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Managing People in Tough Times: Time to Move in a New Direction, Part 2

This article is part two of two. To read part one, go to: Managing People in Tough Times: Time to Move in a New Direction

Howard Risher

The Impact of Staff Cuts
An issue that will be problematic in the near future is the impact of the budget cuts on the staff capability an HR office needs to administer its policies, practices, and systems in a defensible manner. Precise data are not available but in some jurisdictions HR staffs have been cut severely. And there is reason to believe the cuts have impacted the compensation and benefits functions more than other HR functions.

The U.S. Bureau of Labor Statistics (BLS) collects employment data by industry and occupation. Comparing data from May 2007 with May 2011 for selected states and metropolitan areas, the employment of HR managers actually increased in Illinois, Florida and North Carolina, as well as in the Chicago and Phoenix metropolitan areas. During the same period, the number of compensation and benefits managers in those same jurisdictions declined from 2,390 to 1,450 in North Carolina, from 2,010 to 1,000 in Florida, from 1,390 to 700 in North Carolina, and by similar percentages in Chicago and Phoenix. There were similar reductions in the number of compensation, benefits and job analysis specialists.

With pay freezes, compensation specialists are superfluous. At some point, of course, the freezes will be allowed to end. Employees will be looking for ways to move to higher salaries. One of the tried-and-true strategies is to request a job reclassification. With the “pay police” laid off, those grade changes should be almost guaranteed. In the federal government, “classifiers” have disappeared, and it is known that “grade creep” is a serious, costly problem.

I may be wrong, but my reading of the tea leaves tells me the staffing in government HR offices will not return to former levels for years—if ever. New technology adds to efficiency but that is not going to save HR offices. The numbers reported by BLS suggest staffing levels are, in some jurisdictions, too low to maintain pay systems. That has a number of possible consequences—all of which are costly.

The current reality suggests that it is time to move in a different direction. There has been interest in new pay models for years. It was an element of the New Public Management (NPM) going back almost two decades.

I remember taking part in an International City/County Management Association panel discussion in 1998 and again in 1999 where the focus was pay for performance. Bill Wilder, then the HR manager for Charlotte, was also on the panel. We had standing room-only attendance at both conferences. Pay-for-performance and the business management model was then central to NPM but interest waned and with the recession has been forgotten.

This would be an excellent time to begin the process of rethinking government pay programs. I understand morale is already down. I understand it’s difficult to think about the future in the middle of a budget crisis. But it’s also true that it’s easier to gain acceptance for change in a crisis.

The deficit in pension funding has to be addressed first. Any savings should help agencies save jobs and avoid cutting services.

It’s an Allocation Problem
The deficits also serve to highlight the obvious:  planning and management of payroll is an allocation problem. Available funds need to be directed to where they will be best used. From that perspective, above-average pay or benefits or unnecessarily costly administrative practices cannot be justified.  Especially in an era when needed services are threatened by budget cuts, paying any employees more than necessary cannot be justified.

That happens to be the logic of market-based pay. Companies are very cost conscious and make certain their salaries are consistent with the levels in competing companies. The only justification for above market pay levels is a strategy to hire unusually talented people.

Every jurisdiction is, no doubt, different, but there is a pattern across the public sector to pay lower level employees better relative to market levels. The average differentials frequently cited by the critics naturally reflect jobs paid higher relative to market levels, as well as those that might be far below.

Yes, I am aware that is more likely to happen under a union contract. That does not make it better; it simply means it will be more difficult to correct—and “correct” is the right word. In the labor market, the salaries for those lower level jobs have been increasing slower than for the higher paid professional jobs. That trend goes back to the post-World War II era. It also reflects the common “cents-per-hour” union agreements that push up lower level salaries at a faster rate. It’s a misallocation of limited payroll dollars.

The first step in rethinking a pay program is to determine how well jobs are paid. To supplement the market data, it would be useful to identify the jobs where recruiting is proving to be difficult or turnover is increasing. Pay may well be an issue. The evidence is important.

In that regard I have seen several state-level statistical studies that claim to compare pay levels using demographic and education data, not job content. It should not be surprising that older, better educated employees are paid more. As someone who sat through the stat courses, I can say with authority that those studies are misleading and of no value in determining if jobs are overpaid or underpaid.

Preparing for Tomorrow’s Open Books
The scrutiny is not going to stop. Websites making government employee salaries public are going to be increasingly common. And that opens the door to questions that will need to be answered.

The public clearly wants confirmation that government pay levels are justified. Giving the public access to names, titles and salaries is, in the absence of credible explanations and substantiating evidence, not going to satisfy the critics. Public agencies need policies and practices that can be easily explained and readily understood.

HR has an unfortunate history of backroom analyses and “soft ideas,” and reasoning that can be powerful to the initiated but not truly understood. “Engagement” is a great current example. We could use our own media consultants.

Now is an ideal time to simplify our policies and practices. Bureaucratic practices need to be eliminated. We should adopt “value-added” as our mantra and assess our policies one by one. Small mom-and-pop businesses have no trouble managing the pay of employees on the back of an envelope. It’s not that simple of course for government agencies but current practices are far more complex and costly than necessary. No other area of human endeavor has seen as little change. We need to get started.

Howard Risher is a private consultant and frequent author on pay and performance issues. He has experience in every sector including federal, state and local government. Email: [email protected].

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