Utilities bonuses raise pay 20%

0 Comments | Gazette, The (Colorado Springs), Oct 22, 2006 | by PAM ZUBECK THE GAZETTE

Workers at Colorado Springs Utilities have been paid $38.7 million in bonuses in the past four years under a program that rewards more than 90 percent of the employees.

That's about to change, though.

With the city proposing only a 2 percent raise next year for its employees, the Utilities bonus program can boost compensation by up to 20 percent. Springs Utilities, a city agency, also awards bonuses based on a position's highest pay, rather than each person's salary.

Very few don't get the extra pay. Those who quit or were hired after the performance year ended don't get it. Nor do those with "unsatisfactory" job ratings -- six people in four years out of more than 2,000 employees. Even part-timers cash in.

Utilities officials said the program will change next year, making payouts harder to get and trimming the bonuses by roughly $3.7 million.

Utilities officials said the changes didn't result from concerns about the program's price tag, which grew by 80 percent in four years, peaking at $12.6 million this year. Average payouts went from $3,906 in 2003 to $6,472 this year, while the program's portion of the payroll rose from 5.9 percent in 2003 to 8.8 percent this year.

"I didn't think of it strictly as a cost savings measure," Springs Utilities' Chief Executive Officer Jerry Forte said. "I thought of it more as how do we best fine-tune this program to best incentivize employees around performance. That was my motivation more than the cost savings."

Another executive, Sandi Yukman, chief integrated resources officer, said the changes resulted from a routine analysis. "Our board has directed us to always be looking for improvements in our programs," said Yukman, who got one of the largest bonuses this year -- $37,155 on top of a salary of $198,162.

The program dates to the late 1990s, when Springs Utilities paid consultants $218,000 to analyze how employees were paid and recommend an incentive plan.

As a result, the pay scale was lowered from the 75th percentile of comparable utility companies to the 60th, and performance pay was added.

Hourly workers who meet goals are paid up to 11 percent more than the top of their positions' pay ranges. Salaried workers get up to 14 percent and managers up to 17 percent.

Rewards are doled out based on job rating -- the better the performance, the larger the bonus.

In 2003, the program was adjusted to factor in the department's overall performance.

The first year for which bonuses were paid using the overall performance factor, 2003, the department didn't perform well.

That caused the payouts to be reduced by 25 percent. Still, the total paid was $7.1 million, $87,000 more than was paid the previous year.

The next two years, however, utilities had a healthy bottom line, which boosted payouts to 125 percent of what employees should have received and pushed total cost to $12 million one year and $12.6 million the next.

That's far more than the cost of performance pay programs at other city agencies.

City employees in other departments, such as those in parks, public safety and public works, received pay for performance for four years, 1998 to 2001, before the practice ended because the city couldn't afford it.

The city spent $10.3 million during four years, and the average payout ranged from $1,921 in 1998 to $1,184 in 2001. The highest individual payment was $6,325 in 1999.

Only those who were rated outstanding or exceeded expectations in evaluations qualified. Roughly 83 percent received bonuses.

The city's Memorial Health Systems pays full-timers $250 and part- timers $125 per quarter if the hospital's financial and patient- satisfaction goals are met.

Of Memorial's 3,800 employees, 3,049 qualified earlier this year when $674,000 was paid for one quarter, a hospital spokeswoman said. Those ineligible either had received a disciplinary action during the quarter or were new hires.

A financial incentive is "tremendously powerful," Larry Stimpert, chairman of Colorado College's economics department, said, "if it's perceived as recognition for something that is done that is outstanding. It's not as effective if people come to expect it as part of their pay."

Stimpert said when everyone or nearly everyone receives extra financial rewards "it loses its specialness."

Nicki Aggers, compensation consulting manager at Mountain States Employers Council, said the key to a successful performance-pay setup is communicating how it works to employees.

Forte agreed, saying it was confusion about the program that led him to revise utilities' rules this year, effective with the 2008 payout for performance in 2007.

After being promoted in January from chief operations officer, Forte gathered anecdotal evidence from chats with employees at all levels and decided to overhaul the program.

First, he abandoned using a department's performance as a whole to determine bonuses. Forte doesn't think employees make a connection between their job duties and the organization's financial performance.

Second, bonuses will be figured on an employee's salary, not the top of the pay range.