Public Service Enterprise Group DEF 14A 2011
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x Filed by a Party other than the Registrant ¨
Check the appropriate box:
PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
(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):
Public Service Enterprise Group Incorporated
80 Park Plaza, P.O. Box 1171, Newark, New Jersey 07101-1171
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 19, 2011
To the Stockholders of Public Service Enterprise Group Incorporated:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Public Service Enterprise Group Incorporated will be held at the New Jersey Performing Arts Center, One Center Street, Newark, New Jersey, on April 19, 2011, at 2:00 P.M., for the following purposes:
Stockholders entitled to vote at the meeting are the holders of Common Stock of record on February 18, 2011.
By order of the Board of Directors,
M. Courtney McCormick
March 2, 2011
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on April 19, 2011: The Proxy Statement and Annual Report to Stockholders are available at www.ezodproxy.com/pseg/2011/pseg2010ar
TABLE OF CONTENTS
This Proxy Statement is furnished by Public Service Enterprise Group Incorporated (we, us, our, PSEG or the Company) on behalf of the Board of Directors (Board). We are soliciting proxies to be voted at the 2011 Annual Meeting of Stockholders and at all adjournments of that meeting.
The approximate date on which this Proxy Statement and the accompanying proxy were first sent or given to security holders and made available electronically via the Internet was March 11, 2011.
We are a holding company that owns directly four subsidiaries:
The mailing address of our principal executive offices is 80 Park Plaza, P.O. Box 1171, Newark, New Jersey 07101-1171, telephone (973) 430-7000. Our Internet website is www.pseg.com.
Annual Report on Form 10-K
We have provided without charge to each person solicited by means of this Proxy Statement, a copy of our Annual Report on Form 10-K for the year 2010, which has been filed with the Securities and Exchange Commission (SEC). Each such copy of our Annual Report on Form 10-K does not include any exhibits thereto, but is accompanied by a list briefly describing all such exhibits. We will furnish any such exhibit upon request. Any such request should be made in writing to Morton A. Plawner, Treasurer, Public Service Enterprise Group Incorporated, 80 Park Plaza, T6B, P.O. Box 1171, Newark, New Jersey 07101-1171. The Form 10-K is also available on our website www.pseg.com/info/investor.
Delivery of Documents and Internet Availability
Each stockholder receives his or her own proxy form by which to vote. However, we send a single copy of each of our Annual Report to Stockholders, Form 10-K and Proxy Statement to any household at which two or more stockholders reside if they appear to be members of the same family, unless one of those at that address notifies us to request individual copies. This saves us printing and delivery costs. If you share an address with another stockholder and received only a single copy of one of those documents, we will send you an additional copy if you send a written request to the address noted above or phone (973) 430-6566.
Our Annual Report to Stockholders, Form 10-K and Proxy Statement are available over the Internet. If you are a stockholder of record and would like to receive these documents, as well as other stockholder communications and materials, electronically in the future and save us the cost of producing and mailing them to you, you may do so by following the instructions at www.bnymellon.com/shareowner/equityaccess. If your shares are held in the name of a bank or broker, please follow that organizations instructions for electronic delivery. You may also follow the instructions provided for future electronic delivery if you vote via the Internet.
If you receive our future Proxy Statements, Annual Reports and Form 10-Ks electronically over the Internet, you will receive each year an e-mail message containing the Internet address to access these documents. The e-mail will also include instructions for voting via the Internet as you will not receive a separate proxy form.
The Annual Meeting will be held on April 19, 2011 at 2:00 P.M., at the New Jersey Performing Arts Center, One Center Street, Newark, New Jersey. We request that if you plan to attend the Annual Meeting, you should so indicate on the proxy form or when voting shares telephonically or electronically.
You may revoke a proxy given in the form which accompanies this Proxy Statement or a vote made telephonically or electronically. However, by law, your presence at the Annual Meeting will not revoke a proxy you have given, unless you file a written notice of such revocation with the Secretary of PSEG prior to the voting of the proxies at the Annual Meeting, or you vote the shares subject to the proxy by written ballot.
Holders of record of the 506,039,601 shares of Common Stock outstanding on February 18, 2011 will have one vote per share. A quorum will consist of the holders of Common Stock entitled to cast a majority of the votes at the Annual Meeting, present in person or represented by proxy. All votes cast by proxy or in person will be counted. Abstentions and broker non-votes will not be counted, except for the purpose of establishing a quorum. All votes will be tabulated by an independent inspector of elections.
Proxy Form and Voting of Shares
Every vote is important. We urge you to sign, date and return the accompanying proxy form whether or not you plan to attend the Annual Meeting. Alternatively, if you are a stockholder of record, you may vote your proxy using the toll-free telephone number listed on the proxy form or via the Internet at the electronic address also listed on the proxy form. When a proxy form is returned properly dated and signed, or properly voted telephonically or electronically, the shares represented by the proxy will be voted by the persons named as proxies in accordance with the voting stockholders directions.
You may specify your choices by marking the appropriate boxes on the enclosed proxy form. The proxy form includes any shares registered in the names shown on the proxy in Enterprise Direct (our dividend reinvestment and stock purchase plan) and the PSEG Employee Stock Purchase Plan. If a proxy form is dated, signed and returned without specifying choices, the shares will be voted as recommended by your Board of Directors. If you vote telephonically or electronically, you should follow the directions given during the call or on the computer screen. If you are a stockholder of record, your shares will not be voted unless you provide a proxy by return mail, telephonically or electronically or vote in person at the Annual Meeting. However, if no instructions are received from you with respect to any shares held in Enterprise Direct, the administrator of that plan will vote those shares in accordance with the recommendations of your Board.
If you are a participant in the PSEG Thrift and Tax-Deferred Savings Plan or the PSEG Employee Savings Plan you will receive a separate direction card from the respective plans trustee for shares that have been allocated to your accounts. The trustee will vote the shares of Common Stock beneficially owned by you under the respective plan in accordance with your instructions. If no instructions are received, the shares will not be voted.
If your shares are held in the name of a bank or broker, you should follow the voting instructions on the form received from your bank or broker. For such shares, the availability of telephone or Internet voting will depend on the voting processes of your bank or broker. If no instructions are received from you by a bank or broker with respect to such shares, the shares may be voted by the bank or broker on the proposals in this Proxy Statement at the discretion of the bank or broker in accordance with the rules of the New York Stock Exchange, Inc. (NYSE). The NYSE rules provide that if no instructions are received from you, a bank or broker may vote your shares that are held by it only in regard to Proposal 4, Ratification of the Appointment of Deloitte & Touche LLP as Independent Auditor. A bank or broker may not vote your shares held by it in regard to Proposal 1, Election of Directors, Proposal 2, Advisory Vote on Executive Compensation and Proposal 3, Advisory Vote on Frequency of Advisory Vote on Executive Compensation unless it receives instructions from you. If you do not provide instructions to your bank or broker as to how you wish to vote in respect of each of these matters, your shares held by it will not be voted on those matters.
If any matters not described in this Proxy Statement should properly come before the Annual Meeting, the persons named in the enclosed form of proxy or their substitutes will vote proxies given in said form of proxy in respect of any such matters in accordance with their best judgment. As of the date of this Proxy Statement, the Board and management did not know of any other matters which might be presented for stockholder action at the Annual Meeting.
The cost of soliciting proxies in the form accompanying this Proxy Statement will be borne by us. In addition to solicitation by mail, proxies may be solicited by our directors, officers and employees, none of whom will be directly compensated for such services, in person or by telephone, electronically or by facsimile. We have also retained Morrow & Co. to assist in the distribution and solicitation of proxies from brokers, bank nominees, other institutional holders and certain large individual holders. The anticipated cost of such services is approximately $13,500, plus reimbursement of expenses.
Board of Directors
Our business and affairs are managed by or under the direction of the Board of Directors, which delegates certain responsibilities to its committees and to management consistent with our By-Laws. The Board has adopted and operates under the PSEG Corporate Governance Principles which reflect our current governance practices in accordance with applicable statutory and regulatory requirements, including those of the SEC and the NYSE. Our By-Laws and Corporate Governance Principles are posted on our website, www.pseg.com/info/investor/governance. We will send you a copy of either or both upon request.
The Board provides direction and oversight of the conduct of our business by management. In fulfilling these responsibilities, the Board performs the following principal functions:
The Board has full and free access to all members of management and may hire its own consultants and advisors as it deems necessary.
Under our Corporate Governance Principles and the requirements of the NYSE, the Board must consist of a majority of independent directors. The Board has established standards for director independence, which are set forth in the Corporate Governance Principles. These standards require that to be independent:
These limitations apply for three years after the end of the applicable affiliation or arrangement.
The Board has determined that all of the current directors are independent under our Corporate Governance Principles and the requirements of the NYSE, except Ralph Izzo, the Chairman of the Board, President and CEO, who is an employee of the Company. These determinations were based upon a review of the responses submitted by each director to questionnaires we provided them, relevant business records, publicly available information and applicable SEC and NYSE requirements.
