CFO Banks on Bankruptcy

One of the highest paid finance chiefs of last year owes his good fortune to his company’s misfortunes.


Among the largest companies, the regulatory demands of the Sarbanes-Oxley Act have convinced boards to put a premium on keeping or attracting good CFOs. But that's not the only sort of regulatory strain on a company that can boost a CFO's fortunes. Take PG&E Corp., whose CFO, Peter Darbee, ranked as the 15th-highest-paid CFO last year. That lofty ranking was largely the result of incentives intended to keep him on board to help the company's primary utility subsidiary navigate through Chapter 11. (Darbee declined to comment.)

In 2001, Darbee was awarded 230,770 units of phantom restricted stock under a program designed to "retain [executives] throughout the energy crisis" that precipitated the bankruptcy. The entire grant vested at an accelerated rate on the last day of 2003 after PG&E Corp. exceeded its performance targets. On the date it vested, the stock was worth $6,408,483. (Under reporting rules, only about $3.2 million of that — the portion considered contingent on performance — is reflected in his 2003 earnings of $5 million.)

Lavish pay is not unusual in bankruptcy. Although Darbee's pay and retention incentives were set by the board of the parent company, which remained solvent, creditors early on approved retention incentives for executives at the utility's subsidiary, says David E. Adante, CFO of Davey Tree Expert Co. and a former member of PG&E's creditors committee. "It made sense to us to keep that experienced management in place and exit the bankruptcy successfully," he says.

That's a common sentiment among creditors, says Seymour Burchman, senior vice president of Sibson Consulting, a compensation advisory firm. "The CFO may be more important than the CEO in the minds of the creditors," he says. "In some cases, they feel that guy is absolutely critical to getting the company back on firm footing and getting repaid."

Indeed, PG&E's creditors ultimately were paid in full, plus interest. And although he didn't have a say in Darbee's pay, Adante credits management at both the utility and the parent company for successfully guiding the company through the bankruptcy process. "From my observation post on the creditors committee, you couldn't have paid me any amount of money to go through the stress they've been under," he says. "Whatever they got paid, they earned it."

For a look at how compensation packages are growing more diverse--and smaller--read CFO magazine’s Changing Fortunes.


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