MINUTES OF THE
SENATE COMMITTEE ON FINANCE
Sixty-seventh Session
May 14, 1993
The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 8:00 a.m., on Friday, May 14, 1993, in Room 223 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda. Exhibit B is the Attendance Roster.
COMMITTEE MEMBERS PRESENT:
Senator William J. Raggio, Chairman
Senator Raymond D. Rawson, Vice Chairman
Senator Lawrence E. Jacobsen
Senator Bob Coffin
Senator Diana Glomb
Senator William R. O'Donnell
COMMITTEE MEMBERS ABSENT:
Senator Matthew Q. Callister
STAFF MEMBERS PRESENT:
Dan Miles, Fiscal Analyst
Bob Guernsey, Principal Deputy Fiscal Analyst
Marion Entrekin, Committee Secretary
OTHERS PRESENT:
Glenn Rock, Director, Department of Personnel
Mitch Brust, Chief of Technical Services, Department of Personnel
Judy Matteucci, Director, Department of Administration
James T. Spencer, Deputy Attorney General, Department of Personnel
Robert J. Gagnier, Executive Director, State of Nevada Employees Association
Senator Raggio opened the meeting for discussion of Senate Bill (S.B.) 362.
S.B. 362: Provides in skeleton form for revision of state personnel system.
Senator Raggio stated the committee would primarily be dealing with the impact of Benzler v. State of Nevada. This decision pertains to state employees that are eligible for overtime pay. He stated the committee will be considering proposals under S.B. 362 for a new system of classification of state employees.
Glenn Rock, Director, Department of Personnel, stated as a result of the Benzler v. State of Nevada decision, the Department of Administration contracted with the consulting firm KMPG Peat Marwick to look at the Fair Labor Standards Act (FLSA) to determine alternatives the State of Nevada would have regarding the payment or nonpayment of time and a half. In their study two recommendations were offered, and both of these eliminated the current unclassified and classified designations. Mr. Rock explained the [United States] Department of Labor does not use the terms "classified" and "unclassified". For purposes of the FLSA, they only deal with the terms "exempt" and "nonexempt".
According to Mr. Rock, the first alternative suggested by the study was to provide for an exempt and a nonexempt system. Anybody placed in exempt service is excluded from the FLSA. Nonexempt service represents the bulk of state employees who would have all of the protection and rights of current classified employees.
Mr. Rock said the second and final recommendation arrived at by the Peat Marwick study was a three-tiered system for exempt-appointed, exempt-merit, and nonexempt-merit service. This recommendation was based upon the fact there are federal funds coming into the state and some state programs are required, by federal standards, to have a merit system. Mr. Rock pointed out the Peat Marwick study recommended both short-term and long-term actions, and as a result S.B. 362 was originated.
Mr. Rock said he met with the Assembly Committee on Ways and Means regarding skeleton bill S.B. 362 and discussed the provisions of the three-tiered system. The chairman of that committee, Morse Arberry, Jr., asked Mr. Rock to come up with more specifics regarding the three-tiered system and as requested, the memorandum dated May 12,1993, (Exhibit C) was prepared by his department.
Mr. Rock said Exhibit C is a very detailed explanation of the three-tiered system as viewed by the Department of Personnel which also identifies all of the different statutes that will be required
to implement this system. In preparing this report (Exhibit C), the department followed some of the guidelines offered by the Peat Marwick consultants. They also tried to create flexibility where possible to give the state agencies more latitude in rewarding good performance and in hiring new employees. Mr. Rock feels this flexibility will be noticed throughout this proposal (Exhibit C).
Senator Raggio asked why this flexibility is required.
Mr. Rock responded one of the criticisms his department often hears regards the inflexibility of the current system which is not conducive to rapid change or toward allowing management to make decisions.
Senator Raggio asked how this flexibility standard would apply to nonexempt-merit employees.
Mr. Rock replied it would not. Under the department's proposal, nonexempt-merit employees will fall under the current classified regulations and statutes.
Senator Raggio then asked if the management flexibility would apply to only the exempt-appointed and exempt-merit and not to nonexempt-merit employees, and Mr. Rock replied in the affirmative.
Senator Glomb asked how the department plans to achieve this flexibility.
Mr. Rock responded:
In the recruitment area, for example, it gives the agencies who want the ability for delegated recruitment... and are willing to accept that...we will give that to them and they can recruit people for exempt service on their own. If they want our assistance, that is provided, too.
Senator Glomb said from reading the report (Exhibit C) she understood agencies would have the option of taking on some personnel responsibilities. She asked, "That is how you achieve flexibility?"
Mr. Rock said agencies would not be limited to a list of the top five candidates as in the case of nonexempt-merit status. At the present time when hiring for classified service, the agencies are limited to a list of the top five. The department's proposal (Exhibit C) will provide for more flexibility in that area.
Continuing, Mr. Rock said the broad-banding concept reflected on page 3 of Exhibit C, will require more specific position recruitment for exempt-merit service rather than the entire class.
Senator Glomb asked for an explanation of the term banding.
Senator Raggio clarified there are four bands and referenced page 2 of Exhibit C which provides an explanation of the system of broad banding.
Mr. Rock replied:
Under the FLSA the more you treat a group of employees such as hourly employees who keep track of their time and are paid on an hourly basis....That is looked at as a nonexempt person because they are nonsalaried. They are looked at as an hourly wage type of person. The more you can move people in an exempt category away from that concept the better off you are. What we have attempted to do is not only create more flexibility but allow for putting people under salaries and bands to where they will be salaried and not hourly. In terms of the bands themselves...the concept is fairly new...the feds are the ones that are really looking at this particular banding concept which they have successfully applied. They have linked classification, performance, and compensation all into the same concept; and all of these things are considered in a banding approach. The states are just starting to look at this banding concept.
Looking at page 2 of Exhibit C, Senator Glomb noted four levels of banding followed by dollar amounts and percentages and asked for an explanation.
