Wait a minute, we had management. The excuse for years with PGW and PFMC was that we did not have management in place, that the company operated -- I don't remember how long, but upwards of possibly six years, I think, if my recollection is correct, without any senior management. We went through a process significantly increasing the management fee and the compensation package for the express purpose -- if we grab the notes of testimony from the chief clerk's office -- for the express purpose of being highly -- the package was sold on the basis of, if you want to move the company to the next level, you have to get high-level, well-paid senior executives, more often times than not for, whatever reason, from outside, to come here and run this company. We took that lead, changed the package 129 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 from $300,000 such that almost, at least the top executive would make $300,000 and then on down for COO and the chief financial officer. Now you're still saying that there was no management in place. My problem is, there was three managers in place who were all highly and well paid.
That's an exaggeration of what I said. There was no appropriate management in these fiscal controls. Management was dealing with many other things.
Councilman, there is a saying in business that says, "What gets measured gets done." Now --
We measured customer 130 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 service, and we had improvements in customer service. We measured receivables -- or it was measured in the previous three years, and receivables were reduced. We measured service factors, and service factors were improved. We measured automatic readers, and automatic readers were installed. We measured expenses, expenses were reduced. There was apparently, without excuse --
Expenses apparently of the company were reduced. But on the other side of the ledger, expenses are being driven up on the ledger side.
Let me finish. In another area of the company, this area that we are talking about today, there was not measurement. That is inappropriate. It is totally inappropriate. There was not.
Well, take me back through the change of events. A person submits a bill for whatever they submit it for. Where does it go who and does it go to and who is ultimately responsible? I've heard nothing here today that indicates that 131 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 anybody is directly responsible for anything.
Today, yesterday, tomorrow. Don't talk about -- tell me what was going on at the time. You make an expenditure, you pay for something, you submit whatever the document is, where does it go next and who's responsible for the sign-off? I mean, at the end of the day, somebody's got to be holding the bag on this. I refuse to believe that somebody could be paid $340,000 as a consultant on a contract that expired two years ago and still be paid and no one seems to know anything about it, that people are running up bills -- senior executives -- on credit cards, and no one seems to know anything about it. Somebody's paying the bills somebody's signing off on a piece of paper somewhere, and I want to know who, that's all I'm asking. 'Cause I can't believe the system's so loose that anybody could walk in the door any day, submit any bill to anybody and walk out with a check. That's not possible, is it? 132 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
I will take you back in the principal, and I would ask the currently available managers of the company who are here to comment on the specifics. Historically, company credit cards were in the hands of individuals. Those company credit cards, the bills, came directly to the company for payment; they did not go to the individual carrying the card.
The system that was in effect prior to our coming on board had been in effect as far, as I know, for years or so. 19 When we came on board, just as Mr. Martin said, 20 under the procedure that had been effect for all of these years, cards were delivered and there were procedures which were followed that were --
Mr. Sharbutt, in your previous employment, did you ever have a credit card? 133 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
And in your previous employ, did the bill go directly to the company, did it go to you, did it go out into outer space somewhere, what happened to it?
In my immediate previous employer, it was exactly as PGW's long-standing practice. That may not be true in other companies; it just happened to be true in that one no change.
Yes. And I was with a company ten times the size of PGW, and we had around a thousand or so credit cards, and it was the same practice.
Was there a policy at that place about how you use them?
There was a policy, and 134 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 it was --
Did you use them for business expenses, business and personal, or some other system?
That is unique to a company. We did have authorization for personal expenditures in my previous employment. And in PGW, the issue was discussed in 1996, and it was not overruled as something that could take place with reimbursement, and it did take place.
Councilman, my previous experience was that the corporate credit card was the individual's responsibility. The statement went directly to the individual at the end of the month, the individual had to, by the fifth working day of the next month, file the expense report, and once it was approved by the approving authority and going through the treasury department, then the company would pay the credit card expense. At PGW, it's different. 135 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 And, for your information, you asked what's the procedure at PGW. Well, the policy that I enumerated before, 778.01, outlines --
The policy outlines the line of succession with respect to approvals.
Yes, sir. It states that the individual has got to, by the third working day of the following month, complete in duplicate form and file any expenses -- I'm relating right now to the credit card expenses.
The approving authority is to receive the reports in duplicate form from the employee.
The individual's 136 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 supervisor or the next in line.
Verify that the expenses conform to PGW's policies, approve expense reports, and return to the employee. From there, they go to the treasury department for review. The treasury department forward all receipts and credits to the appropriate personnel. The treasury department verifies that the report is complete, it's to return incomplete forms to the employee. It verifies that the approvals are made by the appropriate authority, that the computations and expense account numbers are correct, that the reported expenses are current. And it has a note on it which says that the treasury will reject any reimbursement for expenses submitted six months after the cost. And there are other procedures outlined.
If you could copies of that available to the Chair, I would greatly appreciate it. So now when you -- prior to your 137 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 returning the card, when you made your expenses, who signed off on your forms?
So you do whatever you did in the course of a month, and then you'd bring your forms over to the chief conceive executive officer, and that person was responsible for signing off it?
