Note to AIG executives from public agency administrators: Bonuses may not be the most efficient – or transparent – way to attract, retain and motivate talent.

Cities and counties have many of the same challenges as public companies when it comes to hiring and keeping the best and the brightest. In fact, they sometimes compete for the same skill sets. Properly administered bonuses can attract and hold valuable employees, but if mismanaged, they can lead to accusations of impropriety and scandal. Financial incentives are not usually an option at most public agencies for a number of reasons.

Transparency: Contracts for city and county employees go through numerous levels of scrutiny at regulatory boards and councils.

“Bonuses are the exception, not the rule in local government,” said David Mora, interim director for the California chapter of International City/County Management Association (ICMA).

ICMA conducts an annual voluntary Salary Survey in partnership with Waters Consulting Group and most agencies compensate based on a structured pay scale with about a 25 percent range from top to bottom.

No bonuses were reported in the most recent survey. Common perks included use of take-home public cars, technology bonuses, club/association memberships and severance packages.

Scandal: City of San Diego is suing the former Southeastern Economic Development Corp. President Carolyn Smith for $975,000 in staff bonuses over four years that it says were not approved by the city council.

She contends the payments were part of the approved operating budget. The scandal has resulted in two firings, litigation, questions about the agency’s mission and a re-examination of the role of bonuses at public agencies.

Retention: Sandy City in Utah has taken media heat for it’s 20-year-old bonus program, including the $94,500 budgeted in 2008. City Administrator Byron Jorgensen – who received $50,500 in bonuses over five years – is a supporter, however.

He credits the program, which combines a 3 percent to 6 percent merit increase with a 2 percent to 3 percent cost of living adjustment, with preserving the institutional knowledge of the staff. Many managers have been with the city for in excess of 36 years. Retention bonuses of $1 increase in hourly pay have helped the city recruit seasonal lifeguards and landscapers during competitive economic times. Bonuses are issued based on suggestions from individual managers and approved by the city council.

The turnover rate in public employees at Sandy City Hall is 6.7 percent compared to 16.4 statewide and 11.8 percent nationally.

Now that budgets are tight, bonuses may be restricted to cost of living increases for all employees, including those who have topped out in their pay scales.

Recession Incentives: “In this economy just having a job is an incentive,” said City of Sacramento Director of Human Resources Geri Hamby.

The capital city has always used non-monetary benefits such as flexible work hours, relative job security and the ability to contribute to the community to show appreciation and keep people at their desks without the benefit of retention bonuses.

Motivation: Many times private sector managers decide to move to the public sector despite the bureaucratic challenges because they want to give back.

“The motivation is different,” said James E. Lincoln II, managing partner at Los Angeles-based Lincoln & Associates. He has recruited for public service positions for 17 years and never seen a retention bonus included in a contract.

In some instances, cities offer signing bonuses, moving allocations and mortgage payments to get the right person in a top position.

“It’s a different culture,” Lincoln said.