The Palo Alto City Council set the stage on Monday for a leadership change at City Hall when it approved a contract with the city's next city manager, Ed Shikada.

Shikada, a former transportation executive who had previously worked as the city manager of San Jose, is the hand-picked and council-approved successor to James Keene, who is poised to retire at the end of the year after 10 years in City Hall's top position. Shikada's new contract is effective Dec. 20, or on the date of Keene's retirement, whichever comes sooner.

Under the terms of the contract, which the council approved Monday, Shikada will receive a salary of $356,000, as well as temporary housing assistance of $4,000 per month until he obtains a primary residence within city limits. In addition, the city will contribute $18,500 annually into Shikada's retirement plan.

In hiring Shikada as the next city manager, the council opted to avoid the city's typical recruiting process, which usually involves a nationwide search, a selection of finalists and opportunities for the public to weigh in. Instead, council members opted to promote Shikada, a versatile veteran policymaker who has a background in transportation, engineering and public works and currently serves as both an assistant city manager and the general manager of utilities.

The council had held two closed sessions to discuss the next city manager before announcing in June that it planned to choose Shikada. At that time, the city was still finalizing the terms of the employment agreement. The council formally adopted the agreement on Monday.

"He's the only person I know who can wear like 12 hats at the same time," Councilman Greg Scharff said shortly before the unanimous vote to hire Shikada. "You meet other utility directors who are city managers -- they are city managers of towns with like 3,000 people and their utility department is tiny.

"Ed has really been the assistant city manager and he runs the Utilities Department -- that's an amazing feat."

While all nine council members agreed that Shikada is the right person for the job, Councilman Greg Tanaka voted against Shikada's employment contract. He argued that the contract should reflect a correlation between the city manager's performance and the city's. As such, Tanaka argued, the compensation terms should include both a fixed and a variable component.

Tanaka said he believes it important to "make sure that the city manager is aligned to the city's interest." Tying the top executive's compensation to the city's performance ensures that the person making decisions actually has a stake in what's going on, Tanaka said.

His proposal did not win any supporters, however, and the council swiftly approved the employment contract.

Mayor Liz Kniss, who made the motion to hire Shikada, acknowledged that the search for a city manager was "compacted" but said she was confident that the city made the right choice.

"As we talked to recruiters, each would say, 'You have the best city manager already in your building,'" Kniss said.

Much like the recruiting process, the council's public hearing on what is one of its most critical decisions was relatively brief. Most council members used their comment period to commend Shikada for his three years of service -- include the past two in dual roles -- and to congratulate him for taking the top job.

Councilman Tom DuBois said he has found Shikada to be "very thoughtful, data driven and engaged with the community." He also predicted that Shikada will be particularly well-suited to help the city advance its infrastructure plan, which includes a new police headquarters, two parking garages and a new bridge over U.S. Highway 101.

Councilwoman Karen Holman also said she is looking forward to working with Shikada.

"I think you know what you're getting into," Holman said. "You know the community; you know the inner workings of City Hall."

Councilman Adrian Fine urged Shikada not to be shy about "putting us in our place."

"I think it's extraordinarily important to get feedback from staff, from you, about where we can have our biggest impacts and where we're missing things," Fine said.

Immediately after the vote, Shikada thanked the council members for their words of encouragement and said he looks forward to "the next chapter."

"I can give you complete confidence that you will have my full dedication to the council and to the community going forward," Shikada said.