It’s never easy for elected officials in Colorado Springs to give employees a raise, especially when the employees in question are senior executives.
That’s particularly true in today’s local economic environment, where unemployment remains high, underemployment is common, and many residents find themselves with depleted savings and diminished paychecks.
City Council refused by a 5-4 vote Tuesday to raise Utilities CEO Jerry Forte’s salary from $276,750 to $447,000, as recommended by a Council committee. Including performance and incentive bonuses, Forte’s total cash compensation would have risen to $498,000 annually during the next two years.
Forte, who hasn’t had a pay raise in the past seven years, didn’t ask for this one. But that wasn’t because Council had any concerns about his performance.
“We just didn’t think it would be appropriate during the recession,” said veteran Councilor Jan Martin, who was elected to office in 2007.
Even after the local economy had begun to recover, political turmoil may have prevented Council from considering Forte’s compensation. The year of 2011 saw the introduction of the strong-mayor form of government with the election of Mayor Steve Bach and six new City Councilors. Two years later, four incumbents were defeated, one declined to run for re-election, and one was term-limited.
Such turnover had its costs.
Unbiased pay study
Milliman, the national employee benefits consultant hired to examine executive compensation at Colorado Springs Utilities, conducted a comprehensive study with three objectives.
• To evaluate and report total compensation of executive positions at CSU, including seven officer positions, 12 general manager positions, and the City Auditor.
• Develop recommendations for improvement.
• Facilitate the development and implementation of a pay program that enables CSU to attract and retain the “expected level” of executive talent, and compensates executives competitively and fairly.
The study revealed that while base CSU executive salaries average 2 percent below the market median, there was one glaring exception.
Pointing to a green dot in the bottom right of a compensation chart, Councilor Martin asked a question.
“Who do you think that is?” she asked.
It was CEO Jerry Forte, whose salary is 38 percent below the market median covering 22 comparable markets.
Council’s stated policy is to maintain employee compensation at the market median. An earlier study found that more than three-quarters of CSU employees were below the median, prompting Council, in its role serving as the Utilities Board, to approve raises averaging 4.5 percent.
For Forte, the median total compensation level would be $622,000.
Armed with these figures, the Council-appointed compensation committee came to a preliminary agreement with Forte, subject to Council approval. The two-year deal called for an annual package totaling $498,400, and included annual bonus and incentive payments of a little more than $50,000.
In accepting the package, Forte would have agreed to stay for at least another two years, thereby assuring a smooth transition to a new leadership team.
That transition, Martin pointed out, is approaching a critical phase.
“A majority of our executives are eligible for retirement,” Martin said, “We have to do whatever we can to retain continuity of leadership.”
Chief Energy Services Officer Bruce McCormick, who has been with CSU since 1988, will retire at the end of March.
Chief Water Services Officer Gary Bostrom is entering his 36th year with the company, while Chief Environment, Health & Safety Officer Dave Padgett joined CSU in 1985.
A divided Council
Five Council members (Joel Miller, Keith King, Don Knight, Andy Pico and Helen Collins) voted to reject the deal.
Knight wanted to know whether money was available in Utilities’ budget to fund the proposed pay package. CSU Human Resources Manager Melissa Kellione responded that an earmarked account had been established in 2013 to fund such increases for all employees, and that no further appropriation would be necessary.
That didn’t change Knight’s mind.
Pico suggested that the increases be phased in over four years, instead of two. Collins questioned the entire methodology of the study.
“Too many times we don’t look at Colorado Springs,” she said. “We just look at other cities.”
King took Collins’ idea and ran with it.
“We need to take a look at the fundamental strategy of how we compare markets,” said the Council president. “We need to identify what are our markets and how we determine what are our markets.”
King suggested that it would be useful to compare across industries, citing education as an example and the lower salary of School District 11 Superintendent Nicholas Gledich.
“Keith, are you saying that we should compare the CEO’s salary with a school superintendent?” asked a clearly incredulous Val Snider, who voted for the higher pay package.
Asked after the vote whether Council had just given Jerry Forte a de facto vote of no confidence, Pico said no.
“He didn’t ask for this raise,” Pico said, “and the vote was just for this particular package. I assume that they’ll come back with something else.”
Although the councilors who voted against the package may interpret it differently, it’s hard not to view the outcome as a sweeping rejection of the current management team.
“If you’re going to have a good utility — a great utility — you have to pay for it,” warned Councilor Merv Bennett before the vote.
“This is a very technical position in a highly regulated environment,” said Martin. “[Approving the pay package] is not an easy decision, but it’s a responsible decision.”
If Martin and Bennett are right, Council may have sidestepped public displeasure over the projected raise — but at substantial future cost.
All of the seven senior officers listed on CSU’s website are eligible for retirement, and are likely “maxed out” with PERA benefits — as Forte definitely is. That means that they would not benefit much, if at all, from additional years of service. By refusing Forte a raise, Council may have inadvertently accelerated the departure of his management team.
A homegrown company
Legendary Utilities director Jim Phillips, who died in April 2009, served both as Utilities boss and as interim city manager during his 32 years as a city employee. He was born in Cripple Creek and grew up in Colorado Springs. Phillips started out with CSU as a ditch-digger, working for the sewer division as a high school student during summer vacations. He joined CSU for good after serving in the armed forces and completing his education.
His experience was hardly atypical. Working for CSU, like working for the city, was a preferred career path for Colorado Springs residents. The company promoted from within and jobs were secure, stable and relatively well-paid.
As the organization became more complex and government mandates multiplied, CSU relied less upon homegrown talent. Phil Tollefson, who succeeded Phillips as Utilities director, had joined the organization several years earlier from working for Black & Veatch, a global engineering, construction and consulting firm.
CSU has long benefited from the interplay between energetic newcomers and long-tenured employees. Absent either, the company will suffer.
If Council’s decision stands, with no clear succession plan, it’s reasonable to expect a wholesale exodus of senior managers. It might be difficult to recruit qualified replacements, given CSU’s politicized compensation environment and deeply divided board.
“The first thing I’m going to do is build my house,” said Bruce McCormick, anticipating his retirement just a month away. “I’ve worked in construction — I know how to do it. And you can watch it go up as you work — it’s not like what I’ve been doing, where the results sometimes aren’t so obvious.”
Sounds enticing — and his veteran colleagues may agree.