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

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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

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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?

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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

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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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Suppression

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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.