Seems the $33 million figure was slightly exaggerated.
Dynegy Ex-CEO Watson May Receive $18 Mln Severance or nothing
By Eileen O'Grady
Houston, May 31 (Bloomberg) -- Former Dynegy Inc. Chief Executive Officer Chuck Watson may receive at least $18 million in severance, or nothing at all, depending on how the energy trading company classifies his departure, corporate filings show.
Watson, 52, resigned Tuesday from the company he had run since 1985. The circumstances of his departure may be important in determining the size of any payout from the third-biggest U.S. electricity trader, compensation experts said.
Dynegy officials declined to say whether Watson will receive a severance. His three-year contract, signed in early 2000, calls for a payout, as long as he doesn't resign voluntarily or is fired ``for cause'' by the board. The company said Tuesday only that he resigned, without saying whether it was voluntary.
``The fuzziness here is whether it's a resignation by (Watson) or a constructive termination,'' said Brian Foley, an executive pay consultant based in White Plains, New York. ``If you literally read the press release and the 8-K, it says `resignation.' One would hope the company would be more forthcoming.''
Watson's employment agreement calls for him to receive, upon leaving the Houston-based company, a lump sum equal to 2.99 times the average salary and bonus for three years of highest compensation before the termination. Based on Watson's salary and bonus for 1999 to 2001, which averaged slightly more than $6 million, the severance package would be at least $18 million.
``The compensation issue remains a matter between Chuck and the board,'' said Dynegy spokesman John Sousa. He wouldn't elaborate. Dynegy will have to disclose the details in future filings, according to Foley.
Stock Options
In addition to the lump-sum payment, Watson becomes vested in any stock options already granted, according to the agreement. Many of Watson's options are worthless due the drop in Dynegy's stock price and he has only one year from his resignation to exercise the options, said the document.
Last year, Watson received an option grant for 162,327 shares at an exercise price of $34.65 and for 847,020 shares with an exercise price of $23.85 under the company's long-term incentive plan.
Dynegy shares rose 14 cents to $8.89. They have fallen 65 percent this year.
Some estimates put the value of his payout at more than $30 million, based on the lump-sum payment and the imputed value of future stock option grants. The New York Times this week estimated the value at $33 million, including the options.
The employment contract states that the value of any stock options is ``a projected value, which is subject to the future performance of the company stock and that there is no guarantee that the actual value of the such options will achieve that value.''
Even in cases where an executive's resignation is forced by the board, companies often pay severance anyway to avoid future problems with the executive, said Graef Crystal, an executive compensation consultant and Bloomberg columnist.
``In a circumstance like this, the company does pay,'' said Crystal. ``Even in the closest of calls, they pay.''
Dynegy President Steve Bergstrom said in an interview that the company's board didn't try to talk Watson out of quitting after 17 years on the job. ``He came to the conclusion that it made sense,'' Bergstrom said. ``It was mutual.'' |
