Utility Industry Faces Compensation Challenges

by Amy Kaminski, Compdata Surveys

Understanding the challenges the utility industry faces can help organizations of all sizes prepare more effectively for the future. In addition to idle pay-increase budgets and a shortage of skilled workers, employers are dealing with a Web-savvy work force. Employees have access to salary information with the click of a mouse. Although data is readily available, online information often leads to confusion and misinterpretations, along with unrealistic expectations.

With rising medical insurance costs and a changing pension landscape, organizations should be cognizant of how their competitors compensate employees regarding total compensation. As the work force evolves, companies must communicate the savings and value in the changes being made to maximize attraction and retention.

Recently nearly 150 utilities with more than 4,000 locations were surveyed about their compensation and benefits offerings. Based on the survey findings, we’ll take a detailed look at how organizations are responding to post-recession trials.

While the economy is showing signs of stabilizing, U.S. utilities are proceeding with a conservative approach. One-third of utilities instituted a hiring freeze in 2010 while 31.2 percent faced budget freezes. Another 31.2 percent reduced bonuses and incentives. More than half the companies surveyed reduced or eliminated benefits offered.

Despite the pending shortage of skilled workers, the number of organizations not actively recruiting personnel has remained stable during the past year. In 2008, 7.4 percent of utilities were not recruiting. This number rose to 9 percent in 2009 and experienced only a slight decrease to 8.9 percent in 2010. In addition, 13 percent of utilities reported permanent layoffs in 2010, affecting 4.4 percent of their work force.

For utilities that are recruiting, 50 percent advertise open positions with trade or professional associations, use Internet resume databases and attend job fairs. Thirty-five percent offer an employee referral program, while 28.8 percent offer sign-on bonuses and 24.7 percent offer extra vacation time as a recruiting tool.

Turnover Back on the Rise

Many expect turnover to increase in 2011 with the uptick in the economy causing many to pursue work again as they did before the recession. Companies across the country list retaining high-performing employees as the biggest human resources challenge in 2011, and utilities are no exception. With the job market opening up, employees want to take their next career step, and employers are focusing toward keeping these employees satisfied.

For now, turnover rates remain low. Electric power generation, transmission and distribution companies had a 5.3 percent total turnover rate and 3.8 percent voluntary turnover rate. Natural gas transmission and distribution companies realized the highest total turnover at 6 percent, and water, sewage and other systems had the lowest at 4.2 percent.

The utility industry typically experiences lower turnover compared with other industries. Overall, utilities saw a 5.7 percent total turnover rate and 4 percent voluntary turnover rate. The industry with the next lowest turnover is manufacturing at 14.5 percent total turnover and 5.9 percent voluntary turnover.


Medical Insurance–Same Story, Different Year

Despite legislation recently passed to bring costs in line, providing medical insurance continues to grow increasingly expensive for U.S. utility employers. In 2010, utility companies had an average premium increase of 10.2 percent.

More than 70 percent of utilities report paying more than $9,600 annually for an employee-plus-family plan. Employee-plus-spouse plans cost employers more than $7,200 per year. Utility organizations pay more than $2,400 each year for employee-only coverage, with employees paying more than $300 per year for the same coverage. Although employees have become responsible for paying a larger portion of their medical insurance premiums during the past few years, employers still cover more than 70 percent of the total cost.

The economic downturn of the past couple of years has amplified financial concerns, causing organizations to increase efforts to mitigate some of the costs of providing employee medical coverage. To reduce costs, utility companies employed various methods. Increasing the employee portion of the premium was most prevalent at 50 percent, with an increase in deductible levels following at 43.6 percent. The results showed that 25.5 percent of organizations increased employee co-insurance levels. Offering a choice of deductible levels was used by 19.1 percent of survey respondents.

Cost-containment measures are also a popular option; 88.2 percent of organizations surveyed use coordination of benefits to bring costs in line. More than 60 percent of utility companies employ disease management, pharmacy benefit management and utilization reviews to contain costs. Pre-existing condition clauses are used by 39 percent of survey respondents.

In 2010, employers contributed 10.3 percent of their payroll toward medical insurance, which is nearly the same cost to provide all of the following: retirement (8.9 percent), dental (1 percent), disability (0.7 percent) and life (0.6 percent). This trend has been consistent many years and correlates to the same lag in pay-increase budgets.

The Rise of Wellness Programs

With prevention becoming the buzzword, utilities have taken steps to increase their employees’ health and wellness through various programs. The most common wellness options reported are flu shots and immunizations at 92.8 percent, with health risk assessments and annual physicals following at 55.8 percent. Tobacco use and weight management are hot topics in wellness with 50 percent offering a tobacco-cessation program and 42 percent offering weight-management options.

More utilities also are offering rewards and incentives to employees for participating in wellness programs. Nearly 32 percent offer rewards, up from 28 percent in 2009. Gift cards and health and fitness products are the most frequently used reward options at 42.5 and 40 percent, respectively. Alleviating medical expenses is becoming more popular, however, with 37.5 percent awarding health savings accounts and health reimbursement arrangements contributions and 7.5 percent providing medical premium contributions. Ten percent of organizations offer insurance discounts for wellness program participation.

Some often-reported wellness success stories come from Northeast Utilities and Florida Power & Light Co (FPL). Northeast Utilities saw a $1.4 million decrease in behavioral claims with a 31 percent decrease in smoking and a 29 percent decrease in inactivity. They realized a return on investment of 6-to-1, according to a 2003 U.S. Department of Health and Human Services report. FPL saw its total health care costs decrease 35 percent, with 82 percent of employees reporting an improvement in personal health, according to a 2002 Wellness Councils of America report.

These savings are not the exception when it comes to wellness programs. According to a review of 42 work site health programs, the Partnership for Prevention found the average savings-to-cost ratio is $5.93-to-$1, with an average 28 percent reduction in sick leave and 26 percent reduction in health costs.

So why don’t all companies offer a wellness program? Many point to the long-term investment in a program that may or may not deliver cost savings, as well as fear that employees will view the program as an invasion of privacy. With the cost of health care continuing to spiral, however, utilities are likely to engage in creating a supportive environment that promotes employees’ active involvement in their personal health, which benefits companies’ bottom lines.

Utility Salaries

Average salaries typically trend higher in the utility industry. Positions common among multiple industries, such as information systems director and purchasing manager, average 13 and 16 percent higher compared with other industries. Higher averages are not limited to managerial positions. Hourly positions such as receptionist realize increased pay rates, too.

Communication Key to Success

Although most organizations are cutting benefits, employees might perceive cuts as unique to their organizations despite similar changes’ being made across the country. The success of most benefit plan changes largely is determined by how well they are communicated.

The methods to communicate new or reduced programs should reflect a company’s culture and employees. For example, posting information on the company Intranet might make sense for an organization whose employees are technologically savvy. In contrast, company meetings might make more sense for organizations that pride themselves on face-to-face communication. These methods along with e-mail, newsletters, fliers and mailings often work best when used together. Before using any of these, think strategically about the message and how employees will respond. Then, be prepared to answer tough questions regarding decisions and logistics.

While this new economic climate has introduced many changes, fundamental pay practices remain the same. Making informed and cost-effective compensation decisions geared toward retaining high-performing employees will lead to long-term success.


Amy Kaminski is the director of marketing 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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