Register, or Login to view the article
June 20, 2019 – The Debtors filed a motion seeking approval of terms of employment for William D. Johnson who has been chosen to serve as the Debtors' Chief Executive Officer (“CEO”) and President. Mr Johnson will also serve on the Debtors' board [Docket No. 2662]. The motion of the Debtors, besieged with wildfire safety-related challenges, is couched in terms of Mr. Johnson's safety credentials, principally as the former CEO of the Tennessee Valley Authority (the "TVA"). Mr. Johnson's base salary is to be $2.5mn with equity awards to allow for $millions more. In a strong message for Mr. Johnson's peer group, the Debtors are underscoring the earning value of a well-documented safety record.
That message will be double-underscored by the Debtors' June 20, 2019 motion seeking approval a key employee incentive plan (the “KEIP”) for twelve senior executives that would provide an aggregate award pool of between $5.4mn to $16.4mn [Docket No. 2664 which we cover separately]. As with the Johnson motion, the Debtors' KEIP motion pays special attention to the role of safety metrics in evaluating (and rewarding) senior management performance. In respect of the KEIP, assigning a 65% weight to a basket of safety metrics and a 50% haircut on KEIP awards for failure to meet a threshold metric for public safety.
There won't be many boardrooms or C-Suites where these remuneration developments will go un-noticed and one is left wondering how life would be different for the Debtors if they had adopted similar incentive measures in advance of the Camp et al wildfires.
The Johnson motion states, “On January 13, 2019, PG&E Corp. announced that its Board of Directors (the ‘Board’) was conducting a search for a new CEO following the departure of Geisha Williams. From the outset, the Board recognized that the recruitment of a permanent CEO with substantial safety and operational expertise was critical to the long-term stability and success of PG&E Corp. and the Utility. Accordingly, after conducting a national search, on April 10, 2019, the Board appointed William D. Johnson as CEO and President of PG&E Corp., effective May 2, 2019. Concurrent with his appointment as PG&E Corp.’s new CEO and President, Mr. Johnson was also appointed to the Utility’s Board and to serve as a member of the Utility Board’s Executive Committee, effective as of the same date.
Mr. Johnson brings substantial safety and operational expertise to the Debtors from his extensive career in the energy industry. With more than a decade of combined chief executive officer experience at two large utility companies, Mr. Johnson has a keen understanding of managing risk and the responsibility for providing safe and reliable service to the Debtors’ 16 million customers. Most recently, as President and CEO of the Tennessee Valley Authority (‘TVA’), Mr. Johnson was responsible for leading the nation’s largest publicly-owned utility in its mission of providing energy, environmental stewardship, and economic development across a seven-state region. Moreover, during Mr. Johnson’s tenure at the TVA, the organization achieved the best safety records in its 85-year history and was a perennial top decile safety performer in the utility industry.
In that same period, Mr. Johnson led the retirement of more than half of the TVA’s coal generation, resulting in an approximate 50% reduction of the TVA’s carbon emissions over the last decade. Furthermore, Mr. Johnson was responsible for leading the generation of more than 50% of the TVA’s energy from non-greenhouse gas emitting sources. He also oversaw the TVA’s expansion into utility-scale solar (large-scale grid connected photovoltaic generation) in recent years, with the addition of approximately 1,000 megawatts (mWs) of generation capacity, and pursued the modernization of the TVA’s hydro assets to increase the overall amount of renewable resources.
Mr. Johnson is the right leader for PG&E Corp., as the Debtors work to further strengthen their safety culture, continue to implement rigorous safety initiatives, and navigate the challenges associated with these Chapter 11 Cases. Additionally, the terms of Mr. Johnson’s proposed employment as CEO and President of PG&E Corp., including the incentive aspects thereof that are heavily-weighted to safety, are reasonable, appropriate, and should be approved. Notably, to place a greater emphasis on safety, the newly-constituted Board determined that Mr. Johnson’s 2019 Performance-Based Awards should be subject to a downward modifier if the Debtors fail during the relevant performance period to meet the threshold or target performance metric most closely aligned with wildfire safety.”
Key Terms of Employment:
- Base Salary: Annual base salary of $2.5 million
- Equity Awards: Equity awards will consist of (i) time based restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”); and (ii) stock options (“Options”).
