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HomeMy WebLinkAbout20240916AVU to Staff 6 - Attachment E.pdf I 2024 EMPLOYEE (Non-Senior Leader) ANNUAL CASH INCENTIVE PLAN PLAN PROVISIONS Purpose: The Employee Incentive Plan (Plan) is designed to recognize and reward employees' contributions toward achieving specific goals. In addition, it is an important element of overall compensation for our employees which provides competitive compensation within our industry. Plan Year: January 1, 2024 — December 31, 2024 Note: If Dec 31 falls on a non-working day, the previous business working day (M-F) will be considered the last day of the plan year. Eligibility: • All regular full-time (F), regular scheduled part-time (P), regular seasonal and long-term (>6mo) temporary (T) employees hired prior to October 1st and actively employed on the last day of the plan year, are eligible to participate. • All Officers, Directors, and Senior Legal Counsel employees are not eligible for the employee plan and will instead participate in the Senior Leader Annual Cash Incentive Plan. • Subsidiary employees, short-term (<6mo) temporary (C, Q or O), students (S), rehired retirees (R), contract services and contractor employees are not eligible to participate. • Other details available in section Exceptions to Eligibility and Circumstances for Proration Performance Measurements: The Plan focuses on the customer by creating value through sound financial performance and controlling costs through driving efficiencies while paying close attention to our customers' voices regarding the products and services we provide. The Plan incorporates Operating & Maintenance Cost per Customer (O&M CPC) as a financial performance measurement plus three non-financial measurements: Customer Satisfaction Rating (Customer Satisfaction), Reliability Index (Reliability), and Dispatched Gas Emergency Response Time (Response Time). These performance goals help gain financial strength and maintain safe and reliable cost- effective service levels essential for our customers and for the long-term success of the Company. These same performance metrics are used in the Company's annual cash incentive plan for senior leaders. The Compensation Committee believes having similar metrics for both the senior leader, and employee plans encourages employees at all levels of the organization to focus on common objectives. Updated 04.18.2024 Page 2 of 12 O&M CPC - The O&M CPC is a measure that focuses on controlling costs and driving efficiencies to keep our costs reasonable for our customers. The metric is based on targeted O&M expense and number of customers. These components are combined to create the O&M CPC metric. Customer Satisfaction - This measure is derived from a Voice of the Customer survey, which is conducted each quarter by an independent agency. The rating measures the customer's overall satisfaction with the service they received during a recent contact with the Company's contact center and/or service center. Reliability- This measure tracks how quickly the Company restores outages, how frequently customers are affected by outages, and what percent of customers experience more than three sustained outages per year. The Company combined three common industry indices to balance our focus. Response Time — This measure tracks how quickly the Company responds to dispatched natural gas emergency calls. The primary objective is customer and public safety while consistently treating customers the same throughout our service territory. Award Opportunity: The Plan has four Response Time independent metrics, each having their own Reliability 10' goal to achieve. The Plan is sliced into pieces 20% — like a pie. Each piece or component makes up a portion of the employee's total incentive award opportunity as represented in the graph. O&M CPC makes up 50 percent of the total incentive award opportunity while custcmer_ customer satisfaction and reliability are each mot'0%'°" 20 percent, and response time 10 percent. Non-financial metrics: The non-financial pieces of the award (customer satisfaction, reliability, and response time) are all-or-nothing goals. If the Company meets or exceeds the target goal for any one of the metrics, employees receive 100% of the incentive award percentage related to the metric such as 10% for response time. If the Company fails to meet the target, employees receive no award related to the metric. For example, if the Company achieves Customer Satisfaction with a 90% or better rating, employees will receive 20% of their total incentive award opportunity. If the Company achieves 88% which is below the target, employees will receive no award related to the metric. This works the same for