Sunday, April 4, 2010

PG&E Proxy Filing Reveals Corner-Cutting Effort to Feed Darbee's Compensation Gluttony

In the 48-hour period clustered around April Fool's Day, Peter Darbee aired the first of PG&E's big lie "taxpayers right to vote" television ads (one month after confessing to Wall Street that the motivation behind Prop. 16 is to "diminish" such voting); filed PG&E's proxy statement disclosing an even murkier process on his board's Compensation Committee than the preliminary proxy filing had revealed; and suffered through the annual Wall Street Journal compensation survey showing his 2009 compensation to be 74% above the median for utility CEOs.

The WSJ compensation study of 200 companies was conducted by the Hay Group, and showed that several of Darbee's more prominent peers -- John Rowe of Exelon, and Jim Rogers of Duke Energy, for example -- were paid materially less than Darbee despite running larger, more complex companies:  15 % less in the case of Rowe and 74% less in the case of Rogers.  As reported previously, Darbee's $10.6 million take in 2009 was actually 8% more than Goldman Sachs paid its CEO, Lloyd Blankfein.

In contrast to PG&E, none of the utilities included in the compensation survey benefits from a bankruptcy settlement that obligates its state regulator to maintain its credit rating in the single "A" category -- a material reduction in corporate risk exposure that creates a more mundane context for PG&E's financial results than the Master of the Universe paycheck for Darbee would suggest.

And the March 31 final proxy makes clear that the road to getting there was, well, perhaps even more interesting than the March 8 disclosure suggested.  It turns out that the replacement consultant -- brought in by the PG&E board's Compensation Committee in midstream after the Committee determined that its original "independent" consultant "no longer met" the Committee's conflict of interest standard -- didn't actually get involved with determining Darbee's 2009 hoard.  As the new disclosure states, the replacement consultant 
provided advice regarding executive and non-employee director compensation trends and policies with respect to the amount and form of compensation, and assisted with the Committee's compensation risk assessment, but did not advise the Committee with respect to compensation actually paid in 2009 to PG&E Corporation and Utility officers whose compensation is reported in the tables in this Joint Proxy Statement ...
Which left the Compensation Committee, in the course of its four meetings during the year, either in the hands of its conflicted earlier consultant or completely on its ownAs previously reported, none of the four members of the Committee has any experience in the regulated electricity or natural gas utility business and two (including the chair) are phoneboy cronies of Darbee from his PacBell days.

Random fact:  the three telecommunications industry CEO's identified in the Wall Street Journal compensation survey were paid an average of $15.6 million in 2009. 

In the same bipolar logic that puts a "taxpayer right to vote" campaign slogan on top of its CEO-acknowledged aim to "diminish" voting, the March 31 proxy proudly proclaims that beginning this year PG&E has "voluntarily agreed to provide shareholders with the right to cast an advisory vote" on executive compensation.  Darbee seems to have forgotten that this measure was forced on him by CalPERS and other activist investors who passed a "say on pay" resolution at the 2008 shareholder meeting over management's objection.

With mandatory shareholder "say on pay" rights prominently included in the financial regulation bill currently pending in the U.S. Senate, the PG&E vote at the May 12 shareholder meeting is likely to attract attention as an indicator of whether such rights are a meaningful reform to curb excess or a cosmetic device to rubberstamp management recommendations.

Darbee probably views the upcoming low-turnout shareholder vote with the same shooting-fish-in-a-barrel bumptiousness as he does the upcoming low-turnout vote of the California electorate on Proposition 16As hinted at in the March 31 proxy, the process is susceptible to the same dark arts of manipulation, albeit at a lower direct expenditure than the $35 million his political consultants have demanded for the June 8 smoke and mirrors.  

But shareholders may be grouchy about their measly, cumulative 5.6% Total Shareholder Return (price appreciation and dividends) in the three-year period ended December 31, 2009 and resist being fed the phony comparisons that suggest this represents a stunning success.  The arithmetically inclined may actually compare their returns to the 32.2% jump in Darbee's annual compensation from 2006 to 2009.

Darbee is hoping they don't. 

(Photo credit:  Darbee, Genesis Photo Agency)