Edison International DEF 14A 2009
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant x Filed by a Party other than the Registrant ¨
Check the appropriate box:
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of filing fee (Check the appropriate box):
SOUTHERN CALIFORNIA EDISON COMPANY
NOTICE OF ANNUAL MEETING
JOINT PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
April 23, 2009
March 13, 2009
You are invited to attend the Edison International and Southern California Edison Company (SCE) Annual Meeting of Shareholders (the Annual Meeting). The Annual Meeting will be held jointly on Thursday, April 23, 2009, at 9:00 a.m., Pacific time, at the Hilton Los Angeles/San Gabriel Hotel, 225 West Valley Blvd., San Gabriel, California 91776.
The Edison International and SCE Joint Proxy Statement and the applicable 2008 Annual Report are enclosed or have otherwise been made available to you electronically via the Internet. The Joint Proxy Statement discusses the matters to be considered at the Annual Meeting. At the meeting, shareholders of Edison International and SCE will elect Directors who will serve until the next Annual Meeting and will vote on ratification of the appointment of the independent registered public accounting firm for 2009 for each company. Also at the meeting, Edison International shareholders will vote on the following matters:
Your Boards of Directors recommend that you vote FOR the nominees for Directors listed in the Joint Proxy Statement and FOR the ratification of the appointment of the accounting firm. For reasons stated in the Joint Proxy Statement, the Edison International Board of Directors recommends that you vote FOR the management proposal and AGAINST the shareholder proposal.
Whether or not you expect to attend the Annual Meeting, and regardless of the number of shares you own, your vote is important. Instructions on how to vote your shares are included on the proxy card/voting instructions or available electronically via the Internet. Most shareholders have the option to vote shares by mail, by telephone, or via the Internet. Voting by any of the available methods will ensure that you are represented at the Annual Meeting, even if you are not present.
Please take the first opportunity to ensure that your shares are represented at the Annual Meeting. Voting promptly will save us the cost of additional solicitations.
Thank you very much for your continued interest in the business of Edison International and SCE.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Thursday, April 23, 2009
9:00 a.m., Pacific Time
Hilton Los Angeles/San Gabriel Hotel
225 West Valley Blvd.
San Gabriel, California 91776
Directions to the 2009 Edison International (EIX) and Southern California Edison Company (SCE) annual meeting are available in the Joint Proxy Statement, which can be viewed at www.edison.com/annualmeeting.
Matters to be acted upon by EIX and SCE shareholders:
The EIX and SCE Boards of Directors recommend that you vote FOR Items 1 and 2.
Matters to be acted upon by EIX shareholders only:
The EIX Board of Directors recommends that you vote FOR Item 3.
The EIX Board of Directors recommends that you vote AGAINST Item 4.
Dated: March 13, 2009
TABLE OF CONTENTS
SOUTHERN CALIFORNIA EDISON COMPANY
2244 WALNUT GROVE AVENUE
ROSEMEAD, CALIFORNIA 91770
JOINT PROXY STATEMENT
INTRODUCTION SOLICITATION OF PROXIES
This Joint Proxy Statement, proxy forms, voting instructions, and the 2008 Annual Reports are being distributed together beginning on or about March 13, 2009, to the Edison International and Southern California Edison Company shareholders for their annual meeting. The annual meeting will be held jointly on Thursday, April 23, 2009, at 9:00 a.m., Pacific time, at the Hilton Los Angeles/San Gabriel Hotel, 225 West Valley Blvd., San Gabriel, California 91776. The Edison International and Southern California Edison Company Boards of Directors are soliciting proxies from you for use at the annual meeting, or at any adjournment or postponement of the meetings. Proxies allow properly designated individuals to vote on your behalf at an annual meeting. This Joint Proxy Statement discusses the matters to be voted on at the annual meeting.
In this Joint Proxy Statement:
QUESTIONS AND ANSWERS ON VOTING, PROXIES AND ATTENDANCE
The Hilton Los Angeles/San Gabriel Hotel is located just north of Interstate 10, approximately ten miles east of Downtown Los Angeles. From Interstate 10, take the Del Mar Ave. exit north (towards San Gabriel) to Valley Blvd. Turn left at Valley Blvd. to 225 West Valley Blvd.
If you are a registered or 401(k) Plan shareholder, you may choose one of the following ways to cast your vote:
If you vote by telephone or via the Internet, follow the instructions on the e-mail, Notice, or proxy/voting instruction card you received. Additionally, if you vote by telephone, you will receive recorded instructions, or if you vote via the Internet, you will receive additional instructions at the applicable Internet website. You will need to provide the control number(s) on your e-mail, Notice, or proxy/voting instruction card, as applicable. Voting by telephone and via the Internet is available 24 hours a day, seven days a week, through 9:00 p.m., Pacific time, on April 22, 2009, except for 401(k) Plan shareholders who must vote by 9:00 p.m., Pacific time, on April 21, 2009.
Shareholders who vote by telephone or via the Internet should not mail the proxy/voting instruction card.
By voting by mail, telephone or via the Internet, you will authorize the individuals named on the proxy/voting instruction card, referred to as the proxies, or the 401(k) Plan trustee, to vote your shares according to your instructions. You are also authorizing those persons to vote your shares on any other matter properly presented at the meeting. Under California law, you or your authorized attorney-in-fact may transmit a proxy by mail, telephone or via the Internet.
Your last vote will be the vote that is counted.
If you are a 401(k) Plan shareholder, you can revoke your voting instructions by voting again via mail, telephone or the Internet. Votes received by 9:00 p.m., Pacific time, on April 21, 2009 will be counted. Your last vote received within this timeframe will be the vote that is counted.
If you hold shares in street name, you should contact your bank, broker or other nominee before the Annual Meeting to determine whether and how you can change your voting instructions.
The holders of the EIX Common Stock have the right to cast a total of 325,797,017 votes. The holders of the SCE Cumulative Preferred Stock have the right to cast a total of 28,801,188 votes and the holder of the SCE Common Stock, EIX, has the right to cast a total of 434,888,104 votes. Voting together as a class, the SCE shareholders have the right to cast a total of 463,689,292 votes.