The Board has an Audit Committee, a Corporate Governance Committee, an Executive Committee, a Finance Committee, a Fossil Generation Operations Oversight Committee, a Nuclear Generation Operations Oversight Committee and an Organization and Compensation Committee, each consisting solely of independent directors, except for the Executive Committee, on which Mr. Izzo serves. Each of these committees, other than the Executive Committee, has a charter that defines its roles and responsibilities. The authority of the Executive Committee is set forth in our By-Laws. The charters and our By-Laws are posted on our website, www.pseg.com/info/investor/governance. We will send you a copy of any or all of them upon request.
Under our By-Laws, our senior leadership may include a Chairman of the Board, a President and a CEO, which positions may be held by one person or may be divided between two different people. As provided in its charter, the Corporate Governance Committee has the responsibility to assess the structure of the Board and periodically evaluate the Boards governance practices as well as the Corporate Governance Principles. Building on the advice of the Corporate Governance Committee, the Board applies its experience and knowledge of our business to establish what it believes to be the most effective form of organization. In doing so, it utilizes its understanding of the challenges and opportunities faced by us and its evaluation of the individuals who are involved.
Based on that analysis and evaluation, the Board has determined that, at the present time and given our present officers and personnel, it is in the best interests of the Company and stockholders for a single individual to hold all three positions of Chairman of the Board, President and CEO. Ralph Izzo currently holds these positions. As such, he has plenary powers of supervision and direction of our business and affairs and he also presides at all meetings of the Board and of stockholders. The Board believes that Mr. Izzo possesses the attributes of experience, judgment, vision, managerial skill and overall leadership ability essential for our continued success.
In addition to the Chairman, President and CEO, our leadership structure is designed to rely on the contributions of our Lead Director. The Lead Director provides the independent directors with a key means for collaboration and communication regarding Board agendas and the information directors receive from management. The Lead Director coordinates with Chairs of our various Board committees in setting agendas for committee meetings. Richard J. Swift currently serves as Lead Director. In that capacity he complements the talents and contributions of Mr. Izzo and promotes confidence in our governance structure by providing additional checks and balances as a counter to the perspective of management.
As provided in our Corporate Governance Principles, the Board, in February 2010, established the position of Lead Director, to replace the prior position of Presiding Director. The Lead Director has the following duties and responsibilities:
The Lead Director is an independent director designated annually by the non-management directors with the expectation that he or she will typically serve in that capacity for four years. The Lead Director may be appointed to serve up to twelve additional months beyond the four years if approved by a majority of the non-management independent directors. Richard J. Swift was designated our initial Presiding Director by the Board in 2007, for a term expiring at the first meeting of directors after the 2009 Annual Meeting of Stockholders, subsequently extended to the 2011 Annual Meeting of Stockholders. The Corporate Governance Committee expects to make a recommendation regarding the individual to serve as Lead Director at its first meeting following the 2011 Annual Meeting, in accordance with our policy.
Although it could be an option, the Board does not believe that under current circumstances separating the Chairman and CEO positions would promote better governance or enhance the management of PSEG. The Board believes that our present structure strikes a desirable balance by allowing us to benefit from the advantages of efficiency and coordination that are achieved by having a single individual serve as Chairman of the Board, President and CEO, as complemented by having a Board comprised otherwise solely of independent directors, including a Lead Director, who impart fresh and differing perspectives. This structure avoids unnecessary confusion over responsibilities and accountability, as well as potential conflicts over authority.
The Board believes that our leadership structure has been designed with the appropriate controls to support the efficacy of this arrangement without jeopardizing the integrity of the governance process. A majority of the Board must consist of independent directors in accordance with our Corporate Governance Principles and currently Mr. Izzo is our only director who is not independent. As discussed below, our Corporate Governance Principles also set forth various expectations and criteria for Board membership. All directors must adhere to our Standards of Integrity and exercise their responsibilities in a manner consistent with our best interests and those of our stockholders and their fiduciary duties established by applicable law.
Risk Management Oversight
The Board is responsible for the oversight of risk at PSEG, with various committees of the Board assigned specific duties with regard to this function. As provided in our Corporate Governance Principles, the Board has approved a Risk Management Policy and annually reviews and adopts the Financial Risk Management Practice, which includes processes to oversee issuance and retirement of debt, cash investments, insurance, trust investments, real property transactions, capital investment and market and credit risk management. Throughout the year, the Board monitors managements performance against our business plans and the Risk Management Policy. The Board and each of its committees maintain annual calendars to assure completion of essential tasks.
The Board also has oversight of the Risk Management Program which consists of policies, processes and controls, including the Risk Management Policy and Risk Management Practice, as well as other policies and practices developed by management relating to business conduct and integrity, internal control, risk and control, fraud risk assessment, business compliance, transaction review, credit practice, delegation of authority, supply chain practices, environment, health and safety, information management, corporate responsibility, employee matters, diversity and inclusion and operational excellence. Our Risk Management Program forms an integral part of our corporate culture and values.
The Financial Risk Management Practice serves to define the major roles, responsibilities and procedures, including controls and reporting, necessary to actively manage our financial risk exposure consistent with our business plans. It is reviewed annually and approved by the Audit Committee and the Finance Committee and recommended to the Board for its approval.
Specific responsibilities are assigned to committees of the Board for oversight of our business operations, processes and plans. The Audit Committee provides oversight on legal and business compliance, financial reporting, disclosure controls and procedures and risk management controls, as well as policies with respect to risk assessment and risk management. Pursuant to the Financial Risk Management Practice, our Chief Risk Officer and Chief Financial Officer are responsible for presenting reports on risk management to the Audit Committee at its meetings and through the reports of the Audit Committee Chair to the Board.
Financing transactions, in accordance with the Financial Risk Management Practice, are reported to the Finance Committee. In addition, the Finance Committee approves appropriate commodity portfolio risk tolerance limits. Compliance is monitored through regular reporting to the Board. In accordance with the Financial Risk Management Practice, periodic reports, at least annually, are made to the Finance Committee regarding the management of our pension and post-retirement benefit trusts. Periodic reports are also required to be made to the Finance Committee regarding the management of our nuclear decommissioning trusts.
Both the Fossil Generation Operations Oversight Committee and the Nuclear Generation Operations Oversight Committee monitor and evaluate environmental, safety, compliance and performance matters at our electric generating stations. The Corporate Governance Committee evaluates Board and committee performance and governance practices. The Organization and Compensation Committee administers the executive compensation program, including incentive plans and the review and approval of corporate goals and objectives relevant to compensation. The CEOs performance is evaluated in light of these goals and objectives and key management performance is reviewed by the Organization and Compensation Committee. As discussed below, that Committee has reviewed our compensation policies and practices as they relate to risk management.
Risk management is a key part of our strategic planning and business operations. In managing risk, we seek to identify, analyze, respond to and monitor financial, strategic, operational, regulatory and other risks to our capital, liquidity and earnings. Our Board oversees managements performance of these duties and receives periodic reports related thereto from our senior executives.
We have also established a Risk Management Committee, consisting of senior executives, which is responsible for assessing exposure and determining our overall financial risk management strategy, taking into consideration, when appropriate, operational, regulatory and legal risks. The Risk Management Committee is charged with, among other things:
Our Capital Review Committee, which also consists of senior management employees, provides oversight and reviews proposed projects. Investments above a stated amount require approval of our Board or the respective board of Power or PSE&G, as applicable. Our Compliance Council of senior management personnel reviews various compliance issues, including the approval of our Standards of Integrity, and regularly reports to the Audit Committee.
Our Delegation of Authority sets forth the respective authority levels at which management and employees are authorized to conduct business.
The Board believes that we have in place an effective system of risk management practices with appropriate controls and Board oversight.
The Board holds regularly scheduled meetings and meets on other occasions when circumstances require. The Board met seven times in 2010, one of which was an all-day business strategy session. Board and Committee meetings are scheduled over an entire work day and often begin on the prior afternoon or evening. Each meeting typically takes approximately two hours. Each Committee executes its responsibilities, as described
below, and the Board receives reports from the Committee Chairs on the significant matters considered and actions taken. The Board meeting focuses on the strategic and more important issues facing us. Directors spend additional time preparing for Board and Committee meetings they attend and they are called upon for counsel between meetings.
During 2010, Albert R. Gamper, Jr., Conrad K. Harper, Richard J. Swift and Ralph Izzo also served on the board of directors of PSE&G. The PSE&G board met six times in 2010. Mr. Izzo also serves on the boards of directors of Power, Energy Holdings, and Services.
Our Corporate Governance Principles provide that the Board will meet at least six times each year and in executive session without management in attendance at every meeting unless waived by the Board. When the Board meets in executive sessions, the Lead Director presides. During 2010, six executive sessions were held with only independent directors present. In addition, each Board committee, except the Executive Committee, meets in executive session at each of its meetings, unless waived by the respective Committee.
Under our Corporate Governance Principles, each director is expected to attend all Board meetings and all meetings of committees of which such director is a member, as well as the Annual Meeting of Stockholders.
Meeting materials are provided to Board and Committee members in advance of each meeting, and members are expected to review such materials prior to each meeting. During 2010, each incumbent director attended at least 79% of the aggregate number of Board meetings and committee meetings on which he or she served. Each attended the 2010 Annual Meeting of Stockholders.
