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Pay Plan Update - January 2024





The weekend edition of the Democrat Gazette included a state employee pay plan and evaluation system article that we wanted to share. Along with updating you on our recent Northwest Arkansas meeting we can now better connect some of the dots and get a better look at the intent of redoing the compensation system and timeline.


First the Article: Written by Mike Wickline and published by the AR Democrat Gazette.


Arkansas Gov. Sarah Huckabee Sanders' administration is seeking to hire a consultant to help develop plans for the state's 15 executive branch departments detailing recommended organizational structures and potential costs and savings, and a revised state employee pay plan, a revised state employee performance evaluation system, and other potential changes.

The Arkansas Department of Transformation and Shared Services issued a request for proposal for "strategic management consultant services" on Dec. 18. The deadline for consultants to submit their proposals is Jan. 16, department Secretary Leslie Fisken said.

The transformation department intends to award the consulting contract Feb. 19, and "we don't have a specific dollar figure in mind" for the expected cost of the contract, Fisken said. The initial term of the contract would be for three years and the contract may be renewed by up to four additional one-year terms upon mutual agreement of the department and the consultant.

"The State has issued a Request for Proposal for strategic management consulting services to develop (1) a recommendation for and (2) a plan for execution for robust savings and efficiencies," Fisken said in a written statement.

"This work is part of a broader plan that Governor Sanders directed at the beginning of her administration to streamline spending, generate cost savings, and spend taxpayers' money wisely," she said. "Arkansans will benefit from improvement in efficiencies and reducing red tape in state government."

The Republican governor, who was sworn in Jan. 10, 2023, has vowed to responsibly phase out the state's income tax.

Fisken said Friday in an interview: "None of this is about laying anybody off.

"This is best utilizing the thousands of employees that we have and using taxpayer dollars ... the best we can," she said.

Asked why the executive branch needs to hire a consultant to help develop these recommendations and plans, Arkansas Department of Commerce Secretary Hugh McDonald said Friday in an interview: "You can't ask each [executive branch department] secretary to go out and do a reorganization because it is going to be done inconsistently.

"You need to have a consistent process and expectation, and that is what the governor is establishing through this [the request for proposal]," he said.

THE BOSTON CONSULTING GROUP

The state Department of Transformation and Shared Services issued the request for proposal on Dec. 18 after the state's "pro-bono services" agreement with The Boston Consulting Group, which started Oct. 2, ended Dec. 15. The agreement was signed by an official for the consultant and by Arkansas Department of Finance and Administration Secretary Jim Hudson, Fisken and McDonald in November.

Under the pro bono services agreement, The Boston Consulting Group agreed to work closely with the Department of Commerce and Department of Transformation and Shared Services "to assess how well Arkansas state agencies are operating effectively," including identifying "opportunities to streamline the government in order to enable the government to serve Arkansas stronger."

McDonald said The Boston Consulting Group offered to provide the Department of Commerce "a strategic organizational effectiveness, strategic alignment review" at no cost after the consultant made an unsuccessful bid for a broadband consulting contract that the department awarded to McKinsey & Co., and he agreed to accept the consultant's offer.

The consultant conducted the review within several weeks, and its review was conducted faster and more thoroughly and rigorously than he would have been able to do, he said.

Fisken said the Department of Transformation and Shared Services also engaged with The Boston Consulting Group on a pro bono basis for the analysis of efficiencies and savings in state government, and its evaluation of state government included organization, procurement, real estate and vehicles as well as other statewide initiatives.

The Boston Consulting Group identified more than $300 million in potential savings in the state's 15 executive branch agencies, and indicated that "some of the value will be used for improving pay-scale competitiveness, strategic resource additions, and other strategic areas and projects," according to a copy of its report that was obtained by the Arkansas Democrat-Gazette through the Arkansas Freedom of Information Act.

Among other things, the consultant estimated potential savings of between $100 million and $170 million in procurement spending, more than $100 million through "an organizational effectiveness redesign," and potential one-time revenue of $52 million through the sale of some underutilized state-owned vehicles.

The consultant said the more than 21,000 active executive branch employees represent $1.5 billion in annual spending and an additional 6,500 vacant positions exist with an annual budgeted cost of about $300 million. Of these vacant positions, 20% have not been filled in more than two years and it would be important to evaluate the criticality of filling these positions, the consultant said.

According to the consultant, the "median number of direct reports by manager (i.e. span of control) is 4," and across the private sector managers "typically manage 6 or 7 direct reports."

"I think the findings are really preliminary in nature and are informative for us and they were informative and helpful for us to put together a RFP," and determine what additional information state officials need before making any decisions, Fisken said.

For the Department of Commerce, The Boston Consulting Group estimated a potential $27 million to more than $30 million in savings. Among other things, the consultant estimated potential savings of $17 million to $19 million from improving "organizational effectiveness," and $6 million to $8 million in procurement.

