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Study finds CPS Energy compensation on target overall
By Tracy Idell Hamilton on February 1, 2013
The vast majority of CPS Energy employees are paid within the range of competitive market rates, while top executives are paid somewhat less than the industry standard for similarly-sized energy companies, according to a third-party compensation study.
The CEO position, by contrast, is paid far below that standard, according to the “total remuneration study” commissioned by the CPS Energy Board of Trustees, which will be presented to the entire board at today’s regular monthly meeting.
Also today, the board is expected to propose extending CEO Doyle Beneby’s original three-year contract.
The board commissioned two studies last spring, one examining CEO pay and benefits, the other scrutinizing the rest of CPS Energy’s roughly 3,600 salaries, to make sure they are competitive with comparable energy and related companies.
A state law passed in 2011 required municipally-owned utilities to release salary data for all employees, which led to greater scrutiny by stakeholders, including CPS Energy’s owner, the city of San Antonio, and the community.
The board also felt the study was important as the industry faces significant changes, including rapidly evolving technology, increased environmental regulations and a workforce nearing retirement.
CPS Energy seeks to compensate employees at the 50th percentile of competitive market rates, and uses an incentive plan to get there, which is the industry standard. The idea is that having some pay at risk increases performance and accountability – and indeed, incentives are not paid when annual goals are not reached.
Last year was one of CPS Energy’s best performing years in its history, beating goals in safety, reliability and customer service; as a result, employees and executives earned 100 percent of the potential incentive pay, a total of $16 million, or .8 percent of CPS Energy’s $2 billion in annual revenues.
“Overall, Towers Watson finds the compensation and benefits for executive-level positions to be below market median competitive levels of peers, while non-executive positions are more competitively positioned versus the market median, falling within competitive parameters,” the consulting firm said in a statement.
Towers Watson, which opened its first U.S. office in 1934, is one of the leading compensation, benefits and risk and capital management consulting firms in the world, with 14,000 employees. It has been performing energy services industry compensation and benefits studies for more than 20 years, and served more than 100 energy services companies in just the last year alone.
For non-executives, Towers Watson generally considers total remuneration (including incentives and benefits) within +/- 10 percent of market rate to be competitive. Most salaried positions, according to the study, are 7 percent below market rates.
Senior executives fared slightly worse than their peers, with total remuneration packages on average 30 percent less than the industry standard; Towers Watson considers executive remuneration competitive if it falls within +/- 15 percent of the market rate.
Total CEO remuneration – again, including base salary, incentives and benefits – by contrast, came in 70 percent below the market rate.
Last year, Beneby earned $820,000 — half of that in salary, the other half as a bonus for achieving stringent performance metrics. The former president of Exelon Power signed a three-year contract with CPS Energy in 2010 setting his base salary at $360,000 a year, with the opportunity to double that pay with bonuses tied to performance. He has earned those bonuses each year. Trustees raised his salary by $50,000 in 2011.
Strong management and cost cutting have allowed CPS Energy to twice delay a rate increases previously forecast, while at the same time improving measures for customer service, safety and reliability, said board Chairman Derrick Howard.
He also noted that CPS Energy’s diverse power generation fleet and strong credit rating have contributed to successful efforts to keep customers’ utility rates remain among the lowest in the state.
The CEO study results didn’t surprise Howard, who said trustees are well aware that Beneby’s salary is far below that of other industry executives. A recent comparison by the Houston Chronicle found that average energy CEO pay ranges from $2 million to $6 million annually.
Howard said that while the results of the study did affect the compensation package the board will offer Beneby, it will not include a large raise.
“He will still be substantially underpaid compared to his peers,” Howard said, “but the Board agrees that we have a CEO who has performed better than his peer group, and considering the return to our community for that performance, we are comfortable that our proposal to him will be appropriate, but still within parameters that the community can afford.”
Howard is one of two members of the Board’s personnel committee, along with trustee Ed Kelley, former president and CEO of USAA Real Estate.
Kelley said it was important that CPS use “the best consulting service in the industry” to perform the compensation study, so the results would be unassailable.
For a variety of reasons, it is difficult to accurately compare CPS Energy with other utilities, Kelley pointed out. For one, it is the largest municipally-owned gas and electric utility in the country. CPS Energy is also vertically integrated, meaning it owns power plants, the poles and wires to move that power and the retail connection to customers. CPS Energy’s renewable goals, as well as its recent decision to link clean energy investments with economic development and educational investments, also set it apart from other utilities.
To create comparable metrics, Towers Watson used a mix of other public power utilities and investor-owned utilities of similar size that offer similar services.
For benchmarking the executive positions, the firm used a peer group of twenty-three comparably-sized, fully integrated, public power and investor-owned utilities with revenues in the range of approximately one-half to two-times CPS Energy revenues of $2.2 billion.
For the non-executive positions, Towers Watson used both energy services and “general industry” companies that have similar positions, as well as third party energy services and general industry surveys that were available to CPS Energy.
Kelley said he was pleased to learn that CPS Energy salaries “are generally in balance,” considering it must compete to hire from both municipally owned and privately-held utilities.
There are some outliers within the company, he said, and it will be Beneby’s job going forward to make adjustments.
“Now that we have the data, we’ll be asking management to take a close look, on an individual basis, to make adjustments going forward,” Kelley said. The board will not recommend any operational policy changes.
“A company of this size and complexity can spin out of control quickly,” said Kelley. “We could pay less for leadership. But they could not be expected to perform at this best-in-class level, and we have a utility that’s recognized as among the best in the nation. If we don’t get someone who is good, we’re potentially affecting public health and safety, reliability and our community’s economy.”