each non-financial measurement. The maximum amount an employee could receive related to the non- financial metrics is 20% for customer satisfaction, 20% reliability and 10% response time. Financial metric: The O&M CPC metric works a little differently due to the various performance levels that can be met. Depending on the Company's level of Updated 04.18.2024 Page 3 of 12 performance, employees may earn more or less than 100% of the award percentage related to the financial metric. Increasing levels of performance are established between threshold and maximum by using a sliding scale. The following graph represents the relationship between the Company's performance targets and the award opportunity. Performance levels were rounded up for graphing purposes only. For employees to receive at least 50% O&M Cost per Customer of their award percentage related to 2.20% the metric, the Company must achieve 200% or surpass the minimum or threshold i8 z level of performance. The better the 140% Company performs, the more a 120% employees may earn as seen in the a 1 ioosb graph to the right. For employees to a 60% receive 100% of their award percentage related to the metric, the 0% Company must achieve the level of )161"bO1Q1 An performance performance selected for target. If the Company performs above target level, employees may earn up to a maximum of 200% (rounded) of the award percentage for O&M CPC. Performance below threshold results in no award payment for the O&M CPC portion of the total incentive. For ease of communication and display purposes performance levels may be rounded using the accounting rules such as to the nearest whole number or up to two decimals. To calculate actual payments and to ensure no overpayments occur the performance levels within the sliding scale actually extend out four (4) decimals (ex. 183.3333%). See Calculation of Awards section for more details on how payments are calculated. Establish Targets: The executive officers and senior leaders of the Company review and reestablish the targets for each measurement on an annual basis. The computations for this Plan are described below: O&M CPC: For this measurement the Company uses the total budget for O&M expense (numerator) and customer count (denominator). Numerator: The numerator of the formula is derived from the Company's total budget for O&M expense. Certain items are excluded from the total O&M budget such as, Pacesetters and certain accounting adjustments. For each performance level, the Company estimates the potential payout for the incentive which includes payroll taxes and subtracts the result from the total O&M budget. The estimation is based on budgeted labor costs, employee job levels and the corresponding individual target award opportunities. Updated 04.18.2024 Page 4 of 12 Illustrative Total O&M O&M Excluding;Incentive 50%Threshold CPC 100%Target CPC 200%Exceeds CPC Incentive Pavout To establish the performance levels between threshold and target, the Company assumes a 1:1 ratio between O&M spend (solid line) and threshold to target (dash line). Cost sharing occurs once we exceed target at 100%. Performance levels between target and maximum assumes a 2:1 ratio between O&M spend and target to maximum. Denominator: The target uses a net customer count of 797,628.; This number is based upon the count at the beginning of the performance year and will not change in the calculation for the entire plan year. Customer Satisfaction: For this measure, the Company uses the ratings from question three of the Voice of the Customer survey which measures the customer's Overall Satisfaction with the service they received in a recent contact through the Avista contact center and/or service center. The Overall Satisfaction question from surveys such as this is widely used in the industry for external reporting purposes. Rather than using the standard "satisfied" rating, which is typically used in the industry, the Company uses the average of the combined "satisfied"and "very satisfied"ratings. By combining these two ratings the target is more difficult to achieve and more emphasis is placed on serving the customer. In this Plan, the target is set at 90% very satisfied/satisfied for the customer's Overall Satisfaction rating. Reliability: This index combines Customer Average Interruption Duration Index (CAIDI), System Average Interruption Frequency Index (SAIFI) and Customer Experiencing Multiple Interruptions (CEM13). CEM13 measures the percentage of customers that experience more than three sustained outages in the year. The Company chose this level of outages over others because industry data received from JD Power's customer service surveys indicate that customers are more apt to be