Recruiting & Retaining Utility CEOs

Winston L. TanPrincipal, Human Capital and Rewards Practice

Cooperative Benefits & Financial Services, LLC(678) 355-3610winston.tan@cobbenergy.comwww.TeamCBFS.com

2007 APPA National Conference

The Employment Value EquationTime/experienceCompetenciesSkillNetworkCompensationBenefitsWork Environment Organizational cultureWork/life balance

Winston Tan

Set Your Compensation StrategyWhat are you willing to pay for experience and talent?Quality is generally expensive.With whom do you need to compete for talent?(Bargain hunting can work but there is a risk)Geographical considerationsEvaluate your retention drivers.

Surveys Tell Only Part of StoryReported data aggregated into a statistical arrayCompany success relative to peersIncumbent experience skill or migrationParticipant relevanceParticipant retention drivers

Work environmentGeographic ConsiderationsRecreational opportunitiesAccess to medical, higher education, arts, etc.

Monitoring the Value ScaleRecruitmentThe Honeymoon WindowNewness= happinessFear of failureChallenge of the unknownHoneymoon dance with the Board/CouncilItll get better optimism

RetentionSeen some wartsJob changesNetworking requirementsNon-core business focusMonitor work/life issuesHistory says that it is not going to change

Tools in Addition to Base PayIncentive PlansAmong cooperatives about 20% offer bonus programs Among for profit companies about 70% offer bonus programsRetention mechanisms (golden handcuffs)Executive benefitsEmployment/severance agreements

Sample Rolling Incentive/Retention Plan Payout

Core Utility Benefit OfferingHealth (medical, dental, vision)Group term lifeShort and Long term disability insuranceDefined benefit pension planDefined contribution pension planDependent coverageEmployee Assistance ProgramHolidaysVacation, sick leave and other time offRetiree benefits

Executive BenefitsVehicleFinancial planning (estate, retirement, etc.)Voluntary deferred compensationSupplemental disability insuranceSupplemental executive retirement plan (SERP)Supplemental life insurance (Key man, Split dollar, etc.)

Executive PerksCountry club membershipTax planningFlexible perquisite accounts (cash value)Signing bonusExtra time offAirline VIP lounge membershipCorporate jetFirst class air travel (if you dont have a corporate jet!)Spousal travel

Performance FeedbackGenerally missing at the CEO levelEssential to provide a clear communication link between governing board and CEO regarding performance expectationsClarifies executive focus and organizational resourcesEstablishes a baseline for incentive achievement Supports reasonable compensation decisions

Performance ProcessDirectly survey key stakeholders (Board, council, etc.) to identify key CEO skills and competenciesEvaluate consistency of responses.Define performance criteria (financial, operational, customer satisfaction, etc.)Obtain CEO input for each criteriaPoll each evaluator and obtain individual ratingsCompile results (numerical and narrative) into a collective responseEnsure that responses are indicative of the entire group

In SummaryArticulate your compensation strategyBalances cost with valueRewards performance resultsSupports sound governance practicesMonitor your competitive target marketConnect rewards to your businessWhat are your key business imperatives?What does the company need to be successful?Celebrate success

Winston L. TanWinston Tan is the Principal of the Human Capital & Rewards Practice for Cooperative Benefits & Financial Services, LLC (CBFS). He has worked in a variety of public and private industries providing management consulting and assistance in the United States and overseas. He specializes in total compensation solutions (including base pay, variable pay, and benefits analysis), strategic planning, organizational design, and human resource performance development. Prior to joining CBFS, Winston was the Principal of Human Resources for the National Consulting Group, a management consulting organization within the National Rural Electric Cooperative Association (NRECA). For over 15 years he has provided compensation, organizational development, andother consulting services to the electric cooperative members of NRECA.

Winston and his wife Julie just relocated to the Pacific Northwest and spendleisure time creating memories with their children Michael, 12 and Madison, 10.

According to 2006/2007 WorldatWork Strategic Rewards Report, compensation is #1 reason top performers leave an organization, followed by promotion opportunity, work/life balance and stress.Bargain hunting can focus on Most qualified incumbents do not see your organization as part of the Peace Corps. One option is to consider un proven and tested incumbents. Greater scarcity will require continual monitoring of your strategy.

In general Munis trail Co-ops by 23% CEO average.(2006 avg $124,083, APPA = $100,951)Third in a race is not a good position!

At best you can learn the parameters of what everyone else is doing. An average is only the center of the data!Evelene: 2.5 years and reviewed annually. In the UK, shareholders actually vote (on a nonbinding basi) on whether to accept the companys compensation philosophy.

Even without a vote, the public will certainly have an opinion .