Westar’s new executive pay policy raises eyebrows among critics

Utility keeps lid on details of plan announced just ahead of regulatory hearing

? Westar Energy Inc. won’t have to buy chief executive David Wittig’s mansion should he be fired.

Aside from that, the state’s largest utility on Tuesday wasn’t revealing details about changes in management contracts with Wittig and other senior executives.

The contract changes were made to so-called “golden parachutes” outlining compensation for top executives who leave Westar after a change in the company’s management. The agreements provided compensation for a minimum of 15 years.

Critics have suggested the old agreements, which were reached in late 2000 while the company was pursuing the sale of its utility operations to Public Service Co. of New Mexico, would pay the executives millions of dollars after they left the company.

And because no details were forthcoming Tuesday, it wasn’t clear whether the new agreements were much different.

“The press release is pretty darn sketchy,” said Jim Zakoura, an Overland Park attorney who represents industrial customers of Westar. “I can’t tell you what the compensation is because they don’t say.”

Topeka-based Westar has been under fire for its dismal financial performance of the past several years while its top executives have enjoyed huge salaries and perks.

Westar’s stock closed at $9.83 a share in regular trading Tuesday on the New York Stock Exchange, down 26 cents. Four years ago, its stock was trading at more than $40 a share.

Tuesday’s closing price was the lowest since two utilities merged to form Western Resources Inc. Westar’s corporate predecessor and the parent of KPL a decade ago.

What they’re saying

Westar said Tuesday that the contracts had been changed to:

l Limit the amount of compensation an officer receives upon termination or retirement from the company.

l Eliminate the company’s obligation to purchase an officer’s home upon termination.

l Prevent former officers from getting certain stock. The company also said it had started a review of its “governance structure.”

“As all of corporate America is working to restore trust in the integrity of business, we believe these initiatives demonstrate our commitment to achieving best practices and to ensuring that Westar Energy is well-positioned to serve its shareholders, ratepayers and the larger community,” Wittig said in a statement.

But the company did not reveal the monetary effects of the new contracts.

Repeated telephone calls and an e-mail from the Journal-World to Westar officials were not answered Tuesday.

The blackout on details did not sit well with consumer advocates, who also said they were suspicious about the timing of Westar’s announcement.

Zakoura said Wittig had been paid $32 million in the past four years, including a life insurance policy that he can cash in at any time. During Wittig’s tenure, Westar’s stock has plummeted, its investment grade has been reduced to junk-bond status and hundreds of employees have been laid off, Zakoura said.

Public pressure, anger

Zakoura said the former contract with Wittig “did not reflect pay for performance but was simply a contract which basically protected the senior-level managers from any change with the company.”

Removing the requirement that the company buy the homes of top executives would probably save Westar about $2 million in Wittig’s case, according to Zakoura. Wittig has renovated the former Topeka home of Kansas political leader Alf Landon.

Walker Hendrix, the state’s chief consumer advocate on utility issues, also questioned the timing of Westar’s announcement. It came just two days before Thursday’s meeting of the Kansas Corporation Commission, which regulates utilities, to review Westar’s finances and proposed restructuring.

Hendrix said Westar executives were bowing to public pressure and anger about corporate executive perks.

“This is not a good environment to be overcompensating executives who are not producing for their companies,” he said.

Even with the compensation reductions, Hendrix said he questioned their size and the methodology Westar used to set executives’ salaries.

‘Substantial compensations’

“You are still looking at substantial compensations that these executives are going to receive,” he said. “How does this tie in to what these executives have done for the company and what does it mean as far as what performance they are expected to achieve in the future?”

Zakoura said it appeared the changes do not address what he saw as the biggest problem: paying compensation until an executive’s death.

He said such terms are inappropriate, given how recently some executives joined Westar. For example, Wittig joined the company in 1995, became president the next year, CEO in 1998 and chairman in 1999.

“These are not the people who built Western Resources or Westar Energy,” Zakoura said. “It’s not like they haven’t been paid well enough while they were working.”

Hendrix and other customer representatives have long complained that Wittig was draining the utility operations to prop up struggling business ventures not regulated by the state.

Westar has denied the allegations and defended its management perks as consistent with the industry norm.