dissatisfied after three outages. Providing safe and reliable energy to our customers is the backbone of our business, therefore, it makes good sense to focus on service levels for our customers. By focusing on these measurements, it enables the Company to direct our resources appropriately and efficiently to contain costs and plan for future infrastructure upgrades that will benefit the customer. Updated 04.18.2024 Page 5 of 12 To determine the target for the Reliability portion of the Plan, the Company sets a separate target for each metric, weighs them equally and combines them into one metric (see the formula below). In this Plan the target is set at 1.00. Index= CAIDI Target/CAIDI Actual+ SAIFI Target/SAIFI Actual+ CEM13 Target/CEM13 Actual 3 3 3 The formula used to set the target for each metric is described below: • Customer Average Interruption Duration Index (CAIDI): outage duration multiplied by the number of customers affected for all sustained outages (> 5 minutes), divided by the number of customers which had sustained outages. Per industry practice Major Event Days (MEDs) are excluded from this metric. In this Plan the Company uses a 5 year average with a standard deviation of 0.72 (76% probability) to set the target which is 2 hours and 32 minutes restoration time. • System Average Interruption Frequency Index (SAIFI): the number of customers which had sustained outages (> 5 minutes), divided by the number of customers served. Per industry practice MEDs are excluded from this metric. In this Plan the Company uses a 5 year average and a standard deviation of 0.72 (76% probability) to set the target which is 1.08 outages per customer. • Customers Experiencing Multiple Sustained Interruptions more than 3 (CEM13): the total number of customers that experience more than 3 sustained outages per year, divided by total number of customers served. To be consistent with the other two indices, MEDs are excluded from this metric. In this Plan the Company uses a 5 year average with a standard deviation of 0.72 (76% probability) to set the target at 6.46% of our customers. Response Time: This metric measures how quickly the Company responds to natural gas system emergency calls. The Company tracks the average response time between the receipt of the emergency call to the time our crew or service worker arrives on-site, assesses the situation, and reports back to dispatch. The Company wants crews and/or the service worker to respond within the targeted response time goal. To be consistent with other service metrics, response times in excess of 24 hours are excluded from the metric. A "natural gas system emergency" is defined as an event when there is a natural gas explosion or fire, fire in the vicinity of natural gas facilities, police or fire are standing by, leads identified in the field as "Grade 1 high or low gas pressure problems identified by alarms or customer calls, natural gas system emergency alarms, carbon monoxide calls, natural gas odor calls, runaway furnace calls, or delayed ignition calls. In this Plan the Company aligns the response time with the Service Reliability Target negotiated with the Washington Utility Commission and set the target goal to respond within an average of, and not to exceed, 55 minutes. Updated 04.18.2024 Page 6 of 12 Incentive Targets for 2024: O&M Cost per Customer Reliability Index Response Time Customer Satisfaction Total W50% ' 20% 10% Opportunity Sliding Scale Meet/Not Meeting Goals Threshold 50% $460.31 Ah Target 100% $456.98 90% 1.00 <55 minutes Maximum ' $444.48 *rounded for display or communication purposes only Individual Target Award Opportunities: Non-union, union local 659 and union local 77 dispatcher/controller employees: Each eligible employee has an incentive target award opportunity expressed as a percentage of their base salary. Target opportunities range from 5% to 17% of base salary and are assigned based on position and union/non-union status. For non-union employees, the percentage varies by market level and for union members please see the table below for percentage. Actual award payments are calculated based on the employee's target award opportunity in effect as of the last day of the plan year and year-end regular earnings unless otherwise noted in the Plan document (see provisions under Exceptions to Eligibility and Circumstances for Proration section). AwardIndividual Target Opportunity % of Base Pay by Market Level or Union ContraG Levels Levels Levels-IF-Levels� r Levels��Union ch & Union Union 1-5 6-8 9-10 11-12 13 &over E Dispatch #659 #77 G Controller 7% 7% 9% 11% 17% 5% 5% $666.67 Union local 77 employees: Each eligible Local 77 bargaining unit employee, including Planners, has a