In response to PublicCEO’s Look back at the Public Pay Institute’s Compensation Report, Rod Wood, the Cal-ICMA Immediate Past President provided the following commentary:

Mandler did perform contorted calculations on the annual value of benefits
both medical and retirement by calculating the life time benefit prorated
into the annual compensation costs. In other words he include the unfunded
future liability of expected life time benefits into the annual budget.
This cost is distorted as the actual costs would not be this high if the
unfunded portion were funded annually by the agency, as it should, because
those funds earn investment income during those years. I have used several
approaches to convert current funding systems to fully fund the unfunded
liabilities and get around the low yield restrictions on public funds so
agencies can rid themselves of the unfunded liability and in some cases save
billions over the normal 35 year life expectancy of the retried employee.
His point is valid for different reasons, but it is not an accurate
reflection of the annual earnings of the executive.

We need to separate Bell where it appears outright corruption was occurring
versus agencies where it is a matter of competition for the best talent.
Personally, I hope the folks in Bell have to pay all the money back, lose
their pensions and spend a long time in prison if found guilty for their
violation of their sacred and duty bound trust to the public.

I believe the confusion of “underreporting” in most cases is that the media
and agencies typically report the “base salary” of an employee, this seems
true for both  public or private sector.  With every employee there are
other compensations, special pays and benefits that have to be calculated
into the real annual costs.  I have always used total compensation as the
base for labor negations and for my own compensation.  One agency may pay
higher salaries, but lower benefits or vice versa.  Also, the cost of living
can vary greatly from place to place.  What should be reported to the public
as annual compensation is what is placed on the W2, that would include all
salary, overtime, special pays and payouts that a person receives that year.
In addition you can calculate the annual medical insurance premiums and
other benefits to give the total annual compensation.  You have to include
that years retirement costs to PERS and any deferred compensation plans to
get to the real total annual compensation.  PERS is an annual variable that
can change widely year to year because PERS has done a poor job on its cost
analysis often hiding huge future costs by over estimating their long term

One issue that is lost is this debate on executive compensation is where the
CEO fits in comparison to other city employees and in the market place to
attract good employees. Many police sergeants make more money then the
police chief and many fire battalion chiefs not only make more money then
the fire chief they make more then the city manager.  I had one battalion
chief make over $330,000 plus benefits.  Many first level police officers
and firefighter make over $100,000.  This is because they get overtime and
special pays.  They do not work more hours then most executives, but
executives do not get overtime.  Regular staff, especially public safety,
also tend to have better work schedules then executives with 3/12 and 48/96
schedules versus 5/40 or 9/80 for most executives. Executives also have a
higher number of night meetings and weekend obligations expanding their work
weeks.  It does reduce the people interested in the executive positions when
they have take a actual reduction in pay and work and commute more days and
hours per week.  It is not uncommon nowadays that people only within a
couple years of retirement to seek these executive positions for the highest
single year base pay calculation for PERS.

Public CEO’s have career options, they can work in the private sector and
many have shifted to the private sector do to the complexity and politics of
the CEO job and the ability to earn more in the private sector. If you use
the private sector analysis of what would a CEO of a private corporation
with $4 billion in assets and $465 million in annual revenues be paid?  What
“bonuses” would the CEO receive for saving millions or billions in costs or
increase annual revenues by millions? This was the circumstance in my last
city of Beverly Hills. A private sector CEO would be paid significantly more
then I was or my successor is paid.  Having said that, I agree that public
positions and compensation are different and you do not go into the
profession seeking wealth, it is about purpose and making a difference. The
pay can and should be comfortably less then private sector even for just the
fact I’m not certain that making a lot of money should be the driving force
for someone managing a public agency.  The public good goes only so far as
far fewer young people are choosing degrees oriented to government work and
even fewer are interested in long term careers in government or even worse
fewer never want the CEO position.  The city manager profession has had to
develop an extensive program trying to deal with this reality.  This means
the competition for the best talent is increasing not decreasing.  Yes you
can get people for lower pay, I have had bowling alley managers and candy
store managers seek executive positions truly believing managing is managing
and they could effectively run a city just as well as a bowling alley.
Always possible one of these folks is extremely talented and could do it,
but generally I would hate to leave the destiny of a city to that hope.  Any
recruiter can tell you about the challenge of finding truly talented people
in any category of department head or city manager.

Each agency, not the State or Feds, must make a decision of the type of CEO
they want, milquetoast, maintain but don’t rock the boat, visionary, results
driven, change agent and risk taker, all valid approaches based on their
needs and politics.  The problems an agency has will or should dictate the
money they will have to pay to obtain the talent and risk taking they need.
The poorest and most problem cities actually need the best talent.  Cities
can get CEO’s for much less then what has been bantered about in the press
and questioned as “overpaid”, the question is do they want that outcome?

Rod Wood, ICMA-CM
Cal-ICMA Immediate Past President
ICMA Legacy Leader