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Municipal Utilities UTILITIES COMMISSION MEETING
TO:
FROM:
ERMU Commission
Mark Hanson —General Manager
MEETING DATE:
AGENDA ITEM NUMBER:
August 13, 2024
5.1
SUBJECT:
2024 Compensation Study Update
ACTION REQUESTED:
Approve Pay Plan, Implementation Scenario, and Implementation Date
BACKGROUND:
At the July 2024 commission meeting, the Commission received and discussed Baker Tilly's
proposed options for a market leading base pay plan and a market lagging base pay plan. The
respective plans (attached) are approximately 2% above/below the average market maximum.
Staff sought commission direction in three areas: which base pay plan (leading or lagging),
which implementation scenario (closest step, current step, or years in position) and a preferred
implementation date. The Commission expressed a desire to be market leading in pay but
deferred selection of a pay plan until the influence of performance -based compensation (PBC)
programs on total compensation could be better understood. Commission members also
expressed a preference to implement a new pay plan via the current step scenario and
recommended an August 27, 2024, implementation date if a new pay plan is approved.
A thorough discussion occurred whether PBC programs should be considered when defining
what it means to be market leading. In other words, if you are market leading in base pay, but
your talent competition is market leading and offers a PBC program, you are not market leading
in total compensation. To better understand this issue, the Commission directed staff to
provide additional information regarding the PBC programs of ERMU's comparable peers in the
compensation study.
For reference, our current Utilities Performance Metrics and Incentive Compensation (UPMIC)
policy was adopted December 2012 with the following description:
This is a company performance -based program designed to incentivize employee
commitment towards the company's success. 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 companywide support of the 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.
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DISCUSSION:
As stated last month, six of the ten comparable peers surveyed have existing PBC programs.
Three of those peers were municipal utilities, and three were private sector peers.
The three municipal peers have similar PBC programs. All three focus on the performance of
the individual, not the company. Employees qualify for incentive pay based on either specific
criteria or an annual performance evaluation by their manager. If incentive criteria are
exceeded, the individual is awarded additional pay. Depending on the utility, the additional pay
is either a percentage of base pay (ranging from 2%-8%) or an additional step increase.
The private sector utilities are more focused on company -wide performance. One bases their
incentive compensation around business improvement savings. If yearly goals are met, all
employees share equally in an incentive payout of up to 20% of identified savings (up to a
$2500 cap per employee). Two other private sector peers have companywide programs that
are very similar to our UPMIC with performance metrics around safety, reliability, member
service, continuous improvement, financial, etc. Employees receive an annual incentive
payment based on the company's overall "scorecard" performance. One utility stated they use
an annual predetermined flat amount, regardless of wage for non-exempt staff (as opposed to
a percentage of wage). The other uses a payout scale that ranges from 3% to 10% of base wage
for non-exempt employees, with an average of 5-8% over the last several years. Payout levels
for both firms increased for managers and directors (depending on position).
Our UPMIC is more than just a form of "at risk" compensation. It was specifically designed to
bring the company together as one team by having every employee contribute to its success.
All ERMU employees take ownership and pride in their respective roles in maximizing the
potential payout. Staff will ask one another across departments how they're doing and what's
holding them back. It often serves as a form of friendly competition as well. Since its inception
in 2013, it has been paid out at the maximum rate four out of eleven (4/11) years. The average
payout is 94.5% of the maximum payout (see the attached table for more information).
If the Commission desires to modify the UPMIC, options include decreasing the payout amount,
increasing the criteria goals (i.e. making it harder to achieve), changing criteria focal points (i.e.
do away with retention and use annual performance review completion rate instead), changing
the criteria weighting, or any combination of such options. Proposed adjustments could be
discussed at the Wage and Benefit committee and brought before the Commission in time to
review/approve before the 2025 UPMIC performance period begins (January 1, 2025).
NEXT STEPS:
Once a pay plan, implementation scenario, and effective date are approved, Baker Tilly will
provide a final report documenting the process, results, and approvals. Staff will update our
payroll system with the approved plan, implementation scenario, and effective date.
ATTACHMENTS:
• Proposed Pay Plan Options
• Utilities Performance Metric Incentive Compensation Payout History
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