With no employee pay cap TVA boosts base salary for top managers

photo The Tennessee Valley Authority offices are located on Market Street in Chattanooga.

BY THE NUMBERS• 155 -- Number of TVA managers whose base salary was more than what is paid members of Congress.• $174,000 -- Pay for members of Congress and previous salary cap for TVA before reforms in 2004.• $29.4 million -- Amount of pay for TVA executives paid above congressional salary cap.• $74,465 -- Median pay for TVA workers last year.Source: TVA base pay data for fiscal 2011

Since Congress removed the pay cap for employees of the Tennessee Valley Authority seven years ago, the base salary for 155 of the utility's top managers has risen above the $174,000 annual pay given members of Congress.

TVA is shelling out nearly $30 million a year more for its top brass than it did before TVA's board was restructured and the limit on TVA salaries was removed by Congress in 2004.

Despite the extra cost, proponents of the change insist it has helped TVA attract and retain top managers and allowed the federal utility to operate more like a private business.

"For TVA to compete for the best talent with other utilities, it needs to pay competitive salaries and that just wasn't possible in the past," said Dr. Warren Neel, executive director of the Corporate Governance Center at the University of Tennessee, who has served on the boards of 15 publicly traded companies. "For the past decade, TVA has been set up and is operating more like a private company, and I think that leads to better performance."

Neel suggests that the time has come for federally owned TVA, to convert to a private company like other regulated investor-owned utilities.


TVA was established in 1933. President Franklin Roosevelt wanted TVA to be "a corporation clothed with the power of government but possessed of the flexibility and initiative of a private enterprise."

It was governed by a three-member, full-time board and no employee's base salary was higher than what members of Congress were paid.

In 2004, at the urging of Senate Majority Leader Bill Frist R-Tenn., Congress created a nine-member board and a full-time chief executive.

U.S. Rep. John Duncan, R-Tenn., the dean of Tennessee's congressional delegation, has opposed the higher pay for TVA's top executives. Duncan said no federal employee needs to be paid more than the president's $400,000-a-year salary.

Former TVA Chairman Craven Crowell, who was paid $145,100 in his final year in 2001, remains critical of the reforms.

"Simply put, this legislation was never carefully thought out and citizens of the valley were never given an adequate opportunity to have input," Crowell said.

But one of Crowell's colleagues who stayed through the transition, former TVA Director Skila Harris, said the changes have helped.

"It would be nearly impossible for TVA to hire qualified candidates for transmission workers, plant managers, technicians and executives if its pay scale was lower than other utilities," she said. "As for the pay cap, the only explanation I can come up with is that Congress didn't like the idea of people being paid more than they were. As far as I'm concerned, there is no relationship between what a member of Congress is paid and what an executive of a utility should be paid."


In fiscal 2011, the total compensation for TVA's top five officers ranged from $1.95 million for Chief Nuclear Officer Preston Swafford up to $3.95 million for Chief Executive Tom Kilgore, according to filings with the U.S. Securities and Exchange Commission.

Kilgore's salary was nearly 10 times above President Barack Obama's and nearly 23 times higher than salaries for senators and congressmen.

But pay consultants Towers Watson found TVA's executive compensation still lagged behind comparable private utilities even though its rates were below the U.S. average.

Kilgore's total pay, although among the highest of any federal employee, was 37 percent below the industry average for comparable utility CEOs.

The highest-paid employees of any government-sponsored agency, the executives of mortgage giants Fannie Mae and Freddie Mac, are getting reduced pay and bonuses this year after it was revealed that a dozen executives got $35.4 million in salary and bonuses during 2009 and 2010 to run the nation's biggest providers of home loans.

The Federal Housing Finance Agency, which oversees the Fannie and Freddie, moved this month to cap the CEOs' pay at $500,000 a year and eliminate all bonuses.

Republican lawmakers welcomed the cap, but administration officials said such limits could make it hard to attract talent.


But Kilgore acknowledges that TVA "is not as competitive with its rates as it once was or where we want to be" for the future. TVA lost $173 million in the first quarter of the current fiscal year and the mild winter reduced sales below budget.

Kilgore and other top managers are streamlining the organization and putting it on what the TVA CEO calls "a cost diet." The utility's No. 2 job won't be filled when Chief Operating Officer Bill McCollum retires in June, and managers are developing plans to cut other staff and expenses this spring.

"TVA, like everyone else, is facing pressure from a slowdown in the economy that affects our revenues," Kilgore said in a letter published recently by Inside TVA.

Although TVA is government-owned, it receives no taxpayer support.

Spokesman Scott Brooks said that despite cost pressures, the agency "is striving to offer competitive pay to attract and retain the best people we can."

"TVA has to be able to attract, train and retain a workforce that is reflective of managing and operating a more diverse generation fleet," he said.