Quantcast
4S Ranch Allied Gardens Alpine Baja Balboa Park Bankers Hill Barrio Logan Bay Ho Bay Park Black Mountain Ranch Blossom Valley Bonita Bonsall Borrego Springs Boulevard Campo Cardiff-by-the-Sea Carlsbad Carmel Mountain Carmel Valley Chollas View Chula Vista City College City Heights Clairemont College Area Coronado CSU San Marcos Cuyamaca College Del Cerro Del Mar Descanso Downtown San Diego Eastlake East Village El Cajon Emerald Hills Encanto Encinitas Escondido Fallbrook Fletcher Hills Golden Hill Grant Hill Grantville Grossmont College Guatay Harbor Island Hillcrest Imperial Beach Imperial Valley Jacumba Jamacha-Lomita Jamul Julian Kearny Mesa Kensington La Jolla Lakeside La Mesa Lemon Grove Leucadia Liberty Station Lincoln Acres Lincoln Park Linda Vista Little Italy Logan Heights Mesa College Midway District MiraCosta College Miramar Miramar College Mira Mesa Mission Beach Mission Hills Mission Valley Mountain View Mount Hope Mount Laguna National City Nestor Normal Heights North Park Oak Park Ocean Beach Oceanside Old Town Otay Mesa Pacific Beach Pala Palomar College Palomar Mountain Paradise Hills Pauma Valley Pine Valley Point Loma Point Loma Nazarene Potrero Poway Rainbow Ramona Rancho Bernardo Rancho Penasquitos Rancho San Diego Rancho Santa Fe Rolando San Carlos San Marcos San Onofre Santa Ysabel Santee San Ysidro Scripps Ranch SDSU Serra Mesa Shelltown Shelter Island Sherman Heights Skyline Solana Beach Sorrento Valley Southcrest South Park Southwestern College Spring Valley Stockton Talmadge Temecula Tierrasanta Tijuana UCSD University City University Heights USD Valencia Park Valley Center Vista Warner Springs

Sempra Board Flees Bad News

— This January, Stephen L. Baum will retire as Sempra Energy's chief executive in fine shape (rich as Croesus) and at a fine time (as the company faces a jury in a potentially backbreaking lawsuit).

Maybe that's why Sempra, which controls San Diego Gas & Electric and Southern California Gas, held its April annual meeting in what Wall Street calls a "foxhole" -- a location far from shareholders: London. John Chevedden, shareholder activist from Redondo Beach, thinks Sempra chose that locale because of Baum's embarrassment of riches, a $24 billion price-fixing civil suit that will be on trial later this year, and shareholder complaints about the board's insularity and self-serving arrangements.

Last year, Baum gobbled up $13.5 million in total compensation. "Sempra shareholders are being taken to the cleaners," says Michael Shames, executive director of Utility Consumers' Action Network. "Baum is moving from the energy industry into the cleaning industry."

According to Forbes magazine, Baum last year brought home $1.1 million in salary, $2.2 million in bonuses (double the industry median), and $9.7 million in the value of exercised stock options. With the granting of a miscellaneous $541,000, his $13.5 million was almost four times the industry median of $3.4 million. Baum's pay was 98th on the Forbes list, although Sempra is the 235th largest company in the Fortune annual ranking of U.S. corporations by size.

After two decades with the company and five years as chief executive, Baum has amassed $34.6 million in unexercised stock options and $19.5 million worth of Sempra stock. "That is especially high for a public utility, but Baum keeps claiming the company is not a utility" because of its diversification, says Chevedden. Sempra boasts that more than half of its profits last year came from nonutility businesses such as energy trading, power generation, and natural-gas pipelines.

Organized labor is not pleased by Sempra's shoveling of money to its gilded lords. "Sempra's five highest-paid executives received more than 30 percent of all the stock options granted in 2004," says the American Federation of Labor-Congress of Industrial Organizations on its website. "Baum received the lion's share -- nearly 12 percent of all options granted." Sempra was one of five large companies singled out for criticism by the AFL-CIO this year.

