Economy Affects Utility Compensation

by Amy Kaminski, Compdata Surveys

A year ago, many executives were discussing ways to create attractive compensation packages while keeping costs down. Today, with pay-increase budgets diminishing and health care costs climbing, utilities face increased pressure to enhance their compensation packages without affecting bottom lines.

Compounding these issues, baby boomers’ impending retirements will leave the industry with a skilled worker shortage. Prior to the recession, the Bureau of Labor Statistics (BLS) projected the total number of utilities jobs would fall 5.7 percent, or 31,000, between 2006 and 2016. With the onset of the recession, those numbers are likely to be higher.

In March, Compdata Surveys asked 300 utilities about their compensation and benefits offerings. The findings show how organizations are responding to the downturn.

Pay-Increase Budgets

Pay-increase budgets have been stagnant across all industries for years, but the “Compensation Data Utilities 2009″ survey shows pay-increase budgets have fallen to 3.3 percent, down from 3.8 percent in 2008. The utility companies surveyed forecast a further drop to 3.1 percent in 2010. Pay-increase budgets fluctuate within the utilities industry. Water and sewage utilities reported the highest budget at 3.7 percent but predict a drop to 2.9 percent in 2010. Comparatively, electric utilities are at 3.2 percent and expect to hold steady next year. Gas utilities anticipate budgets to decrease from 3.3 to 3.2 percent in 2010.

Medical Insurance

To say health care costs affect the economy is an understatement. In 2007, the United States spent some $2.2 trillion on health care, or $7,421 per person. If costs continue to escalate, the Congressional Budget Office estimates that by 2025, $1 of every $4 in our national economy will be tied up in the health system.

Rising medical insurance premiums further corroborate these findings and compound economic pressures. Although the average premium increase decreased last year, the numbers are up again. The survey revealed the average premium increase was 8.3 percent for all plan types this year.

Comparatively, the average premium increase was 6.3 percent in 2008 and 9.8 percent the previous year. When comparing plans in 2009, organizations offering PPO plans saw an average increase of 8.4 percent. Those offering HMO and HDHP plans had average premium increases of 8.5 and 6.6 percent, respectively.

While Congress deliberates health care reform, companies explore ways to reduce costs. Often, higher medical insurance costs are delegated to employees. The survey results illustrate that 56.2 percent of companies increased the employee portion of the premium, more than double the percentage for each of the past two years. Currently, 38.2 and 20.8 percent of companies increased deductible levels and employee coinsurance levels, respectively. To suppress rising costs, utilities used various methods. The most highly used was coordination of benefits at 89.5 percent, while a network of health care professionals was employed at 80 percent. Disease management was ubiquitous at 61.8 percent. Wellness programs are gaining popularity. Many organizations combine wellness methods, including onsite health clinics, physical fitness facilities and annual physicals. Ninety-two percent of companies use flu shots and immunizations. Options such as tobacco cessation and weight management are offered by 52.1 and 39.2 percent. Health risk assessments are provided by 60.5 percent of the utilities surveyed.

To encourage participation, more than one-quarter of companies surveyed use incentives in wellness programs. Most prevalent are gift cards at 48.8 percent. Health and fitness products are offered by 35.5 percent. Contributions to health savings accounts or health reimbursement accounts are used by nearly 30 percent. Insurance discounts are provided by 17.4 percent. Wellness programs could gain even more popularity if the Healthy Workforce Act of 2009 is approved. It would provide a tax credit to employers who sponsor wellness programs. It would cover 50 percent of the cost of the program up to $200 per employee for the first 200 employees and $100 for every employee over 200. To get the credit, companies would be required to meet the definition of a qualified wellness program.

 

Utilities contribute 10.6 percent of payroll toward medical benefits, only slightly less than the cost to provide all of dental, life, retirement, disability and other nonmandated benefits.

Prescription Costs

Many Americans have cut back or quit taking their prescriptions amid increasing economic pressure. When people do not adhere to their prescribed medications, they run the risk of incurring increased medical costs in the future. Large claims drive up the cost of health insurance impacting future costs for employers. Despite today’s taxing times, the 2009 survey found at least 75 percent of utilities offer prescription drug coverage as part of their medical plan offering.

 

Time Off

Time off is one way organizations can enhance compensation packages without spending additional funds. Some organizations offer employees the chance to take unpaid leave in an attempt to cut operating costs. Below is a chart detailing time off offered by years of service. Nonexempt employees are allotted nearly the same number of days off as their exempt counterparts. The gap is less than one day for all years of service.

The survey also shows that 81.1 percent of companies permit carryover of vacation days, and 97.3 percent place a limit on the number of days that can be carried over. The maximum number of days allowed for exempt employees is 26.7 days, compared to 26.2 for nonexempt. In addition to vacation time, exempt and nonexempt employees average three personal days and 10 paid holidays. Exempt employees have 11 sick days, while nonexempt have 10. More than three-quarters of the organizations surveyed allow employees to carry over sick days with 46.2 percent placing a limit on it. The maximum number of sick days that can be carried over is approximately 20 for both exempt and nonexempt employees.

Pay Data

Several past trends are reinforced. For one, the utility industry tends to pay higher for staff positions. Common positions found across many industries, such as finance director and information systems director, pay as much as 10 percent higher than the national average for all industries combined. In addition, compensation varies considerably among the types of utilities. For some positions, such as laboratory technician, pay differs as much as 29 percent, with electric companies paying the highest and water and sewage companies reporting the lowest salaries.

Employees in the Northeast and West Coast regions can expect to earn more than the national average. Similarly, workers in the South Central region will typically be paid less than the national average. Many utilities have been adversely affected by the economic downturn. Lower pay-increase budgets and higher medical insurance costs are everywhere and create new challenges for human resources professionals. Designing attractive, yet cost-effective compensation plans remains the focus of many companies. During the next few months, organizations will continue their conservative approaches to compensation packages. It is unknown how long the recession’s effects will linger.

As organizations across the country make changes, human resources professionals should consider the lasting impact these modifications will have on their organizations. Communication and informed decision-making will be vital to each organization’s success.

Author

Amy Kaminski is manager of marketing programs for Compdata Surveys, a national provider of compensation and benefits data. Reach her at akaminski@compdatasurveys.com or 800-300-9570.

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