Overpaid? Public Service Delivery and City Manager Compensation in California

Abstract

City manager compensation has received heightened scrutiny in the media and in public debate. High salaries for city managers are sometimes compared with the salaries of elected officials, but this might not be the best comparison if we consider the nature of their work. If city managers are responsible for municipal corporations, then the scope of the municipal enterprise should explain compensation practices. Because California cities vary in the scope of services provided, we test an enterprise argument. The analysis makes a distinction between the scope of direct service delivery and contract service delivery by cities. Elite interviews with search firms in California provide additional insight into compensation practices. We conclude with paths for future research and discuss normative implications consistent with the enterprise framework for governing bodies to consider as they set city manager compensation.

Keywords

compensation local government contracting out city management

“Is a city manager worth $800,000?” This Los Angeles Times headline from July 15, 2010, renewed debate in California about the appropriate compensation for top executives in local government (Gottlieb & Vives, 2010). Robert Rizzo, the city manager of the City of Bell, California, gained national attention when his salary of US$787,637 was publicized as part of an investigation into pay for public officials in Bell. The expose revealed corruption that went well beyond high salaries, leading to the resignations and prosecution of administrative and elected officials in the city (Byrne, 2014; Hogan-Esch, 2011). The corruption in Bell ignited debates across California about the appropriate compensation for city managers. While US$800,000 seemed too high, are annual salaries of US$400,000 or US$300,000 appropriate for jobs in public service? Media coverage of compensation for city managers compared their pay with a variety of other employment groups within government, including the Governor of California, members of the State Assembly, and local district attorneys. This investigation contributes to the discussion by analyzing city manager compensation in California cities. Rather than comparing city manager pay with other public- or private-sector jobs, compensation is assessed as a function of the scope of a manager’s responsibility for local governance. An enterprise framework is used to evaluate city manager compensation in 2010, and the analysis is used to inform recommendations for how governing boards discuss city manager compensation.

Are city managers overpaid for their work? This investigation encourages careful consideration of city managers’ responsibilities when assessing pay. Our motivation, similar to other recent studies on public employee compensation and pay comparability, is to insert more empirical data into current debates about what constitutes appropriate pay for public officials. After reviewing recent literature comparing public and private employee compensation and compensation in local government, this research addresses the specific challenges in setting appropriate compensation for city managers. Using compensation data disclosed by the League of California Cities in 2010, along with data on city government from the California State Controller and other public sources, we analyze city manager pay as a function of city service delivery methods. To extend the analysis through a multimethod approach, we also conducted elite interviews with a small number of search firms involved with city manager searches in California. This inquiry can inform future discussions about appropriate compensation for city managers and encourage more research on city manager pay in an era of greater transparency. We also encourage refined public and media dialogue about public employee compensation. In summary, this investigation should contribute to more careful public deliberations about appropriate compensation for top executives in city government, grounded in analysis of the job responsibilities of city managers.

An Overview of the Debate on Public Employee Compensation

Public administration scholarship contains a long record of inquiry on public-sector compensation, and the topic has animated recent dialogue about government reform (Condrey, Facer, & Llorens, 2012; Ledvinka, 2008; G. H. Miller, 1993; Reilly, 2013). This research appears to be shaped in part by a normative concern that public-sector salaries are out of step with compensation trends in the private sector (cf. Dobrescu, Mirkovic, Mohsenzadeh, & Veall, 2014; G. H. Miller, 1993). Similar to the pay comparisons discussed earlier, studies frequently compare salaries in the public and private sectors. Investigations of public and private pay comparability have been conducted at the federal, state, and local levels of government. A historical review of the pay comparability debate provides a foundation for understanding new research on city manager compensation.

Historically, the assumption has been that public-sector wages would lag the private sector and that governments would require a strong benefit package along with job tenure to attract and retain public servants. Following this logic, most studies to inform government compensation practices were conducted as surveys comparing public- and private-sector compensation levels to ensure that governments would at least keep pace with private-sector increases. The practice of ensuring that public-sector salaries and benefits were somewhat equitable with pay levels for similar private-sector work is referred to as the comparability principle. At the federal level, there is a legal requirement that the President’s Pay Agent (the heads of the Office of Personnel Management, the Office of Management and Budget, and the Department of Labor) makes determinations about white-collar salary levels for annual pay increase recommendations. Politically, however, these annual comparability adjustments were often reduced or delayed by presidentially imposed alternative pay rates.

In 1985, the U.S. Government Accountability Office (GAO; 1985) examined federal pay comparability confirming that federal pay levels lagged similar private-sector wages by a range of 7.5% to 10%, even when benefits were included. GAO cited specifically the prevailing political practices of Presidents vacating the pay agent’s recommendations as the major force in the widening pay comparability gap. But in a subsequent report looking at pay comparability methodologies, GAO identified a further complication, pointing out how difficult it can be to compare compensation between two sectors with different kinds of workers, jobs, and compensation policies (GAO, 1994; see also GAO, 2012). They noted, on one hand, the official reports showing a persistent wage penalty for federal employees and, on the other hand, different academic studies showing federal pay at a premium—above private-sector wage averages. These conclusions pointed to problems with pay comparability methodology. Different results were produced depending on employer size, education and qualification levels, and even race and gender differences.

