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Background and History (1)AES Corporation (Applied Energy Services) was founded by Roger Sant and Dennis Bakke in 1981. The firm began operating its first power plant in Houston in 1986 and went public as AES in 1991.A list of AES operating facilities, their size, and fuel source, is provided in the Exhibit 1. The company vision is to be the global power company and as its mission supplying electricity to customers world-wide in a socially responsible way.

Corporate Performance Management

Background and History (2)The electric power generation business has always been very competitive and the competition was increasing. Many subsidiaries of large oil and gas companies, organizations with substantial financial resources, were entering the business. The business itself was complex. Building or purchasing existing power plants was a process that was heavily influenced by governmental decisions and actions, and took two years at least to complete. AES owned and operated its plants under a number of different financial arrangements. Some plants were wholly-owned by AES. Others were owned under various joint venture arrangements.Corporate Performance Management

Core Assumptions on AES peopleAES people are:Are creative, thinking individuals--capable of learning and making decisions, like to control their environment and can be trusted; Are responsible--can be held accountable Are fallible; Desire to make positive contributions to society, associate with a winner and a cause, like a challenge; Are unique persons, deserving respect, not numbers or machines.

Corporate Performance Management

Performance MeasurementAES performance measurement:Shared Values--How did the company do in having an organization that is fun, that is fair, that acts with integrity, and is socially responsible?Plant Operations--How safe, clean, reliable, and cost effective were the company`s facilities. Assets--What changes occurred in the company assets, including AES people, during the year? That is a measure of our project development and construction progress and an indicator of future earnings potential. Sales Backlog--What happened to our backlog of contract revenues during the year? This is one indicator of success in business development activities."

Corporate Performance Management

Revenue GrowthAlthough AES Corporation refrain pursuing profits or maximizing shareholder value as the primary objective, AES has 105% revenue growth.

Corporate Performance Management

The Thames, Connecticut Plant (1)The Thames plant is located in Uncasville, Connecticut, near New London, and around 45 minutes from Providence, Rhode Island. The plant is located on seven acres and is in close proximity to neighboring houses. The plant cost $260 million to construct and uses coal for fuel. It began commercial operations in March, 1990, supplying 181 megawatts of electricity to Connecticut Light and Power and up to 100,000 pounds of steam per hour to Stone Container's paper recycling plant that is adjacent to AES-Thames. The plant has operated on average at over 95 percent of capacity since it opened, compared to 83 percent for the industry as a whole.Corporate Performance Management

The Thames, Connecticut Plant (2)The plant organization has three levels (the plant manager, the seven area superintendents, and the front-line people). Because the facility operates continuously, there is some shift work. After some experimentation, people now work three twelve-hour shifts and then have three days off. They then rotate between the night and day shifts. The first shift is from 6:30 in the morning until 6:30 at night, and the second shift is from 6:30 P.M. to 6:30 A.M. Maintenance has a standard 40 hour week but the individuals have pagers, and they rotate responsibility for off-hours coverage.Corporate Performance Management

The Thames, Connecticut Plant (3)AES-Thames has an extremely low turnover rate, as does AES generally. The reasons are:AES is a different and special place and people know it and value that fact. To be written about in the Wall Street Journal and other publications, to receive many visits, reinforces the pride and feeling of uniqueness that AES people share. People do often move within the company. Out of perhaps 70 people who were in the Thames plant when it began, only 4-5 people have left the company in seven or eight years. As one person put it, "we all have the ability to expand what we do."Corporate Performance Management

The Thames - HiringThe flowchart of the hiring process at the Thames plant:StartEvaluate ResumeGood?One on one interviewsHirePass?Telephone interviewPass?Group interviewPass?Sales pitch interviewPass?YNYYYYNNNNCorporate Performance Management

The Thames Hiring (2)Hiring was done without the support of any Human Resource staff.Hiring process takes from one week up to a month and a half.Interviewers typically did not ask technical questions, because the people at AES believed that technical skills could be learned.Corporate Performance Management

The Thames Compensation and BenefitsThe salary was benchmarked with other companies and other people in the AES plants.AES did not pay the highest for its jobs because they wanted people to stay there because they like the place, not because of the salary.Raises were given once a year based on the performance evaluation by the superintendent. 3 forms of incentive pay:Individual bonusesPlant performance bonusCorporate wide bonusCorporate Performance Management

