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Reality Caught Up with Government Pay Programs

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization. 

By Howard Risher
October 19, 2018

Few public employers are ready to address the skills shortage, but it promises to be an increasingly serious problem. It’s going to get steadily worse. It’s a combination of demographics, low unemployment and diminished interest in government careers. Its exacerbated by the complexity of societal problems, the escalating importance of knowledge jobs and technology, and the failure to adopt more effective people management practices.

Recently the National Academy of Public Administration released a report, No Time to Wait, that discusses the skills shortages, the need for civil service reform, and the prevalent “culture of compliance.” They referred to the situation as a “genuine national crisis.” It impacts all levels of government.

The factors that converged to create this problem are understood. One that contributes to the problem and which necessarily must be addressed to develop a solution is the traditional program model for administering employee compensation.

With tight labor markets—the demographic trends portend increasingly tight labor markets for the foreseeable future—employers will have to raise salaries to compete for essential talent. That’s true for both critical skills jobs like those in cybersecurity as well as for low skill jobs like corrections officer. Public employers have no choice but considering new practices to make jobs and careers attractive.

The common government program model for administering compensation is consistent with many corporate pay programs in the 1950s and 1960s. That was an era when US businesses were less concerned with global competition and labor costs. Workers stayed with the same employer though their careers. Employers were paternalistic. Unions were still influential in the private sector. General increases along with cost-of-living adjustments (COLAs) were virtually universal. Textbooks and policy statements emphasized the importance of “internal equity”.

Today corporate pay programs are very different. The concern with internal equity along with job evaluation systems (‘classification’ in government jargon) have been replaced with increased focus on market surveys and market competitive salaries. There are companies that by policy pay above market salaries (e.g., 75th percentile salaries) to attract the best talent. Pay for performance is effectively universal, including the increased prevalence of cash incentives at all job levels. Salary management is now far more flexible and responsive to global realities.

The two changes that necessitated the changes are increased product/service competition, which makes managing labor costs a priority, and the emergence of knowledge jobs and the importance of individual capabilities. As this was written, a topic on the business channel is the anticipated wage inflation. There is of course an inherent conflict between responding to raising market pay levels and controlling labor costs. That necessitates limiting pay increases to specific jobs.

A third factor—the focus on performance—has always been a priority in business. Increased global competition has been an issue but the new understanding that employees can perform at significantly higher levels has prompted the increased use of pay for performance policies. Step increase and COLA policies were eliminated some time ago for white collar workers in the private sector.

The reality of government makes replacing pay programs extremely difficult. Budget concerns of course are always important. Public unions continue to resist change. Since union leaders are elected, they need to advocate for the concerns of members.

The critics of government are also barriers when they resist selected increases. Analyses by think tanks have repeatedly shown pay and especially ‘total compensation’ is higher than in non-government organizations. However, their statistical analyses fail to focus on government’s talent competitors. They rely on data from government databases that include the millions of mom-and-pop businesses. They also rely on comparisons of workers with similar personal characteristics (e.g., degree level), ignoring the job and skill differences that govern salary management.

Statistical analyses have a role in compensation management. They have been used in gender-equity analysis since the 1980s. Multivariate analyses can also be used to understand locality pay differentials. Another application is slotting jobs within the job hierarchy—job classification—based on quantitative factors. But faulty assumptions can undermine the credibility of the results.

The point of course is that both sides of the political spectrum tend to oppose changes in government pay programs.

That makes it essential to develop the evidence showing the existing pay program and pay levels are contributing to staffing problems. Data from recruiting including feedback from interviews and from recent resignations are useful. The length of time required to fill vacancies and feedback from supervisors on the perceived quality of applicants they interview is also useful. Feedback from recruiters on an agency’s ‘brand’ as an employer and on competitor practices is valuable.

There is also a need to assemble pay survey data. The textbook logic is to focus on other employers competing for the same talent. There are reportedly over 1,000 survey conducted annually so there is a wealth of survey data for every state and virtually every city and occupation. Some surveys , however, are GIGO—garbage in, garbage out—so it’s important to rely on credible data sources.

A practice common in higher education might be useful. When colleges and universities plan new pay programs there is always a committee of employees who will be paid under the revised program. They take the lead in the planning. It builds essential credibility and trust that the program will be fair. They serve to communicate with co-workers as the planning unfolds. They take their role very seriously.

Government has relied on a program model for decades that could be extended as a separate program to high demand job families. Teachers, police, judges and in some jurisdictions other groups have had separate pay programs since the early years of the 20th century. The idea could be adopted, for example, for use with technology specialists. It would make sense to plan the program for those specialists as well as engineers or scientists to base pay increases on documented expertise.

The need is clear. Adding and retaining essential high demand skills will necessitate paying more competitive salaries and that will require increased flexibility and a commitment to monitor and respond to labor market developments. That is not possible within a conventional government salary program.

Author: Howard Risher has 40 plus years of experience as a consultant to clients in every sector. He has a BA in psychology from Penn State and an MBA and Ph.D. from Wharton. He is the co-author with Bill Wilder of the new book, It’s Time for High Performance Government: Winning Strategies to Engage and Energize and the Public Sector Workforce. You can reach him at [email protected].

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