By the start of the 21st century, attention shifted to another issue also identified in the 1994 GAO report—the growing divide in prevailing benefits programs. This was especially pronounced in state and local governments where the costs of providing defined benefit pensions and other benefits were increasing. The Employee Benefit Research Institute in a series of reports showed state and local benefit costs growing by 45% from 2002 to 2008 to an average of US$13.24 per hour for employer costs—compared with a 30% increase in the private sector with benefits reaching US$7.66 per hour. In 2010, the debate over pay comparability heated up. Led by opposing groups of public policy researchers and economists, the debate played out in the news media with charges about public-sector employees being overpaid or underpaid (e.g., Allergretto & Keefe, 2010; Biggs & Richwine, 2014). Table 1 shows a sample of these studies, reporting key sector differences and their “bottom line”—essentially a total calculation of the pay gap between the public and private sectors for different levels of government, including wages and benefits. While conclusions are nuanced (e.g., Bender, 2003; Langbein & Lewis, 1998), these and other studies often reveal a slight pay advantage for line workers in blue-collar positions and a compensation disadvantage for upper management in the public sector (cf. Allergretto & Keefe, 2010; Congressional Budget Office, 2012; M. A. Miller, 1996).

Table 1.

Recent State and Local Public–Private Pay Comparability Studies.

Study and date	Measurement of compensation gap and findings
Cato Institute (Edwards, 2010)	45 % public sector higher
	(34% wage/salary; 70% pension benefits)
National Institute on Retirement Security (Bender and Heywood, 2010)	7% private sector higher
	(12% wage/salary; 32% pension benefits)
Economic Policy Institute (Keefe, 2010)	3.7% private sector higher
	(1.8% wage/salary; 34% pension benefits)
Center for State and Local Government Excellence (Munnell et al., 2011)	4% private sector higher
	(9.5% wage/salary; 8.5% pension benefits)
American Enterprise Institute (Biggs and Richwine, 2014)	Findings vary by state:
	8 states—Public sector higher by over 20%
	11 states—Public sector higher by over 10%
	12 states—Public sector higher by over 5%
	19 states—Public sector lower by −5% to 5%

With the enthusiasm to compare public- and private-sector compensation, many scholars and policy institutes have been reluctant to study local government (e.g., Biggs & Richwine, 2014). Still, some useful examples can be found. To take one example, Kaatz and Morris (2000) use salary surveys to compare multiple employment categories in Mississippi state government, municipal government, and the private sector. They find local government managers earn about 47% less than comparable private-sector managers. Their study suggests the greatest government—private-sector pay parity exists for the lowest paying positions. They also conclude larger local governments offer more competitive pay in comparison with the private sector than small municipalities. Several recent studies of local government compensation shift away from cross-sector comparison, instead emphasizing the social, economic, and performance correlates of employee compensation in local government. For example, Davis and Gabris (2008) explore the use of efficiency wages among cities in the Chicago metropolitan area. They find higher pay is positively related to higher peer assessments of the service quality offered by local governments, particularly for communities paying about 13% above the area mean. They conclude efficiency wage systems may be used to enhance performance and reputation. Other studies evaluate wage and employment patterns across the local government workforce. Based on a survey of financial and human resource directors in local government, Reilly, Schoener, and Bolin (2007) report local governments tended to maintain pay and benefits while reducing overall employment levels in the wake of the economic recession of 2001. While these empirical studies are developed from different theoretical foundations, they have in common an emphasis on compensation as a variable that can be explained by the position of a local government within economic and social contexts. In other words, a city’s compensation practices are determined in part by their budgetary condition, by community expectations for local government, and by the portfolio of services delivered by the municipality.

While local government salaries have been scrutinized, systematic inquiry into city manager compensation is lacking in the public administration literature. As noted by Davis and Gabris (2008), cities tend to compare their compensation packages with the wages offered by comparable communities within a metropolitan region, and they often seek to pay a competitive but average wage. When setting salary, data from locally developed wage surveys or from state associations of local governments may help shape compensation practices, but the gathering of these data rarely contributes to transparent public research on local government compensation.

City managers, the top executives under the council–manager form of government, are often professionally trained and experienced managers in local government (Stillman, 1974). City managers operate in a competitive labor market in which career progression may entail moves across a set of communities (McCabe, Feiock, Clingermayer, & Stream, 2008; Watson & Hassett, 2004). Given this competitive context for employment, public administration can contribute to public discourse on city manager compensation by providing a wider base of considerations for local governing boards to consider when setting pay for these top professionals. Cities provide unique packages of public goods and services to their residents (Sonenblum, Kirlin, & Ries, 1977; Stein, 1993). A careful assessment of the service portfolio of a city government, and consideration of the management skills necessary for that portfolio, should play an important role in compensation decisions for city managers. For these reasons, we use a public enterprise framework to analyze city manager compensation, building upon the foundations of early public choice theory (V. Ostrom & Ostrom, 1977).

