Pgw's Moving Bill: Now It's $1.4m Pgw Paid $1.4m To Move Its Execs No Rules, No Limits For Relocation Costs

Posted: October 26, 1998

The idea was clear enough: The Rendell administration and the board governing the Philadelphia Gas Works wanted to search the nation for the best and brightest utility managers.

The board and the administration intended to pay top dollar, including bonuses, to help the new managers move their households here and then let them take the helm of PGW to rejuvenate the country's largest city-owned natural-gas utility, which had been adrift without top managers for six long years.

Though the jury is still out on how much PGW has improved under the new team, it is clear that getting the managers here was far more costly than customers might have imagined.

The Daily News already has revealed that PGW spent $555,000 to move its president and his two key managers. All three negotiated the terms of their relocation expenses through detailed contracts with the PGW board.

But the tab for moving expenses actually goes much higher than that.

Since 1996, PGW has spent almost $1.4 million on moving, temporary housing and other relocation costs for 25 top managers, according to the utility's financial records related to all of its relocation spending in the last two years.

Before the others were hired, the president and his top aides - PGW President James Hawes III, Chief Operating Officer Gregory Martin and Chief Financial Officer Ramon Sharbutt - established no policy on relocation benefits.

Nor was there any evidence that PGW's board, the Philadelphia Facilities Management Corp., pressed the executives to enforce any policy it might have devised.

Instead, Hawes and his team played an expensive game of ``Let's Make a Deal'' with its prospective employees, using customers' money.

As a result, those recruits received unlimited pledges from the utility for reimbursement of a wide variety of expenses that went far beyond the normal costs of moving to Philadelphia.

Indeed, the actual moving costs for the 25 managers were relatively small, totaling $138,000, though a number of employees got lump-sum payments and actual moving costs could not be determined.

But the sums paid beyond those actual costs are staggering.

For the entire group of 25 managers, temporary housing and living expenses totaled $171,000. By far the biggest single category of expenditures involved so-called ``tax gross-ups'' totaling $564,531.

These payments covered employees' federal tax liability for the other relocation benefits that they received, since most are considered taxable income by the IRS.

In one of the more stunning examples, David Lee, PGW's vice president for information and technology, ran up $34,517 in temporary living expenses, including his meal and laundry bills, from October 1996 into early 1998.

In all, PGW spent $131,085 to get the computer expert to move from Wexford, near Pittsburgh, to Philadelphia for his $155,000 job. The fact that Lee submitted bills beyond the one year specified in his contract was apparently of no concern. The utility paid them.

Hawes, who is resigning his $285,000-a-year position on Friday to take a job in Atlanta, led the pack in relocation costs. PGW spent $31,795 to move his household here from Omaha, Neb. But it spend another $128,999 in temporary housing and other expenses for a total $160,794.

City Finance Director Ben Hayllar said he and the other six PGW board members are reviewing the relocation costs.

``The tax gross-ups were all well and good, but we want to see more detail. We're asking, `Were the relocation expenses justifiable?' '' he said. ``We're looking to see how completely and efficiently these costs were handled.''

While defending the general principle of paying to move a skilled employee, Hayllar said it appears that not everyone who got relocation expenses provided skills that were critical enough to the company to warrant the expense.

J. Gregory Driscoll, a retired Sun Oil Co. senior vice president and chairman of the PGW board, said recently, ``We have realized that the level of relocation expense is a function of recruiting people from far away. If you want them to come, you better be willing to keep them reasonably whole.''

Hawes, Martin and Sharbutt spent far more than their contracts allowed, but the PGW board was not aware of just how far beyond their allowances the trio were until the Daily News began raising questions about their spending. Hawes' spending, negotiated by his wife with the PGW board, had been capped at $90,000 in his contract.

Driscoll defended the spending beyond that, calling the contract amount a ``moving target.''

``From the get-go, for a man making the kind of money he makes and living in the kind of home he was living in,'' Driscoll said, ``it was totally unreasonable to expect that he would get moved for $90,000 unless he put it on a U-Haul and moved it here himself.''

When Hawes last spoke about relocation expenses in mid-August, he said the company's guiding principle was ``simply to keep employees whole for typical moving expenses.'' He called his contract ``the best estimate we had.''

In computer whiz David Lee's case, PGW records show how the utility ended up spending so much on his move here.

When Lee arrived at PGW on Oct. 1, 1996, he checked into the Best Western Hotel in Center City.

But after a month, he moved to the more expensive Embassy Suites in Center City, writing his superiors, ``After a month of sleepless nights, noise from street construction, roaches in the shower and uneven water temperature due to water pressure problems [while in the shower] ouch! . . . I have since moved over to the Embassy Suites.''

The Embassy Suites was charging only about $60 a day, but PGW also picked up Lee's meals and phone and laundry bills. Then, around July 1997, he moved with his family into an apartment in the Alden Park complex on Wissahickon Avenue, which charged $1,761 a month. He remained there until February, when he settled on a house on Clyde Lane in Andorra. Lee did not return a call for comment.

Lee's deal with PGW was that the utility would pay his relocation-related bills for one year. It actually paid them for 16 months.

Two employees who ran into difficulties selling their old homes also got special consideration from PGW management.

Badruddin Z. Karachiwala, vice president for gas management, ran up $70,540 in relocation expenses, including $7,400 in mortgage payments on his Iowa home and $3,891 in interest payments on a swing loan. Karachiwala's employment contract didn't specify a spending limit for relocation costs.

James L. Spadotto, manager of the transportation department, also received $3,138 in interest payments on a swing loan. And he got $15,162 for losses he suffered on his old residence.

Karachiwala will be eligible for up to $12,000 in a limited loss guarantee provision he worked out with his bosses. Lorraine Webb, the director of human resources, picked up $9,500 on a loss she said she incurred on the sale of her home.

PGW also reimbursed employees' rental deposits that were forfeited when they broke their leases.

For example, Deborah Estrin, senior vice president for human resources, received $5,850 to compensate what she lost when she broke her lease. She also received $7,000 to pay for the rental deposit on her Philadelphia residence.

Some employees negotiated flat sums to cover a wide range of costs. John Trimboli, PGW's maintenance superintendent, was promised $20,000 for moving from Folcroft, Delaware County, and for the costs of settlement there and in Philadelphia. But in fact, he collected $25,333, plus an additional amount to cover taxes he had to pay on some of the reimbursement.

PGW spokesman Harvey Clark said the company has no official relocation policy. He added that with help from the company's auditor, Deloitte & Touche, management hopes to propose a policy to the PGW board in November.

Last month, Estrin, PGW's human relations vice president, said the company had formalized relocation expense guidelines in March or April 1997. The four-page document says recuits living more than 50 miles away would be allowed two house-hunting trips and up to 60 days of temporary living expenses, including dinners, assistance on lease terminations and two months rent on the new rental property.

PGW also would pay final trip expenses, standard moving expenses and would help on costs of selling and buying homes. But there was no provision for loss guarantees on home sales or on paying interest for swing loans.

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