Pietig’s Pay; Plenty Perplexing

At about 11pm at the end of the March 28 City Council meeting, the council addressed the last item on the agenda: the annual review of City Manager Pietig’s employment contract.  This author was the only ‘member of the public’ remaining in the City Hall chambers to watch this annual spectacle of Council members singing the praises of a City Manager who is apparently perfect in every way.

With a 5/0 vote, Mr. Pietig was granted his demands which consisted of:

  1. Extension of his employment contract to June 30, 2020 with an automatic additional 1 year extension to be enacted on July 1, 2018 (extending the total contract until June 30, 2021). The automatic extension will happen unless the City Council intervenes to stop the automatic extension.
  2. Provision of a 5% “exceptional performance” pay/bonus for the next year (effective March 27, 2017, to be calculated against his current Regular Pay)
  3. Elimination of a $4000 annual cap on reimbursements for attendance at conferences or payment of dues (no new limit on these reimbursements was mentioned).

It is difficult for the average Laguna Beach tax payer to determine what all of these newest changes to Mr. Pietig’s employment contract mean in terms of dollars and cents.  Since Mr. Pietig’s contract is reviewed and revised annually, with concessions that roll-out over a period of several years and which overlap earlier concessions, the nett results are very difficult to determine.  I have reviewed the relevant Staff Reports and can not claim to understand the details completely.

Take for example, the current concession of a 5% “exceptional performance” bonus which was sought and granted. The City Council made a point of saying that this was not a request for a salary increase; instead it is an optional, 1-time bonus. That sounds good, but the reader needs to bear in mind that Mr. Pietig has already been granted annual salary increase guarantees in previous years’ contract concessions.  Plus, the 5% “exceptional performance” bonus appears to be granted during annual reviews when a salary increase is already due, as agreed in previous year’s negotiations.  As best I can tell, the current 5% bonus will ride on top of an already approved 3% salary increase scheduled for July 1 2017.  LagunabeachCHAT tried to piece together the history of concessions that Mr. Pietig has received over the past several years from the City Council.  The overlapping increases to salary (negotiated directly with the City Manager or as part of a city-wide increase for all “management employees”) together with the 5% “exceptional performance” bonuses makes it very difficult to get a firm grasp of Mr. Pietig’s actual remuneration. (We will be the first to admit we might have gotten it wrong; and if so we will print a correction). Graphically, here’s what we’ve been able to piece together from the Staff Reports over the past 3 years:

Blue stars represent concessions that were agreed at the 2/3/15 City Council meeting. Those in red, during the 1/12/16 City Council meeting, and so on.  For reference, I have included links to the relevant Staff Reports where all of these concessions are discussed:

1 – Staff Report referenced in the City Council decision of Feb 3, 2015 is here

2 – Staff Report referenced in the City Council decision of Jan 12, 2016 is here

3 – Staff Report referenced in the City Council decision of Mar 28, 2017 is here

Pouring through those documents, what we can see is that Mr. Pietgi’s total compensation at the point of 2015 was:

Regular Pay – $229,436.69

Other Pay – $20,476.14

Benefits Pay – $71,579.66

Total Pay – $321,492.49

The Staff Report from 2017 indicates that his current Regular Pay is $251,809 and is scheduled for a 3% increase on July 1, 2017 (to $259,363) and another 3% on July 1, 2018 (to $267,144) as indicated on our graph above. We estimate that his total compensation will have reached $358,124 at the completion of that fiscal year).

I have to point out that in reviewing the remuneration of the City Managers in other Orange County cities, that of Mr. Pietig’s falls in the middle of the pack. That is to say, his 2015 total remuneration is at about the 50% percentile of the other 30-odd City Managers.  But bear in mind that such a comparison places him in the company of City Managers who’s cities have populations an order of magnitude more residents than Laguna Beach. The city of Santa Ana which has a population of 334,000 provides total remuneration of $453,000 to its City Manager, the highest in Orange County, as detailed last year in a Voice of OC article.  With Mr. Pietig soon at or near $350,000 per year, he is earning 3/4’s of that amount with 1/13th of the population.

A final note I’d like to make on this topic.  During the Council meeting on March 28, 2017 at 11pm, several council members took pains to extol on the many virtues of Mr. Pietig.  He is in their estimation among the best of the best. That very well may be. I am in no position to determine how well he compares to other senior city executives in other cities. However, I’d like to make a couple of points on that line of reasoning as the basis for handing out endless numbers of annual pay increases and ‘”exceptional performance” bonuses:

  1. An executive at this level is expected to perform superbly and with the highest standards, otherwise they should not have the job in the 1st place. When did traits such as quick turn-around time and encyclopaedic knowledge of city issues become extraordinary for a City Manager?  Isn’t this the standard of performance that tax payers should expect? So how do these traits (which Mr. Pietig may well possess) become the basis of granting these generous, yearly concessions?
  2. Private Company CEO comparison – To my mind, this comparison is not valid. Although both City Managers and CEOs require substantial leadership and organisational skills, a CEO of a publicly traded company deals with many issues and pressures that a City Manager simply does not. A CEO is measured on the change in value that their leadership brings to the company and hence, the share holders of the enterprise. And commercial enterprises are not guaranteed the majority of their annual income through the collection of taxes that are mandatory contributions to a City Manager’s “enterprise”. To suggest that Mr. Pietig’s job is similar to that of a CEO leading an enterprise with a $70+ million annual turnover is not a valid comparison.  Therefore to look at CEO’s compensation as a relevant measuring stick to that of a City Manager is not reasonable.
  3. Need to compete with other cities – This is a valid concern. City Councils everywhere give-in to the demands of their executive employees with little regard for the financial implications.  The close and often long-term relationships that City Councils develop with their senior management leads them to be very supportive of demands for increases in compensation from these senior managers, as long as these senior managers give them the political capital they need to keep and do their jobs. We end up with an ‘arms race’ in executive compensation.  I do not have a solution to this dilemma, other than for City Councils to be very savvy in the HR policies they promote which may lead to viable future senior managers to be nurtured from within existing City employee staff.

What can we, the tax paying residents of Laguna Beach do check the apparent largess that the City Council seems determined to visit upon the City Manager annually?  Attend council meetings and make your voice hear during the public comments period.  You can send emails to the council members with your thoughts.  You can also register your opinion by taking the Survey Monkey survey that we’ve put together, to determine Laguna Beach voters’ opinions on governance: https://www.surveymonkey.com/r/X6Y2PJ9