A quorum is required to transact business at the Annual Meeting. The presence at the Annual Meeting, in person or by proxy, of shareholders entitled to cast at least a majority of the votes which all shareholders are entitled to cast constitutes a quorum. If you properly return your proxy/voting instruction card by mail, or properly vote by telephone or via the Internet, the votes represented by your shares will be considered present and part of the quorum, even if you abstain from voting on a proposal or withhold votes for Directors. If a bank, broker or other nominee holding your shares in street name votes your shares or returns a properly executed proxy representing your shares, the votes represented by your shares will be considered as present and part of the quorum, even if your bank, broker or other nominee abstains or withholds votes on any or all matters.
HOUSEHOLDING OF PROXY STATEMENTS AND ANNUAL REPORTS
The Companies have been notified that certain banks, brokers and other nominees will household, meaning deliver only one set of the Companies annual reports and proxy statements to multiple shareholders sharing an address who hold in street name and have consented to householding. In this case, you may request an individual copy of this Joint Proxy Statement and/or the applicable 2008 Annual Report by contacting your bank, broker or other nominee.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
The Companies Joint Proxy Statement for the Annual Meeting, the respective 2008 Annual Reports, and any other proxy materials are available at www.edison.com/annualmeeting for both EIX and SCE. A complete set of proxy materials available on the Internet includes a letter from the Chairman, the Companies Notice of Annual Meeting, Important Notice Regarding the Availability of Proxy Materials, and Joint Proxy Statement for the Annual Meeting, and the respective 2008 Annual Reports and proxy forms.
As permitted under Securities and Exchange Commission rules, the Companies are making this Joint Proxy Statement and their respective Annual Reports available to their shareholders electronically via the Internet. On March 13, 2009, the Companies mailed certain EIX and SCE shareholders a Notice with instructions on how to access this Joint Proxy Statement and the 2008 Annual Reports and vote their proxy via the Internet. On that date, EIX also sent an e-mail to certain EIX 401(k) Plan holders with similar instructions. Distributing these proxy materials via the Internet will save the Companies the cost of printing and mailing documents and will reduce the impact of the Annual Meeting on the environment.
If you received an e-mail or a Notice by mail, you will not receive a printed copy of the proxy materials in the mail. Instead, the e-mail or Notice instructs you on how to access and review all of the important information contained in the Joint Proxy Statement and 2008 Annual Reports. The e-mail or Notice also instructs you on how you may submit your proxy over the Internet. If you received an e-mail or a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials contained in the e-mail or Notice.
For all shareholders, although there are no EIX or SCE fees or charges for this service, there may be costs associated with electronic access, such as usage charges from Internet access providers and telephone companies, for which you will be responsible.
NOMINEES FOR ELECTION
Eleven Directors will be elected to the EIX Board and 12 Directors will be elected to the SCE Board. The Directors will be elected to hold office until the next Annual Meeting. Directors of EIX and SCE are the same, except that Mr. Fohrer is a nominee for the SCE Board only. A brief biography of each nominee describing his or her age, business experience during the past five years, and other prior relevant business experience is presented below as of the date of this Joint Proxy Statement.
VANESSA C.L. CHANG
Principal of EL & EL Investments (private real estate investment business) (since 1999); Chief Executive Officer and President of ResolveItNow.com (online dispute resolution service) (2000-2002); Senior Vice President of Secured Capital Corporation (real estate investment bank) (1998); Partner at KPMG Peat Marwick LLP (1986-1997)
Ms. Chang has been a Director of EIX and SCE since 2007. She is a Director or Trustee of three funds in the American Funds family, advised by Capital Research and Management Company. Ms. Chang is a graduate of the University of British Columbia. Age 56.
FRANCE A. CÓRDOVA
President of Purdue University (since 2007); Chancellor, University of California, Riverside (2002-2007); Vice Chancellor for Research, University of California, Santa Barbara (1996-2002)
Dr. Córdova has been a Director of EIX and SCE since 2004. She is a Director of SAIC, Inc. Dr. Córdova is a graduate of Stanford University and holds a Ph.D in physics from the California Institute of Technology. Age 61.
THEODORE F. CRAVER, JR.
Chairman of the Board, President and Chief Executive Officer of EIX (since 2008); Chairman of the Board, President and Chief Executive Officer of EMG (2005-2008); Executive Vice President (2002-2004), Chief Financial Officer (2000-2004) and Treasurer (1996-2004) of EIX; Chairman of the Board and Chief Executive Officer of Edison Enterprises (1999-2004)
Mr. Craver joined EIX and SCE in 1996. In addition to the positions set forth above, he served as Vice President of EIX and SCE (1996-1998), Treasurer of SCE (1996-1999), and Senior Vice President of EIX (1998-2002) and SCE (1998-1999). Mr. Craver has been a Director of EIX since 2007, and SCE since 2008. He is a Director of Health Net, Inc. Mr. Craver is a graduate of the University of Southern California, where he also received his MBA degree. Age 57.
CHARLES B. CURTIS
President and Chief Operating Officer of the Nuclear Threat Initiative (private foundation dealing with national security issues) (since 2001); Executive Vice President of the United Nations Foundation (2000); Partner of the law firm of Hogan & Hartson (1997-2000); Deputy Secretary of the U.S. Department of Energy (1995-1997); Under Secretary of the U.S. Department of Energy (1994-1995); Chairman of the Federal Energy Regulatory Commission (1977-1981)
Mr. Curtis has been a Director of EIX and SCE since 2006. He is a Trustee of The Putnam Funds, a family of over 100 equity and fixed income mutual funds. Mr. Curtis is a graduate of the University of Massachusetts, Amherst, and Boston University Law School. Age 68.
ALAN J. FOHRER*
Chairman of the Board (since 2007 and in 2002) and Chief Executive Officer (since 2002) of SCE; President and Chief Executive Officer of EME (2000-2001); Executive Vice President and Chief Financial Officer of EIX (1995-2000)
Mr. Fohrer has been a Director of SCE since 2002. He holds two degrees in civil engineering from the University of Southern California, and received his MBA degree from California State University, Los Angeles. Age 58.
BRADFORD M. FREEMAN
Founding Partner, Freeman Spogli & Co. (private investment company) (since 1983); Managing Director of Dean Witter Reynolds, Inc. (brokerage firm) (1976-1983)
Mr. Freeman has been a Director of EIX and SCE since 2002. He is a Director of CB Richard Ellis Group, Inc. Mr. Freeman is a graduate of Stanford University and holds an MBA degree from Harvard Business School. Age 67.
