Human Capital:

Advisory Opinion Concerning Legality of Plan Adopted by Tennessee Valley Authority

B-205284: Published: Nov 16, 1981. Publicly Released: Nov 16, 1981.

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GAO was asked to comment on a payment plan adopted by the Tennessee Valley Authority (TVA) to provide certain cash payments to its top management officials in addition to their regular salaries. The TVA Board of Directors adopted a resolution approving a plan to pay up to 75 TVA executives a yearly maximum amount of $36,000 in addition to their regular salaries. Those employees would thus receive more yearly pay under the plan than the annual salary or basic pay prescribed by law for members of the TVA Board of Directors. Several congressmen believed that the plan was in conflict with the Tennessee Valley Authority Act and, therefore, asked GAO to conduct a study on the legality of the plan. GAO reviewed the plan and concluded that it does indeed contravene the Act. By law, the salaries of the TVA Board of Directors are limited to the ceiling for their level. GAO stated that the TVA plan, as such, would pay the executives more yearly pay than prescribed by law. In response, TVA officials suggested that the additional pay would constitute compensation but not salary under the terms of the Act and was, therefore, legally permissible. GAO stated that the new plan was clearly designed to circumvent the statutory limitations on salary and the additional pay would constitute additional salary. Therefore, the pay plan improperly contravenes the salary limitations imposed by the Act. TVA contends that it is experiencing difficulties in recruiting and retaining top executive talent due to the existing salary limitations imposed by statute. GAO has addressed this problem in a report and has recommended that Congress take action to correct the pay compression problem that exists throughout the Federal establishment.

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