259 randomly
selectedparticipantsacrossstateandlocalgovernments.

ADP and IPMA-HR Study Sheds Light

on U.S. Public Sector Employee
Engagement
SurvEY 0/2,200 State and Local Gavernment Wor/rers Establishes Comparative Benehmark/or Public
Ike/or Organizations
NASHVILLE, TenD. - September 11, 21112- ADP , a loading ofhwnan capital management
services, and tbJl Jnten13tional Public M.nagement for Human (IPMA-HR) today
annoooced the findings of a national survey measuring correntlevels of employee engagement among
public sector employees at the state and local level. The findings were revealed daring the 20 12 IPt.>l;\.-HR
International Trainin Couference & Expo laking place in Nashville, Tenn.
The survey, which polled OVer 2,200 public sector employees in the U.s., fouod that just 58 percent of
public sector employees llte fully engaged in their jobs. In addition, 38 percent of all respondeots said they
were either very, or somewhat likely, to leave their job, if working conditions don't improve. A higher
number of young workers - 47 percent of those 34 years of age fI!ld younger - said they were either very, or
somewhat likely, to leave their job, if working conditions do not imptove.
The study, commissioned by ADP and IPMA-HR, an orgonizatioo tbatrepresents the interests ofHR
professionals at the federal, state and local levels of government, as well as public education organizations,
was conducted to better understand whi.ch components are vital to engagement. The reselltch was
conducted by the GOVERNING Institute, a subsidiary ofe.Republic, a leading media organization focused
exclusively on the government and education mlltkets.
"With nwnerou. studies pointing to a strong correlation between worker eogagement and organizational
productivity, performance and talent retention, it's clelltthat employee engagement is one of the tup issues
confronting HR decision makers today," said Terrence McCrossan, genernl manager, ADP Human Capital
Management. "Just as in the private sector, public sector organizations cao benefit from having a clearer
understanding of what motivates and satisfies their workforce, and from having a system in place to track
whether tbJlir engagemeot levels are trending upward or not.
Based on more than 2,200 individual online survey respOlllles, the study canvassed a broad base of
government employees, including management and staff; union and non-union employees, key government
verticals and functions, and _ and localities.
"As numerous studies have shown, there is a direct correlation between employee engagement and high
perfunnance in the workplace, as well as talent retention," said Neil Reicbenberg, executive director,
IPMA-HR. "Opportunities exist now ror public sectur HR ptofussionals to better understand what
motivates and inspires workers, and !ben fonnu!.re strategies for enhancing engagement at all levels."
Additional Jeey study findings include:
"Serving the public with integrity" was cited as the most distinguishing engagement filctor for
public sector employees and is the single highest performing element in the entire survey, with 98
percent total agreemenl.
While serving the public with integrity was a nearly lID;versal ",""anse, employees 34 years ar
younger, employees of all oges and technology workers were below average on identifying
"making a di:ffi:reoce" as a key component in engagemen!.
"Fully engaged" public sector employees are:
o Twice as likely to stay in their current job
o 2.5 times more likely to feel they can "make difference"
o 2.5 times more likely to recommend their workplace to others
o Three times as likely to report being "very satisfied" in their jobs
Free Upcoming Webinar to Showcase Findings
A free webinarpresenting the full findings of the study and examining key job satisfaction drivers among
public sector workers will take place on October 16,2012 from 2:00 -3:00 p.m. ET. Justin Greeves vice
president, corporate research at Republic, Jon Bernstein, director of public se;;tor strategies III ADP and
Neil Reichenberg will also discuss various best practices in driving increased engagement levels. To
register for the free webinar, please vi!it: hl!P:/iforms.erepublic.coIJJ/EV-2179S I
This study was conducted by the Governing InstiMe among a sample of 2,259 randomly selected
participants across state and local governmenL'!. The study was conducted online using the proprietary
Governing ExchlUlge platform and the sample is weighted and balanced by age, region, employee type,
employee and type of government. Survey data was collected June 2 I-July 13, 2012 with total
sampling error of +/- 2.5 percentage poin'" with 95% confidence.
About IPMA-HR
The Intemiltional Public Management A.sociation for Human Resources (IPMA-HR) is an association
representing the interests of state, local, lUld federal sector human resources professionals. IPMA-HR
provides hwnanresource leadership and advocacy, professional development, information, and services to
enhance public lector performance. To learn more, visit www.ipma-hLnrg.
About Tbe GOVERNING Institute
The GOVERNJNG institute advances better gOVerIDnent by focusing on improved outcomes through
research, deoision support, and executive educ8tion to help public sector leaders govern more effectively.
With an emph8'is on state and local government perflllJ1lllDe, innovation, Ieadernhip and citizen
engagement, the Institun. oversees GOVERNING Magazine's research effurls, the GOVERNING Public
Official of the Year Program, and a wide range of events to further advance the goals of good governance.
To learn more visit: hnp://www.governing.comlgov-institute.
AboutADP
A.utolllatic Data Processing, Inc. (NASDAQ: ADP), with more thlll! $10 billion in revenue!! III!d
approximately 600,000 clients, is one oflbe world's Jmgcst providers of business outsourcing solwio[]S.
Leveraging over 60 years of experience, ADP offer.! B wide range oflllllnall resource, payroll, tax and
administration solutions from a single source. ADP', easy-to-use solwio[]S for employers provide
superior value to companies of all types and sizes. ADP is also a leading provider of integrated computing
solutions to auto. truck. motorcycle. marille. recreational vehicle. and heavy e9.\lJpment throughout
the world. For more infonnation about ADP or to coni:llct a local ADP sales office, re8ch us at
1.800.225.5237 or visit the company's Web sile at www.adp.com.
Omtaet:
Jim Larkin
ADP
(973) 407-9714
i imJarkinfcv,adp.cOlIl
ExhibitE
BlessingWhiteStudy
Blessing White, an international research firm, published The Employee Engagement
Report 2011. It reflects interviews with 11,000 HR and line leaders as well as individual
employees.Accordingtotheirresearch,Thetopreasongivenforstayinginanorganization
is Work. I like the work that I do. This finding is in line with our career development
research, which indicates that the people look for work that is meaningful or challenging
beforeconsideringtangibleslikefinancesorpromotions.ThesecondaryreasoninNorth
AmericawasMyjobconditions.Ihaveflexiblehours,goodcommute,etc.Incontrast,the
numberonereasonforleavinganemployerisMycareer.Idonthavetheopportunitiesto
groworadvancehere.