The Thames Compensation and Benefits (2)The total bonus was between 20% - 25% of the salary.Retirement system put about 20% to 25% of the salary mostly in AES stock. That way, people feel as the owner of the company and responsible to make the stock price rise.The retirements five year vesting period (instead of the more typical ten-year period) was done to give more freedom to the employee.Job vacancies for promotions were always posted. Anyone in the Thames plant or from other plants could bid for a job. Most promotions were filled from within the company.Corporate Performance Management

The Thames Training And DevelopmentThere was no centralized training (because there was no training staff), and no coordination of individual training activities.Individuals were responsible for determining what training and development activities were most appropriate to benefit themselves and the corporation.No formal career path -> emphasize on flexibility.AES had a tuition reimbursement program. Individual receives 80% of the tuition money in advance, the another 10% if they got B score, and another 10% if they got A.Corporate Performance Management

The Thames Employment SecurityNo formal policy of job security. Security was in the skills and abilities that people developed while they were working at the company.Reductions in staffing were made as voluntary as possible. The key was to treat people with respect.The staffs in the Thames plant were reduced from 70 people at start-up to about 60 people at the end of 1996.Minimize the usage of contract employees -> only during outages when the workload increases.Corporate Performance Management

The Thames Work OrganizationAES-Thames organized and managed work based on trust.All-salaried system -> no one was paid by the hour.Decentralization in decision making.All Thames people were involved in discussing and setting the budget at an annual meeting held in the fall.Budgets were not set unilaterally by the plant manager or the superintendents.Budgets were seen as guidelines, not as hard and fast rules.Corporate Performance Management

The Thames Measurement and InformationInformation on the performance of the company was widely shared.SEC categorized all AES people as insiders due to the openness of information in the company.Monthly communication meeting -> sharing financial and operating performanceMeasurement was focused more on plant-wide measures of performance.AES tried to look at performance globally and focus on a few key measures.Corporate Performance Management

The Thames Other Cultural ElementsThe Thames plant has no union, just like the majority of AES plants in US.Many social events for the employee and their families.The strong cultural values in the Thames plant: open and frequent communication, asking questions, and learning from each other.Other value of the Thames people:Innovation and taking on new thingsTaking prudent risksLooking at the long-termChallengeCorporate Performance Management

Human Resources (HR) at AES (1)Proofs that AES ever did HR:There was a person whose responsibility was to track the 401k retirement plan benefits and to send out the necessary reports.There were a few people who could recall at one time having a full-time human resources person.There were some copies of an employee handbook with policies that governed vacations, sick days, and other personnel policiesCorporate Performance Management

Human Resources (HR) at AES (2)Johns views in relation with no HR Department (1):He, as plant manager, could do contract negotiations because there was no a labor attorney.Other companies have salary ranges, but AES does not have to have them.Other companies use management of objectives, but AES could use reviews. These reviews would put a lot of responsibility and accountability on the people who are giving out increases.Corporate Performance Management

Human Resources (HR) at AES (3)Johns views in relation with no HR Department (2):Instead of written employee policies governing aspects of employee relations, in AES, people were encouraged to simply use their discretion and good judgment. By doing this, AES tried to get everyone to be reasonable, act responsibly, and use their own discretion.AES avoided putting in rules that would hamstring everyone just to cover the one or two percent who were exceptions and needed such rules.Corporate Performance ManagementOrganizational Design And Management Principles (1)Organizational structure in AES:Only have five hierarchical levels (three in the plant, a set of regional presidents or division managers, and the CEO)The divisional layer was added to obtain more interaction between headquarters and the plants.Division managers should be in each plant at least once a month.All functions were represented in every division so that there was no centralized corporate staff. Each division had responsibility for strategy and business development.

Corporate Performance ManagementOrganizational Design And Management Principles (2)

Corporate Performance ManagementOrganizational Design And Management Principles (3)Organizational management principles in AES (1):Honeycomb (relatively small, flexible, interrelated teams of people working on projects and activities and learning a lot in the process)No formal job descriptions and individual responsibilities were very fluidGive people the ability to innovate a little bit more by not using systemization. AES encouraged people to do new things and to seek variety and challenge.Widespread diffusion of both knowledge and responsibility

Corporate Performance ManagementOrganizational Design And Management Principles (4)Organizational management principles in AES (2):Coordination across the work teams or communities through sharing of information, making people responsible and accountable for results, and numerous ways informal communication across various internal organization boundaries.Decentralization and delegation throughout AES in order to emphasize synergy.

Corporate Performance Management