Deal or no deal, proposed PGW sale was a financial winner for its top execs

The failed sale of the Philadelphia Gas Works was pitched as a very good deal - for the city's budget, PGW's employees, and the utility's ratepayers.

Kept secret was that one group was certain to benefit, sale or no sale.

Eight top PGW executives, headed by CEO Craig White, were guaranteed bonuses regardless of the sale's outcome so long as they "actively supported the sale process," according to the bonus plan. They were in line for significantly higher bonuses if the sale went through.

The bonuses, which created a financial incentive to promote the sale, were intended to ensure that the executives stayed on the job while the transaction was being negotiated, guaranting stability.

While the sale ultimately failed, PGW paid the executives a combined $333,348 on Dec. 4.

That equaled 20 percent of their 2015 salaries.

If the sale had gone through, the bonuses would have exceeded 50 percent of salaries.

The bonus plan required the executives to sign a "nondisclosure" agreement to keep it secret.

David Seltzer, chairman of the PGW board when the plan was approved, said the agreement was meant to keep knowledge of the bonuses from employees not in line to receive them.

"That was intended to avoid any internal friction with other members of the management team who were not perceived or identified by the buyer as being critical to maintaining the value of the company," Seltzer said.

The secrecy has caused significant tension between PGW and the Philadelphia Gas Commission, which has budgetary oversight for the utility.

PGW last year submitted its budget for review by the Gas Commission but did not itemize the bonuses, burying the expense in the overall cost for personnel at the utility.

Janet Parrish, the Gas Commission's executive director, sent PGW a letter challenging the bonuses on Wednesday after learning about them from the Inquirer.

"That was not included in the proposed budget," Parris told the Inquirer. "Therefore [PGW] did not have proper spending authority."

Parrish asked PGW to explain why the bonuses were not disclosed and to provide details about how they were created and approved by the utility's board of directors.

White, PGW's chief executive officer, responded with his own letter Friday, telling Parrish she should direct her questions to the city government and PGW's board of directors, whose members are appointed by the mayor.

"PGW was not a party to the plan and did not draft or manage its implementation," White wrote.

Marian Tasco, chair of the city Gas Commission when the bonuses were paid in December, said she knew nothing about them.

"That didn't come before the Gas Commission," said Tasco, a vocal opponent of the PGW sale who retired at the end of 2015 from Council and no longer sits on the commission. "We would have certainly questioned it."

PGW released financial details about the bonuses after the Inquirer obtained a copy of the plan.

A spokesman for the city-owned utility issued a brief statement, placing distance between the executives and responsibility for the bonuses.

"PGW executives are not the owners of the company, and we are not the architects of the retention plan, nor are we the drafters of the language contained in the retention plan," said PGW spokesman Barry O'Sullivan, who was not one of the executives who received a bonus. "And no one who is included in the plan is a member of the company's board of directors."

A resolution adopted by the PGW board of directors in December 2013 approved and explained the retention plan bonuses.

The resolution, released to the Inquirer last week by PGW, says advisers brought in by Mayor Michael Nutter's administration to oversee the sale said, "It is customary and appropriate for organizations, and in the best interest of the city, to offer key managers a retention incentive plan in order to maintain the value of PGW both during and after the sale process."

The reason, according to resolution: "The ongoing exploration of a sale could encourage certain key PGW manager to seek employment outside of PGW due to perceived job uncertainty."

Nutter last week said he recalled "a great concern about current top managers potentially leaving PGW during the course of the discussion about the proposed sale."

Suzanne Biemiller, who was a PGW board member and Nutter's first deputy chief of staff, wrote in an email that retention plans are "quite common" in sales and "provide would-be buyers with comfort that senior leaders would remain in place through a transition."

Biemiller, who left the board in February 2015, said the "actual payments were to be voted on by the board and Gas Commission as part of its budget process."

The bonuses are a coda to the cacophonous controversy that was the PGW sale, which failed because no member of Council would introduce legislation even for a hearing.

PGW spent more than $2 million on the sale.

Doug Oliver was also on the PGW executive bonus list but left the utility during part of 2015 to run in the Democratic primary election for mayor. He would have received about $34,242 as a bonus, which would have increased the total to $367,640. The bonuses would have been much larger - nearly $1.3 million total - if the $1.86 billion sale had been completed with UIL Holdings Corp. That plan called for the buyer to pay the bonuses.

White, the CEO, would have received a bonus of 100 percent of his salary.

Six other PGW executives - Joseph Golden, Douglas Moser, Abby Pozefsky, Daniel Murray, Eloise Young, and Raquel Guzman - would have received 75 percent of their 2014 salaries.

Another executive, Daniel Leonard, would have received 50 percent of his 2014 salary.

Pozefsky retired from PGW on March 1. Murray resigned Feb. 15. The other executives still work for PGW.

The bonuses could have a lasting impact on the pensions for six of the executives. PGW pensions are calculated based on the top five earning years in the last 10 years.

The bonuses count as part of the 2015 salaries for Pozefsky, Murray, Young, Guzman, and Leonard, increasing their earnings and so potentially their pensions.

brennac@phillynews.com

215-854-5973 @ByChrisBrennan