Director Orientation and Continuing Education
New directors receive an orientation program and materials, which includes visits to our facilities and presentations by senior management to familiarize new directors with our strategic plans, significant financial, accounting and risk management issues, compliance programs, Standards of Integrity, principal officers and internal and independent auditors. During each year, continuing education is provided to all directors on topics of importance to our business.
Directors are required by our Corporate Governance Principles to own at least 4,000 shares of our Common Stock (including any restricted stock, whether or not vested, any stock units under the 2007 Directors Equity Plan and any phantom stock under the Directors Deferred Compensation Plan) within three years after election to the Board. All directors currently meet this requirement.
Communications with the Board
You, as a stockholder, and other interested parties may communicate directly with the Board, including the independent directors, by writing to M. Courtney McCormick, Secretary, Public Service Enterprise Group Incorporated, 80 Park Plaza, T4B, P.O. Box 1171, Newark, New Jersey 07101-1171, and indicating who should receive the communication. Unless the context otherwise requires, the Secretary will provide the communication to the Lead Director and to the Chair of the Board Committee most closely associated with the nature of the request. The Secretary has the discretion not to forward communications that are commercial advertisements, other forms of soliciting material or billing complaints. All communications are available to any member of the Board upon his or her request.
Committees of the Board
The committees of the Board, their principal functions, membership and meetings are described below. Each committee has open and free access to all information, may require any of our officers or employees to furnish it with information, documents or reports that it deems necessary or desirable in carrying out its business, is empowered to investigate any matter involving us and may retain appropriate resources to assist it in discharging its responsibilities. Each committee, other than the Executive Committee, operates pursuant to a charter and annually conducts a performance evaluation of its activities and a review of its charter. Each committee reports its activities to the Board. Each committee Chair is appointed annually with the expectation that he or she will typically serve in that capacity for four years. A Chair may be appointed to serve up to twelve additional months beyond the four years if approved by a majority of the independent directors.
The Audit Committees responsibilities include:
The Audit Committee is comprised of three or more directors, each of whom must be independent of management in accordance with the rules of the SEC and the NYSE and meet the NYSE requirements for financial literacy. At least one member must have accounting or financial management expertise. The Audit Committee meets at least four times per year, and in executive session without management present at each meeting unless waived by the Committee. The Audit Committee held nine meetings in 2010 and met four times in executive session.
In addition to meeting the requirements for being an independent director, members may receive no direct or indirect compensation from us or our subsidiaries, other than as a director or committee member, and may not be affiliated with us or our subsidiaries, in accordance with applicable legal requirements. Under our Corporate Governance Principles, without Board approval, a director may not serve as a member of our Audit Committee if he or she serves on the Audit Committee of more than three public companies, including ours.
The Board determines annually, and upon any change in Audit Committee composition, the independence, financial literacy and financial expertise of the Audit Committee members and makes written affirmation to the NYSE in accordance with its rules. The Board has determined that all members of the Audit Committee are financially literate and, in addition, that each member of the Audit Committee possesses accounting or financial management expertise, as defined in the NYSE rules. The Board further has determined that Thomas A. Renyi, Albert R. Gamper, Jr., William V. Hickey, Shirley Ann Jackson and David Lilley, each a member of the Audit Committee, is an audit committee financial expert under the Sarbanes-Oxley Act of 2002 and the rules of the SEC.
Management and the Board believe that the current composition of the Audit Committee provides that Committee with the requisite expertise and experience to recommend to the Board the inclusion of the audited financial statements in our Annual Report on Form 10-K. The Board will consider this matter annually as a part of its ongoing governance review. The Audit Committee will also continue its practices to assure that adequate independent procedures exist for receipt and treatment of complaints regarding accounting, internal controls or auditing matters.
The Audit Committee Report appears below in this Proxy Statement.
Corporate Governance Committee
The Corporate Governance Committees responsibilities include:
The Corporate Governance Committee consists of three or more independent directors who meet at least two times per year, and in executive session without management present at each meeting unless waived by the Committee. The Corporate Governance Committee met five times in 2010, including three times in executive session.
The Corporate Governance Committee on occasion may pay a fee to an executive search firm to assist it in identifying and evaluating potential nominees. Such firms function would be to make recommendations to the Committee of potential candidates for its consideration.
During 2010, the Corporate Governance Committee retained Compensation Advisory Partners LLC (CAP) to provide information and advice on matters pertaining to the compensation of directors who are not executive officers. Additional information regarding CAP is set forth below under Organization and Compensation Committee.
The Corporate Governance Committee will consider stockholders recommendations for nominees for election to the Board. Such recommendations must be submitted in writing to M. Courtney McCormick, Secretary, Public Service Enterprise Group Incorporated, 80 Park Plaza, T4B, P.O., Box 1171, Newark, New Jersey 07101-1171. Nominations must be accompanied by the written consent of any such person to serve if nominated and elected and by biographical material to permit evaluation of the individual recommended. Our By-Laws require that stockholder nominations must be submitted at least 90 days in advance of an Annual Meeting of Stockholders.
Additional information on director qualifications is set forth below under Director Qualifications, Diversity and Retirement. The Corporate Governance Committee utilizes the same criteria to evaluate all potential nominees, including those recommended by stockholders or from other sources.
The Corporate Governance Committee also considered a stockholder proposal received in October 2010 for inclusion in this Proxy Statement. The proposal, submitted by As You Sow, as the representative of a stockholder, included a resolution requesting that by November 2011 we issue a report on the financial risk of our continued reliance on coal. The proposal was withdrawn as we reached an agreement with As You Sow to issue a report available to stockholders and the public specifically addressing certain questions submitted to us by As You Sow unless disclosure would reveal proprietary information or would place us at a competitive disadvantage.
Except as otherwise provided by law, the Executive Committee may exercise all the authority of the Board of Directors when the Board is not in session. Membership consists of the Chairman of the Board, the Lead Director and at least one additional independent director. The Executive Committee did not meet during 2010.
The Finance Committees responsibilities include:
The Finance Committee consists of three or more independent directors. The Finance Committee meets at least three times per year and in executive session at each meeting unless waived by the Committee. The Finance Committee held four meetings in 2010 and met all four times in executive session.
Fossil Generation Operations Oversight Committee
The Fossil Generation Operations Oversight Committees responsibilities include:
The Fossil Generation Operations Oversight Committee consists of three or more independent directors. The Committee meets at least three times per year and in executive session at each meeting unless waived by the Committee. The Fossil Generation Operations Oversight Committee held three meetings in 2010, one of which was at a generating station, and met all three times in executive session.
Nuclear Generation Operations Oversight Committee
The Nuclear Generation Operations Oversight Committees responsibilities include:
The Nuclear Generation Operations Oversight Committee consists of three or more independent directors. The Committee meets at least three times per year and in executive session at each meeting unless waived by the Committee. The Nuclear Generation Operations Oversight Committee held three meetings in 2010, one of which was at the site of the nuclear generating stations we operate, and met all three times in executive session.
Organization and Compensation Committee
The Organization and Compensation Committees responsibilities include:
The Committee consists of three or more independent directors who meet at least two times per year and in executive session at each meeting unless waived by the Committee. The Committee held five meetings in 2010 and met three times in executive session. The Organization and Compensation Committee Report on Executive Compensation appears below.
The Committee has the authority to retain compensation consultants, with sole authority for their hiring and firing. Since September 2009, the Committee has retained Compensation Advisory Partners LLC (CAP) as its independent compensation consultant to provide the Committee information and advice that is not influenced by management. CAP does not perform any other services for us or our subsidiaries. CAP provides advice to the Committee on executive compensation and may also do so at times for the Corporate Governance Committee on matters pertaining to compensation of directors who are not executive officers. Any other services by CAP require prior approval of the Chair of the Organization and Compensation Committee.
Responsibility for assignment to and evaluation of work by CAP is solely that of the Committee and, with respect to non-employee directors, the Corporate Governance Committee. In furtherance of CAPs independence, management receives copies of certain materials provided by CAP to the Committee only after the materials have been provided to the Committee. The scope of CAPs assignment is to provide general advice relating to all aspects of executive compensation, including the review of our current compensation programs and levels, benefit plans, provision of comparative industry trends and peer data and the recommendation of program and pay level changes.
We pay the fees of any compensation consultant retained by the Committee. Additional information regarding the services performed in the past year is included in Compensation Discussion and Analysis below. The Committee also utilizes the services of our internal compensation professionals.
Compensation Committee Interlocks and Insider Participation
During 2010, each of the following individuals served as a member of the Organization and Compensation Committee: Albert R. Gamper, Jr., Chair, William V. Hickey, Shirley Ann Jackson, Thomas A. Renyi, and Richard J. Swift. During 2010, no member of the Organization and Compensation Committee was an officer or employee or a former officer or employee of any PSEG company. None of our officers served as a director of or on the compensation committee of any of the companies for which any of these individuals served as an officer. No member of the Organization and Compensation Committee had a direct or indirect material interest in any transaction with us.
