A Professional Look At The City's Pay Raises
st, 03.04.2010 23:37
A compensation professional's close look at the proposed raises for the City of Ashland employees shows they have not been justified.
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Thank you to Beverly Sele, Kay Maser, Jan Christenson, Rick Ukena, Donald Politis, Jim Moore, and John Ames, who introduced me to the important topic of pay raises for 70 selected Ashland city employees.
I found much of interest in your bulletin board interchange, which explained that now is not the time for pay raises, for several reasons: economy is down, widespread layoffs, private employers are living with lower pay, and the tax-payers are squeezed with rising taxes and fees with flat social security and falling investments.
I followed the thread and read city administrator Martha Bennett's response, which I found noticeably at odds with the citizens' perspective.
I'm sorry to say to Beverly et al. that from my reading of the situation, as a compensation professional, it's even worse than you wrote.
The crux of the problem is in Bennett's answer, in which she pushed a point of view rather than responding directly to the citizens' reasonable issues.
As a career compensation professional who advises many of America's large corporations, I must confess that I found Bennett's defense of selected pay raises to be a classic example of bureaucratic mismanagement.
Though a cursory reading of her answer may 'sound good', if you and I read her memo carefully, we see smoke-screens and non-logic. Bear with me a few minutes while I explain in some detail.
Justifying A Pay Raise For 70 Selected People
Point 1. Bennett claimed turnover was 20% several years ago. This somehow was supposed to justify pay raises for 70 hand-picked employees in 2010. Sorry, that non-logic doesn't follow. Notice what Bennett didn't say -- that turnover was high now. In fact, she admitted it was lower, though strangely, she didn't give the number to know how much lower. My clients have much less turnover than the boom cycle two-three years ago. Employees with a full-time job now cling to it for dear life. A boomtime study isn't relevant to this recession, where turnover has dried up.
Point 2. Although Bennett didn't post the study (where is it?), she claimed the study found 70 employees under-paid, 30 overpaid. She wants to keep the same pay for the 30 overpaid employees and increase pay for the other 70, including herself. This is why pay increases during a recession are so dangerous. If future pay goes down in compa-rable jobs in this deflationary environment, overpaid employees will expect to keep their pay increases. That's the rec-ipe for disaster.
And again, Bennett left out the critical information -- do the underpaid positions show more pay-based turnover than the overpaid positions?
You folks should demand a copy of the compensation study and post all details online. The Human Resource manager claims the report isn't finished. If that's true, then it was unprofessional to announce a plan for pay increases before the report was finished. Normal protocol in the profession is to provide the compensation report to the board of directors (council here) first. Reporting an unfinished report to the press first is politics, not professionalism.
Point 3. Turnover is expensive. That may be a true statement, but even if true, it doesn't justify giving a raise to 70 selected employees.
Turnover is expensive if you hire consultants to read resumes. In the good old days of my early career, you needed a professional headhunter to beat the bushes and look for people. These days, all you do is post the job online, and you get lots of resumes. These resumes are quick to sift. Most go into the NO stack because they have no background, interest or knowledge about the advertised position. The few that remain can be reviewed in-house without paying $20,000-30,000 to a headhunter. Smart Human Resource departments do this in-house rather than paying fat contracts for someone else to read resumes.
Bennett claimed that turnover (a few years ago) was high and that many employees will retire soon. She wrote that as a problem justifying a pay raise. A lot of my clients would say Hurray! to such a 'problem'. "You have turn-over? That's good news!" Clients with the biggest problems are those with the least turnover. Layoffs are more ex-pensive than turnover.
The worst case scenario these days is not having enough turnover to absorb budget cutbacks. Turnover isn't a problem during a recession -- it's a solution, because you can use attrition to avoid the costs and emotional distress of layoffs. As employees turnover, you combine jobs, and postpone filling positions in places like the planning depart-ment, which nationwide has no work because there's so little construction.
Compensation decisions start with economic reality. Property values all over the country are dropping like a rock. Even non-foreclosure properties sell at foreclosure prices because the majority of sales are distressed properties, so foreclosures are setting the market rate -- they're the rule, not the exception. My real estate agent explained that in Jackson County, foreclosures and desperation short sales are more than half the market sales, so there's little if any new construction or property value increases on the horizon.
Point 4. Bennett was quoted as saying she would not implement a council-approved pay schedule if it would mean layoffs, and she didn't say otherwise in her answer. This sounds arrogant to me.
Does she have authority to not implement a council-approved directive?
As a newcomer, I feel compelled to ask, "Who runs this government -- council or Bennett?"
Bennett's perspective is clear: I'm in charge, and I'll protect city employees and implement what I want rather than implement council policy or follow citizen direction.
