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

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

Core Assumptions on AES

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

Performance Measurement
AES performance measurement:
a) 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?
b) Plant Operations--How safe, clean, reliable, and cost
effective were the company`s facilities.
c) 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.
d) 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

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

Corporate Performance

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

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

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

The Thames - Hiring

The flowchart of the hiring process at the
Thames plant:
Start

Evaluate
Resume

Goo
d?

Telephone
interview

N
N
N

Pass
?

Group
interview

Pass
?

Sales pitch
interview

Pass
?

Hire

N
Corporate Performance

Pass
?
Y

One on
one
interviews

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

The Thames Compensation and

Benefits
The 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 bonuses
Plant performance bonus
Corporate wide bonus
Corporate Performance

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

The Thames Training And

Development
There 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

The Thames Employment Security

No 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

The Thames Work

Organization
AES-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

The Thames Measurement and

Information
Information 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 performance
Measurement 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

The Thames Other Cultural

Elements
The 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 things

Taking prudent risks
Looking at the long-term
Challenge
Corporate Performance

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 policies

Corporate Performance

Human Resources (HR) at AES (2)

Johns views in relation with no HR Department (1):
a) He, as plant manager, could do contract
negotiations because there was no a labor
attorney.
b) Other companies have salary ranges, but AES
does not have to have them.
c) 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

Human Resources (HR) at AES (3)

Johns views in relation with no HR Department (2):
d) 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.
e) 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

Organizational 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

Organizational Design And

Management Principles (2)

Corporate Performance

Organizational 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 fluid
Give 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

Organizational 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