Code of Ethics
Our Standards of Integrity (Standards) is a code of ethics applicable to us and our subsidiaries. The Standards are an integral part of our business conduct compliance program and embody our commitment to conduct operations in accordance with the highest legal and ethical standards. The Standards apply to all of our directors and employees (including Powers, PSE&Gs, Energy Holdings and Services respective principal executive officer, principal financial officer, principal accounting officer or Controller and persons performing similar functions). Each such person is responsible for understanding and complying with the Standards. The Standards are posted on our website, www.pseg.com/info/investor/governance. We will send you a copy on request.
The Standards establish a set of common expectations for behavior to which each director and employee must adhere in dealings with investors, customers, fellow employees, competitors, vendors, government officials, the media and all others who may associate their words and actions with us. The Standards have been developed to provide reasonable assurance that, in conducting our business, directors and employees behave ethically and in accordance with the law and do not take advantage of investors, regulators or customers through manipulation, abuse of confidential information or misrepresentation of material facts.
We will post on our website, www.pseg.com/info/investor/governance:
In 2010, we did not grant any waivers to the Standards.
Transactions with Related Persons
There were no transactions during 2010, and there are no transactions currently proposed, in which we were or are to be a participant and the amount involved exceeded $120,000 and in which any related person (director, nominee, executive officer, or their immediate family members) had or will have a direct or indirect material interest.
Our policies and procedures with regard to transactions with related parties, including the review, approval or ratification of any such transactions, the standards applied and the responsibilities for application are set forth in our Corporate Governance Principles, our Business Conduct Compliance Program and the Standards. These are our only written policies and procedures regarding the review, approval or ratification of transactions with related persons.
ELECTION OF DIRECTORS
Directors elected at each annual meeting are elected to serve one-year terms. Directors whose terms expire are eligible for re-nomination and will be considered by the Corporate Governance Committee in accordance with its policies and the retirement policy for directors.
Our By-Laws currently provide that the Board shall consist of not less than three nor more than 16 directors as shall be fixed from time to time by the Board. The number of directors is currently set at nine.
The nominees listed below were selected by the directors upon the recommendation of the Corporate Governance Committee. As discussed above under Voting Securities and Procedures, proxies will be voted in accordance with your instructions as indicated on the enclosed proxy form, bank or broker voting form or when voting by telephone or Internet.
If at the time of the 2011 Annual Meeting any of the nominees listed below should be unable to serve, which is not anticipated, it is the intention of the persons designated as proxies to vote, in their discretion, for other nominees, unless the number of directors constituting a full Board is reduced.
Our By-laws provide that in an uncontested election, each director shall be elected by a majority of the votes cast with respect to the director. A majority of votes cast means that the number of shares cast for a directors election exceeds the number of votes cast against that director. We do not include as votes cast (i) shares which are marked withheld, (ii) abstentions and (iii) shares as to which a stockholder has given no authority or direction.
As provided in our Corporate Governance Principles, the Board has adopted a policy whereby any incumbent director receiving a majority vote against must promptly tender an offer of resignation. As a result, in uncontested elections, the Board will nominate for election or re-election as a director only candidates who have agreed promptly to tender a letter of resignation in the event that the number of shares voted for that director does not exceed the number of shares voted against that director. If an incumbent director fails to receive the required majority vote, the Corporate Governance Committee will consider the matter and then make a recommendation to the Board as to whether or not to accept the resignation. The Board will make the determination on whether or not to accept the recommendation of the Committee.
The Corporate Governance Principles further provide that no director who fails to receive a majority vote in an uncontested election shall participate in either the recommendation of the Corporate Governance Committee or the determination of the Board with respect to his or her resignation letter or that of any other director in regard to that years Annual Meeting election. Any such director may, however, participate in any and all other matters of the Board and its various committees to the fullest extent to which he or she would otherwise be permitted in accordance with applicable law and the Corporate Governance Principles. If a majority of the Corporate Governance Committee fails to receive a majority vote, then the remaining independent directors will determine whether to accept one or more of the applicable resignations. If three or fewer independent directors did not receive a majority vote in the same election, then all independent directors may participate in any discussions or actions with respect to accepting or rejecting the resignation offers (except that no director will vote to accept or reject his or her own resignation offer).
In evaluating tendered resignations, the Corporate Governance Committee and the Board may consider all factors they deem relevant, including, but not limited to, the stated reason(s) for the against vote, the impact that the acceptance of the resignation would have upon our compliance with applicable law or regulation, the potential triggering of any change in control or similar provision in contracts, benefit plans or otherwise, the qualifications of the director and his or her past and anticipated future contributions to us.
The Corporate Governance Committee and the Board may consider possible remedies or actions to take in lieu of or in addition to acceptance or rejection of the resignation, such as development and implementation of a plan to address and cure the issues underlying the failure to receive a majority vote.
Following the Boards determination, we will publicly disclose the decision and, if applicable, the reasons for accepting or rejecting the resignation. To the extent that the Board accepts one or more resignations, the Corporate Governance Committee may recommend to the Board, and the Board will then determine, whether to fill any vacancy.
Director Qualifications, Diversity and Retirement
The Board believes that a nominee for director should be selected on the basis of the individuals ability, diversity of background and experience and soundness of judgment, from among candidates with an attained position of leadership in their field of endeavor. As noted above, a majority of the Board must consist of independent directors in accordance with our Corporate Governance Principles and NYSE requirements.
The Board seeks to maintain an orderly transition for retirement and proper succession planning. Under the Boards retirement policy, directors who have never been employees of the PSEG group of companies may not serve as directors beyond the Annual Meeting of Stockholders following their seventy-second birthday. If however, the Corporate Governance Committee and the Board determine that there is good cause to extend a directors Board service, a director may be re-nominated following the age of seventy-two, but in no event beyond the age of seventy-five, and remain in service for the full term until the next Annual Meeting of Stockholders following his or her seventy-fifth birthday. Directors who are former PSEG CEOs may not serve as directors beyond the Annual Meeting of Stockholders following termination of active employment with the PSEG group of companies, unless otherwise determined by the Board, and may not serve beyond their seventy-second birthday. Directors who are former employees, other than CEOs, may not serve as directors beyond the Annual Meeting of Stockholders following termination of active employment with the PSEG group of companies.
In addition, it is the policy of the Board that a nominee recommended initially for election be able to serve at least five years, consistent with the Boards retirement policy. The Board believes that the ability of a director to serve for at least five years is a reasonable expectation in order for us to receive an appropriate benefit from the individuals abilities. This is especially so in light of the time invested by a director to become knowledgeable about our complex business operations. The Board believes that these age and service limitations provide it with a means for achieving a reasonable balance of veteran and new directors.
Diversity is a factor for consideration of nominees for director pursuant to the diversity policy contained in our Corporate Governance Principles and the charter of the Corporate Governance Committee. In considering diversity, the Committee utilizes a broad meaning to include not only factors such as race, gender and national origin, but also background, experience, skills, accomplishments, financial expertise, professional interests, personal qualities and other traits desirable in achieving an appropriate group of qualified individuals. The Committee considers and assesses the effectiveness of this policy in connection with the annual nomination process to assure it contains an effective mix of people to best further our long-term business interests.
The Corporate Governance Committee also considers the amount of time that a person will likely have to devote to his or her duties as a director, including non-PSEG responsibilities as an executive officer, board member or trustee of business or charitable institutions and the contributions by directors to our ongoing business. The Committee considers the qualifications of incumbent directors and potential new nominees, as well as the continuity of service and the benefit of new ideas and perspectives, before making recommendation to the Board for election or re-election. The Board then selects nominees based on the Committees recommendation.
The Corporate Governance Committee does not believe it is appropriate to set absolute term limits on the length of a directors term. Directors who have served on the Board for an extended period of time are able to provide valuable insight into the operations and future of the Company based on their experience with and understanding of our history, policies and objectives.
Prior to accepting an invitation to serve as a director of another public company, the CEO and any directors must submit a letter to the Corporate Governance Committee so as to allow it to review potential conflicts and time demands of the new directorship. Any director who undertakes or assumes a new principal occupation, position or responsibility from that which he or she held when he or she was elected to the Board must submit a letter to the Corporate Governance Committee volunteering to resign from the Board. The Board does not believe that in every instance a director who undertakes or assumes a new occupation, position or
responsibility from that which he or she held when the director joined the Board should necessarily leave the Board. The Corporate Governance Committee reviews the relevant details of such directors new position and determines the continued appropriateness of Board membership under the circumstances.
The present terms of all nine directors, Albert R. Gamper, Jr., Conrad K. Harper, William V. Hickey, Ralph Izzo, Shirley Ann Jackson, David Lilley, Thomas A. Renyi, Hak Cheol Shin and Richard J. Swift, expire at the 2011 Annual Meeting. Each has been re-nominated and will be presented for election to serve until the 2012 Annual Meeting, or until their respective successors are elected and qualified. All nominees were elected to their present terms by the stockholders.