target award opportunity expressed as a flat dollar amount rather than a percentage of annual base salary as indicated in the table above. Distribution of Awards: If earned, incentive award payments will be distributed as soon as feasible usually in February after the Compensation and Organization Committee of the Board certifies and approves the achievement of the performance goals. Calculation of Awards: In most instances actual amounts will be calculated using the participant's regular year-end earnings (as defined in the provisions section of the Plan), individual target award opportunity and employment status in effect as of the last day of the Plan year. See the section Exceptions to Eligibility and Circumstances for Proration for definitions and exceptions. For purposes of calculating the actual payments and ensure no overpayments or underpayments occur, the final performance results will be extended out four (4) decimals (ex. 149.9323%) for Cost per Customer and rounded based on accounting Updated 04.18.2024 Page 7 of 12 rules. The following table shows how an underpayment can occur if the final performance level is rounded to two decimals and used to calculate the final payment. DollarTarget Metric Maximum Maximum % OpportunityMetric Maximum CPC $666.67 50% 199.9999% 100.0000% $666.67 Under Payment CPC $666.67 50% 199.9900% 99.9950% $666.64 Since the non-financial metrics have only two performance levels, 0% or 100%, rounding the final results is not an issue. Once the total incentive amount is calculated, all cash payments will be rounded to the nearest penny (ex. $2,855.27) based on accounting rules. Example Award Calculation: Below is an example of the methodology the Company will use to calculate final payments. The Company achieved the targets indicated below: 1) Cost per Customer = 200.0000% on the sliding scale 2) Customer Satisfaction = 100% = met/pass 3) Reliability = 0% = fail to meet 4) Response Time = 100% = met/pass Non-Union employee, • I 1 1 1 Target • • ••rtunit = 7% = $4,900 Opportunity Ir Weighting % Results 'Amount Cost per Customer $4,900 x 50% x 200.0000% PI $4,900.00 Customer Satisfaction $4,900 x 20% x 100% $980.00 Reliability $4,900 x 20% x 0% $0 Response Time $4,900 x 10% x 100% _ $490.00 Total Payout = $6,370.00 or 130.00% of Target Pr Local 77 employee Target Opportunity �$6 ,z Goal pportunity Weighting % Results Amount Cost per Customer $666.67 x 50% x 200.0000% _ $666.67 Customer Satisfaction $666.67 x 20% x 100% _ $133.33 Reliability $666.67 x 20% x 0% _ $0 Response Time $666.67 x 10% x 100% _ $66.67 Total Payout = $866.67 or 130.00% of Target Communication: When communicating the results of the financial metric and the payout, the Company will round results to the nearest 100t" percent based on accounting rules. For example, if the O&M CPC result is 148.6468%, the Company will communicate the results using 148.65%. Updated 04.18.2024 Page 8 of 12 When communicating the results of the non-financial metrics, the Company will round results to the nearest whole number or, in the case of reliability, out two decimal points based on accounting rules. For example, customer satisfaction would be rounded to 93% from 92.8% and reliability would be 1.23 from 1.232. Administration of Plan: The top executive officers are responsible for administering the Plan and may delegate specific administrative tasks to corporate staff, as appropriate. The top executive officers have the authority, with board approval, to: • Terminate, amend or modify this Plan in whole or in part for any reason at any time without prior notice to participants. • Modify or adjust the financial targets due to extraordinary occurrences and/or significant reorganizations. • May pay incentive amounts in excess of 100% (up to 150%) of an individual's target opportunity in the form of non-cash equivalents. Participation in this Plan should in no way be construed as a contract or promise of employment and/or compensation. Exceptions to Eligibility and Circumstances for Proration: Pay Periods: There are 26 pay periods and pay dates during the Plan year. A pay period (pp) is made up of two pay weeks. Each pay week typically starts 12:00am Monday and ends 11 :59pm Sunday. Employees are paid on the pay date on the following Friday, after the end of the pay period. The first pay period of the year consists of the date range 12/18/2023 — 12/31/2023 which is paid on pay date 1/5/2024. Changes effective during this pay period will count towards the 2024 plan since the earnings and pay date are part of 2024. Changes effective during the dates 12/16/2024 — 12/29/2024 are not included in the 2024 Plan because the earnings and pay date are part of 2025. Pay Period Schedule for 