By Stacy Waters, The Waters Consulting Group, Inc.

Only two professions should try to predict the future — fortune tellers and stock analysts. Everyone else should stick to "trending."

That’s why we prefer to study trends instead of making predictions when it comes to the future of compensation. In fact, this approach parallels with the thoughts of University of Chicago Professor James Schrager when it comes to futures forecasting. Clinical Professor of Entrepreneurship and Strategic Management, Schrager says, "The best way to predict the future is to study the past." And so it goes with compensation trending.

Some of the most noteworthy quotes in history are based on unflinching predictions by experts that proved far from accurate.

"The bomb will never go off. I speak as an expert in explosives." — Adm. William Leahy, U.S. Atomic Bomb Project

"Stocks have reached what looks like a permanently high plateau." — Professor of Economics Irving Fisher, Yale University, 1929

"640K ought to be enough for anybody." — Bill Gates, 1981

Understandably, with a division dedicated strictly to compensation system design, we never set out to predict the future when it comes to pay. Instead, we work to study the past to provide expected trends for the coming year.

Top 5 Trends for Compensation in Local Government

1. Pay-for-Performance Systems – With a Twist

In years past, "Pay-for-Performance" was almost a dirty word for employees because of the often subjective nature of the process. Today, with Web-managed programs and employee input regarding the design of systems, there’s stronger support at all levels for this type of approach to performance management — with a twist.

More creative and flexible concepts, such as variable pay and incentive programs based on individual, team, departmental and organizational goals and objectives, are replacing standard Pay-for-Performance systems. While it’s still true that most employees — regardless of level — want to be rewarded for a hard day’s work, the "reward" is moving beyond guaranteed base pay to include perks and extra dollars for superior performance.

This type of shift provides government employees opportunities to set measurable performance goals with their supervisors and be rewarded for success.

For our firm, the number of requests for proposals from local governments for incentive pay (tied to performance) studies has increased significantly over the past six months. Most notably, the desire for plans with variable and alternative pay is on the rise. Not since the 1982 publication of The One Minute Manager has there been such a buzz in local government to reinforce the link between pay and performance.

In 2007, expect to see more of this type of motivation as local governments move toward or reinforce a more reward-based culture and give managers more leeway to provide incentives.

2. Modest pay increases for non-exempt positions

Local government, non-exempt employees will not see a significant increase in base pay for 2007. In fact, based on salary trends from 2002 through 2006, base pay will increase a moderate 3 percent to 3.9 percent in the coming year. However, given the push for alternative pay, local government employees will have better opportunities to earn more.

3. Virtual Offices/Work from Home

With increased technology, more and more employees are opting for a "virtual work world." While not tied directly to compensation in terms of pay increases, many employees are stretching the 50-hour work week to 60 hours (not 40 to 50) via computer connections, virtual office setups and VoIP (Voice over IP) systems.

Salaried employees will not see a reduction in work hours for 2007. In fact, they will continue to "do what it takes to get the job done." However, more local governments will make working from home an option.

Because additional dollars for more work will not be available, organizations will make working from home as attractive as possible by supplying better equipment (high-speed Internet, state-of-the-art laptops and VoIP systems) to more employees.

4. New Job Titles and Changes in Demand for Current Titles

With increasing demands from the federal government — like mandatory positions for Homeland Security efforts — and the move toward strategic human capital management, new job titles are being created almost daily in local government. This of course calls for a restructuring of pay systems.

Plus, many jobs are changing in terms of visibility and increased demand. In 2007, expect to see more jobs in security as well as a continued rise in positions associated with information technology and human capital management (Director of Managed Competition, for example) with handsome compensation opportunities. These newly created or re-designed high-profile jobs will cause local governments to re-think their compensation structures when it comes to competitive base pay as well as other perks in order to attract and retain.

5. Professional Development with an Individual Focus

In 2007, local governments will do better than in years past in delivering more customized training and developing job-specific tools to support such efforts. Gone are the days when employee education was simply a matter of tuition reimbursement. Local governments want to see results from such investments, and they want to see them faster than ever before.

As a benefit to employees, more adult education, vendor-sponsored training programs and Web-based learning opportunities are forthcoming. The advantages of such programs include behavioral and competency evaluations that produce customized reports for employees. Such reports, if handled properly, provide employees with a clear path to professional success, pinpointing competencies and challenges as well as providing recommended resources for personal development.

Skill-based Pay is another trend that continues to gain momentum each year. With the focus on development of skills as well as competencies for individual employees, Skill-based Pay continues to be an excellent partner in the approach to overall training and development needs for local governments.

Web access to such programs will drive this trend in professional and personal development to a completely new level in 2007 and make such systems more affordable when compared with the organizational development programs of the past. Local governments will consider the assessments as part of a benefits package awarded to career ladder "worthy" employees.

With all this said, trends are just that. Here today, gone tomorrow is sometimes the best way to think of the future of compensation in both the private and public sectors. Now, if only we could figure out how to trend the winning lottery numbers!

This column is provided as a courtesy to IG by Stacy Waters of The Waters Consulting Group, Inc. It is a monthly comment on issues of importance in the human resources arena. It is intended to provide general information and must not be construed as legal advice. Reproductions are allowed as long as credit is given to The Waters Consulting Group, Inc., and IG.

About The Waters Consulting Group, Inc.--IG's Newest Corporate Partner!

The Waters Consulting Group, Inc., (WCG) is the nation’s largest, privately held firm specializing in human resources, compensation and executive search consulting for local governments. WCG’s services have shaped and influenced hundreds of local governments in the area of compensation system design, strategic performance systems, succession planning and talent location through executive search for more than 30 years. The firm also powers and manages, through its Web Site Division, the annual salaries and benefits surveys for numerous public associations, including the International City/County Management Association (ICMA); the Texas Municipal League (TML); the Illinois Municipal League (IML); and the League of Minnesota Cities (LMC). The firm’s corporate headquarters are in Dallas, TX with other regional offices in Austin, TX; Bellevue, WA; and Cleveland, OH. The firm has a stable of full-time seasoned staff, including certified compensation professionals and certified management consultants. For more information, visit www.watersconsulting.com or call 800.899.1669.