Average Total Compensation for San Jose City Worker is $175,000 Per Year

Does this seem incredible? Well it isn’t. It is based on actual payroll records obtained from the city of San Jose for 2011, with just one assumption added – that pension funds will no longer earn 7.5% per year, but instead earn a more realistic 4.5% per year. If you want to stick with 7.5%, the average is still $150,000 per year. If you don’t believe these numbers, download the spreadsheet of raw data yourself (watch out, it’s 3.0 megabytes). Better yet, obtain a similar spreadsheet from your own local city or county government payroll department, and perform the same analysis.

With San Jose in the national spotlight due to its landside passage of comprehensive pension reform, it is timely to examine in detail the level of compensation enjoyed by its city employees. A study released last week by the California Public Policy Center does just this, examining the city’s actual payroll records per employee for 2011. Several highlights of this study bear mentioning (ref. City of San Jose 2011 Compensation Analysis).

Because the study eliminated part-time and partial-year employees, as well as retiring employees, truly representative average and median figures were calculated. The 2nd table of the study shows both average and median total compensation for San Jose city employees, broken out by police, fire, and rest-of-workforce:
What is immediately interesting about these figures is that there is not a significant difference between the average and the median, for all employees, the average only exceeds the median by 7.0%. This throws cold water on the frequently heard defense of public employee rates of pay, wherein the average is alleged to be skewed upwards by the handful of highly compensated management employees. In fact, the median for police is actually 6.0% higher than the average, and the median and the average are virtually the same for firefighters.

Another benefit of this study, which examined actual payroll records per individual, rather than looking to sources of more general data, is that no forms of “other pay” were omitted. In Table #4 of the study, the amount of “other pay” is disclosed, along with the payroll overhead that is paid for by the city.

As can be seen, other pay is particularly significant for the police and fire personnel, averaging nearly $8,000 per year for police, and nearly $15,000 per year for firefighters. Also noteworthy is the cost of the benefits, or payroll overhead, which amounts to 55% of direct pay. Table #5 in the study estimates the payroll overhead – employer paid benefits – for a best-in-class private company, i.e., the best package one might reasonably expect in the private sector – at 21%, less than half what San Jose’s workers receive.

The study concludes with a few thoughts on the impact of lower rates of investment fund returns on the cost per year to pre-fund retirement benefits. Despite the fact that San Jose now pays nearly $40,000 per year, per employee, to pre-fund their retirement pension, it probably isn’t enough. This is because these levels of pre-funding are based on rates of return for pension funds of 7.5% per year, a rate that hasn’t been reliably met for about ten years – ironically just about how long ago it was when public employee pension plans across California were enhanced retroactively. Wonks, pay attention: For every 1.0% that a pension fund’s rate of return drops, the pre-funding requirement for those pensions goes up by at least 10% of payroll (the impact can be much greater than 10% with funds where a relatively large percentage of the beneficiaries are already retired or nearing retirement, and funds where retroactive benefit enhancements and poor returns in recent years have already left them underfunded). In San Jose’s case, a 1.0% drop in the rate of return would equate to at least an $8,500 increase per employee. A 2.0% drop would equate to at least a $17,000 increase. And a 3.0% drop, which is by no means a worst-case correction in today’s debt saturated, aging world, would equate to at least a $25,500 increase in annual total pay per employee.

Retirement benefit costs cannot be properly estimated without also taking into account employer-paid retirement health care, which San Jose had never pre-funded until the 2nd half of 2011, when they began to phase in payments at an initially very low rate. Properly pre-funding retirement health care will add additional thousands in compensation to San Jose’s city employees.

It is important to emphasize that only the total compensation is relevant when considering what public employees earn. This is the only way to generate apples-to-apples comparisons with private sector averages. And this is the only way to truly calculate what taxpayers have to cover, or estimate just how much personnel costs impact total civic budgets. If you properly fund future benefits during the years an employee works, in San Jose’s case, you have average total compensation that can be conservatively estimated as follows:

Police – $212,000
Fire – $238,000
Rest-of-Workforce – $148,032
Total Workforce – $175,000

These are staggeringly high numbers. And these averages are how much San Jose’s taxpayers are currently obligated to pay their city employees. The size of these numbers underscores that the problem with public sector compensation is not just the pensions, although they are the biggest part of the problem. But for the city of San Jose, it is all forms of pay and benefits that are elevated well beyond levels that are either sustainable or equitable. The average total compensation package for an employee for the city of San Jose – adding just one assumption, that pension funds will no longer earn 7.5%, but a more realistic 4.5% – is $175,000 per year. Even if you believe the pension funds will earn 7.5% per year, and that the retirement health benefits will somehow pay for themselves without prefunding, nonetheless, using San Jose’s own data, the average employee working for the city of San Jose still makes on average $150,000 per year.

