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Ethics Column: Compensation, Severance, and Bonus Issues: Are We on Main Street or Wall Street?
Reprinted with permission from the July 2009 issue of Public Management (PM) magazine published by ICMA, the premier local government leadership and management organization, located in Washington, D.C.

Scenario No. 1:
The city manager landed a new position with another community. The feelings of appreciation for all that he had done for the community during his 15-year tenure evaporated quickly when it was disclosed that his take-away compensation was nearly two times his annual salary. The final payout was for his unused vacation days, sick leave, executive pay, and other accrued benefits.

All the items had been duly laid out in an employment agreement negotiated when he was initially hired. No doubt the city's tight budget in the economic downturn, higher unemployment among the residents, and news of the recent excesses of Wall Street contributed to turning the spotlight on this situation.

Advice:
Comparisons with Wall Street compensation levels are not fair as the compensation provided to public service executives is nowhere near what managers in the higher levels of the private sector earn. Those who dedicate their careers to public service have no expectation of earning such amounts. Lack of transparency, perceptions of greed, and questions about whose interests are being served can, however, play out on both Wall and Main streets.

The interests of the local government manager and the employing jurisdiction are separate and sometimes in conflict when the terms and conditions of employment are being negotiated. ICMA members have a responsibility to be reasonable, fair, and clear about what is being requested. Elected officials have an obligation to seek advice, from either internal resources or a third party, as they cost out compensation requests. This is one instance where a member's duty to the public's interest and duty to his or her own interest are not identical.

One challenge, of course, is that the governing body in place at the end of the agreement may not be the one that carried out the initial negotiations. Other unforeseen factors can make those initial negotiations now seem unwise. After an employment agreement is negotiated, however, both parties have an ethical obligation to comply with the terms of the agreement. The public we serve will judge whether there was true value for the service provided.

Scenario No. 2:
The county manager's employment agreement states that she will receive an annual bonus as part of the county's compensation program. In the early years of her tenure, the county commission was supportive of her efforts, and the bonus amount was decided in a private conversation with the board chair. The county manager never asked for formal approval as the board chair told her that he was authorized to represent the wishes of the full commission.

Years went by and the process remained the same. When an entirely new group of commissioners was elected, commissioners were stunned to learn that the manager had received the largest bonus available every year of her tenure without formal approval by the commission.

Advice:
If the compensation standard, metric, or amount is not spelled out clearly in the employment agreement, always seek and obtain approval of the governing body before accepting a bonus or other compensation. Don't take a bonus that you have determined on your own or one that has not been formally approved.

Scenario No. 3:
During the most recent election cycle, one candidate ran on a platform of reducing government waste and improving services. His strategy for accomplishing this goal? Replace the city manager! The candidate won the election and appeared to have a majority on the council.

The manager had negotiated a modest severance in his initial agreement. The council president who lost his bid for reelection to this candidate strongly suspected the manager would be terminated after the new council took office, and he approached the manager with a proposal to increase his severance. The manager wondered whether a severance increase under these conditions would be ethical.

Advice:
Perceptions that we are feeding at the public trough are harmful to the profession. Even if the outgoing governing body agrees to change the severance provisions, will it appear to the public that it's just another golden parachute (albeit a small one) to the outgoing manager?

The best time to negotiate a reasonable severance provision that will provide some financial security for you and your family is at the beginning of employment or during a normal contract renegotiation. Members are encouraged to use the ICMA Model Employment Agreement, which can be downloaded from the career resource center at jobs.icma.org.

Have you encountered an interesting challenge while negotiating compensation or benefits or collecting them? Please feel free to share your experience with ICMA by sending me an email at mperego@icma.org. All stories or comments will be considered confidential unless otherwise noted.
Arizona City/County Management Association
1820 W. Washington Street, Phoenix, AZ 85007   •   Phone: (602) 258-5786   •   Fax: (602) 253-3874   •   www.azmanagement.org