More than half of the state’s workforce is now caught up in compression

Author: Miller Hudson - May 5, 2014 - Updated: May 5, 2014


Unless you happen to find yourself caught in the squeeze, salary compression is one of those phrases that bewilders far more than it enlightens. Is it a good thing or a bad thing? Is it more or less a natural result over time, or a flaw introduced by shortsighted decisions and a disregard for legal obligations? During bouts of economic distress is it simply a burden that should be borne without complaint, or does it insinuate injustices that inexorably undermine the integrity of any organization? (Weighty considerations, to be sure.)

Historically the private sector has managed its compensation systems in ways that tend to avoid the corrosive impacts of salary compression, largely because private employers must bid for labor against their competitors. They can neither attract, nor retain, superior talent without offering and maintaining compensation that, at a minimum, approximates the prevailing market average paid for a particular skill.

Government hiring and compensation differs. How should public entities strike an appropriate balance between conserving taxpayer dollars and securing a professional and competent workforce that reliably safeguards the public interest? For nearly three thousand years the most powerful and enduring civilizations have assured effective governance with some variant of a merit based civil service, such as the one Colorado voters approved in 1918.

Elected officials would be provided with a capable, independent workforce responsible for executing whatever policies were implicitly approved by voters through the choices they made at the ballot box. These public servants were deliberately protected against arbitrary dismissal for exercising their designated role as devil’s advocates, speaking on behalf of the public interest from a reservoir of informed opinion and hands-on observation of administrative processes. It was never envisioned that this wisdom could be purchased on the cheap, nor that these services could or should be staffed at the lowest conceivable public cost.

Nevertheless, the notion that government should function with minimum possible expense has perniciously poisoned our political discourse in recent years. At first blush there is a certain simple logic to this argument. Wouldn’t it be an unconscionable waste to spend one dime more than necessary for public services? By way of example, let’s examine the case of school bus drivers. Why in the world should taxpayers provide these workers with fully burdened civil service salaries, retirement plans, health care and workers’ compensation insurance? It’s nearly certain school districts could find private vendors willing to contract with part-time and temporary drivers at a significant savings. Of course, if your child is riding that bus, are you willing to dispense with protection against drunks, drug addicts or the occasional pedophile behind the wheel? The risks and liabilities inherent with a low cost provider can feel like no bargain at all.

Colorado and most other governments find it more efficient to offer an assurance that their employees will receive compensation comparable to that being paid in the private marketplace for similar work. In fact, this parity is often guaranteed in the law, linking compensation to the findings from regular salary surveys. These surveys gauge both the amount and variance in compensation from starting pay to the top wages paid for the most skilled and experienced individuals in each occupational class. This establishes a salary range, with the mid-point providing a reasonably accurate measure of average pay. The bulk of workers within any job class will be scattered across the full salary range as they receive ‘base building’ raises moving them through the salary range in exchange for satisfactory performance.

For much of the twentieth century in Colorado these step raises were guaranteed in accordance to a published schedule that provided assured and predictable pay progression to those employed within the state civil service system. Even during occasional episodes of recession and subsequent budget tightening, the Legislature would set aside moneys equivalent to 3 percent of total payroll in order to meet its obligation to advance state employees through these steps. Even when wages were frozen, locking pay ranges at current levels irrespective of salary survey results, an existing employee could expect to receive regular increases until he or she topped out for their position.

However, following the election of Republican Governor Bill Owens in 1998, Republican majorities in the Legislature began exploring the advisability of replacing this somewhat mechanical arrangement with a pay-for-performance plan. Providing automatic raises to every worker rubs against the grain of Republican belief that we live in an 80/20 world where the majority of American workers are compliant free riders content to cash in on the achievement of the handful of exceptional performers who drive progress and excellence — makers and takers, job creators, and economic parasites.

Despite objections from state workers that many of their jobs do not lend themselves to comparative assessments — what, for example, makes for an exceptional snowplow operator (?) — in 2001 Republican legislators, with a smattering of Democratic support, replaced the state’s step system with one that, going forward, would reward “outstanding performers” with the lion’s share of the dollars reserved for raises. While there was considerable rank and file resentment that this far more discretionary compensation scheme would foster a pattern of brown nose bonuses for those ready to suck up to their bosses, the Governor and legislative sponsors promised a revamped and strictly objective appraisal program together with an annual pool of dollars for base building raises that would never dip below the 3 percent benchmark required to fund the step system they were replacing. Pay for performance was approved just as the dot.com financial collapse began to pick up steam.

Thirteen years later, pay for performance has never been fully funded. In fact significant raises have only been provided twice during this period and those were largely across-the-board increases intended to catch the entire workforce up with cost of living adjustments. For several years, employee pay was actually cut each year as the Legislature shifted a portion of its obligation to contribute to PERA, the employee retirement plan, onto state employees. At the same time 100 percent of health care premium increases were also shifted onto state workers, further shrinking their paychecks. Long serving Senate Majority Leader Jeff Wells of Colorado Springs, who ran the Department of Personnel during Bill Owens’ second term, has confided that, “I never would have voted for pay for performance if I’d known it wasn’t going to be funded.” It is not an exaggeration to point out that for all practical purposes state employees have been denied raises for more than a decade. The employee hired today will earn essentially the same money as the employee hired in 2001, who is likely to be asked to train that new hire. If you accept the proposition that state employees will eventually need to be moved to their appropriate positions within each pay range, then this obligation constitutes an unfunded liability for taxpayers. In 2006 Milliman & Company estimated this cost at $90 million. By now it likely approaches $250 million for all future years.

Outside the Joint Budget Committee there probably isn’t one legislator in ten who is aware of or comprehends the existence, much less the nature, of this shortfall. It cannot be remedied in a single year. The dollars are simply too large. More than half the state workforce is now caught up in this compression. Unfortunately, almost no one other than those who find themselves trapped at or near starting pay speaks honestly about what has transpired. Last year the Department of Personnel bragged that state salaries were only lagging 6 to 8 percent behind recent salary survey benchmarks. Comparing the mid-point of the adjusted state ranges with midpoints in the private market communicates a technical truth that disguises a deliberate lie. The fact that virtually no one in the state workforce can be found who is compensated at these midpoints is the truth that would disclose state salaries lagging 15 to 20 percent behind the private job market.

In order to attract applicants for hard-to-fill jobs, DPA has approved bonuses for employees who remain on the job for more than a year. These new hires then earn more than their peers who have faithfully provided satisfactory service for a decade or more — which is terrific, as you can imagine, for morale. A sullen and demoralized workforce can readily spiral into what the late Harry Levinson of the Harvard Business School identified as “malicious obedience” — doing precisely and only what it is asked, and no more, whatever the consequences. Local police forces are routinely raiding the ranks of the State Patrol, and, with no relief in sight, nearly half of state employees report they are looking for another job. Should Colorado’s economy begin to heat up, I strongly recommend that you not idle in the doorway of a state office building — you may get trampled.

Republicans may have set the table that eventually produced widespread salary compression, but two successive Democratic Governors have ducked the challenge this presented them. There is little political upside in rushing to the defense of state workers, so don’t expect this dilemma to be vigorously debated by gubernatorial candidates later this year. Of course, in a close race a candidate who acknowledges this has become a problem and states he is willing to tackle it, just might offer a sliver of hope to nearly 50,000 voters. When their families, friends and neighbors ask, “Who should we vote for?” they might even push a sympathetic candidate across the finish line.

Miller Hudson is the former executive director of the Colorado Association of State Employees.

Miller Hudson

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