Public Sector Compensation Panacea or Pandora's Box? Ensuring Compensation Equity Is Key

Article excerpt

TAKEAWAYS

Reading this article will help a manager address the principles of a sound approach to compensation in an organization by:

* Providing local government with the necessary tools to support employee compensation decisions and policies and provide the transparency needed.

* Learning how private sector and public sector pay differences can be explained rationally and with quantifiable data.

* Applying a commonsense approach to the statistical analysis applied to the market data.

* Considering the missing link of individual performance management.

* Engaging elected officials in the process.

IN AUGUST 2011, an Internet search on the topic "public and private sector pay differential" yielded more than 9,030,000 results. It is no surprise that sessions on employee compensation presented at ICMA annual conferences are always filled to capacity.

One of the events that triggered this push for more information and transparency in local government pay was last year's compensation scandal in Bell, California. Because of layoffs, service reductions, and frequent questions regarding pay levels and benefits in the public sector compared with the private sector, local government managers are concerned that this is the wrong environment in which to consider studying employees' compensation. Yet this economic climate is the best time to audit and, if necessary, develop a quantifiable, defensible compensation policy that addresses these concerns.

The salaries and benefits of public employees, when compared with the private sector, have always been under a microscope and scrutinized by citizens, elected officials, and the media. Stakeholders are challenging the equity of local government's pay systems when compared with the private sector. Managers need practical tools in place to ensure that elected officials and staff are following best practices and pay policies that are in the best interest of the constituents served.

The availability of emerging technologies in public sector human resources, including tools for pay and benefit plan design and maintenance, union negotiation, budgeting, and performance management, will empower local government officials to create and maintain effective classification and compensation systems and aid in keeping personnel services and benefits within acceptable limits. These tools will also provide support to address transparency while responding efficiently and confidently to requests for such information.

This article attempts to highlight key areas for action in order to ensure basic compliance with acceptable compensation practices. Traditional approaches are explained as well as the roles of the manager and elected officials. First, however, it is necessary to understand the basics of a sound compensation system prior to discussing emerging technologies.

Information Is Key

Local government administrators are currently facing some of their most difficult human resources challenges to date: salary and hiring freezes, the retirement of key leaders, and rising service demands in conjunction with sharply declining budgets. While meeting these needs, local government also must promote transparency and ensure compliance with all legal requirements, including the Fair Labor Standards Act and the Lilly Ledbetter Fair Pay Act of 2009.

There is an immediate need for maintaining a sound classification and total compensation system ("personnel services" in local governments' budgets) to provide managers with the effective tools needed to meet these challenges.

Three key fairness doctrines penetrate all aspects of a sound, principled pay system: internal equity, external equity, and individual equity (see Table 1). Internal equity should be addressed first as it drives pay level placement according to position and market comparisons.

TABLE 1: FAIRNESS DOCTRINES

Equity issues with corresponding techniques and objectives in pay
systems. …