Public Sector Compensation in Local Governments

• Author: Thom Reilly,Alice Bolin,Shaun Schoener
• DOI: 10.1177/0734371X06289039
• Date: 01 March 2007
• Published date: 01 March 2007
• Subject Matter: Articles

39

Review of Public Personnel

Administration

Volume 27 Number 1

March 2007 39-58

© 2007 Sage Publications

10.1177/0734371X06289039

http://roppa.sagepub.com

hosted at

http://online.sagepub.com

Public Sector Compensation

in Local Governments

An Analysis

Thom Reilly

Clark County, Nevada

Shaun Schoener

Strategic Solutions

Alice Bolin

Clark County, Nevada

The purpose of this study was to examine local government compensation practices across

the United States and to explore possible correlations of these practices to service deliv-

ery. One hundred twenty of the largest cities and counties responded to a mail survey,

for a response rate of 40%. The data suggest a large percentage (86%) of local govern-

ments faced financial difficulties in the form of a budget shortfall since 2000. In

response to these shortfalls, local governments were more likely to reduce their work-

force, reduce or eliminate services, and/or raise taxes or user fees rather than scale back

wages and benefits. Because of this reaction, more than one half of the respondents

experienced a decrease in full-time equivalent employment per 1,000 residents. Collective

bargaining status, geographical region, and type of government (county or city) were

found to be significant factors in determining compensation practices. Implications for

practice and policy are advanced.

Keywords: public sector compensation; service delivery

Ray Scheppach, executive director of the National Governors’ Association,

recently asserted that the public sector has entered into a period of perpetual

fiscal crisis (Pierce, 2002). This assertion was echoed by the National League of

Cities’ report that contends “America’s cities were less able to meet their financial

needs in 2004, and expectations for 2005 are equally grim” (Pagano, 2004, p. iv).

Leading the list of factors contributing to the undue hardships on municipal budgets

were the growing costs of employee health benefits (cited by 96% of respondents)

and employee wages and pension plans (cited by 93%). A similar report prepared by

Carl Vinson Institute of Government for the National Association of Counties found

that nearly 72% of the 715 counties responding were facing budget shortfalls

(Clark, 2003). The report noted that the gap between revenues and expenditures was

40 Review of Public Personnel Administration

attributable to rising employee health care and pension costs; declines in sales,

income, and tourist tax revenues; and cuts in state aid (Clark, 2003).

Currently, there is a great deal of debate and dialogue about the issue of public sec-

tor compensation and retirement benefits. It is difficult to pick up a local newspaper

without reading about concerns regarding public sector wages, benefits, and/or pen-

sion programs. Concerns have not been limited solely to local media outlets. Major

national print publications such as the Los Angeles Times and The New York Times have

underscored the widespread nature of the issue and have weighed in on the benefit

levels granted to public sector employees (Saillant, 2004a; Walsh, 2004). This scrutiny

has surfaced as state and local governments face revenue shortfalls, service reductions

to citizens, and underfunded pension programs.

Some journalists and economists have suggested that state and local governments

themselves have brought on the fiscal crisis by their own lack of restraint rooted in

excessive increases in employment and compensation of government workers

(Broder, 2004; G. H. Miller, 1993; “Public Pensions,” 2004; “Spike,” 2004). Others

have asserted that the drop in revenues, a faltering economy, and increased service

demands are largely to blame for the fiscal crisis of local governments (Berman,

2005; Kearney, 2005).

Many potential factors can affect the level of compensation and benefits received

by public sector employees. The first purpose of this article is to examine public sec-

tor compensation practices and related issues currently confronting local govern-

ment throughout the United States.

The second purpose of this article is to explore whether there is a correlation

between public sector compensation practices and changes in service delivery in

those local governments that have experienced budget shortfalls in the past few

years.

Conceptual Frameworks

There are several frameworks available to assist in conceptualizing public sector

compensation and in determining what relationship compensation may have to ser-

vice delivery in local governments. The generally accepted principle for determining

pay in the public sector is that public employees should be compensated in a man-

ner comparable to their private sector counterparts (Kroncke & Long, 1998). This is

consistent with economic and efficiency principles and with concepts of fairness and

equity (Smith, 1977a; Venti, 1987).

A well-designed compensation system includes economic and nonmonetary com-

ponents, includes criteria of fair pay for fair work, and has important social and sym-

bolic roles in the organization, such as employee commitment and performance

(Bloom, 2004). Many common features of a public sector compensation system

include seniority contributions (longevity), competency measures, and pay-for-

performance plans such as merit pay and bonuses. The public sector has traditionally