Mr. Rock said that refers to a minimum-maximum span of a particular band. Referencing band four, he explained if an individual went from a salary level of $48,721 to $84,861 that is a span of 74 percent which is the percentage difference between the two salary levels.
Senator Raggio asked, "You are suggesting that within the exempt service you have proposed four bands with the salary parameters being within those indicated [on page 2, Exhibit C]?"
Mr. Rock replied that was correct. He further stated the department plans to take individuals entering into this particular service and placing them, based on their current salary, into one of the bands.
Senator Raggio asked how the department would know where to place an individual with a salary of $50,000 since that salary amount would fit within three of the four bands.
Mitch Brust, Chief of Technical Services, Department of Personnel, explained that currently there are grades ranging from 32 to grade 50 and each of these grades have a span of only 35 percent. The department determined since there is a level of confidence within each of those grade levels, they combined grades 31 through 35 in band 1, grades 36 through 39 in band 2, grades 40 through 45 in band 3, and up to 50 in band 4. The department is proposing to take the classes in those grades and move them into the appropriate band. It would depend upon what grade level an individual is within the $50,000 salary range to determine which band the individual will be placed in.
Despite the explanation by Mr. Brust, Senator Raggio still believes the determination as to which band level an individual will be placed in is strictly an arbitrary decision.
Mr. Brust said it is not arbitrary since the department will take the current classification system and will move it directly into the banding system in which an element of classification will still remain.
Senator Rawson asked, "Could a favored employee slip into another band so that individual would have more promotional room to go before "topping out" in a salary level? Have you added a subjective element where favored people would have more opportunity, and the least favored would be frozen?"
Mr. Brust replied the subjective element would still be present in the new concept as in the present system. Referencing page 2 of Exhibit C, he pointed out the pay bands have been identified based on the current salaries of the classified and unclassified titles which have been designated for inclusion into the exempt merit- service.
Senator Coffin asked if the 5 percent pay raise for exempt-merit level employees had already been figured in the salary ranges reflected for the four illustrated band levels.
Judy Matteucci, Director, Department of Administration, responded it is her understanding that the numbers reflected within the pay bands shown [on page 2 of Exhibit C] are the current pay ranges and whatever merit payments that have to be made are in the one-shot appropriation discussed during budget hearings.
Mr. Rock said his department performed a major survey of other states in an attempt to determine what they are doing relative to their classification and compensation programs, and the broad-banding concept is a major item on an agenda for the National Association of State Personnel Executives scheduled for September 1993.
Senator Coffin asked if there is a way to determine the exact salaries of employees within the bands.
Mr. Rock said there are exact salaries contained within the payroll system.
Senator Coffin asked if the salaries could be shown to the legislators, and Mr. Rock said although not a common practice to do so, he is sure this information could be available because in the public sector, salaries are open to scrutiny.
Continuing his testimony, Mr. Rock said the department not only developed the memorandum (Exhibit C), but was requested or mandated to determine positions and classes of employees based upon a duties test for the FLSA. He said there were 56 positions his department recommended should go into the exempt-appointed group. Mr. Rock then turned the committee's attention to page 1 of Exhibit C and stated individuals who are excluded by the FLSA are appointed by an elected official, and this page provides language that includes the definition of exempt-appointed service.
The Peat Marwick group recommended that the Department of Personnel review all of the classes in state government and the positions in the classes be matched against a duties test for either the executive, administrative, or professional test. They determined there are 2,800 positions that would fit into that particular exemption. Mr. Rock added this does not mean the state has to place all of the 2,800 positions under the exempt-merit category. In the judgment of his department, it means these positions all would meet the duties test of the FLSA and could be considered for exempt-merit service. Approximately 1,600 of the 2,800 positions are professional positions that were matched against the professional test leaving 1,200 that meet the executive test.
Senator Raggio asked for examples of the kinds of positions that would meet the duty tests.
Senator Glomb interjected, "...2,800 employees are in the exempt-merit class?"
Mr. Rock answered in the affirmative.
Responding to Senator Raggio's question, Mr. Brust said the professional test includes psychologists, chemists, and registered engineers. Examples of those who meet the executive test would be some of the regional directors as well as many of the administrative positions throughout all the agencies. A supervisory test is an individual who has to supervise two or more individuals at least 50 percent of the time, and their main objective is supervision by assigning, reviewing, and evaluating work.
Senator Raggio asked if this applies to employees of the university system as well as all state employees, and Mr. Brust replied it does apply to all state employees and those university employees that are currently in classified service. It does not apply to faculty of the university system.
Senator Raggio questioned if those employees placed in exempt-merit service would be eligible for overtime or compensation time, and Mr. Rock said they would not be eligible for either.
Senator Raggio then asked if these employees would be considered salaried employees and would qualify for this classification because of the duties they perform, and Mr. Brust confirmed this statement to be correct.
Senator Raggio asked what the downside would be of placing employees in the exempt-merit classification. He wished to know what limitations will be imposed on those who govern the state by placing employees in that category. He explained he had heard a comment the legislators would be unable to set specific salaries but would have to use the banding process instead.
Mr. Rock replied the way salaries are controlled at the present time is through the funding process, and what would be given up or what would be considered the downside would be a that a number of unclassified positions would now go into exempt service. There are currently a mix of positions in the unclassified category, and for the most part these employees are exempt. However, there are some lower-level employees in unclassified positions that cannot meet the duties test who will have to be placed in nonexempt-merit service.
Senator Raggio asked what authority the Governor or the legislature would have for approving salaries for those within exempt-merit service.
Mr. Brust said the difference is that currently the legislature has specific control from a salary standpoint for about 600 positions that are in the unclassified service. This proposal (Exhibit C) reduces that number to about 56 positions. The control exercised by the legislature over classified service is through a statute that specifies the legislature has control over the allocation of money for salaries. The control relative to the pay plan, by statute, is by the Personnel Commission and by the Governor which is really no different than what is being proposed. The grades, steps, and salaries in the pay plan are under the control of the
Governor and the Personnel Commission; but the legislature has to allocate the money.
