State Watchdog Slams Israel Electric Corporation Over Bloated Payroll

Report chronicling IEC's waste released as labor unions come under fire for failing to fix storm damage that left tens of thousands of homes without power for days.

Courtesy of the IEC

Israel Electric Corporation spent as much as 6 billion shekels ($1.5 billion) between 2008 and 2013 on salaries and benefits for employees it didn’t need, State Comptroller Joseph Shapira said in a damning report on the state-owned power monopoly.

The government watchdog released its chronicle of wasteful spending, featherbedding, government indifference and failed attempts to introduce change as the utility and its powerful labor unions came under fire for failing to quickly fix storm damage that left tens of thousands of homes without power for days.

The report noted that as early as 2008 it was estimated that IEC employed between 1,700 and 2,500 too many workers. But instead of reducing the payroll and making operations more efficient, staffing increased in the 2010 to 2013 period. Pay climbed 13.3%, accounting for 30% of total costs excluding fuel.

The pay hikes included so-called performance bonuses — in fact they were awarded automatically — amounting to up to 30% of the base salary.

Salaries of top IEC executives climbed 22%, to an average of 44,000 shekels a month before taxes. IEC justified the pay raises as being necessary “retain skilled managers in a competitive environment.”

IEC deflected criticism, saying restructuring programs planned for the company and Israel’s broader energy sector had never been implemented.

“The comptroller should be lauded for determining that it is impossible to continue without comprehensive reform of the electricity sector,” IEC said. “The company has been demanding for several years now the advance of reforms in order to take care of aging infrastructure and introduce significant efficiency measure in our workforce.”

Shapira attacked the Government Corporations Authority, to which IEC is answerable, for failing to ascertain whether IEC had the financial resources to cover the pay increases it had agreed to in collective bargaining agreements. Overall, the comptroller said, the agency was remiss in its legal obligations to monitor IEC’s financial condition.

“There is no consensus among the agencies and organizations involved in the electricity sector on how the field should be structured,” the report said. “The freeze in restructuring efforts, the delays in adjusting electricity rates and the failure to implement efficiency measures has hurt consumers, the energy sector and IEC’s financial status.”

Shapira rejected IEC’s claim that salaries were not a major factor in its ailing finances, but rather the cost of fuel to power its generators. It noted that as long ago as 2005, before salaries shot up, the World Bank in a study had concluded pay at IEC was 25% above the industry standard.

In fact, the comptroller concluded, the IEC’s wage costs were responsible for a large part of the gap between its revenues and costs, saddling it with an ever-growing debt.

Since 2007, IEC has approved three different efficiency plans, none of which was implemented. A 2007 program was supposed to go hand in hand with a 5% rate increase to help pay for one-time costs associated with eliminating 1,000 jobs positions over the next several years. In fact, no personnel cuts were made, but the rate hike remained in place.

Another program was scuttled after it was revealed that it entailed an average bonus of 2 million shekels for every worker, for consenting to it. Shapira blamed the GCA for the failure.

“Its job was to verify that the benefits of the efficiency program IEC submitted for its approval exceeded its costs. If the GCA believed the cost exceeded the benefit, it should have helped formulate an alterative plan,” the report said.

IEC management attributed the failure to reach an agreement on the reforms to the union locals as well as an absence of support from government officials for the company’s efforts.

Shapira’s report also took the energy and finance ministries to task, for failing to examine the costs of the proposed structural changes to Israel’s electricity sector, where private power companies have been gradually making inroads on IEC’s traditional monopoly, or to assess the benefits that could be expected as a result of the introduction of genuine competition.