An Enterprise View on City Manager Compensation in California Cities

Our investigation of city manager compensation in California builds upon recent studies that acknowledge local government compensation will vary across jurisdictions based in part upon the scope and quality of local government services offered by a city government. City managers have been described as career professionals interested in the success of their current place of employment, as well as future career opportunities. Over the last century, the city management profession has been motivated by a reform emphasis that promotes efficiency and effectiveness in local government service delivery, while also promoting civic engagement (Frederickson & Nalbandian, 2002; Wheeland, Palus, & Wood, 2014). A 2008 survey by the International City/County Management Association (ICMA) shows the average salary for the position of city manager or city administrator stood at US$100,151, but significant variation can be found across cities (Waters & Powell, 2009). City managers have been described as entrepreneurial when they use local resources to innovate and improve local government (Teske & Schneider, 1994). A city manager who builds a record of success within a job, through service improvements or through innovations like interlocal agreements, may act as residual claimants, using the reputational gains of good work to move to jobs with greater responsibility, larger administrative portfolios, and a higher pay (Clingermayer & Feiock, 1997; Feiock & Stream, 1998; LeRoux & Pandey, 2011; Watson & Hassett, 2004). As public service professionals, city managers work in a competitive labor market in which they can develop skills and progressively seek more challenging work in larger cities or in cities with more complex service portfolios.

Linking compensation to the service portfolio of a local government has a foundation in the early research on municipal service delivery, grounded in public choice theory. E. Ostrom (1983) and her collaborators use the industry metaphor to describe the interrelated tasks of local government and to differentiate service production responsibilities (V. Ostrom, Bish, & Ostrom, 1988). To update the metaphor, we can consider a city government to be large enterprise responsible for the management and oversight of a portfolio of services. The scope of a city manager’s service responsibility for the local government enterprise can be thought about in at least two ways. First, due to a wide range of alternative service delivery options, cities do not directly produce all services available to their residents (McGinnis, 1999; Oakerson, 1999; V. Ostrom, Tiebout, & Warren, 1961). Contract service delivery with county or other public agencies has been a popular method of service production in California cities (Sonenblum et al., 1977). Arguably, a manager who is not responsible for overseeing major city services such as police, fire, water, or wastewater would not be compensated at the same level as a city manager responsible for a “full-service” city, in which city agencies produce services for residents. While logical, this hypothesis might be too simple. Following Luther Gulick’s (1937) classic argument, a manager’s span of control in an organization might have an ideal point for efficient operation, with performance declining if the manager is responsible for too many subordinate operations (though see Meier & Bohte, 2000). While the possibility of a nonlinear relationship must be assessed, we believe a practical hypothesis is manager compensation will increase with the number of services directly delivered by a city.

A second plausible hypothesis about city services and manager compensation must be considered. This hypothesis acknowledges the increasing complexity of local government service delivery, stemming from the evolution of contract service delivery and New Public Management reforms. While contract delivery reduces the number of services for which a city is responsible, contracts still require managerial oversight. An enduring legacy of the New Public Management reforms that swept public administration discourse in the late 20th century was an expansion of contracting in local government (Ruhil, Schneider, Teske, & Ji, 1999; Warner & Hefetz, 2009). Interlocal contracts for municipal services have been popular in California cities since before the development of the Lakewood Plan in the mid-20th century; and interlocal contracting is now widely used (Joassart-Marcelli & Musso, 2005; G. J. Miller, 1981; Stewart & Ketcham, 1941). Public administration scholars argue that contracting shifts human resource needs within the local government organization. While line-level staff are no longer employed in direct service production, cities must develop contract management capacity at the managerial level to design, bid, execute, and monitor contract service delivery (Brown & Potoski, 2003, 2004; Cooper, 2003; Henderson, 2015; Joaquin & Greitens, 2012). City managers bear central responsibility for ensuring that municipal contract relationships for major services are well run. Extending this argument as a hypothesis, higher levels of contract service delivery may relate to higher levels of city manager compensation.

To elaborate on the two main hypotheses, we acknowledge the relationship between service delivery and compensation may be moderated by another variable—population. Moderated relationships have received limited attention in public administration, yet the construct is useful for thinking about complex relationships. As Dawson (2014) argues, management research frequently posits relationships that are dependent upon a third variable. We believe this may be true of the relationship between scope of service delivery and city manager compensation. A common assumption in local government management, rooted in the Lakewood Plan, has been that contract cities off-load responsibility for service delivery, leaving less management work to be undertaken by their own bureaucracy. This was particularly true for newly incorporated cities in Southern California in the mid-20th century (G. J. Miller, 1981). Under the logic of the Lakewood Plan, buying a service through contract might yield lower pay for city managers due to the manager’s limited staff and service supervision. However, as the size and complexity of a community grows, the complexity of contract management might also increase. The contract management literature in public administration emphasizes management competencies are necessary to effectively solicit, design, and oversee contract relationships (Cooper, 2003; Joaquin & Greitens, 2012). Thus, we have reasonable doubt that the task of contract management is the same for small and large cities, yielding a challenge for the evaluation of the relationship between the scope of contract service delivery and city manager compensation. So too, a city manager in a small community may take on more management responsibility with a larger number of direct service delivery tasks, whereas the administrative complexity and staff support within a larger community might insulate the manager from both the burden and reward of overseeing more services. Because of this, we hypothesize the relationship between service delivery and compensation is moderated by population, and we hypothesize this is true for both direct service delivery and contract service delivery.

