The Emerging Model for Salary Management in the Private Sector: Is it Relevant to Government?

Abstract

The interest in new concepts in salary management is mushrooming in both the private and public sectors. After several decades of relying on essentially static practices, the private sector is moving rapidly toward a new model for designing and administering salary programs. The public sector has found that it is more difficult to introduce new program concepts but there is recognition that existing programs are not working. Despite the difficulties, the concern with program effectiveness makes it a logical hot-button for re-inventing government agendas. The purpose of this article is to review the emerging new model for salary management and to consider its viability for the public sector. Public and private salary programs rely on the same basic framework but the underlying philosophies differ in important ways. Although the programs incorporate the same components and share a good deal of the technical jargon, the day-to-day administration makes the reality of public and private programs very different. Perhaps the most important difference is the decision process that governs change in the private sector where business need -- the so-called bottom-line -- can be used to justify swift and possibly disruptive changes. This makes it possible to introduce new program concepts as soon as the chief executive agrees with the need for the proposed changes. Public and Private Pay Programs -- The Similarities and the Differences All wage and salary programs have their origins in the era of scientific management that is only now beginning to wane. The basic goal has been control. In theory there is virtually no flexibility; the program controls are intended to give program managers the to make all needed decisions using reliable information. Public and private programs share those tools as well as a common history and research efforts. The most notable exception is the public sector's reliance on classification systems. Practitioners in the private sector occasionally refer to job classes but classification systems such as those used in the federal GS program are effectively non-existent. Jobs in the private sector are informally categorized by job family but, aside from jobs covered under occasional collective bargaining agreements, few employers have procedures or administrative systems in place to help make these decisions. Private employers have had elaborate systems for job evaluation, although the underlying philosophy is significantly different than in government. A basic policy issue in the private sector is the balance between internal and external or market considerations. Unlike government, salary grades are rarely based solely on internal value. Many private wage and salary programs, particularly in small companies, are based solely on the premise that salaries need to be aligned with prevailing labor market pay levels. The importance of the labor market is a key difference between public and private employers. While market data are a consideration in the public sector, it is seldom that the need to pay competitively is the controlling rationale for decisions regarding salary range assignments. As corporations have become sensitive to costs over the past several years, they have begun to place more emphasis on comparative labor costs and on market analyses. Most large companies, however, do have an evaluation system that is intended to determine a job's internal value. Virtually all of these systems are based on a quantitative decision process, typically based on the point factor method. These systems are effectively the same in both private and public employers. Starting in the late 1970s the pay equity argument triggered renewed interest in job evaluation and this resulted in the development of new automated systems. Private employers gave limited lip-service to pay equity concerns but it's safe to say that few, if any, have adopted the concept as a corporate policy. …