Al Laubsch is in charge of one of nine centers in New Jersey that deals with unemployment insurance claims. In 2016, he was offered a promotion to become manager of all nine.
He turned it down. What may be more surprising is the reason why.
“I would love to have had the chance to show the other eight offices how to run a highly efficient work unit,” says Laubsch. “But I have two kids, and they’re looking at dad to pay the bills. I couldn’t afford to take the promotion.”
This is a prime example of a phenomenon called salary compression -- when the pay given to managers is similar to the pay of their subordinates -- or salary inversion, when managers make less than the people who work for them.
"I tell anyone who wants to be a manager, 'If you take a promotion, it better be because you love the work because the compensation will never be worth the effort you'll put in being a manager," says Laubsch, who is a member of and the business manager for his labor union.
If he had taken the job, his rise in the ranks would have cost him his union membership because most states with collective bargaining don't allow high-level managers to unionize. The result is that promotions can mean giving up benefits and taking a pay cut from higher salaries that were negotiated during collective bargaining. Laubsch says his dilemma is shared by hundreds of other employees.
At the mid-year meeting of the National Association of State Personnel Executives (NASPE) in January, this was a hot topic. The problem has garnered very little attention outside of government HR folks. But to them, it’s a widespread issue with troublesome ramifications.
“A lot of union states are having difficulty in getting people to take managerial and supervisory positions,” said Leslie Scott, executive director of NASPE. “Sometimes managers are making less -- and sometimes significantly less -- than the employees they’re managing. It’s a big challenge.”
It's not hard to see how salaries can converge. In New Jersey, high-level government managers received zero raises from 2007 to 2018. In contrast, during that time period, the pay for 34,000 lower-level state employees went up nearly 20 percent, thanks to the Communication Workers of America union.
In Michigan, John DeTizio, the longtime labor relations manager for the state Association of Governmental Employees, says he’s seen dozens of occasions in which employees have refused promotions. Lately, this has been a problem in prisons and child protective services.
“Subordinates get overtime, and they get paid for being on-call, but the supervisors don’t,” says DeTizio. “It’s not worth being a supervisor.”
A Widespread Problem
Salary compression and inversion doesn’t just happen in union states. It can occur in any type of workplace that’s struggling to attract workers. Desperate to fill jobs, employers might pay new employees more than their current ones.
“It’s hard on the psyche,” says Tambra Rodriquez, the HR manager for compensation in Johnson County, Kan. “You’ve been working 15 years, and you’re sitting next to someone who has been working three years, and they’re making the same amount. It bothers you.”
This hits some industries harder than others.
According to a 2017 survey of private-sector companies by Pearl Meyer, a global firm that focuses on executive compensation, pay compression was most pronounced in IT, finance and engineering. About 70 percent of respondents said it had either a moderate or high impact on job satisfaction, and slightly more than 70 percent said it negatively affected morale.
A $20,000 Difference
The complicated nature of this form of pay inequity may be best illustrated in Hawaii County, Hawaii.
Between 2006 and late 2016, union-represented employees received annual negotiated pay raises, and managers received comparable wage increases. But the salaries for the county’s department directors and their deputies are set by a salary commission, which languished during those 10 years. With no new members appointed, the commission couldn’t achieve a quorum and, as a result, pay levels were stuck in quicksand.
“We had some departments where the department head was making $99,000, the deputy was making $94,000, and their highest-paid subordinate was making $120,000,” says Bill Brilhante, director of the county’s HR department. “They had difficulty filling the department head positions.”
A new administration was elected in November 2016 and made the appointments necessary to get the salary commission back in action. It set about raising department head and deputy salaries -- but that meant raises that were as large as $30,000, which immediately caused a public outcry.
Now, the salary commission is “gun-shy,” as Brilhante says, about increasing pay for the people at the top. And with union workers’ pay regularly increasing, salary compression and inversion is making a comeback, effectively shrinking the pool of talent.
“You want to have your best and brightest people at the top making the high-level managerial decisions,” says Brilhante. “But inversion creates an artificial barrier because the best and brightest don’t want to take on additional responsibility and a cut in pay.”
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