Beyond management responsibility, we acknowledge the fiscal conditions and economic context of communities will shape the compensation of city managers (Goldstein & Ehrenberg, 1976). Ceteris paribus, city manager compensation is hypothesized to be positively related to city population and total revenue. The median home value within a city may also explain compensation, as governing boards may strive to set salaries at a level to allow the manager to live within the community. A different theoretical framing might highlight other independent variables to test in this analysis; however, our foundation in public choice theory and the enterprise framework focus our attention on service delivery and the budgetary context of the city. Rather than elaborating additional hypotheses to more fully explain the variation in city manager salary, we seek a narrow assessment of the relationships posited above. Social scientists have encouraged caution in limiting the number of explanatory variables in a study for the purpose of more detailed exploration of hypothesized relationships (Achen, 2002). Rather than exploring a larger number of variables, we choose a multimethod research design using in-depth interviews with city management search firms, as discussed later.

Our analysis also has practical limitations that prevent us from exploring other interesting variables. Because our data do not contain biographical information about the city managers, we cannot assess the relationship between compensation and prior experience in local government or education, as has been tested in prior studies (e.g., Goldstein & Ehrenberg, 1976). Attempting to assemble retrospective biographical data for a large number of cities would likely yield missing data, unnecessarily limiting the analysis and providing biased results. Despite this limitation, this investigation explores the relationship between the scope and nature of local government service delivery, something prior studies have encouraged but not pursued (e.g., Reilly et al., 2007). As discussed later, we believe the limitations of this study offer avenues for future research. We now turn to a discussion of data from California to assess this argument.

Analysis: Compensation and the Scope of City Services

While public employee compensation is publicly available information in many states, challenges exist in finding and organizing comparable information across jurisdictions. In the wake of the scandal in Bell, California, the League of California Cities in 2010 conducted a survey of members to collect comparable salary data. The survey requested the income of city managers listed in Box 5 of the W2 form for the U.S. Internal Revenue Service. The reported survey data, available online, make note of any special circumstances that would make the compensation unrepresentative of a normal 12-month period. Because of this, compensation for those working less than 12 months can be screened out of the data analysis to allow a high level of comparability. With observations from 387 cities, the average annual compensation of city managers in this analysis was US$199,091. The assessment of city manager compensation in California presented in this article does not analyze pensions or benefits because this information was not distinguished in the available data; however, we return to this topic in the conclusion when we outline several considerations for local governing boards setting pay for their top administrators. Population figures were taken from the U.S. Census Bureau from the 2010 Census, and median home value was recorded for the period 2006 to 2009 from the American Community Survey. Additional information on city revenues and service delivery methods was taken from the 100th edition of the Cities Annual Report from the California State Controller for the fiscal year ending in June 2010.

Two service delivery variables were constructed. The Cities Annual Report contains information about the organization of 11 different local government services for each city in California. A direct service delivery variable was coded to count the number out of 11 services directly provided by a city. As noted in the descriptive statistics in the appendix, this variable ranges from zero to 11 with a mean of 5.5. A contract delivery variable was also coded to count the number out of 11 different local government services provided through contract relationships with other government entities. This variable ranges from zero to 11 with a mean of 3.8. Take note, the variables are not mirror images. Just because a government does not provide a service does not mean the service is provided through contract. A service may not be provided at all by the city, or the service may be provided by some other government without a direct contract relationship. Furthermore, some cities engage in both direct and contract service delivery, common in categories like parks and recreation services. To emphasize, direct service delivery and contract service delivery are distinct concepts and measures.

The compensation data first were analyzed using an ordinary least squares regression model. All models are estimated with robust standard errors. Two separate models were estimated for direct service delivery and contract service delivery relationships, and these are reported as Models 1 and 2 in Table 2. One approach to modeling the data is to assume that service delivery has a direct relationship with compensation, not moderated by other variables. Models 1 and 2 in Table 2 show no support for this approach. In the models without an interaction effect between population and service delivery, population and median home value show a statistically discernable and positive relationship with compensation. In Model 1, the direct service delivery variable is not statistically discernable at a level of p < .05. In Model 2, the contract service delivery variable is not statistically discernable.

Table 2.

California City Manager Compensation and Service Delivery.

Independent Variables	Model 1: Direct service	Model 2: Contract service	Model 3: Direct service with interaction	Model 4: Contract service with interaction
Direct service	2,112.32 (1,256.83)	—	8,258.05*** (1,747.33)	—
Contract service	—	−886.36 (1,069.35)	—	−5,630.42*** (1,421.59)
Service method x population interaction	—	—	−0.15*** (0.03)	0.13*** (0.03)
Population, 2010	0.42* (0.14)	0.41** (0.15)	1.25*** (0.21)	0.08 (0.12)
Total revenue	−0.00 (0.00)	−0.00 (0.00)	0.00 (0.00)	−0.00 (0.00)
Median home value	0.08*** (0.01)	0.08*** (0.01)	0.08*** (0.01)	0.08*** (0.01)
Constant	131,213.3*** (9,621.24)	147,303.00*** (9,779.91)	91,815.87*** (11,909.96)	157,109.5*** (8,146.40)
R ²	.28	.28	.36	.35
N	380	380	380	380

p < .05. **p < .01. ***p < .001.

