John Murawski, Staff Writer Progress Energy's board of directors approved handsome performance bonuses this week for its top brass, an expression of gratitude for guiding the Raleigh utility through a massive restructuring, a federal income tax dispute and a controversial rate increase.

The board rewarded company chairman and CEO Robert McGehee with a performance bonus of nearly $1.3 million on top of his $1 million salary in 2005.

In addition, the board this week gave the 62-year-old executive a 22 percent raise for 2006, bringing McGehee's base salary to $1.22 million. That doesn't include whatever bonus or other perks he will receive for this year.

The board cited McGehee's successes in eliminating 450 positions to cut costs, winning a rate increase in Florida to recover $289 million in hurricane costs, selling a rail subsidiary for $405 million, and winning a dispute with the IRS worth at least $1.25 billion.

McGehee is taking Progress Energy into uncharted territory this year as the company is one of a handful of utilities planning the nation's first nuclear reactors in three decades. The company has selected southwestern Wake County for a nuclear plant and will pick a Florida location soon.

The 2005 performance bonuses of the company's top executives were disclosed Friday in a filing with the Securities and Exchange Commission. Figures on other executive compensation -- salaries, dividends, health club dues, financial planning services, car allowance, home Internet and security systems -- were filed on Feb. 24.

Progress Energy is the only Fortune 500 company based in the Triangle and employs nearly 5,700 workers statewide. The company reported $10.1 billion in revenue in 2005 and sold electricity to 2.9 million customers in the Carolinas and Florida.

McGehee is the architect of Progress Energy's plan to reduce operating expenses by up to $100 million a year, increasing earnings and guaranteeing dividend growth for investors. The company cut 450 positions last year and let go nearly 1,500 senior workers through early retirements. Progress Energy also hired 1,000 replacement workers at lower salaries.

Even though outsize corporate paychecks cause sticker shock to some, Wall Street analysts and the companies themselves defend the gargantuan pay scales for superstar CEOs.

"Even when we're cutting costs, it's important to invest in our employees, pay competitive salaries and incentive bonuses based on performance," said Progress Energy spokesman Keith Poston. "We do that at all levels of the company."

The top 13 executives got $5 million in bonuses for 2005, Poston said. The other 11,600 employees divvied up $63.4 million in bonuses, Poston said.

Progress Energy's board compensates executives according to a variety of goals and measures. As a result, the total value of McGehee's total compensation package decreased in 2005 to $4.2 million from $5.1 million the year before. One reason is that some aspects of corporate pay are linked to Progress Energy's stock performance as compared with other utilities. The company fell by that measure in 2005, decreasing McGehee's long-term incentive pay.

McGehee, a onetime Navy lieutenant who served on a nuclear submarine, outperformed his colleagues by almost every measure. McGehee's 22 percent pay raise is of Olympian proportions compared with that of some of his fellow executives.

The company's No. 2 executive, chief operating officer William Johnson, will make a base salary of $730,000 this year, up 12.6 percent from 2005.

Chief nuclear officer C.S. "Scotty" Hinnant got a pay raise of 3.2 percent, bringing his 2006 annual base salary to $480,000. Fred Day, CEO of Progress Energy Carolinas, got a 2.6 percent raise and will get a base salary of $395,000 this year.

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