And they were supposed to review it to figure out whether your expenses as the other two members of the senior management team, a CFO and a COO, were in compliance with this policy.
Well, how much time 138 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 does a CEO have to spend checking somebody's credit card bills?
Okay. Miss Estrin, can you come up to the table, please. (Deborah Estrin comes forward.)
I have some questions about my understanding and then, I guess, your understanding of your contract. I have a copy of your contract, which is dated September 17, 1996, signed by James Hawes, Chief Executive Officer, signed by yourself and witnessed by a Nancy Cullin (ph.). Who's Nancy Cullin? Please identify yourself for the record.
I'm Deborah Perry Estrin, Senior Vice President, Human Resources, for PGW.
Nancy Cullin was Mr. Hawes' administrative assistant -- executive assistant, excuse me. 139 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Okay. And how did you negotiate your contract? And who did you negotiate it with?
I negotiated it directly primarily with Mr. Hawes, Rotan Lee was also involved in the negotiation, as was Joe Duretsky.
Joe Duretsky in his capacity as City Solicitor of Philadelphia at that time?
And what is your understanding with regard to your compensation? I'm looking at of your contract, item number 4 that talks about compensation. Your base salary was $175,000 a year; is that correct?
Okay. And it then goes into incentive compensation to be earned. If all performance targets are fully achieved, will not be less than $30,000. The actual amount of incentive compensation to be awarded hereunder shall be determined at the close of each fiscal year of PGW by the CEO, based on an evaluation of the achievement of the performance targets. 140 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 Is that your understanding of your contract?
Okay. And did you receive any incentive compensation in the amount of $30,000 or less as a result of an annual review?
Okay. And what was that incentive compensation based on, or what were the criteria?
There's a book of performance measures that we had for the year presented to the board. There was, in the area of my responsibility, a 117 percent achievement of those performance measures.
And what are some 141 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 of the performance goals of -- your position was vice president of human resources -- senior vice president of human sources?
Yes. There were about 8 pages of objectives. They ranged from analyzing 9 the current compensation structure and making 10 recommendations to changes to that structure, to 11 developing platforms for training programs for 12 assessing the competencies needed to take the 13 company into the future, for consulting to senior 14 management on strategic planning and on the culture transformation. A major project was working with the sales and marketing organization to develop the sales and marking strategic plan and staffing that organization. Those are some of the highlights.
I'm sorry, you said strategic marketing or did you say strategic planning?
And later on in the contract, it says, in lieu of the incentive 142 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 compensation described in paragraph 4c. hereof, annual compensation paid under a formal executive incentive compensation plan for PGW, if developed and implemented by the board, provided that such plan is adopted, provides an opportunity for Estrin to receive $30,000 (or more) per annum. Now, what does that mean in contrast to the paragraph above? Is that an automatic $30,000 bonus?
In both cases, the amount of the incentives is to be not less than $30,000.
The second one was only if we developed a formal executive incentive plan and had it approved by the board.
The former executive incentive plan would have afforded the ability to earn a range of incentive payments.
Well, is it fair to say then that your package provided the opportunity for the $175,000 salary, $30,000 -- or not less than $30,000 incentive compensation, plus 143 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 an additional $30,000?
No. The second piece would have replaced the first piece had we gotten an executive plan approved.
Okay, all right. It's also part of your package, under Benefits, number 5, on the same , that you have use of a personal company automobile as available or leased if not otherwise available, which shall be a non-luxury car of domestic manufacture. Did you get a car or lease a car, or was a car leased for you by the company?
I've had a series of cars in the two years I've been here, ranging from an old Dodge product to, currently I'm driving a '98 Taurus that's been leased by the company.
So you've had a car from the day you started, okay. MS. ESTRIN; I've had a company vehicle, yes.
Now, the reports 144 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 from yesterday seem to indicate that from time to time, that you have accessed or utilized the services either of cabs or limousines for a wide variety of things; is that correct?
I don't think I've ever ridden on company business in what I would call "a limousine," one of those big stretch things, but it was car services.
But something other than the vehicle that was leased on your behalf be by the company.
Okay. And you said that you don't believe that you've ever used one of those vehicles on company time.
No, I said I don't think 145 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 I've ever used a stretch limousine on company business.
But you've used other things that fall into the category of car service?
Some of those occasions were during my relocation, when I was moving from Stamford to here and commuting between the two houses. I would take the train from Philadelphia to New York. The last train to Stamford would already have been gone, so I would take a car from New York to Stamford to get me home.
And did you ever utilize any of these car services on non-company time?
And for what reason might that be? 146 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Various needs to have cars, but I've never charged those kinds of things to the company other than the ones for which I've already reimbursed the company.
Well, prior to your reimbursement to company, did you ever use your credit card to pay for these car services at times not on company time?
The instance that was quoted earlier, when I took the car service, to a symphony function.
My understanding was that we were allowed to use the company credit card for 147 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 personal business as long as we reimbursed it.
Did you get a copy of the same company policy as read into the record by Mr. Martin?
Okay. Well, what was your credit card experience? When you got your credit card, gave it to you and what did they say?
It seems to me that it was sent to me and handed to me by my secretary, here's your company credit card.
