March 8, 2016
Transparency in Salaries and Compensation
Utility managers often grapple with being transparent about salaries and compensation. Transparency in public agencies is mandatory because they are typically monopolies and chartered with protecting the public interest. But crafting a successful approach to transparency in the area of compensation requires a clear understanding of what influences people’s thinking about utilities and public-employees.
The Relevant Issues
Customer Choice and Competition – In most cases, utility customers cannot choose another service provider, so they clearly deserve to know whether the utility is well run and the public interest is being served. This no-choice circumstance is married to the idea that utilities have “no competitors,” which for some means that they are less efficient. Whether competition actually leads to greater efficiency is debatable, but it probably doesn’t matter. The inefficient government bias is actively reinforced in politics and the media.
The Brand of Public Employees – Lack of competition and the inefficiency brand can lead to perceptions that public employees are less qualified, less motivated, or underperform those who work in the private sector. This undeniably affects opinions about compensation.
The Efficiency Enigma and Investment – Despite the need for utilities to be efficient and build a reputation for efficiency, the efficiency issue is actually a red herring when contemplating the need to invest in water resources and infrastructure. The potential to increase efficiency, even in an “inefficient” organization, may only be a 10% opportunity. The real question is whether inefficiency is used as an excuse to oppose rate increases, leading to under-investment. Since reliable water services are essential for a strong economy and quality of life, system failures or resource shortages can cost the community many times more than the entire operating budget of the utility. This means that policy makers should be less focused on efficiency and more concerned about the liabilities that arise from under-investment. The people of Flint Michigan are experiencing these liabilities today.
Appropriate Investment Begins with the Employees – In order to adequately serve the public interest, utilities must invest in a management team and employees that are highly qualified and well trained, especially in the areas of planning, technology, and finances. People may believe that a utility general manager making $250,000 per year is overpaid. However, even skeptics might think differently when they realize that the performance of the utility affects the viability of hundreds of companies which employ thousands of people. Clearly, dollars invested in water utilities are highly leveraged dollars.
Be Very Transparent – Utilities should make it very easy for people to get access to information on salaries and compensation. But this transparency should be enhanced by providing a meaningful context for evaluating this compensation.
Create a Compensation Strategy Brief – An ongoing effort to build a strong brand with policy makers and the influential public certainly helps to alleviate concerns about employee compensation. More specifically, the utility can create a brief that outlines the thinking behind the utility’s compensation strategy. This brief should highlight the utility’s fundamental role in maintaining the local environment, quality of life, and economy. It should also communicate key workforce standards, the commitment to sound planning and efficient operations, and the need for compensation that will attract and retain quality employees.
Don’t Be Apologetic – Utilities need strong leaders who are committed to protecting the public interest, securing investment, and delivering high standards of service. If challenged, emphasize your workforce standards and stand behind your compensation strategy.