LUIS G. NOGALES
Managing Partner of Nogales Investors, LLC (private equity investment company) (since 2001); President of Nogales Partners (private equity investment company) (19902001); President of Univision (Spanish language television network) (1986-1988); Chairman and Chief Executive Officer of United Press International (communications) (1983-1986)
Mr. Nogales has been a Director of EIX and SCE since 1993. He is a Director of Arbitron Inc., and KB Home. Mr. Nogales is a graduate of San Diego State University and Stanford Law School. Age 65.
RONALD L. OLSON
Partner of the law firm of Munger, Tolles and Olson (since 1970)
Mr. Olson has been a Director of EIX and SCE since 1995. He is a Director of Berkshire Hathaway, Inc., City National Corporation, The Washington Post Company, and a Director or Trustee for three funds in the Western Asset funds complex. Mr. Olson is a graduate of Drake University and University of Michigan Law School and holds a Diploma in Law from Oxford University. Age 67.
JAMES M. ROSSER
President of California State University, Los Angeles (since 1979)
Dr. Rosser has been a Director of SCE since 1985 and a Director of EIX since 1988. Dr. Rosser holds three degrees from Southern Illinois University. Age 69.
RICHARD T. SCHLOSBERG, III
Retired President and Chief Executive Officer of The David and Lucile Packard Foundation (private family foundation) (1999-2004); Publisher and Chief Executive Officer, Los Angeles Times (newspaper) (1994-1997); Executive Vice President and Director, The Times Mirror Company (media communications) (1994-1997)
Mr. Schlosberg has been a Director of EIX and SCE since 2002. He is a Director of eBay Inc. Mr. Schlosberg is a graduate of the United States Air Force Academy and holds an MBA degree from Harvard Business School. Age 64.
THOMAS C. SUTTON
Retired Chairman of the Board and Chief Executive Officer of Pacific Life Insurance Company (1990-2007)
Mr. Sutton has been a Director of EIX and SCE since 1995. He is a graduate of the University of Toronto. Age 66.
Chief Executive Officer, President and a Director of CB Richard Ellis (commercial real estate services firm) (since 2005); President and a Director of CB Richard Ellis (2001-2005); Chairman of the Americas of CB Richard Ellis Services (1999-2001)
Mr. White has been a Director of EIX and SCE since 2007. He is a graduate of the University of California, Santa Barbara. Age 49.
QUESTIONS AND ANSWERS ON CORPORATE GOVERNANCE
Under the Guidelines, no Director will be considered independent if he or she has a relationship with the Companies that would be deemed disqualifying under New York Stock Exchange listing standards for purposes of a determination of independence. Directors who are not so disqualified from being independent will be determined by the Boards to be independent unless a Director otherwise has a material relationship with EIX, SCE, or any of their subsidiaries. The Boards have determined that the following relationships are not material and therefore are not considered for purposes of determining Directors independence:
For purposes of the categories of relationships described in the above paragraphs:
Additionally, relationships are not considered if the individual is only a director or trustee of an organization that has a relationship with the Companies.
For relationships not prohibited by New York Stock Exchange rules and also not covered under the preceding categories of immaterial relationships, the determination of whether a relationship is material or not, and therefore whether a Director is independent or not, is made in good faith by the Directors, provided that the Director whose relationship is under consideration abstains from the vote regarding his or her independence.
The EIX Board believes that our Chief Executive Officer is best situated to serve as Chairman because he is the director most familiar with our business and industry, and most capable of effectively identifying strategic priorities and leading the discussion and execution of strategy. Independent directors and management have different perspectives and roles in strategy development. Our independent directors bring experience, oversight and expertise from outside the company and industry, while the Chief Executive Officer brings company-specific experience and expertise. The Board believes that the combined role of Chairman and Chief Executive Officer promotes strategy development and execution, and facilitates information flow between management and the Board, which are essential to effective governance.
One of the key responsibilities of the Board is to develop strategic direction and hold management accountable for the execution of strategy once it is developed. The EIX Board believes the combined role of Chairman and Chief Executive Officer, together with an independent Lead Director having the duties described above, is in the best interest of shareholders because it provides the appropriate balance between strategy development and independent oversight of management. However, the Board continues to follow trends in this area and could, under different circumstances, reach a different conclusion.
The Lead Director is identified on our website Board of Directors list, and a description of the Lead Directors duties is included in the Companies Corporate Governance Guidelines, both of which are posted on EIXs Internet website at www.edisoninvestor.com, under Corporate Governance.
The EIX Board would seek prior shareholder approval of the adoption of any new shareholder rights plan unless, due to timing constraints or other reasons consistent with the fiduciary duties of EIXs Board of Directors, a committee consisting solely of independent Directors determines that it would be in the best interests of EIXs shareholders to adopt the plan before obtaining shareholder approval. Any rights plan hereafter adopted by EIXs Board of Directors without prior shareholder approval shall automatically terminate on the first anniversary of the adoption of the plan unless, prior to such anniversary, the plan shall have been approved by EIXs shareholders.
BOARD COMMITTEES AND SUBCOMMITTEES
The Companies have standing Audit, Compensation and Executive Personnel, Executive, Finance, and Nominating/Corporate Governance Committees. Additionally, SCE has a Pricing Committee, and both Companies have Subcommittees of the Compensation and Executive Personnel Committee. The Committees charters are posted on EIXs Internet website at www.edisoninvestor.com, under Corporate Governance, and are available in print upon request from the EIX or SCE Corporate Secretary. The following table describes the Boards Committees and Subcommittees.
COMPENSATION DISCUSSION AND ANALYSIS
This section contains a discussion of the material elements of compensation awarded to, earned by, or paid to the principal executive officers, the principal financial officers, the other three most highly compensated Executive Officers of EIX and SCE during 2008, and certain other EIX or SCE Executive Officers who were highly compensated during 2008 but were no longer Executive Officers of the respective Companies at year end. These individuals are referred to as the Named Officers in this Joint Proxy Statement. This section also provides information about the compensation objectives, policies, and decisions applicable to those Named Officers. For EIX, the Named Officers for 2008 are Theodore F. Craver, Jr. (who became President of EIX on April 1, 2008 and Chairman of the Board and Chief Executive Officer effective July 31, 2008), Alan J. Fohrer, W. James Scilacci, John R. Fielder, Ronald L. Litzinger, John E. Bryson, Thomas R. McDaniel, and J.A. Bouknight, Jr. For SCE, the Named Officers for 2008 are Alan J. Fohrer, Thomas M. Noonan, John R. Fielder, Pedro J. Pizarro, Mahvash Yazdi, Polly L. Gault, and Ronald L. Litzinger.