We show below for each nominee, the period of service as a director, age as of the date of the Annual Meeting, present committee memberships, business experience during at least the last five years and other directorships during the past five years. We also discuss the specific experience, qualifications, attributes and skills that led to the conclusion that he or she should serve as one of our directors. Each nominees beneficial ownership of Common Stock is shown under Security Ownership of Directors, Management and Certain Beneficial Owners.
As discussed above, the Corporate Governance Committee and the Board recommend and nominate for election those individuals they deem qualified and capable of serving as directors pursuant to the criteria they have set. Each of the nominees this year meets these standards.
The Board is comprised of individuals with a diverse mix of knowledge, expertise and backgrounds. Among the nine members, we have business leaders from industries including banking, science and technology, consumer products and manufacturing as well as those who have excelled in academia and public service. Two of our Board members are African-American, one member is of Asian descent and one member is a woman. As a group, they complement one another with a desirable mix of competencies and skills as the Board discharges it duties of overseeing our businesses. Our Board members have dealt widely with the types of issues and challenges facing us, including achieving optimal operational and financial performance, managing for strategic growth, meeting regulatory, environmental and safety requirements, maintaining an engaged and diverse workforce and adapting to rapidly evolving business conditions. All have served in leadership positions.
Current committee assignments are presented in the following table. Ongoing committee assignments for all directors will be made at the organizational meeting following the Annual Meeting of Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES.
Nominees For Election As Director
AND CERTAIN BENEFICIAL OWNERS
Directors and Management
The following table sets forth, as of February 18, 2011, beneficial ownership of our Common Stock by the directors and executive officers named in the Summary Compensation Table. The information presented includes stock options, stock units and phantom shares. None of these amounts exceeds 1% of the Common Stock outstanding.
Certain Beneficial Owners
The following table sets forth, as of February 18, 2011, beneficial ownership in shares by any person or group known to us to be the beneficial owner of more than five percent of our Common Stock. According to the Schedules 13G filed by the respective owners with the SEC, these securities were acquired and are held in the ordinary course of business and not for the purpose of changing or influencing the control of the Company.
Section 16 Beneficial Ownership Reporting Compliance
During 2010, none of our directors or executive officers was late in filing a Form 3, 4 or 5 in accordance with the requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended, with regard to transactions involving our Common Stock, with the exception of Derek M. DiRisio, Vice President and Controller (who is not one of our named executive officers in this Proxy Statement). Mr. DiRisio filed two late reports on Form 4 with respect to two transactions. Both involved the sale of shares of our Common Stock, one of which was our mandatory income tax withholding of shares earned by Mr. DiRisio upon the vesting and payment to him of performance units awarded under the LTIP.
COMPENSATION COMMITTEE REPORT
The Organization and Compensation Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis included in this Proxy Statement with management and with Compensation Advisory Partners LLC, the Committees compensation consultant. Based on such review and discussions, the Organization and Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
Members of the Organization and Compensation Committee:
Albert R. Gamper, Jr., Chair
William V. Hickey
Shirley Ann Jackson
Thomas A. Renyi
Richard J. Swift
February 14, 2011
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis explains the material elements of our executive compensation program and the decisions made regarding the named executive officers (NEOs) in this Proxy Statement. Our NEOs are: our Chairman of the Board, President and CEO; our Executive Vice President and Chief Financial Officer (CFO); and our three other most highly compensated executive officers. We have provided an Executive Summary consisting of an overview of the key aspects of our program and recent actions followed by a more detailed analysis and specific information concerning our NEOs compensation.
Executive compensation is administered under the direction of the Organization and Compensation Committee (Committee). The Committee is made up of directors who are independent under NYSE rules and our requirements for independent directors. The Committee receives advice from its independent compensation consultant, Compensation Advisory Partners LLC (CAP).
2010 was a challenging year for us and our industry, and we expect that in 2011 and the future we will continue to face many challenges specific to us and our industry, as well as in the broad economic environment. Our performance-oriented executive compensation programs help us manage through both good and bad economic times. We recognize the need to maintain our focus on operational excellence, financial strength and disciplined investment by attracting and retaining top talent that is critical to accomplishing these objectives. We believe that our performance-based compensation programs will deliver the appropriate compensation based on our results relative to both our business plan and our peers.
Our executive compensation program is designed to link pay to performance and align the interests of executives, including our NEOs, with shareholders. This translates into higher compensation in years of strong performance and shareholder returns and lower compensation when performance is not as strong. We seek to create shareholder value by attracting and retaining the executive talent needed for long-term success and incenting executives to achieve outstanding individual performance and business results. We do this with competitive compensation opportunities relative to our industry peers for similar positions with actual compensation delivered determined by individual and business performance, without encouraging excessive risk.
Our compensation consists primarily of the following components:
We benchmark executive compensation, including that of the NEOs, to a peer group of companies in our industry where data for the position is available to us. We target Total Direct Compensation (base salary plus target annual incentive and target long-term incentive) at the median of the industry peer group. We consider a range of 85%-115% in relation to a comparable position to be within the competitive benchmark median. In determining the mix of the elements of Total Direct Compensation, we use the competitive analysis as a general guideline. We place greater emphasis on performance based and long-term compensation than on base salary to enhance our performance orientation. For 2010 and 2011, the target respective percentages of incentive compensation relative to Total Direct Compensation for our CEO were 86% and 88% and for our other NEOs as a group were 69% and 71%.
Base salaries are determined on the basis of overall position responsibilities, individual experience, performance and the competitive benchmark median for the position. Our annual incentive awards are closely aligned to the achievement of key financial and operating goals (at the individual, business unit and PSEG level) with the Committee exercising overall judgment. The maximum award fund for all participants in the SMICP, which is limited to our most senior executives, is 2.5% of net income. Individual payments are capped at 150% of target. Longterm incentive grants are made in light of peer company competitive analysis and the Committees assessment of individual performance and the ability to contribute to our longterm success. Payout on performance units is capped at 200% of target and depends upon achievement of goals related to Total Shareholder Return, as measured against our peer group, and Return on Invested Capital, as measured against our business plan.
Our NEOs receive competitive retirement benefits as well as competitive severance and change-in-control benefits. We provide very limited perquisites. We do not provide any tax gross-ups, except for certain relocation expenses. Our clawback provisions require the forfeiture of annual and long-term incentive grants and the repayment of profits made on LTIP sales under certain circumstances. Under our Stock Ownership and Retention Policy, our officers must acquire and hold a prescribed amount of shares of our Common Stock.
The Committee periodically reviews and evaluates the design and effectiveness of the compensation program, including the performance of the NEOs. The Committee maintains the flexibility to make decisions about the program and actual compensation levels and awards based on achievement of our business objectives and relevant circumstances affecting our Company. In addition to the established performance measures, these may include economic, market and competitive conditions, regulatory and legal requirements and industry best practices.
Recent Committee Actions
The Committee considered recommendations from its consultant and management with regard to compensation design and effectiveness and reviewed competitive practices within our peer group. In addition, the Committee has monitored trends and developments in the market as they relate to executive compensation. The Committee took the following actions related to the 2010 compensation year:
For 2010, our NEOs are:
Elements of Executive Compensation
The main components of our executive compensation program, including those for our NEOs, are set forth in the following table. A more detailed description is provided in the respective sections below.
We have designed our executive compensation programs to attract, motivate and retain high-performing executives who are critical to our long-term success. We have structured these programs to link executive compensation to successful execution of our strategic business plans and meeting our financial, operational and strategic goals. This design is intended to provide executives increased compensation when we do well as measured against our goals and deliver on shareholder expectations and to provide less compensation when we do not.
In setting compensation for a particular executive, our philosophy is to use the median of compensation of similar positions within an identified peer group of energy companies as a reference point, which we will then adjust based on the performance and experience of the individual, the individuals ability to contribute to our long-term success and other factors, such as relative pay positioning among executives.
We review the philosophy and objectives of our programs at least annually and present any proposed changes to the Committee for its approval. Given the dynamics of the marketplace, we regularly evaluate the compensation philosophy, strategy and programs to ensure they accomplish the following objectives:
The Committee has retained CAP, an independent executive compensation consulting firm, to provide information, analyses and advice regarding executive and director compensation, as described below. The consultant who performs these services reports directly to the Committee and the Committee has established procedures that it considers adequate to ensure that CAPs advice to the Committee is objective and is not influenced by management. These procedures include: a direct reporting relationship of the consultant to the Committee and an agreement specifying what information can and cannot be shared with management. CAP provides only executive compensation consulting services. At the Committees direction, CAP provided the following services:
In the course of conducting its activities, CAP attended four meetings of the Committee in 2010 and presented its findings and recommendations for discussion.
CAP also updated a competitive assessment of outside director compensation for the Corporate Governance Committee.
Management also retains a compensation consultant to provide market data for our officers, including the NEOs. Towers Watson was used until July 2010, when the lead consultant left to join Pay Governance LLC, which has been used since then. Management continues to use Towers Watson to provide equity valuation services.
