Pay Planning on a Limited Budget

If your district leadership team is in a quandary as to how to move forward with this year’s budget planning process, you are not alone.

Market value for education entity jobs typically shifts upward by 2 to 3 percent each year. The last two years have wreaked havoc on what had been a prolonged period of mostly predictable patterns in market shift and state funding. In 2019 House Bill 3 (HB3) of the 85^th Regular Texas Legislative Session mandated a teacher salary increase that averaged 7 percent. In the midst of the global pandemic, median statewide increases in 2020 dropped to just 1 percent. With 2021 looking to be another year of lower-than-normal market shift, many educational entities are strategizing how to effectively recruit, retain, and reward—but without breaking the bank.

Modest Increases or Nothing at All?

While opting not to provide a pay increase is never popular, it may be the safest option when funding is limited. There are two general options available to educational entities that can’t afford a general pay increase (GPI)—grant no increases whatsoever or grant only adjustments necessary to address critical internal and external pay equity issues.

When the budget for salary increases is small, educational entities must consider whether it makes sense to also increase their pay structures, including the teacher hiring schedule. Typically, pay structures should be adjusted by half the GPI amount. This allows employees to move through their pay ranges because pay is outpacing changes to the structure. But when a GPI is 1 percent or less, it usually is better to leave the pay structures alone to avoid pay compression for employees near the bottom of their range.

If no pay increases are granted, districts need to be careful to ensure incoming teachers aren’t paid more than current teachers with the same years of experience. This can be accomplished by increasing the years of experience for each “step” in the schedule (see example below). The starting teacher pay rate also can be lowered slightly to allow for differentiation of 0-year and 1-year teacher pay.

Being Strategic Without Breaking the Bank

Some entities may be asking themselves, “How can we do our best to maintain competitive pay when we don’t have much to give?” If a general pay increase isn’t an option in the current economic reality, or if the GPI percentage that’s affordable is so tiny that it may not be meaningful to employees, leadership might consider seizing the opportunity to address pay issues by targeting specific jobs or group of jobs. Some examples of strategic pay adjustments include:

• Jobs that were excluded from HB3 required adjustments (e.g., principals). The educator career pathway may be even more compressed than usual due to significant teacher and counselor pay increases due to HB3.
• Auxiliary jobs with strong external market pressures (e.g., custodian, bus driver, skilled trades). Many educational entities complain of recruitment and retention concerns for these positions, so adjustments to make the pay ranges and incumbents more market-competitive can better support finding and keeping these employees.
• Teacher pay at specific years of experience. If pay is low at certain points in your hiring schedule, this may be an opportunity to make small adjustments to shift specific years closer to market value.

One-Time Payments

Providing a one-time payment in lieu of a GPI has pros and cons. The most obvious benefit is an employee morale boost by rewarding employees for their service. For the employer, such payments are favorable in lean times because the increase isn’t added to the employee’s base pay and is not a recurring cost for the district in subsequent years.

One downside of one-time payments is that they are not creditable for Texas Teacher Retirement System (TRS) annuity calculations, except under very limited circumstances (see TRS website for information on creditable compensation). Another key drawback is that state law prohibits entities from granting discretionary increases to employees after the school year has begun, as this would be considered a “gift of public funds.” To comply with state law, an entity seeking to grant a one-time payment to employees would need to approve the prospective increase (or the possibility of granting an increase) as part of the board’s budget and compensation approval process. Finally, compliance issues may arise, as one-time payments for nonexempt employees should be counted as part of the employee’s regular hourly rate of pay for overtime calculation purposes.

Final Thoughts

HR professionals understand that it is impossible to please everyone. That being said, well-thought-out communication strategies that don’t ring hollow are your best bet for whatever decision is ultimately made. If your employees are accustomed to larger increases, honest communication about the factors that gave rise to the decision should counteract some of the initial disappointment. Providing a compensation letter to employees highlighting total compensation, including benefits like health insurance, life insurance, TRS contributions, and stipends, is a best practice.