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Citizens CEO making more than peers at bigger utilities

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Lykins Citizens CEO Carey Lykins earned $1.6 million last year.

Citizens Energy Group is a not-for-profit charitable trust—a structure Mayor Greg Ballard touted as a major advantage when he promoted its purchase of the city’s water utility.

But that doesn’t mean CEO Carey Lykins is missing out on the kind of paydays executives of publicly traded utilities enjoy. In 2010, his salary and bonus totaled a hefty $1.6 million.

Lykins, in fact, earns more than his counterparts at the three largest municipal gas utilities in the country. And he could be in line for even higher pay later this year if Citizens completes its $1.9 billion purchase of the city’s water and wastewater utilities.

“We haven’t looked at that yet,” Martha Lamkin, president of Citizens’ board, said of future executive pay levels.

What’s clear is that Lykins is already racking up pay that might make his peers at larger companies jealous.

San Antonio’s municipal gas and electric utility, CPS Energy, last July lassoed no less than the president of energy giant Exelon Power as its new CEO.

Managing the Texas utility, which has 320,000 natural gas customers and 710,000 electric customers, will earn Doyle Beneby a base salary of $360,000, not including a performance bonus. While that amount hasn’t been specified, Beneby’s predecessor walked out the door with annual compensation of $613,000.

Lykins and Citizens serve 270,000 gas customers and provide steam and chilled water service to about 350 commercial buildings downtown. But unlike Beneby, Lykins doesn’t have an electric utility to worry about. Nor is he responsible for a 2,700-megawatt nuclear power plant.

Lykins’ $1.6 million is paltry in some corporate circles. But it might raise eyebrows considering Citizens was structured more than a century ago as a not-for-profit, public charitable trust. Such a trust could be regarded as the polar opposite of an investor-owned utility that rewards its CEO with multiple millions of dollars to maximize shareholder return at the expense of ratepayers.

“I guess this shows that non-profit does not necessarily mean low-cost,” Brian Mahern, a City-County councilor, said of Lykins’ $1.6 million paycheck. “It’s a lot of money for the people I represent.”

Pay for performance

Citizens counters that its executive pay structure is designed to enhance the company’s performance, which in turn benefits its customers. It says such incentives have paid off for ratepayers, citing the utility’s ranking among the top four utilities in the Midwest the past eight years in J.D. Power and Associates’ survey on residential gas utility satisfaction.

It also points to Citizens’ No. 1 or No. 2 ranking in a study by Huron Group of peer utilities in such performance measures as customer gas price, operations and maintenance expense.

Citizens officials bristle at comparing Lykins’ pay solely with that of the three largest municipal gas utilities in the nation (Citizens is fourth-largest). They cite the company’s emphasis on hitting performance benchmarks that some other municipal utilities may not have such an aspiration to attain.

Instead, Citizens’ board engages consulting giant Mercer to conduct an annual survey of what executives of similar responsibilities made at firms of similar revenues and complexities.

Lamkin said she could not immediately recall which companies were on Mercer’s list of comparables.

About 75 percent were from the utility sector, with another 25 percent from other industries. Seventy-three percent of Citizens’ $441 million in revenue in 2010 came from its natural gas business, with the rest from steam and chilled water delivery and from its oil-drilling operations in southwestern Indiana.

From Mercer’s list, Citizens determines its executive pay based on the 50th percentile of the market for comparable executives, “which we think is modest,” Lamkin said. In other words, 50 percent of executives earned more, 50 percent earned less.

Pay is linked to how well executives achieve certain performance targets, such as safety, customer satisfaction and operational efficiencies, Lamkin said.

Last year, the board awarded Lykins a base pay of $532,000, up from $484,000 in 2009. On top of that was $340,552 in short-term incentive plan payments, which are incentives for all Citizens employees based on performance measures and Malcolm Baldridge quality criteria.

Lykins, a certified public accountant who started with the utility running a jackhammer 37 years ago, also received $458,616 last year under the company’s executive incentive plan. EIP payments, which provide “an incentive to attract, motivate and retain key executives,” are paid in two-year cycles.

