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Evaluation Report

Office of Human Resources: Compensation and Benefits

The objective of the evaluation was to better understand the Total Rewards Assessment report (from 2017) that looked at the objectives of OHR’s review of compensation and benefits.

Additionally, evaluate presentations created by a third-party (Lockton Companies) and determine if the conclusions from these reports could represent the right opportunity for the city.

Lastly, the evaluation looked at the city’s elected official compensation calculations.

You can watch the Audit Committee presentation here

The city needs to do regular audits and reviews of employee compensation and benefits to ensure pay matches market rates and is appropriate. This evaluation found the reviews currently in place are not fully independent. The city also needs to do more research to see if a self-insurance option is a good idea to get the best premiums for the city and for its employees. This evaluation matters because the compensation for Denver’s more than 13,000 employees is one of the biggest expenses in the city’s overall budget.

Auditor O’Brien commissioned Denver auditing firm BKD to review a report from the organization Segal, which found employees are paid at market rates when compared to their peers. The Segal report started in 2015 and was published in 2017. It said the city’s pay and benefits package is at market when compared with other similar public-sector organizations and above market when compared to the private sector due to health and retirement benefits.

The new BKD evaluation found the Segal report was not entirely independent. The Office of Human Resources guided or assisted with key aspects of the study. The office suggested which cities to compare Denver to and which job titles to review. Segal used some of the suggested job titles and some of their own choices for the representative sample comparison.

The Segal evaluation also had a limited scope and not all employee classifications were included. The job titles selected were chosen to cover the largest percentage of city employees, but only represented 11 percent of the city’s overall job titles. The city has 903 titles and 467 different pay grades.

The evaluation also found an independent audit of the methodologies for pay plan adjustments, classifications and benefits has not been completed every four years as required in the city’s municipal code. The Office of Human Resources last commissioned an audit using Segal in 2016, as has been the case in previous years. However, the evaluation found this audit did not meet the requirements of independence.

In addition to the compensation and benefits study done every four years, the office conducts a market pay survey every year. The assessment noted this evaluation does not include inquiries related to employee benefits. City code does not specify how often benefits need review. The mayor or city council request this analysis, not the Office of Human Resources.

The city uses Lockton Company for insurance plans for employees. The company advises and assists the city in buying and managing insurance plans, options and plan structure. The city currently contracts with three different insurance companies to provide healthcare services for about 13,600 employees. These are fully insured health plans, as opposed to self-insured plans where the employer funds benefits using its own funds. In a fully insured plan, the insurance company contracts with the employer and takes on the risk while the organization and employees pay higher premiums. United Health Care is the only provider which offers a self-insurance option.

Based on a 2016 study, the City and County of Denver would be a good candidate for self-insurance for certain medical plans. The risk of catastrophic claims taken on the by the city under this type of plan could be limited by stop-loss insurance. The State of Colorado uses a self-insurance plan. However, the city has still not made any decision on the potential of using a self-insurance plan for health insurance benefits. The city charter and code do not specify who is directly responsible for making such a decision.

Based on this evaluation, Lockton should present the latest opportunities available for the city to consider self-insurance. The evaluation also found elected official compensation calculation, roles and responsibilities should be better defined and clarified.

Compensation

In an effort to confirm the findings with respect to the Segal audit of survey methodologies and recommendations, BKD recommends that the Mayor’s office commission this audit every four years as required in code Section 18-5 and address the specific objectives outlined: “The Mayor shall commission an independent audit of survey methodologies, determinations regarding generally prevailing rates and prevailing practices, and recommendations regarding pay rates and benefits made by the career service board or the Office of Human Resources Executive Director in the preceding year.” The Mayor’s office should determine and conclude on the definition of an audit and determine if that includes an independent comparison study. The Mayor’s office should select the qualified independent firm and agree to the scope work to be performed by the qualified firm. Also, BKD recommends that the firm selected utilize and describe the standards or professional frameworks used in assessing the methodologies and provide their opinions with respect to the methodologies utilized by the city.

OHR agreed with this recommendation.

Benefits

The Mayor’s office should indicate how often the employee benefits are to be reviewed and potentially update the code to more clearly define this. In addition, upon request, the Mayor’s office should send a formal request to OHR for benefits to be reviewed.

Upon request from the Mayor’s office, benefits packages should be reviewed to ensure they are in line with comparable markets.

OHR agreed with this recommendation.

Self-insurance

BKD recommends that Lockton present the latest opportunities available to the City to the Employee Health Insurance Committee (EHIC) who has the authority to recommend changes to OHR and the Career Service Board.

Any analysis performed by OHR upon the recommendation from EHIC should include the following considerations: financial, cash flow, risk tolerance levels, comparable coverage needs, and administration and compliance (fees, HIPAA, nondiscrimination).

Should the City ultimately decide to go forward with the self-insurance option, the City should utilize EHIC, and potentially other individuals/groups from various departments within the City, to assist OHR with providing comparable benefits including plan structure and options, administration, compliance, and financial design of the program.

OHR agreed with this recommendation.

 

Elected official compensation

BKD recommends that the charter be reviewed and enhanced to include roles and responsibilities with respect to determining the official’s compensation calculation and the process as well as potential clarification regarding the calculations used.

OHR and City Council should jointly formulate procedural documentation around the calculation of official compensation; to include where data is obtained, how data is obtained, who obtains data, who performs the calculations, who reviews the calculation, what data fields are considered, timing of the calculation, timing of the payout and any other steps that need to be considered during the process, including retention of documentation for audit purposes.

OHR agreed with this recommendation.

 

Follow-up report

A follow-up report is forthcoming.

Other related reports

None at this time.

In the news

Audit Team: Kevin Sear; Rob Farol; BKD, LLP

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