The executive compensation programs are determined and approved by the Compensation and Executive Personnel Committees of the Companies Boards of Directors. We use the term Committee throughout the remainder of this Joint Proxy Statement to refer to the Committees of both Companies in relation to their respective compensation programs, unless we specifically note the EIX Committee or SCE Committee. None of the Named Officers is a member of the Committee. The EIX Chief Executive Officer provides the Committee with recommendations regarding the compensation of all EIX and SCE officers with the rank of Vice President or above, after conferring with the EIX Managing Committee. While certain Named Officers are members of the EIX Managing Committee and participate in developing recommendations on the evaluation of the Companies performance, the Named Officers do not participate in recommendations on their own individual compensation recommendations. The Committee reviews these recommendations and determines final compensation. In executive session, the EIX Committee determines the compensation of the EIX Chief Executive Officer.
Executive Compensation Program Objectives and Overview
The executive compensation programs for Named Officers are intended to achieve three fundamental objectives: (1) attract and retain qualified executives, (2) focus executives attention on specific strategic and operating objectives of the Companies, and (3) align executives interests with the long-term interests of the shareholders and, for SCE, its ratepayers. The material elements of the executive compensation programs for Named Officers include base salary, annual bonus, long-term incentives, retirement and other post-termination benefits, severance benefits and perquisites. The Committee believes that each element of the executive compensation program is appropriately structured to help achieve one or more of the compensation objectives described above.
While some of the compensation program elements, such as base salary and annual bonus, are earned and payable on a short-term or current basis, other elements are earned and payable over a longer term or in some cases upon retirement or other termination of employment. Additionally some of the program elements are paid in cash while others are paid in the form of EIX Common Stock. Some components of compensation are earned based on annual performance, others on continued employment, and some on the long-term performance of the EIX stock price and EIX total shareholder return performance compared to its peer group of companies. Notably, with respect to the long-term performance component payable in 2008, there was a zero payout for performance shares as a result of EIX comparative total shareholder return performance. This is reflected in the Summary Compensation Table and Option Exercises and Stock Vested table below. In addition, bonus amounts relative to target for 2008 are generally lower than bonus amounts paid in prior years, as disclosed in column (g) of the Summary Compensation Table below.
The target value of the executive compensation package for each Named Officer is set at approximately the median level for that position among the peer group companies. All elements of executive compensation are regularly benchmarked against executive compensation in peer companies. Base salary, annual bonus, and long-term incentive compensation are benchmarked annually, while other employee benefits and perquisites are benchmarked at least every three years.
The Committee retains Frederic W. Cook & Company, Inc. (F.W. Cook), as its independent compensation consultant to assist the Committee in identifying industry trends and norms, reviewing and identifying the appropriate peer group companies, and evaluating relevant executive compensation data for these companies. The Committee selected the Philadelphia Utility Index minus AES Corporation plus Sempra Energy as the peer group for 2008. The same peer group was used for 2007 and 2006. AES Corporation is excluded from the group because its mix of business revenues differs significantly from that of EIX and the other companies in the group, and Sempra Energy is included due to its California nexus. Although the peer group differs from the Philadelphia Utility Index (depicted in the Stock Performance Graph included as part of EIXs 2008 Annual Report to Shareholders), the Committee believes the peer group provides more relevant comparative compensation data.
Current Executive Compensation Program Elements
Named Officers do not have a contractual right to receive a fixed base salary. Each February, the Committee determines salaries, long-term incentive awards, and annual bonus targets for the current year and bonuses for the completed year.
The Committees general policy is to set base salary guidelines for each position at approximately the median level for comparable executives at the peer group companies. The Committee has the ability to, and does, exercise discretion to increase or decrease a particular Named Officers base salary for any year based on its judgment of the officers individual performance and the Companies performance in the prior year.
In determining the 2008 base salary for each Named Officer in February 2008, the Committee considered the base salaries of comparable executives at the Companies peer group companies, each Named Officers individual performance and the Companies performance during the prior fiscal year. In determining Mr. Cravers base salary, the Committee anticipated his promotion to President of EIX effective April 1, 2008. The Committee also subsequently approved an increase in Mr. Cravers base salary effective when he became Chairman of the Board and Chief Executive Officer of EIX. The base salary that was paid to each Named Officer in 2008 is the amount reported for such officer in column (c) of the Summary Compensation Table below.
The bonus program for executives is the EIX Executive Incentive Compensation Plan. Named Officers do not have a contractual right to receive a fixed bonus for any given fiscal year. Instead, the Committee sets target and maximum potential bonus amounts at the start of each year. The Committee set potential targets and maximums for 2008 based on the median level of target bonus amounts for comparable executives at the peer group companies. The Committee set the maximum at twice the target amount, which the Committees independent compensation consultant has advised is the most prevalent practice among peer group companies. The 2008 target and maximum bonus amounts for the Named Officers are set forth in the Grants of Plan-Based Awards table below. The target and maximum amounts for Mr. Craver reflect increases approved by the Committee when Mr. Craver became Chairman of the Board and Chief Executive Officer of EIX. Bonuses under the Executive Incentive Compensation Plan are determined by the Committee following the end of the related fiscal year based on the Companies performance against specific goals set at the beginning of the performance year and the performance of each Named Officer.
The Committee met in February 2009 to evaluate the performance of the Companies in 2008 and to determine the 2008 annual bonuses for those Named Officers currently employed by the Companies, and for Mr. Bryson. Some strategic objectives are not easily quantifiable, so the Committee did not use a formulaic approach or pre-assigned weighting when making the bonus determinations, but performance against financial goals was given greater emphasis. Each Named Officers annual bonus earned for 2008 is set forth in
column (g) of the Summary Compensation Table below. Bonus amounts awarded were generally lower in 2008 relative to target than awards for 2007 and 2006. The Committee particularly took into account the following factors in evaluating the Companies performance in 2008:
Results from three major CPUC proceedings set a strong platform for future earnings and growth.
