Commissioners Debate Bonuses, Longevity Pay For Management
Should senior management be rewarded for performance or for years of service?
As the Lower Merion Board of Commissioners discussed the township's 2013 budget at Wednesday night's Finance Committee meeting, one major point of contention was merit pay for management staff: Should staff receive additional pay based on years of service, commissioners asked, or should staff be rewarded based on outstanding performance?
Currently, longevity payments are allotted, on top of salary, to some township management staff based on years of service. The township pays out approximately $250,000 each year in longevity payments for management staff (excluding police staff), Township Manager Doug Cleland said.
Longevity payments have been eliminated for all township staff (aside from police staff) hired after September 2011, Commissioner Brian McGuire said.
The payments are made the first pay period in January on the following schedule for calendar years of full-time completed service to the township:
- 5-9 years: 3.7% of annual base wages
- 10-14 years: 5.1% of annual base wages
- 15-19 years: 6.1% of annual base wages
- 20-24 years: 7.1% of annual base wages
- 25 or more years: 8.1% of annual base wages
For township manager Cleland, with a base salary of $207,349 in 2013 and more than 25 years as a township employee, longevity pay will account for roughly $16,795 in additional income in 2013.
In September, Commissioner Brian Gordon said, Cleland provided commissioners with a list of neighboring municipalities and their systems for longevity payments.
According to Gordon:
- Abington Township: flat amounts, from $1,300 for 5-9 years of service to a maximum of $2,500
- Cheltenham Township: flat amounts, $400 after the first five years and capping out at $800
- Haverford Township: 4 percent of base wages after five years of service, no increases
- Montgomery Township has no longevity payments
- Plymouth Township has no longevity payments
- Radnor Township maxes out at $4,875 for pre-2010 hires
- Tredyffrin Township has no longevity payments
- Upper Darby caps out at 3 percent of base salary after 20 years of service
- Upper Merion: $850 for every five years of service, with a maximum of $2,500
- Whitemarsh Township: from 1 percent up to 5 percent of base salary
Commissioners were varied in their opinions on longevity payments for pre-2011 employees, with some preferring the current system of longevity payments and others finding the idea of performance bonuses a better one for management motivation.
Comments from commissioners included the following:
Commissioner Scott Zelov: "This is a very expensive and very generous management benefit ... I think the idea of a performance bonus … is a good one," he said, adding that the board should consider the idea of a flat dollar amount rather than a percentage of salary.
Commissioner Jane Dellheim: Eliminating longevity payments for managers is “changing their financial picture all of a sudden," Dellheim said. "… I don’t think that it’s fair to do that to the management staff that we have." Without longevity payments, there's less incentive to become a manager, she said.
Commissioner George Manos: "The advantage of longevity payments over performance bonuses is that it’s a fixed amount and it’s objective," Manos said. A challenge with implementing a performance bonus in the service sector is that performance is much harder to measure than it would be in the private sector via sales, money earned for the company, etc. Implementing such a bonus in the service industry creates "the possibility for much more subjective treatment ... it's possible at some times for preferential treatment to creep in."
Commissioner Steve Lindner: Lindner was of the opinion that a performance bonus could actually cost the township more money, and it would be challenging to find and identify objective criteria for such a bonus. "I would not move forward with any type of plan if the goal is just to pay less," Lindner said. Additionally, "if staff then know they’re going to get paid less—you put less in, you may get less out."
Commissioner Cheryl Gelber: Gelber was a big proponent of performance bonuses. "We have to look at today’s economy … and figure out what we can do to motivate employees," she said. "Longevity is not a bonus; you don’t have to do anything but show up to get a longevity payment, and that intuitively for me does not seem to reward the strongest performer and encourage people to be innovative, problem-solve, etc. … In my experience, … some people get stale if they know their compensation is going to be there if they do anything different or special or not."
Gelber suggested using the same amount of money in the pool as exists for longevity payments, currently about $250,000, but using it to reward outstanding performances in a given year and deal with inequity in pay scales. It helps to "send a message to those who are sleepwalking through their jobs," Gelber added.
Moving to a performance bonus system is not necessarily a way of saving money, Gelber said, but it is a way of motivating great performers.
What do you think? Should the township move to a performance-based bonus system or continue longevity payments? Tell us in the comments.