Executive Retention

Over the last several years, there has been anecdotal information indicating a high level of turnover among the Tennessee Valley Authority's (TVA) executives. We initiated this audit to review the costs associated with the hiring and dismissal of executives brought in from outside TVA since the change to TVA's part-time Board of Directors. For the purposes of this audit, we considered an executive to be an employee with the title of vice president or above.To perform our audit, we reviewed TVA's documentation of personnel who were classified as executives for the period March 2005 through May 2014. Also, we reviewed TVA's recruiting, hiring, and severance expense information for executives who were hired and departed during the period. In summary, we found:As of March 1, 2005, TVA had 46 executives compared to 54 executives as of May 31, 2014. During the period, TVA hired 47 executives and promoted 55 employees to executive level positions. TVA also demoted and/or reclassified 15 executives to nonexecutive level positions and 79 executives departed TVA.Executives who were promoted from within appeared to remain a TVA executive longer than those who were hired from outside TVA.TVA incurred approximately $7.4 million in recruiting, hiring, and severance expenses for 20 executives who were hired and also departed TVA during the period. We estimate it costs TVA an average of almost $400,000 when an executive leaves TVA and another executive is recruited and hired to fill the vacancy.We also compared the number of TVA's executive departures as reported to the Securities and Exchange Commission (SEC) to the reported departures of TVA's compensation peer group for the period of January 2007 through May 2014. Although we found TVA reported more executive departures than most of the peers, companies may interpret SEC filing requirements differently, making it difficult to ensure the information reported by TVA's peer group was consistent with TVA's reporting.