Major Operational Goals
Growth Related Goals
Major Operational Goals
Variations relative to target in bonuses awarded to individual Named Officers reflect the Committees assessment of individual performance at their respective companies.
To qualify annual bonuses as deductible performance-based compensation under Section 162(m) of the Internal Revenue Code, the EIX Committee adopted the 2008 Executive Bonus Program (2008 Bonus Program) pursuant to the provisions of the 2007 Performance Incentive Plan. Under the 2008 Bonus Program, an overall maximum bonus for 2008 was established for each participating Named Officer as a specified percentage of a bonus pool, with the aggregate bonus pool having a maximum value equal to 1.5% of EIXs consolidated earnings from continuing operations during the 2008 fiscal year. The actual bonus for 2008 awarded to each participating Named Officer was less than the applicable maximum determined under the 2008 Bonus Program. This approach was designed to establish each participating Named Officers bonus in a manner that complied with the performance-based compensation requirements of Section 162(m), while still preserving the Committees flexibility to determine the actual bonus for each Named Officer under the Executive Incentive Compensation Plan up to the maximum amount determined under the 2008 Bonus Program. If a Named Officer becomes entitled to severance benefits, the 2008 Bonus Program provides for a pro-rata payment of the officers target bonus opportunity or, if less, the maximum bonus the officer could have received under the 2008 Bonus Program for the year had his or her employment not terminated. Messrs. Scilacci, Noonan, Litzinger and Pizarro, and Ms. Yazdi, did not participate in the 2008 Bonus Program, and their bonuses were determined in the discretion of the Committee solely under the terms of the Executive Incentive Compensation Plan.
The Committees policy is that the Named Officers long-term incentives should be directly linked to the value provided to shareholders of EIX Common Stock. Therefore, 100% of the Named Officers long-term incentives is currently awarded in the form of equity instruments reflecting, or valued by reference to, EIXs Common Stock. In 2008, 75% of each Named Officers long-term incentive award value was in the form of EIX non-qualified stock options. The remaining portion of each Named Officers long-term incentive award value was in the form of EIX performance shares. The performance share awards for Named Officers provide for reinvested dividend equivalents; the stock options contain no dividend equivalent rights.
The Committee approved grants of stock options and performance shares to the Named Officers in February 2008, with a grant date of March 3, 2008. Mr. Craver received additional awards approved by the Committee to be effective at the end of the quarters in which he was promoted to President of EIX, and to Chairman of the Board and Chief Executive Officer of EIX, respectively. Messrs. Scilacci, Litzinger, and Pizarro also received
additional awards approved by the Committee effective at the end of the quarters in which they were promoted to their respective positions reflected in the Summary Compensation Table below. The Committee determined the target values of the long-term incentive awards for Named Officers based on the peer group median for long-term incentive awards. Prior to fixing the grant dates of annual long-term incentive grants, the EIX Committee first approved the grant values and methodology for converting those values into the number of options and performance shares.
Named Officers will realize value in the stock option portion of their long-term award only if EIX shareholders realize value on their shares. The value realized by Named Officers will be commensurate with the value realized by shareholders from appreciation in the stock price. The exercise prices of options granted to the Named Officers as part of EIXs regular annual grants in 2008, 2007 and 2006 were $49.95, $47.41 and $44.295, respectively, compared to a closing price of EIX Common Stock on March 3, 2009 of $24.84.
Named Officers will realize value in the performance share portion of their long-term award only if EIX performs on a par with, or better than, the peer group companies. If EIX performs below the 40th percentile of the peer group companies in total shareholder return over the three-year performance period, this portion of the award will have no value. Conversely, if EIX performs above this level, the awards value will increase as the performance level increases, up to a maximum of two times the target shares if EIXs performance is at the 75th percentile or higher of the peer group companies. As noted above, with respect to the performance shares payable in 2008, there was a zero payout as a result of EIX comparative total shareholder return performance.
The value of the performance shares and options expensed in 2008 as determined under FAS 123R for purposes of the Companies financial statements is shown in columns (e) and (f) of the Summary Compensation Table below. The Grants of Plan-Based Awards table and related narrative Description of Plan-Based Awards section below provide additional detail regarding the performance shares and options granted to the Named Officers in 2008, including the estimated performance share payouts at different total shareholder return percentile rankings, and the vesting and other terms that apply to the performance shares and options. For performance shares, the zero payout in 2008, together with a downward adjustment in the expected payout in 2009 as a result of the decline in stock price in 2008, has resulted in considerably lower values as compared to the two prior years.
The Named Officers receive retirement benefits under the terms of qualified and non-qualified defined-benefit and defined-contribution retirement plans. The SCE Retirement Plan and 401(k) Plan are both tax-qualified retirement plans in which the Named Officers participate on substantially the same terms as other participating employees. However, due to maximum limitations imposed by the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code, the benefits that would otherwise be payable to the Named Officers under the SCE Retirement Plan and the 401(k) Plan are limited. Because the Companies do not believe that it is appropriate for the Named Officers retirement benefits to be reduced because of limits under ERISA and the Internal Revenue Code, the Companies have established non-qualified supplemental defined-benefit and defined-contribution retirement plans that permit the Named Officers to receive the full amount of benefits that would be paid under the qualified plans but for such limitations.
The non-qualified defined-benefit retirement plan is the Executive Retirement Plan. Named Officers defined-benefit retirement values are calculated using their full salaries and annual bonuses, subject to reduction for benefits under the SCE Retirement Plan, the profit sharing benefit feature of the 401(k) Plan, and a portion of their Social Security benefits.