Note. Standard errors are listed in parentheses.

An alternative approach is to model service delivery as a moderated relationship (Baron & Kenny, 1986; Dawson, 2014; Jaccard & Turrisi, 2003). Direct service delivery and contract service delivery remain the focus on our analysis, but additional equations were specified in which the method of service delivery is moderated by population, a continuous variable. In other words, the scope of direct or contract service delivery bears on compensation, but this effect may be different within cities of different population sizes. Table 2 reports these results as Models 3 and 4. As described earlier, while this approach is more statistically complex, we believe the hypothesis is actually more intuitive. City councils in the smallest and largest cities may evaluate their city managers’ service oversight responsibilities differently. The results show this approach offers a better explanation for city manager compensation practices in California cities. Therefore, our interpretation focuses on the moderated relationships reported in Models 3 and 4 in Table 2.

In addition to the interaction model, we include a simple slope analysis to offer a clear interpretation of the moderated effects (Aiken & West, 1991). A simple slope analysis helps us compare the coefficient for the focal variable, direct or contract service delivery, at different values of the moderator variable, population. Often, a simple slope analysis will begin with the mean value for the moderator variable and calculate slopes 1 standard deviation above or below the mean. Because our moderator variable is city population, our simple slope analysis uses even population numbers to compare the slopes at different population levels. The mean population of the analyzed cities is 55,107 and 1 standard deviation above the mean is 133,630. In Table 3, we report the slopes at populations of 10,000, 70,000 and 130,000. We believe the population levels reported in the table are more intuitive to readers, with no substantive impact on the direction or significance of the findings.

Table 3.

Simple Slope Analysis for Direct and Contract Service Delivery.

	Low (10,000)	Medium (70,000)	High (130,000)
Direct service delivery across population levels	6,780.59***	−2,084.17	−10,948.93***
Contract service delivery across population levels	−4,369.1**	3,198.79*	10,766.69***

p < .05. **p < .01. ***p < .001.

Based on the interaction models, we see direct service delivery has a statistically discernable and positive relationship with compensation, as reported in Model 3; however, the interaction of population and the direct service delivery variable shows a moderated effect. At higher population levels, the relationship between direct service delivery and compensation is actually negative. The change in direction is illustrated by the simple slope comparison in Table 3. The table illustrates the relationship between direct service delivery and population is positive at a population level of 10,000, but at 140,000, which is just over 1 standard deviation above the mean, we see a negative relationship between direct service delivery and compensation.

For contract service delivery, we see a statistically discernable and negative relationship in Model 4. When the interaction between population and contract service delivery is introduced, the interaction relationship appears to be positive. Thus, at higher levels of population, contract service delivery demands a higher premium in compensation. Again, this relationship is illustrated through the simple slope analysis in Table 3. We see that at a population level of 10,000, the relationship between contract service delivery and compensation is negative; however, at just over 1 standard deviation above mean population, we see the relationship is positive and statistically discernable. Overall, these results point to a nuanced relationship between service delivery and compensation. From these results, we might conclude that different service delivery management skills are valued in California’s smallest and largest cities, with direct service delivery demanding a pay premium in small cities and contract service delivery demanding a pay premium in populous cities. Based on the simple slope analysis, predicted margins were calculated and are depicted in Figure 1 for direct service delivery and Figure 2 for contract service delivery. With each line representing a different population level ranging from 10,000 to 130,000, the graphs illustrate the moderating effect of population on the relationship between service delivery and city manager compensation.

Figure 1.

Predicted margins for city manager salary across number of direct services, moderated by population.

Figure 2.

Predicted margins for city manager salary across number of contract services, moderated by population.

A review of Models 3 and 4 also shows median home value exhibits a statistically discernable positive relationship with compensation in both models. City councils may account for local housing costs and pay managers more to attract them and affirm they will be able to afford housing within the community. While other independent variables might be included in future models and analysis, our primary concern is the relationship between the scope of the municipal enterprise and compensation practices. By identifying a nuanced relationship between methods of service delivery and city manager compensation, we find tentative support for an enterprise model of city manager compensation. Still, we believe this finding requires additional investigation with improved data on both compensation and the measurement of service delivery. Given the limitations to the data, we explore this same question through a multimethod extension.

A Multimethod Extension: Key Informants’ Views on City Manager Compensation¹

To be useful, public administration research must offer plausible explanations about the subject under investigation (Brower, Abolafia, & Carr, 2000; Streib, Slotkin, & Rivera, 2001). Increasingly, researchers use multimethod approaches, including interviews and narrative, to assess quantitative research while also placing data analysis in a broader social context (Ospina & Dodge, 2005). After completing the analysis of the city manager compensation data, we conducted a small number of key-informant interviews to assess the extent to which the findings from our data analysis match with the experiences of firms involved in search and placement for city managers in California. Through discussions with local government professional organizations, we identified eight firms involved in city manager searchers in the state. Semistructured interviews were conducted with representatives from six of these firms (Dexter, 1970). The interviewees were offered confidentiality, so their names and the names of their firms are not disclosed, but the interviews were digitally recorded for accuracy. The questions explored the experts’ views on the factors shaping city manager compensation in California. The experts were also asked to compare city manager compensation practices in California with that in other states.

