A public entity in the Northwest with more than 3,000 employees asked Milliman to evaluate the competitiveness of its cash and fringe benefits offerings in 2007. The organization studies its pay package for professional staff biannually to verify its total pay is competitive, allowing the municipality to attract and retain high-quality professionals. In addition, the organization needs to evaluate compensation to maintain equity across and within salary grades.

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In the two years since the previous study, the organization's market area saw economic and labor-market changes that made a pay evaluation particularly relevant.

The client hoped to gain insight into ways to use its compensation package to help reduce costly turnover, estimated by the organization at 25% to 50% of pay per replacement. For positions in high demand or requiring scarce skills, turnover costs ranged significantly higher. The organization experienced staff turnover of roughly 11%, primarily among key positions, and was taking an average of 84 days to fill such jobs.

Historically, the organization was unable to offer annual or long-term incentive pay. It compensated for this in two ways: by providing above-average benefits, and by targeting its base salaries at the average of total cash compensation (base plus incentives) in the market. This latter strategy allowed the organization to offer higher salaries than many of its counterparts.

Custom study provided clear comparison

To provide the client with the needed benchmarking data, Milliman conducted a total compensation study of 56 discrete professional and managerial jobs. This study evaluated cash and each major benefit element to ascertain the extent to which the organization's actual compensation package was aligned with its total pay philosophy.

Cash compensation and benefits data were collected from regional and national organizations similar in size and complexity. Milliman devised and conducted a custom survey for 32 jobs and received 24 responses. Published market data were obtained for an additional 24 jobs.

The jobs needed to be analyzed in two categories, because senior-level positions are generally recruited nationally and entry-level jobs are generally sourced regionally. The distinction is important because labor costs in the municipality's market are significantly higher than the national average. Data from other organizations were adjusted to reflect the regional salary variation.

This chart tracks the study's results for cash compensation. At the start of the study, the client accepted Milliman's recommendation to benchmark at the 50th percentile rather than the average, as it provides a more reliable indicator of the midway point of the marketplace.

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The organization's total pay was on track with the 50th percentile of the market for lower-paying positions. But above $60,000 in annual cash pay, the organization fell below that benchmark, a gap that widened as compensation rose. 

To compare benefits programs, the value of the employer’s benefit package to the employee was used as a baseline. Survey participant plans were then valued by comparing plan features with the client's plan features, and increasing or decreasing the base value according to the value of each feature. Dozens of plan details such as medical co-pay amounts and coinsurance minimums were analyzed to provide a comprehensive picture of each plan's true value to the employee.

Our benefit analysis showed the client’s benefits were significantly above the 50th percentile of the survey participants' benefits programs, as illustrated in the chart below. Medical and retirement benefits account for most of the difference in plan value.

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Total compensation approach provides more balanced view

The shift from evaluating its pay package in a segmented approach to one of "total compensation" allowed this organization to understand the competitiveness of its whole package. When the total compensation (cash and benefit values) for individual jobs was compared to the data from the survey group, it was clear that the total compensation package was providing levels of compensation above the median of the market (with the exception of the larger jobs where pay was generally low). This finding is typical in the public sector where it has been difficult for these organizations to pay cash competitively with the private sector.

Milliman identified the higher-salary jobs with significantly below-market salaries. An impact analysis indicated the cost to bring those employees to an appropriate market level was modest, less than one percent of current salaries. The client elected to address this disparity in its next round of annual raises and bring these employees to par with the 50th percentile target.

The client also accepted Milliman's recommendation to define a wider range of possible salaries for all positions, in order to increase flexibility both in hiring and pay raises.

While the organization lacked a life insurance plan and had contemplated adding one, it concluded it did not need to introduce life coverage because of the overall strength of the benefit package.

Following our study, the client undertook an aggressive communication campaign to make sure employees and new applicants both understood how favorably their benefits package compared to that of similar employers.