State Politics

November 19, 2013

For a few public employees, checks come with a bonus

Since 2005, Sean Ferreira has managed Cary’s 29-court tennis center for a salary that has now reached nearly $60,000, about the same as a veteran firefighter. He doesn’t risk his life in fires, but he does manage a staff of nine tennis teachers and administrators and a $1.8 million budget at one of the country’s top public tennis facilities.

Unlike almost all of Cary’s 1,200 employees, however, Ferreira has an arrangement with the town that usually pays him more in bonuses than salary; in the last fiscal year, that bonus topped $71,000. His total pay of $131,377 nearly rivaled that of the town’s fire chief, and it was $22,000 more than the parks and recreation director.

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.

Ferreira is among roughly 40 state and local employees in the state pension system who received bonuses of $20,000 or more in 2011, the most recent year available statewide, according to The News & Observer’s analysis of pay data for more than 435,000 public employees.

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. Cary has fared better, maintaining annual raises for employees of 2.5 or 3 percent since the start of the recession.

A review of state pension records from 2011 shows that nearly 1 out of every 5 state and local employees received a bonus. A little less than half of the 1,216 agencies in the system paid a bonus to at least one employee from 2008 to 2011, but many of the bonuses were small.

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 or databases. The News & Observer found them by requesting pay data from the state treasurer that most state and local agencies provide for pension purposes.

Other notable bonuses include:

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

That kind of bonus money puts those employees among an elite crowd of mostly athletic coaches and athletic 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 later fired.

In many cases, the bonuses are intended to reward success. But unlike the ones given to coaches, the big bonuses that Ferreira 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.

Eric DeSimone, a police sergeant who leads the Raleigh Police Protective Association, a union representing the city’s officers, said it’s tough to hear about big salaries and bonuses for some employees while he and many other rank-and-file employees have seen no bonuses and one or two small pay increases over the past five years.

“These guys are going up 40 (thousand), 50 thousand dollars. Many police officers or firefighters, they are just wishing that they could go up five (thousand) or 10 thousand dollars in four or five years,” DeSimone said. “That would be a dream come true for them and their families.”

Attracted to Cary

The potential for bonuses was key in 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 coming to Cary, he managed a public facility in Peachtree City, Ga., under a revenue-sharing model similar to Cary’s, he said.

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

Ferreira compared the deal to a sales commission in the private sector. 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 big bonuses for public employees draw 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 he acknowledged that its expenses have grown alongside its revenues, which means the long-standing 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 on 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.

Ferreira’s incentive deal is relatively unusual among municipalities that offer sizable tennis facilities, but at least one other North Carolina community has a similar arrangement. Junius Chatman, director of High Point’s Oak Hollow Tennis Center, has received bonuses in the $30,000 to $35,000 range on top of his roughly $50,000 salary. Some of that bonus comes from lessons he teaches.

Raleigh’s tennis director, David Bell, does not have an incentive deal. He is paid an $83,711 salary and teaches two to four lessons a week, with payment for them rolled into the salary he’s paid for managing tennis courts in 25 locations.

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 that he receive a bonus of up to 10 percent of his salary each year he’s on 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 meeting minutes show. ElectriCities was one of 17 larger customers that cut rate deals with Duke or Progress in exchange for supporting the merger.

“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,” Edwards said. “Five to six times. 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 municipal money.

Many of those communities struggle with high electric rates that mostly stem from the power agencies’ decisions to invest in nuclear power plants just before the partial meltdown in the Three Mile Island plant near Harrisburg, Pa. The meltdown caused a huge increase in construction costs, saddling the power agencies with billions of dollars in debt. Some municipalities drove rates higher by using utility revenues to keep property taxes down.

ElectriCities officials say Edwards has stabilized electric rates for its member communities, largely through the negotiations with Duke Energy that they say will save $133 million for communities in the eastern half of the state over 20 years and generate $23 million in savings for western communities over five years.

The negotiations also released $40 million belonging to western communities that Duke had held 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 an additional $20,000 each year. If he stays through the middle of next year, he can retire as “CEO emeritus” and get another six months’ worth of total compensation in exchange for advising his successor.

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 Midcontinent Independent System Operator, a regional electric transmission provider. He said he planned to retire after that, but the ElectriCities job caused him to postpone those plans.

Selma is one of the communities that depends on ElectriCities to purchase power at low rates. Mayor Cheryl Oliver said she has sought to cut expenses and non-electric-related costs from the town’s utility budget to keep rates down, but rates are still about 10 percent higher than what Duke charges customers in Raleigh.

That makes it hard for the town to recruit business or residential development, she said.

She said Edwards has done a good job leading the nonprofit but added that she did not know why he should be receiving bonuses on top of his $106,000 in retention and incentive pay. She said additional bonuses should reflect something “extraordinary.”

“I know of nothing that has been above and beyond what the position should be doing,” said Oliver, who has been on the Town Council since 2007. “I’d be open to hearing more.”

Major bonus in Charlotte

In Charlotte, Josef Penner has quietly collected bonuses as high as $91,514 in one year. Penner leads Mecklenburg County’s emergency transport service, Medic, which 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 in his first year. 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 annual bonuses to $66,578.

Penner is not a physician. He and Michelle Lancaster-Sandlin, an assistant Mecklenburg county manager who sits on Medic’s board, said he has deserved the increased salary and big bonuses.

Medic has made progress on emergency response times and improved the quality of medical care, all while reducing the county’s cost per transport from $429 in 1997 to $126 last year.

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

Penner said his pay had been benchmarked to similar emergency transportation systems nationwide that attempt to provide the same “pre-hospital care” that Medic strives for in its ambulances. “There have been a handful of looks out the window,” he said.

Medic is a public organization that gets about a quarter of its budget from the 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.

Penner is one of Mecklenburg County’s best-paid employees, making more in some years than the Charlotte city manager. The compensation for that job – now held by Ron Carlee – has increased by 40 percent since 2007, when Pam Syfert managed the city.

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,” James said. “I don’t evaluate his day-to-day performance, so I can’t speak to his abilities.

“Is $260,000 excessive? I don’t know. It depends on what people are being paid to run similar departments.”

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.

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