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Checks Without Balances

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For some North Carolina public workers, pay comes with a bonus

40 state and local employees received bonuses of $20,000 or more in 2011

Some 40 state and local employees in North Carolina’s pension system received bonuses of $20,000 or more in 2011, according to an analysis of pay data by The (Raleigh) News & Observer.

For many state employees, teachers and the vast majority of city and county workers, the past few years have been tough times, with small salary increases and spotty bonuses.

A review of state pension records from 2008 to 2011, the most recent years available, shows that one out of every five state and local employees received a bonus.

These bonuses can have an additional effect: They count toward calculating an employee’s pension if they are awarded during the employee’s four highest consecutive years of compensation.

Yet they don’t show up in many public salary records. The newspaper requested pay data for more than 435,000 public employees from the state Treasurer’s Office and found bonuses that included:

• $91,514 to Josef Penner, head of Mecklenburg County’s emergency transport service, Medic. That bonus was in 2010; since then, his bonus has dipped below $70,000.

• $65,000 to Sean Ferreira, who has managed Cary’s 29-court tennis center for a salary that has now reached nearly $60,000. He manages a staff of nine tennis teachers and administrators and a $1.8 million budget at one of the country’s top public tennis facilities.

• $53,000 to Graham Edwards, chief executive officer of ElectriCities, a government-created nonprofit that buys and sells power for dozens of municipal utilities. The bonus, 10 percent of his base salary of $530,000, is just for staying with the organization.

That kind of bonus money puts those employees among an elite crowd of mostly athletic coaches and athletics directors whose contracts typically offer far larger bonuses for successful seasons. In 2011, for example, N.C. State University football coach Tom O’Brien got $150,000. O’Brien was subsequently fired.

In many cases, the bonuses are intended to reward success. But unlike the coaches, the bonuses that Penner and other public employees received aren’t well known. That’s because they aren’t in such high-profile jobs, and their compensation typically is not discussed in detail in open sessions of public meetings.

Major bonus in Charlotte

Penner has collected bonuses as high as $91,514 in one year. Medic today has 503 employees and an annual capital and operating budget of $53 million.

When he took the job in 1997, he received a $120,000 salary, an $18,450 bonus and a company car. By 2010, his pay had more than doubled, to $294,445, which included the $91,514 bonus and a $9,250 car allowance. Since then, his pay has decreased as the struggling economy has caused county officials to cut the bonuses to $66,578 in each of those years.

He and Michelle Lancaster-Sandlin, an assistant Mecklenburg county manager who sits on Medic’s board, said he has deserved the increased salary and bonuses. Medic has improved emergency response times while raising the quality of medical care, they said, all while reducing the county’s cost per transport from $429 in 1997 to $126 this fiscal year.

“There are very specific metrics,” Lancaster-Sadlin said. “There are thresholds that have to be met.”

Penner’s pay was benchmarked with similar emergency transportation systems nationwide that attempt to provide the same “pre-hospital care” that Medic strives for in its ambulances, Lancaster-Sandlin said.

Medic is a public organization that gets 23 percent of its budget – $12.4 million – from the Mecklenburg County. It was created by county commissioners in 1996 in response to widespread concerns that the county-run ambulance organization was failing, with response times that were too long.

Carolinas Medical Center and Novant Health Presbyterian Medical Center are the other partners. Penner’s pay is determined by a three-member panel, with a county representative taking one seat and a delegate from each hospital filling the others.

Mecklenburg County commissioner Bill James said he saw little reason to question Penner’s pay.

“I believe that the way prices are these days, someone who supervises a large department will cost you a significant amount of money,” said James, a Republican. “I don’t evaluate his day-to-day performance, so I can’t speak to his abilities.”

Penner is not a physician. In Wake County, Dr. Brent Myers leads the EMS operations. Unlike Mecklenburg, Wake hired him as a contractor with no bonuses or benefits. Over the past five years, the amount the county has paid his medical practice has gone from $216,436 to $238,199. The new contract with his practice boosts that to $273,929.

Unlike Penner, Myers is not eligible for a state pension.

Attracted to Cary

Unlike almost all of Cary’s 1,200 employees, Ferreira has an arrangement with the town that usually pays him more in bonuses than salary. His total pay of $131,377 last year nearly rivaled that of the town’s fire chief, and it’s $22,000 more than the parks and recreation director’s.

The bonuses represent an incentive arrangement that pays Ferreira more money if the Cary Tennis Park brings in more revenue. Under his watch, the 13-year-old center’s revenues have improved, but the facility still operates in the red, with an annual deficit hovering around $275,000 during a recent five-year period.

The potential for bonuses was key to bringing Ferreira to Cary’s tennis complex, which was struggling in 2005 after a management company bailed out. Ferreira, 42, had played in his collegiate years from 1989 to 1993 at N.C. State University, where he was a two-time All-ACC player.

Before arriving in Cary, he managed a public facility in Peachtree City, Ga., under a revenue-sharing model similar to Cary’s.