When a government talks like that, you lose potential businesses and home buyers. Anyone who's been around the block once or twice knows where this talk ends up, and who gets the short end of the stick.
Point 5. Bennett claimed the (unpublished, still changing) report said Ashland had 70 underpaid employees, in-cluding her and her direct reports. I chuckled at this one. You know the drill. Senior managers hire consultants who SURPRISE! conclude that senior managers are underpaid. Managers then quote the 'independent' consulting report as justification for their pay increases. The consulting firm gets a well-earned reputation of giving the Politically Cor-rect answer, which gets them more "Just-Say-Yes" contracts. I've seen situations where the same compensation firm would work for three comparables (news travels fast), and conclude in their individual reports to all three that senior managers were underpaid compared to each other. In the profession, we call this 'leap-frogging'.
Having several sets of comparisons in these reports enables the consultant to pick-and-choose the right answer. Unethical consultants never let the facts stand in the way of Politically Correct conclusions, or else their rich consul-tancies would dry up. The only way for you to find the truth is to review the raw data directly and judge for yourself, rather than depend on interpretation from consultants or managers who make money from the report.
Bennett said she was considering 'not releasing' the report until later. What a strange comment. Apparently, it's okay for her to hide information from the public. Is council managing Bennett, or is Bennett managing council?
Point 6. Notice that after all her smokescreens, Bennett did NOT say that city government CURRENTLY had high turnover resulting from LOW PAY, the only real turnover justification for pay raises to 70 people.
Ethical professionals use exit interviews to find out why employees left. I read her answer carefully and she provided not one bit of evi-dence that any turnover today is caused by low pay. In my professional experience, exit interviews usually show that pay is not the major problem. Turnover usually comes from employees escaping a bad work environment, suffering from bad management, having no potential for future promotions, a spouse getting transferred, having to move near an ailing relative, being pushed out or 'counseled' to leave, wanting to go into private business, having health prob-lems, retiring, etc. Pay increases aren't justified if employees leave to work for a larger city with more pay, or for a higher level job for which you have no openings, or to broaden their careers with a transfer into a different line of work.
In this instance, you don't have to rely on exit interviews. Ask Bennett how many departing employees went to a 20,000-population city like Ashland, in the same job, for higher pay. I suspect the actual data will show less than five last year. Until you see a lot of these, you don't have a pay-based turnover problem. And increasing the pay for some people won't solve the turnover problem, if there is one.
Government employees focus on resume-building to advance their own career. If the people above you are stuck in their positions, the only way to advance is to leave, even if the pay is fine for that job. In fact, professionals like me counsel career-minded employees to leave for a better job or better management or better opportunities, not for more money.
I've done many of these 'rate-and-range' studies over the years, and seen many situations where pay increases were justified by data. This isn't one of them.
Martha Bennett Is Out Of Touch With Taxpayers
After sleeping on this, I was struck with how much Bennett's frame of reference is out of touch with economic real-ity. She gave a rosy prediction of a short recession, with a message that 'certainly we want pay levels to increase now before the recession is over'. My top-notch clients are preparing for a long-term recession. That's why you're reading of layoffs by the tens of thousands. You don't do massive layoffs for a short recession. Major companies see the re-cent bubble caused by foolish debt expansion by government, businesses, and households. Like Japan's debt-currency bubble that burst in the 1990s, America's real estate/debt currency bubble won't be cured for 10-20 years, even with annual "stimulus packages", as Japan tried unsuccessfully.
John Ames was right. In many companies where I work, a manager presenting a conclusion to "give pay raises now to prepare for the end of a short recession" would be laughed out of the room, then replaced.
Business is contracting, and to stay in balance, so should government.
In a business corporation, the Board of Directors is responsible for management compensation.
In a municipal corporation, the council and mayor are responsible.
The fact that Bennett would make such a claim tells me that your council and mayor are out-of-touch with property owners. Students, renters, and tourists come and go. The buck stops with property owners. Apparently, Ashland's property owners aren't in control of their own government, or this nonsense would be replaced with serious talk about how best to shrink government budgets during tough times. Instead of talking about pay raises to prevent turnover, you'd be talking how to reduce the budget through attrition.
Bennett's frame of reference appears to be "all I'm concerned about is higher pay for 'my' people." When I showed her memo to a Labor Relations specialist, he joked that she sounded like a union boss for non-union managers. If she were really working for council and the taxpayers, she'd be managing the big picture, not just lobbying for higher pay for herself and her chums.