2010 was a challenging year for us. Natural gas prices remained low, which depressed the market price for electricity and thus our profit margins on sales. We expect this downward pressure on natural gas and wholesale electric prices to continue into 2011 and beyond. Economic conditions and customer conservation efforts lowered demand and revenues, although this was partially offset by hot summer weather. Lower market prices and greater competition also created incentives for increased customer migration away from Power to alternate electric suppliers, reducing margins. Certain PSE&G customer payment patterns also deteriorated, leading to higher levels of receivables. We expect these trends to continue as long as the economy remains weak and natural gas prices stay low.
Our focus remained on operational excellence, improving our financial strength and making disciplined investments. Earnings remained strong and we maintained our credit ratings. We achieved high levels of nuclear, fossil and utility performance. Improved performance enabled us to bid additional capacity into the market. We successfully completed the installation of back-end technology environmental enhancements at our New Jersey coal plants. Utility operations again received industry recognition as among the best. We made additional investments in our solar and economic stimulus programs and are continuing to pursue other attractive opportunities that complement our businesses. We also completed the sale of all of our off-shore leveraged leases, thus significantly reducing our tax exposure.
We settled our electric base rate case in mid-2010, but the new rates were lower than we had planned. We also experienced delays in our scheduled investments in new transmission line projects. The effects of these adverse events were mitigated in part through continued cost control measures and we continue to look for ways to reduce operating costs.
We face a number of regulatory and environmental challenges, at both the federal and state levels. These matters include possible revisions to transmission policy and related rate treatment and cost recovery, challenges to competitive markets and structures, evolving energy policy, potential imposition of new greenhouse gas and other emissions controls and air quality standards and permitting decisions on water discharges at our nuclear and certain fossil units.
Our success will depend upon our ability to maintain strong operational and financial performance in a difficult economy and cost-constrained environment, amidst falling prices, reduced demand, threats to competitive markets and more stringent environmental controls. We believe that our executive compensation programs are designed and operate to reward and create incentives for our executives, from whom we expect superior performance, in executing and achieving our business plans and positioning us to meet these challenges now and in the future. We have made decisions with regard to executive compensation based on 2010 individual and business performance and the value of the individual to our Company, including long-term incentive awards that may be earned and/or whose value will be based upon future performance.
Compensation Risk Assessment
Management with the assistance of CAP conducted a comprehensive assessment of our compensation programs to determine if any of these programs create a potential incentive for individuals to take excessive risks which are reasonably likely to have a material adverse effect on the organization. The risk assessment included a full inventory of all incentive compensation plans in the organization, including their design, metrics, goals and operation. Our Vice President and Chief Risk Officer, as well as our Senior Vice President
Human Resources, participated in this process. Management and CAP reviewed this assessment with the Committee. Based on this review, the Committee determined that the programs do not create an incentive for individuals to take excessive risks which are reasonably likely to have an adverse effect on us. Factors considered include:
In addition, final decisions regarding our executive compensation policies and programs, as well as specific approval of individual NEO compensation, are determined by the Committee, all of whose members are independent of management and, as appropriate, the full Board of Directors, all of whose members except our CEO are independent of management. The Committee has considered our compensation philosophy, total direct compensation, pay mix and the components of compensation for the CEO and other NEOs in regard to performance, business results and risk. The Committee believes that the current balance of base salary, annual cash incentive award and long-term incentives is appropriate to align the interests of executive officers with shareholders and reward superior performance.
Role of CEO
The CEO attends Committee meetings, other than executive sessions. Other executive officers and internal compensation professionals may attend portions of Committee meetings, as requested by the Committee. The
CEO recommends changes to the salaries of his direct reports (who include the NEOs) within an overall base salary budget approved by the Committee, and the Committee considers these recommendations in the context of the respective executives individual performance, competitiveness of salary vs. peer group and internal equity among executives. The CEO recommends incentive compensation targets (expressed as a percentage of base salary) for the SMICP and LTIP grants for his direct reports as well as the associated goals, objectives and performance evaluations. The CEO participates in the Committees discussions of those recommendations.
The design and effectiveness of compensation policies and programs are reviewed by the CEO in conjunction with the Committees consultant periodically in light of general industry trends and the peer group, and recommendations for changes are made to the Committee as deemed advisable by the CEO. The CEO reviews such compensation matters with our internal compensation professionals and outside consultants. The Committee believes that the role played by the CEO in this process is appropriate because the CEO is uniquely suited to evaluate the performance of his direct reports.
We set executive compensation to be competitive with other large energy companies within an identified peer group. We consider Base Salary, Total Cash Compensation (base salary plus target annual incentive) and Total Direct Compensation (base salary plus target annual incentive plus target long-term incentive) as the elements of compensation within the peer group for purposes of benchmarking. The current peer group was first used in 2008. We review the peer group each year and believe it continues to reflect our industry competitors in the market from which we recruit executive talent. This peer group is used as a reference point for setting competitive executive compensation and was developed to reflect similarly-sized energy companies with comparable businesses. The Committee targets the median (50th percentile) of this peer group for positions comparable to those of our officers for Total Direct Compensation. The peer group is also used for comparison in assessing our performance under our LTIP as well as an overall validation of the alignment between pay and performance.
Pay Governance conducts an annual survey assessment of the market using the peer companies. We use the peer group data to the extent each position is reported in the survey data. CAP also reviews the outcome of the competitive assessment.
The following table shows a comparison to our peer companies based on the most recently available financial data.
The data used for the comparisons below are from the most recent data available for the companies in the peer group. The Committee considers a range of 85% to 115% of the 50th percentile of comparable positions to be within the competitive median.
For 2010, base salary, target Total Cash Compensation and target Total Direct Compensation of each of the NEOs included in this Proxy Statement as a percentage of the comparative median benchmark levels of the peer group was as follows:
For 2011, base salary, target Total Cash Compensation and target Total Direct Compensation of each of the NEOs included in this Proxy Statement as a percentage of the comparative median benchmark levels of the peer group are as follows:
For 2011, all but Mr. Mehrberg were at or below the comparative benchmark levels. It is difficult to precisely benchmark Mr. Mehrbergs compensation because of his diverse duties. We can not identify any directly comparable position within the reported peer group data available to us of a senior executive with two or more manager staff functions who also has additional operational responsibilities. We aligned Mr. Mehrbergs compensation with our other senior executives for internal equity within that group. The change year over year is primarily a result of changes in the market data. As noted above, Mr. Izzos salary is well below the target reference point due to his voluntarily foregoing salary increases which is discussed further under the CEO Compensation section below.
The Committee believes that Total Direct Compensation is a better measure for evaluating executive compensation than focusing on each of the elements individually and it does not set a formula to determine the mix of the various elements. The mix of base salary and annual cash incentive for each of the executive positions is surveyed from the peer group. The reported pay structure from the competitive analysis is used as a general guideline in determining the appropriate mix of compensation among base salary, annual and long-term incentive compensation opportunity. However, we also consider that the majority of a senior executives compensation should be performance-based and the more senior an executive is in the organization, the more his/her pay should be oriented toward long-term compensation.
The 2010 and 2011 mix of base salary, target annual cash incentive and long-term incentive are presented below for the CEO as well as the average for the other NEOs:
Mr. Izzos compensation is designed to position Mr. Izzos total pay around the median of the market. Mr. Izzo has demonstrated strong performance over his tenure as CEO and the Committee believes this arrangement is appropriate. The changes to the key terms of Mr. Izzos compensation in 2010 were as follows:
The CEOs new compensation level is reflected above in the competitive positioning detailed in Total Direct Compensation. A recommendation with respect to CEO compensation was included with data presented to the Committee by management. After meeting in executive session, without the CEO present, the Committee determined CEO compensation in consultation with all the independent directors.
As the reference point for competitive base salaries, the Committee considers the median of base salaries provided to executives in the peer group who have duties and responsibilities similar to those of our executive officers. The Committee also considers the executives current salary and makes adjustments based principally on individual performance and experience. Each NEOs base salary level is reviewed annually by the Committee using a budget it establishes for merit increases and salary survey data provided by Pay Governance LLC and reviewed by CAP. The NEOs individual performance and, other than the CEO, his/her business units performance are considered in setting salaries.
The Committee considers base salaries and salary adjustments for individual NEOs, other than the CEO, based on the recommendations of the CEO, considering the NEOs level of responsibilities, experience in position, sustained performance over time, results during the immediately preceding year and the pay in relation to the benchmark median. Performance metrics include achievement of financial targets, safety and operational results, customer satisfaction, regulatory outcomes and other factors. In addition, factors such as leadership ability, managerial skills and other personal aptitudes and attributes are considered. Base salaries for satisfactory performance are targeted at the median of the competitive benchmark data.
For 2010, the Committee set the merit increase budget at 2.0% and, as mentioned above, held the base salary for Mr. Izzo at the 2008 level, or $950,000, which is below the median provided to CEOs of the peer group companies. The base salaries for the NEO group were frozen at 2008 levels for another year, except for Mr. LaRossa, whose salary was frozen for another year at the 2009 level. These amounts are: $570,000 for Ms. Dorsa, $468,600 for Mr. LaRossa, $546,000 for Mr. Levis and $545,000 for Mr. Mehrberg. Mr. Izzos salary of $950,000 exceeds that of the other NEOs due to his greater level of duties and responsibilities as the principal executive officer to whom the other NEOs report, and to whom the Board will look for the execution of corporate business plans.