First, experts were asked to describe key factors shaping city manager compensation in California. Common factors discussed with city councils at the beginning of a search include the city’s budget and expectations for the position, compensation of the prior city manager, compensation levels for department heads within the city, compensation practices in neighboring and comparable communities, and local cost of living. Local housing costs and the challenge of relocating a manager into a high-cost region may also be given attention. A firm specializing in compensation studies also described identifying comparable communities based on factors including the city’s service portfolio. The expert stated,

When we determine the competitive labor market, the number one most important factor that we look at are the services provided by that agency, and whether that is a full service city . . . compared to a contract city . . .

These observations suggest service portfolios may shape compensation practices through the choice of comparable communities when compensation is studied at the start of a search.

While the analysis of city manager compensation provided some evidence that methods of service delivery have a discernable relationship with compensation, expert views temper these findings. We asked, “In your experience, how does the scope of local government services play into a city’s compensation decisions for city managers?” On balance, the experts view the relationship as limited. One reports, “I would like to believe it’s a major consideration, but my experience with it . . . is that it doesn’t play into it very much or very often.” Another states,

I’d say on occasions it is considered. I am not sure that often times it is the major consideration. I think it’s more likely that they are going to look at what surrounding cities pay, comparable cities, and in some cases [the scope of service delivery] is certainly taken into account.

One expert reported the scope of direct service delivery is considered “a majority of time.” Perhaps the best characterization to summarize the response to this question came from the expert who reported, “That one is all over the map.” These descriptions are somewhat consistent with the results of the statistical analysis of city manager compensation from 2010, which demonstrates a complex moderated relationship between direct service delivery and population. The clear relationship between median housing value and the cost of living in a community is more likely to stand out to search firms and city councils.

Next, we asked, “In your experience, how does the scope of contract service delivery play into a city’s compensation decisions for city managers?” Again, the responses varied. One expert reported, “It doesn’t.” Others reported a relationship consistent with the view that contract cities require more limited management. For example,

It does, and I would say that . . . where cities are heavily reliant on contract services, the compensation is less because it is seen as not as complicated, and that there are fewer interactions and complications presented by organized labor.

Still, other responses acknowledged complexity. One expert stated,

The cities that contract for service are limited. You look at the city that created the model, Lakewood, California, and their salary is certainly competitive with cities of a similar population that provide full service. It depends on the city more than it does on a practice among cities.

Just as with direct service delivery, the expert remarks on the link between contract service delivery and city manager compensation suggest an uncertain relationship. Indeed, after discussing the relationship, one respondent cautioned, “but again that is not always the rule.” These observations may occur because of the complexity revealed in the data analysis. If service delivery is moderated by population, service delivery variables may be discussed and weighted differently across cities.

Beyond these reflections about the link between service portfolios and compensation, the expert interviews highlighted three factors that should be considered in future research on city manager compensation. First, city councils are attentive to salary because it may link to their long-term pension obligations. An expert explained, “What really has caused a change, and it has been a change, is more the pension issue than the other factors because they see that as a long-term obligation that is impacted by the amount of salary.” Second, in the wake of the scandal in Bell, California, councils and the general public have been more critical of city manager compensation. “Council members stand for election. If there is a huge outcry about salary or compensation, or the person they hire, they listen to it,” explained another expert. Yet, public scrutiny of salary may be tempered in California by fierce competition for talent. The respondents reported that the factors shaping compensation are likely the same in California as they are in other parts of the country; however, the high cost of living makes the recruitment task a challenge in many cities, particularly in the Los Angeles and San Francisco Bay areas. One recruiter explained, “If the war for talent was not so fierce, the salaries might be lower.” The expert continued,

It’s very hard to find great candidates for any discipline in local government, but especially for city managers. The older baby boomers are retiring. People are deciding to retire early. In different parts of the state, the cost of living can be outrageous.

This observation points to a supply problem in the availability of professionally trained and experienced city managers who are willing to work in California.

Despite heightened public scrutiny, city councils may be unaware of the suggested practices for city manager compensation promoted by professional organizations like the ICMA or the League of California Cities. When asked about council awareness of these guidelines, one expert reported, “I think they are only aware so far as an executive recruiter can make them aware.” The recruiter went on to acknowledge that councils may view ICMA recommendations with some skepticism, as they are the professional organization representing city managers. Another expert confirmed, “I would say it would be a rare council that knows about those recommendations. When a council, a political entity, wants something, they want to get that person no matter what.”

By placing the statistical findings in the context of the experience of the experts from search firms working on city manager recruitment, we can conclude that city manager compensation practices require additional scrutiny by public administration research. Based on an enterprise framework, we can theorize the scope and nature of local government service portfolios shape compensation practices; however, search firm experts provide limited support for this theoretical claim and empirical finding. City manager compensation is a salient public topic, but refinement is necessary both in research and in city councils’ compensation practices.

