Corrections or additions?
These articles were published in U.S. 1 Newspaper on November 17,
1999. All rights reserved.
In the print version, U.S. 1 wrote that PowerWorks will be
representing to the New Jersey Chamber of Commerce, the National
Federation of Independent Businesses, and New Jersey Newspaper
Association, among others, in negotiations with suppliers.
Correction: PowerWorks will be presenting to these
Electric Power in Numbers
Power in numbers should be every consumer’s motto in
the newly deregulated energy market. Last week, when the New Jersey
Business & Industry Association announced that it cut a deal with
an electric power utility company to create a buying pool for its
16,500 member companies, businesses got a big wake-up call, says
Disch, an energy consultant and founder of Power Works LLC
"Every day another aggregation is signed, the more data we
he says. "We’re starting to get a sense that the additional
is going to be about five to nine percent above the initial five
The NJBIA, which signed a bulk purchase agreement with the Arlington,
Virginia-based AES Corp., could see as much as 12 percent savings
in addition to the 15 percent cut already mandated by the Electric
Discount & Energy Competition Act. Earlier this year, Disch and other
experts in the energy industry had no idea where utility costs would
settle once the monopoly was broken and competition began to heat
up. Much as Disch predicted, though, the influx of out-of-state
has forced New Jersey’s big utility companies (Rockland, PSE&G, and
GPU) to seriously consider negotiating with buying pools, or
formed by industry or trade groups.
Thus far, the big companies at least have a hold on the "do
customers," those who are happy enough with the 5 percent drop
in energy prices that was mandated last August 1 (U.S. 1, July 28).
Disch, whose company helps energy pools negotiate with suppliers,
saw a lot of that already. "In the late summer or early fall we
were signing up one or two clients a week, and then there was a little
tail off when that 5 percent cut came around," says Disch, who
founded the Triumph Brewing Company and has a BS in industrial
from Cornell, Class of 1984. "When I had Triumph Brewing company,
I would have done the same thing. I would have looked hard at the
options, but when I got my bill in August, I would have pushed it
aside on my desk."
With three deals in one week between large buying pools and utility
companies, however, businesses and energy companies should be paying
attention. In addition to the NJBIA, the Chemical Industry Council
of New Jersey (which has Church & Dwight, among others) announced
that Allegheny Energy Supply, based in Pennsylvania, would supply
its members with 200 megawatts of daily power at nearly 12 to 20
off current prices. "This has been a big week in the young history
of these aggregations," says Disch. "With the all the
on the success of the aggregations, we’re seeing more businesses
PowerWorks will be presenting to the New Jersey Chamber of Commerce,
the National Federation of Independent Businesses, and New Jersey
Newspaper Association, among others, in negotiations with suppliers.
It is in the interest of power companies to deal with blocks of
even if it means offering much lower rates, Disch says. "It
the acquisition cost of individual customers, which is very attractive
to energy companies," he says. "It also increases your buying
What pool you decide to join, says Disch, depends on "price and
politics," but every businesses should consider it. "When
you get to the national level, it’s a little tricky, but any
at the state level should take a look at it," he says.
Or you can stay with your current supplier. By law, prices will drop
5 percent each year for the next two years, but after that, what’s
to gain may be more than monetary, says Disch. "PSE&G, as good
as they are at the pipes and wire things, haven’t been a breeding
ground for entrepreneurial people and they’re just having a difficult
time learning to compete, cut deals quickly, cut pricing, and add
Last week’s deals, in fact, could mean a loss of anywhere from $350
million to $500 million for the big companies, Disch estimates.
they think they’ll make it up in their franchises, but that could
start adding up," he says. "I suspect they didn’t like to
lose the NJBIA and Chemical Industry Council. I bet that went all
the way to the top floor in Newark."
Always craved a pair of golden handcuffs? If you are
in the banking business and yearn for the deferred pay that executives
in other industries are getting, you might consider the approach of
the newly opened corporate staffing regional sales office of Bank
Compensation Strategies at 3100 Princeton Pike, Suite I-D
and director benefit plans exclusively to the banking industry.
The 100-person, Minneapolis-based firm is a division of Clark Bardes
Holdings Inc. Patrick K. Young
the three-person Princeton Pike office will add two more staffers
next year. Young majored in finance and economics at East Carolina
University, Class of 1981, and worked for Merrill Lynch for 16 years
before joining Integrated Financial Services (IFS), when that firm
had a sales agreement with BCS to sell goods and services. Now the
former IFS employees in this office are all directly employed by BCS.
BCS not only helps design the compensation program, it will also get
you ready to present the program for approval by the board and help
with regulatory compliance. That’s what makes executive pay in the
banking business so crucial — the federal government is always
looking over the bank’s shoulder.
Nationally, says Young, BCS works with more than 5,000 bankers at
more than 1,100 institutions to provide more than $4 billion in
"We don’t charge fees unless we successfully implement a plan
— after the board has approved it and the documentation is in
place," says Young. Fees run from $2,000 to $8,000 but are more
typically in the $5,000 range.
Banking is a tricky industry, not only highly regulated, but also
highly volatile. After a merger the human resource department is faced
with the task of aligning the salaries of executives from different
"Two banks come together and you have to make the compensation
equal," says Young. "Sometimes that may mean reducing a
formula, usually not the actual salary." Another option is to
give the executives in the other organization a raise or compensate
them in another way. "We like to base everything on financial
performance and compensation, both relative to their peers."
First, BCS uses proxy statements to examine the salaries of other
banks in the area. Banks are unusual in that — unlike most
held companies — they must list the salary of everyone who makes
more than $100,000 and is on the senior executive level. In other
industries, only the top salary earners need be named.
"We try to understand what they have in place and look at what
other banks in the area are compensating their senior executives.
One of the things we often see is that they don’t have a deferred
Young’s organization focuses particularly on the long term incentives
that are considered "non-qualified." These incentives can
be given to only 10 percent of the employees. In contrast, another
division of this firm, Bank Compensation Consulting, looks in detail
at "qualified" plans and the five elements of compensation
that can be given to all employees: salaries, bonuses, long term
benefits, and perks. The qualified plans are subject to federal rules
and must be offered to everyone.
Young says the well-designed, executive deferred compensation plan
should do the following:
current compensation by shifting salary and bonuses into a
actually received by the executive.
when — income is received.
a fixed period of time, with interest continuing to be credited and
tax-deferred during the payout period.
to the deferred compensation to Return on Assets (ROA), Return on
Investments (ROI) or other standards of bank performance.
the executive must stay with a company for 20 years of service before
getting the full award. What about someone who is fired? "If
for cause, typically you get nothing."
What about someone who is the victim of a merger? Those who have been
in place for 5 of 20 years will get one-fourth of their benefits.
Then, if they have a good plan, they will also get a lump sum payment
of a sum equal to 2.99 times the average salary for the prior three
years. "If the person averaged $100,000 you can pay an additional
$299,000 in a lump sum payment."
Young defends the salaries that may seem high to stockholders —
when and if they are tied to performance, as he likes to do. "The
amount that it costs you, relative to the executive’s performance,
is very low."
Corrections or additions?
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