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VRS retreats on bonuses
28 RF&P employees stand to share $500,000 pot
by Jeff E. Schapiro
TIMESDISPATCH STAFF WRITER
Friday, November 22, 1996
The Virginia Retirement System will have to suck it up when it comes to controversial bonuses for employees of RF&P Corp.
Several VRS trustees challenged the awards yesterday, but retreated because they were outnumbered and because there was little they could legally do to block the bonuses, which total $500,000.
"This is not the most shining moment of RF&P history," said VRS trustee Edwin T. Burton III.
The dispute had caused a bitter row among VRS officials that has overshadowed the expected sale of the real estate company to New York investment bank Lazard Freres & Co. for $570 million.
To quell debate, sources said, the RF&P apparently has taken steps to divide the cash among the company's 28 employees-rather than among its top eight executives, as originally planned.
At one point, the company's highest echelon would have shared $175,000, but the pool was expanded as the number of eligible employees increased.
Asked about the shift - mentioned during a closed session of the VRS board to discuss the RF&P deal and other investment matters - VRS chairman James C. Wheat joked, "Obviously, I'm an egalitarian populist."
Charles B. Walker, a VRS trustee and chairman of the RF&P board of directors, declined comment. The payouts, in essence, are golden parachutes-extra cash to employees who could lose their jobs if the sale to a Lazard real estate fund goes through, as planned, on Dec. 2nd.
Also described as "value-realization awards" and "success fees," the payments are a result of a program put in place by RF&P directors 1 ½ years ago in anticipation of the former railroad's sale.
The idea: reward employees for helping increase RF&P's value during the political and legal turmoil that accompanied its acquisition by the $23 billion retirement fund six years ago.
The RF&P staff is also eligible for a separate performancebased bonus program that also contains about $500,000.
The employees, some of whom command sixfigure salaries, are also eligible for severance pay that in some cases could exceed a year's salary.
Heading into yesterday's meeting, some VRS trustees seemed to be spoiling for a fight. But sources said the closed session at which the bonuses were debated was civil.
Some trustees argued that the payments, coming from proceeds of the sale to Lazard, were being made at the expense of VRS' 75,000 beneficiariees.
Proponents countered that the RF&P board, though installed by the pension system, was legally independent and that the $22 billion fund should resist micromanaging it.
"While not unanimous among trustees, there was a consensus that we should not be involved in the compensation process," Wheat said.
About the only option available to opponents: fire the RF&P board and install new directors with instructions to rescind the awards.
That seemed impractical, with the company set to change hands in 10 days, and impossible because foes probably would have been outvoted.
VRS plans to pour cash from the sale, about $550 million, into its $5 billion bond portfolio.
The flap represented a rare departure from the collegiality that has guided VRS deliberations since the current trustees took over in 1994 following reforms of the fund brought on by the RF&P takeover.
It pitted Burton, an investment banker and University of Virginia economics professor, against Walker' executive vice president of Ethyl Corp. and former state finance secretary.
As lead negotiator in the Lazard deal, Burton and Walker worked closely together in what seemed a logical extension of their frequent alliance on other VRS issues.