TheBlessingWhitereportsummarizessurveyfindingsbypositingthatengagedemployees
stay for what they can give they like their work and are able to contribute. Conversely,
disengaged employees may stay for what they can get a secure job in an unfavorable
economic environment, salary and benefits and other favorable job conditions. When
askedtonameonethingthatwouldimprovejobsatisfaction,thetopthreecategoriesU.S.
respondentschoseare:
27% moreopportunitiestodowhatIdobest
20% Careerdevelopmentopportunitiesandtraining
15% Moreflexibility,controloverhowmyworkisdone,flextime,etc.

When asked for an item that would most improve performance, the top three responses
are:
28%moreresources
16%greaterclarityaboutwhattheorganizationwantsmetodoandwhy
16%developmentopportunitiesandtraining

CI TY COUNCI L
EXCERPT

Page 1 of 4

Special Meet ing
July 2, 2012

Colleagues Memo From Vice Mayor Scharff and Council Members Burt ,
Holman, and Schmid on Council Direct ion Regarding Benefit s St rat egy.

Council Member Burt report ed t he Memo at t empt ed t o lay t he groundwork
for syst emat ic and long range discussions on t he reforms needed t o creat e a
sust ainable syst em of employee pensions, benefit s, and compensat ions.
Council Members want ed Cit y services t o cont inue at t he level expect ed
while st ill having st rong compensat ion and benefit s for t he workforce. The
Memo out lined a number of different policy direct ions for review, which were
aligned wit h t he init iat ives of t he Governor and t he California League of
Cit ies ( League) . I n addit ion, t he Memo out lined a number of ot her areas
open t o explorat ion. Council Members request ed St aff ret urn wit h an
agendized I t em in Sept ember for full Council discussion on t hese t opics.
St aff should answer t he bulk of t he quest ions t o t he ext ent reasonable and
feasible by Sept ember; t hose quest ions requiring research could be
agendized for a subsequent meet ing. St aff should also ident ify any legal
const raint s t o implement ing init iat ives and act ions t aken by ot her cit ies, t he
League and t he Legislat ure on relat ed issues. Legislat ive act ion in t he
coming weeks would likely affect fut ure discussions, because St at e level
const raint s would need t o be correct ed t o enact t he Governor' s proposed
reforms. That legislat ion would enable cit ies t o adopt similar reforms.

Council Member Holman advised t hat most act ion regarding labor
agreement s concerned negot iat ion and were held in Closed Session. This
was a met hod t o have a public discussion and t o educat e and inform t he
public about opport unit ies and const raint s. She hoped labor groups would
part icipat e in public discussions, and looked forward t o creat ive met hods for
addressing employee ret ent ion and j ob sat isfact ion.

Council Member Schmid report ed t he engendering of t his Memo was
Governor Brown' s pension reform proposal. He asked St aff t o define t hose
issues subj ect t o t he Council' s discret ion and t hose subj ect t o St at e level
const raint s and regulat ions. St aff and union input were crit ical t o t he
process.

Attachment A
EXCERPT

Page 2 of 4
Cit y Council Special Meet ing
Excerpt 7/ 2/ 12
Vice Mayor Scharff welcomed a public discussion of t he issues and
const raint s. The Memo raised many issues, and now was t he t ime for
Council Members t o raise ot her issues.

Council Member Shepherd report ed t he League was working t o get a
proposal t o t he Legislat ure t o make significant changes. I t would address
many it ems in t he Memo.

