Getting Compensation Right: Ethically Speaking, That Is

By Perego, Martha | Public Management, January-February 2012 | Go to article overview

Getting Compensation Right: Ethically Speaking, That Is


Perego, Martha, Public Management


In any environment, maintaining public trust when public dollars are in play is critical. As the entire globe works its way through the Great Recession, the spotlight at the local government level is clearly on public sector compensation.

Need to close the gap between essential services and available resources? Then explore cuts in the big-ticket item. For local governments that would be labor and the associated cost of compensation and benefits.

If the outcome of that review is even the appearance that decision influencers personally benefited disproportionally or inappropriately in pay and benefits, then trust is broken.

The Challenges

The lack of established practices for negotiating public sector executive compensation combined with the transparency threshold that must be met makes an otherwise difficult task almost daunting. Roles and responsibilities may be clear on paper but not in action.

The decision makers--that is, the governing body--are not always experienced with the process. The beneficiary--that is, the manager--sometimes is the one who is more knowledgeable, skilled, and, shall we say, savvy. That imbalance can create a conflict of interest. The result can be compensation packages or benefits negotiated in good faith that later appear to be inappropriate, unfair, and just too costly.

The Principles

The principles of the profession have long been the driver for personnel and compensation matters. The standard for establishing executive compensation is that it be fair, reasonable, and transparent. But what's "fair" is subjective and debatable.

Taking the principles, ICMA established formal guidelines for negotiating executive compensation that set standards for benchmarking using comparable public sector salaries on regional and national bases. The guidelines more clearly define roles and responsibilities, and they address issues that relate to all employees as well.

The Process

To establish fair and reasonable compensation, the governing body should either operate as a committee of the whole or designate an evaluation and compensation subcommittee. This group should design and implement the methodology for setting the compensation of the local government manager and any other appointees of the governing body.

Compensation benchmarks should be established on the basis of compensation in comparable local government and public sector agencies. The governing body should engage experts, whether contracted or in-house, to provide the information required to establish fair and reasonable compensation levels.

All decisions on compensation and benefits must be made by the entire governing body in a public meeting.

The Realities

The principles and guidelines provide advice to address those unusual or questionable practices.

The ICMA Model Employment Agreement recommends one-year severance. The average length of severance is six months. Is negotiating a two-year severance appropriate? Is three okay? If so, under what circumstance?

Severance provisions established in the employment agreement must be both reasonable and affordable so that the cost of the severance is not an impediment to fulfilling the governing body's right to terminate a manager's service, if desired. …

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