- RSUs and PRSUs. Annual equity award with a target value of $3.5 million. 25% of such award consisting of RSUs and 75% of such award consisting of PRSUs. Each annual award of RSUs will vest in three equal installments on each of the first three anniversaries of the date of the grant. Each annual award of PRSUs will be subject to annual performance-based vesting metrics (the “Performance Metrics,” which track the Debtors’ 2019 Short-Term Incentive Plan (the “2019 STIP”). The first annual award of PRSUs will have a performance period beginning on April 1, 2019 and ending on December 31, 2019, and the second and third annual awards will have one-year performance periods ending on December 31, 2020 and December 31, 2021, respectively. As set forth below, the Performance Metrics for 2019 have been established, and consistent with customary practice, Performance Metrics for the ensuing two years will be established by the Board. NB: Please see details from the Debtors' June 20, 2019 8-K as to how Mr. Johnson's Performance Metrics differ from those for other participants in the 2019 STIP.
- Stock Options: One time grant of three tranches of performance-based Options, (payable in cash or shares at Mr. Johnson’s option) as follows: (i) tranche 1 consists of a maximum 1.2 million Options (800,000 Options at target level performance) with an exercise price of $25.00 per share exercisable until the fourth anniversary of the grant date, (ii) tranche 2 consists of a maximum 1.5 million Options (1 million Options at target level performance) with an exercise price of $40.00 per share exercisable until the fourth anniversary of the grant date, and (iii) tranche 3 consists of a maximum 1.6 million Options (approximately 1.1 million Options at target level performance) with an exercise price of $50.00 per share exercisable until the fifth anniversary of the grant date. Each tranche of Options will be subject to annual Performance Metrics and will be divided into three equal installments. The first installment of each tranche will have a performance period starting on April 1, 2019 and ending December 31, 2019. The second and third installments of each tranche will have one-year performance periods ending December 31, 2020 and December 31, 2021, respectively. Each tranche of Options will vest annually in three equal installments based on performance results certified by Internal Auditing and approved by the Compensation Committee.
- Severance: If Mr. Johnson’s employment is terminated by PG&E Corp. without Cause, Mr. Johnson will be entitled to a cash payment of $2.5 million.
- With respect to Mr. Johnson’s RSUs, if Mr. Johnson’s employment is terminated by PG&E Corp. without Cause, a pro-rated portion of Mr. Johnson’s RSUs will vest proportionally based on the number of months that Mr. Johnson was employed in the current annual vesting period, divided by 12.
- With respect to Mr. Johnson’s annual award of PRSUs, (i) if Mr. Johnson’s employment is terminated by PG&E Corp. without Cause during the 2019 calendar year, a pro-rated portion of Mr. Johnson’s PRSUs will vest proportionally based on the number of months that Mr. Johnson was employed in 2019, divided by 8 (the number of months from May 2, 2019 until year end), and achievement of his 2019 Performance Metrics, and (ii) if Mr. Johnson’s employment is terminated by PG&E Corp. without Cause during the 2020 or 2021 calendar year, a pro-rated portion of Mr. Johnson’s PRSUs will vest proportionally based on the number of months that Mr. Johnson was employed in 2020 or 2021, as applicable, divided by 12, and the achievement of the Performance Metrics for PRSUs granted for the prior year.
8-K Disclosure on "Public Safety Index Modifier"
"In order to align Mr. Johnson’s 2019 performance-based awards with the performance metrics utilized in the 2019 STIP, the Board determined that the performance-based payout conditions of Mr. Johnson’s 2019 performance-based awards will utilize the same performance metrics and weightings as the 2019 STIP, subject to the “public safety index modifier” described below. The 2019 STIP calculates an overall company performance score by adding public and employee safety metrics weighted at 65%, financial metrics weighted at 25% and customer metrics weighted at 10%, each at target, subject to a threshold and maximum for each metric. To be consistent with the 2019 STIP, the Board determined that the payout ranges for the safety metrics of Mr. Johnson’s 2019 performance-based awards would be amended to conform to the following payout ranges under the 2019 STIP:
- Threshold: 50% (under the previously approved structure, performance below target level would result in 0% payout)
- Target: 100%
- Maximum: 150%
Unlike the 2019 STIP for the broad employee base, however, Mr. Johnson’s 2019 performance-based awards will be subject to a public safety index (‘PSI’) modifier of 25% and 50% if the PSI does not reach target or threshold levels, respectively. The PSI measures the electric operations safety sub-component of the company’s safety program (which is one of the 2019 STIP public safety metrics and is weighted at 25% of the overall 2019 STIP metrics) and is most closely aligned with wildfire safety. If, for the 2019 performance period, the aggregate score for the PSI is below threshold, the total payout for Mr. Johnson’s 2019 performance-based awards across all components will be reduced by 50%. If, for the 2019 performance period, the aggregate score for the PSI is at or above threshold but below target, the total payout for Mr. Johnson’s 2019 performance-based awards across all components will be reduced by 25%."
The Court scheduled a hearing on the motion for July 24, 2019, with objections due by July 17, 2019.
Read more Bankruptcy News