Management & Operations

Money Isn't Everything, Is It?

Posted on July 1, 2004 by Joey Campbell, Managing Editor

The business of public transportation is significantly different from traditional private enterprise. The biggest difference, of course, is the profit motive. Although public transit systems have balance sheets just like their private-enterprise counterparts, the bottom line isn't focused on profit.

That's not to say, however, that money isn't a critical factor in public transportation. We all know that funding issues sit at or near the top of the worry list for transit agencies large and small.

What's interesting is the way this difference in business motive affects compensation levels. Are transit employees, starting at the top with the presidents, chief executives and general managers, underpaid compared to their private-industry cousins? If so, by how much?

How exactly, then, are people with high-level qualifications drawn to work in the transit industry? If money is not the attraction, what is?

These questions and others are compelling in determining the vitality and future of transit leadership.

Salaries at the top
Public transportation executives have a lot on their plates. With responsibilities such as overseeing departments, answering to a board and eyeing the bottom line, the juggling act of a top-level transit executive can be difficult. One thing it's not, however, is dull.

"It's challenging for sure, but there are so many dimensions of this business that I haven't been bored a day since the minute I started in 1990," says Carla Lakatos, executive director of Butler County (Ohio) Regional Transit Authority (BCRTA). In fact, Lakatos thinks the responsibility levels of transit heads are comparable with those of similar-sized private businesses.

But while responsibility levels in public transit may be similar to those in the private sector, from all indications, salaries are not.

"For executives," Lakatos says, "transit just doesn't compare in pay levels to the private sector."

Results of a recent Monster.com salary survey reported that the average annual base salary of a typical CEO in the United States is $543,898. According to the survey methodology, the data was collected from "thousands of HR departments at employers of all sizes, industries and geographies." In contrast, METRO gathered annual salaries of top executives at 40 randomly selected transit agencies in the U.S. and Canada, also of varying size. Annual salaries ranged from $70,000 to $295,000 with a mean of $169,300 and a median salary of $177,500.

Granted, the two numbers are not strictly analogous due to differences in sample size, type of organization and other data collection factors. But it seems fair to presume that these figures reflect the reality that transit executives are paid far less than their for-profit, private sector counterparts.

The implications are not totally dismal, however. Of the 40 agencies surveyed, many are small and rural, and the considerably lower salary levels of these general managers bring the overall average down. Of the 18 agencies with more than 2,000 employees, for instance, top executives earn a mean salary of nearly $240,000 a year, while the median is $223,500. While not exactly on par with Fortune 500 CEOs, these numbers suggest a competitive income.

Conditions have improved, too, says Tom Sehr, executive vice president of Metro in St. Louis. "More and more public organizations are recognizing that effective executives who can solve problems and measurably improve performance are valuable resources," he says. "Accordingly, CEO salaries in such public organizations — often those with the most difficult problems — have increased."

Other financial motivations
An important, and to some degree unique, quality of the public transit industry is the tendency for extensive career movement between geographical regions. It's not uncommon to see an agency chief leave a position in one part of the country to take a job in another part, often thousands of miles away. Financially, this ends up being a major advantage for transit executives, as a nationwide network offsets regional salary fluctuations and expands the job market.

"Because the recruitment pool for senior managers and some technical and professional positions is national, salaries are tied to national figures for these positions," says Mary Davis, president and CEO of Denver-based consulting firm McGlothin Davis Inc. "Hence in many cases, these professionals can command salaries comparable to peers in the private sector."

While obviously a huge compensation indicator, salaries are only one part of the story. Transit benefits, which include health and retirement plans, are another significant element.

McGlothin Davis, which provides organization development and human resource management to public transportation operators, has conducted extensive research into benefits and other means of compensation. Says Davis, "My research has revealed that benefits in transit are often comparable to other public sector agencies and in many cases superior to those in the private sector."

