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When Bernard J. Kennedy retires next week as National Fuel Gas Co.'s chief executive, he'll start collecting on a pension that will pay him $2.35 million per year, plus he'll receive a one-time grant of stock that would be worth $2.28 million at today's prices.

Kennedy, 70, also will be paid $250,000 a year under a 30-month consulting agreement with the Buffalo-based energy company, which he has led for the last 13 years, according to documents filed with the Securities and Exchange Commission that spelled out the details of his retirement benefits.

Kennedy's retirement package reflects his career-long ties to National Fuel, which he joined as a lawyer in 1958, and his lengthy tenure as one of the company's top managers. It also reflects the national trend to provide high-ranking executives with lucrative benefits from supplemental pension plans.

"It's representative of a long and distinguished career," said Julie Coppola Cox, a National Fuel spokeswoman. "He's been at National Fuel for 43 years and he's led National Fuel through enormous change and has positioned us, here in Western New York and internationally, very well for continued success."

Jerry Newman, the dean of the University at Buffalo School of Management and a compensation expert, said it's very unusual in today's business world for an executive to spend more than four decades at a single company. Pension benefits increase with each year that a worker stays at a company.

"We're talking about an executive who has run a company exceptionally well for a long, long time," he said.

Newman also said that companies looking to attract top executives and keep them need to offer competitive pay and retirement packages, which commonly prompts companies to create separate pension plans for their highest-ranking executives.

Indeed, it is that type of supplemental pension plan that is boosting the value of Kennedy's retirement package. While Kennedy will receive $142,436 a year under the pension plan that is open to all National Fuel employees, he will receive a lifetime benefit of $2.2 million per year through the company's executive retirement plan.

"It's part of an overall compensation program designed to offer continued incentives for good performance and corporate growth," Cox said.

National Fuel's board of directors also agreed to give Kennedy 100,000 shares of National Fuel stock on Oct. 1 in recognition of his service to the company and his agreement not to compete with National Fuel or disclose any confidential information about its operations, the filing said. Those shares would be worth $2.28 million, based on National Fuel's closing stock price of $22.84 on Friday.

Kennedy, who will continue to serve as National Fuel's chairman through the end of the year, also will continue to be paid his current salary and be eligible to receive a bonus based on the company's performance during the final three months of this year. Kennedy's salary during that time would equal $212,038.

Kennedy, who will remain on National Fuel's board of directors until he turns 72 in August 2003, also will receive a bonus of $447,960 during his final three month's as chairman, the filing said.

He also is eligible to receive incentive pay that he has earned over the previous two years under the company's long-term incentive plan, Cox said.

Kennedy also is expected to receive a stock option grant, based on National Fuel's normal year-end practice, which could eventually be worth hundreds of thousands of dollars or possibly even millions, depending on the size of the grant and the performance of National Fuel's stock. The options also could be worthless if National Fuel's stock declines from the time the options are granted.

Stock options give an executive the right to purchase a share of stock at a set price over a certain period of time, typically 10 years. For instance, 100,000 options to purchase National Fuel stock at its current price of $22.84 would be worth $2.28 million if the stock doubled in price, but they would be worthless if the shares fell below today's level.

Kennedy's retirement settlement also gives him the choice of foregoing the monthly pension payments from both retirement plans in favor of a one-time payment of $23 million as of Jan. 1, 2004. That $23 million also would be payable as a death benefit if Kennedy were to die before Jan. 1, 2004, the company said in the filing.

Kennedy's consulting agreement allows the company to use his services for up to 48 days during any 16-month period. If Kennedy exceeds that limit, or works for more than four days during any month, he will be paid an additional $3,500 per day.

The agreement also calls for Kennedy to receive an grant of common stock if National Fuel is acquired by another company in a deal announced before Jan. 1, 2005. The size of that stock grant is to be determined by the National Fuel board and its compensation committee, the filing said.

Just how much of Kennedy's retirement package will be paid by the company's utility business has not been determined, Cox said.

Some of the costs of the retirement package have been accrued in the company's pension funds over the years, and none of the costs from the stock award will be borne by ratepayers in its utility business. About a quarter of the costs associated with Kennedy's current compensation package as the company's chief executive are being paid by National Fuel's utility ratepayers, she said.

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