Discussion—Service Delivery, Compensation, and Remaining Questions

When the analysis of city manager compensation data from 2010 is considered alongside the interviews with search firm experts who recruit city managers, the need for more careful analysis of city manager compensation practices becomes clear. To review our findings, population and home values help explain city manager compensation levels, pointing to the importance of community size and cost of living in shaping pay. While the scope and nature of service delivery may seem like straightforward factors shaping compensation, our analysis reveals a complex relationship in which population moderates the relationship between service delivery choices and compensation. Search firm experts also report the relationship between the scope of the local government service portfolio and compensation might not be as straightforward as one would assume. The issue looming largest over this analysis is the possible compensation dichotomy between cities that provide direct services and cities that oversee contractors who produce the services. Essentially the question is, “Why should a contract administrator be more highly compensated for overseeing a million dollar contract than a manager of a million dollar program with its own employees and service production responsibilities?” Furthermore, if contract management skills can demand more pay in large cities, why is this relationship not apparent in smaller communities as well? Following the charge of E. Ostrom (1983) to think of local government as an industry or enterprise, we believe research on compensation and municipal service organization can and should be advanced. Here, both quantitative and qualitative findings point to a need for more extensive research on the relationship between local government service portfolios and city manager compensation.

This research has limitations that can be refined in future studies. Four limitations should be the focus for future inquiries. First, the 2010 data from the League of California cities report salary as the only form of compensation, not including other benefits. Future studies should pursue a more extensive definition of compensation. In the wake of the scandal in Bell, California, the California State Controller began collecting and reporting compensation, which includes wages, retirement, and health costs. This will offer an expanded database for future research.

Second, our choice to build from public choice theory and the industry metaphor of local government provides a starting point for research that neglects certain variables discussed in labor market economics. Specifically, our data did not include education and career background observations about individual city managers. This information can be incorporated into future models, with refined econometric analysis, to explain more of the variation in local government compensation.

Third, our analysis focuses on California. The search firm experts reported that similar factors shape compensation in California and other states, but signaled high cost of living and a competitive labor market as distinct challenges. For the city manager profession in California, public personnel research should explore the causes and consequences of the competitive market for city managers. Schools of public affairs can play a role in analyzing career pathways to better understand constraints to entry into the city management profession. For scholars and city managers in other states, we will need additional analyses of the link between service portfolios and compensation. These data may be more readily available in California than in other states, but this will be a practical goal to build our understanding of the field and aid decision making in local government.

Finally, to explore the importance of city service portfolios on city manager compensation and employment practices, qualitative inquiry might also be necessary. The current analysis uses the Cities Annual Report to construct variables for the scope of direct service delivery and contract service delivery. This does not illuminate the nuance of the complexity of city service portfolios. Qualitative comparative analysis of communities with diverse service portfolios within a state, or case studies of the recruitment processes of cities with extremely complex service portfolios, might benefit search firms linking cities and qualified managers, city councils making decisions about compensation, and educators preparing students for complex jobs in local government. With these research considerations in mind, we now turn to consider how governing boards and the general public should reflect upon these findings when setting manager compensation, as well as how the findings might influence public dialogue about compensation practices.

Implications for City Manager Compensation

This analysis of city manager compensation in California cities, using data reported by the League of California Cities in 2010, shows the state’s city managers are well paid for their work, but this compensation is structured in part by the scope of their management responsibilities. Public administration scholars studying contracting have emphasized the consequences of contracting for the public-sector workforce. When services are contracted, city employees must be retained to monitor and evaluate those services and to adjust contract terms when necessary. We believe the discernable link between scope of contracting and city manager compensation signals the importance of contract management skills for today’s city managers. In cities that have turned to alternative service delivery, the city manager may directly oversee a smaller municipal workforce, but the manager may spend more time managing the contract relationships and the city’s external service dependencies (Brown & Potoski, 2003; Henderson, 2015; Joaquin & Greitens, 2012). City councils making decisions about city manager hiring and compensation should consider the organization of the city’s service portfolio and consider the specialized skills their manager will need to manage contracts with private firms and other governments. Cities may need to pay more for financial and legal knowledge and the relational skills that contribute to successful alternative service delivery in local government. Service contracting may be given more weight in compensation in larger communities which may contract out their services to smaller communities or oversee the management of large contracts.

Small cities should be attentive to the findings on the scope of a city’s direct service portfolio. In small cities, the 2010 city manager salary data exhibit a positive relationship between the scope of the direct service portfolio and compensation. Governing boards in small communities should be attentive to the number of services for which their managers are responsible when setting compensation and when identifying other communities for salary comparisons. These data suggest managers are being rewarded for more expansive work responsibilities. At the same time, the negative relationship between contract service delivery and compensation in small communities signals another important conversation for managers and governing boards. Given the importance of professional contract management, city managers in small communities with large contract service portfolios might need to brief their boards on the work necessary to ensure that the terms of service contracts are being achieved and that purchased services satisfy the city’s performance expectations. So too, governing boards should make sure the city manager has the skill set necessary to negotiate and monitor contracts. In other words, given the need for professional contract management, we caution governing boards in small communities not to use this empirical finding as a normative guide for compensation practice.

