LAO Contact

Budget and Policy Post
May 24, 2023

The 2023-24 Budget

Total Compensation Studies


Compensation Studies

Important Tool for Any Employer. A compensation study aggregates and analyzes internal and external data so that an employer can compare the compensation structure it offers to employees with that provided by similar employers to similar employees. Employers in both the public and private sectors commonly conduct regular compensation studies to monitor changes in the labor market. A compensation study is a valuable tool that provides a number of benefits, including those that we discuss below.

  • Assesses Competitiveness in Labor Market. Employers compete with each other for workers. A compensation study allows employers to determine if they are compensating employees fairly and at a level that will attract skilled workers.

  • Ensures Efficient Use of Limited Resources. Employers have limited resources. Personnel costs often are among the largest operational expenses for an employer. A compensation study helps an organization ensure that it is using its limited resources efficiently and effectively by not paying its employees more than is required in order to retain them.

  • Maintains Internal Equity of Compensation Structures. An organization’s compensation structure should be established to ensure that employees with similar jobs or skillsets are compensated in a similar way and have similar opportunities to advance their careers. If internal inequities exist, an employer might have difficulties retaining staff in the relatively lower compensated jobs. A compensation study can be helpful in identifying internal equity issues with an employer’s compensation structure.

  • Brings Structure to Compensation-Setting Decisions. Without a compensation study, ascertaining with any degree of certainty appropriate compensation levels for employees is difficult. As a result, a compensation study provides an important structure for this decision-making process. For public employers, a compensation study also brings transparency to the decision-making process such that employees, policy-makers, and the public all have the same information against which to evaluate proposed changes in compensation.

  • Identifies Possible Recruitment and Retention Issues. A compensation study can provide insights into an employers’ ability to recruit and retain certain types of employees.

Comparators and Methodology Key to Understanding Purpose and Usefulness of Compensation Study. Not all compensation studies are equally relevant or helpful in assessing the issues we identified above. The comparators—or comparison employers—and methodology used to develop a compensation study are key in understanding the purpose and usefulness of a compensation study. Key factors in developing a compensation study include:

  • Jobs Subject to Review. The first decision when building a compensation study is to identify which jobs within their organization an employer wants to study. An employer might want to compare the largest categories of employees or want to study a particular category of employee (for example, a job category that the employer has had difficulties recruiting or retaining). In the case of the state workforce, there are thousands of unique job classifications. Though each job classification is unique, many job classifications are part of the same occupation. For example, an Attorney I, Attorney II, Attorney, III, and Attorney IV are each unique state job classifications but are part of the same broad occupation category. Accordingly, state compensation studies tend to focus on occupations rather than job titles. State compensation studies typically include occupations that represent the largest groups of state employees but might include other occupations.

  • Elements of Compensation Compared. Compensation packages provided by large employers often consist of wages and a mix of other benefits. The wages and value of the benefits provided by an employer can vary significantly across employers and even across employee groups for the same employer. For example, the retirement benefits earned by state employees varies significantly depending on an employee’s date of hire. A compensation study should compare wages but also should attempt to quantify the value of most of the ancillary benefits earned by employees in an effort to compare the value of total compensation earned by employees. Common ancillary benefits include health benefits for employees and eligible dependents, retirement benefits, and time off.

  • Sample of Employers Used for Comparison. Which employers are included for comparison in a compensation study can have major effects on a compensation study’s findings. Factors to consider when choosing comparator employers include geography, industry, and size. Choosing a sample of employer comparators for the state can be challenging for a few reasons. For some jobs, the state employs people in the same occupation across the state and cost of living varies significantly by region. As a result, compensation for the same occupation can vary widely. In other cases, there are limited private (or other public) comparison employers, potentially limiting the value of the study.

State Law Requires General Salary Increases (GSIs) Be Justified. A GSI adjusts the entire salary range for a classification such that all employees within that classification receive the pay increase. Section 19826 of the Government Code specifies that the California Department of Human Resources (CalHR) shall establish salary ranges for state classifications “based on the principle that like salaries shall be paid for comparable duties and responsibilities.” Further, the law requires that—when establishing or changing pay ranges—“consideration shall be given to the prevailing rates for comparable service in other public employment and in private business.” These requirements necessitate that changes to state salaries be justified based on comparisons to other comparable employers.

