Watson Wyatt has just issued a report on how employers are responding to the economic crisis. The results are surprising, and perhaps a bit shocking. Salary budgets for 2009 continue to be slashed, and projections are at the lowest point reported yet – 1.5% increases are the average for the coming year.
Here is the link: https://www.watsonwyatt.com/news/pdfs/WT-2009-11232.pdf

Other important strategies being given high priorities by HR executives in the private sector include:
• Hiring Freeze
• Reductions in Force
• Eliminating or reduce hiring of seasonal workers
• Organization-wide restructuring
• Salary Freeze
• Raising employee contributions to health care premiums
• Increasing communication to employees about their pay and benefits
• Restricting travel
• Eliminating or reducing training and other employee programs

Meanwhile, what are public sector employers doing to meet the challenges of the economic crisis? Traditionally, government has been thought to be recession proof, but that is proving to be less true in the current environment, perhaps because the intersections between government and business have increased. Governments have spent the last several decades examining ways of improving efficiency and being more business driven without losing sight of the essential core of government – public service.

[Thank you Compensation Force for the tip on the Watson Wyatt Report.]


Perhaps you read the recent USA Today Article that cites the latest BLS statistics on growth of public sector benefits in the wake of slowing private sector pay gains. Apparently, the gap in total compensation (pay plus benefits) has grown since 2007 with public sector at $39.25 /hr and the private sector average at $27.35 / hour.

No doubt my colleagues in the public sector will scoff at these statistics. Why? Because a shortage of local government managers exists nationwide due to the fact that people with college and graduate degrees do not exactly flock to a career in government. Surely these numbers do not reflect the market operating at optimum levels. What do they reflect then?

In fact, a severe shortage of municipal managers looms as far as one can see in the horizon. Even so, pay setting in government rarely reflects best practices, and for that reason, starting pay rates remain depressed in many places. Rather than increase manager pay, elected officials often look for candidates who may not come from public administration schools, but would like to try their hand at local government. Despite the overarching growth of professional models of management in government, many elected officials are still convinced that the guy who owned a few businesses, and is willing to come out of retirement to run the municipality, is still the best choice.

However, these statistics do point to some glaring differences between the public and the private sector, particularly in the area of employee benefits. One difference that might be interesting to examine is the difference in levels of unionization and labor laws, particularly the right of public sector employees to mandatory arbitration provisions. Look out private sector, this is coming your way if the Employee Free Choice Act (EFCA) swings into gear, and all indicators point to that eventuality. Check out Michael Moore’s post at Pennsylvania Labor and Employment Blog here.

BLS states that labor costs account for half of state and local spending, and benefits consume 34% of those costs. We are at a cross-road in this country because the only area of employment that is realizing a decrease in benefit costs, is the non-unionized sector. Since we all think benefits are important, should we encourage unions? Or, do we prefer to mandate that employers provide some standard of benefits, thereby decreasing the importance of unions? Or, maybe we think the government should take it out of the hands of the unions and employers altogether.

Regardless of how we work out this conundrum, let it be said that if public sector manager jobs are still not lucrative enough for there to be an excess of qualified candidates in the labor market, then they are probably not over-paid. And if managers could negotiate with their unions, without facing unabashedly pro-labor laws in most states, the benefit gap would be substantially smaller. However, who will blame the public sector employee for unionizing when benefits are at stake? What safety net exists for them? We have to work this out, together, public and private, union and non-union. These statistics are thought provoking, but not instructive with respect to the way forward.

The Performance Debate

Management consultants of all varieties enjoy ongoing debate about the value of performance review at the workplace. Concepts are not difficult to agree upon but as managers on the front lines will tell you, implementation is fraught with land mines.

For instance, yesterday the New York Times had an interactive graph that showed top pay for CEO’s alongside performance indicators. Who is not attracted to the idea of linking pay to performance indicators and putting it all in a chart? This is wildy seductive. But here we have an instructive lesson in the failure of performance indicators to provide a strong link to pay.  James Kwak, writing for Baseline Scenario in a piece he titles Two Things That Have Nothing to Do with Each Other, shows us a chart that is perplexing at best.

Still, we persist, and why not?  Personally, I know the performance indicators that relate to my pay. Hard performance indicators may relate to length of client relationships, repeat engagements and growth in terms of return on my investment of time and effort.  Softer performance measures relate to understanding client needs, reading the business environment, and making things happen. This is true whether we are talking individuals, teams or organizations: competencies undergird the ability to produce hard performance outcomes.

All too often, constraints beyond our control (such as a major downturn in the economy) will prevent us from performing to our maximum capability. In such cases, hard performance indicators fall flat, and competencies become a better barometer.  Except now the best measure of performance will be how flexible, adaptable or innovative we can be in a time of change.

Or, in another vein, a sudden upswing, or windfall of unexpected gains cause us to shift in a completely new directon. Again, the hard performance measure miss their mark because the outcomes will appear glorious, even if under the surface, rampant wastefulness and political squabbling paralyze any real progress or success.

So, what do we do, oh wise one of the universe, out there somewhere, we ask? Hang tight, and we will sort through some innovative ways tackle this conundrum. Your input is always welcome.