Executives replaced as company refocuses

October 19, 2003|by JULIE E. GREENE

One of the steps Allegheny Energy Inc.'s leaders took to improve the energy company's financial performance was to replace several company executives, according to the 2002 annual report filed with the U.S. Securities and Exchange Commission.

These moves also were made to help refocus the company on its core transmission and delivery business as the company backs away from trading energy in the western United States. The energy trading business dealt a severe blow to Allegheny's financial strength, according to the annual report.

To lure someone to take over as chairman, president, and chief executive officer of a financially troubled utility with accounting errors and just escaping the brink of bankruptcy, Allegheny gave Paul J. Evanson a $6.3 million signing bonus, according to the annual report.


Evanson is getting an annual salary of at least $900,000 with a chance to triple that through performance bonuses. He also has stock options, some of which he could buy and others that would be given to him for free, based on the company's performance.

Such a package, and signing bonus, are not unusual, according to an energy analyst and president of an executive search firm.

"He's gone into a situation that may not make it. (He's) theoretically taking a big risk," said Don McDermott, president of D.G. McDermott Associates, an executive search firm in Red Bank, N.J.

Signing bonuses, which are fairly common, are used to make a person whole or to compensate the person for money left behind at the previous job, said McDermott and energy analyst Christopher Ellinghaus with Williams Capital in New York. Evanson was president of Florida Power & Light Company.

Evanson also is taking a risk that could damage his reputation if Allegheny ends up folding, McDermott said.

Shareholders may be upset about the company shelling out such a large signing bonus, given the company's financial troubles, but if Evanson "pulls it off and the value of the company goes up, that $6.3 million won't mean much to a lot of people, McDermott said.

In revamping its management team, the company offered attractive salaries and performance bonuses to other new executives and compensated those executives that left.

According to the annual report, here's a summary of those packages:

  • Chief Financial Officer Jeffrey D. Serkes was hired to serve a three-year term starting July 7. Serkes' annual base salary will be at least $500,000. He received a hiring bonus of $250,000.

    He can triple his salary with bonuses if he meets performance goals and he has stock options.

  • David B. Hertzog was hired to serve a five-year term as vice president and general counsel beginning July 28. Hertzog's annual base salary will be at least $450,000. He received a hiring bonus of $800,000 and has stock options.

    If he meets performance goals, Hertzog could receive a bonus of more than 1.5 times his base salary.

  • Joseph H. Richardson was hired to serve a three-year term, and successive one-year terms, as president of Allegheny Power, Monongahela, Potomac Edison and West Penn beginning Aug. 25. Richardson's annual base salary will be at least $400,000.

    If he meets performance goals, Richardson could receive a bonus that doubles his salary. For this year, he could earn a bonus of up to $166,666.

    The report also listed agreements with high-ranking Allegheny executives who retired this year or put in for retirement.

  • Former Chairman, President and CEO Alan J. Noia was compensated $809,182 in 2002. He will receive a monthly severance payment of $133,333 for 30 months. He was paid $72,422 in May for accrued benefit under a deferred compensation plan. Under his retirement plan, he will receive $65,683 a month.

    Noia has an office at the Downsville Center, according to the law office of Michael Day, which also is in that building. The voice mail answered in another man's name for Allegheny Power Telecommunications. It was not clear whether Noia was working for Allegheny Power, although his arrangement with Allegheny Energy calls for the company to provide him office space and support at Allegheny Energy.

    The company also will reimburse him for three years for certain maintenance and connection of a home security system installed by Allegheny.

  • Former Allegheny Energy Supply Co. President Michael P. Morrell received total compensation of $388,492 in 2002. Under his retirement plan, he will be paid $13,454 a month.

    Morrell's wife said he is enjoying retirement.

  • Former Chief Financial Officer Bruce E. Walenczyk was paid $307,782 in 2002. Under his retirement plan, he will be paid $2,967 a month.

    As part of his retirement, he was paid $150,000 in June and will get another $150,000 in January.

  • Former vice president Richard J. Gagliardi was paid $302,276 in 2002. Starting in August, he was to be paid $24,585 for consulting services with Allegheny. Under his retirement plan, he will be paid $17,249 a month.

    Gagliardi began teaching principles of accounting at Hagerstown Community College this semester, college spokeswoman Beth Stull said.

  • Chief Operating Officer Jay S. Pifer still was working at Allegheny. He was paid $373,350 in 2002. Upon his retirement, he will be paid $27,815 a month in the form of a single life annuity.

    Noia, Walenczyk and Gagliardi agreed to cooperate with Allegheny concerning ongoing or future lawsuits.

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