In fact, Stephanie Pinson, president of Gilbert Tweed Associates Inc., an executive recruiting company specializing in public transportation, says benefits are sometimes good enough to actually pull people from the private sector into transit positions. "I've been fortunate enough to move some people over to the transit side, and interestingly enough, it is not infrequently that they make the decision to move based upon some kind of benefits package or retirement package that is actually better — with less contributions from the individual and more from the agency — than they're finding in corporate America," she says.

Unfortunately, from a big picture perspective, benefits can also be a source of controversy. Always a bone of contention between labor unions and public agencies, the value of benefits packages has, according to some, skyrocketed.

Says Los Angeles-based transportation consultant Jim Seale, the value of benefits as a percentage of total compensation traditionally has fallen in the 35% to 40% range among transit agencies. Seale, who is a member of the citizens advisory council for Los Angeles County Metropolitan Transportation Authority, says benefits expenditures have gotten out of control in some agencies, with a benefit ratio approaching 65%. "That is really bad," he says.

The nature of the business
Other qualities play an important role in attracting and keeping executive-level talent, many of them inherently related to the transit industry.

For example, job security is a safer bet in transit than in most private businesses. "Layoffs and downsizing just don't happen in the transit world as much as in the corporate world," says Pinson. "Due to economic cycles, corporate America will go through phases during which they lay off a lot of talented people, and these people become available to transit agencies."

She says salaries aren't as important to these people because many of them have received large severance packages from their previous employers. Security is more important, and they can find it in transit, along with the added bonus of working in a socially significant environment.

Furthermore, many intellectual and creative minds are allured by the opportunity to solve the often difficult problems facing transit. "The transit industry is attracting the top talent because it is challenging work, making it very satisfying," says Joe Alexander, transit consultant with Washington Group International Inc.

BCRTA's Lakatos agrees. "There are so many dimensions of this business, it's amazing," she says. The daily challenges, which range from city planning to transporting people with disabilities, are appealing to professionals looking to resolve complicated dilemmas.

Agencies have taken notice, too. "The industry is filled with an aging population of workers," says Pinson. "So agencies are aware of the need for more, newer expertise." Also, as electronics, computers and other advanced technologies become more integrated with transit infrastructure, the need will increase for highly educated specialists in these areas. And with this expansion of transit infrastructure comes enormous potential for career advancement.

Alexander says there is a lot of upward movement in transit systems, especially from smaller agencies to larger ones. Career advancement opportunities are extended, he adds, by the potential for transit executives to become consultants after retirement.

The softer side of transit
The rewards of a career in transit come in many different packages — some harder to measure than others. Transit executives insist, however, that there is a powerful notion of community improvement and care for the public good that incentivizes working in transit.

"It's very rewarding to see the impact that public transportation can make," says Howard Chapman, executive director of Charleston (S.C.) Area Regional Transportation Authority. "As the country becomes more and more congested and as public transit becomes more critical to quality of life in communities, then the need to reduce congestion by means of strong viable public transit becomes more in the forefront of community concerns. And working in the industry will become more of an attractive line of work to be in."

Lakatos argues that this city- and community-building aspect of transit sets it apart from private sector industries. "It's easy to look at an annual report of a private sector business and say, here's a good business," she says. "With a public transit agency, there's more to it. You can't just look at finances, you have to look at the people and how happy they are and how their life has been changed. We have social things that we must accomplish in addition to being accountable and finding a return on the taxpayers' investment." In that regard, she adds, the value of public transit, and indeed the rewards of working in the industry, are more difficult to quantify.

The public transit industry also manages to foster a strong community and social network among its executives. With several transit-related organizations, a slew of annual conferences and countless opportunities for transit professionals to meet and interact, the industry offers a unifying identity and the chance to build valuable professional and personal relationships with others who work in the business.

"I don't know that the sense of community is unique to this industry, but it is present and it is important in public transit," says Chapman. "When people have issues in common, they have the opportunity to talk to each other and help each other out. Nothing is sacred in this industry."

Close relationships among executives serve as an added benefit to working in transit.

Perceptions matter
Also affecting the attractiveness of transit jobs is what the general public sees. Never mind that public perceptions are often unflattering.