Senator Raggio commented, "Whatever they agree to then we just come here and we perform the ministerial duty of raising the money to fund it, is that what you are saying? That is not very appealing to me."
Mr. Brust replied the legislature's approval of the money through the budget process for the salaries presented in the Governor's Executive Budget would be no different than it is today.
Senator Raggio disagreed stating the legislature has some authority as to whether or not to raise salaries, and they can look at a large group of unclassified positions to determine whether or not the individuals are performing.
Mr. Brust believes the difference is in the 600 positions.
Senator Raggio opined these [600] individuals will be placed in a band and their salaries will be automatically set. He asked who will review whether or not these people are performing and entitled to salary increases in this broad band of 2,800 people. He commented, "It seems to me this is just an automatic you-show-up and-you-get-paid. That is exactly what the public is not very happy about today. They get into a band, and they automatically work their way up the band."
Mr. Brust said at the present time the appointing authority has discretion up to 5 percent in terms of granting merit salary increases to advance within current grades. The proposal (Exhibit C) is that the spread be from 0 to 10 percent and the control will be exercised by the legislature on the amount of money that is placed in that merit or discretionary performance evaluation system. The flexibility in this system helps a manager manage the 2,800 people through granting salary increases based on excellence of performance. While the range is from 0 to 10 percent, Mr. Brust said the amount of money allocated will be no different than what it is today.
Mr. Rock resumed his testimony with an overview of what is contained in his report (Exhibit C). He said they have proposed that for the first 2 years employees will remain at their current titles from the classified or unclassified service. He explained that under the current system, his department does not have the authority to review classes in this system. Therefore, there are no job specifications available for unclassified positions, and the department does not know the full scope of what a particular position does. The department has placed employees into a salary level based on current pay and will place them in the exempt-merit group. They will study these positions for the next 2 years to come up with specifics for the next session of the legislature.
Mr. Rock anticipates there will be a significant reduction in the number of titles in the exempt-merit group. Of the 2,800 employees, 622 titles are proposed for inclusion in exempt-merit service; a number of classes will actually be reduced through the proposed system.
In an attempt to clarify confusion some of the committee members have exhibited regarding the 2,800 employees that would meet the duties test of exempt-merit service, Mr. Rock said the department matched 1,600 of the 2,800 against the duties test for the professional standard. He said the Department of Labor has three tests for the duties test, the executive, professional, and administrative test. The administrative test can be excluded because there is not a public entity in existence that can meet the test criteria. Mr. Rock then commented, "We bounced 1,600 off the professional test and the other 1,200 we bounced off the executive test."
Mr. Rock said his department has recommended a reduced avenue for classification appeal. For the exempt-merit group, their proposal is to have the appeal considered by the director of the Department of Personnel and then through court rather than through the Personnel Commission and court as in the current process. This would eliminate one step, the Personnel Commission. This would integrate the compensation and classification approach.
Mr. Rock noted one of the concepts in the band approach for compensation and classification is that employees at the top of their pay band would be eligible for a cash bonus based on merit which is not provided for in the current system. The amount of the bonus would be up to 10 percent.
Senator Raggio stated he wanted to ask a lot of questions today in the form of the devil's advocate that are very sensitive questions the public has about public sector employment and public sector salary. He then asked, "Because a state employee may be at the top of the pay range due to length of service that has been recognized, why should there be a bonus for that individual who is performing as expected?"
Mr. Rock said this gets into the concept of whether or not there should be a provision for the recognition of outstanding performance.
Senator Raggio interjected, "Why doesn't the public have a right to expect outstanding performance from anybody in the public sector?"
Mr. Rock replied, "That is a nice thing to say but in the real world that is what happens."
Senator Raggio responded:
Here is what happens in the real world. Almost without exception when merit pay is created, again all of these questions in the devil's-advocate position, they become routine. They do not single out a handful of exceptional performers, but it becomes almost an expected and anticipated payment that is added on. It is an increase in salary that is almost uniformly granted across the span of everybody eligible. I am going to suggest the merit-pay system at the university is of that nature at this point. This is a 2 percent pool that accommodates a 2 percent merit-pay increase for all employees within that class. How would we know how much to appropriate and how would we control that?
Mr. Rock answered he is aware of the criticism from the public. He said the key is not to appropriate enough for a 10 percent bonus for everybody. He stated it would become a choice of awarding only the best performers because there would not be adequate funding to provide a bonus to everybody.
Senator Raggio asked if this would be within the discretion of the head of the department. He added, "I could conceive of some mid-level manager who is in that same position, at the top of the pay band. Would that suggest a problem may occur?"
Mr. Rock said this type of problem could occur and conceded there are problems with performance-based pay in the public sector. He further stated, "If we [the Department of Personnel] cannot design a system that would be equitable and fair and something that could be controlled in terms of oversight for this system, I would be the first one to recommend we do away with it."
Ms. Matteucci remarked:
We have made the change in the proposed exempt-merit service as distinguished from the nonexempt merit. I think what you are suggesting in the nonexempt-merit service there is a 5 percent merit most people get for standard service year after year until they reach the top of their grade, and then they do not get that merit pay any longer. In the proposal as we put together the exempt-merit, we took out all of the merit steps for those positions that were proposed to move into the exempt-merit and put not 10 percent in the pool that we have included in the salary adjustment account...we only put 2.5 percent to allow for a range of merit allowances for those people in exempt-merit from 0 to 10 which means not everyone can get them.
Senator Raggio asked if there would not be steps within the pay bands, would salaries increase on the basis of cost-of-living increases.
Mr. Rock said a cost-of-living increase would extend the band.
Senator Raggio asked if there would be steps within the pay bands, and Ms. Matteucci replied there would not be automatic progression as there is in the current system. Salary increases would have to be based upon merit.
Senator Raggio interrupted and said, "Now you are confusing me because you said this is for those people who are at the top of their band. How do they get to the top of their band if you extend the top level every time there is a cost-of-living increase?"
