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SECTION 3 Guide to Compensation Decisions This section examines the process of valuing and compensating employees in the transit industry. This examination specifically focuses on transit systems that operate in rural and small urban areas. The section begins with a discussion of how smaller transit systems establish and adjust compensation levels for new and existing employees. This is followed by an examination of job categories, responsibilities, and wage levels. Finally, instructions are provided on how to use the companion interactive computer tool, developed from current industry data, to conduct peer comparisons of compensation and benefit information for your system. Setting or Adjusting Compensation Levels Setting wage and salary levels requires an understanding of how your system values the duties and responsibilities of each position, as well as an understanding of prevailing wage levels in your area. In considering how to measure, compare, and make decisions regarding employee com- pensation, three key issues stand out: Be clear about what you consider as employee compensation. The definition of employee com- pensation in Section 1 can be used as a guide, but remember that compensation is a function of many components and not simply tied to wages or even monetary benefits. Compensation is a package that has both financial and non-financial value to your employees. Often the fac- tors that attract and keep employees at your agency cannot be quantified. (This is addressed more in Section 4.) The many goals and expectations set for transit systems today result in compensation prac- tices contradictory to overall system goals. For example, use of part-time employees (without minimal benefits and with part-day shifts) can minimize operating costs, but reduce quality of service if staff turnover is high. Similarly, low wages and poor benefits can keep operating costs down in the short term, but can increase the cost of recruiting, hiring, and training new employees if drivers and other staff leave for jobs with better compensation. State or local labor requirements can directly affect compensation practices. Both state and local labor laws restrict what employers can and cannot do to improve compensation prac- tices. Additionally, in some operating frameworks (e.g., county-operated systems), some tran- sit systems may have only limited latitude about compensation policies. When a transit system is ready to determine or adjust a compensation level, it is vital that the system have a firm understanding of the factors to be considered. Factors affecting compensa- tion packages include market wages and conditions, employment status, service type, system or corporate policy, minimum requirements and job qualifications, collective bargaining agree- ments, program budget, and location. (The most common factors affecting compensation and wages were identified and explored in Section 2.) 31

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32 Employee Compensation Guidelines for Transit Providers in Rural and Small Urban Areas Setting Wages and Benefits Several methods typically are used to establish wages and benefits for rural and small urban transit system employees. Most systems use a combination of these methods when developing their compensation packages: Internal equity, which ensures that jobs within your organization are comparably valued for the level of skill and responsibility; Market pricing, which ensures that your compensation levels are competitive outside of the organization but within your labor market; and Peer analysis, which reviews the compensation levels at your organization relative to other similar organizations within your region or nationally. When evaluating market conditions, some transit systems conduct informal studies of pri- marily peer and local organizations, while others engage consulting firms to conduct more for- mal studies. The extent to which you need a formal study may depend on whether (1) you are part of county or city government (governments periodically conduct such studies), and/or (2) your employees are unionized. Once you have established market conditions and market rates for similar jobs in your area, specific methods typically are used to set the exact salaries and benefits for your staff. Set by County Commissioners/Board of Directors. Most governmental agencies and some multi-function nonprofit agencies have established grade and/or step systems to benchmark comparable positions. Set by Negotiation with Union. For rural and small urban transit systems that have employ- ees represented by unions, wages and benefits are largely set through a negotiation process with union representatives and agency management. Set by Contractor. In situations where a private contractor provides service for a local system, the contractor typically sets the wages and benefits and may or may not share this information with the transit system, depending on the contractual requirements. Final determination and approval of wage and compensation packages in transit is a function of a governing body, which can be Boards of Commissioners/Directors, union delegates, and/or contractor management. The most common method cited by rural and small urban transit sys- tems was that the final salary and benefit packages were set by governing boards, either County Commissioners/City Council members (in the case of governmental entities) or by Board of Directors members (in the case of nonprofit agencies). Adjusting Wage Levels--Raises Part of a compensation package includes increases in base wage levels. Often a wage scale is determined and set at the same time as the overall compensation package. Wage scales offer pro- gression at pre-determined intervals and may be specified amounts or specified percentages of the base wage. Increases may include Cost-of-Living Adjustments or Allowances (COLAs), merit increases based on performance or longevity, or some combination thereof. The financial health of the organization appears to be a significant factor in providing COLAs and/or perfor- mance/merit increases. Other significant factors include the local labor market (i.e., the need to remain competitive), collective bargaining agreements, and individual employee performance. COLAs Set by Governmental Entity or Union--Across the Board COLAs are set by either the County Commissioners/City Council members (in the case of governmental entities) or by Board of Directors members (in the case of nonprofit agencies). In union environments, COLAs are negotiated for the life of the labor contract (typically 3 years).