This presentation discusses optimizing total compensation packages. It defines total compensation as including all measurable costs like salary, benefits, paid time off, retirement benefits, and mandated costs. Measuring total compensation accurately shapes employee expectations and allows employers to make financially sound decisions. The presentation uses Oakland County, Michigan as a case study, showing how communicating total compensation helped implement necessary budget cuts while retaining talent.

1. GFOA PRESENTATION
OPTIMIZING YOUR TOTAL
COMPENSATION PACKAGE
Laurie Van Pelt, CPFO
Director of Management and Budget, Oakland County, MI
June 10, 2012

2. Presentation Outline
• Overview of Oakland County
• What level of compensation is “optimal”?
• What is TOTAL compensation?
• How can measuring total compensation
benefit or challenge an organization?
• How can the concept of total
compensation be used to retain talent and
attract future employees?

3. Profile of Oakland County
• Elected County Executive - similar to a strong mayor
organization
• Six county-wide elected officials
• 25 elected commissioners
• Elected judiciary
• 80 departments and agencies
• Total budget = $759.3 million
• 4,304 employee positions (3,562 are full-time)
• AAA bond rating
• 910 square miles
• 1.2 million residents

4. What is “optimal” compensation?
It depends
on one’s
expectations
and
objectives
Merriam- Webster
definition of
“optimal”:
Most
desirable or
satisfactory

6. What is “optimal”?
Bringing the pieces together, reshaping
expectations, and finding the right fit.

7. Shaping Expectations
• Providing information in terms of TOTAL
compensation can help establish realistic
expectations.
• How do you measure TOTAL compensation?
– At a minimum, all measurable costs should be
included:
• Annual salary/hourly wage rate
• Fringe benefits
– In addition to active employment benefits, are you
also including benefits that have been earned but
will be paid in the future such as pension costs and
other post-employment benefits (OPEB)?

8. Shaping Expectations
An Employee’s Perspective
• As part of the annual employee benefit selection
process, Oakland County informs each employee
of the estimated annual cost for each benefit.
• Each benefit is categorized as either discretionary
or mandated.
• Employees are informed regarding how much the
County pays annually for each benefit on behalf
of the individual employee and how much the
employee contributes.

9. Salary: $35,000 Salary: $95,000
Hourly Equiv. $17 Hourly Equiv. $46
BENEFIT COSTS
Employer Employee Employer Employee
Medical (illustrative rate for family plan) $15,082 $2,444 $15,082 $2,444
Dental 1,354 0 1,354 0
Vision 89 0 89 0
Life Insurance 109 0 295 0
Disability Insurance 494 0 1,340 0
Subtotal Employer Sponsored $17,128 $2,444 $18,160 $2,444
Paid Holidays $1,750 $0 $4,750 $0
Personal Days 673 0 1,827 0
Vacation Time 2,423 0 6,577 0
Subtotal Paid Time Off $4,846 $0 $13,154 $0
Retirement (DC plan) $2,800 $1,050 $7,600 $2,850
Retirement - Medical Coverage* 15,347 0 15,347 0
Subtotal Retirement $18,147 $1,050 $22,947 $2,850
Subtotal Discretionary Benefits $40,121 $3,494 $54,261 $5,294
% of Discretionary Paid by Employer 92.0% 91.1%
Worker's Compensation $434 0 $1,178 0
Unemployment Compensation 130 0 352 0
FICA 2,678 2,678 7,268 7,268
Subtotal Mandated Benefits $3,242 $2,678 $8,798 $7,268
% of Mandated Paid by Employer 54.8% 54.8%
TOTAL ALL BENEFITS $43,363 $6,172 $63,059 $12,562
% of All Benefits Paid by Employer 87.5% 83.4%
Total of All Benefits as % of Salary 142% 80%
*Represents average annual cost per employee eligible for traditional OPEB
Employee A - Clerk Employee B - Manager
Estimated Annual Cost to: Estimated Annual Cost to:

10. Salary: $35,000 Salary: $95,000
Hourly Equiv. $17 Hourly Equiv. $46
BENEFIT COSTS
Employer Employee Employer Employee
Medical (illustrative rate for family plan) $15,082 $2,444 $15,082 $2,444
Dental 1,354 0 1,354 0
Vision 89 0 89 0
Life Insurance 109 0 295 0
Disability Insurance 494 0 1,340 0
Subtotal Employer Sponsored $17,128 $2,444 $18,160 $2,444
Paid Holidays $1,750 $0 $4,750 $0
Personal Days 673 0 1,827 0
Vacation Time 2,423 0 6,577 0
Subtotal Paid Time Off $4,846 $0 $13,154 $0
Retirement (DC plan) $2,800 $1,050 $7,600 $2,850
Retirement - Medical Coverage* 15,347 0 15,347 0
Subtotal Retirement $18,147 $1,050 $22,947 $2,850
Subtotal Discretionary Benefits $40,121 $3,494 $54,261 $5,294
% of Discretionary Paid by Employer 92.0% 91.1%
Worker's Compensation $434 0 $1,178 0
Unemployment Compensation 130 0 352 0
FICA 2,678 2,678 7,268 7,268
Subtotal Mandated Benefits $3,242 $2,678 $8,798 $7,268
% of Mandated Paid by Employer 54.8% 54.8%
TOTAL ALL BENEFITS $43,363 $6,172 $63,059 $12,562
% of All Benefits Paid by Employer 87.5% 83.4%
Total of All Benefits as % of Salary 142% 80%
*Represents average annual cost per employee eligible for traditional OPEB
Employee A - Clerk Employee B - Manager
Estimated Annual Cost to: Estimated Annual Cost to:

11. Salary: $35,000 Salary: $95,000
Hourly Equiv. $17 Hourly Equiv. $46
BENEFIT COSTS
Employer Employee Employer Employee
Medical (illustrative rate for family plan) $15,082 $2,444 $15,082 $2,444
Dental 1,354 0 1,354 0
Vision 89 0 89 0
Life Insurance 109 0 295 0
Disability Insurance 494 0 1,340 0
Subtotal Employer Sponsored $17,128 $2,444 $18,160 $2,444
Paid Holidays $1,750 $0 $4,750 $0
Personal Days 673 0 1,827 0
Vacation Time 2,423 0 6,577 0
Subtotal Paid Time Off $4,846 $0 $13,154 $0
Retirement (DC plan) $2,800 $1,050 $7,600 $2,850
Retirement - Medical Coverage* 15,347 0 15,347 0
Subtotal Retirement $18,147 $1,050 $22,947 $2,850
Subtotal Discretionary Benefits $40,121 $3,494 $54,261 $5,294
% of Discretionary Paid by Employer 92.0% 91.1%
Worker's Compensation $434 0 $1,178 0
Unemployment Compensation 130 0 352 0
FICA 2,678 2,678 7,268 7,268
Subtotal Mandated Benefits $3,242 $2,678 $8,798 $7,268
% of Mandated Paid by Employer 54.8% 54.8%
TOTAL ALL BENEFITS $43,363 $6,172 $63,059 $12,562
% of All Benefits Paid by Employer 87.5% 83.4%
Total of All Benefits as % of Salary 142% 80%
*Represents average annual cost per employee eligible for traditional OPEB
Employee A - Clerk Employee B - Manager
Estimated Annual Cost to: Estimated Annual Cost to:

12. Shaping Expectations
An Employee’s Perspective
• The County’s share of employer-sponsored
benefits for each employee is also included on
the biweekly paycheck stub in addition to routine
payroll information.
– Includes current period and year-to-date amounts for:
• Medical
• Dental
• Vision
• Life insurance
• Retirement

13. Shaping Expectations
An Employer’s Perspective
• Unlike private employers, public employers
have very little ability to “grow” revenues,
such as through new product lines or by
increasing market share.
• Rather, there is a limit on how much taxpayers
are willing to be taxed for public services
which results in revenue constraints for public
employers.

14. Shaping Expectations
An Employer’s Perspective
• Thus, costs need to be constrained as well to
stay in balance.
• Most governments rely on employees to
provide public services.
• Therefore, employee compensation tends to
be the largest expenditure category, requiring
significant attention and scrutiny, particularly
when budgets are shrinking.

15. • If benefit reductions are required, consider making
changes prospectively
– In order to keep promises to current employees
– New hires have a choice and can decide whether or
not to accept employment
– May be less resistance to prospective changes but
takes longer to realize cost savings
Shaping Expectations
An Employer’s Perspective

16. Shaping Expectations
An Employer’s Perspective
• Oakland County has continually made incremental
adjustments to employee benefits over the past
several decades in an effort to control overall
compensation costs.
• The cumulative effort over time has yielded big savings
for the County.
• See the Government Finance Review article in the April
2012 edition, “Incremental Changes Can Yield Big
Savings Over Time,” for further discussion regarding
Oakland County’s approach for adjusting benefits.

17. Oakland County , Michigan – Illustrative Timeline

18. Shaping Expectations
An Employer’s Perspective
Following are examples which illustrate
Oakland County’s use of the “total
compensation” concept to frame
budgetary discussions.