Mr. Rock indicated he did not understand the question. Senator Raggio explained Mr. Rock had advised the committee there are four bands, and a person would fall within a band. However, Ms. Matteucci said there would no longer be steps which are known as 5 percent merit steps. Senator Raggio also explained that Mr. Rock indicated the bonus for exceptional performance would be available for those employees at the top of the band, but the band would move every time a cost-of-living increase is granted. He asked, "How do you get to the top of the band? It is a moving target. Also, there are no steps within a band, so how do you move to the top?"
Mr. Brust answered:
The pool of money, the 2.5 percent that is going to be available for performance of employees...it will be at the discretion of the head of the department to grant that in any combination of 0 to 10 percent. Within that band if an individual is given a 2.5 percent performance adjustment, then that would move that person within the band up 2.5 percent and that would become the new base salary.
Senator Raggio interrupted and inquired if the information given
previously was in error since it was indicated the bonus would only be available to those who have reached the top of the band.
Mr. Brust clarified the cash bonus would be available to the person who does reach the top of the band and they would receive that bonus on a onetime basis in a cash, lump-sum payment that would not build into their salary. If a cost-of-living adjustment is granted, then each of these bands would increase by that across- the-board percentage amount.
Mr. Brust pointed out the element that is different with the proposed performance system is that it is not tied to the date-of-record of each individual employee. Currently, each employee has a date-of-record based upon the date of hire so that throughout the year merit increases are granted to all different employees. He said it is difficult to tie the performance of an individual employee to the performance of the agency. His department is proposing that for the entire exempt-merit group, all performance payments would be held until the end of the fiscal year and the performance evaluations on the employees would be tied to the goals and objectives of the agency. How an individual contributes as an individual to achieving the goals and objectives will become a part of the performance evaluation system. He said this is considerably different than individual performance.
Senator Raggio asked if every employee within the exempt-merit band could expect to get an annual increase if they performed in a satisfactory manner.
Mr. Brust replied, "No. For one reason there was only a 2.5 percent pool allocated. As a manager you are going to be required to tie an individual's performance back to the goals and objectives of the agency."
Mr. Brust referred the committee to the bottom of page 3 of Exhibit C that states, in part, salary increases above 5 percent will require thorough documentation of the employee's extraordinary achievement of stated goals and objectives.
Referring to the same page, Senator Raggio noted that during the first year of the plan employees in exempt-merit service will be eligible for a performance increase of up to 5 percent. However, effective July 1, 1995, employees will be eligible for a performance increase of up to 10 percent but increases above 5 percent will require documentation. He stated, "That sounds to me like it will be almost automatic for an employee to receive a 5 percent pay increase, but if more than 5 percent is granted they have to show extraordinary achievement. Is that correct?"
Mr. Brust responded it does leave one to believe everybody will receive a salary increase of up to 5 percent. However, since only 2.5 percent will be budgeted, a 5 percent increase will not occur.
Senator Raggio noted there is nothing in the proposed plan that limits the pool to 2.5 percent of the payroll.
Ms. Matteucci remarked:
In the information that was previously provided to you when we reviewed salary adjustments, we showed you this.
The pool, and perhaps it is appropriate it be included in this legislation as well, is in the funding mechanism. The funding mechanism is in the salary adjustment budget and that is why they are referring to the 2.5 percent. This funding mechanism is transitional because we need to get to where we are currently to where we want to be with the exempt-merit...we had to create a salary adjustment pool for this upcoming biennium.
Senator Raggio suggested the discussion not get into the interim compensation. He asked how this plan will work on a long-range basis. He reiterated there is nothing in the plan that states the pool is limited to 2.5 percent of the payroll.
Mr. Rock agreed this information should be in the plan.
Senator Raggio pointed out without that language being included in the proposed plan there would be no cap on what would be placed in the pool other than what the Governor recommends and the legislature desires to put into it.
Mr. Rock concurred with this statement.
Senator Raggio asked if there is anything in the plan that would limit the number of people that would be eligible for the additional compensation.
Mr. Brust replied there is nothing written in the plan.
Senator Raggio commented:
A study now known nationwide makes a very startling analysis. If you took all of the tax increases in all of the 50 states over a 10-year period, and added all of that tax increase to arrive at a number....None of that tax increase would have been necessary if the public sector salaries had been equal to private-sector salary increases....I think we have to be very careful. I think the public expects to pay public sector employees a reasonable and proper salary and they have a right to expect satisfactory or better performance...certainly from long-term employees. I want to guard against adding to a burden that is unnecessary and still rewarding employees...and they should be kept in line with private- sector salary increases. I think we should not exacerbate the problem by putting into a fixed plan something that does more than that. That is what I am concerned about. It seems to me we are locking into place extraordinary and potential salary increases that go beyond what is normal and expected compensation for service, whether it is public or private service.
I want to reward people...one thing about state service is you have a good deal higher measure of security than in the private sector...and we should reward them accordingly. However, we may be putting into plan some problems that could become a real problem for taxpayers. I want to make sure we are doing something that is meaningful....If we are going to reward beyond the satisfactory work level that ought to be anticipated and provide normal cost-of-living increases, I want to be aware of how that is done and whether or not we are locking ourselves into spending money unnecessarily and unjustly. That is where I am coming from on this issue.
Senator Glomb noted the first paragraph on page 3 of the proposed plan (Exhibit C) indicated a comprehensive study of public and private sector employees will be conducted to examine compensation practices. She inquired who would conduct the study.
Mr. Rock replied his department would conduct this study to be completed by July l, 1995, which is after the next legislative session in 1995. He explained this is why his department has proposed to continue the current salary structure for two years.
Senator Glomb asked if the cost of this study is included in the budget for the Department of Personnel.
Mr. Rock replied his budget accounts for occupational studies and studies of this type and will provide for the cost of this particular study.