The non-qualified defined-contribution retirement plan is the Executive Deferred Compensation Plan. Under this plan, Named Officers are permitted to defer up to 75% of their base salaries and up to 100% of their annual bonuses, as well as long-term incentives and other special awards otherwise payable in cash, including dividend equivalents associated with stock options granted prior to 2007 and a portion of performance share awards. The
Companies make a matching deferred contribution on the Named Officers base salary deferrals in amounts that are intended to correspond to the matching contribution that would have been made under the 401(k) Plan, and on the Named Officers annual bonus deferrals at one-half the rate of matching contributions on salary. Amounts deferred under this plan are credited with interest, as participants essentially are loaning to the Companies, as unsecured general creditors, the amounts they otherwise would have been paid in salary, bonuses, long-term incentives, or other payouts. Certain of the Named Officers who have retired were permitted to defer compensation under predecessor deferred compensation plans. EIX and SCE believe that providing the Named Officers with deferred compensation opportunities is a cost-effective way to permit officers to receive the tax benefits associated with delaying income tax on the compensation deferred, even though the related deduction for the Companies is also deferred.
The Companies also sponsor survivor and disability benefit plans in which the Named Officers are eligible to participate.
The Pension Benefits table and related narrative section Pension and Other Retirement Plans below describe EIXs and SCEs qualified and non-qualified defined-benefit plans. The Non-Qualified Deferred Compensation table and related narrative section Non-Qualified Deferred Compensation Plans below describe EIXs and SCEs non-qualified defined-contribution plans.
The Committees policy regarding severance protection for Named Officers stems from its importance in recruiting and retaining executives. Executives are recruited from well-compensated positions in other companies or have attractive opportunities with other companies. The Committee believes offering one years worth of compensation and benefits if any officer is involuntarily severed without cause offers financial security to offset the risk of leaving another company or foregoing an opportunity with another company. Severance benefits are not offered for resignation for good reason or other constructive termination in the absence of a change in control. The Companies also provide severance protection for non-executive employees whose positions are eliminated.
The current executive compensation plans offer additional benefits in the event of a change in control of EIX. The Committee believes that the occurrence, or potential occurrence, of a change-in-control transaction would create uncertainty regarding continued employment for Named Officers. This uncertainty would result from the fact that many change-in-control transactions result in significant organizational changes, particularly at the senior executive level. To encourage the Named Officers to remain employed with the Companies during a time when their prospects for continued employment following the transaction would be uncertain, and to permit them to remain focused on the Companies interests during the change in control, the Named Officers would be provided with enhanced severance benefits if their employment were actually or constructively terminated without cause in connection with a change in control. The change-in-control severance benefits for Messrs. Noonan, Fielder, and Pizarro, and Mses. Yazdi and Gault, generally would be equivalent in value to two years worth of compensation and benefits, while the change-in-control severance benefits for Messrs. Craver, Fohrer, Scilacci, and Litzinger generally would be equivalent in value to three years worth of compensation and benefits. Given that none of the Named Officers has an employment agreement that provides for fixed positions or duties, or for a fixed base salary or annual bonus, the Committee believes that a constructive termination severance trigger is needed to prevent potential acquirors from having an incentive to constructively terminate a Named Officers employment to avoid paying any severance benefits at all.
Pursuant to the EIX Executive Severance Plan established effective January 1, 2001, as part of their change-in-control severance benefits, Named Officers would be reimbursed for the full amount of any excise taxes imposed on their severance payments and any other payments under Section 4999 of the Internal Revenue Code, and for all taxes due on the amount of that reimbursement. This excise tax gross-up provision is intended to preserve the level of change-in-control severance protections that the Committee has determined to be appropriate.
The Committee does not believe that Named Officers should be entitled to receive their cash severance benefits merely because a change-in-control transaction occurs. Therefore the payment of cash severance benefits would only be triggered by an actual or constructive termination of employment. However, if there were a dissolution, a sale of all or substantially all of the EIX stock or assets, a merger or reorganization or other event where EIX is not the surviving corporation, and following the transaction, outstanding equity awards would not be continued or assumed, then Named Officers would receive immediate vesting of their outstanding equity awards. Outstanding options would become immediately vested and exercisable, and the Named Officers outstanding equity awards that had performance-based vesting conditions would become vested based on performance during a shortened performance period ending on the day prior to the change in control. Although this vesting would occur whether or not a Named Officers employment terminated, the Committee believes it is appropriate to fully vest equity awards in situations where EIX is not the surviving corporation and the equity awards are not assumed, because such a transaction effectively ends the Named Officers ability to realize any further value with respect to the equity awards.
Amendments to Benefit Plans in 2008
In 2008, EIX amended its Executive Severance Plan and certain other benefit plans that included deferred compensation arrangements to comply with the IRSs deferred compensation rules under Section 409A of the Internal Revenue Code. These amendments did not increase the benefits to participants under these plans.
EIX and SCE provide the Named Officers with certain perquisites, consisting of estate and financial planning services, automobile-related benefits, and executive health services. Club memberships and spousal travel are provided to some Named Officers when deemed to serve a business purpose. Home security was provided to Mr. Bryson in 2008 prior to his retirement for business purposes, but is no longer provided to any Named Officer. Perquisites are benchmarked at least every three years and reviewed, revised and approved by the Committee. No tax gross-up payments are made on taxable perquisites. However, as further disclosed in footnote (5) to the Summary Compensation Table below, tax gross-up payments were made in connection with car services provided for business reasons to certain Named Officers for a limited period in 2008, and have since ceased.
The perquisites provided to each Named Officer in 2008 are reported in column (i) of the Summary Compensation Table below, and are further described in footnotes (5) and (6) to that table.
Stock Ownership Guidelines
To underscore the importance of linking executive and shareholder interests, EIX and SCE have adopted stock ownership guidelines that apply to all of the Named Officers who are currently employed by the Companies. The guidelines require the Named Officers to own an amount ranging from two to five times their annual base salary in the form of EIX Common Stock (or equivalents). The guideline for Mr. Craver is five times his base salary, for Messrs. Fohrer, Scilacci, and Litzinger three times their base salary, and for the remaining Named Officers two times their base salary. The Named Officers are expected to achieve their ownership targets within five years from the date they became subject to the guidelines. EIX Common Stock owned outright, shares held in the 401(k) Plan and vested and unvested deferred stock units whose payout does not depend on performance measures are included in determining compliance with the guidelines. Shares that Named Officers have the right to acquire through the exercise or payout of stock options, performance shares and other stock-denominated awards are not included in the calculation of stock ownership for guideline purposes until such time as the options or other awards are actually exercised, or paid, as the case may be, and the shares are acquired.