Sempra's concentrating of options grants in the ivory tower "is disproportionately lopsided in favor of top management," says Chevedden.

"I would think that a utility would tend to be more egalitarian than elitist," says Graef Crystal, former San Diegan who writes about executive compensation for Bloomberg News. "Utilities used to be considered a halfway house between civil service and business."

In prior days, topside pay at regulated utilities was well below the level of other industries because ratepayers could complain that their pockets were getting picked. Once utilities started diversifying, managements claimed they should be under no such restrictions. Today, salaries at Sempra, a holding company, are not included in the rate base; in theory, ratepayers are not subsidizing Baum's lifestyle. "We have seen a trend in which the concept of 'public' has been taken out of 'public utility,'" says Shames. "The business is now seen by executives as an opportunity to feed at the trough. Any semblance of public service is pretty much gone."

Crystal partly blames himself for that. "I was a compensation consultant to Pacific Gas & Electric for the decade ending in 1987. At the time, utility executives got modest salaries, and at the end of their careers they got a gold watch and a handsome pension. But the industry could only hire the dockside rejects and said it couldn't compete with unregulated companies, couldn't continue to pay peanut wages," he says. So the companies joined the greed parade. Now both pay and pensions are fat: Baum, for example, will make at least $154,000 a month in his retirement.

"I hope he will be able to maintain his current style of living on that diminished monthly amount," chuckles Alan McCutcheon, a retired vice president who is among a group of former executives suing over cost-of-living adjustments they have never received. "I wrote the head of human resources noting that over 17 or 18 years, the dollar amount I was receiving hadn't budged a bit. I never got an answer, a hiccup, a boo."

Crystal says that when averaged out over three years, Baum's pay is about equal to that of other top bosses in companies of the same size (not just utilities). However, Crystal believes -- with concurrence of such magazines as Business Week and Fortune -- that topside compensation has long been out of control. In 1973, chief executives made 45 times what average employees made. That has zoomed to 400 times, by his numbers. He explains that market forces don't determine chief-executive pay. Through corporate consolidations, the number of positions has shrunk, but there are more candidates than ever. "With an increase in supply and shrinkage of demand, pay should have dropped, but it is going up," Crystal says. Chief executives are told they deserve a raise because some other chief executive did better. "We don't have a market."

Sempra spokesman Doug Kline replies that earnings have risen 20 percent a year during Baum's reign. The stock has doubled while other stocks have gone down. Baum is getting paid for achieving internal financial goals, such as earnings, says Kline. But again, the problem with that reasoning is Baum's bloated pay is being compared to other chief executives' bloated pay. Aren't $54 million in stock and possibly $2 million in annual income enough of a retirement nest egg?

That question looms larger as critics raise questions about Sempra's accounting and governance. Are those earnings legitimate? Forbes uses an accounting-governance rating provided by a company named Audit Integrity, which analyzes 8000 corporations. There are four rankings: conservative, average, aggressive, or very aggressive. Sempra is labeled aggressive. That is not good.

For one thing, Sempra doesn't count the cost of stock options as an expense. A labor union that owns stock requested a shareholder vote on that topic. It passed at the London meeting, and Sempra says it will comply. "Their overall corporate governance profile is not good," says Greg Kinczewski, general counsel for Chicago's Marco Consulting Group, which advises employee benefit plans. Among many things, Sempra executives get golden parachutes in the event of a takeover; the company has insulated itself from outside investors wanting a voice, and board members have varying terms so control can't change quickly.

The board is "very unresponsive to shareholder concerns," says Kinczewski. "They consider most shareholder proposals 'precatory' -- that's a word that is the opposite of 'mandatory.' 'Precatory' sounds sexual." Yeah, it sounds as if shareholders are getting screwed, although Kinczewski sees signs that things might improve.