Beyond this analysis, city councils should be aware of several additional points from recent public-sector compensation debates as they make decisions about city manager compensation. Thomas Piketty’s (2013) provocative book on global wealth inequality includes a discussion of the rise of the super manager. More specifically, he voices concerns about compensation and rewards provided to the new generation of top managers and how their supersized pay impacts wealth distribution. He does caution that “the explosion of super manager salaries should of course be seen in relation to firm size and the growing diversity of functions within the firm” (Piketty, 2013, p. 334). While California city managers are by no means in the class of corporate super managers, they are yet, compared with their peers, at the upper end of the compensation scale in their profession. It will be important for this group of still normal managers to be able to demonstrate to their peers, and most of all the public, that their pay levels are fair, related to marginal productivity, and not simply a case of “pay for luck.” City managers should use the enterprise framework to discuss the scope of their work responsibilities to inform public understanding of local compensation practices.

To advance the enterprise perspective on compensation, we offer recommendations anchored in a series of compensation guidelines offered to cities by the League of California Cities (2010) at the time of their compensation survey. We believe this framework for recommendations is critical because the interviews with search firm experts revealed that many cities do not consider these guidelines! The guidelines are grouped into three categories—salary negotiations, total compensation changes, and transparency. On salary negotiations, the League recommends comparisons with comparable communities, consideration of current financial conditions, and attention to the local cost of living. The League advises communities to understand the services provided by the city and factor this into compensation. This research shows a complex and nuanced relationship between community size and service delivery method. We recommend cities give much more detailed attention to methods of service delivery when selecting comparison communities and setting compensation levels. Small communities might expand pay for larger portfolios of direct service delivery, whereas large communities might enhance pay for significant service contract management responsibilities. Governing boards should be prepared to explain how consideration of the service portfolio has shaped the final compensation decision.

On compensation changes, the League of California Cities suggests, “City managers should not put their personal compensation interest ahead of the good of the overall organization and that of the citizens.” They encourage city managers to maintain salaries in range with comparable benchmark communities. Beyond this, we argue that the enterprise perspective can aid city managers in discussions about compensation change with their governing boards and the general community. Given trends in local government service delivery, more city managers find themselves managing contracts for service delivery (Brown, Potoski, & Van Slyke, 2008). City managers should be transparent with their governing boards about how changes to the service portfolio in the city alter demands on their time or call for the development of new professional expertise.

Finally, the League of California Cities encourages city managers to pursue transparency in compensation by providing the council with their full compensation package, rather than discussing salary alone. While the enterprise perspective discussed here may have no direct influence on benefits or ancillary compensation, we believe city managers should discuss the scope of their management responsibility with both the council and the general public. Rather than have the local media, and now government watch groups, publishing lists of high-paid public employees, cities need to lead in the disclosure and explanation of salary and benefit levels. While having transparent personnel costs is only a partial step toward demonstrating marginal productivity, it sets an expectation that the city will demonstrate the public value anticipated from the executive talent pool.

Even though the relationship between methods of service delivery and city manager compensation requires more extensive research, city managers, councils, and the general public should become more familiar with the service portfolio and management tasks that justify compensation within their communities. Discussing the scope and nature of management responsibility may help governing boards and the general public develop a clearer understanding of the skill sets required in the position of city manager. Additional research can help us assess the extent to which the enterprise framework can be used as a predictive or normative model for discussions about city manager compensation.

Footnotes

Appendix

Data Sources and Descriptive Statistics.

Variable	Source	M	SD
City Manager Compensation	League of California Cities	199,091.20	59,976.92
Direct Service Delivery	Cities Annual Report, 2010, California State Controller	5.46	2.47
Contract Service Delivery	Cities Annual Report, 2010, California State Controller	3.8	2.3
Population, 2010	U.S. Census Bureau, 2010 Census	55,107.05	78,522.74
Total Revenue, 2010	Cities Annual Report, 2010, California State Controller	8,590,000.00	165,000,000.00
Median Home Value	U.S. Census Bureau, American Community Survey, 2010, 3-year average	494,513.20	247,463.00

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Notes

Author Biographies

Albert C. Hyde is a Senior Scholar in Residence in the Department of Public Administration and Policy at The American University in Washington DC. He is co-editor of the recently published 8th edition of Classics of Public Administration and is currently researching the impacts of public pensions and benefits on state and local budgets.

Eric S. Zeemering is an Associate Professor in the Department of Public Administration, School of Public and Global Affairs at Northern Illinois University. He teaches classes on local government management and is the author of Collaborative Strategies for Sustainable Cities: Economy, Environment and Community in Baltimore, published by Routledge.

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Overpaid? Public Service Delivery and City Manager Compensation in California

Abstract

Keywords

An Overview of the Debate on Public Employee Compensation

An Enterprise View on City Manager Compensation in California Cities

Analysis: Compensation and the Scope of City Services

A Multimethod Extension: Key Informants’ Views on City Manager Compensation 1

Discussion—Service Delivery, Compensation, and Remaining Questions

Implications for City Manager Compensation

Footnotes

Appendix

Declaration of Conflicting Interests

Funding

Notes

Author Biographies

References

A Multimethod Extension: Key Informants’ Views on City Manager Compensation¹