Rochester Innovates in Merit Pay for Municipal Employees

Daniel W. Fitzpatrick

The information contained in this article is not intended as legal advice and may no longer be accurate due to changes in the law. Consult NHMA's legal services or your municipal attorney.

This July, the City of Rochester entered a new phase in its conversion to a merit pay system for city employees. A third wave of city workers began their first year of pay-for-performance. The system, which includes both union and non-union municipal employees, is the first expanded merit pay program of its kind in New Hampshire.

Matthew H. Upton, an attorney with Drummond Woodsum, has represented the city in the merit pay negotiations and says Rochester is at the forefront of a national trend to bring performance measurement to municipal employee pay.

“Where it has been introduced, it is as a hybrid system,” said Upton “I’ve never seen another city go to a full merit pay system. Still, I expect we will see other cities looking at one, as taxpayers continue the call for accountability in other areas, such as we’ve seen in standards-based learning.”

A Building Block

According to the “The Development of a Pay-for-Performance Appraisal System for Municipal Agencies”—a 2012 case study by Michael A. Mulvaney of Eastern Illinois University, William R. McKinney University of Illinois at Urbana-Champaign, and Richard Grodsky of Grodsky Consulting, LLC—a well-designed employee performance appraisal instrument is critical to a successful municipal pay-for-performance system. According to the study, it also can be problematic when “both employees and management often view the performance appraisal process as frustrating and unfair.”

The study found that development of the appraisal system had to engage both municipal managers and employees and required a commitment to the upfront training of the management personnel tasked with implementing the new system.

In Rochester, that finding held true. The city began the transition from a traditional, stepped-pay system to merit pay more than two decades ago. The first group of employees to move to the new system were Rochester’s non-union employees in September 1994. The Police Department was the first group of unionized employees to undergo the transition to merit pay. That process was completed four years ago.

The need to rethink the evaluation process became apparent early during the transition to the new system. Rochester Police Chief Michael J. Allen called it “the most critical aspect” of the system, and said department managers and employee representatives spent considerable time developing the form that he said “documents individual contributions” to the department and the city. He noted that an effective form brings transparency to the process.

“The evaluation process has to be fair, it has to be equal, it has to be objective, and it has to be transparent,” said Chief Allen. He added: “It took time to get to that point. We spent a year working on the scoring system, training supervisors and getting union buy in.”

Door to Opportunity

While the evaluation process can be an onerous one for both employees and managers, Rochester has tried to reframe the process and educate everyone about how it works. For employees who recently transitioned to the new system, many see it as an opportunity to be recognized and remunerated for their contributions to the city.

“If you work hard, you are rewarded. That’s good for our members individually and as a group, and it’s good for the city, too,” said Mark Dixon of the city’s public works department. Dixon, the American Federation of State, County and Municipal Employees (AFSCME) union representative, participated in the negotiations, and his union, which has 43 members in Rochester, was the largest group represented in the current crop of employees to join the merit pay system. He noted that the city and the union have agreed to reconvene later this year to review any issues regarding the new system that have arisen. 

Dixon noted that one of the most popular elements is the opportunity for longer-term employees to be eligible for salary advances of up to 4 percent. Under the old, stepped pay system, longer-term employees were at a disadvantage once they achieved the top rung and were limited to cost-of living increases.

City Benefit

The Eastern Illinois University study found the possibility of increased pay can prove a strong motivator for employees, and it does so on multiple levels: “Taken together, the employee’s participation in the appraisal process and the clearly stated areas for employee improvement led to higher perceptions of fairness and acceptance of the supervisor’s ratings.”

There are also benefits to the city, in the form of higher productivity and greater control over payroll costs.

“The ability to reward employees for the positive contributions they make to the city is central to the pay-for-performance model the Rochester City Council envisioned when it first began discussions about merit pay in the 1990s”, said Rochester Mayor T.J. Jean. He is also quick to recognize that the evolution of merit pay at the city was possible thanks to the ongoing commitment to the concept by not only the city, but also its employees.

“The City Council is very pleased with the progress we’ve made on the merit pay system,” said Mayor Jean. “I remain thankful to all of the stakeholders who have worked so hard to develop a merit system that is fair and equitable to both the taxpayers and outstanding employees of our community.”

Daniel W. Fitzpatrick, ICMA-CM, PRP, is City Manager for the City of Rochester. Contact Dan at or 603.332.1167.