Budget Guardians: Financial Administrators’ Compensation and Budget Overruns

Abstract

This study examines the relationship between employee compensation and bureaucratic performance within the context of state budgeting. It hypothesizes that better-compensated rank-and-file employees within state financial administration are more effective at preventing budget overruns. Using data from all 50 U.S. states from 2006 to 2020, the findings reveal that higher compensation levels for rank-and-file employees are significantly and inversely associated with overspending, while the pay of senior financial administrators shows no significant effect. Additionally, gubernatorial spending preferences are identified as a contributing factor to overspending. This study contributes to the public management and HRM literature by emphasizing the role of compensation in enhancing fiscal discipline and provides practical insights for policymakers seeking to reduce budget variance.