The Horseshoe Bay Beacon Newspaper
May 29, 2008
Look behind the numbers at PEC compensation study
Comment deadline extended
By Jodi Lehman
The dollar figures in the Report on Director Compensation presented by Navigant Consulting at last week’s meeting of the Pedernales Electric Cooperative Board of Directors do not all equate with the dollar figures reported on IRS filings for 2005, 2006 and 2007.
At the board meeting, Navigant director Todd Lester presented a 34 page report comparing PEC figures to 20 of the nation’s top electric cooperatives. The report showed PEC director compensation to be $49,997, second behind Connexus Energy director compensation of $65,239.
Mike Rajala, President and CEO of Connexus Energy, confirmed that their board compensation was approximately $65,000 in 2005, but said that Connexus sharply decreased board compensation in 2006. According to Connexus’ 2006 IRS Form 990, board members averaged $46,503 in compensation and benefits. Rajala said that 2007 board compensation would be at or lower than that figure.
Navigant’s report said its data was “obtained from 2005/2006 Form 990s.” As of press time, neither PEC nor Navigant was able to provide an explanation regarding the figures used for Connexus on the report.
The Navigant report did not disclose that the compensation paid to former board president Bud Burnett was excluded from the report’s calculations. In a telephone interview Tuesday, Lester explained the reasoning to drop Burnett’s compensation and benefits from the analysis. Lester said the matter was discussed with the Compensation Committee. “The objective of the Compensation Committee was to determine prospective compensation for PEC board members, not to do a historical review of the past practices at PEC.”
Lester explained that Burnett was classified as a full time employee of PEC and since his position of Employee Coordinator has now been abolished by the PEC board, it would not be relevant to determining the appropriate level of compensation for future board members.
Deposition testimony in the class action law suit filed against the PEC disclosed that although Burnett was paid over $180,000 annually to serve as Employee Coordinator, he was a very unusual “employee.” Burnett did not maintain an office at PEC, had no secretary or assistant, kept no files relating to his PEC duties, had no calendar or financial information about PEC, and didn’t recall ever seeing a budget for PEC. When questioned about PEC business matters, Burnett repeatedly testified, “I don’t know.”
Lester said that some other co-ops in the study had board members who drew salaries as officers or employees of their cooperatives, and the compensation figures relating to these individuals were also excluded from Navigant’s study.
Although the Navigant report contained footnotes about some of its source materials and computations, it did not reveal that Burnett’s compensation was not included in the study. Lester said, “That level of detail is not normally included in Power Point presentations.”
Lester said that the compensation study was commissioned by the PEC for use on a prospective basis and that is why historical data regarding PEC’s former board president was not relevant.
The Navigant report stated, “With one exception, the average total compensation of PEC’s directors exceeds director compensation levels at the other largest cooperatives in the U.S. and Texas.” Apparently Navigant did not use the “prospective basis” filter when citing Connexus Energy board compensation that was changed after 2005.
Lester said that Navigant will be taking a 10 year “historical” look at PEC governance issues for purposes of the class action settlement requirement. The judgment approving the settlement of the class action was entered on May 5, and unless an appeal is filed before June 5, it will become a final judgment.
The June 3 deadline for PEC members to comment on the Navigant Consulting analysis of PEC Board of Director compensation has been extended to June 17.
The entire 34 page report, including charts, is available online at pec.coop. The PEC encourages members to review the report and give feedback prior to June 17. Online users can click on a web link to send their comments to Navigant Consulting from the PEC website. Or, members may send in written comments to Navigant Consulting, Attn: Pedernales Electric Cooperative, 30 S. Wacker Drive, Suite 3100, Chicago, IL 60606.
AUTHOR’S NOTE: After press time, Navigant provided the following information.
Navigant used what data was publicly available to it. For national cooperatives, Navigant used data from GuideStar, and it only showed the 2005 IRS Form 990 data for Connexus. Todd Lester said he was not aware that Connexus had significantly lowered its board compensation as of 2006, nor did he talk with anyone at Connexus about their compensation figures.
Lester said that his work is “imprecise by its nature” and that the value of the information in the report is not lessened by one or two erroneous data points.