Redesign the State s Employee Classification System

The Legislature should redesign the state s employee classification system to be more flexible and responsive to employees needs, and to encourage and reward superior performance.


Background
The Position Classification Act of 1961 created the State Classification Office and a Classification officer to maintain on a current and accurate basis the Position Classification Plan, advise and assist state agencies to insure equitable and uniform application of su ch Plan, assist in personnel audits to assure conformity, and to make such recommendations as he may think necessary and desirable respecting the operation and improvement of the Position Classification Plan to the Governor and the Legislature. 1

In addition, the Classification Officer shall make periodic studies of salary rates paid in industry or other governmental units for like or similar work performed in state government, and shall report his findings and recommendations for the realistic adjustmen t of state salary ranges to the Governor s Budget Office and the Legislative Budget Board prior to each regular legislative session. 2

Since its implementation more than 30 years ago, the State Classification Plan has remained largely unchanged. For example, the Position Classification Act of 1961 deferred all nonacademic employments in institutions and agencies of higher education until such time as it is deemed practical by order of the Governor or by direction of the Legislature to study and make application of such Plan. Today, these institutions continue to maintain their own classification and pay schedules.

Texas current employee classification system is based upon a salary structure of 20 salary groups with eight salary steps within each group. Under this system, more than 113,700 state employees are classified into 1,356 types of positions. 3 The State Classification Office in the State Auditor s Office (SAO) is responsible for maintaining state job descriptions and positions. During the biennial budget process, the office makes recommendations for the addition and deletion of job classificati on titles, reallocation of salary groups assigned to specific classifications and the proper classification of positions, as requested by state agencies.

Pe riodically, the Legislature authorizes across-the-board employee pay increases of a stipulated percentage of salary. When this occurs, each of the 160 different salaries in the salary schedule is increased by the specified percentage. For example, in the c urrent General Appropriations Act, the Legislature authorized annual 3 percent pay increases contingent upon the Comptroller s certification that sufficient revenues were available. The Comptroller was able to certify the pay increases for both fiscal 1992 and 1993. Therefore, all state employees received a raise of the same percentage.

Recognizing a need to determine whether the current employee classification plan fit[s] into the developing management and pay philosophy of Texas, the State s Classification Office conducted a survey of state agencies in November 1992, which clearly indicated that agencies want to manage employee pay themselves and desire more flexibility in the system. 4 Survey respondents also indicated an interest in pay-for-performance strategies, more extensive use of career ladders, development of a briefer master list of classifications and technical assistance and education from the Classification Office.

At least 11 states have conducted recent re-evaluations of their employee classification systems. A 1991 Oklahoma report on the state s classification system states that the system is fundamentally flawed and inequitable and oppressive to the rank and file employee; the report recommends a fundamental restructuring and reorganization of the system. 5

Similarly, a 1992 Georgia report recommended the elimination of employee pay steps and the establishment of a pay schedule including groups with salaries ranging from a minimum to a maximum. 6 The report also recommended that Georgia start a pay-for-performance program that awards raises based on employee performance appraisals, and advocated a bonus system for employees who continue to excel but have reached the top salary within their salary group. Due to the complexity of the issue, these suggestions have been incorporated into a much larger two- to three-year project to re-invent Georgia s employee classification system with the aid of private consultants. 7

Private businesses also have begun to re-think their salary structures and reward quality improvements and creativity. Many analysts believe that, over the next decade, well-managed companies will eliminate traditional employee classification systems and d etailed job descriptions entirely. These structures will be replaced with greater freedom for employees to change their responsibilities to meet customers needs, improved measurement systems for employee performance and pay for performance. 8 For example, Motorola recently condensed more than 100 job classifications for their factory workers into five broadly-banded categories in which employees are paid on the basis of their demonstrated on-the-job competency. 9


Recommendations
A. The Legislature should transfer the State s Classification Office from the State Auditor s Office (SAO) to the General Services Commission (GSC).

This recommendation is consistent with another recommendation in this report creating a central personnel office in GSC. This recommendation will consolidate all of the state s personnel and human resources oversight into one agency, to aid the development and management of a comprehensive employee compensation package.

B. The Legislature should require GSC to redesign the State Classification System and make recommendations for statutory and other changes.

This study should be conducted by an independent third-party consultant hired by GSC, in cooperation with the Comptroller s office, SAO and the Employee Retirement System. The state should commit staff resources to supplement the consultant team, as it did with the Reengineering Procurement Project conducted by TPR in 1992.

In reviewing the state s classification system, TPR has identified a number of topics that should be addressed in this study, including pay for performance, market-bas ed salaries, evaluation procedures, dual-pay structures for classified and professional employees, employee incentive programs and other compensation and benefits issues. The project team also should decide whether the Legislature should continue to author ize across-the-board pay increases or whether agencies should be required to request this funding based on the documented performance of their employees and relevant market-based salary information.

The project team should clearly articulate the goals of the classification system such as attracting and retaining state employees and then design a system to accomplish these goals. In addition, the project team should consider how employee insurance and retirement benefits assist or deter the state in achiev ing its employment goals and make recommendations to the Legislature on whether GSC also should administer the state s employee insurance program. The project team should also be required to determine the costs and benefits that will result from a redesigned system.
The project team should establish a Steering Committee to help the project team determine customer requirements, challenge the redesigned system and plan its implementation. The Steering Committee should be comprised of personnel officers of state agenci es and institutions of higher education as well as staff of the Governor s office and the state s legislative leadership.


Implications
A redesigned classification system should provide Texas government with a comprehensive compensation and ben efits system. Over the long term, this recommendation should result in lower costs to the state because the system will attract and retain the best employees.


Fiscal Impact
The estimated cost of the recommended project is based on information provided by vendors who have performed similar studies in the past. It assumes the conceptual redesign of the classification system will be completed in fiscal 1994. Some federal or high er education local funds could be used to fund a portion of the project.

Cost to
Fiscal the General Revenue Change
Year Fund 001 in FTEs

1994 ($500,000) 0
1995 0 0
1996 0 0
1997 0 0
1998 0 0

The future fiscal impact of a redesigned classification system cannot be estimated. The primary benefit of the change would be to modernize state pay policies and allow the state to remain competitive with other employers.



Endnotes
1 Vernon s Ann. Civ. Stat. art. 6252-11, Sec. 6.
2 Ibid.
3 Interview with Don McCanless, Assistant Classification Officer, State Auditor s Office, Austin, Texas, November 18, 1992.
4 Letter to the Comptroller from State Auditor Lawrence F. Alwin, October 23, 1992.
5 Council of State Governments, Comprehensive Review and Evaluation of Oklahoma s Personnel Function: Full Report (September 1991), p. 23.
6 Report of the Governor s Commission on Effectiveness and Economy in Government, Volume I, Final Report (January 8, 1992), pp. 626-638.
7 Telephone interview with B.J. Bennett, Personnel Administration, State of Georgia, November 18, 1992.
8 Jude T. Rich, Meeting the Global Challenge: A Measurement and Reward Program for the Future, Compensation and Benefits Review (July-August 1992), p. 27.
9 Ibid., p. 28.