"In a conservative county, anyone who makes over $40,000 a year for a public industry obviously makes too much money," says Lakatos. "When the money involved is tax based, people just don't think you should be making much money. It's like teachers; people don't think teachers should make much money. They think, if it's my tax dollar, it needs to be as low as it can get."

Of course, most transit officials agree that public perceptions, with or without logic, can have noticeable effects. Perceptions influence potential careers in transit, and when the public's feelings are negative, it offsets other forms of compensation, causing the number of interested workers to decrease.

"Jobs that require academic or professional qualifications are seen as attractive based on how the transit authority is perceived in the community as well as on competitive wages and benefits," says Sehr in St. Louis. "If transit is viewed in a community as a service for the poor, jobs are less attractive regardless of wage or benefits."

William Leverence, director of fiscal operations for Westchester County Department of Transportation in Mt. Vernon, N.Y., points out that the public typically thinks that drivers and mechanics get fair rates of pay and government administration is overpaid. The consequences, he says, are that the industry attracts a lot of workers looking for an easy job with good benefits. A further drawback of this is that those who actually do work hard have lower morale.

Consequences can be more ideological, too, notes Davis of McGlothin Davis. "Transit agencies are the victims of the perception that public-sector employment is stodgy, bureaucratic, slow-moving and that it does not allow for forward-thinking, creative work." To an otherwise unacquainted job candidate, this can become somewhat of a deterrent to working in the transit industry.

Davis says many transit agencies have begun efforts to change this negative image by such activities as "job redesign, restructuring of compensation plans, partnering of employment and marketing departments to create attractive recruitment plans and communicating better with their communities about the exciting nature of the work of their agencies."

Not surprisingly, those already associated with the transit industry see things differently than the public at large. In a recent online poll conducted on www.metro-magazine.com, site visitors were asked if they think public transit employees are paid fairly compared with other public service industries. About three out of five (61%) stated that transit workers are underpaid, while 28% said they are paid fairly and only 11% felt industry employees are overpaid.

The business of public transportation is significantly different from traditional private enterprise. The biggest difference, of course, is the profit motive. Although public transit systems have balance sheets just like their private-enterprise counterparts, the bottom line isn't focused on profit.

That's not to say, however, that money isn't a critical factor in public transportation. We all know that funding issues sit at or near the top of the worry list for transit agencies large and small.

What's interesting is the way this difference in business motive affects compensation levels. Are transit employees, starting at the top with the presidents, chief executives and general managers, underpaid compared to their private-industry cousins? If so, by how much?

How exactly, then, are people with high-level qualifications drawn to work in the transit industry? If money is not the attraction, what is?

These questions and others are compelling in determining the vitality and future of transit leadership.

Salaries at the top
Public transportation executives have a lot on their plates. With responsibilities such as overseeing departments, answering to a board and eyeing the bottom line, the juggling act of a top-level transit executive can be difficult. One thing it's not, however, is dull.

"It's challenging for sure, but there are so many dimensions of this business that I haven't been bored a day since the minute I started in 1990," says Carla Lakatos, executive director of Butler County (Ohio) Regional Transit Authority (BCRTA). In fact, Lakatos thinks the responsibility levels of transit heads are comparable with those of similar-sized private businesses.

But while responsibility levels in public transit may be similar to those in the private sector, from all indications, salaries are not.

"For executives," Lakatos says, "transit just doesn't compare in pay levels to the private sector."

Results of a recent Monster.com salary survey reported that the average annual base salary of a typical CEO in the United States is $543,898. According to the survey methodology, the data was collected from "thousands of HR departments at employers of all sizes, industries and geographies." In contrast, METRO gathered annual salaries of top executives at 40 randomly selected transit agencies in the U.S. and Canada, also of varying size. Annual salaries ranged from $70,000 to $295,000 with a mean of $169,300 and a median salary of $177,500.