In order to be certain the committee understands the proposal, Senator Raggio summarized the Department of Personnel is suggesting there be a 2.5 percent payroll pool available to everyone within the band for salary increase purposes. Also proposed to come out of the 2.5 percent pool is an amount, up to 10 percent, to be used for bonus purposes for those individuals who have reached the end of their pay band; and although this amount would not increase their pay base, they could receive this "bonus" every year.
Mr. Brust confirmed Senator Raggio's comments.
Senator Raggio asked, "The first 5 percent increase for an individual that is taken from the 2.5 pool would be given for what purpose? Would this be an automatic increase?"
Mr. Brust reiterated the pay increase would have to be based on standard or better performance. He does not believe that everybody will automatically receive a 5 percent pay increase whose performance is adequate. He stated the department is trying to create a separate group of employees that managers will have greater discretion with, and who are not tied specifically to rules that would mandate a 5 percent increase. This new system will replace the automatic step increase presently being used.
Senator Raggio asked if there would be some danger that favoritism will enter into the picture under the proposed pay plan, but Mr. Rock does not believe there will be any more danger of this occurring with a new system. He said this situation already exists under the present system and he does not know how the problem can be avoided.
Regarding the interim compensation plan outlined on pages 3 and 4 of Exhibit C, Mr. Rock said as an ongoing measure the Peat Marwick study recommended that 40 hours of management leave be granted at the beginning of the fiscal year to each employee in the exempt-merit service. Such leave would have to be taken off in full-day increments.
Senator Coffin expressed confusion because he was under the impression that the management leave would be granted only in the 2-year interim period.
Mr. Rock clarified this would be an ongoing provision for employees of the exempt-merit system.
Continuing, Mr. Rock stated the Peat Marwick study further recommended overtime should be taken away from employees in the exempt-merit system. This caused his department to look at the actual overtime performed by the employees in this group, and to place them in pay bands reflected on page 4 of Exhibit C based on an average of overtime worked by the employees of this class. An average of fiscal year 1991 and fiscal year 1992 overtime usage was considered to arrive at an amount of hours worked beyond the 40 hours average per year. It is proposed that an adjustment be made in salaries to factor in the average overtime worked in fiscal year 1991 and 1992.
Senator Coffin commented:
So we are going to lose a week of work from the people automatically because we are not going to pay them overtime. Is overtime an automatic thing? Some people work quicker than others and get their work done in 40 hours while some do the same amount of work in 48 hours. Doesn't this reward the person who is a slower worker?
Mr. Rock replied this is certainly possible but is something he does not know how to manage. He feels something has been taken away from the group that has been working overtime, but why they have been working it could be for many reasons authorized by various appointing authorities.
Senator Coffin remarked the proposal will not only grant an automatic 40 hours of management leave, it will also provide a percentage adjustment of up to 15 percent. He asked, "Could the overtime place employees into another band?"
Mr. Rock said that is correct. He said it is a onetime shot based on the history of overtime the employees had been working to place them into the bands.
Senator Raggio clarified this would not be a onetime shot since this would be built into their base. It will mean that each of the employees in this group, and no others in the state system, will be getting this type of increase. He asked if this will be limited up to 5 percent or if the department just took an average of the overtime and built it into the base.
Mr. Rock responded the department took the average of the overtime worked by the people in this class and after an adjustment, placed
the employees in pay bands accordingly.
Mr. Brust said out of a total of 2,800 employees in the exempt-merit group, only 618 will receive salary adjustments in addition to 40 hours of management leave.
Senator Raggio concluded it appeared 618 employees have had a history of overtime usage over the last 2 years. He asked, "You are going to build into the base whatever the average of their overtime pay was?"
Mr. Brust replied, "Beyond 40 hours, yes."
Senator Raggio opined, "This causes me a great deal of concern. It does exactly what I said...it takes 618 employees and gives them a pay increase this year, built into their base, which they will benefit from forever, and all of the other state employees are not going to receive any salary increase this year...."
Mr. Brust said all of the other employees will receive overtime at time and a half. He said the concern of the department was how to respond to these employees who had been compensated straight time for the last 2 years, and prior to that for all overtime work. This caused the Department of Personnel to feel obligated to recognize that history for these particular employees.
Senator Raggio advocated the department will create a major distortion by doing this because the employees that go into this class should be treated equally, and not because there has been an aberration in overtime. He stated the employees were paid for their overtime at time and a half which they did not expect.
Ms. Matteucci commented that is why the Department of Personnel reviewed 2 years to see if there was a history of overtime being worked by a particular position, which should ease concerns this was a onetime accumulation of overtime. She also said the exempt-merit system was not devised as a punitive measure.
Senator Raggio said these employees were paid under the Benzler v. State of Nevada decision and the law is now being changed, not because of this group of employees, but because the state recognized they were not in compliance with the FLSA.
Ms. Matteucci pointed out:
What we have attempted to do is to clearly indicate we are not trying to disadvantage anyone as a result of moving them into the exempt-merit service....That is why, at our insistence, we asked personnel to look at the overtime issue so that someone could not claim they were being disadvantaged.
Senator Raggio asked what the cost would be for making the adjustment for 618 people.
Ms. Matteucci responded it would be l.5 percent of $752,000.
She qualified $4 million was built into the budget of which 2.5 percent was for exempt-merit and nonexempt-merit service, 1.5 percent was for the overtime onetime pay grade adjustment to get employees into classified service, and .5 percent was for the 40 hours management leave. This amounts to $4 million the first year of the biennium and $5.9 million the second year of the biennium, and is the pool previously referred to.
Senator Raggio asked:
Why isn't the 40-hour time off the compensation for making this adjustment? Why do we have to build a distortion into their base salary to do this? I might add you used 2 years, one of which was an aberration in and of itself because of the budget reduction at which time employees were called upon to work a lot of additional time.
