You don't need a study to determine the right pay

By DAVID MOON, Moon Capital Management, LLC
April 20, 2014

The Knoxville City Council recently debated giving the Mayor the discretion to withhold otherwise automatic 2.5 percent pay increases for employees paid more than $40,000 annually. This was authority that the mayor did not request. City Council obliged her.

Wages are a function of many variables, all influenced by each party to the transaction typically acting in his own self-interest.

“Self-interest” assumes an added complicating dimension when, in a public job, the employee has significant hiring and firing authority over his elected employer.

If I have an employee who believes himself to be underpaid, he will test his hypothesis in the open market. If a municipal employee believes himself to be underpaid, he has the additional option of mobilizing a couple thousand fellow employees and their friends to vote for my opponent in the next election.

In a community where only 21,000 people voted in the last city mayoral election, 1,600 employees and their tertiary influence is a huge—and very motivated—constituency.

A 2008 Mercer study concluded that Knoxville municipal employees are generally, and in some cases significantly, underpaid relative to a benchmark group of mostly public employees in the South, Southwest and Midwest.

Most studies like this are meaningless. I don’t need a peer study to know if I am paying my employees properly. They, or my competitors, will let me know.

Knox County regularly loses highly-qualified teachers to other school districts. End of study.

If I’m hiring someone to type letters for me in Knoxville, I am not going to commission a study to determine what typists earn at investment management firms in Columbia, South Carolina. I have to pay wages that compete with the law firm down the hall, TVA, the City of Knoxville and the real estate company in Powell.

According to the Knoxville Chamber, the pay for a word processor/typist in the Knoxville MSA ranges from $22,200 to $33,500. Knoxville area executive assistants earn between $28,300 and $44,000.

The News Sentinel database of public employee compensation lists the pay (excluding employee benefits) for city of Knoxville Data Entry Clerks and Office Assistants as ranging from $25,000 to $31,200. The city Executive Assistants, Administrative Assistants and Principal Secretaries are paid between $34,800 and $51,300.

Within the entire Knoxville MSA, the 5,800 people categorized as "laborer/material handler" earn from $17,000 to $28,000. Our city Custodians earn about $20,500.

None of these figures is intended to suggest a conclusion about an appropriate level of pay for these positions or any other. If a person thinks he is underpaid, it is very easy to test the hypotheses. I’ve seen PBA employees leave to make more money at Home Depot—without the benefit of a compensation survey, consultant or legislative mandate.

It doesn’t matter if we look at staff attorneys, auditors, pothole patchers or chief financial officers; there are competitive forces that will either cause those positions to find appropriate wages or those employees to find more appropriate jobs.

No employee should ever be in the position of having to refer to a publicly-funded consultant survey to determine what his services are worth.

And neither should his employer.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

Click here to subscribe to MCM commentary.

MCM website