While CPS Energy scrapped its incentive pay program for salaried employees in early 2020 as the pandemic thrust the utility into financial chaos, its contract with new President and CEO Rudy Garza leaves the door open for a future bonus pay structure.
Garza, who signed a contract last week giving him a $655,000 annual salary but no bonus pay, has said he’s happy with that compensation structure and doesn’t need a bonus to do the job.
But bonus pay, depending on its form, can play an important role in performance and retention. CPS Energy’s past two CEOs, for example, earned relatively low base pay compared to other public power industry leaders but had the ability to earn additional “at risk” pay by meeting performance metrics set by the board.
“The [board’s] personnel committee at that time wanted to use the incentive as a retention tool,” said Lisa Lewis, chief administrative officer for the utility.
With a higher base salary, Garza has none of the incentives that come with at-risk compensation.
Janie Gonzalez, CPS Energy’s board of trustees vice chair, said that while a bonus is not on the table for Garza right now, the utility must keep the option open as a means to retain Garza — and employees overall — as the labor market continues to tighten.
Gonzalez told the San Antonio Report on Thursday that the board and utility staff have discussed how to possibly restructure employee compensation as a whole in the near future to better attract and retain talent. CPS Energy is facing a serious workforce shortage, as up to half of its 3,000-member workforce becomes eligible to retire by 2026.
That’s why Garza’s contract states that he is is “eligible to participate in any future incentive pay or deferred compensation plan provided to CPS Energy executive level employees.”
Not having any type of employee incentive program, Lewis said, can make recruiting and retaining talent even more challenging than it already is.
All the major companies in town, she said, “are recruiting the same people. [But] those big employers” — she mentioned USAA, H-E-B and Valero as examples — all have some sort of structured incentive program.”
Bonuses for salaried employees
Prior to 2020, CPS Energy’s salaried staff’s compensation included a bonus component, based on whether performance metrics were hit companywide. The utility’s “skilled craft” employees opted out of the program sometime in the aughts, Lewis said. Before then, every utility employee was part of the program.
In 2019, after reading the San Antonio Report’s two-part investigative series on executive compensation at CPS Energy and the San Antonio Water System, Mayor Ron Nirenberg called for an end to the bonus system at the city-owned utility.
Executive pay in local public sector jobs was a hot-button issue in San Antonio at the time. A year earlier, city voters had approved the firefighter’s union-backed charter amendment that limited the pay of San Antonio’s city manager to 10 times the salary of the lowest-paid city employee, or around $300,000.
That year, then-CPS Energy CEO Paula Gold-Williams brought home just over $930,000, which included her roughly $485,000 base salary. The rest was bonus pay.
Having roughly half her pay be at-risk was approved by the board after being engineered by former CPS Energy trustee Ed Kelley, who worked with consultants to come up with a CEO salary package based largely on performance.
“I didn’t want to pay that big number,” Kelley told the San Antonio Report in 2019. “I wanted them to have the opportunity to earn that big number.”
That’s pretty typical for executive compensation, said Cory Morrow, a senior client partner with Korn Ferry, a consulting firm CPS Energy has used in the past for executive compensation analysis and at least one CEO search. The talent pool for top executives is already small, he said, so companies must craft compensation packages to not only keep, but retain executives.
At the same time, Morrow said, having performance metrics tied to pay allows companies or boards “to change out talent if the performance is not there.”
Deferred bonuses for SAWS CEO
Nirenberg’s wish to see the end of bonus pay for CPS Energy executives was realized when the pandemic hit. The utility had been about to pay out roughly $13 million in bonuses to about 1,800 salaried employees, including the at-risk portion of Gold-Williams’ pay.
Last year, however, SAWS’ board of trustees, including Nirenberg, approved a deferred bonus structure for Puente. Per the contract, Puente must stay employed at SAWS for four years before he is eligible to receive the bonuses he may earn during that period.
Nirenberg told the San Antonio Report at the time that he was supportive of the deferred bonus because he believes it is more transparent than annual at-risk pay, and because it acts as a retention tool.
CPS Energy’s Gonzalez said trustees would like to have the option to offer Garza a similar deferred incentive, but doing that immediately was not an option.
“CPS [Energy] is not set up the same way,” Gonzalez said, “so we could not do that overnight. She said any kind of bonus pay would need to be considered holistically — “because it’s not just about Rudy, it’s about the entire organization.”
Because while Garza’s pay is settled for now, how to attract and retain talent remains a looming challenge for the utility.
“We need to figure out how to design a new [compensation] package that folks see as fair, but that’s also competitive,” Gonzalez said. “We are still challenged by a workforce that wants a certain type of compensation package and that includes incentives. This is something we need to address even outside of Rudy.”