4.3 ERMUSR 05-14-2024Elk River
Municipal Utilities UTILITIES COMMISSION MEETING
TO:
FROM:
ERMU Commission
Melissa Karpinski — Finance Manager
MEETING DATE:
AGENDA ITEM NUMBER:
May 14, 2024
4.3
SUBJECT:
2023 Utilities Performance Incentive Compensation Distribution
ACTION REQUESTED:
Award the Performance Metrics and Compensation Distribution of 2.5%to qualifying
employees per the terms of the policy.
BACKGROUND:
The Commission adopted a Performance Metrics program in December 2012, for
implementation in January 1, 2013, and revised in December 2022. This program was based on
the American Public Power Association's Reliable Public Power Provider (RP3) program with the
addition of financial goals. As defined by policy, this company performance -based program is
designed to incentivize employee commitment towards the company's success. "The successful
performance of 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." Divided into categories
representing core values of the company and again into sub -categories that are quantifiable,
this program is designed to track goals that require the companywide support of employees to
continually achieve. When the employees work together as a team to achieve these goals, the
company recognizes a corresponding increase in value to our customers.
DISCUSSION:
The performance metrics were monitored and provided as updates to the employees and
Commission on a quarterly basis throughout the year. The program works exactly as intended
as we witness employee motivation and efforts align to improve company performance for
deficient criteria. Attached are the finalized results of the scorecard on which the employees
have successfully achieved all the company performance metrics targets. Per the policy, a
multiplier of 100% would be used and qualifying employees would be eligible for a 2.5%
distribution.
FINANCIAL IMPACT:
Budgeted item.
ATTACHMENTS:
• ERMU Policy — G.4g1— Performance Metrics and Incentive Compensation
• ERMU Performance Metrics and Incentive Compensation Policy Scorecard - 2023
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135
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Elk River
Municipal Utilities
COMMISSION POLICY
Section:
Governance
Category:
Delegation to Management Policies
Policy Reference:
Policy Title:
Performance Metrics and Incentive
GAg1
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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136
ERMU Commission Policy — GAg1 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 UPMIC 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
2.5% 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 UPMIC Performance -Based Compensation Incentive has been earned in the
Measurement Period. (For example if the Multiplier equals 100%, the distribution would equal
2.5%. If the Multiplier equals 75%, the distribution would equal 1.875%.) 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) 2.5% of the Utilities' total gross wages paid to Qualifying Employees during
the Measurement Period.
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137
ERMU Commission Policy — GAg1 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) 2.5% 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 2.5% x 100% _
$1,250.)
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 UPMIC 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
Revised December 13, 2022
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Elk River Municipal Utilities
G.4gla - Performance Metrics and Incentive Compensation Policy Score Card - 2023
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
CAIDI
5
<120 Min
Safety, Reliability
and Quality of
40
Utility Services
SAIDI
5
<90Min
SAIFI
5
<0.5
Line Loss
5
<5%
Water Loss
5
<12%
Clean Energy Choice Program
Participation
5
+15 net
Employee Turnover
10
< 7.5%
Workforce
Development
25
Participation in Recommended
and Mandatory Trainings
10
> 95%
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
Revised December 14, 2021
Revised December 13, 2022
Current
Notes Result
met requirement
met requirement 90
on target 0
on target
84.827
on target
14.077
on target
0.017
on target
3.5%
on target
2.0%
on target 62
on target 6.3%
on target 97.5%
on target
on target
on target 99.946%
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