PacBell Salaries Have a Costly Ring

It’s no surprise that the public ire turned on the salaries of corporate executives is turning on big salaries elsewhere--government, charities, utilities. And the greatest of these is utilities.

So says a California consumer group called TURN (Toward Utility Rate Normalization), which found that five of that state’s top 12 utility executives made more than $1 million last year, one made more than $2 million, and others weren’t far behind. This is “truly obscene,” said TURN Executive Director Audrie Krause, noting that California’s governor makes $114,000.

Small wonder that Pacific Bell--where Chairman Sam Ginn, Vice Chairman John Hulse and President Phil Quigley are all million-dollar clubbers--wants to keep its salaries confidential. The salaries sound high, especially for a public utility, though PacBell says such salaries actually make its parent company only fifth or sixth for executive compensation among the seven big regional holding companies.

Somehow, big pay at utilities still seems offensive. These companies are different, occupying a place in the public mind somewhere between business and government in a position of public trust.

Utilities have a monopoly franchise. They’re “guaranteed a minimum return and some protection from competition,” says Gene Kimmelman at the Consumer Federation of America. In return, they operate under some “social policy restraints,” including limits on their earnings, and responsibility for serving all people and all companies using their lines.

There are regulators in every state to “balance the interests of consumers and utilities,” says Ron Binz, director of Colorado’s Office of Consumer Counsel. Thirty-eight states, moreover, have offices like Colorado’s to ensure that consumer interests are as well-represented to regulators as utility interests.

Utility executives seem different too. Monopoly telephone service, the biggest part of their business, “more or less runs itself,” says Ken McEldowney, director of San Francisco-based Consumer Action, “with that guaranteed return and no competition, though the people are paid the same as in a more risky environment.”

It was supposed to be different. When the Bell system broke up, the newly independent companies were going to diversify into new, entrepreneurial, competitive ventures, unleashing their executive talent. But they must be holding back. At PacBell’s parent company, for instance, only $1 billion of the $9.9 billion in revenue--and few profits--comes from unregulated ventures.

The salaries, however, are competitive. PacBell, for example, bases its executives’ compensation on “what they could earn in comparable jobs in other industries,” says Michael Miller, PacBell’s regulatory vice president. Their market value is hypothetical, of course. Of PacBell’s nine top executives, all but one (the general counsel) came up through the telephone business.

Finally, there’s little consumers can do about these high salaries. Technically, they don’t even pay for them. Rather than review every PacBell salary, for instance, California’s Public Utilities Commission set $200,000 per executive as the most that could be charged to ratepayers’ expense. Anything over that must be paid by the stockholders of the parent company out of their PUC-approved return on investment, and as long as their dividends are generous, there’s no reason they’d object to what the board pays executives.

The general feeling is consumers shouldn’t care either. If the investor’s concern is his stock, the ratepayer’s is service. The only question, says PacBell’s Miller, is “do you think the service you got is good for the rate you pay? The ratepayer should be relatively indifferent (to salaries) if the shareholder is paying for it.”

If PacBell has its way and other utilities copy the idea, ratepayers may not even know the salaries. While PacBell must report all salaries over $75,000 to the PUC, it can apparently also declare the information confidential, and until the PUC formally rules it not confidential, the public can only see it by special, formal request.

And what then? Ratepayers could conceivably fight the return on investment allowed the stockholders, but probably only if it demonstrably resulted in poorer service. They sure couldn’t take their business to a competitor.

Besides, executive salaries are just a drop in the bucket. “When an industry has a cash flow of $85 billion a year,” says Kimmelman, “what 10, 20, or 30 people make is not the biggest issue.” He’d prefer to look at “excessive expenditures on lobbying, expensive equipment, investments abroad, shareholder dividends twice the national average . . . and in the last eight years, overcharges to ratepayers of over $30 billion.”

Executive compensation is “difficult to find on monthly bills, really a matter between the board of directors and the executives,” says Binz of Colorado’s Office of Consumer Counsel, “but as a symbolic issue, it’s very important.”

Maybe that’s enough.