Adopting fairer compensation

Public sector personnel managers frequently question why they cannot pay their employees exactly what they deserve. Faced with a shrinking qualified labor pool and ample opportunities for current employees to find more lucrative jobs elsewhere, public employers are confronted with significant recruitment and retention challenges.

Applicant lists are short, and turnover lists are long. Naturally, management teams are seeking answers to the question, “Why can’t we pay our already trained and qualified employees enough to keep them here.”

In some instances, the principal problem is a shortage of money. Savings usually are realized whenever a highly paid employee leaves and a lower-paid employee signs on, so some money generally is available. However, that money may not be apparent, since the vast majority of American cities and counties continue to use rigid, hierarchical employment and advancement policies.

The roots of such illogical policies lie back in our history — a past wrought with favoritism, cronyism and nepotism. That past has led to employment policies focusing on “internal equity,” which seeks to ensure that similar jobs have similar salaries regardless departmental affiliation or other factors. But, by focusing so heavily on internal equity, traditional classification systems often ignore the two primary factors that drive today’s labor economics: productivity (i.e., employee performance) and the relevant market for the employee’s function.

Additionally, most cities and counties have developed specific means of avoiding the ills that created the need for hierarchical systems in the first place. That has led a handful of local governments to experiment with new compensation alternatives. While the experiments go by different names, the most common refrain seems to be that of “broadbanding.” The term describes a hybrid of various flexible compensation and benefits components, with no identical implementations but three common themes: * Departmental management is primarily responsible for developing a compensation strategy that suits its needs, and then for making individual salary recommendations. The recommendations must be within the department’s budgetary parameters and within broad market ranges typically established by the personnel department. However, managers have latitude to move employees through the established range based on market dynamics and individual performance levels. * The local government recognizes the existence of a relationship between individual performance and the employee’s relevant market value. No raises are given purely for market reasons, nor are they given solely for reasons of merit. Every raise should be justified by an individual’s performance and represent a reasonable career progression through the market range for that job. * The employee’s working title is assigned by the department and does not have to be the same as that of the “band” established for market comparison purposes by the personnel department.

It should be noted that broadbanding does have drawbacks. For example, departments may end up bidding against each other for quality candidates or existing employees. Additionally, great expense and time can be involved in conducting the market analyses that are necessary for the exercise of departmental discretion. Finally, as the private sector has demonstrated, if a personnel department is not well-versed in the policy, broadbanding will not survive.

Still, broadbanding boasts several major benefits, including improved recruitment and retention of employees. And, for employees, it clearly links performance and accomplishments with paycheck size.