Local government pay structures: Rigid on paper, flexible under the table

In the unwavering quest for pay equity, local authorities are using pay structures that actually cause pay inequity and compound existing bias.

Local government pay structures are designed to embody fairness and equity. They’re underpinned by formal systems meant to ensure that pay decisions are consistent, transparent, and objective.

On paper, they’re rigid, with clear rules about grades, pay bands, and progression. The intention is admirable: to provide equal pay for equal work and avoid the subjectivity that can lead to inequity.

But in practice we’re finding that these systems don’t work as they’re supposed to. The inflexibility of strict job evaluation points translating into tight levels of pay impedes hiring managers to set salaries that can compete with the market.

The result? HR teams embroiled in endless conversation about re-grades, refining job descriptions, and disillusion with job evaluation. Many departments also seek to unnaturally push up the sizing of jobs to achieve a salary they believe necessary, or simply seek to augment the formal pay system with lots of ‘market supplements’ or additional payments.

A system that fails its own goals

Rigid pay structures in local government aim to protect against pay disparities by locking salaries into tightly controlled frameworks.

Job evaluation systems are used to assign points values to jobs through a fair and analytical process. This is used to place roles in grades with corresponding pay bands that dictate what someone can earn in a given position.

The underpinning philosophy of these systems are based in equity and transparency, free of bias. The idea is that the most objective process as possible is used and removes the favoritism of certain managers or the bias inherent in pay negotiations that are left to the individuals.

When organizations need to attract or retain talent for roles where the market value exceeds the rigid pay scales, they’re forced to find workarounds. Enter the “market allowance” or other discretionary payments. These allowances are added on top of the fixed salary to bridge the gap between what the pay scale allows and what the market demands. They’re meant to be the exception to the rule but often become the rule itself.

In these scenarios, we could have two people doing similar jobs earning vastly different salaries depending on whether they’ve informally been granted a market allowance or artificially inflated in job evaluation. The equity the system was designed to protect is eroded, and the organization is left exposed to equal pay risks.

Equal pay risks and the cost of “Fudging”

One of the biggest challenges with this “workaround culture” is the lack of transparency. Allowances are often applied inconsistently, and their rationale isn’t always clear or well-documented. This creates a perfect storm for equal pay claims.

This isn’t about bad intentions or poor leadership. The workforce and unions are rightfully suspicious of differentiating pay on other conditions such as an individual’s performance, because it can be open to abuse.

But the reality is that it’s become too entrenched in one way. Local government pay structures are often:

• Overly rigid: They don’t allow for the flexibility needed to respond to market conditions or the unique demands of specific roles.
• Misaligned: They fail to align pay practices with the strategic needs of the organization or workforce planning.
• Culturally entrenched: There’s often resistance to modernizing systems that have been in place for decades, even when those systems no longer serve their purpose.

A path forward: Flexibility with transparency

So, how do we fix it? Local governments need to rethink their approach to pay structures. Here are a few key steps to consider:

1. Acknowledge the need to pay differently, within tolerance. Socialise and explore the benefits of having pay structures that recognise more than only job evaluation.
2. Introduce flexibility with safeguards: Build more flexibility into pay structures to respond to market pressures, but ensure that any deviations are backed by clear, objective criteria and robust oversight.
3. Leverage data and technology: Use analytics to take control of data, and to monitor pay equity and ensure that allowances and other discretionary payments are applied fairly and consistently.
4. Revisit job evaluation practice: Audit practice and make sure that the job evaluation processes and practice are genuinely supporting equity in overall sizing of jobs.
5. Align pay with strategic goals: Ensure that pay structures support broader organizational objectives, such as attracting and retaining talent or fostering a high-performing culture.

A time to change

It could be time for local governments to face the reality that rigid pay structures don’t work. They’re creating inequities and exposing organizations to unnecessary risks.

Many new unitary and regional authorities are about to created. There is an opportunity to start this new age of local government firmly routed in the 21st century.

Reform won’t be easy, but it’s necessary. We need to challenge the status quo, and build pay systems that truly deliver on the promise of equity and fairness.

By modernizing pay structures, local governments can achieve a system that is both fair and functional. Transparent, market-responsive pay practices reduce the risk of equal pay claims, improve morale, and make it easier to attract and retain top talent. More importantly, they help local governments deliver on their promise of equity not just on paper, but in practice.

What do you think? Are you seeing these challenges in your own organization? I’d love to hear your thoughts and ideas on how we can make pay systems work better for everyone.

Images provided courtesy of Unsplash for illustrative purposes only.

The views and opinions expressed in this article are my own and do not necessarily reflect those of my employer, colleagues, or any other organization I am affiliated with. The content is for informational purposes only and does not constitute professional advice. While I strive to provide accurate and up-to-date information, all information is presented “as is” without any guarantees.