4.2 ERMUSR 12-12-2021 Elk River
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
ERMU Commission Theresa Slominski—General Manager
MEETING DATE: AGENDA ITEM NUMBER:
December 14, 2021 5.4
SUBJECT:
2022 Performance Metrics and Incentive Compensation Policy
ACTION REQUESTED:
Approve the Performance Metrics and Incentive Compensation Policy Score Card for 2022.
BACKGROUND:
The Commission adopted the Utilities Performance Metrics and Incentive Compensation
(UPMIC) Policy in December 2012 along with revisions in 2016 and 2019.This is a company
performance-based program designed to incentivize employee commitment towards the
company's success
DISCUSSION:
Per policy, the metrics for measurement of the designated year need to be determined before
the start of the designated year. This allows for changes to be made and timely communication
before performance measurement begins. Staff is not recommending any changes but has two
points of discussion (below) worth noting. The policy is attached for reference.
In 2019, the commission had consensus to replace the customer satisfaction survey component
with a Clean Energy Choice participation component, with a weight of 5 percent, and a goal of
15 new customers for the 2020 measurement period. At that time, it was determined that the
most optimal way to measure the results was by an increase in the number of new participants
versus a percentage. 29 new participants were added in 2020, and 21 new participants have
been added year-to-date in 2021. Staff has had discussion whether to recommend the goal of
15 new participants be increased or remain the same for the 2022 measurement period. With
the pending 2022 rate increases, staff believes that a modest increase to 20 new participants
may be challenging. We would like one more year of history before proposing any changes and
we can discuss next year.
Staff has been auditing the water loss component to ensure that any unmetered water is being
accounted for in the usage component of the calculation, as this could incorrectly represent
water loss. Some of the things we've identified are temporary water services for construction
and hydrant rentals, however, staff is not proposing any changes to the water loss component
at this time.
The proposed UPMIC score card is attached for approval for the 2022 measurement year.
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FINANCIAL IMPACT:
No additional financial impact for the 2022 budget year. The potential 2% distribution is
budgeted for and accrued throughout the year for audit purposes, and any necessary
adjustments are made at year end.The actual distribution will be awarded in 2023.
ATTACHMENTS:
• ERMU Policy—G.4g1— Performance Metrics and Incentive Compensation Policy
• ERMU Policy—G.4g1a— Performance Metrics and Incentive Compensation Policy Score
Card —2022
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Elk River
Municipal Utilities COMMISSION POLICY
Section: Category:
Governance Delegation to Management Policies
Policy Reference: Policy Title:
G.4g1 Performance Metrics and Incentive
Compensation
1.0 PURPOSE AND SUMMARY
The successful performance of the ERMU is measured in terms of the Utilities' ability to meet
our strategic goals and mission. By improving our efficiency and level of performance in
meeting our strategic goals and mission we can improve the delivery of value to our customers.
To create incentives for employees to take personal responsibility for accomplishment of the
Utilities' strategic goals and mission, the Utilities has established a Utilities Performance
Metrics-based Incentive Compensation system("UPMIC"). Through UPMIC the employees of
ERMU will have an opportunity, as a group, to earn annual incentive compensation for each
qualifying employee by contributing individually to the overall success of ERMU on a daily
basis.
Under UPMIC, either all qualifying employees will earn an incentive compensation distribution
in a given year, or none will. And not only will incentive compensation under UPMIC in that
sense be an all or nothing proposition each year,but there will be an equal percentage share basis
for all on which the incentive compensation will be paid out if earned. This appropriately reflects
the reality that we all succeed, or fall short, together as a team.
To administer the UPMIC and measure objectively the level of performance that must be
achieved for qualifying employees to earn incentive compensation, the attached UMPIC
Performance Metrics Policy Score Card ("Score Card")has been created. The Score Card will be
subject to revision annually based on the performance metrics adopted by the Commission
annually for the coming year("Performance Metrics"). By tracking and measuring the
Performance Metrics and creating incentive for employees to achieve the goals the Metrics
embody, the Utilities believes it will be better able to focus efforts and resources on becoming
more efficient and successful in meeting our strategic goals and mission and delivering improved
value to our customers.
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ERMU Commission Policy—G.4g1 Performance Metrics and Incentive Compensation
2.0 UTILITIES PERFORMANCE METRICS SCORE CARD
As reflected on the Score Card, the Performance Metrics are divided into the following three
categories: Safety,Reliability and Quality of Utility Services; Workforce Development; and
Financial Goals. These categories are used to characterize the overall strategic goals and mission
of ERMU.
Under the Performance Metrics,these three main categories are then divided into various
weighted factors, or sub-categories. These sub-categories,their percentage weight, and the goal
or target for each, shall be established by the Utilities Commission annually. The Performance
Metrics as adopted are reflected in the attached Score Card. As discussed above,the Performance
Metrics and thus the Score Card are subject to modification and adoption by the Commission
annually,which will normally occur during the Utilities' budgeting process.