In the private sector, even in the prosperous Silicon Valley, only members of top management in small companies, and only members of upper middle management in larger companies, can expect to earn a total compensation package anywhere close to $150,000 per year. And stock options, while offering tantalizing upside, historically have only benefit a small percentage of high-tech workers.

It is in this context that unions representing San Jose’s workforce are contesting the recent vote to reduce their pensions and make them share in the cost. That anyone representing a class of employees whose average pay is somewhere between $150,000 and $175,000 per year might contest this overwhelming decision by the voters they supposedly serve, boggles the mind.

8 replies
  1. Avatar
    eatingdogfood says:

    Well Looke Looke Here !!! And you wonder why your taxes are So High and All The Jobs are Moving OUT of California !!!

  2. Avatar
    Pierre says:

    Didn’t read the entire article however the INJUSTICE of this article will allow Cities of similar size to demand increases in PAY & BENEFITS for the SAFETY employees in those respective cities.

    The small counties & cities try to keep up with these Salary programs consequently all of California will go into BANKRUPTCY about the same time.


  3. Avatar
    Tough Love says:

    Editor, Thank you for a VERY informative summary.

    Interesting, (and to the chagrin of the Public Sector workers who so vehemently oppose even minor pension reforms) your figures support what I have been saying for quite some time … that pensions are GROSSLY EXCESSIVE (when compared to what Private sector taxpayers get), costing 50% of pay for safety workers and 32% of pay for Misc. workers.

    Also interesting is that your facts support another of my observations …. that even recent suggestions that Public Sector workers pay HALF the cost of their pensions is NOT SUFFICIENT. Taxpayers should contribute no more (as a % of pay) towards Public Sector worker pensions than THEY get from their employers. Based on your charts, the top-tier Private sector company contributes 6%+6.2%=12.2% of pay (and most less than 10% because the 6% 401k contribution shown is certainly a high-side outlier), while HALF of the full cost of the Public Sector pensions would be 25% for safety and 16% for Misc. There is ZERO justification for Taxpayers to pay more than the typical 10% they get. If Public Sector workers want these VERY rich pensions, THEY (not Taxpayers) should pay for all costs in excess of a 10% contribution from Taxpayers.

  4. Avatar
    Tough Love says:

    Editor, A follow-up thought ….

    Your “Total Compensation” figures clearly support the need for outsourcing of 90+% of all Public Sector jobs, and merging of local Police forces with larger county forces where outsourcing to the Private Sector is not possible.

    Most pension reform efforts shy away from changes to current employee pension, even for just FUTURE service, with the Unions (and sometimes with the Constitution or case law) supporting the position that changes must be limited to new workers.

    Clearly changes only to NEW employee pensions will be too little too late. Rather than fight the gigantic battle necessary to significantly reduce CURRENT employee pensions, OUTSOURCE every position possible … with that 90+% goal.

    Outsourcing ends the “employment relationship”, and with it all future growth in pensions and benefits. For many towns and cities, outsourcing is their ONLY salvation.

  5. Avatar
    TheBeachBum says:

    What the public employees don’t grasp is that they are a relative small minority with really luxurious benefits that outstrip what the average person earns working full time. They live in a virtual bubble, claiming it is the rest of the populace who are lesser educated, underpaid or ill-informed. They insist that they earned and deserve these outlandish benefits, regardless of their equitability or sustainability and their unions will claim the same while their membership declines due to hiring freezes and layoffs. All the while it is the public who are really suffering due to class size increases, cutbacks in service, and park closures.

    These are the true 1% privileged class that are bankrupting our cities and destroying the once great Golden State.

  6. Avatar
    Ramon says:

    Funny, when the pension funds were overfunded in the early 90’s, they demanded more pension benefits because that overfunded monies, belonged to them. The average public sector pension went up 28%. Now that it is underfunded, nobody wants to take a cut. If a municipality files for Chap 9, and they are underfunded by 40%, all retirees and employees should be taking pay cuts

  7. Avatar
    Tough Love says:

    The pensions were NEVER truly “overfunded”.

    Under the accounting rules that the gov’t requires of Private Sector Plans, the REAL funded ratios of Public Sector Plans are about 25% lower than their “official” figures.

    The retroactive benefit increases was just a well orcastrated plan to increase Public Sector benefits 100% charged to Taxpayers.

  8. Avatar
    eatingdogfood says:

    You really didn’t think that Gov. Moonbeam and his Double Dealing Democratic Cohorts would Stab their Union Bosses in the Back, Did Ya ??? Only one way out of this !!! Declare Martial Law and Nationalize the National Guard and Arrest All the Democrats and Union Bosses on RICO Conspiracy Charges !!!

    Read more here:

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