Kline asserts, "Our accounting has been very transparent. In many cases we are ahead of our industry in making disclosures to investors."

Not all are impressed. Paul Justice, analyst for the research firm Morningstar, says that losing the $24 billion lawsuit over alleged price-fixing in 2000 and 2001 could force Sempra into bankruptcy. That's unlikely, but even a much lower payment could hurt, he says. He, too, is worried about governance: "The board of directors has hijacked control of the company by routinely ignoring majority shareholder votes," he comments in a written report. The board's "running away from the issues" and not addressing the dangerous lawsuit "lead us to question the board's prudence." He also points out that one of the diversified businesses, energy trading, is risky. In fact, much of Sempra's trading profits come from a company it bought from Enron. Justice would avoid the stock until the "lawsuit is put to rest."

Here's something you might be interested in.
Submit a free classified
or view all

Previous article

The glamour and crime of Tijuana

Club Campestre abduction, cross-border prostitution, Russian-owned gym, TJ's new night scene
Next Article

North Park – the prime quartier

30th Street parking, Georgia Street bridge, PSA crash, water tower, North Park Main Street

— This January, Stephen L. Baum will retire as Sempra Energy's chief executive in fine shape (rich as Croesus) and at a fine time (as the company faces a jury in a potentially backbreaking lawsuit).

Maybe that's why Sempra, which controls San Diego Gas & Electric and Southern California Gas, held its April annual meeting in what Wall Street calls a "foxhole" -- a location far from shareholders: London. John Chevedden, shareholder activist from Redondo Beach, thinks Sempra chose that locale because of Baum's embarrassment of riches, a $24 billion price-fixing civil suit that will be on trial later this year, and shareholder complaints about the board's insularity and self-serving arrangements.

Last year, Baum gobbled up $13.5 million in total compensation. "Sempra shareholders are being taken to the cleaners," says Michael Shames, executive director of Utility Consumers' Action Network. "Baum is moving from the energy industry into the cleaning industry."

According to Forbes magazine, Baum last year brought home $1.1 million in salary, $2.2 million in bonuses (double the industry median), and $9.7 million in the value of exercised stock options. With the granting of a miscellaneous $541,000, his $13.5 million was almost four times the industry median of $3.4 million. Baum's pay was 98th on the Forbes list, although Sempra is the 235th largest company in the Fortune annual ranking of U.S. corporations by size.

After two decades with the company and five years as chief executive, Baum has amassed $34.6 million in unexercised stock options and $19.5 million worth of Sempra stock. "That is especially high for a public utility, but Baum keeps claiming the company is not a utility" because of its diversification, says Chevedden. Sempra boasts that more than half of its profits last year came from nonutility businesses such as energy trading, power generation, and natural-gas pipelines.

Organized labor is not pleased by Sempra's shoveling of money to its gilded lords. "Sempra's five highest-paid executives received more than 30 percent of all the stock options granted in 2004," says the American Federation of Labor-Congress of Industrial Organizations on its website. "Baum received the lion's share -- nearly 12 percent of all options granted." Sempra was one of five large companies singled out for criticism by the AFL-CIO this year.

Sempra's concentrating of options grants in the ivory tower "is disproportionately lopsided in favor of top management," says Chevedden.

"I would think that a utility would tend to be more egalitarian than elitist," says Graef Crystal, former San Diegan who writes about executive compensation for Bloomberg News. "Utilities used to be considered a halfway house between civil service and business."

In prior days, topside pay at regulated utilities was well below the level of other industries because ratepayers could complain that their pockets were getting picked. Once utilities started diversifying, managements claimed they should be under no such restrictions. Today, salaries at Sempra, a holding company, are not included in the rate base; in theory, ratepayers are not subsidizing Baum's lifestyle. "We have seen a trend in which the concept of 'public' has been taken out of 'public utility,'" says Shames. "The business is now seen by executives as an opportunity to feed at the trough. Any semblance of public service is pretty much gone."

