Board Members present: Dorothy Anderson, Sandra Bishop, Mike Dyer, Jeff Osanka, and Susie Smith.

Others present: Randy Berggren, Garry Kunkel, Tom Buckhouse, Jim Origliosso, Dick Helgeson, Roseanna McArthur, Jean Meyers, and Krista Hince of the EWEB staff; Chris Cardwell, consultant, and Kim Kunkel, Minutes Recorder.

President Anderson called the meeting to order.

COMPENSATION PLAN

Referring to an overhead display, Human Resource Specialist Jean Myers reminded the Board that in developing a compensation plan for EWEB, the following four policies must be considered:

1. internal consistency;
2. external competitiveness;
3. employee contributions; and
4. administration.

She stressed the importance of proposing a compensation plan that supports EWEB's mission and guides the future of the utility.

Referring to a series of overhead displays, copies of which were included in binded notebooks that were distributed to the Board, Compensation Consultant Chris Cardwell said the purpose of this work session was to present to Commissioners a spectrum of compensation approaches. He said the objectives of the work session were to

1. review the revised total compensation philosophy;
2. provide education regarding base pay and incentive designs;
3. discuss pay and incentive design approaches that may be appropriate for EWEB;
4. discuss sample compensation strategies; and
5. review some keys for success.

Mr. Cardwell reviewed and solicited Board feedback regarding draft 3 of the Total Compensation Philosophy. The Board responded, as follows:

• With regard to incentives, would like to call out sense of empowerment; rewards employees for entreprenureal spirit or ability to make decisions. Include it as a principle under responsibility or accountability (Dyer).
• Pull empowerment into the pay design (Anderson).
• Empowerment may be more an issue of management structure than compensation (Smith).
• Add initiative to principles (Smith).

Referring to the EWEB Total Compensation Philosophy Objective that states "Base pay that is: competitive with appropriate local and regional labor markets. . ." Commissioner Bishop requested flagging for later discussion the issue of whether to offer above-market base pay.

Mr. Cardwell reviewed the following base pay designs:

1. job-based;
2. market-based; and
3. structureless.

He said the three designs represent a continnum of pay structures.

With regard to EWEB's utilization of the market-based pay structure, Ms. Myers explained that the utility evaluates similar industries in the local market in order to establish "matches" for EWEB positions. She said EWEB's baseline is the 65th percentile of industry, not to exceed 80 percent.

With regard to EWEB's use of Washington state statistics in determining market-based pay for its positions, Commissioner Osanka expressed concern that because Washington's economy differs from that of Oregon, EWEB's calculations may be skewed. Ms. Myers acknowledged Commissioner Osanka's concern and said that in order to maintain the integrity of the calculation process, EWEB must maintain its long-standing use of Washington as a comparative market. She said one way to address the economic disparity between Oregon and Washington is to reduce EWEB's calculation by the level of differentiation that exists in the Seattle or Tacoma areas. Commissioner Osanka said changing the market to which EWEB compares itself to might be a Board level policy decision.

Mr. Cardwell noted that as the industry becomes increasingly competitive, other utilities will likely be less forthcoming about wage-related matters in the interest of maintaing a competative advantage. He said EWEB will likely move toward a published survey approach to obtaining such information.

The Board discussed the step system in relation to the impacts "topping out" has on employee performance. Vice President Smith said the step system should encourage performance as well as longevity by allowing both forward and backward movement through the steps contingent on an employee's performance. Mr. Cardwell said an organization can opt to provide a lump sum to those employees who reach the pay ceiling and continue to excel. Ms. McArthur explained that the issue of "topping out" in the step system comes to the forefront particularly during unstable times when an employer wants to be able to meet the sometimes increasing demands of its employees.

With regard to merit-based pay, Commissioner Osanka suggested that EWEB might establish a separate pot of money to be allocated to employees whose performance warrants additional compensation.

In response to Mr. Cardwell's inquiry regarding the Board's preferred pay structure, Vice President Smith said that whether a structure can be effectively applied to and accepted by all employees is an important consideration. In addition, she said employees who continually improve professionally should receive corresponding pay increases in acknowledgement of their achievements. Vice President Smith expressed her opinon that creating competition among employees for merit-based pay is dangerous and, although she can conceive of bugeting an amount in excess of merit pay to allocate among deserving employees, pay increases should be awareded based upon performance evaluations and meeting stated goals.