State Law Requires CalHR Conduct Total Compensation Studies. As discussed below, different pieces of state law impose different requirements on CalHR that culminate in the requirement to provide a total compensation study of state employees to the Legislature. The two pieces of law that establish the requirements in most CalHR compensation studies are:

  • Section 19826 of the Government Code. Section 19826 requires CalHR to submit to the Legislature and bargaining units at least six months before the end of the term of an existing memorandum of understanding (MOU) a report containing the department’s findings related to salaries of employees in comparable occupations in private industry and other governmental agencies.

  • Item 7501-001-0001 of the Budget Act. Provisional language in the annual budget act allows CalHR to use its funding to conduct a study that reports on total compensation and geographic comparisons.

CalHR Methodology of Total Compensation Study. For more than a decade, CalHR has produced its total compensation study required by Section 19826 in house. The department’s compensation studies can be found here. CalHR uses data from the state’s payroll maintained by the State Controller’s Office, data collected by the U.S. Bureau of Labor Statistics and the California Employment Development Department on large public and private sector employers, and data regarding federal payroll from the U.S. Office of Personnel Management. The department uses these data to compare wages and total compensation (including supplemental pay [including overtime], paid leave, insurance [including health, dental, and vision insurance], retirement, and legally required benefits) earned by employees in specific occupations employed by the state, private industry, local government, and federal government. CalHR conducts this analysis to compare employers statewide as well as in four specific regions throughout the state. In the report, CalHR identifies the “lead” or “lag” of state compensation where the state compensates its employees more or less, respectively, relative to the other employers. CalHR uses the same methodology for most bargaining units for their compensation studies. However, as we discuss below, there are a few bargaining units that are not included in the total compensation study and for which CalHR uses different methodologies for at least the most recent compensation study.

State Law and Labor Agreements Impose Requirements for Other Compensation Studies of Specific Bargaining Units. There are a few bargaining units for which CalHR uses different methodologies than the methodology used for most bargaining units that we discussed above. For these bargaining units, CalHR’s methodology is guided by provisions of statute or labor agreements that are specific to the bargaining unit. We discuss these instances below.

  • Unit 5: Highway Patrol. As we described in greater detail in our 2019 analysis, for almost five decades, statute has provided highway patrol officers automatic annual pay increases that are determined through an annual survey of five local government jurisdictions (specifically, Los Angeles Police Department, Los Angeles County Sheriff’s Office, San Diego Police Department, Oakland Police Department, and San Francisco Police Department). For purposes of this survey, Section 19827 of the Government Code specifies that total compensation shall include base salary, educational incentive pay, physical performance pay, longevity pay, and retirement contributions made by the employer on behalf of the employee.

  • Unit 6: Correctional Officers and Parole Agents. As we discussed in our 2019 analysis, the last total compensation study submitted to the Legislature for Unit 6 that relied on the same methodology as is used for other bargaining units was submitted in 2015. In April 2023, CalHR submitted to the Legislature a new Unit 6 compensation study that is based on a different methodology. The new study is based on a survey of sheriff departments of six counties in California (specifically the Counties of Los Angeles, Orange, Santa Clara, Sacramento, San Bernardino, and San Diego) and examines specific elements of compensation (excluding overtime) to compare state correctional officer compensation with compensation earned by sheriff deputies in those counties. The administration explains that the six counties were used because Section 19827.1 of the Government Code requires CalHR to consider large employers when establishing correctional officer compensation. This methodology was crafted through negotiations between the administration and the union that represents Unit 6 (California Correctional Peace Officer Association) pursuant to Article 15.19 of the MOU, which states that the parties will meet to discuss the criteria, comparators, and methodology to be used for Unit 6 in the Total Compensation Report created pursuant to Section 19826.

  • Unit 8: Firefighters. “In order for the state to recruit skilled firefighters,” Section 19827.3 of the Government Code requires CalHR to “take into consideration the salary and benefits of other jurisdictions employing 75 or more full-time firefighters who work in California.” For the most recent study, CalHR selected four state firefighter classifications to be used as benchmarks. CalHR and the union representing state firefighters (Cal FIRE Local 2881), mutually agreed upon a sample of 20 local fire departments to include in the survey (Bakersfield City, Chula Vista City, Corona City, Escondido City, Fullerton City, Hayward City, Huntington Beach, Livermore-Pleasanton Fire Department, Los Angeles County, Milpitas City, Novato Fire District, Ontario City, Oxnard City, Rialto City, Roseville City, San Mateo City, Santa Monica City, Stockton City, Torrance City, and Ventura County).

