City workers in Palo Alto received a holiday gift from the City Council on Monday night: three paid days off.

City Manager Ed Shikada and City Attorney Molly Stump also got a reason to cheer, with the council approving a 3% raise for each of them, bumping their respective salaries to $366,704 and $322,837.

And earlier in the meeting, the city approved a change in its contract with City Hall managers and professionals so that those managers who are rated as meeting or exceeding expectations get paid time off.

The council took these moves in its final meeting of the year as a way to signal appreciation to employees for keeping the city humming along through another year of the pandemic. It also had a pragmatic motive. Council members were reminded time and time again over the course of the year that retaining and recruiting city workers is becoming increasingly difficult — a key issue at a time when the Palo Alto is looking to restore community services after a period of severe budget cuts.

The council approved all three compensation adjustments by a 5-1 vote, with Council member Greg Tanaka dissenting and council member Lydia Kou absent.

In explaining his support for these moves, Vice Mayor Pat Burt alluded to the budget cuts that the city made in June 2020, when it slashed the budget by $40 million and eliminated dozens of positions. This, Burt noted, included the elimination of positions that were upward advancement opportunities for both current staffers and prospective hires. Now, with the city's economy showing signs of recovery, it finds itself in a bind: the city is losing employees faster than it can hire new ones.

Burt said the moves to authorize three days off is a way to acknowledge the challenges that employees had gone through in the last year and a half and "all the stresses that have been there."

"But also, to have them recognize that we are valuing their service and are moving forward now in a more positive way in our recovery as a city, and that we have a positive future ahead of us and they do as well."

Most of his colleagues agreed, with Mayor Tom DuBois calling the council's approval of three days off for employees a "small token of our appreciation" and council member Alison Cormack lauding the city's librarians, firefighters, police officers, park staff and utility workers, all of whom adjusted to the new normal over the course of the pandemic to keep the city's operations moving smoothly.

"I really hope people take this leave and use it for a little bit of restoration in their lives," she said.

The council also broadly agreed to give Shikada and Stump a 3% salary hike, an adjustment that DuBois said was "the least we can do." Shikada hasn't had a salary adjustment since he became city manager in 2018, while Stump last saw a salary bump in 2019.

Both Stump and Shikada also voluntary accepted 26 unpaid furlough days during the pandemic, which amounts to about a 10% reduction in pay. DuBois noted that both had worked for most, if not all, of the unpaid days, effectively donating their time. Shikada also gave 5% of his salary in leave hours to an employee leave-sharing program.

DuBois, whose concluded his last full meeting as mayor, lauded Shikada, Stump and other city employees for their work during the pandemic.

"We got through the toughest day of COVID and our staff made sure that all the critical functions our city provides continued to happen every day," DuBois said.

Tanaka opposed all three proposals and argued that the city should be more selective about approving benefits. Giving employees three days off means that there will be three days when residents are receiving fewer services, he said.

"I don't think it's good to just spread it evenly across the whole workforce, because there are some at the city who did incredible work, who worked incredibly hard, who put their lives on the line and I think they should be rewarded more versus some that perhaps didn't," Tanaka said.

He called the proposal to give all employees three days of leave "socialistic" and "communistic," prompting Burt to respond and call Tanaka's characterization "absurd."

"I ran a company for over 30 years and we did things like this and we were certainly not communistic," Burt said. "It's just a reactionary characterization that is unbecoming of a council member."

Tanaka also voted against approving salary increases for Shikada and Stump and said he opposes having fixed salaries for top managers. Pay at the top of the organization should be based on performance, he said.

In approving the compensation adjustments, several council members also suggested that the city may be turning a corner in its economic recovery, with staff now projecting a surplus of more than $10 million in the general fund in the current fiscal year. Even though sales- and hotel-tax revenues remain below prepandemic levels, they have been trending up since last summer, according to the city's most recent revenue report.

"We have some breathing room in our budget now and that gives us an opportunity to do more than say 'Thank you,' because saying 'Thank you,' to me seems insufficient," Cormack said.