The City Council voted 7-0 on Monday to change the compensation schedule of its "managers and professional" group — the only major labor group not represented by a union. The goal of the exercise is to bring local compensation levels closer to those in comparable cities, thereby keeping the city competitive in recruiting and retaining top talent, City Manager James Keene and Chief People Officer Kathryn Shen said. Mayor Greg Scharff and Councilwoman Karen Holman were absent.
"I think it's really imperative for the retention of our talented workforce — our managers and professionals — to adopt the new plans," Shen said.
Minutes later, in an unusual move, the council voted to impose a new contract with a 3 percent salary increase on the Utilities Managers and Professionals Association of Palo Alto, which includes 43 managers and administrative staff of the Utilities Department. The Monday vote came after a two-year negotiation process reached a dead end on April 30 with the union rejecting the city's "best, last and final offer" and declared an impasse.
While the new contract wasn't what the relatively new utilities union, formed in 2011, had hoped for during negotiations, the conditions imposed by the council include a 3 percent salary increase. The resolution also includes benefit concessions, namely a greater share of pension covered by the employees (it will go from 2 percent currently paid to either 7 or 8 percent, depending on which formula the employee is enrolled in) and a 10 percent contribution to health care costs, which the city had traditionally picked up in its entirety. Other labor groups had agreed to similar concessions in recent years, in some cases after protracted negotiations.
This wasn't Palo Alto's first recent foray into contract imposition. In 2009, as the economy tanked and local revenues dropped, the city declared an impasse with its largest union, the Service Employees International Union, Local 521. The union, which represents about half the city's workforce, rejected the city's terms, which included benefit concessions.
What was different about Monday's imposition is that the city's offer included, along with the concessions, a 3 percent raise. And far from saving the city's money, it will actually cost an extra $448,432.
According to a report from the Human Resources Department, talks between the city and the union fell apart over "management rights" provisions, which give the city unilateral rights to contract out services, determine work schedules and allocate positions. The new contract also includes an "at-will provision" for all new managers, which gives the city the ability to ask workers to resign at any time with or without cause.
Keene pointed out the unusual nature of imposing a contract with a salary increase but recommended making the change because "it's the right thing to do, even though we couldn't get to an agreement."
"We think it is important to move ahead and try to ensure that our utility managers are more competitive in the market place," Keene said.
Immediately after imposing the contract on the utilities union, the council voted 7-0 to sign a new agreement with the seven-member Palo Alto Police Managers Association, another recently formed union that broke off from the broader managers and professionals group in the aftermath of the economic downturn. Like the utilities contract, the city's agreement with the police lieutenants and captains includes a 3 percent raise and employee concessions on pension and medical care.
But the most significant vote of the night involved the compensation schedule for the entire managers-and-professionals group. The change followed years of analysis — an effort that preceded Keene's hiring in 2008. Calling it a "long and winding road," Keene said the changes are necessary to both keep the city competitive and to "promote more internal equity between jobs in the city." The new salaries are based on a study by the firm Koff and Associates, which surveyed 14 comparable cities, including Mountain View, Sunnyvale and Redwood City, and compared the compensation levels in those cities with Palo Alto's, position by position.
The overhaul ensures that the salary of every Palo Alto manager falls within 20 percent of the median salaries. While Keene emphasized on Monday that this does not mean every position gets a higher salary, managers have far more to gain than to lose from the readjustment. Those employees whose salaries are below the median by more than 20 percent will see them go up. But those whose salaries are more than 20 percent above the median will not see them drop. According to a staff report, they will "not immediately lose income, but will not be eligible for merit increases and general increases" until they are within the market salary range.
The council had discussed the salary adjustments in May and decided then to refer the subject to its Finance Committee for further analysis. The committee recommended approving the overhaul, a suggestion that the full council swiftly adopted Monday.
In some ways, the new salary schedule doesn't tell the full story. Based on 2011 data, it does not include in its calculation the total compensation levels city employees receive today, a key point given that every labor group has been recently asked to make concessions on pensions and medical costs. Councilman Pat Burt, who chairs the Finance Committee, and Councilman Greg Schmid both emphasized the importance of considering the full compensation package rather than just salaries. The Finance Committee had recommended an update to the salary study with consideration of benefits within 18 months.
Given the prior discussions, the council approved the increases Monday with little debate. Council members generally concurred with Keene's argument about the need to be competitive.
The council was equally assured, though far less cheerful, when it voted to approve the contract with the utilities union. Vice Mayor Nancy Shepherd, who was elected in 2009, noted that the city has been discussing compensation changes with the utilities managers during her entire tenure (the utilities managers first petitioned to form a bargaining unit in 2009).
"I think we have a very hard-working and dedicated staff in utilities," Shepherd said. "I think we're doing this for the right reasons. It's just sad we're having to do this with this particular group of employees."
Burt concurred with Keene's assessment that it's odd to have an imposition of terms "where we're actually granting some fairly significant salary increases."
"But they are clearly needed to be able to compete in a market where we've been losing critical employees," Burt said. "That's the reality of the market these days."