The individuals responsible for managing the overall operations of public power utilities - often titled General Manager (GM) or Chief Executive Officer (CEO) - are engaged in public service for their communities. Using skills and knowledge that are in demand nationally and by other utilities in their area, these GMs provide quality leadership. They are often paid below average salaries for their position and are asked to ensure above average performance for their utilities in both reliability and customer satisfaction. How long can this trend be sustained, in increasingly competitive times?
Public power GMs are generally driven to serve their communities. However, utility board members should be aware that paying their top people below market compensation is uncompetitive. This is especially a problem when it comes time to replacement of the current GM — and we know that baby boomer retirement numbers are on the rise.
Even if retirement is not on the horizon, electric utility GMs have nationally transferable skill sets and could easily be lured away by others offering more competitive pay.
Since public power utilities generally pay less than other types of electric utilities, you should at least pay in line with what the rest of the public power pays. Knowing how your utility's salary structure lines up with other public power utilities is the first step in retaining top leaders.
Public power utilities pay in line with electric revenues. Fundamentally, this makes a lot of business sense. It also makes it easy to take electric revenues and estimate an in the pack" GM total compensation. Looking at more than 100 public power utilities, we built a model that provides a general estimate of in the pack compensation — which includes base pay, bonuses, and other forms of cash compensation — based on electric revenues to help utilities benchmark. We know that there are lots of reasons compensation might deviate from the model estimate, but it remains important to know where you stand and why.
Based on the results of this model the American Public Power Association has identified a "danger zone" where GM compensation may need to adjusted — compensation below about one third of one percent of electric revenues and below 80% of our estimate [$138,100.9 + ( 0.2899022 x electric revenues in 1000's)]. If your GM pay is in the danger zone (red box below), you might be in trouble. Otherwise, you can at least consider yourself paying with the pack.
It is important to keep in mind that the above graph is a calculation based on a pair of data points — GM compensation and revenue — and is merely meant to capture trends in the revenue/compensation relationship. Utilities who fall outside of the danger zone are not "overpaying," especially when compared with investor owned utilities or cooperatives.
As detailed in the paper Public Power Needs to Pay, median compensation for public power utility GMs is significantly less than for cooperative utility GMs. As cooperative GM compensation tends to reflect a much higher percentage of utility revenue, even GM compensation that is in the upper right hand corner of the above graph is still likely to be less than average compensation for a cooperative GM (as a percent of revenue). This means those utilities in the danger zone above are at an even greater disadvantage in terms of compensation.
When you pay less, you risk losing talented leaders to other utilities or even other industries, and nullify the public power appeal of serving the community.
We understand that utility revenue varies from year to year and that fiscal prudence is required by entities of state and local government, but if you're not paying with the pack you're getting left behind and creating a potentially expensive leadership talent gap for the long term.