Compensation Analysis and Fiscal Restraint: The Key to Enhancing Employees' Perception of Their Total Compensation Is Increasing Positive Reinforcement and Interaction with the Organization

By Purcell, Melanie D. | Government Finance Review, June 2012 | Go to article overview

Compensation Analysis and Fiscal Restraint: The Key to Enhancing Employees' Perception of Their Total Compensation Is Increasing Positive Reinforcement and Interaction with the Organization


Purcell, Melanie D., Government Finance Review


There is a world of irony involved in the current economic environment, especially regarding financial constraint and compensation. Unfortunately, the realities of declining revenues go head to head with the need to be competitive for strong talent. As local governments experience declining revenue, they try to reduce costs to balance their budgets, and the largest cost component in the budget is personnel. To reduce costs, vacant positions are frozen, wages are frozen or reduced, benefits are reduced (or employees are required to contribute more), training and professional development are eliminated, and the total compensation for expected work performance heads into the deep chill. Employees truly do more for less, living the mantra of the early days of the recession. And eventually, services and organizations suffer potentially deep unintended consequences.

Employees have been forced to accept the fiscal constraints mandated by reduced revenues, and organizations now are leaner and more efficient. In theory, employees and secondary markets should have reset their expectations, but other dynamics have changed. The costs of living and maintaining even mildly reduced standards have not moved in concert with the pressures to reduce compensation costs. Individuals who had put off retirement are again adjusting their expectations and timing, and while the "silver tsunami" slowed a little, more retirees are choosing to make the transition sooner than later. A younger workforce is demonstrating a strong preference for greater work-life balance and technological flexibility. Negative political news and a general lack of public value and respect dominate the perception of government work in the media. Incentives and traditional pressures to stay at a job have lessened. An inability to move because of housing issues or personal reasons such as dual income families and local support structures is contributing to the scarcity of mobile senior staff. Negative news also increases the perceived risk in taking a new position, while the reduced wage scales or possible pay cuts for new employees also reduces workers' incentive to take a chance. The stark reality is that the very talent we need to drive more efficient and capable organizations is becoming less available, so there is more competition.

Two opposing philosophies seem to dominate government employment policy:

1. It is government's job to employ as many people as possible, increasing opportunities for its citizens, possibly focusing on those who are least able to advance in the private sector (such as felons or illiterate adults).

2. Hire the best possible employees, providing a competitive total compensation package, and hire as few of them as possible, relying on a high-efficiency structure to drive productivity.

The emphasis on layoffs as a last resort, while compassionate in concept, subtly supports the first philosophy and can influence an otherwise transparent and objective assessment of organizational structure and efficiency. This priority is in fact a policy directive that is not always consciously or overtly determined, and it has implications for compensation strategies.

LOOKING AT TOTAL COMPENSATION

Knowing that challenges lie ahead as vacancies in key positions become more common and that, in all likelihood, the cost of filling those vacancies will increase (both in terms of recruitment and in retention), it is time to look at less traditional viewpoints for solutions. Total compensation analysis looks beyond salary and wages and even beyond the usual benefit spectrum of health and life insurance and retirement. Total compensation represents the complete package of returns awarded for the time and effort spent performing the employees' work for the organization. It has become increasingly important to review all the factors that influence an employee's choice to join an organization and contribute at optimal productivity. …

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