Ms. Matteucci replied a 2-year period was used because it was felt 1992 might have been an aberration even though agencies were instructed not to use overtime to solve their short-term position freezes. She commented:
If you feel comfortable with us not making the overtime adjustment and you do not think we are being punitive, we are not going to sit here and tell you we insist on making this particular adjustment. We are trying to be as objective and fair as possible to the employees that are getting moved into the exempt-merit [service]. We will defer to the legislature's thinking that the 40-hour leave compensates for people across the board. We are open to that for discussion with you.
Senator Raggio asked if the proposal is accepted, would this preclude the individual agreements with agencies for compensation time as discussed by the State of Nevada Employees Association (SNEA).
Mr. Rock answered the proposed plan would not preclude the agreements for the nonexempt-merit group. No agreement is necessary for the exempt-merit group because they will not receive compensation, only 40 hours of management leave.
Senator Glomb asked if an analysis had been done on the 2,800 employees. She opined it might be better to continue to pay this group overtime, but limit the usage of it.
Mr. Rock said that is the issue, "Under the Benzler v. State of Nevada decision, do you want to continue paying time and a half to everybody you are paying overtime to right now?"
Senator Glomb commented if you limit overtime then you would not be paying overtime.
Mr. Rock said this would be true if a method to limit the overtime could be determined.
Senator Glomb asked if an analysis had been done to determine if it would cost less to hire additional staff, as suggested by the Department of Personnel at the bottom of page 4 of Exhibit C.
Ms. Matteucci responded an analysis was not done as she suggested, but an analysis was performed to determine how much it would cost to retain individuals in their current service, give them the standard 5 percent merit value, and pay them time and a half. It was determined the proposal (Exhibit C) would cost less over the course of the biennium.
Senator Glomb suggested the development of new types of performance evaluations might be a tool for making employees earn their pay increases rather than automatically receive one. She asked to see a comparison as to whether this plan of action is really a cost- effective plan of action versus maintaining the way things have been done with a limitation on overtime. She added that if there is a job to be done and not enough staff to do the job, an unmet need could be identified. She further feels the issue is not being dealt with head on.
Ms. Matteucci disagreed with Senator Glomb stating the issue that was presented as a result of the Benzler v. State of Nevada decision forced the Governor to identify those employees that should be salaried per FLSA definitions, and place them into the exempt-merit group. She further insisted to retain these employees in their present service as hourly employees would be very expensive because of the time and a half requirement that was not used in the past. She believes the proposal is a progressive way to address the issue that was brought to the state's attention as a result of the Benzler v. State of Nevada decision.
Senator Glomb wondered if the proposal (Exhibit C) will be legally accepted and requested a copy of how the figures for the pool were arrived at.
Ms. Matteucci suggested this is a question that the Office of the Attorney General can address. She also said she would share with Senator Glomb how the pool necessary to pay for the proposal to create the exempt-merit system was calculated. She added it was estimated the money put into the pool to pay for the transitional time for the 618 employees was based on l.5 percent of the cost of a 1 percent salary adjustment.
Senator Glomb asked if any other states are currently using this plan.
Mr. Rock stated there are other states that call their employees exempt or nonexempt and are not all classified or unclassified as in the case of Nevada's present system. They have placed management-type employees into an exempt category, and they are treated differently than the nonexempt employees. The State of Indiana has 18 percent of their work force in an exempt status. His department has determined approximately 23 percent of the State of Nevada's employees would be in exempt-merit service, excluding employees of the university system.
Senator Raggio said he really has a problem when discussion relates to something being punitive. Referring to the 618 individuals, he remarked:
You have calculated the average overtime these individuals have received, and you are saying you should build that into their base...if we do not it would be something punitive. First of all they all have been paid time and a half for that overtime, so I cannot see how that can be punitive when they have been paid for it. Secondly, none of these people have a right to expect that they are going to have that overtime continue....That is an absolute right you would be building into their salary base.
Ms. Matteucci repeated the Governor will not argue this point, he only wanted to be sure that everybody understood he was not trying to penalize anyone.
Senator Raggio stated:
Let's leave the exempt-merit group who will no longer be entitled to overtime but will each get 40 hours of management leave at the beginning of the fiscal year. Let us go to the nonexempt because that is the issue here. These people in the nonexempt service, which is 80 percent of the work force, will remain eligible for overtime at time and a half. Unless there is an agreement with a representative of a union, they must be paid in cash, under the proposal.
Mr. Rock interjected only if these individuals are members of that union.
Continuing, Senator Raggio said under the Benzler v. State of Nevada decision that only applied to the individual bringing the action or the group representing the employees. He pointed out as he understands it, there is a right to enter into agreements and employees under such agreements can have a choice as to whether they want compensatory time or cash. He further understands some of the agreements are in place with various agencies at the present time, and nothing in the proposed plan will eliminate the opportunity to enter into an agreement. He asked Ms. Matteucci what the Budget Division's policy is regarding agreements.
Ms. Matteucci answered at the time the Department of Personnel notified agencies regarding the Benzler v. State of Nevada decision, they encouraged them to sign agreements for prospective accumulation of compensation time with their employees; and individual departments are negotiating with the SNEA on how to handle their overtime accumulation for employees belonging to that group.
Senator Raggio asked if that is left to the discretion of the head of the department or agency and if this information is submitted to somebody for a review.
Ms. Matteucci said it is left to the discretion of the department head but to her knowledge this information is not subject to a further review. She also pointed out that even if an agreement is signed with the employees, the accumulated compensation time can only go to 120 hours.
James T. Spencer, Deputy Attorney General, Department of Personnel, confirmed there is a 120-hour cap. This is usually handled within the agreement entered into between the agency and the employees and has to do with the appointing authorities ability to require the time to be taken off.
Senator Raggio noted the committee had requested and received from the various agencies involved with the cash payment the plans they have instituted to control overtime. He pointed out the committee is very concerned about how overtime is going to be managed in view of the extraordinary amount that had to be paid as a result of the Benzler v. State of Nevada litigation. He asked what procedures have been put in place to gain control of overtime and those who are authorizing overtime.
Mr. Rock said at this time his department has not placed a limit on the amount of overtime that can be earned by employees in the nonexempt-merit service group.
