Executive Compensation

1
Executive Compensation

• Christopher A. Drda, PE, Chief
• PENNDOT
• Consultant Agreement Division
• Steven B. Bolt, PE, PTOE
• Orth-Rodgers Associates, Inc.
• ACEC/PA Transportation Chair

2
Agenda

• Background
• Federal Acquisition Regulations (FAR) Compliance
• Cognizant Agency Audit
• PennDOT Executive Compensation Policy
• Implementation
• Summary
• Questions

3
Background

• November 1997 Overhead Caps Eliminated
• FAR Applicable to All Federal Contracts
• Provisional OH Since June 2002
• Executive Compensation Key Component of OH

4
Background- Contd.

• Current Exec Comp - ERI Median
• No Challenge Permitted
• Awaited Guidance From USDOT OIG
• Worked With OCC, Comptroller, FHWA, DCAA,
  ACEC/PA
  
• Concurrence Established
• Effective 1 May 2008

5
FAR Compliance

• Executive Compensation
• Salary
• Cash Bonuses
• Voluntary Compensation Deferral
• Taxable Fringe Benefits
• Stock Options/Grants

6
FAR Compliance Contd.

• Absolute Annual Limit DCAA
• Median Plus 10 Starting Point
• PennDOT Obligation to Test Reasonableness
• TECHPlan Ruling
• 75th Percentile
• Superior Performance
• Plus 10 for Below Average Benefits

7
Cognizant Agency Audit

• Definition
• SAFETEA-LU
• Cognitive Agency Audit Accepted Without Scrutiny

8
Executive Compensation Policy

• Title Conformance
• Reasonable Consultant Exec Comp (RCEC)
• Challenge of Reasonableness
• Appeal Process

9
Title Conformance

• Title Based on Actual Duties as Defined By ERI
• Titles Alone Are Not Descriptive of Duties And
  Responsibilities
  
• Types/Number of Titles Within Typical Corporate
  Structure
  
• Compensation Must Match Between Firm Data And ERI
  Survey
  
• Compensation Does Not Move Absolutely in Step
  With Size

10
Reasonable Consultant Exec Comp (RCEC)

• ERI Median Plus 10 Determined
• For Each Executive Title
• For Firm Size, Type, Location
• Prorated For Direct Labor
• FAR Cap Established Annually
• RCEC Lesser of ERI Compensation Level or FAR
  Cap
  
• Compensation In Excess of RCEC Excluded From OH

11
Challenge of Reasonableness

• PennDOT Has The Right to Review Any Element of
  OH
  
• Consultant Retains Right to Challenge PennDOTs
  Evaluation
  
• Consultant Must Provide Justification
• The Burden of Proof Lies With The Consulting
  Firm

12
Appeal Process

• Appeal in Writing to Consultant Agreement
  Division
  
• Must File Within 60 Days of Approval/Rejection
• PennDOTs Executive Compensation Review Board
  Will Evaluate Appeal
  
• Findings May Increase or Decrease OH
• Similar to DCAA Process

13
Implementation Lookback

• Firms May Request Re-review of OH From All FY
  From June 2002 to Date
  
• All or Nothing Analysis For Those FYs
• OH May Increase or Decrease as Result
• Deadline Written Request By 1 May 2008

14
Implementation - Going Forward

• Submit OH For Annual Review
• Complete Exec Comp Worksheet
• Ensure Titles/Duties in Conformance With ERI
• Review ERI Compensation For Similar Firms
• Provide Justification For Exec Comp ERI Median
  Plus 10

15
Worksheet
16
Median 10 ?

• Yes
• Needs to Be Justified/Supported By Consultant
• Factors to Be Considered
• Qualitative
• Quantitative
• Unique Performance Criteria
• PennDOT Will Evaluate Each Submission on Its Own
  Merits

17
Unique Performance Criteria

• Qualitative
• Concentration of Exec Duties
• Professional Achievements
• Quantitative
• Revenue Growth
• Income to Gross Revenue
• Utilization
• Direct Labor Growth

18
Policy Outline

• All Executives With Total Compensation Greater
  Than 120,000 Will Be Evaluated
  
• Median Annual Total Compensation Plus 10 From
  ERI Executive Compensation Assessor (ERI Survey
  Median X 1.10 Reasonable)

19
Policy Outline Contd.

• Generally Top 5 Individuals Evaluated
• Add Additional Shareholders
• Add Related Individuals
• Same Test For Other Business Entities
• Different Line of Business
• Separate Legal Entity
• Lack of Shared Resources

20
(No Transcript)
21
Median 10
22
Summary

• Old Policy
• ERI Median
• No Challenge to Reasonableness
• No Cognizant Agency Audit Accepted
• New Policy
• ERI Median Plus 10 to Start
• Reasonableness Challenges Allowed
• Cognizant Agency Audits Accepted
• Superior Performance Recognized

23
Questions?

• Chris Drda cdrda_at_state.pa.us
• Steve Bolt sbolt_at_orth-rodgers.com
• Andy Hilt ahilt_at_acecpa.org
• www.erieri.com