Utility must file reorganization plan by end of year, or CEO only gets $600,000 extra
The San Francisco Chronicle
PG&E‘s creditors have agreed to management’s plan to shower top executives with $17.5 million in bonuses but balked at the bankrupt utility’s initial demand that the cash come with no strings attached, The Chronicle has learned.
Instead, the creditors say they forced Pacific Gas and Electric Co. to link the bonuses — in some cases doubling the pay of senior managers — to quickly filing a Chapter 11 reorganization plan, no later than January.
However, PG&E spokesman Ron Low insisted yesterday that the utility had always intended for the bonuses to be tied to submitting a reorganization plan.
“Our original proposal closely resembled what was filed with the court,” he said.
The bonuses are expected to figure prominently when PG&E‘s management holds a court-mandated meeting with creditors on Thursday in San Francisco. Bankruptcy Judge Dennis Montali, who has the final say on all compensation questions, is scheduled to issue a ruling June 18.
Critics have slammed the utility’s “management retention program” as an unwarranted payout to the same executive team responsible for steering PG&E into its worst-ever financial crisis.
But the company insists that without extra incentives, corporate leaders would depart and thus slow PG&E‘s return to creditworthiness.
“It’s a question of efficiency,” said Allan Marks, a lawyer representing the 11 companies comprising the creditors’ committee in PG&E‘s bankruptcy proceedings.
“It’s not a question of whether these people are good or bad managers,” he said. “It’s simply more efficient to keep these people in place.”
Marks said that when PG&E first proposed the bonuses last month, the creditors’ committee quickly noted that the cash was a virtual handout to about 226 top executives.
PG&E Chairman Robert Glynn and nearly two dozen other senior managers would receive 100 percent of their salaries to stay on, while hundreds of other employees would receive bonuses of between 25 and 75 percent of their salaries.
After what Marks described as candid negotiations, he said PG&E had agreed to link the bonuses to a commitment that its reorganization plan be on the table by the beginning of 2002.
“This is one way that we can assure efficiency in the process,” he said. “Our goal is to make sure the company operates as quickly as possible.”
But PG&E‘s Low said that the creditors had actually requested only minor changes in wording and that the timing of a reorganization plan had never really been in dispute.
A reorganization plan is the blueprint for a company’s eventual recovery from bankruptcy.
Glynn would receive a bonus of 100 percent of his $900,000 annual salary if PG&E‘s plan is submitted on time. If he misses the deadline, he would have to make do with just two-thirds of that amount.
While there is no reason to believe that PG&E‘s managers would have dragged their heels without piles of extra cash, Marks said it was common in bankruptcy cases for corporate leaders to receive an incentive to remain in their jobs and seek a resolution to the company’s difficulties.
“We ended up with something that we think is fair,” he said.
The creditors’ committee includes financial heavyweights Bank of America and Merrill Lynch, as well as power giants Enron Corp. and Dynegy Inc. The committee’s actions set the tone for PG&E‘s dealings with its thousands of other creditors, who are owed more than $9 billion.
Harvey Rosenfield, head of the Foundation for Taxpayer and Consumer Rights in Santa Monica, said that by accepting the bonus plan for PG&E‘s top brass, the creditors’ committee had signaled that it would agree to almost anything that would help them recover outstanding costs.
“The creditors are in this to get reimbursed fully,” he said. “Their idea is to ultimately soak ratepayers for the entire cost of the bankruptcy.”
Marks said the creditors would seek nothing less than full payment of PG&E‘s obligations. “We’re very firm on this,” he said.
Full payment will only come if the bankruptcy court sells off some of PG&E‘s assets, such as the utility’s power lines or dams, or if consumers end up paying surcharges on their monthly bills.
To date, PG&E has insisted that none of its assets are for sale.