Public vs. Private Sector Compensation in Montana (2012)

By Glenn Oppel, MPI Policy Director

Click here for full study. (PDF – 4MB)

The State Human Resources Division (Division) of the Montana Department of Administration plays a key role in the adoption of a pay plan for state employees in Montana. It is for all intents and purposes the sole source of data on compensation used by policymakers and agency managers. Unfortunately, the data the Division produces is based on a flawed methodology and limited data.

The Division conducts a salary survey of Montana and surrounding states on a biennial basis to arrive at a private sector comparison for occupations and offices in state government. With the most recent survey, the Division determined that on average a majority of the public sector occupations studied have earnings that are 13.3 percent below what they call the “market midpoint.” The Division’s methodology is open to criticism on a number of points:

• Many positions in the public sector have no private-sector equivalent. Correctional officers and fire fighters, for instance, have no direct private sector equivalent. Comparing occupations like these to a “market midpoint” yields very little useful information.

• Comparing earnings among occupations does not account for the differences in age, education, and experience for the employees who work in these occupations.

• The Division’s analysis doesn’t include the value of employee benefits — health insurance, paid leave, pension, etc. — which make up a considerable portion of public employee compensation.

This new analysis from the Montana Policy Institute compares employees of similar personal and professional characteristics in both the public and private sectors of Montana. Instead of comparing pay in broad occupational categories, this report uses regression analysis to compare public and private employees of similar work experience, education, gender, race, and disability status. It also analyzes total compensation (which the state fails to do), including take-home pay as well as fringe benefits.

This report details the methodology and finds that public employees in Montana actually earn over 15 percent more than comparable employees in the state’s private sector.