Executive Compensation: Moving from Utility Services to Power Trading at Aquila

Posted: 3 Oct 2009

See all articles by David F. Larcker

David F. Larcker

Stanford University - Graduate School of Business

Brian Tayan

Stanford University - Graduate School of Business

Date Written: May 10, 2008

Abstract

In the late 1990s, UtiliCorp United, a utility that owned natural gas and power assets in the Midwest and internationally, moved aggressively into the business of wholesale energy trading. The move came after Congress passed legislation that opened wholesale energy markets to competition, with the expectation that competition would reduce prices. Following the legislation, trading activity in these markets exploded, a trend which UtiliCorp participated in through its energy trading subsidiary Aquila Merchant Energy.

In recognition of the important role that energy trading was expected to play for the company going forward, UtiliCorp officially changed its name to Aquila in March 2002. At the same time, the board of directors awarded a discretionary bonus of $4.5 million to Chief Executive Officer Robert Green, “in recognition of his contribution in establishing and cultivating the merchant services business.” He had been on the job just three months, having succeeded his older brother Richard Green Jr. who remained chairman. Just months later, however, energy markets collapsed and the company reported major losses. As a result, Aquila announced that it would close its energy trading division and that Robert Green would resign as CEO. He would retain his bonus and also take with him a substantial and controversial severance package. This case explores the appropriateness of these payments, given the change in the company's strategic model and performance.

Keywords: Executive Compensation, Board of Directors, bonuses, Corporate Governance, Performance Measurement

JEL Classification: G3

Suggested Citation

Larcker, David F. and Tayan, Brian, Executive Compensation: Moving from Utility Services to Power Trading at Aquila (May 10, 2008). Rock Center for Corporate Governance at Stanford University Teaching Case No. CG -14. Available at SSRN: https://ssrn.com/abstract=1482079

David F. Larcker (Contact Author)

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Brian Tayan

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
918
PlumX Metrics