Making Right for Exorbitantly Compensated City Officials

By Jim Fox and Bruce Lawson, Fox Lawson & Associates, A Division of Gallagher Benefit Services, Inc.

Question: we have just been hammered with requests from the city council, the media, the public and every other life form on the planet about the salaries and benefits offered by our city. this is probably the result of the considerable publicity about exorbitant compensation paid to officials in a few cities in california including a city manager making almost $800,000 per year in a city with fewer than 50,000 residents. at the same time, there are reports that a former city manager in another small california city was receiving a pension of more than $500,000 per year. to quote the former head of bP, we just want our lives back. what, if anything, can we do to "make this right"?

CompDoctorTM: You want your life back? Just remember that the author of that quote got his life back and, although he is still employed by BP, his new outpost is Russia and not London.

Unfortunately, this situation, we believe, is not going to go away easily or smoothly but there is a lot you can do to at least address the problem and hope that the stakeholders in your community are openminded enough to listen and smart enough to understand the facts. If they are not, then little that we say can or do will make much of difference, at least in the short run.

The situation that has arisen in California as a result of the revelations of compensation abuse in the city of Bell is, we believe, unique, and, we hope, isolated. Unfortunately, the media has played this up in such a way that every public agency in California, if not throughout the nation, is now going to be subject to a level of scrutiny about compensation that heretofore only existed when we went in for our annual physical exam. Now, we know that over the years there have been many local newspapers that have periodically published the salaries of all public officials earning over a certain amount of money. Many eons ago (back in the ’60s), we recall that the amount was $10,000 per year. (When you all stop laughing, we will go on.) Slowly, the base amount rose to $25,000, then to $50,000 and then to $100,000. Now we have cities, counties and other units of government paying some top officials $300,000 or more in base pay. Whether these amounts are appropriate is a topic that we will be happy to address in the future; however, for now, we will focus on how to deal with the public scrutiny about public sector pay.

Over the past three to four years, we have all seen major exposés on private sector compensation abuses coming out of the financial services meltdown and the golden parachutes that many private executives have received, even when their performance was not stellar. We now have the federal government providing oversight of pay levels in certain private organizations as well as not for profits, and others are now required to disclose their compensation levels to shareholders and subject them to advisory votes. We can all ask why this is necessary but it appears to stem from individuals getting greedy, comparisons with inappropriate peers (which means they really are not peers) and not thinking about compensation from a strategic view. When organizations define their compensation philosophy and strategies up front and there is open discussion of the philosophy and strategies, we find that there is generally less resistance to how pay is delivered and the amounts of pay.

In a survey conducted by IPMA-HR, 78 percent of public sector organizations have a defined pay philosophy. Whether that philosophy has been widely shared, or instructive, is another matter.

However, we have digressed, so back to the issue at hand. What can you do about this mess?

There are some things you can do right off the bat; the first would be to have an independent audit of your pay setting process. For example, the state of Colorado conducts annual audits (through the office of the state auditor) of the salary survey process used by the Colorado State Personnel Department to determine salary adjustments for state employees. The city of Denver conducts a similar audit every three to four years.

The audit process serves a very legitimate and public purpose and that is to show the stakeholders that the salary levels are reflective of the labor market and that the process used to determine salary levels can withstand public scrutiny. In other words, the process and the results are valid and reliable. If you have not had an audit of your pay system process and pay levels in the last couple of years, you might want to consider having one done at the earliest opportunity.

The second thing you can do (and agencies in California will be doing this because they will have no choice given legislative mandates that will no doubt result) is to put your entire job classification and pay plan on your Web site.

The reason we say both the classification and the pay plan is so that anyone can look up any job, see what it is, and what it gets paid. One of the problems that we have noted with the publicity resulting from the Bell situation is that reporters have been trying to show comparative data but, because the data is not easily available, they are making some rather erroneous assumptions and conclusions.

This is simply a result of comparing job titles without any understanding of the differences in actual duties between organizations even though the titles may be the same or similar.

Publishing actual employee salaries is another matter. Ultimately, that information is public record in most states but whether you are willing to list every employee and show their current job title and their current pay, is a decision that each agency will have to make for itself.

A third thing you might do is become proactive. Rather than waiting for the media to come to you to ask for information, go on the offensive. Post and provide information that not only talks about what you are paying, but WHY you are paying what you are, which takes you back to the pay strategy! The public needs to understand why pay levels are what they are and, more importantly, what they are getting (i.e., performance) for their money. For example, if you pay your city manager and department heads more than comparable cities, but your crime rate is low, your emergency response time exceeds standards, your economic development is higher, and you have a healthier fund balance than other comparables, then maybe the pay level is worth it. Until you let the taxpayers know those things, you may have a problem with the perception of your levels of pay.

So, until public sector compensation is understood by the public and linked to performance outcomes that the citizens can “see and feel,” you may not be getting your life back very soon. Hopefully, these thoughts provide some insight as to how you might respond to your elected officials and the media.