"Some of the value will be used for improving pay scale competitiveness, strategic resource additions, and other strategic additions, and other strategic areas and projects," according to the consultant's report.

Among other things, McDonald said he has started realigning the state Department of Commerce and intends to eliminate an undetermined number of the department's approximately 600 funded vacant positions.

Asked whether The Boston Consulting Group is the favorite to receive the strategic management services consulting contract through the request for proposal issued by the transformation department, Fisken said Friday: "Our team will review every bid that comes in, so we are not favoring one over the other.

"We are looking for the best product for the state of Arkansas," she said.

The consultants' proposals will be evaluated based on a maximum of 700 points awarded for the technical proposal and a maximum of 300 points for the proposal's cost, according to the transformation department's request for proposal. "To minimize conflicts of interest, the State will give preference to Prospective Contractor(s) that do not have current contracts with the State of Arkansas totaling more than 10 million dollars. 100 points will be awarded to any Prospective Contractor(s) that meet this preference."

Asked about awarding 100 points to consultants with fewer than $10 million in contracts with the state, Fisken said, "We wanted to also really look at fairness to any bidder that came in whether you are a smaller shop or you are a larger shop.

"This is not a deciding factor," she said. "It's one factor."

EMPLOYEE PAY PLAN AND EVALUATION SYSTEM

There are 22,552 employees in regular positions in executive branch departments with an average salary of $50,616 a year, said Alex Johnston, chief of staff at the Department of Transformation and Shared Services.

Based on the request for proposal issued by the transformation department for strategic management consultant services, the consultant would work with the department and the Office of Personnel Management to develop a revised employee pay plan that "aligns with industry standards, organizational goals, and budget constraints," and the pay plan deliverable "must be completed by June 1, 2024," and is subject to approval by the department.

Fisken said she doesn't expect the department to propose a substantial overhaul of the state's pay plan until the 2025 regular session. This year, the Legislature is scheduled to meet in a fiscal session starting April 10.

In March, Sanders said she wouldn't support a broad-based pay plan increase in state government's employee classification and compensation bill with a total price tag of $80 million that doesn't consider the strategic needs in education, public safety, health care and corrections. Instead, the governor directed the state Department of Transformation and Shared Services to review and rework the existing classification and compensation structure of the state.

State government last overhauled its pay plan in 2017. That plan was projected to cover 25,000 full-time state workers and cost about $57 million to implement in fiscal 2018, including about $24 million from general revenue, with the remainder coming from other revenue sources.

Under the request for proposal issued by the transformation department, the consultant also would work with the transformation department and the Office of Personnel Management to develop a revised performance evaluation system that "ensures fairness, competitiveness and continuous improvement culture," and the performance evaluation deliverable "must be completed by June 1, 2024,'' and is subject to approval by the department.

Fisken said the transformation department has been working on "some stopgap measures" with state lawmakers for the employee evaluation system for the current fiscal year 2024, and intends to develop a broader overhaul of that system with the help of the consultant for subsequent use.

In June, Sanders authorized merit pay raises for what she called exceptional employees in the state's executive branch agencies in a move that the transformation department said meant about 5,760 of the state's more than 22,000 executive branch employees received merit raises, effective July 9, with a total cost of $16.3 million, including $6 million in state general revenue.

Sanders' plan led to some state employees grumbling to state lawmakers about the merit raises authorized by the governor.

In June, the Legislative Council's Personnel Subcommittee co-Chair Rep. Mark Berry, R-Ozark, told fellow lawmakers: "I guarantee that the governor wants this [performance evaluation] process fixed.

"She inherited the performance evaluation system from the previous administration and, as a Cabinet secretary, I hated it. It is the worst evaluation system that I have ever seen," said Berry, who served a stint as secretary of the state Military Department under then-Gov. Asa Hutchinson.

Among other things, the consultant under the request for proposals issued by the transformation department would provide for each executive branch agency the following:

A thorough analysis of current organizational vision, structure, processes and performance.

Facilitation of strategic planning sessions with "key stakeholders to define organizational short- and long-term goals and objectives."

Development of a comprehensive strategic management plan detailing a recommended organizational structure, potential costs, efficiency of savings, implementation costs, key initiatives, alignment of department priorities with staffing and resources, recommendations of centralized vs. decentralized processes, recommendation for automation of processes such as those that reduce paper usage, recommendations for "streamlining both internal and public-facing state government communications," and performance metrics.

Ongoing support and guidance during the planning, development and implementation of the strategic plan.

Periodic reviews and adjustments to the strategic plan based on organizational performance and external factors.

Based on the request for proposals issued by the transformation department, the consultant also would develop a strategic procurement plan to optimize procurement efforts and spending by identifying and applying best practices from the private and public sectors, and develop a strategic real estate plan that will promote efficient space utilization and market competitiveness inside the state's real estate portfolio, including a plan for acquisition, disposal, office co-location potential and utilization of properties.