The final portion of Lykins’ 2010 compensation was $300,551 in so-called restoration pay. Citizens explained that there are limits on how much money can be put into employee pension and 401(k) plans. Restoration pay is designed to equalize pension benefits for executives who’ve reached that limit, who are over age 55, and eligible to retire. Lykins is just shy of age 60.

Firms that billed Citizen Energy Group for services during purchase efforts“We are seeking to attract and retain high-performing executive talent in a corporate setting,” Lamkin said.

Moreover, she said, competition Citizens faces for that talent comes from investor-owned utilities that dominate the region.

Indeed, Lykins’ $1.6 million compensation last year was almost as much as that of the $1.7 million paid to Carl Chapman, president of investor-owned Vectren, the Evansville-based gas and electric utility.

Many investor-owned utilities have boosted pay of top executives to prevent management turnover that could reduce stability. One Citizens official noted that, under the city’s ownership, the executive director position of the water utility changed several times over the years. Whether that contributed to the water utility’s financial challenges could be debated.

Leadership at some municipal water utilities is a revolving door based on political patronage and changes in mayoral administrations. Mayor Ballard said compensation levels for Citizens executives are up to the Citizens board. “It’s hands off for us.”

Ultimately, Ballard added, “We needed to put water and wastewater in professional hands.”

Hard to swallow

Still, others find the $1.6 million paid to Citizens’ CEO last year hard to swallow.

“I knew his salary was high. I didn’t know how high relative to other [municipal] utilities,” said City-County Councilor Angela Mansfield, who also opposes the sale of the city’s water and sewer utilities.

“I don’t think we should be paying such exorbitant amounts,” Mansfield added. “We all know who is going to end up paying for this. It’s the ratepayers.”

Besides Lykins, Citizens’ other four-highest-ranking executives last year individually had total compensation between $495,620 and $594,615.

Before the water/sewer deal, their attention in recent years had been focused on a number of rate cases before state regulators and the closure of the utility’s century-old coke fuel plant on the city’s east side.

Losses from such discontinued operations, of $4.6 million last year, resulted in a $1.8 million net loss for the utility. Otherwise, Citizens had a net operating income of $33.6 million, up from $29.9 million in 2009.

Those executives are expected to wring out at least $60 million in savings from the water and sewer utilities by the third year of ownership. They’re eyeing such things as streamlined supply chain and contracting, and consolidating administrative functions to provide efficiencies.

That effort should pay off in water rates at least 25 percent lower than they otherwise would be, Citizens executives have said previously.

But given a generally favorable regulatory climate in Indiana for utilities to pass along costs to their customers, Citizens Action Coalition’s executive director, Grant Smith, wonders why such levels of pay are necessary.

“When you look at utilities in this state, it’s more risky running a lemonade stand than running a utility.”•
 