Section 162(m) Policy
Section 162(m) of the Internal Revenue Code generally disallows a tax deduction by public companies for compensation over $1,000,000 paid to their chief executive officers and their other most highly compensated executive officers unless certain tests are met. EIXs general intention is to design and administer its executive compensation programs to preserve the deductibility of compensation payments to Named Officers. Under the terms of the EIX 2007 Performance Incentive Plan, non-qualified stock options, performance shares and annual bonuses awarded to the EIX Named Officers are structured to constitute performance-based compensation within the meaning of section 162(m) of the Internal Revenue Code. Nevertheless, EIXs goal of preserving the deductibility of compensation is secondary in importance to achievement of its compensation objectives.
COMPENSATION COMMITTEE REPORT(1)
The EIX and SCE Committees have certain duties and powers as described in their Charters. The Charters of both Committees are posted on EIXs Internet website at www.edisoninvestor.com under Corporate Governance. The Committees are currently composed of the five independent non-employee Directors named at the end of this report, each of whom is independent as defined by the New York Stock Exchange listing standards.
The Committees have reviewed and discussed with management the Compensation Discussion and Analysis section of this Joint Proxy Statement. Based upon this review and the discussions, the EIX and SCE Compensation and Executive Personnel Committees recommended to their respective Boards of Directors that the Compensation Discussion and Analysis section be included in the EIX and SCE 2008 Annual Reports on Form 10-K and this Joint Proxy Statement.
INTERLOCKS AND INSIDER PARTICIPATION
Dr. Rosser became a Committee member and Robert H. Smith ceased to be a Committee member when the EIX and SCE Committees were reappointed on April 24, 2008. The other Committee members whose names appear on the Committees Report above were Committee members during all of 2008. Under applicable SEC rules, there were no interlocks or insider participation on the Compensation and Executive Personnel Committees.
EXECUTIVE AND DIRECTOR COMPENSATION
The Committee has the authority to review and determine the compensation paid to the officers of the Companies which consist of each Companys Chairman of the Board and Chief Executive Officer, President, Chief Financial Officer, Vice Presidents, General Counsel, Controller, Treasurer and Secretary. The Committee generally determines each officers compensation following an annual review of the Companies performance relative to their goals and the officers individual performance. All of the Named Officers compensation is reviewed and determined by the Committee. The Committee reviews and may make recommendations regarding the compensation paid to the non-employee Directors of EIX and SCE. However, the compensation for the Directors of EIX and SCE is determined by the respective Board of Directors.
Each Board of Directors may delegate some or all of the Committees authority to review and determine the compensation paid to the officers to subcommittees consisting of at least two members of the Committee. However, neither Board of Directors has delegated the Committees authority to determine officer compensation to a subcommittee, other than certain compensation decisions with respect to non-Executive Officer Vice Presidents and lower level officers. The process for consideration and determination of executive compensation is described in the Compensation Discussion and Analysis above.
The Committee has the sole authority to retain and terminate any compensation consultant engaged to assist in the evaluation of compensation for the officers, including all of the Named Officers. The Committee has retained F.W. Cook as the Committees independent compensation consultant on all matters related to the executive compensation programs. The executive compensation consultants responsibilities include reviewing the executive and Director compensation programs and philosophy and advising the Committee of plans or practices that might be made more effective, and proactively advising the Committee on norms and best practices for executive and Director compensation and areas of concern and risk in the programs. Interactions between F.W. Cook and management are incidental to its work for the Committee, and F.W. Cook has not performed any other services for the Companies unrelated to executive compensation.
SUMMARY COMPENSATION TABLE
The following table presents information regarding compensation of the Named Officers for service during 2008, and, where applicable because the Named Officer was also an EIX or SCE Named Officer in such years, for 2007 and 2006.
Performance Share Amounts. The table below shows the performance share amounts recognized in 2008 for financial statement reporting purposes by year of grant for each Named Officer.
Option Amounts. The table below shows the option amounts recognized in 2008 for financial statement reporting purposes by year of grant for each Named Officer.
Compensation of Named Officers
The Summary Compensation Table above quantifies the value of the different forms of compensation considered earned by or awarded to the Companies Named Officers in 2006, 2007, and 2008. The primary elements of each Named Officers total compensation reported in the table are base salary, a long-term equity incentive opportunity consisting of non-qualified stock options and performance shares, an annual bonus (non-equity incentive plan award) contingent on performance, an increase in accumulated retirement pension benefits and certain earnings on deferred compensation account balances. Named Officers also earned the other benefits listed in column (i) of the Summary Compensation Table above, as further described in footnotes (5) and (6) above.
The Summary Compensation Table should be read in connection with the tables and narrative descriptions that follow. The Grants of Plan-Based Awards table, and the description of the material terms of the nonqualified options, performance shares and bonuses granted in 2008 that follows it, provide information regarding the long-term equity incentives and annual performance bonuses awarded to Named Officers in 2008 that are reported in the Summary Compensation Table. The Outstanding Equity Awards at Fiscal Year End and Option Exercises and Stock Vested tables provide further information on the Named Officers potential realizable value and actual value realized with respect to their equity awards.
The Pension Benefits table and related description of the material terms of the Companies pension plans describe each Named Officers retirement benefits under the Companies defined-benefit pension plans to provide context to the amounts listed in the Summary Compensation Table. Similarly, the Non-Qualified Deferred Compensation table and related description of the material terms of the Companies non-qualified deferred compensation plans provide context to the deferred compensation earnings listed in the Summary Compensation Table, and also provide a more complete picture of the potential future payments due to the Companies Named Officers. The discussion in the section Potential Payments Upon Termination or Change in Control explains the potential future payments that may become payable and actual payments made to the Companies Named Officers.
GRANTS OF PLAN-BASED AWARDS
The following table presents information regarding the incentive plan awards granted to the Named Officers during 2008 under the EIX 2007 Performance Incentive Plan and the potential 2008 target and maximum amount of performance-based annual bonuses payable under the 2008 Bonus Program or the EIX Executive Incentive Compensation Plan.
Note that column (i) All Other Stock Awards has been omitted in accordance with SEC rules because no such compensation was awarded to, earned by, or paid to the Named Officers during 2008.