2024: Pay Period Date Range Pay Date Pay Period Date Range Pay Date 1 12/18/23-12/31/23 1/5 14 6/17-6/30 7/5 2 1/01-1/14 1/19 15 7/01-7/14 7/19 3 1/15-1/28 2/2 16 7/15-7/28 8/2 4 1/29-2/11 2/16 17 7/29-8/11 8/16 5 2/12-2/25 3/1 18 8/12-8/25 8/30 6 2/26-3/10 3/15 19 8/26-9/08 9/13 7 3/11-3/24 3/29 20 9/09-9/22 9/27 8 3/25-4/07 4/12 21 9/23-10/06 10/11 9 4/08-4/21 4/26 22 10/07-10/20 10/25 10 4/22-5/05 5/10 23 10/21-11/03 11/8 11 5/06-5/19 5/24 24 11/04-11/17 11/22 12 5/20-6/02 6/7 25 11/18-12/01 12/6 13 6/03-6/16 6/21 26 12/02-12/15 12/20 Proration: Prorating an employee's award is based on the number of pay dates associated with a change. Each change of status (COS) has an effective date. The date determines which pay period and pay date is to be counted as part of the proration. Updated 04.18.2024 Page 9 of 12 Use the Pay Period Schedule above to count the pay dates. Using the effective date from the COS, search through the date ranges to find the pay period and pay date associated with it. Count the pay dates to the end of the Plan year or to the next COS effective date whichever comes first. The employee receives 1 pay period credit for each pay date counted. For example: • Employee #1 is hired on 5/4 and remains employed through the end of the year. The date 5/4 falls in the date range associated with pay period 10 which is paid on pay date 5/10. Since employee #1 worked till the end of the year, count the number of pay dates till the end of the year. The employee receives 17 pay periods towards his award. • Employee #2 is hired on 9/21 and remains employed through the end of the year. Her date falls in pay period 20 and is associated with pay date 9/27. She receives 7 pay periods towards her award. • Employee #3 receives credit for his time working in a non-union position. He transfers temporarily from a union position to a non-union position on 5/18 and returns to his regular union position on 11/29. The transfer date of 5/18 falls within pay period 11 which is associated with pay date 5/24. The returning date of 11/29 falls within pay period 25 which is associated with pay date 12/06. Count the number of pay dates starting with 5/24 and end with 11/22 which is the pay date prior to the next COS date of 11/29. He receives 14 pay periods of credit towards the non-union portion of his incentive award. Remember, only count the pay periods until the next COS date or until the end of the year whichever comes first. He also receives 12 pay periods credited (26-14=12) toward his union incentive award. 10 4/22-5/05 5/10 1 5/06_111110 1 1 12 5/20-6/02 6/7 1 1 13 6/03-6/16 6/21 1 1 14 6/17-6/30 7/5 1 1 15 7/01-7/14 7/19 1 1 16 7/15-7/28 8/2 1 1 17 7/29-8/11 8/16 1 1 18 8/12-8/25 8/30 1 1 19 8/26-9/08 9/13 1 1 20 9/09-9/22 9/27 1 1 1 21 9/23-10/06 10/11 1 1 1 22 10/07-10/20 10/25 1 1 1 23 10/21-11/03 11/8 1 1 1 24 11/04-11/17 11/22 1 1 1 25 11/18-12/01 12/6 1 1 2 12/02-12/15 12/20 1 1 Total Pay Periods 1 17 Updated 04.18.2024 Page 10 of 12 Regular Earnings: Regular earnings will be used in calculating the final awards for non-union, union 77 dispatcher/controller and union 659 employees. Due to FLSA Overtime rules, 1.5x overtime pay is also included in the calculation for non-exempt employees. This ensures the employee is receiving the correct annual overtime pay in accordance with the law. Any overtime in excess of 1.5x is excluded from this calculation. For union 77 employees, incentive awards will be calculated using the flat dollar amount of $666.67. The earnings to be used in the calculation are as follows: CodesEarnings Regular 01, 02, 32, 32B, 58 1.5x Overtime 04, 21, 23, 71, 76, 78,83 Light Duty 29 Swing Shift 31 Alternative/dual 20 Relief Pay 08 Retro Pay 70 One Leave/PTO 10, 14, 14B, 15, 16, 16PFM, 34B, 34C, 34D, 61, 73 Short-term Disability 100%&60% 18, 80 Workers Compensation 19, 19A, 85,85C, 86,87, 88 Holiday 25, 25P,26,63E,63F, 75 Jury Duty 35 Military Pay 36, 36C New Hires: Employees hired on or after October 1st will not be eligible for an award under this Plan. Employees hired prior to October 1st will have their awards calculated based on the provisions detailed above. Transfers between Union Local 77 and Non-union, Union dispatcher/controller or Union Local 659 Positions: Eligible employees who transfer between union local 77, local 659, union 77 dispatcher/controller positions, and non-union positions may receive a prorated award for each type of position based on the number of pay periods paid in each eligible job. Union employees must pay union dues while in the non-union position to be eligible for this provision unless they receive a special waiver agreed upon by the union. Local 77's portion of the award is calculated using the Proration