State of California M e m o r a n d u m Date: January 13, 1994 Reference Code: 94-02 To: PERSONNEL MANAGEMENT LIAISONS THIS MEMORANDUM SHOULD BE DISTRIBUTED TO: Personnel Officers Labor Relations Officers From: Department of Personnel Administration Classification and Compensation Division Subject: Managerial Pay-for-Performance Program This memorandum provides additional information on the new performance-based pay program for State managers, including examples of salary rule applications relative to this program. Also attached is a copy of Department of Personnel Administration (DPA) Rule 599.799 which governs the administration of the Managerial Pay-for-Performance Program. As previously announced, the bottom step of each managerial salary range was eliminated on January 1, 1994. Since the maximum steps will remain the same, this will result in a two-step salary range for every civil service managerial class. In addition, a 5 percent performance incentive differential has been established for managerial classes. These actions will be coordinated with the current salary rules as follows: o Where the salary rules call for a comparison between salary range maxi- mums, the maximum for managerial classes will be the maximum of the two- step salary range plus the 5 percent differential. Therefore, the salary relationships between managerial and other classes will remain the same. o Once the appropriate salary rule is determined, based on the comparison of "from" and "to" maximums, the employee's salary movement shall be from the total rate of pay, including any performance incentive differential they are receiving. Performance Incentive Differential Eligibility Employees moving from a classification that received a General Salary Increase on or after June 30, 1993 shall not be eligible for the performance incentive differential during the 1994 Calendar Year when appointed to a managerial classification except as required to apply the salary rules. New hires into State service during the 1994 Calendar Year appointed to a managerial classification are not eligible for the performance incentive differential. Employees who separated from State service prior to January 1, 1994 and had lump sum payment that extended into the 1994 Calendar Year are not eligible for the performance incentive differential. No Retroactivity The performance incentive differential may not be granted retroactively. For example, if a decision is made to grant the performance incentive differential in early June to a manager and processed in June, prior to the State Control- ler's Office's (SCO) cutoff date, that action would take effect beginning with the June pay period. Red Circle Rates Employees with a red circle rate shall be evaluated for the performance incentive differential. The red circle rate plus, however, must be manually adjusted to offset any performance incentive percentage the employee is granted. 1995 Merit Salary Adjustment (MSA) Tickler Employees that would have otherwise received a MSA in 1995 shall be eligible, in lieu of the MSA, for a performance incentive evaluation. Departments will need to maintain a tickler for those employees where the MSA reflects MAX and would have otherwise received a MSA in 1995. An example is an employee who was at the old minimum prior to January 1, 1994 and had a MSA due April of 1994. If the employee received the 5 percent performance incentive differen- tial, as of January 1, 1994, the employee moves to the new minimum of the class. On April 1, 1994, the employee moves to the next maximum of the class and the MSA reflects MAX. The employee would have otherwise been eligible for an additional MSA on April 1995 in absence of the Managerial Pay-for- Performance Program. Management Memo 93-80 Clarifications All performance-based pay received by managers in the 1994 Calendar Year is a permanent salary increase and can be reduced or withdrawn only through general salary reductions or adverse actions. If a manager is granted a 3 percent performance pay incentive differential as of January 1, 1994 and then approved for an additional 2 percent as of July 1, 1994, both pay incentive differen- tials are permanent. However, as of January 1, 1995, any performance-based pay received by managers will be "at risk" and may be reduced or withdraw at the appointing power's discretion. Management Memo 93-80 states that initial department certification of perfor- mance must reach SCO before payroll cutoff in January of 1994. The certifica- tion required by SCO is not the attachment provided which certifies managers within a department and the amount of increase received. The certification provided in Management Memo 93-80 is for departmental use only and should be kept on file with the department. SCO requires that departments update employment history records prior to the January 1994 cutoff for increases to be effective January 1, 1994. SALARY MOVEMENT EXAMPLES: 1. APPLICATION OF THE SALARY RULES FOR MOVEMENT BETWEEN MANAGERIAL CLASSES Employee is a Staff Services Manager II (Managerial) [SSM II (M)] with a base salary of $4,905 and a 5 percent performance incentive differential to equal $5,150 total salary and is moving to the Staff Services Manager III (SSM III) classification. SSM II (M) Salary Range $4,671 - $4,905 + 5% differential = $5,150 SSM III Salary Range $5,129 - $5,385 + 5% differential = $5,654 + 1% differential = $5,439 Salary Relationship When comparing the salary relationship between the two classes, use