News - For Immediate Release

People working in the public sector just can't win. They suffer special penalties in both pay and performance standards.

Government pay suffers from what may be called public sector pay compression. The lower the job is, the more competitive the pay, and the higher the position, the less competitive the pay. It is traditional. It is well accepted. But no one talks about it. It has never before been formally labeled, much less coherently explained.

Unique Organizations

Public sector pay compression is partly due to the greater difficulty in identifying appropriate "comparables" for management positions in the public sector. Public enterprises provide substantially different products or services than private firms. There are fewer "like enterprises" competitively engaged in substantially the same business. That makes it difficult to find valid benchmarks against which one can compare job content and pay rates.

Even when comparisons can be made, the differences between and among federal, state and local government agencies are greater than the differences between private businesses. In the public sector, the lack of a profit motive, the eagerness of top executives (elected or appointed officials) to serve at a financial sacrifice for political reasons, and the unique set of laws governing each entity all combine to restrict the relevance of comparisons. No two national governments, no two states, no two counties, and no two cities are quite the same. Nor are they as similar as any two businesses in the same industry. In addition, employee skills are not as transferable from one public venue to another, even within the same entities, as they are in the private sector.

Although every business can legitimately claim that it is unique, that is most true in government service. So it is extremely difficult to draw meaningful comparisons for pay decisions between different government bodies.

Broader Management Pay Ranges

Pay variances are wider in professional and management jobs than they are in lower-paid jobs, too. This has a profound effect on public sector pay for managers.

While clerks are paid in a rather tightly limited range, whether in private industry or not, the range of top executive pay is much wider and far more sensitive to variables of size, industry, organization structure, etc. Even though no two organizations pay exactly the same for any job, the degree of differences in compensation are minimal at the bottom of the ladder and tremendously broad at the top of the organizational hierarchy.

The supply and demand dynamics of the labor market dictate a harsh penalty for enterprises unwilling to offer hiring rates that fall inside the rather narrow range of entry pay for relatively unskilled jobs: if you don't pay close to the prevailing entry rate, you won't find competent candidates. That sounds simple. But the situation is more complex for professional and management jobs, where the wide range of "competitive" pay practically guarantees a large number of candidates for almost every position. Employers who find little flexibility in the minimum hiring rates they must offer to find competent candidates for low-level jobs find a baffling variety of choices when they look for highly educated and experienced personnel. For example, if you want a decent clerk-typist or data entry worker, you know you must pay an hourly rate that falls within an extremely limited range that is well known to applicants and employers. But there is less clarity for professional and management jobs. If you seek a new manager for a job where you expect to pay $55,000 a year, you will find candidates willing to work for $30,000 and candidates who demand $80,000.

Why Public Managers Get Less Pay

Public enterprises are hypersensitive to the need to avoid the perception that they are wasting taxpayer money. So, when given such wide options for management pay, they typically lean to the conservative side and select people willing to accept less pay. There is an obvious and inevitable consequence to hiring managers who are content to work for below-average compensation.

People tend to adjust their behaviors to match their expectations. Supervisors or managers who know they will be paid only 90% of the competitive job value are strongly tempted to balance the equation by giving a comparable effort. Why give the employer 100% when you know you will only receive 90% of the average pay rate? And, of course, senior executives and/or elected officials can thereafter justify paying below-average rates because their subordinates don't really work that hard. This circular pattern of rationalization takes on a life of its own.

More of a problem comes from the typical reluctance of decision makers who operate in the public eye to endorse pay rates much higher than the amounts earned by the average taxpayer, even when every practical business sense demands it. Frequently, key managers in the public sector are expected to accept lower pay in exchange for a promise of job security or other non-cash perquisites. As a rule, especially in conservative areas where living costs and wage expectations are low, the higher you rise in a public enterprise, the more your pay lags behind your peers in the private sector.

Nevertheless, public enterprises must compete with all industries, public and private, for their talent.

Good Work Doesn't Count

How that talent is directed is another question.

Public employees rarely receive recognition for good work. If something is done right... well, that is what the taxpayer expects. So no special reward is due. But if anything is done wrong and the public finds out, heads roll. Nothing that a subordinate does well will create any particular advantage for the public employee's boss; but anything revealed to be wrong will endanger the re-election of the top executives and reflect discredit on all the intermediate levels of management whose jobs depend on public support. It therefore comes as no surprise that public management practices emphasize the avoidance of all risks.

Public Service Means "CYA"

The kinds of discretionary decisions freely delegated to professionals in the private sector are tightly restricted in the public arena. Corporate officers report to Boards of Directors filled by highly experienced mentors who do not panic easily. Elected officials serve at the pleasure of the public, which panics over everything.

The continuity of top management in the public sector is constantly held hostage to current public opinion. When the top decision makers change with every election, the organization must be prepared for major periodic upheavals as beginners arrive with impractical expectations, engage in a flurry of changes (often cosmetic, but always designed to show the unique imprint of the new regime), then depart, without ever mastering the details. Stable administrations that hang on for years, on the other hand, can become immersed in the status quo and resistant to much-needed change. Change of any kind always brings risk; and that is not popular with politicians. People whose primary agenda is to "look good in the public eye" bend over backward to avoid damage to their image.

Elected officials and their appointees, whether arrogant reformers or entrenched caretakers, therefore emphasize problem prevention and damage control.

Guidelines become regulations and laws, to assure that nothing will be done without the appearance of control. But, despite the almost fanatical attempts to provide a fixed rule for every contingency, there is always something not adequately covered by the regulations. The automatic knee-jerk reaction is to expand the old rules and make them even more complex, to the point where even the experts cannot understand them (witness our tax code).

Of course, even the most detailed mandatory procedures eventually prove unequal to the task of coping with the chaotic diversity of real life. Then, public executives can innocently point to the regulations and indignantly point fingers at their subordinate minions who failed to properly execute the complex rules they were bound to follow. Heaven forbid that they criticize the legislators who failed to enact reasonable laws, encouraged administrative micro management, and hired low-cost managers in the first place.

Blame, like all things, rolls downhill. The only constant truth for public sector employees is that the people who have to make things work will receive the negative consequences.

Going With the Flow

The upside positive result to workers who produce smooth, non-controversial results is that they may eventually rise to a management position where they may nervously attempt to suppress any subordinate initiative that might rock the boat or otherwise invite any backlash of criticism. If consistently successful, they will become very underpaid for the responsibilities they exercise while very overpaid for the results they produce.

They should not be blamed for merely doing what they are rewarded to do. They should be pitied for being forced into this kind of adaptive coping behavior by a political management system that gives a higher priority to risk avoidance than to achievement.

About the author: E. James Brennan, F.A.C.F.E., is a Senior Associate at the ERI Economic Research Institute, a compensation survey firm headquartered in Redmond, Washington. He served as President of Brennan, Thomsen Associates, Inc., a management consulting firm he headed for decades. A Lifetime Achievement Award recipient from World At Work (when it was known as the American Compensation Association), he is a former compensation editor of The Personnel Journal, a noted speaker, and was a frequent expert witness in trials dealing with pay.

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