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TVA gives top bosses record pay hike; utility's employees to share $102 million

Winning performance payments are down nearly 10 percent from previous year

November 16th, 2016 by Dave Flessner

TVA employees will have extra reason to be thankful at the Thanksgiving holiday this year with year-end bonuses being paid just in time for Black Friday sales next week.

The utility's 10,700 employees will share in $102 million of winning performance pay based upon the utility's record in the past year of achieving record high income while cutting the average price of power delivered to the 9 million people across its seven-state region.

In its year-end financial report, TVA said it met more than 80 percent of its performance goals during fiscal 2016.

The winning performance payments average more than $9,532 per worker, but most hourly employees will get only a fraction of that amount and the specific payments also vary according to what individuals are paid and in what division they work within at TVA.

The winning performance payments are down nearly 10 percent from the previous year when TVA paid a total of $113 million to 10,900 workers, or an average of nearly $10,367 per worker.

TVA officials said employees are scheduled to receive the yearly bonus checks next week, just ahead of Thanksgiving.

"We continue to set higher standards each year and, while we had a very good year in achieving most of our performance metrics, we did not fully meet all of the objectives and the winning performance payments reflect that," said Sue Collins, TVA's chief human resources officer.

Although TVA boosted its net income in the past year to a record high $1.2 billion and cut the average cost of power by 2.3 percent, TVA failed to meet its performance goals for nuclear power production with more frequent plant outages than planned.

TVA reduced the average delivered cost of its power from 7.2 cents per kilwatthour in 2011 to 6.7 cents per kilowatthour in 2016. The savings have come primarily due to cheaper fuel, but TVA also has trimmed $800 million of annual operating expenses in the past four years by cutting staff, reducing borrowing and phasing out some plants and programs.

TVA completed construction and started the Watts Bar Unit 2 reactor this year as the first new nuclear unit added to America's grid in the 21st century. But the project ended up taking more than three months longer than what was budgeted and during its completion the U.S Nuclear Regulatory Commission raised concerns about what it said was a "chilled environment" for plant workers to raise safety concerns.

The year-end payments for performance are part of the at-risk pay for TVA employees designed to encourage workers to help the federal utility achieve its goals for safety, reliability, cost and economic development.

Individual TVA employees who are not covered by labor union contracts also get annual pay raises based on their performance. Merit pay increases granted to salaried and other office workers last month averaged 2.8 percent to 3 percent, TVA spokeswoman Gail Rymer said.

Pay at the top

TVA's top bosses took home even bigger paychecks in fiscal 2016 based upon meeting most of TVA's targets.

TVA President Bill Johnson was paid a record $4.9 million in salary and performance bonuses in the fiscal year ended Sept. 30, up 7.4 percent from what he was paid in salary and bonuses the previous year. Including the value of his pension and other payments, Johnson's overall compensation in fiscal 2016 totaled $6.45 million, making him again this year the highest paid federal employee in America.

His pay and bonuses last year were more than 12 times the $400,000 salary paid to the president of the United States and 24 times the $203,700 salary for members of the president's cabinet.

But Johnson, a former Progress Energy CEO recruited to TVA four years ago, was paid in the bottom quartile of top utility CEOs in the private sector, according to pay consultants who study executive compensation. The $4.9 million paid to the TVA CEO in the past year was 40 percent below the median pay of nearly $8.2 million for 21 comparable CEOs in the utility industry surveyed by the Towers Watson consulting group.

Johnson's $950,000-a-year salary, before any performance pay, did not change in the past year, and his increase in pay came entirely from performance pay increases.

Last week, however, TVA directors agreed to boost the amount Johnson could earn next year to help bring his compensation better in line with that of other comparable utilities. The board agreed to raise the performance bonus potential for Johnson from 285 percent of his base salary of $995,000 to 305 percent of that salary in 2017.

TVA Chairman Joe Ritch said TVA must remain competitive in its compensation with other utilities and should reward managers and employees when they meet performance standards.

"We've seen enormous progress and we recognize that when you have a highly talented person or group of persons in management like we have at TVA we need to be somewhat competitive in our compensation," Ritch said. "We are still below the average pay for many of these positions, but we still want our leadership to know that we are supporting them. While compensation is not the only thing you get by working at TVA, it is a very important reflection of our belief that they should be here and stay here at least for a reasonable period of time."

Other top TVA executives also enjoyed bigger boosts in total compensation last year due to TVA's improved performance. TVA Chief Operating Officer Charles "Chip" Pardee, who is retiring from TVA next month, was paid a compensation package worth more than $3.3 million, up 12 percent from the $2.98 million in total compensation Pardee received a year ago.

Two other TVA executives are expected to earn more next year in new positions at TVA filling the vacancy created by Pardee's retirement. Last month, TVA Nuclear Chief Joe Grimes was promoted to executive vice president of generation, while Mike Skaggs, who previously headed the completion of Watts Bar Unit 2, was promoted to executive vice president of operations.

Richard Howorth, head of the board's People and Performance Committee, said the increases in executive pay reflect the top managers' success in achieving most of TVA's performance targets. If such goals had not been met, their pay would have been reduced.

"This is at-risk compensation," Howorth said last week at a TVA board meeting in Blairsville, Ga.

Income improves

Despite lower net power sales from extreme weather, reduced operating costs helped the Tennessee Valley Authority achieve its highest ever net income of $1.2 billion for fiscal year ended Sept. 30, 2016, up $122 million from 2015.

TVA reported that sales of electricity decreased by 1.5 percent for the fiscal year, as compared to the prior year. The Tennessee Valley region experienced the second mildest winter of the last 55 years, only partially offset by the warmest summer of that same period.

Revenues from the sale of electricity decreased by $386 million in fiscal year 2016, as compared to the prior year, primarily due to lower fuel cost recovery revenues, as well as lower sales volume driven by weather.

"It was a strong year for TVA employees — they met goals and objectives and delivered results for the Tennessee Valley financially, operationally and in our relationships with customers and other stakeholders," Johnson said. "In 2016, our fuel and purchased power costs were nearly a billion dollars less than in 2012. This was due primarily to the flexibility of our more diverse generating portfolio, lower gas prices and improved operating performance."