Granted, the two numbers are not strictly analogous due to differences in sample size, type of organization and other data collection factors. But it seems fair to presume that these figures reflect the reality that transit executives are paid far less than their for-profit, private sector counterparts.

The implications are not totally dismal, however. Of the 40 agencies surveyed, many are small and rural, and the considerably lower salary levels of these general managers bring the overall average down. Of the 18 agencies with more than 2,000 employees, for instance, top executives earn a mean salary of nearly $240,000 a year, while the median is $223,500. While not exactly on par with Fortune 500 CEOs, these numbers suggest a competitive income.

Conditions have improved, too, says Tom Sehr, executive vice president of Metro in St. Louis. "More and more public organizations are recognizing that effective executives who can solve problems and measurably improve performance are valuable resources," he says. "Accordingly, CEO salaries in such public organizations — often those with the most difficult problems — have increased."

Other financial motivations
An important, and to some degree unique, quality of the public transit industry is the tendency for extensive career movement between geographical regions. It's not uncommon to see an agency chief leave a position in one part of the country to take a job in another part, often thousands of miles away. Financially, this ends up being a major advantage for transit executives, as a nationwide network offsets regional salary fluctuations and expands the job market.

"Because the recruitment pool for senior managers and some technical and professional positions is national, salaries are tied to national figures for these positions," says Mary Davis, president and CEO of Denver-based consulting firm McGlothin Davis Inc. "Hence in many cases, these professionals can command salaries comparable to peers in the private sector."

While obviously a huge compensation indicator, salaries are only one part of the story. Transit benefits, which include health and retirement plans, are another significant element.

McGlothin Davis, which provides organization development and human resource management to public transportation operators, has conducted extensive research into benefits and other means of compensation. Says Davis, "My research has revealed that benefits in transit are often comparable to other public sector agencies and in many cases superior to those in the private sector."

In fact, Stephanie Pinson, president of Gilbert Tweed Associates Inc., an executive recruiting company specializing in public transportation, says benefits are sometimes good enough to actually pull people from the private sector into transit positions. "I've been fortunate enough to move some people over to the transit side, and interestingly enough, it is not infrequently that they make the decision to move based upon some kind of benefits package or retirement package that is actually better — with less contributions from the individual and more from the agency — than they're finding in corporate America," she says.

Unfortunately, from a big picture perspective, benefits can also be a source of controversy. Always a bone of contention between labor unions and public agencies, the value of benefits packages has, according to some, skyrocketed.

Says Los Angeles-based transportation consultant Jim Seale, the value of benefits as a percentage of total compensation traditionally has fallen in the 35% to 40% range among transit agencies. Seale, who is a member of the citizens advisory council for Los Angeles County Metropolitan Transportation Authority, says benefits expenditures have gotten out of control in some agencies, with a benefit ratio approaching 65%. "That is really bad," he says.

The nature of the business
Other qualities play an important role in attracting and keeping executive-level talent, many of them inherently related to the transit industry.

For example, job security is a safer bet in transit than in most private businesses. "Layoffs and downsizing just don't happen in the transit world as much as in the corporate world," says Pinson. "Due to economic cycles, corporate America will go through phases during which they lay off a lot of talented people, and these people become available to transit agencies."

She says salaries aren't as important to these people because many of them have received large severance packages from their previous employers. Security is more important, and they can find it in transit, along with the added bonus of working in a socially significant environment.

Furthermore, many intellectual and creative minds are allured by the opportunity to solve the often difficult problems facing transit. "The transit industry is attracting the top talent because it is challenging work, making it very satisfying," says Joe Alexander, transit consultant with Washington Group International Inc.

BCRTA's Lakatos agrees. "There are so many dimensions of this business, it's amazing," she says. The daily challenges, which range from city planning to transporting people with disabilities, are appealing to professionals looking to resolve complicated dilemmas.

Agencies have taken notice, too. "The industry is filled with an aging population of workers," says Pinson. "So agencies are aware of the need for more, newer expertise." Also, as electronics, computers and other advanced technologies become more integrated with transit infrastructure, the need will increase for highly educated specialists in these areas. And with this expansion of transit infrastructure comes enormous potential for career advancement.

