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A Utility Aligns Pay With Corporate Change

July 1, 1996
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Related Topics: Compensation Design and Communication, Change Management, Featured Article
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Two years ago, Rosemead, California-based Southern California Edison (SCE), the nation's second-largest utility and a subsidiary of Edison International, faced the biggest change in it's 100-year history: deregulation. The Public Utilities Commission (PUC) announced that it wanted to deregulate electric utility organizations in California, meaning only one thing for SCE: competition.

The problem was that all the company's human resources programs and systems were appropriate for a monopoly but not for a newly competitive organization. "It basically changes a company in a relatively short period of time—three to four years—from a monopoly franchise to one that has to compete," explains Dennis Spry, manager of total compensation for SCE. "Well, all our programs were designed for the [old kind of company]—our compensation, benefits, all our HR programs. So we had to change things pretty darn fast."

While the particulars of deregulation are still being worked out from a governmental perspective, the organization has been hard at work trying to align its business structure and systems to support the new changes. Of particular note is SCE's new compensation system the company calls the Compensation Integration Program or CIP, which was rolled out organizationwide on February 19, 1996. For an organization with a $1 billion a year payroll, compensation was an important area to explore for improvements. "We had to look at our comp program to see what we could do to help it better support the goals that the corporation is striving to achieve," says Spry.

Although SCE already had a good market-driven, pay-for-performance system in place before it faced the changing business environment (already an atypical comp system for a utility firm), Spry knew the company would need to apply new thinking to how it paid people to change their mindset from a secure organizational stance to one in which every day was a new chance to fail, or to wildly succeed.

"All our HR programs were designed for the old kind of company - compensation, benefits, etc. We had to change things pretty darn fast."

Enter the CIP. The CIP, a hybrid of a number of different compensation systems, tossed out the old salary-grade system, with its 3,200 job titles for 9,000 employees (that's one job title for every three employees) and replaced it with far fewer job titles (170). Approximately 800 of those job titles alone formerly applied to managerial and supervisory positions. Now there's seven job titles for managers and supervisors. The CIP also increased the corresponding salary bands to correspond with fewer job designations. In some cases, there's a 250% spread in each band, which allows managers great flexibility in how to pay people.

Just these changes alone helped the organization remove the old us vs. them mentality from workers and helped blur the lines between exempt and nonexempt workers. Not a bad idea in a competitive environment.

Next, the CIP incorporated a brand new gainsharing program for SCE, called results-sharing. The basic idea of results-sharing is that if employees agree to surrender 5% of their base pay to the company upfront, they have a chance to replace it with as much as 10% of their annual pay (or 15% in a few cases) if the organization saves money or makes money during the year.

And employees are expected to help generate those savings or earnings. For example, one group of print-shop workers suggested that instead of having the company pay to launder their smocks, they would take them home and wash them themselves, saving the company lots of money. "It's little things like that, that employees came up with on their own, that saved us money, not to mention they're now working smarter and harder," says Spry.

In 1995, SCE's results-sharing program generated $96 million in savings. "And we paid out less than $40 million," says Spry. "So the way I see it, the company's about 60 million ahead of the game." While he doesn't expect the firm will save nearly that amount this year, he says he honestly can't predict what employees will be able to achieve. Above all, he says: "The one thing it does, if nothing else, is it gets employees focused on what's important [to the company] and gets them engaged in the process."

To top off the success of the CIP, it has been nearly 100% accepted from the beginning, the day it was rolled out. Why? Because it was developed with the help of employees. "We used people from the line organization to help us build this," says Spry. There were more than 70 people involved in designing the CIP from the ground up. "Then we used people from the line to go out and conduct the meetings with their peers to explain this program," he adds.

What all this employee interaction did was help ensure buy-in from the start—an important consideration any time you change the way you pay people (a topic near and dear to their hearts) and any time you've got a business environment that's changing virtually everything about how and why people work. "That way, it wasn't [just another] human resources program," says Spry. "It was a company program."

Personnel Journal, July 1996, Vol. 75, No. 7, p. 61.

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