The consultant also would develop a strategic fleet management plan and a comprehensive information technology plan.

The Sanders administration's aim to make the 15 executive branch departments more efficient comes more than four years after Hutchinson, a Republican, signed a 2,047-page bill into law that implemented his plan to reduce the number of state agencies reporting to him from 42 to 15, effective July 1, 2019.

Hutchinson's restructuring of the executive branch agencies was the most sweeping reorganization of state government since then-Democratic Gov. Dale Bumpers led an effort to reduce the number of agencies reporting to him from 60 to 13 in 1971.

In 2003, Sanders' father, then-GOP Gov. Mike Huckabee, won the state Senate's approval for his bill to realign 53 state agencies into 10 departments, but the measure failed to clear the House of Representatives. Democrats controlled the Senate and House back then. Republicans have controlled both chambers since 2013.

In 2005, the Legislature approved Huckabee's plan to merge the Department of Health into the Department of Human Services. Then, the Legislature repealed that merger in 2007 at the behest of then-Democratic G0v. Mike Beebe, who succeeded Huckabee.


Summary ASEA's Northwest AR Meeting:

On December 13th, 2023, Nicholas Poole, Director of Governmental Affairs, held a meeting at the Washington County Health Unit with Senator Bart Hester, President Pro Tempore of the Arkansas Senate. The session addressed critical issues, with Senator Hester unveiling a timeline for the new merit adjustment system scheduled to debut in early 2024. Furthermore, a new compensation package is slated for introduction during the Fiscal Session starting the second week of April, with additional adjustments expected for State Employees in the 2025 Regular Session. Notably, Senator Hester emphasized the legislative priority to establish a pay plan for state employees ahead of any new tax cut bill filing.

Nicholas Poole passionately advocated for the inclusion of tenure employees in the upcoming pay plan. The discussion spotlighted the proposal to exempt tenure employees with a certain number of years from a pay grid cap.

Senator Hester shared that the Governor's Office, House Leadership, and Senate leadership have initiated monthly meetings to deliberate on the pay plan and the new merit adjustment system. Addressing concerns about communication gaps, Senator Hester committed to providing updates to ASEA.

Recognizing the distinct cost of living challenges in Northwest Arkansas, Senator Hester acknowledged the necessity for increased geographical differential pay in the region. This acknowledgment arises from the significantly higher living costs compared to other areas in the state.

The meeting also delved into other pressing matters, including the accommodation of foster care children staying overnight at DHS facilities and the shortage of state vehicles in the region. Attendees voiced concerns about utilizing personal vehicles for hazardous state duties, emphasizing potential safety risks. Staffing challenges were also spotlighted, emphasizing the protracted process of hiring individuals to fill vacant positions.

Senator Hester, a steadfast advocate for state employees, has been instrumental as the lead sponsor of the last two pay plans and the driving force behind the increase in the Career Services bonus for State Employees. ASEA expresses optimism about closely collaborating with Senator Hester to formulate a new pay plan and a revamped merit adjustment system for state employees.


Why is ASEA Only Hosting Select Regional Meetings?

We first targeted regions with senior legislators who are a part of the pre-budget process with the Governor and are leaders during the session. Seeing a packed house of dedicated state employees will not be forgotten when it is time to vote. Since then we have been receiving requests from legislators to visit their district and invite state employees.

We love this. The larger base of legislative support we can build the better.

Fulton/Sharp/Randolph/Independence counties you are next as Representative Trey Steimal has requested a meeting to be announced soon. He is bringing his legislative friends Bart Shultz, Jeremy Woolridge, Shad Pearce, and Fran Cavenaugh. More guests will be invited.

Details of this February meeting will be released soon.


Our Take: This early in the timeline we are keeping close with our senior legislative leaders as the pre-pre budget discussions evolves and they keep state employees in the discussion. We do feel confident with the relationships we have built and being involved in the process.

That process keeps evolving and what we thought a few weeks ago that we would see a new compensation plan during the fiscal session might be moved towards the end of the fiscal year. This makes sense after Senator Hester stated in the NWA Arkansas meeting that they plan to do something monetarily for state employees during the fiscal session as they review the consultant groups pay proposal.

We should see the evaluation overhaul proposal sooner than later as they are separate components.

It is early in the process and we will keep working our relationships, keeping our ear to the ground, and updating you along the way.


Dates to Know:

Pre-Fiscal Session Budget Hearings - March 6th

Pre-Filling of Bills - March 11th

Convening of Fiscal Session - April 10th

End of Fiscal Year - July 31st


Coming Soon!

We are very close to having our members-only text alert messaging system up and running. Be on the look out to sign up and receive direct links to our State Employee News Blog and breaking news.





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