  • Unit 9: Professional Engineers. Article 3.1 of the MOU for professional engineers requires CalHR and the union representing professional engineers (Professional Engineers in California Government) to jointly complete an annual salary survey. The resulting survey compares the maximum salaries for three state engineering classifications with comparable classifications employed at 18 public agencies (Alameda County, Contra Costa County, Fresno County, Los Angeles County, Orange County, Riverside County, Sacramento County, San Bernardino County, San Diego County, Santa Clara County, San Francisco City and County, City of Fresno, City of Los Angeles, City of Oakland, City of Riverside, City of Sacramento, City of San Diego, City of San Jose) and the ten University of California campuses.

May Revision Proposal

Amend Section 19826 to Make Total Compensation Study a Biennial Process. The administration proposes amending Section 19826 so that new total compensations studies would be released annually in February. CalHR would submit studies for roughly one-half of the bargaining units each year such that compensation studies would be provided every two years. Under the administration’s proposal, the first of these biennial reports would be released February 1, 2025 and would include Bargaining Units 2 (Attorneys and Hearing Officers), 6 (Corrections), 7 (Protective Services and Public Safety), 9 (Professional Engineers), 10 (Scientists), 12 (Craft and Maintenance), 13 (Stationary Engineers), 16 (Physicians, Dentists, and Podiatrists), 18 (Psychiatric Technicians), and 19 (Health and Social Services). The administration indicates that the second biennial report would be released February 1, 2026 and would include Bargaining Unit 8 (Firefighter) and the nine bargaining units that are represented by Service Employees International Union, Local 1000 (Bargaining Units 1 [Administrative, Financial, and Staff Services], 3 [Professional Educators and Librarians], 4 [Office and Allied], 11 [Engineering and Scientific Technicians], 14 [Printing and Allied Trades], 15 [Allied Services], 17 [Registered Nurses], 20 [Medical and Social Services], and 21 [Educational Consultants and Library]). Based on their proposal, the administration would not include Unit 5 in the biennial cycle because it conducts an annual salary survey for that unit per statute referenced above.

LAO Comments

Total Compensation Report a Vital Tool for Oversight. For most departments, personnel costs are the largest portion of the state’s operating costs. Consequently, conducting proper oversight of the compensation that state employees receive is important to ensure that the state is using its resources efficiently. Compensation studies are the best tool available for the Legislature to assess the state’s compensation policies and to oversee the state workforce at a high level. (In addition to the compensation studies themselves, CalHR recently released a dashboard tool that provides a more user-friendly way to assess the information contained in the studies.)

Timing of Compensation Studies Should Be Divorced From Bargaining Cycle. In our 2021 analysis, we recommended that the Legislature (1) end the current requirement under Section 19826 that ties the timing of total compensation studies with the expiration date of a labor agreement and (2) require all bargaining units to be subject to the same compensation study requirements. By making the compensation study a biennial report, the administration’s proposal incorporates part of our recommendation and establishes a schedule for the release of these compensation studies. As we noted in our 2021 analysis, a regular and consistent schedule for the release of compensation studies allows the Legislature, administration, unions, and public much more consistent information about state employee compensation.

Bargaining Unit-Specific Survey Requirements That Use Different Methodologies Make Process Less Transparent… Regularly occurring compensation studies that utilize the same methodologies allow the state, unions, and public to track trends in state compensation across bargaining units and across regions in the state. This enhanced scrutiny of the compensation policymaking process can instill confidence that the state, as an employer, is efficiently using public resources and that state employees are fairly compensated. In the most recent compensation studies, CalHR used the same methodology for most bargaining units and used different methodologies for four bargaining units. By not using the same methodologies, these studies make it difficult to see a complete picture of the state as an employer and to evaluate compensation across bargaining units and across regions.