Crystal partly blames himself for that. "I was a compensation consultant to Pacific Gas & Electric for the decade ending in 1987. At the time, utility executives got modest salaries, and at the end of their careers they got a gold watch and a handsome pension. But the industry could only hire the dockside rejects and said it couldn't compete with unregulated companies, couldn't continue to pay peanut wages," he says. So the companies joined the greed parade. Now both pay and pensions are fat: Baum, for example, will make at least $154,000 a month in his retirement.

"I hope he will be able to maintain his current style of living on that diminished monthly amount," chuckles Alan McCutcheon, a retired vice president who is among a group of former executives suing over cost-of-living adjustments they have never received. "I wrote the head of human resources noting that over 17 or 18 years, the dollar amount I was receiving hadn't budged a bit. I never got an answer, a hiccup, a boo."

Crystal says that when averaged out over three years, Baum's pay is about equal to that of other top bosses in companies of the same size (not just utilities). However, Crystal believes -- with concurrence of such magazines as Business Week and Fortune -- that topside compensation has long been out of control. In 1973, chief executives made 45 times what average employees made. That has zoomed to 400 times, by his numbers. He explains that market forces don't determine chief-executive pay. Through corporate consolidations, the number of positions has shrunk, but there are more candidates than ever. "With an increase in supply and shrinkage of demand, pay should have dropped, but it is going up," Crystal says. Chief executives are told they deserve a raise because some other chief executive did better. "We don't have a market."

Sempra spokesman Doug Kline replies that earnings have risen 20 percent a year during Baum's reign. The stock has doubled while other stocks have gone down. Baum is getting paid for achieving internal financial goals, such as earnings, says Kline. But again, the problem with that reasoning is Baum's bloated pay is being compared to other chief executives' bloated pay. Aren't $54 million in stock and possibly $2 million in annual income enough of a retirement nest egg?

That question looms larger as critics raise questions about Sempra's accounting and governance. Are those earnings legitimate? Forbes uses an accounting-governance rating provided by a company named Audit Integrity, which analyzes 8000 corporations. There are four rankings: conservative, average, aggressive, or very aggressive. Sempra is labeled aggressive. That is not good.

For one thing, Sempra doesn't count the cost of stock options as an expense. A labor union that owns stock requested a shareholder vote on that topic. It passed at the London meeting, and Sempra says it will comply. "Their overall corporate governance profile is not good," says Greg Kinczewski, general counsel for Chicago's Marco Consulting Group, which advises employee benefit plans. Among many things, Sempra executives get golden parachutes in the event of a takeover; the company has insulated itself from outside investors wanting a voice, and board members have varying terms so control can't change quickly.

The board is "very unresponsive to shareholder concerns," says Kinczewski. "They consider most shareholder proposals 'precatory' -- that's a word that is the opposite of 'mandatory.' 'Precatory' sounds sexual." Yeah, it sounds as if shareholders are getting screwed, although Kinczewski sees signs that things might improve.

Kline asserts, "Our accounting has been very transparent. In many cases we are ahead of our industry in making disclosures to investors."

Not all are impressed. Paul Justice, analyst for the research firm Morningstar, says that losing the $24 billion lawsuit over alleged price-fixing in 2000 and 2001 could force Sempra into bankruptcy. That's unlikely, but even a much lower payment could hurt, he says. He, too, is worried about governance: "The board of directors has hijacked control of the company by routinely ignoring majority shareholder votes," he comments in a written report. The board's "running away from the issues" and not addressing the dangerous lawsuit "lead us to question the board's prudence." He also points out that one of the diversified businesses, energy trading, is risky. In fact, much of Sempra's trading profits come from a company it bought from Enron. Justice would avoid the stock until the "lawsuit is put to rest."

Sponsored
Here's something you might be interested in.
Submit a free classified
or view all
Previous article

Can You Escape?, Vote Ready Concert, I Love a Clean San Diego

Events August 13-August 15, 2020
Next Article

Terra Lawson-Remer out-raises Kristin Gaspar

San Diego State not ready for emergency
Comments
0

Be the first to leave a comment.

