Thirteen of Avista’s top executives will receive a combined $18 million in immediate payouts if the Spokane-based utility is sold to Hydro One Ltd., of Toronto.
The payouts are part of the “change of control” agreements the executives received when they were promoted to Avista’s top management.
The agreements are legal contracts and are common at publicly traded companies. They are intended to keep the executives focused on running the business in the event of a sale or merger, said Karen Feltes, Avista’s senior vice president and chief human resource officer.
The $18 million represents the value of stock options previously awarded to the executives as part of their annual compensation, Feltes said.
The stock options are awarded based on Avista’s performance, and they typically vest over a three-year period. But on the day the sale of Avista is final, executives would receive their outstanding stock awards in a lump-sum payment, she said. After the sale, Avista would be a subsidiary of Hydro One and would no longer have its own stock.
Scott Morris, Avista’s chairman and chief executive, would be the largest recipient. His stock awards are valued at $5.85 million, according to documents filed with the U.S. Securities and Exchange Commission.
Some opponents of the sale have said Avista executives will receive $50 million when the sale goes through. But that’s not entirely accurate, Feltes said. The $50 million refers to the way the broader value of Avista’s change of control contracts must be reported to federal regulators, she said. But the remaining value – about $32 million to the 13 executives – wouldn’t necessarily be paid at the time of sale.
Under the change of control agreements, Avista executives are eligible for payouts above the initial $18 million if they lose their job or their duties are reduced within three years after a sale or a merger of the company, unless they’re fired.
Since Avista wouldn’t be a publicly traded company after the sale, the executive officers’ duties would be diminished. So they could qualify for a larger payout under the scope of the change of control agreements, Feltes said.
However, Hydro One officials have said they want to keep Avista’s top five executives after the sale. As an incentive for those executives to remain, the change of control agreement was extended for them, Feltes said. They can qualify for the payouts beyond the three-year time frame after the sale, provided they give a six-month notice.
The overall value of Morris’ change of control contract is $17 million, according to documents filed with the SEC. The contract includes the day-one payout of $5.85 million, plus $6.4 million in severance pay, $33,000 in health care benefits and up to $25,000 in job-search assistance, if he looked for other work.
A $4.7 million payment Avista would make to the Internal Revenue Service also is included in the $17 million value of Morris’ contract. The IRS payment gets reported in the value of the contract, even though Morris doesn’t get that money and it doesn’t reduce his tax bill, Feltes said.
Change of control payments are included in the sale transaction costs. Shareholders pay for those costs, which are not included in utility customers’ rates, Feltes said.
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