the maximum of the salary range plus the 5 percent performance incentive differential of the SSM II (M) ($5,150) and the maximum of the salary range plus the 5 percent performance incentive differential of the SSM III ($5,654). The percentage differential between the two classes is +9.8 percent, which is substantially the same salary range. DPA Rule 699.674(b) is applied which provides that the employee shall receive one step above the rate last received. Determining Appointment Salary Rate In this example, the employee's current salary plus the performance incentive differential equals $5,150. A one-step increase would bring the employee's salary to $5,408. This rate exceeds the maximum of the SSM III salary range ($5,385). Therefore, the employee is entitled to receive a performance incentive differential to bring the salary to a rate one step above the rate last received. When the differential cannot produce the exact rate required, the next possible higher rate shall be used. $5,385 x 1.01 = $5,439 A performance incentive differential of 1 percent brings the employee's combined rate to $5,439. The employee is entitled to receive the base salary of $5,385 and a 1 percent differential to a total combined salary of $5,439 when moving to the SSM III classification. Remaining Performance Incentive Differential In no instance is this employee entitled to any additional performance incentive differential in the SSM III classification in the 1994 Calen- dar Year. 2. APPLICATION OF THE SALARY RULES FOR MOVEMENT BETWEEN MANAGERIAL TO NONMANAGERIAL CLASSES Employee is a SSM II (M) with a base salary of $4,671 and a 5 percent performance incentive differential to equal $4,905 total salary and is moving to the Staff Services Manager II (Supervisory) [SSM II (S)] classification. SSM II (M) Salary Range $4,671 - $4,905 + 5% differential = $4,905 SSM II (S) Salary Range $4,219 - $5,091 $4,905 Salary Relationship When comparing the salary relationship between the two classes, use the maximum of the salary range plus the 5 percent performance incentive differential of the SSM II (M) ($5,150) and the maximum of the salary range of the SSM II (S) ($5,091). The percentage differential between the two classes is -1.2 percent, which provides that the employee may receive any rate in the salary rate not above that last received. Determining Appointment Salary Rate In this example, the employee's current salary plus differential equals $4,905. The employee may retain the salary upon movement to the SSM II (S) classification and moves from the base salary plus per- formance incentive differential to retain the salary of $4,905 upon movement to the SSM II (S) classification. 3. APPLICATION OF THE SALARY RULES FOR MOVEMENT BETWEEN NONMANAGERIAL TO MANAGERIAL CLASSES Employee is a SSM II (S) with a base salary of $5,000 and is moving to the SSM II (M) classification. SSM II (S) Salary Range $4,219 - $5,091 $5,000 SSM II (M) Salary Range $4,671 - $4,905 + 5% differential = $5,105 + 4% differential = $5,101 Salary Relationship When comparing the salary relationship between the two classes, use the maximum of the salary range of the SSM II (S) ($5,091) and the maximum of the salary range plus the 5 percent performance incentive differ- ential of the SSM II (M) ($5,150). The percentage differential between the two classes is +1.2 percent, which is substantially the same salary range. DPA Rule 599.674(a) is applied, which provides that the employee may receive any rate in the salary range not to exceed the total of the range differential between the maximum salary rates. Determining Appointment Salary Rate In this example, the employee's current salary of $5,000 in the super- visory class exceeds the maximum of the two-step managerial class ($4,905). The employee may, as provided by DPA Rule 599.674(a), receive a 1.2 percent increase upon movement to the SSM II (M) classification. The rate the employee may receive is determined by multiplying the employee's current salary: $5,000 x 1.012 = $5,060. The employee may receive the performance incentive differential to provide the employee no less than what the employee would have otherwise been eligible to receive in absence of the Managerial Pay-for-Performance Program. To determine the amount of the differential the employee is eligible to receive, multiply the maximum of the "to" class ($4,905) by full percentage increments of 1-5 percent: $4,905 x 1.01 = $4,954 $4,905 x 1.02 = $5,003 $4,905 x 1.03 = $5,052 $4,905 x 1.04 = $5,101 $4,905 x 1.05 = $5,150 When the differential cannot produce the exact rate required ($5,060), the next possible higher rate shall be used, therefore, the employee may receive a percentage differential of 4 percent to total a salary of $5,101. The employee is eligible to receive the base salary of $4,905 and a 4 percent differential to total a combined salary of $5,101 when moving to the SSM II (M) classification. Remaining Performance Incentive Differential In no instance is this employee entitled to any additional performance incentive differential in the SSM II (M) classification in the 1994 Cal- endar Year. General questions regarding this program can be directed to your Classifica- tion and Compensation Division analyst. Questions on specific salary-related issues should be direct to Olivia Hawkins on (916) 324-0439, CALNET 454-0439. Questions from individual employees should be referred to their departmental personnel office. Mike Vargas Section Manager Attachment