Which brings up the conflict of interest issue. In my home state, we have laws against government employees us-ing the political process to pad their own pockets. Doesn't the city or the state have some sort of Code Of Ethics that prevents employees from using their position, and the city's web site, to lobby for higher pay for themselves?
How out-of-touch is Bennett? The same day I read Bennett's smokescreen memo, I picked up Barron's weekly fi-nancial magazine. The cover story advised investors to avoid governments that are giving pay raises to employees in this environment, which increases taxes and hurts credit ratings. Barron's advised investors to avoid municipal bonds from such governments because of the risk of default and bankruptcy. Municipal bonds are dropping in value quickly because investors now see absurdity, not stability. As a result, city lending interest rates are climbing, adding gas to the fire of out-of-control budgets that can only be 'fixed' by more debt and eventual bankruptcy.
What's The Future Hold?
As a compensation expert, these pay increases have not been justified. The politics and smokescreens suggest that the truth is that Ashland doesn't have a pay-based turnover problem now (if it ever did), and won't for the foresee-able future. This pay increase has all the earmarkings of a Politically Correct solution without a pay problem.
Based on my experience, I have a prediction of what's to come. Sadly, it's not positive. Past clients whose Board of Directors was so passive as to allow this level of arrogance and politics to govern compensation are now in dire straits, laying off thousands of employees, or declaring bankruptcy. Compensation nonsense has its own payday.
I think of corporations like GM who paid their executives extreme salaries for years (based on consultant compen-sation studies like this one, I might add) while losing money and market share, only to have top managers exit with wealth, and stockholders get stuck with massive losses and a government takeover.
Remember that money-center banks used these compensation studies to give their executives millions in salary and bonuses, even as the banks were going bankrupt. Then when tax money and bailouts came in, they spent it on higher salaries and bonuses. Ashland sounds like those banks.
If these poorly run corporations are a guide, and I suspect they are, you'll find lucrative contract severance pack-ages in the contracts for city employees who get fired. I tried to find these contracts online. Apparently they aren't there. Strange how Bennett puts online her claim that she and her directors are underpaid, yet doesn't put their em-ployment contracts online for taxpayers to judge for themselves.
The administrator's perspective means Ashland's future is declining property values and rising property taxes.
This is important to me, because my visit was to look at retirement property. Sadly, I must now continue my search elsewhere. Though I would like to retire to Ashland, I can't in good conscience invest where city employees get priority over property owners. If you want to attract investors, you'll need to rein in "just-pay-me-more" staff with a council and mayor who act like a real Board of Directors to protect the interests of those whose money is at risk -- homeowners and businesses who pay property taxes. Until you replace your weak-kneed leaders, Ashland will be a nice place to visit, and an unwise place to own property.
Sorry this piece has been so long. It takes more words to correct a misleading report than to write it professionally the first time.
By the way, if someone would be so kind as to forward this to the bulletin board, I'd be much obliged. Your admin-istrator apparently won't let out-of-towners post there, even prospective property owners.
Conclusion
I began this piece with gratitude. Let me end the same way.
I'm grateful to Martha Bennett for posting online her answer to Beverly and the others. So often in my line of work, unprofessional managers who abuse compensation systems for political ends use internal memos and reports that can't be shared outside that company.
Here, the arrogance and smokescreens are all public information. My colleagues and I will share your public inter-change with our clients and use it in our workshops as an example of how not to run a compensation system. And fortunately, in this example, we'll have hard copies of web site pages for the City of Ashland, with names and dates.
And thanks to Cathy Shaw, who I understand is your former mayor, for her response. Shaw claimed Bennett's an-swer was "informative" (though it hid key information and basically proclaimed the Politically Correct answer). Instead of responding directly to pay raises for 70 selected employees, Shaw distracted attention to the trivial issue of pictures on the city's web site. This is a classic example of how politicians use meaningless sideshows to distract taxpayers from the core issue -- money. Thanks to Mrs. Shaw for providing another document for our workshops.
And finally thanks to John Davis, who added the Orwellian doublespeak that the "Tea Party" climate was "poison-ing the well of...reasoned dialogue". As shown above, the unreasoned dialogue is Bennett's. The taxpayers were on the mark.
From my visits, Ashland seems to have an awkward "Beauty And The Beast" character. It's a beautiful city, with a beast of a government. I'm grateful to the taxpayers who showed us its dark underbelly.
Your homes are beautiful. Your government isn't.
If you want me and other retirees to buy your property and bid up prices, you'll need to stop your government's fis-cal irresponsibility.
Savvy investors don't want to buy property in a city that put financial interests of employees above owners of homes and businesses.
Until Ashland property owners 'tame the beast' that threatens their financial future, those of us looking for a place to retire will need to look elsewhere.
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