19. Shaping Expectations
An Employer’s Perspective
• In preparation for the 2008 budget, fringe benefit costs
were projected to rise at that time by $8.1 million,
primarily in the area of employee health care.
• The County has a “rolling” multi-year budget process.
– The FY 2008 budget was initially developed in 2006, and a
3% general salary increase was being considered at the
time. Expectations had to be adjusted in 2007 prior to
adoption of the FY 2008 General Appropriations Act.
– The $8.1 million increase in the cost of fringe benefits was
equivalent to a 4% general salary increase.
– No revenue growth was available to absorb the increase,
primarily as a result of the falling property values.

20. Shaping Expectations
An Employer’s Perspective
• The general salary increase in FY 2008 was reduced
from an expectation of 3% down to the
recommendation of 1%.
• To reshape expectations, the discussion was centered
on the overall 5% increase in total compensation (1%
increase in salary + the increase in cost of benefits
equivalent to 4% of salary).
• Information was shared with employees through
meetings, web casts, and FAQ’s available on the
intranet, which resulted in very minimal objection.

21. Shaping Expectations
An Employer’s Perspective
• Efforts were also directed toward reducing or at
least minimizing increases in health care costs.
– Wellness program initiated
– Adjustments to employee contributions, co-pays, and
deductibles
– New vendor selected for prescription coverage
– Changes made to the prescription formulary
• There was also a reduction in number of positions.
• In 2011, employee health care costs were slightly
less than in 2007 when costs peaked.

22. HISTORY OF ACTIVE EMPLOYEE HEALTH CARE COSTS

23. Shaping Expectations
An Employer’s Perspective
• As property values and, thus, tax revenue continued to
decrease, general salary reductions were imposed as
just one of the measures to balance the budget.
– 2.5% reduction in FY 2010
– 1.5% reduction in FY 2011
• This was deemed necessary in an effort to attain long-
term structural balance as a result of the reduced
taxable value base, limited in future growth even after
values begin to rebound due to Michigan’s laws
designed to constrain property tax increases.

24. SALARY HISTORY

25. Shaping Expectations
An Employer’s Perspective
• To furlough or not to furlough?
• There was much debate and consideration
given to unpaid furlough days in lieu of salary
reductions.
• Ultimately, based on an analysis which
considered cost and other factors, the County
decided against the use of furlough days.

26. Shaping Expectations
An Employer’s Perspective
• To avoid additional overtime costs, essential employees in
24/7 programs (such as the jail) would have to be excluded
from imposed furlough days.
• The other employees in non-excluded programs would have
to make up the difference to attain the required amount of
cost reduction.
• For affected employees, 10 furlough days would be required
annually to achieve savings equivalent to a 2.5% salary
reduction.
• The unpaid days would have resulted in approximately 3.8%
less pay for affected employees – inequitable since this
approach could not be applied to all groups of employees.

27. Shaping Expectations
An Employer’s Perspective
• An additional 6 furlough days would be required to
offset the subsequent year’s 1.5% salary reduction for
a total of 16 furlough days.
• Although furlough days are unpaid, employees would
be absent from work an additional 16 days per year in
addition to paid days off (holidays, vacation, etc.).
• If employees are earning full-time benefits while
working fewer days on the job, the cost to produce the
same unit of service goes up (i.e., the total
compensation per productive work hour goes up).

28. Shaping Expectations
An Employer’s Perspective
• Consider that some governments are imposing 52
furlough days per year – 1 day per week out of a 5-day
week reduces service or production levels by 20%.
• Essentially, furloughed employees become part-time
employees earning full-time benefits.
• In the long-term, use of furlough days is not
sustainable nor cost effective.
• Many governments that initially utilized furlough days
have eliminated them and implemented pay reductions
instead.

29. Shaping Expectations
An Employer’s Perspective
• Oakland County has cut about 300 full-time positions (FTEs)
since 2008.
– Through reorganizations, many departments have replaced deleted
FTE positions with part-time positions (PTNE).
• The fringe benefit rate for an average FTE employee can range
from 47.9% to 73.6% of salary, depending on the individual’s
eligibility for certain benefits based on hire date (rate does
not include holidays and other paid leave time).
• The fringe rate for mandated benefits for PTNEs is 4.6% (PTNE
employees do not participate in Social Security, so there is no
FICA tax).

