Payments for Utility Services Through Retention Violate Missouri Constitution

When City Utilities faced potential staff turnover last year, the utility paid retention payments to keep top leaders in their jobs. But a recent investigation by the State Auditor’s Office found that the practice violated the Missouri Constitution.

According to a document summarizing the auditor’s investigation obtained by the News-Leader, CU justified the payments to investigators by saying that the leaders would take on additional responsibilities and that they were made in the best interests of customers. In addition, the incentive was used to delay the retirement of CEO and President Gary Gibson. The Utilities Board discussed and approved Gibson’s compensation in closed session, which the Auditor’s Office found violated the Sunshine Law, according to the document.

The investigation was initiated following a complaint to the office about the payments and alleged threats of retaliation if anything was disclosed to the public. The summary found no evidence of retaliation or an attempt to conceal the payments from the public.

How much did executive managers earn?

In total, CU paid nearly $194,000 in retention payments. The utility’s leadership team consists of a CEO-chairman and seven vice presidents. With half of those employees retiring or leaving for new jobs, CU was desperate to retain the remaining leaders, who could also retire or be recruited elsewhere in 2023.

The three vice presidents who remained on staff were promoted to senior vice president, with retention payments contingent on them remaining with CU through Dec. 31, 2023. The payments were based on years of service, with weekly pay for five years of service. Here’s how that broke down:

Senior Vice President, Technology and Human Resources Stephanie O’Connor: $46,345 (32 years of service)
Senior Vice President, Chief Financial Officer and Supply Chain Officer Amy Derdall: $17,525 (15 years of service)
Senior Vice President, Chief Legal and Economic Development Officer Dwayne Fulk: $13,454 (5.6 years of service)

As for Gibson, the goal was to encourage a delay in his retirement, which he would be eligible for in March 2023. The board wanted to extend that until at least the end of 2024, according to the investigation summary. In a closed meeting, the board approved an amended employment agreement to include a one-time retention payment equal to 10.5 weeks of Gibson’s base salary if he did not give notice of retirement or resignation by March 31, 2024. The CEO contract requires nine months’ notice in the event of resignation or retirement to avoid significant financial penalties.

For Gibson, who will retire in February 2025, that meant a $76,351 retention payment. He announced his plans to retire at the end of April.

Of the $194,000, a total of $40,000 was set aside for retention payments for union-represented bus operators. In January 2023, as part of the collective bargaining agreement, the board approved retention payments of $1,000 for bus operators who remained employed for more than one year.

“Like many employers, one of City Utilities’ highest priorities is recruiting and retaining hard-to-fill positions, such as our bus operators, as well as the stability, quality and continuity of our leadership team. Retention payments were viewed as an available strategy for City Utilities to assist in this endeavor, based on previous Missouri State Auditor reports, Missouri Attorney General opinions and their long-standing use by other public entities in Missouri,” Joel Alexander, CU’s media relations manager, said in a statement on behalf of the utility.

However, a review by the auditor’s office found that the opinions CU cited to justify the payments still held that the bonuses violated the Missouri Constitution. CU noted that the investigation’s findings and recommendations will be reviewed to inform future decisions and practices.

Why are these violations?

The Missouri Constitution prohibits the payment of wages for prior services performed and generally prohibits public officials from receiving bonuses for previously performed duties.

During the investigation, CU noted that as part of the promotions and additional compensation, VPs would take on responsibility for additional sections of the organization. However, according to the summary, CU did not provide any documentation confirming what these additional duties required or whether they were actually performed. While they did provide an email indicating that various units now report to senior VPs, the report found that there was a lack of detail on how these differed from previous duties and were not included in the actual criteria for employees to receive retention payments. Payments were not made until employees met the retention requirement, meaning they were paid for services previously performed.

The summary also noted that the board never officially voted on or approved retention payments for vice president roles. Although they were mentioned in meetings and the multipliers were set by Gibson and given to the board in closed session, board members never discussed or voted on the matter.

“CU employees indicated that the board only approves CEO compensation, but it appears it would be appropriate for the board to approve such payments for all employees given the dollar amount and unique nature of the payments,” the investigation summary reads.

In addition, the investigation found that Gibson’s retention payments should not have been discussed and voted on in closed session. While the meeting was closed under an exception for discussing “individually identifiable personnel files, performance evaluations, or records relating to employees or applicants,” the Auditor’s Office noted that the discussion did not reveal any of those categories and instead focused solely on compensation. The same exception to the Sunshine Law makes clear that it does not apply to “the names, positions, salaries, and lengths of service of public agency officers and employees after their employment.”

“With the departure of nearly 70 years of institutional knowledge from CU’s leadership team, largely due to similar timing of retirement, we believe it was in the best interest of the utility to provide continuity by retaining the strong leadership of CEO Gary Gibson through a reorganization of the leadership team,” board chair Kristin Carter said in an emailed statement. “We also believe the board appropriately discussed this plan to retain Gary in closed session, as we needed to consider his leadership skills for a smooth transition, which was a priority for us. We fully respect the auditor’s analysis and recommendations and will fully review the opinion for guidance on any material future issues.”

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What happens next?

The conclusions of the investigation indicate that the Auditor’s Office will report its findings to CU and reiterate to the board that all payments should be properly approved in public and comply with all applicable laws and regulations.

Trevor Fox, communications director for the State Auditor’s Office, said the office otherwise has no mechanism for enforcing findings. He noted that if there were to be future violations, the Attorney General’s Office could intervene, based on state statute and limits on the office’s authority.

In statements from both CU and the board, leaders acknowledged the investigation’s findings and stressed that they would be used to inform future decisions.

Marta Mieze covers local government for the News-Leader. Have comments, tips or story ideas? Contact her at [email protected].