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April 06, 2009
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Who Pays – Who Benefits

IPMA-HR, the International Public Management Association for Human Resources, is the nation’s premier professional association in public sector human resources. It has hundreds of members all over the country and publishes a regular newsletter under the very able leadership of Executive Director Neil Reichenberg.

A recent issue includes an article looking at public employee compensation versus that in the private sector. It cites information contained in a newly published study by the independent Employee Benefit Research Institute.

One of the subplots in the increasingly vocal discussion about cutting taxes and reducing the costs of government is the persistent echo that public employees are paid too much. The ammunition for this attitude often comes when we read about the tens or even hundreds of thousands of dollars of pay for time not worked, such as accrued vacation or sick leave, which is given to retiring employees, often fire and police personnel, when they leave an organization.

The chorus strains for the low notes when we read about the severance pay that may have been negotiated years earlier by a now-departing county or city manager. The theme also has a ring of truth to it when comparing entry-level positions in service industry clerical or blue-collar work in private versus public employment.

Where else in the known universe does the highest court in the land, the U.S. Supreme, rule that a public employee owns her job as a matter of personal property, which can only be taken away under the Constitution with due process? Property right entitlement is widespread in government and hardly present at all in the private sector.

In the past, there have also been relatively few occasions when the words “lay-off” or “downsizing” have been heard in the public sector. Public employees have had little need to worry that one day they would all be called into a meeting and told that City Hall is being outsourced to India. They don’t expect to be told to pick up their personal effects from the office and follow the nice security guard out to the parking lot.

In many cases, this lack of worry is generated by the fact that public employees work in monopolies. When you dial 9-1-1 you are not in a position to ask the dispatcher to send a particular police department to your house rather than the one working in your own jurisdiction. You’re unable to choose which waste water utility should receive the waste regularly generated in your house.

And so over time, the folklore has been developed around the conversation about why you work for government rather than the private sector. The classic answer by the public employee has been, “I’m paid less, but the benefits and the stability are better.” There are, of course, other much more compelling reasons. The HR Doctor’s personal favorite is that I get to see my work make a difference in my own community everyday. Why should I work for a company when I can work for my own community?

The Benefit Research Institute study confirms the latter points about stability and better benefits. It also provides very compelling information in support of part of what the “tax watchers” have argued about the cost of public employment. According to the article, it is generally 51 percent more costly to pay for the average public employee versus the average private sector one. That is a gigantic amount. It would drive a small business owner to immediately close up shop and move as far away as possible from their business if they had to pay that additional cost.

In terms of both salary and benefits the difference is clear. Wages and salaries, the study reports, are 42.6 percent higher in the public sector. Benefits were an astronomical 72.8 percent greater. As of late 2007, it cost a private-sector employer $26.09 per hour to pay the total compensation of an employee. State and local public employers spend $39.50 for that hour.

It is the huge and growing costs of public-sector, defined-benefit pension plans and health insurance benefits that account for much of the benefit difference. Most American corporations no longer offer post-employment health insurance to retirees. Most governments do provide it. Health care costs are amazingly expensive and unaffordable for a great many people.

This growing problem represents serious unfinished public policy failures throughout the United States. It cannot be addressed by insurance companies alone — apparently, since it hasn’t happened in decades. It certainly can’t be handled by government alone, and it can’t happen in a world dominated by procedures, lawyers, and many other barriers which prevent an individual from getting timely and effective health care.

Public pensions are guarantees based on the future full faith and credit of a public agency. As life spans grow longer, and as benefits become enriched, the growing post-employment cost of maintaining these benefits is vast.

The pension plans are to be administered, we like to think, on an actuarially sound basis. But the reality is that many of these programs are under-funded. The cost of “cashing the check” made out to “the future” will require increasing contributions by government entities as well as employees — primarily the former.

A significant part of this bad business spiraling is the result of the legislatures of America having an almost unbridled lust to pose for high-resolution digital photos with police and fire union officials. The workers’ compensation “presumption” laws stating almost un-categorically that coronary artery or cancer illnesses are the result of being a public employee are one well known example. Pension enhancements mandated by the states are another. The cost burdens of the taxpayers of the future once again link directly to legislative willingness to create long-term burdens for others in the name of short-term advantage.

When all that is combined, the conclusions reported in the IPMA article ring true. It is considerably more costly to employ a clerk or a maintenance worker or most professionals in government than it is in the private sector.

Of course it may seem ironic that these words are written by the HR Doctor — a career public employee. That’s true. However, this author is also a career observer and critic of many of the practices that have persisted in ways which are inflexible, excessively costly and overly complicated in government.

Despite the conclusion of the compensation study, there is an ironic area in which one of the conclusions can be challenged. Hopefully, the same tax-watch, slash and burn people who may read this HR Doctor article and break out in a smile will be equally willing to listen to another side of the argument.

Years ago, I gave a speech to a Rotary Club as a county chief administrative officer. I was introduced by a good friend who was then an executive with Procter & Gamble. His kind but inaccurate introduction of me included the phrase, “he is twice as smart as I am, but earns half as much.” My good friend Mike was wrong on both counts! Mike was and remains very smart and very business savvy. He was also wrong about the earnings. I probably earned much less than half of the salary he did.

Imagine that you preside over a $200 million corporation as CEO or as a very top level management employee and earn an annual salary considerably less than $200,000. Further, imagine that it is not likely to get much higher than that, other than over time by inflation, because of a number of factors including political reasons, perceptions of press scrutiny, and “folklore” about public-sector salaries.

Being a spectacular scientist, physician or top executive in a government entity will not bring with it the financial rewards that can be found in many other places in the private sector. This problem apparently does not exist with even public university football coaches, however. So, how will we attract and retain ethical and innovative top management and specialists into future public service?

That key question will be answered in one small part by another reform, over time in the employment of this portion of the executive management group. It is really part of the larger revolution in government personnel costs similar to civil service reform, pension reform and the health insurance struggle. Increasingly, it will be necessary to avoid the employment of top executives or esoteric specialists altogether. Increasingly, their engagement will be on contracts, or on a consulting basis, rather than in a classic model of employment. It looks increasingly likely that department heads and city or county managers will find themselves providing their professional service “deliverables” as part of a consultancy rather than in a more classic form of employment.

We owe a debt to IPMA-HR for highlighting something which otherwise might only get whispered about in the corridors of city halls and county administration buildings — not to mention school boards buildings.

What was not considered in the past will be considered in the future, and will increasingly become the norm. Change in employment philosophies and realities are no different than change in any other aspect of our lives or even of our physical environment. Change in this part of HR is inevitable, even if it appears to move at a glacial pace.

Phil Rosenberg
The HR Doctor •


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