Pacific Gas & Electric (PCG)

What Were the Compensation Committee's 2007 Officer Compensation Program Objectives?

The Committee seeks to design competitive performance-based compensation programs that meet the Committee's stated objectives and align with shareholders' interests. Although the Committee considers the potential impact on PG&E Corporation's compensation programs of the tax deductibility limitations imposed by Section 162(m) of the U.S. Internal Revenue Code, the Committee does not limit compensation to those levels or types of compensation that will be deductible.

The Committee established officer compensation programs for 2007 to meet three primary goals:

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To emphasize long-term incentives to further align shareholders' and officers' interests, and focus employees on enhancing total return for shareholders.

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To attract, retain, and motivate employees with the necessary mix of skills and experience for the development and successful operation of PG&E Corporation's businesses.

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To manage the delivery of compensation in a cost-efficient and transparent manner.

In addition, the Committee defined specific objectives for officer compensation relative to these goals as follows:

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A significant component of every officer's compensation should be tied directly to PG&E Corporation's performance for shareholders.

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Target cash compensation (base salary and target short-term incentive) should be competitive with the average target cash compensation for comparable officers in the Pay Comparator Group (discussed more fully below).

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Long-term compensation is intended to be in line with PG&E Corporation's performance for shareholders. Performance is defined as total shareholder return (TSR), which is measured by stock price appreciation and dividends paid. The terms of performance-based long-term incentive awards are designed to track PG&E Corporation's TSR relative to companies in the Performance Comparator Group (discussed more fully below). For example, if PG&E Corporation performs only at the 50th percentile of the Performance Comparator Group, the total long-term incentive value realized by officers would be approximately equal to the value of long-term compensation at the 50th percentile of the Pay Comparator Group.

These goals and objectives were unchanged from 2006.