The Paducah Sun
The Paducah Sun
Paducah, Kentucky
Sunday, March 16, 2003

Major issue sticks in PACE's craw

By Joe Walker

When USEC Inc. changed from a government to a publicly owned company in 1998, Chief Executive Officer William "Nick" Timbers' pay package jumped from about $356,000 to nearly $2.5 million, including roughly $1.7 million in new stock.

Despite some surges, the price of USEC shares has fallen from $14.25 in 1998 to under $5.50. That greatly diminishes the value of Timbers' compensation, about 65 percent of which is tied to the stock market, the company notes.

Since becoming a stand-alone business, USEC earnings have been on a roller coaster, rising about $70 million from 2000 to 2001, dropping about $64 million the next year. During that time, Timbers' compensation nearly doubled to $1.9 million.

Many of the 635 union workers entering their seventh strike week at the Paducah Gaseous Diffusion Plant track those numbers regularly on the Internet. They know other top USEC executives earn six and seven figures and have received big raises. They say that doesn't jibe with the company's refusal to raise the pensions of workers and the company's desire to nearly double their share of health insurance costs over the next five years.

"Those things in my mind just don't equate," said Leon Owens, president of Local 5-550 of Paper, Allied-Industrial, Chemical and Energy Workers International.

"Executive compensation is not a union contract issue and should not be used to divert attention from the real issues," said USEC spokeswoman Elizabeth Stuckle. "Executive compensation is not the issue here. The main union negotiation contract issues are health costs and pension."

Companies and workers nationwide are dealing with the spiraling cost of health care, she said. "As a highly competitive global business, we have had to make difficult decisions in order to be competitive. The plant is no longer a government plant where the taxpayer foots the bill."

Stuckle said USEC plant employees are among the best paid in the region, and the salaries of its executives "are proven to be competitive" with those of companies of similar type and size.

USEC recently changed the end of its fiscal year from June 30 to Dec. 31. The revised figures show the company lost $14.7 million during the six-month "stub" period, and the stock price dropped from $8.80 to $6.02. Meanwhile, Timbers' salary, bonuses and stock options totaled $848,350. Doubled to reflect a whole year, the package would be about $1.7 million, down slightly from the previous year.

Stuckle said USEC officers "are significant shareholders" in a company dependent on stock performance. She said 65 percent of Timbers’ total compensation is at risk and the value of much of it is determined by stock pricing, she said.

"Officer compensation is deliberately designed and approved by the board of directors to be in line with compensation of other similar-sized companies," Stuckle said. "The board of directors is composed solely of outside directors."

She said a leading independent firm researches and advises the USEC board on employee compensation levels in peer group industries. The USEC incentive program makes up much of officers' total compensation and is based on individual and company performance, Stuckle said.

Owens said USEC doesn't want to "recognize the performance of the workers" in meeting production goals and supporting the company in the continued buying of enriched uranium from Russia that is much cheaper than the plant can produce.

The nation's largest labor group, the AFL-CIO, quotes Business Week magazine as saying the average chief executive officer in 2001 earned 411 times that of the average hourly worker — nearly a tenfold increase from 1980. Using those ratios, Owens calculated what top-earning PACE workers would make if their wages rose as fast as an average CEO's during the past five years.

In 1996, the top plant hourly pay was $19.28 an hour, or $40,102.40 a year. It would be $123,238 a year now at the CEO's rate of increase, and would grow to $284,676 by 2005, according to Owens' calculations.

The AFL-CIO says that if runaway CEO pay growth continues at its current exponential rate over the next 50 years, the average CEO will be paid more than the combined wages of 250,000 American workers.

USEC Chief Financial Officer Henry Shelton, whose compensation was nearly $660,000 last year, told Owens in bargaining last week that it would cost USEC $80 million to implement the union's initial counterproposal and make the wage-benefit package available to the other half of the plant work force. Owens said he simply doesn't believe the $80 million figure.

He said it would cost $26 million to raise union pension $3,272 a year for a 25-year employee earning top wages. Based on a rough annual average compensation of $1.4 million during the past three years, Timbers would receive at least $150,000 a year in pension, aside from other retirement funding.

Using the union pension formula, earning $100,000 a year would yield a "very adequate monthly rate" of pension for managers, but not for wage earners, Owens said. A 30-year union worker's pension is just over $16,000 a year.

Shelton told Owens during negotiations that the pension fund dropped from $574 million to about $508 million during the last 1 years as the stock market continued sliding and interest rates dropped. That turned a $122 million surplus into almost a $14 million deficit.

Even with poor stock performance, Owens doesn't understand how the fund could lose $26.3 million in the last six months of 2002. That was more than the fund lost during either of the entire fiscal years of 2002 and 2002, he says.

Owens said Shelton told him the company added $1.6 million to an underfunded part of the pension plan covering about 100 headquarters employees, including executives, but did not add money to a surplused portion of the fund for hourly and salaried plant workers.

The company says the categories are separate, even though they are merged for financial reporting, and both are underfunded. The company considers the roughly $28 million a year needed to pay pension as a cost of doing business.

Owens points out that during privatization, USEC inherited the fund from the Department of Energy as a transfer of government assets.

"That's the point we're trying to bring out — this is not a cost factor for the company at all," he said. "These were not funds that they (USEC executives) had to come up with initially."