Annual Cash Incentive Compensation
The SMICP was approved by stockholders in 2004. It is an annual cash incentive compensation program for our most senior officers, including the NEOs. This plans title (formerly known as the Management Incentive Compensation Plan) was changed effective for 2009. To support the performance-based objectives of our compensation program, corporate and business unit goals and measures are established each year based on factors deemed necessary to achieve our financial and non-financial business objectives. The goals and measures are established by the CEO for the NEOs reporting to him, and for each other participant by the individual to whom he or she reports.
The SMICP sets a maximum award fund in any year of 2.5% of net income. The formula for calculating the maximum award fund for any plan year was determined at the time of plan adoption by reference to, among other things, similar award funds used by other companies and a review of executive compensation practices designed to address compliance with the requirements of Internal Revenue Code (IRC) Section 162(m), which, as explained below, limits the Federal income tax deduction for compensation in excess of certain amounts. If appropriate, the Committee will recommend for stockholder approval any material changes to the SMICP required to align the plan with our compensation objectives.
The CEOs maximum award cannot exceed 10% of the award fund. The maximum award for each other participant cannot exceed 90% of the award fund divided by the number of participants, other than the CEO, for that year. For 2010 performance under the SMICP, these limits were $39,108,775 for the total award pool (of which $4,034,900 was awarded), $3,910,878 for the CEOs maximum award and $2,707,531 for each other participants maximum award.
Subject to the overall maximums stated above, NEOs are eligible for annual incentive compensation. The beginning point in the process is a calculation based on a combination of the achievement of individual performance goals and business/employer performance goals, as well as overall corporate performance, as measured by the Corporate Factor. The Corporate Factor for 2010 was Earnings Per Share (EPS) from Continuing Operations. We believe sustained EPS is a significant driver of shareholder value and provides
line-of-sight over a one-year period between individual actions of executives and company performance. For the business units, we used operating earnings, adjusted to exclude interest variances from the business plan.
The maximum result of this calculation is a comparative performance of 1.5. The corporate factor in 2010 could range from 0.0 to 1.5 based on pre-determined EPS goals. The payout factor and related targets for 2010 are illustrated below. If the actual EPS is between the points shown below, the Corporate Payout Factor is determined using linear interpolation. In addition, Messrs. LaRossa, Levis and Mehrberg have business unit (BU) earnings and multiple business unit scorecard (financial, operational and strategic) metrics and goals. Ms. Dorsa has multiple business unit scorecard metrics and goals. All participants, including the NEOs and CEO, have individual/strategic metrics and goals: for Mr. Izzo, operational excellence, financial strength and disciplined investment; for Ms. Dorsa, business planning and management and operations and maintenance savings; for Mr. LaRossa, customer perception; for Messrs. Levis and Mehrberg, operations and maintenance savings. Each factor is multiplied by the respective individuals weighting shown below. An illustration of the plan mechanics is provided below, which when added together results in an individuals payout as a percent of target incentive. The total payout is capped at 150% of target.
The corporate performance goal targets and payout factors at each target performance level for 2010 are set forth below:
The respective business unit performance goal targets and payout factors at each target performance level for 2010 are set forth below:
The actual corporate and business unit results and corresponding payout factors for the performance levels achieved for 2010 are set forth below:
Each factor (corporate earnings, business unit earnings, business unit scorecard and individual/strategic goals) is weighted based on an executives role, with the intention of balancing business unit and individual performance with corporate performance. The weighting for each of the NEOs for 2010 is detailed below, together with the actual achievement factor attained in 2010:
The final step in the process is for the Committee to make an overall judgment as to the appropriate payout levels for each NEO taking into account the overall achievement factors along with other less quantifiable considerations, such as leadership and success in adapting to a changing external environment and the recommendations of the CEO.
The SMICP awards of the NEOs for 2010 are shown below and in the Summary Compensation Table. The Committee made its determinations regarding SMICP awards for the 2010 performance year in February 2011, for payment in March 2011. Based upon the executives overall achievement factor, his/her current base salary and target annual incentive opportunities, each earned the following payout for 2010:
The Committee believes that the 2010 goals established for the NEOs provided the appropriate degree of difficulty, based upon the overall economic environment and that the final award determinations are appropriate. To ensure that pay and performance are aligned, the Committee with the assistance of CAP, assesses whether the payouts that are earned by the NEOs are consistent with our performance relative to peers.
Long-Term Incentive Compensation
NEOs, other officers as determined by the Committee and other key employees, as selected by the CEO within guidelines established by the Committee, are eligible to participate in the LTIP. This plan is designed to attract and retain qualified personnel for positions of substantial responsibility, motivate participants toward goal achievement by means of appropriate incentives, achieve long-range corporate goals, provide incentive compensation opportunities that are competitive with those of other similar companies and align participants interests with those of stockholders. The LTIP was approved by stockholders at the 2004 Annual Meeting. To permit flexibility, the LTIP provides for different forms of equity awards including:
For grants made in December 2010 for 2011, which are shown in the Grants of Plan-Based Awards Table, the Committee determined that senior officers, including all the NEOs, would be granted a long-term award consisting of 60% performance units and 40% restricted stock units. In prior years, we had used a mix of 50% performance units and 50% stock options. The Committee believes the incorporation of time-vested restricted stock units into the core long-term incentive program should assist with retention in a period of uncertainty for the broad economy and volatility within our industry. The Committee chose the weighting of 60%/40% to support the Companys philosophy that performance-based compensation is critical to driving long-term value for shareholders. Grant levels are determined by the Committee based upon several factors, including the value of long-term incentive awards made by companies in the peer group to executives in similar positions and
whose cash compensation is similar to that of each NEO as well as the individuals ability to contribute to our overall success. The level of grants is reviewed annually by the Committee. In general, when making LTIP grants, the Committees determinations are made independently from any consideration of the individuals prior LTIP awards.
The CEO determines his recommendations for the size of long-term incentive awards for NEOs and each other participant in part by analyzing long-term incentive award values granted to executives for comparable positions as reported in the peer group. Median long-term incentive values for comparable levels of base salary for executive positions within the peer group are used as a further reference for determining the recommended grant size for NEOs and other officers. In making a recommendation for the size of a particular LTIP grant for each NEO, the CEO adjusts this average to reflect the individuals performance and ability to contribute to our long-term value.
Performance units are subject to the achievement of certain goals related to Total Shareholder Return (TSR) and Return on Invested Capital (ROIC) over a three-year performance period. Each metric is independent and equally weighted (i.e., 50% each). TSR relative to the peer group was selected as it provides alignment with our shareholders and provides the incentive to deliver a return to shareholders greater than that of our peers. ROIC is used to ensure we are effectively using our capital base. Based upon performance relative to the peer group on TSR and three-year average ROIC vs. our internal goals, executives can earn a stock award of up to 200% of their target. We believe that the ROIC goal represents a significant degree of difficulty.
For awards granted in December 2010, recipients will receive 100% of their grant amount (a) if for the three-year performance period TSR places us in the 50th percentile of the peer group and (b) if our ROIC for the three-year performance period is 8.1%. The award can be reduced to 0 or increased to 200% of the grant amount depending on TSR and ROIC performance for the period. Payment, if any, will be made in 2014 based on the three-year performance period ending December 31, 2013. Any payments on performance units are made in the year following the end of the relevant performance period, pending availability of comparative data needed to calculate the amount, if any, of the payout earned. Dividend equivalents are accrued over the performance period and paid in shares of Common Stock in relation to the number of shares earned based on results for the performance period.
The performance schedule for relative Total Shareholder Return, which can earn an individual 50% of the performance unit award, is detailed below:
In December 2010, the CEO recommended and the Committee approved a one-time retention award with a target amount of $2 million to Mr. LaRossa in recognition of his outstanding performance, contributions to the organization and critical role in the organization. The award was granted 50% in performance units with the same criteria as those described above and 50% in restricted stock units which vest after five years, subject to acceleration or forfeiture under certain circumstances prior to that time. The Committee believes that Mr. LaRossas continued employment will provide us with the stability and continuity of experienced leadership at a time of increased pressures and uncertainties.
In 2010, Messrs. Izzo, LaRossa and Levis received payment of shares of our Common Stock equal to 200% of the grant amount with regard to the January 2007 grant of performance units (Mr. Levis also had a grant in June 2007), reflecting achievement of the maximum goal amount for the three-year performance period ended December 31, 2009. The grants allowed recipients to receive 100% of their grant amount if, for the performance period (a) PSEGs TSR placed it within the third quintile of the companies within the Dow Jones Utilities Index (DJUI) and (b) PSEGs Return on Equity (ROE) was within 1% of the median ROE of the
DJUI. For performance above or below these levels, the final amount could be increased to as much as 200% of the grant amount (TSR in the first quintile and ROE more than 2% above the median of the DJUI ROE) or decreased to zero. The dollar amount of each payment, which was made in shares of our Common Stock, is shown below. Ms. Dorsa and Mr. Mehrberg were not employees at the time of the 2007 grants.