3.0 UTILITIES PERFORMANCE INCENTIVE COMPENSATION DISTRIBUTION
CRITERIA
Under the UMPIC a Performance-Based Compensation Incentive, if earned, will be distributed
to Qualifying Employees annually. The total amount available to be earned by Utilities
employees as a Performance Based Compensation Incentive each year will be an amount up to
2%of the Utilities' total gross wages paid to Qualifying Employees during the Measurement
Period.
The measuring period used to calculate how much, if any, of the Performance-Based
Compensation Incentive the Utilities employees have earned will be the calendar year(the
"Measurement Period"). After the Measurement Period is complete and the Commission has
received its audit in the spring of the year following the Measurement Period, the Performance
Metrics will be applied to determine whether the Performance-Based Compensation Incentive
has been earned for the Measurement Period. In doing so, the performance of the Utilities in each
sub-category will be reviewed. If the sub-category performance meets or exceeds the established
goal, the sub-category will be scored with the designated percentage that will contribute to a total
Performance Metrics Multiplier to be used as a factor in calculating the distribution earned, if
any, as shown in the Score Card ("Multiplier"). The Multiplier has a maximum factoring effect
of 100%. The Multiplier is used to determine how much, if any, of the amount established by the
Commission for the UMPIC Performance-Based Compensation Incentive has been earned in the
Measurement Period. (For example if the Multiplier equals 100%,the distribution would equal
2%. If the Multiplier equals 75%,the distribution would equal 1.5%.) In other words, the
amount established by the Commission may be earned on an annual basis by the group of
Qualifying Employees(as defined below in Section 4.0) in whole, in part, or not at all.
After the Multiplier is calculated on the Score Card, the Performance Based Compensation
Incentive earned, if any, will be distributed to Qualifying Employees. The total amount to be
distributed as the Performance Based Compensation Incentive will be the product of: a)the
Multiplier; and b)2%of the Utilities' total gross wages paid to Qualifying Employees during the
Measurement Period.
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ERMU Commission Policy—G.4g1 Performance Metrics and Incentive Compensation
The percentage of the Performance Based Compensation Incentive awarded to each Qualifying
Employee will be based on the gross wages of each Qualifying Employee during the
Measurement Period. To each Qualifying Employee,the distribution would be allocated in a
lump sum equal to the product of: a)the Multiplier; and b)2%of that employee's gross wages
paid during the Measurement Period. (For example, if a Qualifying Employee's gross wages
earned during the Measurement Period were equal to $50,000 and the Multiplier was equal to
100%,the total distribution to that employee would be equal to: $50,000 x 2%x 100%=
$1,000.)
If the Utilities' margins are negative due to sudden and unforeseen material changes to the
industry or customer base, the Commission reserves the right to withhold distribution of the
Performance Based Compensation Incentive in any given year.
4.0 EMPLOYEE QUALIFICATIONS AND DISTRIBUTION OF THE INCENTIVE
COMPENSATION
An employee of the Utilities will be eligible for participation in the Performance Metrics
Incentive Compensation distribution if the employee meets the following eligibility requirements
and is therefore a "Qualifying Employee" for purposes of this policy.
a. The employee is in good standing with the Utilities. An employee would not be eligible
while on disciplinary probation or a performance improvement action plan.
b. The employee was a Full Time or Part Time employee during the Measurement Period.
Seasonal, and Temporary employees are not eligible.
The UMPIC Performance Based Compensation Incentive distribution will be made to Qualifying
Employees on the first payroll date after the thirty day period following the date on which the
Commission formally receives its annual auditor's report in an open meeting.
GP:3300714 v4
POLICY HISTORY:
Adopted December 12, 2012
Revised January 14, 2020
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Elk River Municipal Utilities
G.4gla - Performance Metrics and Incentive Compensation Policy Score Card - 2022
Awarded
Category Percent Sub-Category Sub-Percent Goal Score Multiplier
Percentage
Water Quality Standards 5 Meet
Requirements
Lead and Copper quality 5 90th percentile
Bacteria Detection 5 0 positive
samples
Safety,Reliability CAIDI 5 <120 Min
and Quality of 40
Utility Services SAID! 5 <90 Min
SAIFI 5 <0.5
Line Loss 5 <5%
Water Loss 5 <12%
Clean Energy Choice Program
5 +15
Participation
Workforce 25 Employee Turnover 10 <7.5%
Development
Participation in Recommended
10 >95%
and Mandatory Trainings
Margins/Net Profit 20 >Budget
Financial Goals 35 Reserves 10 >Target
Inventory Accuracy 5 >95%
Total Multiplier:
Adopted December 12,2012
Revised October 11,2016
Revised December 17,2019
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