While the president is paid an annual salary of $400,000-plus over $150,000 in non-taxable spending accounts and perks like free housing-the president’s compensation package pales next to the compensation package of the Tennessee Valley Authority’s Chief Executive Officer Bill Johnson. The Tennessee Valley Authority (TVA) recently disclosed it increased Johnson’s total compensation by nearly 50 percent in 2013 to $5.9 million, more than 14 times the president’s salary.
TVA is a federally owned power company yet it pays its executives at the private sector level. If retaining an executive to head a federal agency requires this high level of compensation (as TVA asserts), it is time for policy makers to revisit TVA’s existence as a federal agency and make the entire entity, not just its pay scales, comparable to private firms to which its executives’ compensation packages are compared.
Like other federal employees, Johnson’s base salary of $708,000-close to double the president’s salary-was frozen last year under the federal pay freeze but remains a hefty amount by most standards. And his base salary accounts for just 12 percent of his total compensation last year; most of what was paid to Johnson last year came from performance incentives of nearly $2.6 million and deferred compensation payments of $2.06 million, according to the Chattanooga Times Free Press. Several other TVA employees out-earn the president as well, earning over one million dollars per year.
But for Tennessee Valley Authority being an agency of the federal government, there is nothing objectionable about TVA’s Board of Directors compensating its executives at these high levels. Executive compensation is an essential element of managing risk and providing incentive. With $10.9 billion in operating revenues and $44 billion of assets on its balance sheet, TVA’s CEO and other leaders have major responsibilities in this large, complex organization. TVA is one of the biggest producers of electricity in the nation, as measured by megawatt hours produced. According to its latest annual report, TVA operates six nuclear plants (with a seventh being built) and a range of other power-generating facilities, has roughly 16,000 miles of transmission lines, manages and services $26 billion in debt, and employs 12,600 people.
Overall, the issue is that TVA is an agency of the federal government. If the federal government needs to pay the agency’s CEO at that level, it is but another reason why TVA should no longer be part of the federal government, something the Trump administration is exploring.
There are two ways to rectify the issue of TVA-a public sector service-offering private sector compensation. The first option is to align its executive compensation with other federal executive employees by utilizing the federal government’s Executive Schedule. TVA’s chief executive officer would be compensated the same as the secretary of energy, for example, as they would both be classified as Executive Level 1 employees. As of January 1, 2012, an Executive Level 1 federal employee’s annual salary is $199,700. The likelihood, however, of either Congress or the TVA Board of Directors reducing the CEO’s compensation this significantly is nil, which leads to consideration of a second option.
The second-and better-option is to make the Tennessee Valley Authority become more like the utilities it compares itself to when determining its executives’ compensation. Divesting the TVA by subjecting the compensation of TVA’s CEO and other executives to board members elected by and accountable to shareholders, is the sensible path to pursue. TVA executives should not only be compensated like executives at comparable utilities, but also should operate in the same environment as comparable utilities and be subject to the same economic forces as other utility executives, be it investor-owned utilities or non-federal public power utilities.