…Can Lead to Inequities Across Bargaining Units… The conclusions of a compensation study depend entirely on the comparators and methodology used in the study. Because compensation studies inform the state’s compensation policies, allowing methodologies used in the compensation studies to fluctuate by bargaining unit opens the door to possible inequities being built into the state’s compensation policymaking process. For example, a compensation study that compares state employees’ compensation primarily with employers in high cost of living parts of the state likely would find that the state lags those employers more than a study that compares the state with the federal government and a variety of large employers across the public and private sectors. Without an assessment of the extent to which these methodologies reflect the state’s labor market competitiveness, policymakers and the public could conclude that workers should receive a larger pay increase than might be required to recruit and retain skilled workers. When these types of methodological differences occur across bargaining unit studies, some units may appear to warrant larger increases than a more comprehensive methodology would suggest. In that case, some units could receive larger pay increases than others.

…And Result in Less Useful Reports in Understanding State’s Position as an Employer and Effective Use of State Resources. The state’s recurring total compensation study should be a tool to identify how the state’s compensation package compares with other large employers broadly across the state as well as regionally. A compensation study that takes a narrower scope is not as useful in understanding the state holistically as an employer. For example, the annual Unit 5 compensation study is not particularly useful for understanding how Unit 5 compensation compares with the labor market across the state. This is because the compensation study only compares the state to five coastal, high cost-of-living jurisdictions when Unit 5 members work in every county across the state. Accordingly, the Unit 5 study does not help policymakers assess whether the state’s existing Unit 5 compensation policy is necessary to recruit and retain skilled officers or an efficient use of state resources.

LAO Recommendations

Amend Section 19826 Further to Improve Oversight. Divorcing the deadline of the total compensation report from the bargaining cycle is a good start, but we think that it can be further amended to improve legislative oversight. We discuss these recommended changes below.

Require Total Compensation Study of All Bargaining Units, but Allow for Bargaining Unit-Specific Supplemental Studies. We recommend methodologies used in the biennial total compensation study (1) be consistent across all bargaining units, (2) be transparent and replicable, and (3) not be subject to collective bargaining. Additional compensation studies could be established through collective bargaining in order to fulfill a specific purpose. For example, the state and Local 1000 could agree to a separate compensation study that evaluates compensation earned by nursing staff in state-operated veterans’ homes.

Incorporate Geographic, Total Compensation, and Large Employer Requirements Under One Section of Law. To the extent possible, we recommend delineating all requirements of the biennial compensation study under one section of law. At a minimum, we recommend the requirements established under the annual budget bill be incorporated into Section 19826 so that the compensation study (1) compares salaries, (2) compares total compensation, and (3) includes a statewide and regional analysis. In addition, Section 19826 could require that the total compensation study compare the state’s compensation with large employers. This would conform to CalHR’s existing methodology and would apply the requirements of Sections 19827.3 (related to the firefighter study including fire departments employing 75 or more firefighters) and 19827.1 (related to correctional officer compensation taking into account large employers of peace officers) so that CalHR is required to consider large employers in all of its total compensation studies.

Require Administration Provide Recruitment and Retention Analysis as Part of Study. Under its current practice, CalHR includes useful information that provides context to understand how the relative lead or lag in compensation identified in the study might manifest related to recruitment and retention. For example, using the dashboard tool, users can see information about the age distribution and years of service of state employees in an occupation, the gender and ethnic distribution of employees, the geographic distribution of state employees, turnover rates, and vacancy rates. We recommend that the language be amended to require that the biennial total compensation report include information about the state’s recruitment and retention of the occupation.

Specify Bargaining Units Included in Each Study. While the administration indicates it plans to divide the workforce into two reporting cycles, the administration’s proposed amendments to Section 19826 do not specify which bargaining units would be included in each reporting cycle. We recommend that state law specify which bargaining units are included in each reporting year and that the law divide the two reporting groups such that roughly one-half of the state’s bargaining units are reported in each year. In dividing the units into two groups, we recommend including (1) peace officer (including Unit 5), firefighter, public safety, and law enforcement bargaining units in the same study; (2) the nine units represented by Local 1000 in the same study; and (3) bargaining units that represent medical professionals in the same study. Accordingly, we recommend a different schedule than proposed by the administration. Specifically, we recommend that the compensations study for (1) Units 2, 5, 6, 7, 8, 9, 10, 12, 13, and 19 be submitted on February 1, 2025 and every odd-numbered year thereafter and (2) Units 1, 3, 4, 11, 14, 15, 16, 17, 18, 20, and 21 be submitted on February 1, 2026 and every even-numbered year thereafter.