Constellation executives eligible for $36 million in merger-related payouts

Constellation Energy Group Chief Executive Officer Mayo A. Shattuck III and other top executives of the Baltimore company are eligible to receive more than $36 million in cash severance and equity awards if a proposed merger with Chicago-based Exelon Corp. is successful.

New details about potential payments to Constellation's 12 senior managers were revealed Monday in regulatory documents that also outlined how the merger between two competitors came together.


The deal is subject to the approval of Exelon and Constellation shareholders as well as regulators, including the Maryland Public Service Commission, which is expected to hold a hearing Tuesday on the schedule for its review process.

While one analyst said the payouts appear reasonable, a state lawmaker said the deal is benefitting Constellation's top executives instead of ratepayers.


Constellation agreed in April to sell itself to Exelon in an all-stock deal worth $7.9 billion.

The combined company would be headquartered in Chicago, but Constellation officials say it would have a large presence in Baltimore, where its competitive retail and wholesale power businesses, along with their renewable energy division, will be headquartered.

To sell the deal to Maryland lawmakers, ratepayers and regulators, Constellation and Exelon have offered a $250 million incentive package, which includes a $100 credit to each BGE household. Baltimore Gas and Electric, Constellation's regulated utility, has 1.1 million customers.

Shattuck could walk away with a third of the $36 million in total potential executive payouts related to the merger, according to the documents released Monday.

He is eligible to receive $12.4 million if the proposed merger is completed. Of that sum, $9.3 million represents accelerated vesting of Shattuck's previously granted stock options and cash-based performance payments.

If Shattuck were terminated at any time after the merger closed, he would receive $1.8 million in cash severance. He would receive another $1.3 million in prorated bonus if he were laid off within two years after the merger closes.

While the roles of Constellation's top executives have not been determined under the new company, Shattuck's job is secure. Shattuck, Constellation's chairman and CEO since 2001, would become executive chairman of the combined company.

Other senior managers would also be eligible for severance if they were terminated after the merger. And if the deal closes, they would receive millions in previously owed equity rewards regardless of whether they are laid off.

The documents detail payouts for Jonathan W. Thayer, senior vice president and chief financial officer; Henry B. Barron, executive vice president; Kathleen W. Hyle, senior vice president; and Michael Wallace, vice chairman. Wallace retired in April.

Combined, the four executives are eligible to receive $11.5 million. Another seven unnamed executives would receive $12.2 million, according to regulatory documents.

Travis Miller, an analyst at Morningstar Inc., said the merger-related executive payouts seem "reasonable."

"It's pretty typical that executives would get some kind of cash severance and accelerated vesting of their equity rewards," Miller said.


But executive pay at Constellation has been controversial for many years as electricity rates skyrocketed after deregulation. When Constellation sought regulatory approval two years ago to sell half of its nuclear power plants to French utility EDF, Gov. Martin O'Malley focused on Shattuck's severance package.

As a result, Constellation eliminated outright "change in control" payments that would be triggered by the company's sale, as in the Exelon merger.

Nonetheless, state Sen. James C. Rosapepe — a longtime critic of Constellation's executive compensation policies — expressed displeasure at the potential payouts.

"The proxy makes clear what's in it for Mayo Shattuck," Rosapepe said. "The question for the Public Service Commission is 'What's in it for the ratepayers of Maryland?'"

An earlier regulatory document indicated Shattuck was eligible to receive $20.6 million in accelerated equity awards upon the merger's completion. Because the merger is expected to close in April 2012, the $9.3 million equity payout that was reported on Monday assumes Shattuck would be paid his 2009 equity awards in the normal course of business, accounting for most of the difference between the two figures.

If the merger fails to close, the executive payouts become null and void.

The documents filed Monday reveal new details about how sensitive Exelon and Constellation officials were to the regulatory environment in Maryland, which had been hostile to Constellation's previous merger attempts.

Executives at both companies discussed the regulatory hurdles early in their talks, which began preliminarily in mid-October. By January, both companies determined that they needed to hire legal counsel in Maryland.

On April 21, Constellation executives including Shattuck and Exelon Chief Executive Officer John W. Rowe and Chief Operating Officer Christopher M. Crane met with O'Malley and members of his staff in Annapolis to discuss the possible transaction.

"While not expressing a view about the merits of the transaction or the likelihood of regulatory approval in Maryland, Governor O'Malley indicated that he was committed to a fair and thorough consideration," the proxy said.

An earlier version of this article incorrectly characterized how much money Mayo A. Shattuck III would be eligible for if Constellation's merger with Exelon is complete. The Sun regrets the error.

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