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PCG » Topics » How Did the Compensation Committee Benchmark and Establish the 2007 Officer Compensation Program?This excerpt taken from the PCG DEF 14A filed Apr 2, 2008. How Did the Compensation Committee Benchmark and Establish the 2007 Officer Compensation Program? During the last quarter of fiscal year 2006, the Committee reviewed a market analysis conducted by Hewitt and an evaluation of each NEO for 2006 to determine if any changes in pay were appropriate based on the considerations outlined in this CD&A. Adjustments to NEO base salary, target annual incentive, and equity awards effective January 1, 2007 were approved in December 2006 by the Committee (and the independent members of the applicable Board of Directors in the cases of the CEOs of PG&E Corporation and Pacific Gas and Electric Company). PG&E Corporation uses a primary Pay Comparator Group of publicly traded gas and electric utilities and a secondary general industry comparator group of general industry companies having a similar revenue and market capitalization scope to that of PG&E Corporation to evaluate market practice and assess its competitive pay position. All elements of total direct pay are compared individually and in total to each of the defined market peer groups. The Pay Comparator Group is reviewed and approved annually by the Committee and consists of all companies listed in the Standard & Poor's Multi-Utilities Index and Electrics Index, as well as the Dow Jones Utility Index. A total of 27 companies were listed in 2007: AES
Corporation 41 Integrys
Energy Group, Inc. For the 2007 Officer Compensation Program, the general industry comparator group of general industry companies was provided by the Committee's consultant, Hewitt, and was taken from Hewitt's proprietary executive compensation database focusing on 95 companies with annual revenues between $8 billion and $20 billion (with a median revenue of $11.6 billion and a market capitalization of $13.8 billion). This secondary market reference is reviewed when assessing pay decisions for officers whose job scope and skill set are easily transferable to other industries, such as officers responsible for corporate support functions. PG&E Corporation also identifies a Performance Comparator Group, which is a subset of the Pay Comparator Group, consisting of the companies with operating characteristics and business models most comparable to PG&E Corporation, and uses this group as the basis for corporate performance comparisons, including relative TSR results. Like PG&E Corporation, these companies emphasize their core rate-regulated utility activities and have either a distribution focus or an integrated utility focus. For 2007, this industry peer group consisted of: Ameren
Corporation Although the Committee reviews the compensation practices of all the companies in the comparator groups as described above and seeks to provide a meaningful and competitive pay package to the NEOs, the Committee does not adhere to strict formulas or survey data to determine the actual mix of compensation elements, including allocation between cash and non-cash or between different forms of equity awards. Instead, as described in this CD&A, the Committee considers various factors in exercising its discretion to determine the total compensation value and mix for each component of pay, including each NEO's scope of responsibility and organization impact, experience, and performance, as well as PG&E Corporation's overall financial and operating results, and practices of the companies in these comparator groups. This flexibility is important in supporting the overall pay philosophy and meeting the Committee's objectives of attracting, retaining, and motivating a talented executive leadership team. |
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