SCANA Corp.’s investors don’t want its top executives to land golden parachutes, not after its nuclear fiasco torpedoed their investments and threatened to sink South Carolina’s largest company.
But it doesn’t matter. If SCANA is sold, their pay is locked in.
The executives are insulated from shareholders’ dissent because their severance packages are guaranteed by their contracts with SCANA, the owner of South Carolina Electric & Gas.
So when the owners of more than 54 million shares of company stock voted against the payouts, their rejection was purely symbolic. They had a majority of the votes, but the executives’ contracts will carry the day.
That’s what board chairman Maybank Hagood told investors at a shareholder meeting in Columbia on Tuesday. The payments are “contractual,” he said.
“It’s the last hurrah for shareholders to say 'we don’t like this,'” said Todd Sirras, a Los Angeles-based managing director of Semler Brossy, which studies executive pay. “At the point that the vote occurs, all the negotiations have happened.”
Even so, the shareholders’ rebuke of SCANA executives is unusual. In the first five years that companies had to let investors weigh in on golden parachutes, 95 percent of the payouts won their blessing, according to the pay consulting firm Pearl Meyer.
But SCANA’s situation these days is far from the usual. The company is being sold to Virginia-based Dominion Energy because it faces a political firestorm over its failed expansion of the V.C. Summer nuclear power plant. The demise of the $9 billion project — and its impact on SCE&G’s electric bills — created a backlash that threatens to stick investors with the bill.
“We’re going to pay for this failure, and they’re going to get money for this failure. How is that right?” said one man who drew applause at a meeting of the company’s investors.
Another said he’d lost his job when the V.C. Summer project came crashing down last summer. Some 5,000 workers got letters one morning announcing the layoffs.
“I got that letter because of the incompetence of our senior executives,” he said. “None of us got this kind of compensation.”
He was referring to payouts for 11 of the company’s top officials, which could total nearly $38.5 million, including two former executives.
They would unlock that sum only if the Dominion deal is approved and they lose their jobs after the fact. If they do, they’d get two-and-a-half years of salary, plus cash meant to cover three years of fringe benefits.
Chief executive Jimmy Addison, who was finance chief during the project, would earn a total of $9.7 million if he lost his job. Operations chief Keller Kissam would leave with $4 million; chief nuclear officer Jeff Archie would get $3.2 million; and the new finance chief, Iris Griffin, would get $3 million.
But the non-binding vote might have turned on the money executives stand to make whether or not they lose their jobs. If the deal closes, they’ll be entitled to stock they hadn’t yet earned, which accounts for two-fifths of their severance packages.
Take Addison, for instance. Shortly after he became CEO this year, he was offered an incentive package that would dribble out stock over the course of three years based on the company’s performance. He’d get all of it at once if Dominion buys SCANA.
That’s what raised the hackles of Institutional Shareholder Services, a little-known firm that tells big investment firms how they ought to vote their shares. Addison would lock down $3.6 million worth of stock, which ISS called “a windfall opportunity.”
That’s why most companies have moved away from guaranteeing any benefits unless executives lose their jobs, said Charles Elson, director of the University of Delaware’s Weinberg Center for Corporate Governance. Most now require more than a single event — the sale of the company — to trigger payments.
“Single triggers have become very unpopular and result in this kind of vote,” Elson said. “It’s too bad that some time ago the board didn’t revisit this.”
The executives’ payments are also insulated because the board has set aside nearly $111 million to cover severance pay. The money was put into an irrevocable trust, which Addison told investors was “quite common.” It's not clear what would happen to money left over in the fund.
In a statement, SCANA said it would only pay out cash severance to executives who lose their jobs.
But the trust fund has contributed to the political and legal firestorm swirling around the utility. Attorneys used the fund to defend a state law requiring SCE&G to reduce the $37 million a month it collects for the project. The size of the trust, they argued, showed the utility could afford a rate cut.