Let's Pay for Performance in Southbridge Town Government

And Let’s Start at the Top

Ken O'Brien

Let’s start today’s essay with a term with which many may not be familiar.

That term is goal congruence.

Put simply, what goal congruence means is that performance should be rewarded to the degree that it produces desired results.

It is the concept of goal congruence that underlies programs in business and government labeled as pay for performance.

Under pay for performance programs financial compensation is based in large part on meeting or exceeding measurable criteria. These criteria are related to the accepted mission of the organization’s sub-unit to which the employee belongs. Further, such criteria are related to the individual employee’s ability to affect those results.

Let’s look at a specific case of pay for performance in local government with which many readers are likely to be familiar.

This is in the area of education in local public schools.

Recent years have witnessed a backlash against the traditional compensation structures for teachers and school administrators.

In response to declining student performance there has been a concerted effort in many areas to scrap a system based upon longevity and tenure and replace it with one that bases financial compensation as well as status upon measurable results such as student performance on standardized tests, graduation rates, etc.

In using this example I am not seeking to become involved in the debate over the merits of such programs. Rather, I am citing it as an illustration of how pay for performance works in principle.

The biggest problem with pay for performance schemes in public education revolves around conflicts with entrenched political interests. Secondarily is the degree to which financial reward is a primary motivator among educators.

What I am suggesting is that rather than starting by using lower level personnel as the focus of pay for performance programs, we should start at the top of the organizational pyramid.

In the case of Southbridge, I am suggesting that such a program start with the town manager and subsequently be applied to the various department heads.

As a template, I will focus on the position of town manager.

Such a template would entail three primary components; implementation, evaluation and administration.

Implementation would focus on the fundamental fact that the town manager’s compensation is established contractually. It is not complicated by the presence of an intervening union. At present it is based solely upon a written agreement accepted by the town manager designate and the town council.

Thus implementation would be as simple as imposing a new contractual arrangement at the expiration of the existing contract.

As regards evaluation I would lay out a conceptual framework as follows.

There would be a base salary equal to that of the highest paid department head.

Beyond the base there would be an incentive bonus structure that could reach a maximum of 50% of the base salary.

The bonus would be a function of the achievement of goals based on certain measurable criteria. Among these could be:
            A) Increase in local property values;

            B) Stability in local property tax rates;

            C) Increase in median per capita income based on official state data;

            D) Increase in number of businesses and/or level of employment within the town;

E) Improvements in town financial criteria such as bond rating, overall debt

       burden, etc.

F)  Maintenance or reduction of town employment while maintaining service

        levels;

G) Etc.

The final component would be administration.

At present the town manager’s contract is negotiated by the town manager and a subcommittee of the town council with final approval by majority vote of the council.

I would propose the creation of an executive compensation committee comprised of one member appointed by the town manager, one member appointed by the town council and three members elected by the public.

Negotiations of the initial contract would be between the town manager and this committee with approval based upon an up or down vote by the town council.

Subsequent bonuses based upon the type of criteria outlined above would be determined by the compensation committee and subject to an up or down vote of the council.

Timing issues such as timing of approved bonus payouts, incentive compensation during the initial contract year, etc. would be the subject of initial contract negotiations and may involve subsequent terms for renegotiation over the life of the contract.

Such an administrative mechanism would reduce the level of politics involved in the current system, enhance the legitimacy of the annual review process and increase accountability.

Similar procedures could then be implemented for the various department heads.

It will be argued that implementing such a plan would put us at a disadvantage relative to other communities in hiring qualified personnel.

I have two responses to this.

First, I would be willing to bet that many other communities would be inclined to adopt a similar plan very quickly.

Second, how much more worse off would we be relative to other communities than we already are?

Finally, once pay for performance plans are adopted for top administrators, they’re adoption at lower organizational levels would have far greater legitimacy and acceptance.