The SZA Pay & Rewards Bulletin, February 2003

Pay & Rewards Strategy


CUSTOMER-FIRST REWARDS:
NEW PERFORMANCE DIRECTIONS FOR PUBLIC POWER

by Elaine Gentilo and Kirk Hudson
Public Utility District No. 1 of Chelan County
and
Jay R. Schuster and Patricia K. Zingheim
Schuster-Zingheim and Associates, Inc.

Reprinted from American Public Power Association (APPA), People to People, in press.

With more than $20 million per year invested in total compensation for its salaried employees, Chelan County PUD is committed to its customer/owners to ensure that its total compensation program supports District business strategies and goals. Chelan County PUD, located in Wenatchee, Washington, is the second largest non-federal hydroelectric utility in the United States. General Manager Charlie Hosken said during an early compensation strategy session, "Our customers and our employees are most important. This new compensation plan links both customers and employees—that’s why this new compensation solution is so important."

Chelan County PUD selected an employee team that was accountable for designing, communicating, and implementing a new customer-focused compensation plan. The objective of this plan is to maximize the benefit to its customer/owners, while enhancing its ability to attract and retain qualified and valuable employees. The key elements of the new compensation program are:

The heart of the compensation program is the four critical success factors and 14 supporting customer-focused goals for 2003. These critical success factors are customer service, responsiveness to community, environmental stewardship, and operational excellence. 2003 goals are shown in the sidebar.

These goals represent the District’s commitment to its customer/owners. The goals are publicized to show how the organization is performing on an ongoing basis. The goals help everyone keep a clear and accurate focus on why this organization exists and what it must do to satisfy its customer/owners.

Performance Management

Each salaried employee has a specific performance plan developed with his or her direct supervisor. The goals for these plans cascade from the District goals related to customer service, responsiveness to community, environmental stewardship, and operational excellence. Performance management focuses on answering the question, "How does your performance support these key customer-focused District goals?" The results are directly tied to the annual review of base pay.

In addition, base pay is influenced by the salaried employee’s ability to learn and apply the most important competencies to serve the District’s customers. These competencies are customer focus, results orientation, prudent business judgment, flexibility/adaptability, leadership/advocacy, communications/teamwork, financial awareness, and technical expertise.

Base Pay

The District’s base pay program has changed from one that used 13 grades to one that currently uses four bands anchored in the external labor market. The bands facilitate career growth, flexibility, and the acquisition and application of key competencies that focus the District’s success in customer terms. They also provide excellent technical employees the ability to advance in the organization on a parallel path with those that advance in a supervisory capacity. Each band has descriptors that define the type of talent that is in each band and is combined with competitive labor market information for jobs.

Base pay increases are based on an employee’s goal performance, applying competencies to achieve desired customer results. It provides a performance-based compensation outcome that combines with the variable Customer Value Pay to generate attractive total cash compensation potential.

Managers are required to administer base pay increases within a specific annual budget without exceptions. They are fully accountable for managing the PUD’s human resource dollars and for making the key pay decisions that put the pay dollars where they gain the most benefit for the District’s customer/owners.

Customer Value Pay

Part of the District’s commitment to "Go the extra mile for customers" is illustrated in its variable pay plan called Customer Value Pay. It is based on the 14 customer-focused goals and funded only if stretch performance is actually demonstrated during the performance period. Awards are lump sum and do not add to base pay so they do not subsequently increase the fixed cost of human resources. It means employees must re-earn the awards annually for achieving key customer/owner goals.

The District’s promise to its customers is that if the District increases electric rates through 2005, there will be no awards under Customer Value Pay during the year of the increase. This promise must be kept for employees to have the chance to earn awards. Customer Value Pay is being tested in 2003 with the initial opportunity for earnings beginning in 2004.

One of the unique features of this compensation program is that Customer Value Pay funding may go negative starting in 2005 if few or no District goals are achieved. This reduces the base pay increase budget. So at Chelan County PUD this new compensation plan means business in terms of paying for performance and keeping its commitment to its customer/owners.

Bargaining Unit Opportunity

Once of the desired outcomes of this compensation program is to align all employees around the 14 customer-focused goals. To this end the District has offered bargaining unit employees the opportunity to participate in the upside opportunity provided in Customer Value Pay. The plan has the same District goals and promise of no electric rate increases but will not have the downside risk so it will have a smaller upside opportunity.

Recognition

The District has implemented a recognition plan that provides team and individual recognition for demonstrated performance "above and beyond" the call of duty. The program provides a documented process for giving recognition. All employees are eligible. This plan will be directly linked to adding value to the organization expressed in customer terms.

Conclusion

Chelan County PUD believes that public electric utilities exist to serve their customer/owners. Yet public power has been somewhat slow to design and implement pay and reward programs that link employees and customers closely. This program is part of the District’s efforts to align its employees with customer interests. In this program, employees "win" only when customers "win!"

 

2003 Customer-Focused District Goals

Goal Category

Specific 2003 Goals

Customer Service

1.  Reduce duration of customer power outages.

2.  Reduce frequency that customers are out of power.

Responsiveness to Community

3.  Provide fiber optics to the community.

4.  Continue the quality of the PUD park experience while balancing cost and benefit with existing equipment capabilities.

5.  Provide quality reliable domestic drinking water to Chelan County.

Environmental Stewardship

6.  Protect fish at optimum cost while addressing appropriate quality standards at Rocky Reach Dam.

7.  Same goal as #6 for Rock Island Dam.

8.  Make progress on relicensing Rocky Reach Dam.

9.  Develop and execute an implementation plan for new Lake Chelan license in accordance with licensing agreement.

Operational Excellence

10. Complete construction of Juvenile Bypass Facility at Rocky Reach Dam.

11. Complete Unit C-1 Rehabilitation of Turbine Unit C-1 at Rocky Reach Dam.

12. Reduce the Distribution system’s cost per retail kilowatt hour delivered.

13. Schedule generating unit outages when it makes the most sense.

14. Improve safety.

 

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FOR FURTHER INFORMATION CONTACT
Schuster-Zingheim and Associates, Inc.
1541 Bel Air Road
Los Angeles, CA  90077-3021
Phone 310-471-4865  FAX 310-471-4859
E-mail: sza@schuster-zingheim.com
Web Site: www.schuster-zingheim.com or www.paypeopleright.com

All material © 2003 Schuster-Zingheim and Associates, Inc.