Contra Costa Times (California)
Seventeen current and former executives of PG&E Corp. rang in the New Year $84.5 million richer, thanks to the company’s reaffirmation of its intention to pay controversial bonuses promised during the 2000-01 energy crisis.
“The agreement we had with them is an agreement we had to meet,” Brian Hertzog, a PG&E spokesman, said of the promises of Special Senior Executive Retention Grants. The payouts range from the $2.7 million each promised to seven executives to chief executive Robert Glynn’s $17.1 million.
News that the windfall is still in the works came two weeks after the California Public Utilities Commission voted 3-2 to tap electricity customers for $7.2 billion to bail out PG&E‘s bankrupt utility and 11 days after U.S. Bankruptcy Judge Dennis Montali signed off on the deal.
PG&E announced Dec. 12 that because of those pending decisions in the bankruptcy it had put “under review” a little-noticed program that it instituted in early 2001 to keep top managers from heading for the lifeboats after its huge utility began to founder.
Now, with approvals in hand, PG&E says the bonuses, which were tied to the year-end closing price of the company’s stock, are on the way. “All aspects of the program were examined and we determined that we had an obligation we had to meet,” Hertzog said.
That outraged a prominent consumer advocate. “This would make Enron blush,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights.
Hertzog said the program rewarded the executives for meeting “a high target… over a three-year period.” Half of the awards were conditioned on PG&E‘s stock price outpacing competitors, including now-bankrupt Enron.
But Heller said PG&E‘s gains depended on the bailout. “In a sick and cynical way, these executives were successful in that they were able to manipulate the bankruptcy law and our regulatory system in order to pilfer the public and escape responsibility for years of mismanagement.”
Barbara Barkovich, a consultant to large electricity users, said the bonuses show a “real lack of sensitivity” for a company with both operating units in bankruptcy and consumers still smarting from a pre-Christmas blackout in San Francisco.
PG&E chose not to explain how the program was reviewed or by whom. “The process of executive compensation determination is all laid out in the proxy,” said Hertzog, declining further comment on that matter or on who had made the original decision to conduct a review.
According to the most recent proxy statement, which was issued in March, executive pay policies are overseen and reviewed by a committee of PG&E‘s board chaired by former Wells Fargo Bank chief executive Carl Reichardt. The committee includes two other prominent local figures: David Coulter, a former Bank of America CEO, and David Lawrence, former CEO of the Kaiser Foundation Health Plan. Hertzog said that corporate policy prevented disclosure of whether that
committee, or PG&E‘s full board, had met since Dec. 12.
No PG&E executives sit on the committee. However, PG&E‘s corporate governance guidelines instruct all board members to refer media inquiries to Glynn. The proxy also says that the committee has “delegated to (Glynn) the authority to approve compensation for certain officers of PG&E Corp. and its subsidiaries.” Hertzog said he could not immediately identify those officers.
The retention payouts will dwarf the recipients’ total 2002 compensation packages. Glynn’s $17.1 million take will be more than twice the size of his 2002 gross of $7.4 million. Utility chief executive Gordon Smith’s $10 million bonus is 72 percent higher than his 2002 package of $5.7 million. Even Thomas Boren, who left his job as head of PG&E‘s nonutility unit 13 months ago, will
collect a retention bonus, $7.4 million, larger than his 2002 pay package of $6.1 million, which included a $1.5 million severance benefit.
As a retention device, the bonus program didn’t quite live up to its billing. Boren and three other individuals whose jobs were abolished at National Energy Group got “retention” awards, as did James Randolph, a utility executive who is now retired. Hertzog said Randolph used vacation time to meet the program’s tenure criteria. None could be reached for comment.
The program’s cost rose to more than five times PG&E‘s original $15 million estimate on the strength of PG&E‘s stock price, which reached a 52-week high of $27.98 on Dec. 30 before settling back, at a cost to retention bonus recipients of $640,000, to its year-end close of $27.77. PG&E‘s share price fell 54 cents, or 2 percent, to close at $27.23 on Friday.
The stock still has a way to go to match its $31.50 closing price at the end of 1998, Glynn’s first full year as CEO. And PG&E shareholders are still awaiting the resumption of dividend payments suspended three years ago.
PG&E‘s utility sought bankruptcy protection in April 2001. Soon after, Montali signed off on a separate $17 million retention program funded by the bankruptcy estate. National Energy Group is selling off its assets after following its sibling into bankruptcy in July.
PG&E‘s filings say that the bonus payouts are due this month. Hertzog said the exact timing of the payment is still under review.
Rick Jurgens covers the housing, development and energy industries. Reach him at 925-943-8088 or at [email protected]