Pay can be a delicate subject in any workplace, but it was an especially big problem in Collin County.

Dependable, long-time county employees were nearing the high end of their pay grades and weren’t receiving much when raise time rolled around. Other employees felt their salaries were being shortchanged by supervisors who played favorites. What’s more, the suburban North Texas county added about 225,000 people to its population between 1990 and 2000, leaving officials struggling to handle the growth while keeping tax rates stable.

Facing a limited budget and a host of compensation problems, Collin County leaders developed an innovative solution in 2004: Pay for Performance, a system that uses a detailed merit rating system to determine salary increases, rather than relying on the traditional method of step raises and cost-of-living increases. The process is intricate but worthwhile, said Cynthia Jacobson, Collin County’s Human Resource director.

“This is an entire process whereby very specific rules and objectives are laid out for employees,” Jacobson said. “Some counties say, ‘Yes, we do performance management,’ but this is an entire way of doing business that is much more extensive.”

In these times of slow economic growth, more counties are considering moving to such performance-based salary systems. But the long-term success of these programs can depend on several factors.

The more detailed, the better

Collin County’s Pay for Performance, which will be used in nearly all county departments by the 2009 fiscal year, is anything but vague. The program, which was developed entirely by county personnel without the help of outside vendors, employs a specific three-step process to make sure that reviews and raises are given in a purely objective manner.

The first phase of the program is Performance Planning, which begins in October. During performance planning, employees meet with their supervisors to discuss specific goals and decide on objectives that the employee must achieve. The objectives are then evaluated by the county’s Human Resource department. Goals that aren’t sufficiently specific, measurable or achievable are returned to the supervisor for revision. Then comes Mid-Cycle Coaching and Feedback, during which employees are advised of their progress and goals are adjusted, if necessary. This interim review keeps employees up-to-date on their performance, so they can correct any potential problems, says Collin County Purchasing Agent Frank Ybarbo. “Employees know exactly where they stand, what they’re going to be graded on, and what they need to do,” Ybarbo said.

The third step is Final Performance Review, when supervisors give their employees one of three ratings: above expectations, meets expectations, or below expectations. Supervisors must cite specific examples in order to give a high or low rating.

“[Supervisors] can’t just say, ‘John did a good job,’” Jacobson said. “We don’t accept that anymore. Anything but ‘middle of the road’ has to be documented.”

Before they receive their rating, employees can also complete a self-appraisal. This gives them the opportunity to highlight outstanding work that their supervisor might have missed. Jacobson recalled one example of a Collin County employee who mentioned in her self-evaluation that she had created a map for customers so they could find their destination more quickly. “That was a very specific example of customer service that was above and beyond,” Jacobson said.

Performance Compensation is the final phase of the process. To determine the amount of an employee’s salary increase, the county uses an automated formula that takes into account the individual’s objectives, what they have achieved, and the performance ratings of others in their department (to account for managers who are overly critical or lenient in their ratings). The length of service is also considered, so an employee who begins working one month before the review process will receive less of an increase than colleague who started 10 months ago. To stay within budget, the commissioners court determines what percentage is available for raises each year. An employee may receive up to 150 percent of this amount. Jacobson said that though the county is no longer giving cost-ofliving increases, employees who are performing adequately won’t have to worry about their salary not keeping pace with inflation. “The only people receiving less are the people having performance issues,” she said. “If you are doing what you’re supposed to be doing, you won’t see a difference in our pay plans.”

Communicate and concentrate

Even the most detailed of plans will not work if county employees don’t understand it, so Collin County officials took great pains to ensure that everyone affected by the new system had a chance to ask questions and voice concerns. Human Resource personnel held workshops with employees to familiarize them with the program, and focus groups formed to cull feedback.

“We had meetings at 5 a.m. and sometimes 9 p.m., depending on when the shifts were changing,” Jacobson said. “We literally had every single employee (participate). We bought them a meal, went over the program, and had commissioners there to answer any questions. We had huge commissioners court support throughout the process.”

Communicating the ins and outs of any new compensation system is important for its success, said Joyce Dean, Victoria County’s Human Resource director and the president of the Texas Association of County HR Professionals. A few years before Dean began working for Victoria County, the county had tried a merit-based program, but quickly discontinued it due to confusion about how it worked.

“I think they dropped it because they felt like the department heads were not knowledgeable or trained in the system,” Dean said. “They took the funds available to them and distributed it equally. Everybody ended up getting the same amount [in raises].”

To prevent having to discontinue a new program, the people running the new compensation system must be intimately familiar with its details. Often, county auditors or treasurers also function as Human Resource directors, leaving them overworked and unable to devote many hours to working on merit-based programs, which require more time and energy than other programs. “Whatever the county believes to be fair and adopts…You want to be sure that the department heads and elected officials are adequately trained in the proper application of that system,” Dean said.

Consider a hybrid program

Counties that want to institute performance-based systems don’t have to say goodbye to across-the-board increases forever. Some programs, such as a system proposed in Williamson County, can blend cost-of-living adjustments (COLA) with merit pay.

John Willingham, the county’s Human Resource director, said the county currently gives a cost-of-living adjustment every year, and merit increases once every three years.

However, in late August, he expects the commissioners court to authorize both a cost-of-living adjustment and a merit increase for the 2009 fiscal year, which begins in October. Then, the plan is to give another cost-of-living adjustment in 2010, but instead of merit increases, the county will switch to giving deserving employees onetime bonuses. The court will then have the option to alternate between merit increases and lump sum bonuses, Willingham said. The new system would give employees an incentive to work hard every year, not just in the years that merit increases are scheduled. “We want to have a performance component every year,” Willingham said. “You’ll have to perform to get more than a minimal raise.”

The amount of the bonuses and merit increases will be partially based on data culled from evaluation forms that rate employees on their level of customer service. The county tax office is already distributing these forms to its customers to help grade their personnel.

Employees that don’t work directly with the public will be rated by coworkers and other departments they regularly interact with.

“Customer service is defined as internal and external,” Willingham said. “If we don’t have departments that are operating well within themselves, that don’t have good leadership – when the public does interact with that department, the chances of a good interaction are greatly diminished. All of it is connected.”

Other counties that may be interested in implementing bonus pay plans should first confer with their county attorneys, in order to ensure the plans follow related statutes. According to an Attorney General’s opinion, any money set aside for possible bonuses must be pre-approved by the commissioners court during the year’s budgeting process, prior to the work being performed.

But does it work?

Performance-based compensation isn’t the norm for most Texas counties, so Collin and Williamson counties are somewhat of a guinea pig for determining its success. But Jacobson happily reported that Collin County has not seen any negative side effects from the change. The number of failed projects or unsuccessful initiatives has dropped, she noted.

“There’s no accountability for that in a lot of places,” Jacobson said. “If the project doesn’t make it, they just go on. In our county, if you don’t do something, there’s an immediate impact from a compensation standpoint.”

Ybarbo, Collin County’s purchasing agent, said he didn’t notice a dramatic improvement in the efficiency of his department after the Pay for Performance program began, most likely because his employees were already performing very well. But small amounts of progress have occurred.

“One of the objectives I give to buyers is that a minimum of 72 percent of all requisitions have to be processed within 48 hours of receipt,” said Ybarbo, who oversees 15 employees. “Now we’re hitting around 80 to 82 percent. They know that is their objective and can go along comfortably knowing they can achieve that.”