Mr. Keene st at ed many laws rest rict ed local government s' abilit ies t o make
decisions about benefit s and cost s. The League' s main focus was ensuring
t he Governor' s proposed reforms were ext ended t o local government s.
St at e laws, California Public Employees' Ret irement Syst em ( CalPERS)
regulat ions and int erpret at ions, and St at e- wide pension and healt hcare
programs precluded t he Cit y' s abilit y t o make decisions, even when
employees were willing t o make changes. Exist ing regulat ions did not allow
t he Cit y t o do anyt hing t o t he t axpayers' and employees' benefit . The Memo
was aligned wit h t he League' s init iat ive. The League had draft legislat ion in
conference commit t ee at t he Legislat ure, and would know whet her or not it
would be scheduled for floor sessions before t he recess. Ot herwise, it would
come back when t he Legislat ure reconvened on August 6, 2012.

Mayor Yeh believed public discussion was import ant . St aff should consider
met hods t o achieve t he most product ive and const ruct ive discussions. He
asked St aff t o provide a cat egorizat ion or grouping of quest ions t hat lent
t hemselves t o open session meet ings.

Mr. Keene report ed t here was a logical grouping of t he quest ions, and ot hers
could emerge during St aff review. One apparent grouping was based upon
act ions wit hin t he Council' s current local aut horit y and discret ion versus
act ions dependent upon legislat ive or regulat ory change at anot her level of
government . St aff would ret urn t o t he Council in mid or lat e Sept ember
wit h t he underst anding t hat t hey would not necessarily have answered every
quest ion. There would be meet ings subsequent t o t he Sept ember meet ing.

Mayor Yeh st at ed t his was an invit at ion for creat ive solut ions from employee
and employer perspect ives. He asked for St aff' s t hought s regarding creat ing
an open climat e t o invit e and achieve honest discussions.

Mr. Keene indicat ed one of t he primary roles of t he Human Resources
Direct or was t o help elevat e and deepen t he conversat ion and shared
responsibilit y bet ween t he Cit y and employees. That aligned wit h having an
open public conversat ion regarding t he realit ies faced by t he Cit y.

EXCERPT

Page 3 of 4
Cit y Council Special Meet ing
Excerpt 7/ 2/ 12
Kat hy Shen, Direct or of Human Resources report ed employees want ed t o be
heard. Employees had opinions about t heir value t o t he Cit y and how t he
Cit y compensat ed, rewarded and engaged t hem. She would compose
quest ions t o obt ain input while minimizing emot ions. There were
generat ional differences in our employees in t erms of what t hey want ed t o
get out of t he work and t he value proposit ion of working for t he Cit y.

Mayor Yeh looked forward t o any model present ed in Sept ember.

MOTI ON: Council Member Schmid moved, seconded by Council Member
Holman t o direct St aff t o agendize by t he end of Sept ember 2012 t he
discussion of t he it ems cont ained in t he Colleagues Memo on sust ainable
pensions, ret iree healt hcare, ot her benefit s, and incent ives for career
employment .

Council Member Holman int roduced t he phrase t ipping point . I t was oft en
referred t o in t he physical environment as what caused a change in act ions
and react ions. I t also relat ed t o responses t o different int eract ions,
condit ions, and sit uat ions.

Council Member Shepherd asked how t he Cit y could support t he League' s
proposed legislat ion, especially if act ion was needed while t he Council was in
recess.

Mr. Keene report ed t he Council' s discussion and alignment of t he Memo wit h
t he League' s proposals gave St aff t he general guidance under legislat ive
policies t o respond on behalf of t he Council. I f St aff received a request for
informat ion during t he recess, t hey could advance t he Cit y' s support for
t opics aligned wit h t he Memo.

Council Member Shepherd indicat ed t he proposed legislat ion would allow
employees t o move from cit y t o cit y and would reduce t he difficult y in
negot iat ing cont ract s.

Council Member Burt st at ed t he Council was not in a posit ion t o adopt t he
Memo in principle. He was not sure t he discussion and Memo could be used
as a basis t o aut horize St aff t o support legislat ion.

Mr. Keene felt St aff could express support for local discret ion t o be ext ended
t o cit ies in det ermining benefit levels and for fewer rest rict ions imposed by
regulat ions.

Molly St ump, Cit y At t orney advised t he League had emphasized t he issue of
flexibilit y and local cont rol. The Governor may have gone a bit furt her in
EXCERPT

Page 4 of 4
Cit y Council Special Meet ing
Excerpt 7/ 2/ 12
advocat ing a part icular subst ant ive policy where t he League st at ement
advocat ed allowing local j urisdict ions t o det ermine specific policy. St aff
could ant icipat e t he League' s policies cont inuing along t hose lines. That was
t he t ype of issue read int o t his Colleagues Memo at t his point .

Mr. Keene assumed St aff could provide examples of experiences wit h
rest rict ions in order t o support local discret ion. That t ype of comment would
not express support for a part icular change, but would express t he desire t o
have more freedom t o resolve t hese difficult ies t hrough t he Council.

MOTI ON PASSED: 8- 0 Price absent