Senator Raggio remarked certainly somebody other than the committee ought to be putting some thought into what might be done to control overtime.
Mr. Rock stated a variable work week has been suggested giving an employee the option of working up to 40 hours in fewer than 5 days that would allow more time off during the normal work week. However, he admits he had not given this matter further attention except to state overtime can only be handled through good management techniques.
Senator Raggio stated this does not offer a good level of comfort to the legislators who represent the public which pays the bill for all the overtime.
Mr. Rock said in some agencies it might be possible to come up with some controls but in many agencies, such as the Budget Division, it would not be.
Senator Raggio interjected he assumes Ms. Matteucci would institute some system to control overtime to prevent somebody from working just because they want to in order to earn additional money.
Ms. Matteucci stated her employees cannot work overtime without a supervisor's authorization to allow them to do so, but during the months of September through December when the budget is being prepared, her employees must work to complete their assignments and she must authorize the overtime for this purpose.
Senator Raggio pointed out that some of the overtime was used by individuals in management levels or above who were collecting overtime for themselves with no authorization or supervision.
He repeated there has to be some accountability and control or monitoring of the use of overtime, and it should be paid when necessary. However, when overtime is used as a device to supplement salary at the cost of the taxpayer, there should be a way to control it.
Mr. Spencer stated the issue of being punitive with regard to the management leave as a "fix it" along with the salary increase is being addressed by the SNEA which intends to look at litigation regarding the Benzler v. State of Nevada decision. He said there are no court cases that he is aware of that address management leave as being the fix, but wished the committee to be aware that is an issue.
Senator Raggio cited the example of an employee who had worked in an agency that had been understaffed requiring overtime for a period of years to complete the required job duties. The legislature then added staff negating the necessity for the use of overtime by the employee. He asked, "Is somebody suggesting because that employee filled a void for an extended period of time he has a right to expect continued overtime when the work is no longer there to do?"
Mr. Spencer suggested this question could be better answered by Robert J. Gagnier, Executive Director, State of Nevada Employees Association (SNEA). However, he did wish to point out the danger of litigation changes and legislative changes. He said on May 3, 1993, a United States Supreme Court case having to do with the FLSA may or may not address who is the proper representative for bargaining with an employees' association. His office as well as the SNEA is looking into this issue.
Senator Raggio voiced that is a collateral issue that would apply to whether or not a bargaining representative would have standing in a court action and the authority to enter into agreements. Mr. Spencer concurred with this statement.
Finally, Mr. Spencer wished to state Senator Glomb's comment regarding additional staff as an option rather then implementing the plan (Exhibit C) has always been an option and one of the purposes of the FLSA. This plan will clarify the exemptions under a salary basis test and the work test to provide that these positions are not entitled to time and a half. He concurred Senator Glomb's suggestion would probably be the direct way to deal with the problem, but the proposed plan (Exhibit C) is one that has been recommended and would have the same result, if successful, to reduce the costs.
Robert J. Gagnier, Executive Director, State of Nevada Employees Association, testified in opposition to S.B. 362 as currently written and the proposed plan (Exhibit C) submitted by the Department of Personnel on May 12, 1993.
Mr. Gagnier believes what must be considered is that the origin of S.B. 362 was to address the overtime issue in state government, but the proposed plan is instead a total rewrite of the state personnel system picking up long sought goals by the Department of Personnel that they have been unsuccessful in passing in prior legislative sessions. He believes the majority of the plan (Exhibit C) does not address the overtime issue but goes way beyond it. He pointed out it goes into expanding the rules on appointments, examinations, and a wide variety of issues that has no bearing on the overtime issue.
Senator Raggio asked Mr. Gagnier if he believed the proposed plan incorporates a good many of the procedures that are in place at the present time.
Mr. Gagnier responded this information is contained in the plan, but wondered why a whole rewrite of the personnel system that changes the terms and conditions of employment for this group [exempt-merit class] of people is necessary when only the overtime issue needs to be addressed.
Senator Raggio asked Mr. Gagnier if he was referring, in part, to the employees' right for a direct appeal to the department.
Mr. Gagnier said he has not had a chance to read the entire plan, but if the Department of Personnel plans to limit the rights of appeals in disciplinary actions, that would be a substantive issue, and one the SNEA would want to look into. He remarked it would not serve a purpose to have an appeal go to court on an employee's classification when that employee could be terminated by the agency head without an independent review of that dismissal.
Mr. Gagnier emphasized:
I wholeheartedly disagree with the Department of Personnel on the necessity of eliminating the unclassified service just because the FLSA refers to exempt and nonexempt employees, although we might organizationally be in favor of cutting down on the unclassified service....You still have the issue of classified and unclassified, and it is not necessary to totally eliminate the unclassified service. You can still have an appointed service, an unclassified service, and a merit system service for people that are exempt and nonexempt.
Senator Raggio asked if it would be more convenient to use the same terminology to identify an exempt class and nonexempt class to categorize within the parameters that the FLSA prescribes.
Mr. Gagnier said the SNEA has been living with the same terminology since 1971.
Senator Raggio stated he did not disagree, but wondered if it was time the state tried to comport with the same terminology with respect to classification. He clarified that does not necessarily mean that in all cases merely because one is referred to as exempt that under the FLSA there might not be an argument, but he believes it would be a laudable attempt to do something like that.
Mr. Gagnier answered only if it came as a result of an adequate study, but not in this form.
Continuing with his testimony, Mr. Gagnier contends the Department of Personnel has been trying to get on a performance-based pay system since 1975, and each time they have tried their efforts have been unsuccessful. He believes they have introduced the proposed plan (Exhibit C) as a method of getting that performance-based pay.
Senator Glomb asked why the department was unsuccessful, and Mr. Gagnier said because a performance-based pay system does not work. He added this system has not worked in places where it has been tried. He believes it is wide open for abuse.
