In a world where younger workers will change jobs 7 to 10 times in their career and where corporate “divorce” is as much a fact of life as corporate mergers, MLGW is an anomaly.
“We have a very low turnover rate,” vice president of human resources Armstead Ward told the City Council last month. “We have more hires than we do separations.
“Our people come in young and they stay for a long period of time. Then they go into retirement, but they’re all still relatively young,” he said.
Ward presented the information as part of the utility’s recent work-force analysis, an in-depth look at how many employees the division has, how many it needs, and how much it pays its employees. Energy costs account for 80 percent of the utility’s costs and are fixed. The other 20 percent — where MLGW has some flexibility to find savings — is largely in labor costs.
But in the last six years, labor costs at the utility have increased 36 percent. Medical costs have gone up 12 to 17 percent each year. And the utility spends 41 cents in benefits for every dollar it spends on payroll.
“We’re working on that now, trying to figure out a way to control those costs,” said Ward. “Everything else looked like any other business.”
The utility company is in the process of approving a new health-care plan, which it estimates will save over $6 million. The administration is trying to trim expenses because MLGW forecasts increases next year for all three of its services — electricity, gas, and water — and that means higher utility bills.
One thing that is different at MLGW from many companies — public or private — is that retirees receive full medical benefits. And while medical costs are a nationwide problem, they have become an all-out crisis for companies that have a lot of retirees on the rolls. Retirees’ pension and benefit plans have nearly bankrupted car makers GM and Ford.
And while longevity and loyalty are things to be admired, companies can’t always afford them. Mature airline carriers such as Northwest and Delta have found themselves at a distinct disadvantage because their employees have more seniority than those employees at airlines such as Southwest.
But Ward said that’s not a concern at MLGW.
“It benefits us to have people who work for long periods of time. We have a turnover rate of 3 percent — that’s unheard of. Yes, there are benefits of [less experienced] employees, but the little bit of money you would save — okay, the significant amount of money you would save — you would put so much more at risk.”
But that longevity often means that when employees leave, they retire. Currently, MLGW has about 2,700 employees and 2,000 retirees, meaning there are 1.35 active employees for every retiree.
Ward called the ratio of employees to retirees normal; the division has a smaller workforce than it once had and people are living longer. But it’s possible that 79 percent of MLGW’s managers could retire within the next five years. How will it affect the ratio and, more important, the bottom line?
Even when an employee quits MLGW, it’s not always forever. At retirement, the average MLGW employee is 57 years old with 27 years of experience at the utility. Employees can retire after 25 years, and if they choose to come back to work, they are supposed to wait a year.
“One of the things we heard was that people [would] retire on Friday and come back to work on Monday,” said Ward. “Only a few situations like that occurred. It wasn’t as rampant as people thought.”
Retirees have started lobbying the MLGW board for a firm commitment that the division will continue to pay all future health-insurance costs for retirees, in perpetuity. But in the last few months, MLGW management and board members have cited a changing fiscal environment: flattening revenues, flat customer growth, and skyrocketing energy costs. While the utility has made a promise to its employees, it also has a relationship with its customers. In a marriage such as this, which comes first: the wife or the mistress?
Just for comparison, GM had 11 workers for every retiree in 1962. In 2005, there were 3.2 retirees for every worker. MLGW’s situation could be better, but it could also be worse.
With increasing pension costs, rising medical costs, and an aging workforce, when MLGW executives say they need to turn the trend and find a way to be productive, they aren’t kidding.
The good news for the utility company — but perhaps the bad news for customers — is that MLGW’s the only fish in the sea.
