Jacksonville City Council member Rory Diamond told JEA CEO Aaron Zahn and other senior officials Dec. 16 that the JEA’s plan to tie an employee incentive program to the utility’s financial performance amounted to “legal theft.”
Diamond and Council member Ron Salem questioned Zahn and members of his executive team for nearly four hours at City Hall, going over nearly 800 JEA documents and emails about a proposed Long-Term Performance Unit Plan, or PUP.
The plan was designed to offer 100,000 performance units to all JEA employees for purchase at $10 each. The unit value would increase as the utility hit financial targets within a three-year cycle.
In July, the JEA board authorized 30,000 units to be sold in the first payout cycle, but Salem noted that he saw nothing in the documents the utility provided that would have prohibited utility executives from buying the remaining units themselves or issuing all 100,000.
The Council Auditor’s Office issued a memo Nov. 18 that included a financial assessment showing the incentive could cost JEA up to $636.6 million if the utility is sold to a private company. Zahn sent a letter Nov. 19 to Council President Scott Wilson stating his team will recommend the board terminate the incentive plan.
Diamond also used his analysis of the plan to add his voice to a growing number of people and organizations calling for Zahn’s firing, which will be considered by the JEA board during its meeting Dec. 17.
Diamond expressed his distrust in JEA CFO Ryan Wannemacher, who could not explain why he failed to reply to the Council Auditor’s emails in August requesting more information about how the value of the PUP plan was forecast.
Wannemacher conceded, to date, he has not provided that information.
Diamond said the CFO “never did the math.”
“I don’t see how a CEO can continue in that job after all this. I don’t see how a CFO could continue. Because even if you didn’t know, you should have,” Diamond said.
The payout to employees was presented to the JEA board as a performance incentive for employees “to pay attention to the financial health of the utility,” JEA Vice President and Chief Customer Officer Kerri Stewart said Nov. 22.
Zahn gave a prepared statement Dec. 16 in which he took responsibility for the PUP’s failure.
“As a leader I have tried to navigate the challenges and difficult policy debate around JEA’s future with transparency and candor. So, it is in that same manner, that I am here today to state I made an error in judgement,” Zahn said.
“The motives of the Long-term Employee Plan at inception were pure, but the moment JEA’s board contemplated recapitalization, I should have recommended that a Long-Term Performance Plan would be better timed after a final decision was made on JEA’s future,” he said.
Diamond and Salem attempted to establish that the JEA board did not understand the true value of the PUP when members approved the program July 23.
Their vote was part of a suite of resolutions giving Zahn and senior staff the authority to explore selling the public utility and approve employee job protection and retention bonuses if JEA were sold.
The JEA Compensation Committee’s presentation in June gave an estimated $3.4 million annual performance unit award cost based on employees’ incumbent base salaries at the time. That figure was determined by Willis Towers Watson, the consulting firm that drafted the plan’s framework.
Salem and Diamond said Wannemacher didn’t provide the Council panel internal JEA calculations it requested about the plan.
“It obviously was not $3.4 million. I’m just looking for the calculations you performed prior to the July 23 board meeting because I don’t have it,” Salem said.
“To me, that’s one of the central issues of why we're here today. … I’m embarrassed for those board members. They voted on a plan that they did not clearly understand. They voted 7-0, and I believe it was incumbent upon you and your staff, if there were figures, somebody should have reviewed it with them prior to that board meeting,” he said.
JEA board member Kelly Flanagan told Council that, at the time of her vote, she believed the cost of the plan to $3.4 million annually for all employees. She based that on the Willis Towers Watson figures presented in June.
Diamond called on Wilson to form an investigative committee to look into the PUP.
During the hearing, Zahn, Wannemacher, JEA Chief Human Resources Officer John Kendrick, Vice President and Chief Legal Officer Lynne Rhode and Chief Administrative Officer Herschel Vinyard could not give a definitive answer on who came up with the PUP.
The Council members criticized Zahn and his team for not putting a payout cap on the plan.
Diamond said he didn’t believe the executives’ claim that they did not realize from day one selling JEA would make the PUP payout value rise into the millions of dollars.
Diamond said the most conservative estimate would have valued the payout at nearly $100 million. He noted that’s three times the amount the Kids Hope Alliance spends on children's programs in a fiscal year.
“I see a group of executives who know this thing is going to be sold, and then they say the best way to do this is a stock option,” Diamond said. “The stock option doesn’t exist under any law in Florida, so let’s come up with a performance unit plan. Let’s get a lawyer to push it through, get outside counsel to say this works. Let’s check with the state attorney’s office for the ethics, doing all the legal parts right but the math never changes.”
JEA board member Henry Brown intends to make a motion for Zahn’s firing at the board’s Dec. 17 meeting. The board is also expected to formally vote to rescind the PUP.