Alexander says there is a lot of upward movement in transit systems, especially from smaller agencies to larger ones. Career advancement opportunities are extended, he adds, by the potential for transit executives to become consultants after retirement.

The softer side of transit
The rewards of a career in transit come in many different packages — some harder to measure than others. Transit executives insist, however, that there is a powerful notion of community improvement and care for the public good that incentivizes working in transit.

"It's very rewarding to see the impact that public transportation can make," says Howard Chapman, executive director of Charleston (S.C.) Area Regional Transportation Authority. "As the country becomes more and more congested and as public transit becomes more critical to quality of life in communities, then the need to reduce congestion by means of strong viable public transit becomes more in the forefront of community concerns. And working in the industry will become more of an attractive line of work to be in."

Lakatos argues that this city- and community-building aspect of transit sets it apart from private sector industries. "It's easy to look at an annual report of a private sector business and say, here's a good business," she says. "With a public transit agency, there's more to it. You can't just look at finances, you have to look at the people and how happy they are and how their life has been changed. We have social things that we must accomplish in addition to being accountable and finding a return on the taxpayers' investment." In that regard, she adds, the value of public transit, and indeed the rewards of working in the industry, are more difficult to quantify.

The public transit industry also manages to foster a strong community and social network among its executives. With several transit-related organizations, a slew of annual conferences and countless opportunities for transit professionals to meet and interact, the industry offers a unifying identity and the chance to build valuable professional and personal relationships with others who work in the business.

"I don't know that the sense of community is unique to this industry, but it is present and it is important in public transit," says Chapman. "When people have issues in common, they have the opportunity to talk to each other and help each other out. Nothing is sacred in this industry."

Close relationships among executives serve as an added benefit to working in transit.

Perceptions matter
Also affecting the attractiveness of transit jobs is what the general public sees. Never mind that public perceptions are often unflattering.

"In a conservative county, anyone who makes over $40,000 a year for a public industry obviously makes too much money," says Lakatos. "When the money involved is tax based, people just don't think you should be making much money. It's like teachers; people don't think teachers should make much money. They think, if it's my tax dollar, it needs to be as low as it can get."

Of course, most transit officials agree that public perceptions, with or without logic, can have noticeable effects. Perceptions influence potential careers in transit, and when the public's feelings are negative, it offsets other forms of compensation, causing the number of interested workers to decrease.

"Jobs that require academic or professional qualifications are seen as attractive based on how the transit authority is perceived in the community as well as on competitive wages and benefits," says Sehr in St. Louis. "If transit is viewed in a community as a service for the poor, jobs are less attractive regardless of wage or benefits."

William Leverence, director of fiscal operations for Westchester County Department of Transportation in Mt. Vernon, N.Y., points out that the public typically thinks that drivers and mechanics get fair rates of pay and government administration is overpaid. The consequences, he says, are that the industry attracts a lot of workers looking for an easy job with good benefits. A further drawback of this is that those who actually do work hard have lower morale.

Consequences can be more ideological, too, notes Davis of McGlothin Davis. "Transit agencies are the victims of the perception that public-sector employment is stodgy, bureaucratic, slow-moving and that it does not allow for forward-thinking, creative work." To an otherwise unacquainted job candidate, this can become somewhat of a deterrent to working in the transit industry.

Davis says many transit agencies have begun efforts to change this negative image by such activities as "job redesign, restructuring of compensation plans, partnering of employment and marketing departments to create attractive recruitment plans and communicating better with their communities about the exciting nature of the work of their agencies."

Not surprisingly, those already associated with the transit industry see things differently than the public at large. In a recent online poll conducted on www.metro-magazine.com, site visitors were asked if they think public transit employees are paid fairly compared with other public service industries. About three out of five (61%) stated that transit workers are underpaid, while 28% said they are paid fairly and only 11% felt industry employees are overpaid.

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