Sign in to comment

Sign in

Art Reviews — W.S. Di Piero's eye on exhibits Ask a Hipster — Advice you didn't know you needed Best Buys — San Diego shopping Big Screen — Movie commentary Blurt — Music's inside track Booze News — San Diego spirits City Lights — News and politics Classical Music — Immortal beauty Classifieds — Free and easy Cover Stories — Front-page features Excerpts — Literary and spiritual excerpts Famous Former Neighbors — Next-door celebs Feast! — Food & drink reviews Feature Stories — Local news & stories From the Archives — Spotlight on the past Golden Dreams — Talk of the town Here's the Deal — Chad Deal's watering holes Just Announced — The scoop on shows Letters — Our inbox [email protected] — Local movie buffs share favorites Movie Reviews — Our critics' picks and pans Musician Interviews — Up close with local artists Neighborhood News from Stringers — Hyperlocal news News Ticker — News & politics Obermeyer — San Diego politics illustrated Of Note — Concert picks Out & About — What's Happening Overheard in San Diego — Eavesdropping illustrated Poetry — The old and the new Pour Over — Grab a cup Reader Travel — Travel section built by travelers Reading — The hunt for intellectuals Roam-O-Rama — SoCal's best hiking/biking trails San Diego Beer News — Inside San Diego suds SD on the QT — Almost factual news Set 'em Up Joe — Bartenders' drink recipes Sheep and Goats — Places of worship Special Issues — The best of Sports — Athletics without gush Street Style — San Diego streets have style Suit Up — Fashion tips for dudes Theater Reviews — Local productions Theater antireviews — Narrow your search Tin Fork — Silver spoon alternative Under the Radar — Matt Potter's undercover work Unforgettable — Long-ago San Diego Unreal Estate — San Diego's priciest pads Waterfront — All things ocean Your Week — Daily event picks
4S Ranch Allied Gardens Alpine Baja Balboa Park Bankers Hill Barrio Logan Bay Ho Bay Park Black Mountain Ranch Blossom Valley Bonita Bonsall Borrego Springs Boulevard Campo Cardiff-by-the-Sea Carlsbad Carmel Mountain Carmel Valley Chollas View Chula Vista City College City Heights Clairemont College Area Coronado CSU San Marcos Cuyamaca College Del Cerro Del Mar Descanso Downtown San Diego Eastlake East Village El Cajon Emerald Hills Encanto Encinitas Escondido Fallbrook Fletcher Hills Golden Hill Grant Hill Grantville Grossmont College Guatay Harbor Island Hillcrest Imperial Beach Imperial Valley Jacumba Jamacha-Lomita Jamul Julian Kearny Mesa Kensington La Jolla Lakeside La Mesa Lemon Grove Leucadia Liberty Station Lincoln Acres Lincoln Park Linda Vista Little Italy Logan Heights Mesa College Midway District MiraCosta College Miramar Miramar College Mira Mesa Mission Beach Mission Hills Mission Valley Mountain View Mount Hope Mount Laguna National City Nestor Normal Heights North Park Oak Park Ocean Beach Oceanside Old Town Otay Mesa Pacific Beach Pala Palomar College Palomar Mountain Paradise Hills Pauma Valley Pine Valley Point Loma Point Loma Nazarene Potrero Poway Rainbow Ramona Rancho Bernardo Rancho Penasquitos Rancho San Diego Rancho Santa Fe Rolando San Carlos San Marcos San Onofre Santa Ysabel Santee San Ysidro Scripps Ranch SDSU Serra Mesa Shelltown Shelter Island Sherman Heights Skyline Solana Beach Sorrento Valley Southcrest South Park Southwestern College Spring Valley Stockton Talmadge Temecula Tierrasanta Tijuana UCSD University City University Heights USD Valencia Park Valley Center Vista Warner Springs
Close