By offering the potentially big incentives, Ferreira said, the town’s “exposure to risk is minimal. You’re not committing this huge salary to someone. You’re committing kind of a smaller salary to someone.”

He compared the deal to a sales commission. Revenue sharing, he said, “is very common in the tennis industry, but in government that’s a unique thing.”

In recent years, the only Cary employees to receive bonuses have worked at the tennis center, according to staff members and records.

Cary records show that during Ferreira’s tenure, revenues at the tennis center have nearly tripled to more than $1.3 million in fiscal 2012, the last year for which budget numbers were available. Usage has nearly doubled.

“It is not unusual to have a superstar salesperson in a company, particularly a small business,” Cary Councilman Jack Smith said. “If they deliver the results, then they’re going to get some pretty aggressive compensation.”

But some bonuses for public employees draws criticism, too. Thom Reilly, director of the School of Social Work at San Diego State University, is the author of “Rethinking Public Sector Compensation.” A former chief executive of Clark County, Nev., with a doctorate in public administration, he has researched new models of government compensation.

In many cases, he said, employees’ bonuses come on top of consistent pay increases and benefits such as health care that are often more generous than the private sector’s.

“Personally, I really like the idea of bonuses and revenue sharing, and some of these other models, but they should be in lieu of your current pay and benefits,” he said.

He also suggested that governments should tie bonuses to customer satisfaction and expenses.

William Davis, Cary’s athletic manager and Ferreira’s direct supervisor, said customers are happy with the center but acknowledged that its expenses have grown alongside its revenues, which means the longstanding deficit has yet to be erased, though it’s a significantly smaller portion of the budget. The park draws young high-level players from hours away, and a teen protege of the park staff won a national title this year.

The incentive model doesn’t penalize tennis park employees for expenses. “It really isn’t built into the formula,” Davis said, adding that the town still examines Ferreira’s performance with regard to expenses.

Few outside of town government knew about Ferreira’s bonuses. Town meeting minutes don’t reflect the incentive arrangement, and even a former council member couldn’t recall discussing it.

“None of that rings a bell with me at all. I don’t recall ever getting that level of detail,” said former councilwoman Julie Robison, who served on the board from 2001 to 2012. She did not criticize the arrangement.

Bonuses from merger talks

Since 2009, Graham Edwards, 60, has been the chief executive officer of ElectriCities. He receives a base salary of $530,000, but his bonuses and other perks have pushed his annual compensation as high as $791,687. That’s nearly twice the pay his predecessor, Jesse Tilton, received in his best year.

Edwards’ contract dictates he receive a bonus of up to 10 percent of his salary each year he stays in the job, and another bonus of up to 10 percent based on performance goals.

But the board has continued to give him additional bonus money. In 2011, it gave him $26,500; last year, it was $15,900.

The additional bonuses in 2011 and 2012 had to do with Edwards’ rate renegotiations during the merger of Duke Power and Progress Energy that are expected to save millions of dollars each year for the communities the nonprofit serves, ElectriCities’ board minutes show. ElectriCities was one of 17 larger customers that cut rate deals with Duke or Progress in exchange for supporting the merger.

‘Saving us money’

“Having someone who is experienced and capable is saving us money,” said John Craft, the LaGrange town manager and former ElectriCities board chairman.

Edwards said the savings he achieved were much better than what Duke initially offered and reflected his value to ElectriCities.

“At the end of the day, we received substantially more than what they initially put on the table – five to six times,” Edwards said. “And those benefits are flowing back to our members right now.”

Since 1995, ElectriCities has served as the overseer of operations for two municipal power agencies that represent 51 communities. It is funded with fees from its municipal members.

ElectriCities officials say Edwards has stabilized electric rates for its member communities, largely by renegotiating power contracts from Duke Energy that they say will save $133 million for communities in the eastern half of the state over 20 years and produce $23 million in savings for western communities over five years.

The negotiations also freed up $40 million belonging to western communities that Duke had been holding as a sort of security deposit.

That’s money that Craft, the ElectriCities board member, said can be used to hold down rate increases. ElectriCities has kept rates from climbing for the municipal power agency serving Eastern North Carolina, while the agency serving the western municipalities is facing a 5 percent increase next year.

“The big thing for us was rate stability, and through Graham’s leadership we’ve seen that,” Craft said.

Craft said the ElectriCities board sought to give Edwards a pay package in the neighborhood of what he could make in the private sector. It includes car and expense allowances that pay him a combined $25,200 each year and covers tax liabilities on those allowances that cost ElectriCities another $20,000 each year.

Edwards has extensive experience in the utility business. He spent 25 years with Santee Cooper, also known as the South Carolina Public Service Authority, and rose to become CEO. After that, he led the Midwest Independent Transmission System Operator, a regional electric transmission provider, for three years. He said he planned to retire after that, but the ElectriCities job caused him to postpone those plans.

Observer staff writer Steve Harrison contributed.

Kenney: 919-460-2608 Twitter: @kenneyNC Kane: 919-829-4861; Twitter: @dankanenando
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