Gold Parachutes for P-QS Top Brass


Having gained shareholder approval Aug. 1, Pennzoil-Quaker State Co. moved one step closer to being purchased by Shell Oil. That placed CEO Jim Postl and other top officials one step closer to a big payday.

Several of the top brass at Pennzoil-Quaker State stand to receive large departure packages when the deal goes through. Postl will receive between $22 million and $32 million, depending on the source one cites. Experts say the departure packages are relatively generous but not out of line with compensation for American executives. They add, however, that the packages include practices being scrutinized during the current wave of corporate scandal.

In general, Postl and his colleagues are benefiting from contractual clauses calling for accelerated payouts, if they lose their jobs as a result of change in control of the company, of compensation for which they would have qualified over the next few years.

Experts on executive compensation say such packages are common.

The idea with these packages is that executives can be under some threat that their company will be acquired by another, said James McElligott, of the Richmond, Va., law firm McGuireWoods. Theoretically, these packages are meant to keep them from losing income that they would have received, in the event that they end up having to find another job.

Among the top officials eligible for the large packages, only Automotive Products President Douglas S. Boyle and Jiffy Lube International President Marc Graham have been given posts in the merged lubricants business. Postl and Chairman James L. Pate will be retained as consultants for three and two years, respectively, but would still qualify for the departure packages.

In a proxy statement filed June 24 with the U.S. Securities and Exchange Commission, the company reported that Postl would receive cash and stock options worth $22.4 million. According to a July 19 Houston Chronicle article, Postl testified during a hearing in Texas District Court in Houston that he will receive a $32 million package after the Shell takeover.

Pennzoil-Quaker State spokesman Ray Scippa did not contest the accuracy of the $32 million figure, explaining that it may include items such as the $500,000 salary that Postl stands to receive under his three-year consulting contract. Scippa declined to provide a detailed breakdown of the $22 million or $32 million totals.

The proxy statement included at least a partial breakdown of the payouts for Postl and Pate, as well as Boyle, Graham, Senior Vice President of Global Supply Chain Rob Falivene and Chief Financial Officer Thomas P. Kellagher. All six participate in a severance plan calling for payments equal to three times their salary if they lose their jobs. Postls salary this year is $737,700. All except Pate would also receive three times their target bonus; accelerated payouts of long-term incentive plans; payment for unvested amounts in the companys investment plan; and continuation of life and medical insurance.

All six would be permitted to cash in vested and unvested stock options. Postls options are worth $6.9 million, Pates $4.7 million.

Altogether, the payouts would cost $62.2 million. Pate would receive $13.4 million, Boyle $3 million, Falivene $3.6 million, Graham $3.6 million and Kellagher $3.9 million.

The company also agrees to cover excise taxes assessed because payments exceed thresholds established by the federal government. These tax protection agreements would cost a total of $17.8 million.

McElligott called Postls package generous but not outrageous.

Its a rich package, he said. Its not shockingly out of line with what some other folks get.

Salary.coms Bill Coleman said the formulas that Pennzoil-Quaker State follows for its departure packages are not unusual. He added, though, that they include some aspects that are being questioned as America reevaluates the ways its corporations are managed. He cited the clauses for Pate (three years for $700,000 a year) and Postl, saying individuals are sometimes expected to work for such salaries, sometimes not.

He also noted that the consulting clause was added to Postls contract March 5, a few weeks before the deal with Shell was announced. Pates contract was amended March 5 to extend the period of his consulting position by one and a half years.

I think the practice of making last-minute changes to these things will come under more scrutiny in the future, he said. When things like that happen right around the time a deal is done, it just seems like piling it on.

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