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State Worker's Abuse Of Compensation & Benefits Programs Runs Rampant, Costing Millions

Recent investigations into multiple states have revealed public sector employee's unethical abuses of vacation, sick and compensatory pay practices costing millions of dollars in bloated payouts made at retirement.  With tax revenues plunging and too few significant financial cuts made to state programs to balance deficit budgets, many states simply cannot afford to allow rampant system abuses to continue unchecked.

So says Chase Davis who recently wrote an investigatory expose on the website, "Calfornia Watch" titled, "State Employees Pile Up Vacation Time, Exceeding Caps and Costing Millions."

He alleges that managers throughout Calfornia's government line up, following a systemic belief of entitlement, allow their employees to amass unused vacation, sick and comp time resulting in commonplace retirement payouts of $100,000 or more.

Apparently California isn't alone in abusive public sector compensation and benefits practices, according to the State of New Jersey, Commission of Investigation.  In a scathing report delivered in December of 2009 titled, "The Beat Goes On, Waste and Abuse in Local Government Employee Compensation and Benefits," the investigators tell story after story of rampant system abuses:

"At a time of economic distress unprecedented since the Great Depression with government budgets depleted and austerity the theme of the day even in the private sector, the gravy train continues to roll without impediment for select groups of employees on the public payroll."

Police officers in New Jersey refer to their sick pay payouts at retirement as their "retirement funds."  And in one of the biggest reported abuses of the system, a California doctor who worked at the prison substance abuse facility in Corcoran, CA received a payout of $815,000 when he left state service.

The doctor, Kim Nguyen, said in an interview that a heavy workload kept him from using his vacation.  His supervisors paid for extra shifts using comp time instead of overtime.  "They never hired enough doctors," he said.  "I never complained so they thought we could handle it...They kept asking us to work more."

Critics say that the payments highlight a system defined by lax management and generous benefits unavailable to private sector workers.  The California Department of Personnel Administration manages workplace issues for the state's 237,000 employees.

During contract negotiations in 2005, they proposed limiting the vacation-payout cap but abandoned the idea in favor of other concessions, according to Julie Chapman, chief deputy director of policy.  Union representatives "pointed fingers" at managers, who were exceeding the cap more often than rank-and-file workers.  State documents confirm that about 20% of non-union workers or managers had surpassed their caps as of late-2008 in contrast to about 4% of union employees.

"The unions screamed mighty heavily," Chapman said.  "They specifically told us that it wasn't so much of a rank-and-file problem as it was a management problem.  When the department proposed a similar crackdown among management, the Association of California State Supervisors pushed back, leaving enforcement of the vacation cap off the bargaining table.

In the state of California between 2006 and the middle of 2009, Chapman acknowledges that at least $100 million, and "maybe tens of millions more" was paid out to retiring state workers.

Most state employees can accrue a maximum of 80 work days of vacation, or 640 hours.  Some employees collect "annual leave time," including both vacation and sick days that are subject to the same limits.

Private sector vacation caps at employers including Nestle USA, Oracle, Western Digital max out at 280 hours in contrast to the 640 hours allowed for state employees.  And at least three other large states, i.e., New York, Florida and Texas, don't allow employees to have such a high cap on vacation and sick benefits.

Though these investigative reports are shocking in terms of the depth and frequency of abuse, they aren't surprising.  Who would have thought that such a blatant abuse of a compensation and benefits program would become so politically explosive that no one seems to have the will to change current practices.

No one is stepping up to the plate, just yet.  But stay tuned, as there reportedly is a referendum planned for the November ballot in California to tackle excessive retirement packages for newly hired state employees, grandfathering in older employees.  Let's hope it's not too late.  The state is reportedly $20 billion dollars in debt.  If California or New Jersey defaults, then taxpayers all across our country will be asked to pick up the finances for undisciplined spending through no fault of their own.

My recommendation to you is to double check the liability of your organization's vacation, sick and compensatory time practices to be sure that you're on top of them.  Work with your CFO to ensure that you understand your organization's liabilities in this arena, and be prepared to fund those liabilities.  And find the fortitude to rein them in if necessary....

About the Author

Becky Regan is the founder and President of Regan HR, Inc., a human resources consulting firm specializing in compensation consulting for California employers and purveyor of online HR products. A former Corporate Human Resources Director (10,000+ employees) with more than 25 years of HR work experience in many industries, her team works with private, public and non-profit clients.  Becky is passionate about designing HR programs and compensation plans that build organizations.

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