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  • customer service terrible
    i have written ceo cary likens and he had another person to call me back.he cary advertises on v he will repond to your comment in person,maybe he is too busy out spending his big raise 1.6 million more than any other ceo in indiana with a utility co.come big roller call me .your communication lines are terrible,he buck stops with you,i agree qith the city councillors we will pay for this in bills and taxes,,without failure i will keep writing everyone i can about the failure to call back on a concern..terrible leadership.
  • Are you surprised?
    This has been going on for some time. When Citizen's closed their manufacturing facility this was a big flag amongst many small ones. Those employees were led on for over a year about a possible sale. Only to be devastated in the end. The plant had a buyer. They bought another plant elsewhere. Boils down that it is all about Carey. The salary is just one indicator. Citizens has not had a genuine CEO since Mr. Lindemann retired.
    • agree
      not for profit, total b.s. and these jerks will turn your gas off when its 10 below if you cant pay their price. Its time the city county do something!
    • Get the Truth
      For the poster who said that Vectren's salaries are much lower, I would encourage you to do your homework before making such a statement. Go to Vectren's website and look at their proxy filing for 2010. Neil Ellerbrook, who is the only person to really make a comparison to since he has been the CEO, made $3.3, $3.8 and $5.5 million in each of the last three years. Simple math tells me that Vectren's CEO made 2.0 to 3.5 times more than Lykins, and Vectren's rates are higher than Citizens. Seek the truth!
    • another perspective
      For those in the utility business, Lykins salary has been known for some time. Instead of looking at revenues, the salary comparison to other gas utility companies shouldn't be overlooked. Vectren salaries (a combined electric and gas utility in many counties and many customers) pale in comparison but has much more sophisticated operations. Another point overlooked is that this is a public charitable trust; not publically held utilty with shareholders. While Citizens is considered "quasi-public", the appointment and role of the Board of Trustees and Board of Directors could use a lot of sunshine as well.
    • name
      ......gutless wonder....use your real name
    • Interesting
      i find it interesting that mr. lykins had to tell the entire utility that there would not be pay raises for EVERYONE from himself down to the cleaning crew. however he seemed to give himself and every executive at citizens a hefty pay raise. almost $50K for himself. so carey, will those stayed at citizens and went through 2010 without a raise get one this year? will it be more than 3%?
      • Poor Business Decisions
        I worked for Citizen's Gas & Coke Utility for thirteen years. Poor business decisions are a standard practice at most all management levels in this organization. I witnessed many occasions where management's dishonesty undermined the efforts of good, dedicated hard working employees. My best decision was to voluntarily resign and take my career to a better company. Not until working for a Fortune 500 company did I realize just how bad things were at Citizen's. My heart goes out to the Utility's customers in Marion County who will endure the brunt of these corrupt practices as they will surely pay for in the end.
      • What's the big deal?
        Seems like sort of a bargain to me. Am I missing something? Citizens is a $500 million a year company. Do you really want some $100k hack running the shop?
      • Executive Compensation
        It amazes me that boards always hide behind executive compensation experts to justify pay. The reality is the compensation experts too often deliver the results the CEO wants it to deliver - hence so they will continue to be hired. What a racket.
      • confused
        I'm confused about previous user comments like compensation for a "country club and company car". Where did that come from? Nowhere in the article does it state that that is included in any compensation package.

        I'm also confused because this article seems poorly researched in that they only compared the salary to the BASE pay of other utility CEO's, and didn't compensate for the fact that they had no data on bonus pay. Of course that would make the final number seem exorbitant. Seems a little skewed to me, I would appreciate a more factual article that gives accurate and comparable figures.
      • Greed stole my citizens job
        I was a former employee for Citizens Gas. I was there when they closed citizens coke utility and layed off 300 people. Citizens Mechanical Services (a former wholly owned subsidiary of Citizens gas) was supposedly sold to Reliable water services( for an undisclosed amount) supposedly a subsidiary of Wisconsin gas which still operates under the same phone number and out of the same building as the former Citizens Mechanical hmmmmm. The reported reason of the sale was because Citizens could not afford to pay union wages to the 8 employees who performed the service work. They didnt seem to mind paying the 10 office personnel an inflated salary. (Citizens retained the GM) We later found out it was because Citizens wanted to purchase other utility companies and needed the capitol. Now working for another utility i find that the C.E.O makes over 1 million dollars but what is not disclosed is that they make millions in bonus money which is disclosed in an employee newsletter. This article could expose so much more and so could i but there seems to be no interest in Citizens dirty dealings with the public and it current or former employees. So when your utility bill keeps going up just remember that NOT-FOR-PROFIT company you are paying has you by the throat with its Illegal monopoly who is in bed with the Government.
        • In reality
          In my opinion, CEO's are not the one who drive value in a company. Sales of your product and/or service do, therefore pay should be focused there.
        • 4% Increase for the Charitable Not For Profit Public Trust?
          Yeah read the 4% increase in front of the IURC (who by the way do not represent the interest of ratepayors - when is the last time they turned down an increase?). I guess Mr. Big Pants CEO needs the money.
          It is on Indystar.com
          http://www.indystar.com/comments/article/20110422/LOCAL18/104220376/Regulators-mulling-gas-rate-increase
        • A Monopoly Over Ratepayors?
          That is a $250,000 a year job not including a generous 401K or 457B plan, excellent healthcare package, company credit card, membership at Meridian Hills or Crooked Stick CC, 4 weeks vacation and a company car. What a public rip off. We have turned into the Soviet Union. How can IURC allow the Ratepayors to be fleeced like this?
        • citizens ceo
          Why are CEO"s so greedy, they know times are hard and the economy sucks?

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