Market-Based Pay in Action

• Author: William M. Leavitt,John C. Morris
• Date: 01 June 2008
• DOI: 10.1177/0734371X07313816
• Published date: 01 June 2008
• Subject Matter: Articles

178

Review of Public Personnel

Administration

Volume 28 Number 2

June 2008 178-189

© 2008 Sage Publications

10.1177/0734371X07313816

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HR in Practice

Market-Based Pay in Action

Municipal Strategies and Concerns in

the Cities of Hampton Roads

William M. Leavitt

John C. Morris

Old Dominion University

The practice of linking the pay of public sector employees to the prevailing labor market,

or market-based pay, has been a topic of conversation in many municipalities across the

nation. Although much has been written about the use of this pay philosophy, little has

been written about the use of market-based pay in local government settings. This article

presents the results of in-depth interviews about the use of market-based pay with the

human resource directors in the seven Hampton Roads, Virginia, cities. The authors find

that although the idea of a market-based pay system is alluring, the difficulties of bal-

ancing internal and external equity, political considerations, and economic barriers make

full implementation of such a system difficult at best.

Keywords: market-based pay; compensation; municipal government

In a recent article published in Review of Public Personnel Administration, the

authors note that “the public sector has traditionally relied on job tenure, cost-of-

living increases, and average general increases for its compensation practices”

(Reilly, Schoener, & Bolin, 2007, pp. 40-41). But tradition has gradually been giv-

ing way to new pay philosophies in local governments. In 1999, Risher observed that

a significant number of public sector organizations across the country were experi-

menting with new pay concepts including a focus on external pay levels or market

pricing. He noted that “this focus on external pay levels represents a significant

philosophical and practical change from the traditional government concentration on

internal salary relationships” (Risher, 1999, p. 331). In 2002, Lavigna reported in an

ASPA Online column that a major International Public Management Association and

National Association of State Personnel Executives benchmarking survey showed

that one of every four responding jurisdictions used a market-based compensation

Authors’ Note: We wish to acknowledge the generosity of the human resource directors in the seven

cities mentioned in this article, and the members of their staffs, in providing their time to participate in

this project; we are grateful for their participation and insight. We also wish to thank three anonymous

journal reviewers for their comments and suggestions on an earlier version of this article.