PAR is a term often associated with the sport of golf. It is used to indicate an average of scores, setting a standard for a particular hole or course. It can also be found in descriptions of financial transactions to express a measurement of value. In common parlance, the terminology has been appropriated as “par for the course” for expected performance, “par excellence” meaning superior performance and “below par” for inadequate performance. As an acronym, PAR has a variety of meanings ranging from the airport code for Paris, France to a Performance and Accountability Report or Pixel Aspect Ratio. I propose adding PAR as shorthand for Proportionate Allocation Response as well.
Civic employee contracts are often tied to fiscal years so many municipalities find themselves in the midst of contract negotiations with various employee bargaining entities near that time of the year. Council agendas that address these agreements typically include Memorandums of Understandings (MOUs) under “Consent” items that require council ratification but face little, if any, scrutiny from the public. After all, it is reasonable to assume that these agreements are the result of thorough discussions and compromise, fair to everyone involved.
Often included in such negotiations are Cost of Living (COLA) increases that help employees maintain a standard of living commensurate with increases (or decreases) of the cost of goods and services. COLAs are typically calculated by a recognized authority such as the U.S. Bureau of Labor Statistics. [Such increases are separate and apart from seniority and merit increases.] The Consumer Price Index (CPI) is adjusted to account for regional differences. Just as locale affects the cost of goods and services, people at different economic levels are affected differently as well.
Using equal COLA adjustments for all levels of a pay scale is a bit misleading. Since COLA adjustments are intended to maintain a standard of living commensurate with rising costs, it actually favors highly paid employees who may have a significant amount of discretionary income with little need for a cost of living raise to maintain their lifestyle. In fact, if a fixed percentage is used for all employees, no matter where they fall on the pay scale, the disparity between the low end and high end is enhanced.
For example, consider Employee A who earns $60,000 per year while her Supervisor, with more responsibility and seniority, is paid $200,000 for the same time period. Without merit pay increases for either party, their employer has negotiated a three percent COLA for all employees consistent with the regional CPI. What is the difference and is it a fair representation of an essential need?
Employee A
Before COLA: $60,000 After 3% COLA: $61,800
Supervisor
Before COLA $200,000 After 3% COLA $206,000
Difference before COLA $140,000 Difference after COLA $144,200
The difference is dramatic and a question arises of whether this truly represents an equal impact of cost of living increases on both employees. Where much of the income for Employee A probably goes to the cost of housing, food, transportation, etc., can the same be said for the supervisor? And, if so, is it fair for someone close to break-even or below to receive COLA equivalent to 30% of a higher end employee who is probably better prepared to absorb cost of living increases?
There may be many differences between living and family arrangements so the comparison is much more complex that a simple mathematical calculation. However, the disparity is striking. Not only does the lower-paid employee receive less assistance for increased costs, but the spread between their compensation and the higher end employees is now much greater. This is the fallacy of equivalent percentage increases. What can an employer and employee negotiator do about this?
One way to equalize the impact of CPI increases is to consider a proportionate adjustment depending on an employee’s position on the pay scale. Making the assumption that those on the lower end of the pay scale are impacted the most, if the COLA amount is combined and distributed on a weighted basis to maintain a reasonable difference between pay grades, those in greatest need would receive the greatest benefit. Using a Proportionate Allocation Response (PAR) technique will maintain “equality in value or standing,” the definition of par.