City Council can give Colorado Springs Utilities' CEO a $171,000 pay raise now or pony up more cash to hire a new CEO later, said council member Jan Martin.
Martin, a member of the Utilities personnel committee, said she knows the subject of increasing CEO Jerry Forte's salary is controversial, especially as the council also considers 3 percent increases in residential natural gas and electric rates.
But a study of the salaries of 42 CEOs at other utilities operations throughout the U.S. shows Forte's total compensation - base salary and incentive package - 45 percent below the market's median. And with Forte and 60 percent of other Utilities executives eligible for retirement, it leaves Colorado Springs Utilities in a vulnerable position and threatens continuity, Martin said.
She presented the compensation study Monday to City Council during a work session. The council will vote on the proposed raise Tuesday, but Martin made it clear where she stands.
If Forte retired now, she said, it could cost as much as $600,000 a year to hire a new CEO based on the market. Utilities already has had difficulty recruiting to its executive team because of lower-than-market compensation, Martin said. One general manager position sat vacant for more than a year before someone was promoted internally, she said.
"This is a business decision we need to make to retain our CEO for at least two more years," Martin said.
Forte's base salary is $276,750 a year. Under the proposal, his base salary would increase to $447,000. The proposed salary package also includes $25,000 in performance-based incentive pay a year for the next two years and $26,400 a year in a savings account to be taken out when he retires to cover medical insurance, Martin said.
It will be a difficult decision for the council, Martin said after the meeting. Already phone calls and emails against the proposed salary increase are pouring in to council members.
The proposed salary increase comes at the same time the council will consider increasing natural gas and electric fuel rates. If approved, a typical residential customer's natural gas bill will increase 3.6 percent or $1.70 per month. A typical residential electric bill will increase about 3 percent, or $1.38 per month. Combined, that is an increase of about $37 a year.
The two are not related, Martin said. The rate increase does not pay Forte's salary. It pays for the cost of the increasing fuel, she said.
The proposed CEO compensation increase is based on recommendations of an executive compensation study for Colorado Springs Utilities. The study, done by a Seattle firm at a cost of $33,000, found that Forte's base salary is 38 percent below the market median of CEOs who run utilities of similar size and scope. On average, the companies studied had a $955 million operating budget and 1,700 employees, similar to Colorado Springs. The 42 utilities included public and private companies, said Melisa Kellione, Utilities general manager of human resources.
Martin said it is a Utilities board policy to maintain salaries at the market median. Earlier this year, the City Council approved a 4 percent increase in salaries for Utilities employees who fell below the market median. About 76 percent of the 1,500 employees were, on average, 6.5 percent below the market median.
Based on the executive compensation study, Forte's total compensation - base salary and incentive package - should be $622,000 a year to bring him up to the market median.
Martin said that is too big of a leap for Utilities to make all at one time and instead is proposing a total compensation package of $498,400 a year, which would put him at 25 percent below the market, she said.
"This is a compromise," Martin said.
The proposed salary increase does not include the roughly $60,000 incentive package Forte is eligible for this year for his performance in 2013, Martin said. The council will consider the performance incentive at a later date.
The package was negotiated with Forte, Martin said. If approved, the new salary would not affect the city's contribution to Public Employees Retirement Association, Kellione said. Forte's salary already is at the state limit.
Forte said if the council approves the proposed salary package, he will accept it.
"I love my job," Forte said. "I love working here, Colorado Springs is more than a job to me, it's my home town."