30. Shaping Expectations
An Employer’s Perspective
• Also, vacant budgeted FTE positions are often multi-
filled with PTNE employees. PTNEs can work up to
1,000 hours annually. The fringe benefit savings from
this practice often allows 3 PTNE employees to fill
1 budgeted FTE position.
– 1 FTE is budgeted for 2,080 hours. After adjusting for paid
holidays, vacations, and personal days, the net on-the-job
hours are less.
• An FTE employee is actually on the job working approximately
1,800 hours on average depending on the number of vacation days
the employee earns each year.
• Alternatively, 3 PTNEs could work 3,000 hours each year in that
same FTE position.

31. Shaping Expectations
An Employer’s Perspective
• Some retirees come back to work as PTNE
employees which has many benefits for the
County and the employee.
– Requires no additional training investment if
employee is performing in same field of expertise.
– Provides an opportunity for transition for both the
County and the employee.
– High productivity and efficiency resulting from
employee’s experience as compared to a learning
curve period for a new employee.
– Reduced labor cost from fringe benefit savings.

32. Benefits of Measuring Total
Compensation
• When labor rates reflect TOTAL cost, there are
financial benefits:
– Enhances cost recovery from grants and contracted
services provided to other organizations (such as
assessing and road patrol services.
• Including legacy costs, such as for OPEB, ensures that the
funding source is paying for these costs which are earned in
the current period but paid in the future.
– Operational decisions are based on a more complete
analysis inclusive of total compensation costs (for
example, when considering whether to outsource or
directly provide a service).

33. Challenges
• When pay or benefits are revised incrementally and
applied to future new hires, while total cost is lowered
and result in significant savings, the fringe benefit rates
vary.
• The variance in fringe rates becomes more pronounced
over time and can result in several “tiers”.
• This can make financial analyses more complex.
• As the employee base turns over, it can become
difficult to explain rate differentials to elected officials,
program managers, and the general public.

34. Challenges
Average Fringe Rates Based on Benefit Level Eligibility
FTE FTE FTE
DB DC DC
VEBA VEBA RHS
Retirement* 3.06% 10.79% 10.79%
VEBA/RHS 26.15% 26.15% 0.43%
Active Health Care 25.70% 25.70% 25.70%
Other 10.98% 10.98% 10.98%
Total 65.89% 73.62% 47.90%
*DB pension system has been fully funded from FY 1997 through FY 2012 with no ARC
payment required. Includes retirement system administrative costs.
Definitions:
DB = defined benefit pension plan
DC = defined contribution pension plan
VEBA = Voluntary Employees’ Benefit Association (DB style plan for retiree health care)
RHS = retirement health savings (DC style plan for retiree health care)

35. Challenges
• Retention of trained experienced employees and recruiting new
employees could become a challenge when the economy fully
recovers.
– Currently an issue for technology professionals.
• The County has some monetary incentives that are used selectively
and sparingly when recruiting has become especially difficult, such
as:
– “Hot skills” pay in addition to basic salary.
– Supplemental hiring incentive up to 5% of pay , maximum of $5,000.
– A “County bounty” program, which is a monetary incentive offered to
current employees who successfully identify and recruit qualified
applicants who eventually are hired and stay employed for a minimum
period of time.

36. Other Incentives
• Since current benefit packages for public sector
employees may be less generous compared to what
may have been offered in the past, consider other
available incentives as part of the marketing strategy
to attract future employees.
• How about harvesting from your PTNE group? The
incremental increase in total compensation for those
individuals is significant if they graduate to FTE status.
Plus there are potential benefits to the employer:
– Retain the training investment for those staff.
– Their work performance is a known.
– Loyalty resulting from an appreciation of having reliable
full-time work after experiencing tough economic times?

37. Other Incentives
 Technological tools which enhance mobility and/or efficiency
 On-site child care facility and credit union
 Weight Watchers at work and other lunchtime wellness
programs
 Succession planning/career path; investment in training
 Tuition reimbursement
 Limited business travel required
 Free parking
 Established, predictable work schedules which are “family
friendly”
 Flexible schedules, such as 4/10 work weeks which reduces
commuting and other costs for employee

38. Summary
• What is considered optimal depends on the
perspective of the individual.
• Optimal might be defined as finding an equilibrium
point which provides the resources necessary for
optimal service delivery.
• Identifying, measuring, and monitoring all aspects of
compensation is key to attaining an optimal TOTAL
compensation package.
• Communication is essential in shaping expectations.
• Incremental adjustments over time can yield big
savings and is an effective strategy for achieving long-
term optimization.

39. Contact Information:
Laurie Van Pelt
vanpeltl@oakgov.com
(248) 858-2163