Should PG&E Workers Receive Bonuses?

Embattled utility company Pacific Gas & Electric recently announced it will not award 2018 bonuses to 14,000 employees.

PG&E said it would file for bankruptcy last month. The company thinks it faces $30 billion in potential liabilities associated with California wildfires.

After victims of the wildfires protested bonus payments, PG&E canceled payouts for rank-and-file employees. The company previously announced it would not award executive bonuses this year.

A significant portion of my annual compensation comes from a discretionary annual bonus. I’m scheduled to receive my bonus for 2018 at the beginning of March, so I’m very interested in what readers think about this topic.

My initial reaction was that PG&E bonuses should not be paid. But as I have thought more about the topic, my thinking has become more conflicted.

The case for not paying bonuses is pretty straightforward:

  • PG&E recently filed for bankruptcy protection.
  • The company may face over $30 billion in fire-related liabilities.
  • PG&E may have played a role in starting last year’s Camp Fire, which killed 86 people.

The case for paying bonuses is more complicated. But, in my opinion, there are reasons to consider paying bonuses to employees:

  • PG&E’s market capitalization is still nearly $10 billion. Clearly, some investors believe there is significant value in the company’s stock, despite the bankruptcy filing. If top performers leave PG&E because of dissatisfaction with their compensation, it may be more difficult for the company to successfully emerge from bankruptcy.
  • Most of the 14,000 employees eligible for bonuses had nothing to do with the wildfires.
  • The bonus plan was set up to reward 2018 performance, and the company did not file for bankruptcy until this year.

There’s also a case to be made that perhaps we don’t have enough information yet:

  • PG&E has not yet reported its Q4 2018 financial results. The company will announce earnings before the market opens tomorrow, Thursday 2/28.
  • Wall Street analysts are expecting the company to earn $0.63/share for the fourth quarter, and $3.81/share for the full year, which would represent record EPS for PG&E.
  • The company could release additional information about its 2018 performance and potential liabilities that might be relevant to the bonus discussion.

It’s counterintuitive to me to argue that employees of a firm headed for bankruptcy might deserve bonuses. But there’s nothing straightforward about the situation with PG&E. The company currently has almost $20 billion more assets than liabilities, and may report it’s still earning money tomorrow. There’s also a great deal of uncertainty around what PG&E’s ultimate wildfire liabilities will be. One could argue that the company should not have filed for bankruptcy yet given that uncertainty.

While $130 million is a lot of money, in the context of a $9.6 billion market cap, $18.6 billion of debt outstanding, $19.4 billion of shareholders’ equity, and over $71 billion in total assets, that figure is really just a drop in the bucket.

With as many as 14,000 employees splitting PG&E’s potential bonus pool, the average payout would have been about $9,300. My hunch is that most PG&E employees were likely to receive a few thousand dollars for their bonus, with a much smaller number of higher-level employees whose bonuses could be measured in tens of thousands of dollars.

Those bonus payouts were probably going to be pretty important to thousands of PG&E employees as they tried to provide for their families, save up for a new car or a house, or perhaps even pursue early retirement. And the vast majority of them had nothing to do with the serious problems the company faces.

If PG&E reports solid earnings for 2018, should employees be paid a bonus for their hard work last year? Or do the company’s potential wildfire liabilities make paying bonuses the wrong decision? What do you think?

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