Description of Plan-Based Awards in 2008
Seventy-five percent of each Named Officers long-term incentive compensation opportunity for 2008 was awarded in the form of EIX non-qualified stock options. The remaining portion of each Named Officers long-term incentive compensation opportunity for 2008 was awarded in the form of EIX performance shares. Each Named Officer was also eligible to earn an annual bonus based on 2008 performance, with determination of the actual bonuses made by the Committee in February 2009.
Each stock option granted in 2008 may be exercised to purchase one share of EIX Common Stock at an exercise price equal to the fair market value of the underlying Common Stock on the grant date. For these purposes, fair market value is defined as the closing price of a share of EIX Common Stock on the applicable grant date. EIX converts awards to cash to the extent necessary to satisfy minimum tax withholding or any governmental levies.
Each Named Officers stock option award is subject to a four-year vesting period. Subject to each Named Officers continued employment, one-fourth of his or her stock option award will vest and become exercisable on each of January 2, 2009, January 2, 2010, January 2, 2011 and January 2, 2012. Each Named Officers stock option award may also become vested depending on the circumstances of his or her termination of employment. If a Named Officer terminates employment after attaining age 65 or after attaining age 61 with five years of service, his or her stock option award will vest and continue to become exercisable as scheduled, subject to a pro-rated reduction for such retirements occurring within the calendar year of the grant date. If a Named Officer terminates employment because of death or disability, his or her stock option award will immediately vest and become exercisable. If a Named Officers employment is terminated involuntarily not for cause, a pro-rata portion of his or her stock option award will become vested and exercisable and one additional year of vesting credit will be applied. If a Named Officers employment terminates for any other reason, the unvested portion of his or her stock option award will immediately terminate.
Once vested, each stock option will generally remain exercisable until January 2, 2018. However, vested options may terminate earlier if the Named Officers employment terminates. See the further discussion in footnote (2) to the table below entitled Outstanding Equity Awards at Fiscal Year-End.
If there were a change in control of EIX, the stock option awards would become fully vested and exercisable, unless the EIX Committee determined that the vesting of the options should not be accelerated because it had provided for the substitution, assumption, exchange or other continuation or settlement of outstanding options. Any options that became vested in connection with a change in control generally would be exercised prior to the change in control or cashed-out in connection with the change-in-control transaction.
Each Named Officers 2008 stock option award was granted under, and is subject to the terms of, the EIX 2007 Performance Incentive Plan.
Stock option awards are generally only transferable to a beneficiary of a Named Officer upon his or her death, or in certain cases, to a Named Officers spouse, child or grandchild, or entities established for such persons benefit.
The performance shares awarded to each Named Officer are stock-based units. Each unit is a contractual right to receive one share of EIX Common Stock or its cash equivalent if performance and continued service vesting requirements are satisfied.
As long as each Named Officer remains an employee, 2008 performance shares will vest based on EIXs comparative total shareholder return over a three-year performance period beginning on January 1, 2008 and ending on December 31, 2010. EIXs comparative total shareholder return is determined at the end of the performance period based on the percentile ranking of EIX total shareholder return for the performance period compared to the total shareholder return of each stock in the peer group for the same period.
EIXs total shareholder return ranking must be at the 40th percentile to achieve the threshold payout number indicated in column (f) of the Grants of Plan-Based Awards table above. For each Named Officer, the threshold payout number is equal to 25% of the target payout number. If EIXs total shareholder return ranking is at the 50th percentile, the target number of shares shown in column (g) above will be paid. If the total shareholder return ranking is at the 75th percentile or higher, twice the target number of shares will be paid, which is the maximum number of shares shown in column (h) above. If EIX achieves a total shareholder return ranking between any of the percentiles specified above, the number of shares paid out will be interpolated on a straight-line basis. The performance shares generally are paid half in Common Stock and half in cash having a value equal to the Common Stock that otherwise would have been delivered. EIX converts awards to cash to the extent necessary to satisfy minimum tax withholding or any governmental levies.
If a Named Officers employment terminates before the end of the performance period, all of the performance shares awarded to such officer generally will terminate for no value. However, Named Officers will retain all or a portion of their awarded performance shares if their employment terminates for certain specified reasons. If a Named Officer terminates employment after attaining age 65, or after attaining age 61 with five years of service, his or her performance shares will be retained, subject to a pro-rated reduction for such retirements occurring within the calendar year of the grant date. If a Named Officer terminates employment because of death or disability, his or her performance shares will be retained. If a Named Officers employment is terminated involuntarily not for cause, a pro-rata portion of his or her performance shares will be retained and one additional year of service credit will be applied. Any performance shares retained following termination under any of these provisions will become earned and payable based on EIXs achievement of the total shareholder return rankings described above.
If there were a change in control of EIX, the performance period applicable to the performance shares would be deemed to end on the day before the change in control, and performance shares would become earned, if at all, based on EIXs total shareholder return ranking during the shortened performance period. However, the performance period would not be shortened if the EIX Committee provided for the substitution, assumption, exchange or other continuation or settlement of outstanding performance shares. Any performance shares that became earned during the shortened performance period associated with a change in control would be paid in cash within 30 days after the change in control, and any performance shares that did not become earned would terminate for no value on the date of the change in control.
The performance shares are not actual shares of Common Stock, but instead are contractual rights to receive shares of Common Stock and cash payments based on the Common Stocks value. Performance shares do not carry voting rights and they generally may not be transferred, except to a beneficiary of a Named Officer upon his or her death (or in certain cases, to a Named Officers spouse, child or grandchild, or entities established for such persons benefit). The performance share awards for Named Officers provide for reinvested dividend equivalents. For each dividend on EIX Common Stock for which the ex-dividend date falls within the performance period, participants will be credited with an additional number of target contingent performance shares. Any target performance shares so added will be subject to the same terms, conditions, restrictions and vesting requirements as the original performance shares to which they relate.
Named Officers may elect to defer payment of the portion of performance shares payable in cash, under the terms of the Executive Deferred Compensation Plan.
Each Named Officers performance shares were granted under, and are subject to the terms of, the EIX 2007 Performance Incentive Plan.
The amount of each Named Officers bonus for 2008 was determined by the Committee in February 2009 in accordance with the Executive Incentive Compensation Plan and 2008 Bonus Program, as discussed in the Current Executive Compensation Program Elements Annual Bonuses section of the Compensation Discussion and Analysis section above.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table presents information regarding the outstanding equity awards(1) held by each Named Officer at the end of 2008.