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CEO's latest giveback a wise moral move


Call it leadership, politics or bowing to reality, but we have just witnessed something extraordinary: a CEO voluntarily surrendering $50 million for a larger purpose.

On Friday, Constellation Energy, parent of Baltimore Gas and Electric, filed documents showing that Chief Executive Officer Mayo Shattuck gave up rights to a lump-sum pension payment easily worth more than $20 million that would have been triggered by the pending merger of Constellation with FPL Group of Florida. He also surrendered a potential $3 million in bonuses if he leaves after the merger.

Two months ago, Shattuck agreed to donate $15 million in merger-linked pay to his family-run charity and to forgo upward of $15 million more in potential severance pay. This is in addition to the givebacks disclosed Friday.

Total money Shattuck gave up, either to shareholders or charity: as much as $53 million. His merger-triggered pay would now be little or nothing, although he is very well paid in other ways.

"I am just almost speechless," says Graef Crystal, the country's best-known executive-pay expert, who said he could not recall a similar gesture. "Normally, with something like that, you'd say he's been standing outside in the hot sun too long, but he's in Baltimore, not Florida."

There is a motive, of course: to increase odds that regulators will approve Constellation's marriage to FPL. Shattuck's merger pay was negotiated upward last year while the deal that would trigger it was being discussed. That pay, which I formerly estimated to be worth "conservatively" $40 million, has been blasted in public discussions over rising electric rates and the risks of pairing up with FPL.

By forgoing the money, Shattuck changes the debate from one about his bank account to one about whether combining with FPL is the best thing for shareholders, ratepayers and Maryland. And that's where it should be.

"He should be applauded for doing the right thing," says Steven E. Hall, managing director of a New York executive-pay consulting firm bearing his name. Under pressure similar to what Shattuck was experiencing, Hall adds, "I've seen many CEOs hang in there and say, 'I don't care. I'm going to get what I can get.'"

Among other things, the giveback improves the credibility of Constellation's pro-merger arguments.

When Shattuck said, "the strategic combination of these two great companies will bring out the best in each," my reaction was: Yeah, but it'll also bring $50 million to your pocket.

When he said the new company would be "extraordinarily well-positioned to create shareholder value," I thought: But even more extraordinarily well-positioned for CEO value.

Shattuck declined to talk to me on the subject.

"He said to everyone who would listen that [the merger] wasn't about his personal enrichment, but there was a lot of skepticism," said Constellation spokesman Lawrence McDonnell. "Then he responded to that skepticism by taking actions that make it absolutely clear that what he said was true and that he believes it."

There are still numerous reasons for ratepayers and political leaders to be skeptical of the FPL deal. It risks moving jobs, wealth and control of an essential economic asset to Florida or ultimately somewhere else. But for Constellation shareholders, Shattuck's decision to personally spend $50 million to safeguard the merger implies that maybe there really is some value in it.

A chart of his merger pay would look something like a parabola, rising last fall as he negotiated upgrades of his package and then falling this spring as anti-merger rhetoric grew.

His agreement to give up the first $25 million or so was disclosed in May, as consumer groups and politicians pressed the Public Service Commission to release data on Constellation executive pay. Forgoing the rest became public Friday, the day Constellation filed documents fully disclosing executive perks and less than two weeks after the General Assembly fired the entire PSC.

The process wasn't pretty, and we should wonder why Constellation's board agreed to give Shattuck the extra money in the first place, on top of the $5 million he makes in salary and bonus and the stock he owns. The fact that he rejected the merger pay and Constellation hasn't collapsed belies the stupid justifications the company gave for it - that it was necessary to keep him from being "distracted" during the merger and so forth.

But here we are: A CEO takes one for the team, aligns his merger interests more closely with that of shareholders and decides to enlarge his moral authority, not his net worth. That's kind of a nice picture.

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