How Much is Too Much…Or Not Enough?

There has been much discussion in the media and among members over the past 12 months regarding the level of compensation for the PEC board members. A quick look through the newspaper or internet search engines indicates that these discussions are not isolated to the Hill Country. So it is safe to say that the question of board compensation is not new. And, unfortunately, the question is still unresolved.

The questions center on the level of compensation paid to a great majority of high profile companies, not just electric cooperatives. Specifically, it focuses on the question of whether some of these board members are paid more than they deserve to receive. (The question of whether some of these directors are underpaid is rarely a matter of controversy!) Many people when asked this question observe that the absolute level of compensation is obscene and without possible justification. It is unfair to members and demoralizing to employees, whose own compensation may only be a tiny fraction of what the directors receive. On the other hand, proponents of these compensation plans draw parallels with the earnings of the board of directors at the more well-known companies (TXU Energy or NRG for instance) and argue that qualified, executive talent commands high prices. As a consequence, they say, a market exists for the abilities of skillful executives, and the compensation they receive is determined by that market.

It should be the Board's objective that, at all times, its membership will be composed of qualified, dedicated, and highly regarded individuals who have experience relevant to the cooperatives operations and who understand the complexities of the cooperatives business environment. This is obviously something that has been lacking at PEC over the last two to three decades. Compensation should be carefully considered and based upon the demands placed upon the respective Board members and should be in line with cooperatives of similar size or companies of similar structure. At a minimum, typical board compensation packages include a per-meeting fee, increases for the chairing of committees, plus reimbursement for all board activity-related expenses. Additionally, it is normally expected that all travel expenses would be covered.

In the face of the current trends in board compensation, PEC needs to evaluate and overhaul their current board structure to determine the correct size of its board and evaluate the compensation programs to ensure that we strike a proper balance between what’s deserved and what’s simply too much. By doing so, PEC will be better positioned to attract and retain qualified and independent directors with sufficient financial, technical and otherwise relevant expertise who are expected to take on a larger role in improving governance.

Based on what has been revealed in the past year, the current board members have not fulfilled the expectations that come with their positions and therefore have been grossly overpaid. Would I feel the same if the board members were conscientious, dedicated, and working for the best interests of the members? Yes, I would. However, I do not feel comfortable giving an exact dollar amount on what the compensation should be. Instead I think it wise to hear what Navigant and any other objective and professional sources have to say on this matter and then make an informed decision. I know that board compensation is a touchy subject right now, and I respect that because there have clearly been abuses. But I strongly believe that the best decisions are made with an informed and objective mind--and this sensitive situation deserves nothing less.