Enron CEO declines at least $60 million in severance pay

Employee concerns prompt move by Lay


Attempting to quell a furious reaction from employees outraged that he stood to profit from a merger with Dynegy Inc., Kenneth L. Lay, the chairman and chief executive of Enron Corp., decided late yesterday to give up a severance package worth more than $60 million.

The tumult at Enron's headquarters in Houston began after the company disclosed in a securities filing early in the day that Lay was in line to collect $60.6 million in pay after the deal closed next year - $20.2 million for every full calendar year left in his employment contract, which expires in 2005.

Lay had been a popular leader as Enron grew in the past 15 years from a pipeline operator into the nation's largest energy trader - a business largely of his invention. Employees shared in the gains, though none gained as much as Lay, who collected more than $300 million since 1989, mostly through exercising stock options.

But the value of employees' stock options and 401(k) accounts has evaporated this fall as Enron shares plummeted amid an accounting scandal. And traders and other workers started the day yesterday gossiping angrily about Lay's severance package.

At an afternoon meeting of employees in the company's core natural gas and electricity trading operation - which provides by far the biggest part of Enron's profits - "quite a bit of concern was raised about the news people had been seeing about this change-of-control payment," said Mark Palmer, an Enron spokesman.

Two senior executives who had attended the meeting, John Lavorato and Louise Kitchen, told Lay about the employees' reaction. "Ken made a decision shortly thereafter that the best thing to do would be to waive the payment altogether," Palmer said. Even if Dynegy's board of directors later vote to award Lay a new severance agreement, he will turn it down, Palmer added.

"What Ken said is that this is the absolute cleanest way to remove any doubts, that he was not going to profit as a result of this change of control," Palmer said. "This issue was causing enough concern among employees that he wanted to deal with it."

Severance pay had been an awkward matter for Lay during the past week. The only reason Enron is being acquired - triggering the severance clauses in his employment contract - is the financial scandal that has occurred on his watch. The company's shares have lost almost 90 percent of their value since peaking last summer.

During merger discussions last week, Lay told Dynegy's chairman, Charles L. Watson, that he wanted to rework the severance package, Palmer said. Monday, Watson disclosed that Lay wanted much of the severance to be in the form of stock options.

By yesterday afternoon, Enron officials were saying Lay planned to take two-thirds of the severance in stock or other non-cash compensation. And, they said, he wanted to give half of that amount - or one-third of his total package - to establish a charitable foundation to benefit Enron employees. About an hour later, Enron said Lay would give up the severance.

It remains to be seen whether Lay's gesture will placate Enron's traders, who are deluging other energy-trading companies with resumes.

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