High-priced sheriff to clean up the PG&E corral…

August 10, 2011

In its editorial yesterday about PG&E Corporation’s (PCG) new top executive, the San Jose Mercury News declared, “There’s a new sheriff in town at PG&E, and none too soon.” But that talent comes with a price tag much higher than most reports have indicated.

Anthony F. Earley, Jr., who will become the Chairman of the Board, Chief Executive Officer and President on September 13, starts with a base salary of $1.25 million and a target cash bonus of another $1.25 million, according to an 8-K that the company filed yesterday. He’s also slated to get a $1.5 million one-time employment bonus “[i]n recognition of bonus amounts that Mr. Earley is forfeiting at DTE Energy,” the Detroit-based utility where Earley worked for the past 17 years. He gets to keep the new bonus so long as he doesn’t voluntarily leave PG&E within the next three years, and the filing emphasizes that the shareholders – not the utility’s customers – are footing the bill.

But Earley is getting more – lots more – in the form of equity awards. For starters, on September 13 PG&E will grant him $800,000 worth of restricted stock units and $1.2 million worth of performance shares, per the terms of its long-term incentive plan. While the RSUs will vest over four years, his entitlement to the performance shares is tied to the company’s performance and total shareholder return. If they vest at all, the filing explains, the performance period will start on Earley’s first day of work and end on December 31, 2013.

And then there’s a second award, potentially worth another $6 million:

“Mr. Earley also will receive a one-time inducement equity award under the LTIP as compensation for certain equity holdings that Mr. Earley is forfeiting at DTE Energy. The award will consist of RSUs with a value of $2,500,000 and performance shares with a value of $3,500,000. The full amount of this equity award will be paid by PG&E Corporation shareholders.”

These RSUs will vest over three years, which is also the performance period set for the performance shares.

For those keeping track at home, Earley’s welcome basket is potentially worth $12 million, but there are a few more goodies sprinkled on top, such as the $35,000 perk allowance, officer-level benefits, and participation in the company’s Supplemental Executive Retirement Plan and Supplemental Retirement Savings Plan. In addition, Earley is also “eligible for mortgage assistance payments of $100,000 per year for up to three years if he purchases a home in the San Francisco Bay Area in connection with his relocation.” (Given housing costs in the Bay Area, we understand why the parties negotiated that term.)

Yet for all that money, Earley is coming in to clean up what the Mercury News dubbed a “poisonous corporate culture.” In this case, we’re not talking about a den of vicious rattlesnakes, but rather an alleged practice of punishing whistleblowers who voiced safety concerns, as well as an ongoing criminal investigation that the Department of Justice, the California Attorney General’s Office, and the San Mateo County District Attorney’s Office opened in June into the disastrous explosion in San Bruno that occurred last September.

The board is expressing a lot of faith in Earley. It amended the bylaws and increased the number of directors from 10 to 11 members, giving Earley the new seat at the table. Hopefully he has the same faith that he can clean up the troubles at the PG&E corral, although he seems to have negotiated an escape clause, just in case things don’t work out. The filing states:

“Mr. Earley has waived his eligibility to participate the PG&E Corporation Officer Severance Policy in exchange for receiving reasonable relocation costs for relocation to Detroit in the event of his separation from employment.”

But presumably the generous terms of his pay package give him incentive enough to stick around and give it his best shot.

Image Source: 3 A.M. via flickr

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