Mr. Gagnier said there is a reason why there are ranges of pay, and just because the steps within the ranges are called merit steps does not mean they are based solely on meritorious service. He explained a range of pay is set up and employees are started below the prevailing rate for that salary. After a period of 7 years they can reach the top of that scale. As long as the individual is performing adequately and doing standard or above work, they should get their progression under those steps.
Senator Raggio stated that is something the public has never understood. He believes the public should know that even though a cost-of-living increase is not always granted as proposed by the budget, most employees do get a step increase unless they are at the end of the scale.
Mr. Gagnier asserted:
There was a discussion based upon performance standards some of these people would be eligible for some type of merit pay or performance-based pay....Let me give you an example. We are in the process right now of filing a grievance against the state that could end up as a lawsuit on behalf of social workers who are currently working 30 to 40 percent above their work-performance standards. They are automatically eligible for this. Be aware that because of the budget cutbacks, these people are having to work way above their work-performance standards.
Senator Raggio asked for an explanation of working above work-performance standards.
Mr. Gagnier replied state law requires that every individual position in state government must have a work-performance standard although he knows some employees do not have these standards because some of the agencies have not adopted their use. These standards reflect what is expected of a particular position as determined by the employee and the supervisor. In the case of the social workers, they are working way above their standards by processing more cases than is considered the standard number required for satisfactory performance.
Senator Raggio asked, "Do you mean we have a system that if you work more than your standard you should be discouraged from doing this or you have to be paid?"
Mr. Gagnier replied, "They don't have a choice whether they process 35 cases or 50."
Senator Raggio said, "I thought you said you are filing a grievance because some people are working more than their performance standard?"
Mr. Gagnier answered:
Yes, because they have insufficient staff and insufficient amount of time to handle the duties of the job. Now you are going to take overtime away from these people because they will be in the exempt category and not eligible for overtime, but you are still going to keep them processing more cases because they do not have enough staff.
Senator Raggio commented, "Now you disturb me. Are you saying if somebody is energetic enough to take on more caseload and they do it that somebody should tell them they cannot work beyond their standard?"
Mr. Gagnier responded if an employee is energetic and wants to take on a work load that is fine, but when they are told they have to, that is a different story.
According to Mr. Gagnier another problem is the Department of Personnel wants to make the determination of who will be exempt and who will be nonexempt, and the SNEA does not think they are qualified to make that determination. He believes their attitude leans heavily towards exempting some classifications.
Mr. Gagnier pointed out:
You should look back when you are told this will take care of the problem. Two years ago in this same committee room you were told the same thing about a bill that was passed last session. That was going to take care of the problem and it did not. We told you then it would not take care of the problem, and we are telling you now this will not take care of the problem legally.
Senator Raggio asked, "You say the state has no right at anytime to change this system? We have to stay with a system we have in place?"
Mr. Gagnier answered, "No, I think you can make some changes. I just do not think these are the changes you can make from a legal perspective."
Due to the shortage of time, Senator Raggio suggested upon the conclusion of Mr. Gagnier's testimony, further discussion regarding S.B. 362 be continued on May 17, 1993 to allow for additional testimony from other parties.
Mr. Gagnier continued:
You used the term, Senator Raggio, of punitive. The term is retaliation. I think there are some changes you can make, and I think there are some changes you need to make to lessen the impact on the budget. These are not the ones. When the Department of Personnel and their legal representative were talking about trying to avoid a retaliation claim by putting some offset to the amount of overtime...I would probably agree that nowhere in state government does the classified employee have an expectation right to work overtime. If we are to assume that is the only issue in here...but we are not. That is not the only issue but may be one of the lesser issues because what you are doing is taking a lot of other benefits away from employees and you are not replacing them with anything. I think there is some good area of law about retaliation....We believe there is a lot of retaliation here, and in order to prove retaliation under the FLSA you have to prove two issues. One that it is being done in response to an FLSA claim that has been brought forward by the employees. We already have that. It is already on record. It is a proven issue. The second thing is are you taking something away from the employees that they currently have. There is nothing under FLSA that says you have to give employees overtime A very simple response to an FLSA claim is to say there will be no more overtime. You cannot bring a cause of action under the FLSA if you do that....This is along the lines of what Senator Glomb was getting at...putting some limits on overtime. The five highest amounts that were paid as a result of the [Benzler v. State of Nevada] decision were to management people. I am not talking about people who were parties to the lawsuit. The five highest payments were to people who were the five top officials of a state agency. Who was authorizing them to work overtime? Our law says you have to have permission to work overtime. There is where we need some controls. We need to have better controls on who is working overtime and under what circumstances they are working overtime. We [the SNEA] will be really pleased to work with you on that because that is where there is a flaw in the system.
Regarding the United States Supreme Court case mentioned by Mr. Spencer that took place in the State of Texas, Mr. Gagnier wished to clarify that Texas has a law on the books that makes it against the law to have any form of collective bargaining with state employees. The State of Nevada, does not have any such law. If the Texas decision were to apply to Nevada, it would state the SNEA does not have the right to negotiate the agreements that they are currently negotiating. Mr. Gagnier reminded the committee the SNEA tries to pattern agreements to the individual agency and that is why they are not the same.
Mr. Gagnier reiterated the SNEA's opposition to S.B. 362 and the proposed plan (Exhibit C) which he feels would be a major error. He stated if the committee feels this proposal should be looked at, he urged the plan be submitted for an interim study so that the proper amount of time and consideration can be given to it. He distributed to the committee Exhibit D, a proposed amendment to S.B. 362.
Senator Raggio asked Mr. Gagnier to be prepared on May 17, 1993, to tell the committee specifically what should or should not be changed in the proposed plan (Exhibit C) and what he thinks may be deemed retaliatory. Mr. Gagnier agreed to do so.
The meeting was adjourned at 10:50 a.m.
RESPECTFULLY SUBMITTED:
Marion Entrekin,
Committee Secretary
APPROVED BY:
Senator William J. Raggio, Chairman
DATE:
??
Senate Committee on Finance
May 14, 1993
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