methodology to determine the number of pay periods paid while in the union position and the flat rate target amount of $666.67. Local 659 and Local 77 dispatcher/controller's portion of the award is calculated using the Proration methodology to determine the number of pay periods and the associated earnings paid while in the union position and the individual target opportunity of 5%. The non-union portion of the award is calculated using the Proration methodology to determine the number of pay periods, the associated earnings paid and the individual target opportunity based on the last recorded market level while in the non-union position. Transfers between Eligible and Non-eligible Positions or Status: As long as no break in service has occurred and the employee has at least 6 pay periods of active Updated 04.18.2024 Page 11 of 12 service in the eligible position or status, the employee may receive an award on a prorated basis. Awards will be calculated based on the Proration provision detailed above and the eligible position type, union or non-union. Temporary Employees: Temporary (T) employees on a long-term (> 6mo) assignment must have at least 6 full pay periods of active service to be eligible to receive awards. Awards will be calculated based on the provisions detailed above. Temporary employees on short-term (< 6mo) or occasional assignments (R, C, Q or O) are not eligible to participate or receive an award under this Plan. (T, R, C, Q or O are employment type codes in UltiPro) Seasonal Unemployment/Reemployment: During situations of seasonal unemployment/reemployment, employees will be eligible to receive awards even if the unemployment period is in effect on the last day of the plan year. Awards will be calculated based on the provisions detailed above. Leave of Absence: Eligible employees on approved unpaid leave of absence must have at least 6 full pay periods of active service during the Plan year to receive an award. Awards will be calculated based on the provisions detailed above. Short-term disability leave does not affect an eligible employee's award and is excluded from this provision. Resignation/Termination: Any eligible employee who resigns or is terminated for reasons other than retirement, disability, or death prior to the last day of the plan year will not be eligible to receive an award under this Plan. Eligible employees who terminate after the Plan year may receive an award at the time of distribution unless reason for termination is due to poor performance or for cause, see section on Discipline or Poor Performance below. Death, Long-term Disability & Retirement: In the case of death, total disability (as defined under the Company's Long-term Disability Plan) or retirement as a participant in Avista's pension plan (employees must be age 55 and have 15 years of service to qualify), an eligible employee or estate must have at least 6 pay periods of active service within the Plan year to be eligible to receive an award. Awards will be calculated based on the provisions detailed above. Discipline or Poor Performance: Employees who receive a fails to meet performance rating for the Plan year or a Last Chance Agreement under the Company's formal discipline program and effective as of the last day of the plan year are not eligible to receive an award under this Plan. Any employee who is terminated for poor performance or for cause by the Company after the last day of the plan year, and up to the time of distribution, will not be eligible to receive an award under this Plan. Transfers from Subsidiaries to Corp/Utilities: Eligible employees who transfer from a subsidiary will be treated as a new hire to the Company and all Plan criteria apply as is. Updated 04.18.2024 Page 12 of 12 Other Company Short-term Incentive Plans: Employees can only participate under one formal incentive plan at a time. If the employee becomes eligible for a different plan during the year, their earnings will be prorated between the appropriate plan before and after the promotion. For example, if an employee participates in the employee plan, and is promoted to a senior leader on June 1st, their earnings and incentive opportunity will be calculated based upon the employee plan through pay period 12. The remainder of their earnings in periods 13-26 will be calculated based upon the senior leader plan and incentive opportunity of that plan using the Proration methodology noted above. Union Negotiations: Time charged by bargaining employees for union negotiation activities (project/task 77703039 186200) shall not be included as worked time for the incentive calc, and this will be excluded from the employee's regular pay for purposes of calculating the incentive.