With regard to market-based pay, Commissioner Bishop inquired as to what happens if an organization's pay is above market when it transfers from a job-based to market-based pay structure. Mr. Cardwell responded that such a scenario generally does not bode well for employees. He said an organization may either freeze its pay ranges or reduce pay rates over a period of time. Commissioner Bishop stressed that she would oppose any proposal that includes pay reductions.

(The Commissioners took a short break)

Mr. Cardwell reviewed and requested Board feedback regarding salaray level guidelines.

Noting that EWEB will balance internal and external markets, Vice President Smith inquired as to how EWEB will ensure equity between a basic level of one type postion (i.e., clerical) and a basic level of another type position (i.e., manual labor) despite the fact that the market will undoubtedly reinforce the societal norm that "traditionally female-held" jobs are lower paid than "traditionally male-held" jobs of the same level. Mr. Cardwell responded that it is a philosophical question as to whether an organization will use internal equity to align with the external market or to challenge and resolve societal issues via policy level decisions.

Mr. Cardwell reviewed incentive-based pay structures.

With regard to pay for performance, Mr. Cardwell inquired as what thoughts the word "incentives" evokes. The Commissoners responded, as follows:

• Reward
• Cause for action
• Cotivator
• Not necessarily positive

The Board identified the following as postive aspects of utilizing incentives at EWEB:

• Assist in meeting set targets
• Should be expected as part of a job
• Breeds constructive team competition
• Can link individual to organizational performance
• Way to manage fixed costs associated with salaries

The Board identified the following as negative aspects of utilizing incentives at EWEB:

• Long-term employees might question why the rules are changing in the "middle of the game"
• Difficulty establishing a base level
• Breeds destructive team competition
• Can single out employees and violate norms of the organizational team
• Customer perception that incentives are inconsistent with public benefit

The Board identified the following as reasons why EWEB is and is not ready to implement incentive-based pay:

• Risk-averse organization -- Non-union
• Performance evaluation system is only a "toddler" now and perhaps EWEB should defer implementation of incentive-based pay until the system is an "adolescent"
• Shifting focus of organization toward results and incentives represent a complementary system to provide increased motivation.

Commissioner Dyer inquired as to whether employees commonly view incentives as part of their pay base. Mr. Cardwell responded that employees occasionally do consider incentives as part of their pay base and he therefore advises his clients that incentives should not exceed the amount the organization accrues as the result of its employees meeting incentive-related goals.

Vice President Smith said she struggles with three issues related to incentives:

1. public perception;
2. fellow-agency perception; and
3. time and effort expended to implement incentives.

She suggested EWEB conduct a cost/benefit analysis of applying incentive-based pay. Mr. Cardwell commented that the question to consider is whether incentives would assist the organization in yielding a level of performance that exceeds the current level.

With regard to incentives, Commissioner Dyer said he struggles with

1. identifying goals; and
2. how to objectively measure success.

Mr. Cardwell responded that an organization must determine in advance how it will measure performance as well as develop the evaluation form it will use.

Referring to a series of overhead displays, Mr. Cardwell reviewed the incentive plan adopted by Idaho Power in 1996. He said the elements of the plan include

1. awards as percentages of pay earned, including overtime;
2. no performance threshold; and
3. awards based on achievement of pre-established performance goals.

Vice President Smith inquired as to whether Mr. Cardwell had an example of a municipal utility's incentive plan. He said he did not. Ms. Myers indicated that Seattle City Light is moving toward implementing an incentive plan. She said she would present overviews of the Seattle City Light's and Chelan's incentive plans during the next compensation-related presentation.

Ms. Myers requested that Commissioners forward to her their preferences regarding whether to conduct a full scope evaluation of benefits as part of this effort or address benefits at a later time. President Anderson requested that staff provide only an overview of the relationshiop between pay and benefits as part of this effort. Vice President Smith agreed that having an overview of benefits is important. She said that she did not want to adopt base pay now, only to discover that EWEB's benefits are too high and must therefore be reduced to be in line with the base pay. In addition, she expressed support for obtaining employee input about what is important in terms of benefits. Commissioner Bishop said she did not see a way to make a rational decision about pay without having knowledge about EWEB's benefits package. She stressed that she has no intention of supporting a benefits decrease.

Vice President Smith announced that it was public power week. Ms. McArthur apologized for neglecting to inform the Board about EWEB's presentation at the Lane County Fairgrounds earlier that day. She reported that the event was well attended and featured a speaker who addressed the issue of "thriving in turbulence."

The meeting adjourned at 9:25 p.m.