Constellation Energy CEO pay rises by $1M

Improved financial picture drives compensation

April 16, 2010|By Gus G. Sentementes and Liz F. Kay, The Baltimore Sun

Constellation Energy Inc. reported Friday that its top executive's cash and stock compensation rose $1 million last year when the company's financial health improved.

Chief Executive Mayo A. Shattuck III took home $10.8 million in pay, including $1.3 million in salary, $3 million under an annual incentive program and a $6.5 million payout in stock and options that vests over three years, according to a regulatory filing. Constellation is the sole remaining Fortune 500 company in the Baltimore area.

In 2008, Shattuck earned $9.8 million and voluntarily turned down a bonus. An accounting change by the Securities and Exchange Commission also tacked on another $10.3 million in pension value and deferred earnings to his total compensation that year.

Shattuck's rise in compensation mirrored a rebound in the fortunes of Constellation, which completed a controversial $4.5 billion sale last year of half its nuclear power business to French utility Electricite de France — a deal that helped swing the company into profitability after a $1.3 billion loss in 2008.

"We had significant challenges that we worked through with divesting certain assets," Constellation spokesman Rob Gould said.

The earnings of Constellation's top executive have been closely watched in recent years. The company and its subsidiary, Baltimore Gas and Electric Co., the state's largest utility, have been scrutinized by lawmakers and the public in the wake of rising energy costs.

"Not one cent of Shattuck's compensation is paid by BGE customers," Gould said.

But last year, state Sens. James A. Brochin and Jamie Raskin, citing a backlash against high executive compensation, asked Attorney General Douglas F. Gansler to investigate compensation paid to Shattuck and other Constellation Energy directors.

Gansler, however, decided that although excessive executive compensation might be a waste of corporate assets, the courts typically defer to a company's board of directors on these issues. Usually, shareholders can seek redress on claims of corporate waste, he wrote, and state utility regulators might have the power to determine whether executive compensation harms BGE ratepayers.

Brochin, a Baltimore County Democrat, said his constituents — BGE ratepayers — weren't satisfied with the CEO's performance last year. "I don't understand why the ratepayer keeps taking it on the chin, and he [Shattuck] keeps getting bonuses," Brochin said. "I don't think the ratepayers think he's doing a good job."

Constellation's compensation committee reviewed improvements in more than a dozen categories of company performance when deciding on Shattuck's pay. The company pointed to gains in earnings per share, increase in cash flow, improved investment-grade ratings and increased safety and reliability at BGE, among other factors.

Under Shattuck last year, the company slashed $5 billion in operating expenses, took steps to invest in renewable-energy projects and saw its stock climb 67 percent. Constellation sold two businesses — a London-based commodities unit and a Houston-based gas-trading entity — to refocus on the company's core businesses, company officials said.

Last year, Shattuck topped the compensation list of Baltimore-area chief executives of public companies compiled by The Baltimore Sun. That amount did not include a bonus; Shattuck refused to take one because of the company's poor performance in 2008. That year, the company teetered on the verge of bankruptcy as the financial markets collapsed and the company struggled with credit problems.

Other top executives at Constellation also received annual bonuses last year when they didn't the year before. Jonathan W. Thayer, the chief financial officer, earned a $940,000 bonus and a total package of nearly $3 million, compared with $1.5 million in 2008.

Gould, Constellation's spokesman, said the company's board took steps last year to better oversee executive compensation. Executives now have "claw back" provisions in their contracts, which means that if Constellation ever restates its financial results, they would have to return any pay they earned that was based on the erroneous result, but only if "gross negligence" was a factor.

Additionally, the company terminated all change-in-control severance agreements for its executive officers, and also now requires executives to pay their own taxes on any perks they receive.

In other news, Constellation Energy announced Friday an agreement to purchase two natural gas generation facilities in Texas from Houston-based Navasota Holdings for $365 million, although the price may change because of closing adjustments. State and federal regulators must approve the deal, which is expected to close in the second quarter.

gus.sentementes@baltsun.com

liz.kay@baltsun.com

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