Pacific Gas & Electric (PCG)

What Factors Guided the Compensation Committee's 2008 Officer Compensation Program Goals and Objectives?

The Committee established officer compensation programs for 2008 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.

To meet these goals, the Committee determined that:

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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 should be tied to PG&E Corporation's long-term performance for shareholders.

These goals and objectives were unchanged from 2007.

In 2008, the Committee solicited the views of PG&E Corporation's top 40 institutional investors about PG&E Corporation's executive compensation programs and practices. The responses were favorable. A majority supported the Committee's goals and objectives and agreed that the design of PG&E Corporation's executive compensation programs implements a pay-for-performance philosophy.

Finally, while the Committee is cognizant 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.