That's a good thing to say, "please" and "thank you." After that, did you ask, What's the company policy on this reimbursed, how do I use this, how do I get reimbursed, what do I use it 148 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 for? Did you ask for it, did you ask for a company credit card??
So your secretary showed up one day and said, Here you go?
You never inquired as to what you could use it for or what was appropriate or what was inappropriate?
I've had company credit cards throughout my business career as well, and I thought that the understanding would probably be the same as previous cards I've held.
Have you ever work for a public agency? 149 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
You could use your card for personal business. We did, however, have the practice of monthly billing to the individual rather than through the company.
I have a question. As director of human resources, what is your role in explaining the benefits of the corporation to employees, future employees? And would not the policy of credit card use be a part of your responsibility in?
We do explain to new employees the benefits that I would consider to be the traditional, what used to be call the "health and welfare benefits" -- health insurance, life insurance, those kinds of things. 150 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 Financial policies and other kinds of usage, including transportation policies. For example, I didn't get a policy on what I was supposed to do with my car. Somebody finally came to me two or three months later and said, You haven't turned your mileage in. And I said oh. So there are certain things that we do explain in orientation and human resources, but they are typically the human resources type of benefits and not the broader company policies.
So, okay, thank you. But I guess my question would be, and that's Councilman Nutter's question, where do the policies come from? Who determines who gets the credit card? Is that out of your shop, Mr. Sharbutt?
Historically and with other employers, it has been the chief financial officer. In this situation at PGW, it was not my responsibility. In fact, I have only signed or authorized the issuance of one credit card to one subordinate. The authority for issuing credit cards 151 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 was delegated to the vice president or senior vice president level throughout the organization for subordinates within each department, so --
There was no single person signing to authorize it. It was any vice president or senior vice president could authorize the issuance of a card.
We have changed that. I am and have personally approved many of those since changes were made by the board, investing that responsibility in me. I personal sign for them now.
Yes, thank you. You made mention that some of your work involved strategic planning; is that correct?
Okay. But now there was a consultant who had also been hired 152 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 technically prior to your arrival in May to do strategic planning.
So -- and that person, their contract was for $72,000, for May to December, although the payments have gone on for a couple of years up to 340-some odd thousand dollars by PGW, at least by way of the information provided to us by PGW. So, in essence, we had two people working on strategic planning, one on the ground and one flying all over the country, coming back and forth?
No, there were much more than that. I worked on the strategic planning piece for the human resources function and for any function that the human resources strategies might impact. Mr. Martin, for example, would work on the strategic plan for the operations group with his operations directors and vice presidents. So, in effect, all of the senior managers became engaged in the strategic plan once the broad umbrella was put in place. 153 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 One of the things that Miss Hanson did was help us facilitate getting the plans in alignment with the overall company strategic plan and then identifying what the performance measures should be so that we would know that we were headed in the right direction and making progress towards those plans once the objectives were set and.
And do you have any information with regard to how Miss Hanson was able to do her work when, apparently, she would, from time to time, be here for a day or so and then, at least by way of the expense records, go back to Colorado and then back to Philadelphia. I mean, was there ever any coordination problems with an arrangement for having someone for two and a half years not being situated here in Philadelphia doing this kind of work?
I had interaction with her, but my experience was that I generally knew when she was going to be in town, and if I needed 154 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 to use her services while she was there, I scheduled it while she was there.
Again, I guess by way of providing the same opportunity, for the reports in the paper yesterday, do you find -- is there any validity to the variety of expenses that have been outlined, whether by location or amount or purpose? You've made reference to -- did you say that you took one of these car services to the symphony?
For which you used the company credit card to pay for?
No. It was a situation where we had been told that it would be impossible to park and to get in and out because of that function that evening.
Somebody must be 155 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 parking down there, right?
I was new in town and I took some advice from someone who seemed to know what they were talking about.
Okay. And some of these lunches and dinners, I mean, have some fairly hefty bills to them. Do you have any particular explanation as to why some of the lunches and dinners were so much, I mean, in the hundreds of dollars? Is this mast entertaining or small group or --
Sometimes it was more than two or three people. For example, I think one of the questions was about a dinner at Zanzibar Blue. We'd had a two-day off-site meeting for the senior team, a team-building session for all of the senior team. The dinner at Zanzibar Blue was attended by the entire senior team, and it was supposed to be a part of the team-building exercise to put us in a more of a relaxed environment so that we could discuss some of the 156 11/18/98 FINANCE COMMITTEE - Resolution No. 980731 things that had happened during the day, not all of which were pleasant, and hopefully forge a better team.
Well, talking to each other in a social environment is something that we don't often get to do. And after you've had a very intensive day of team-building --
Sometimes it's pretty prickly and not very pleasant, and so it helps to get people back together a in a more collegial kind of way. Since I was the person who set up the arrangements for that meeting, it was my credit card that got charged.
I understand, okay. Now, your contract actually required you to relocate to Philadelphia, you said, from Stamford? 157 11/18/98 FINANCE COMMITTEE - Resolution No. 980731
Stamford, okay. And so you're in the city, I mean, you live somewhere in the city.