Grants of performance units made in December 2007 allow recipients to receive payment, as described above, but measured against our peer group rather than the DJUI for the three-year performance period ended on December 31, 2010. Any payments will be determined in 2011 using audited financial results, which are not yet available.
We provide certain qualified retirement benefits under our Pension Plan of PSEG (Pension Plan) and Cash Balance Pension Plan of PSEG (Cash Balance Plan) to maintain practices that are competitive with companies in the energy services industry with which we compete for executive talent. In addition to the qualified plans, we provide certain limited non-qualified retirement benefits under our Retirement Income Reinstatement Plan (Reinstatement Plan) and Supplemental Executive Retirement Income Plan (Supplemental Plan). We maintain these supplemental plans to provide competitive retirement benefits. Our supplemental executive retirement plans were adopted to assist in the recruitment and retention of key employees.
We also maintain a defined contribution 401(k) Plan and provide a partial Company matching contribution for 401(k) participants who are in the Cash Balance Plan.
Deferred Compensation Plan
We offer a deferred compensation plan to our executive officers so they can more effectively manage their personal tax obligations. Participants may elect to defer all or any portion of their cash compensation, and may choose from among several different rates of return based upon the choices available in our 401(k) Plan, as well as a market-based rate of Prime rate plus 1/2%.
Severance and Change-in-Control Benefits
We provide severance benefits in the event of certain employment terminations. These benefits are available to officers, including the NEOs, in order to be competitive with the companies in the energy industry and provide a level of financial security to the executive in periods of uncertainty in the event of a termination without cause.
The Committee compares the benefits made available to NEOs and officers in the event of a termination to those generally offered by other companies in our industry. The severance agreement of Mr. Izzo also provides for certain severance benefits.
We also provide severance benefits upon a change-in-control to officers, including the NEOs. A change-in-control is by its nature disruptive to an organization and to many executives. Such executives are frequently key players in the success of organizational change. To assure the continuing performance of such
executives and maintain stability and continuity in the face of a possible termination of employment in the event of a change-in-control, we provide a competitive severance package. In addition, some executives, not key parties to such transaction, may have their employment terminated following its completion. A severance plan with benefits applicable upon a change-in-control is an important element for attracting and retaining key executives.
Neither our Key Executive Severance Plan nor Mr. Izzos severance agreement provide for gross-up payments from us in the event that any NEO or other participant is subject to an excise tax related to receipt of a change-in-control payment.
Severance and change-in-control benefits are described under Potential Payment Upon Termination of Employment or Change-in-Control below.
We provide certain perquisites that we believe are reasonably within compensation practices of our peers or provide benefit to the Company, such as allowing the executive to be productive while commuting. These include automobile use (and for the CEO, a driver) or car service, reimbursement of relocation expenses, annual physical examinations, limited spousal travel (with CEO approval) to executives on business trips, home security, home computer services and charitable contributions on behalf of the individual. These perquisites are described in the Summary Compensation Table, as applicable.
We do not provide a tax gross-up of personal benefit amounts deemed to be taxable income under federal or state income tax laws and regulations, except for certain relocation expenses, primarily in the case of newly-hired executives.
We have a policy which prohibits officers, including NEOs, from hedging or short-selling our Common Stock.
We have adopted provisions that require a participant to forfeit any annual or long-term incentive grants and repay profits made on sales of LTIP shares if they are earned as a result of misconduct related to accounting restatements. LTIP grants and shares received on exercise of LTIP grants are also subject to clawback if the participant violates his/her non-compete, non-solicitation or confidentiality agreements.
Stock Ownership and Retention Policy
In order to strengthen the alignment of the interests of management with those of stockholders, we have established a Stock Ownership and Retention Policy (Policy). Each officer must acquire a prescribed amount of shares within five years of the adoption of the Policy or the date they are elected or promoted. The following shares owned by the officer are counted toward the ownership requirement: (i) shares held in trusts for the benefit of immediate family members where the officer is the trustee, (ii) shares granted to the officer in the form of restricted stock and restricted stock units, whether or not vested, and (iii) shares held by the officer in the 401(k) Plan. Stock options and performance units (as distinct from shares which are actually issued as a result of exercise or vesting) are not counted. Shares subject to hedging or monetization transactions (such as zero-cost collars and forward sale contracts), which allow the officer to retain legal ownership without its full risks and rewards, are not counted for purposes of either the ownership or retention provisions of the Policy, since our Insider Trading Policy does not permit such hedging or pledging. In addition our Insider Trading Policy requires pre-clearance of transactions by officers from the office of our General Counsel.
Each officer must retain at least 100%, after tax and costs of issuance, of all shares acquired through equity grants made subsequent to the adoption of the policy, including the vesting of restricted stock or restricted stock unit grants, payout of performance awards and exercise of option grants, until the ownership requirement is met. Once an officer attains his/her required level of stock ownership, he/she must retain 25%, after tax and costs of issuance, of shares until retirement or his or her employment otherwise ends.
In the event an officer is not in compliance with any provision of the Policy, the Committee may take such action as it deems appropriate, consistent with the provisions of our compensation plans and applicable law
and regulations, to enable the officer to achieve compliance at the earliest practicable time or otherwise enforce the Policy. Such action may include establishing conditions with respect to all or part of any SMICP or LTIP award. The Committee may vary the application of the provisions of the Policy for good cause or exceptional circumstances.
The Policy was not a factor considered by the Committee in making 2010 grants under the LTIP.
The following table shows, for each NEO, the dollar amount of stock ownership required by the Policy and the dollar amount of actual holdings as of February 18, 2011. Messrs. Izzo, Levis and LaRossa have achieved compliance in advance of the required date of November 20, 2012; for Ms. Dorsa, the compliance date is April 9, 2014 and for Mr. Mehrberg it is September 8, 2013.
We have entered into agreements with Messrs. Levis and Mehrberg and Ms. Dorsa and a severance agreement with Mr. Izzo. These are discussed following the Grants of Plan-Based Award Table below.
Accounting and Tax Implications
The Committee has considered the effect of Financial Accounting Standards Board Accounting Standards Codification Topic 718 (formerly FAS 123R) (see Note 18 to Consolidated Financial Statements included in our Annual Report on Form 10-K) regarding the expensing of equity awards in determining the nature of the grants under the LTIP. The Committee, with the assistance of CAP, reviews the competitiveness of the NEOs LTIP grants, as measured against the peer group, using reported Topic 718 grant values and approves grants to the NEOs accordingly as reported above in Long-Term Incentive Compensation.
The Committee considers the tax-deductibility of our compensation payments. IRC Section 162(m) generally denies a deduction for United States Federal income tax purposes for compensation in excess of $1 million for persons named in the proxy statement, except for qualifying performance-based compensation pursuant to stockholder-approved plans. Stockholder approval of the LTIP and SMICP was received at the 2004 Annual Meeting of Stockholders. As a result, qualifying performance-based compensation under these plans is not now subject to the limitation on deductions contained in Section 162(m) of the IRC. While the Committee believes that restricted stock is a valuable component of incentive compensation as it aligns the interest of the recipients with those of stockholders, the vesting of restricted stock grants does not qualify for tax-deductibility under Section 162(m) performance-based compensation.
In 2010, Mr. Levis was our only NEO who had compensation (consisting of base salary and the taxable value of restricted stock that vested during the year) in excess of the amount deductible under Section 162(m) of the IRC. The Committee will continue to evaluate executive compensation in light of Section 162(m) and the flexibility that is desirable in administering our executive compensation program in accordance with our compensation philosophy.
In light of Section 162(m), as well as certain NYSE rules, the Committees general policy is to present all incentive compensation plans in which executive officers participate to shareholders for approval prior to implementation.
SUMMARY COMPENSATION TABLE
Mr. Mehrberg commenced employment on September 8, 2008 and was not a NEO for proxy statement reporting for that year.
None of the NEOs received increases in salary, other than Mr. LaRossa in 2009. Other differences year-to-year reflect timing of commencement of the applicable rate of pay.
In 2009, Mr. Mehrberg received the second installment of his hiring bonus.
The respective amounts below represent the grant date fair value of performance units at target and maximum amounts:
For a discussion of the assumptions made in valuation see Note 18 to the Consolidated Financial Statements included in our 2010 Annual Report on Form 10-K.
For all except Mr. Izzo, the changes reported between 2008 and 2009 and between 2007 and 2008 in last years proxy statement were overstated, primarily with regard to the methodology used to determine benefits under the Supplemental Plan. The corrected amounts are shown above and included in the Summary Compensation Table.
For Mr. Izzo, in 2008, includes interest earned under the Deferred Compensation Plan at the prime rate plus 1/2%, to the extent that it exceeds 120% of the applicable long-term rate, in the amount of $18,615.
GRANTS OF PLAN-BASED AWARDS TABLE
The plan-based awards for annual cash incentive compensation included in the Summary Compensation Table were paid in 2011 with respect to 2010 performance under the terms of the SMICP. The range of possible awards for each NEO in relation to his/her Target Award is set forth in the Grants of Plan-Based Awards Table above. An explanation of the SMICP and performance goals, measures and performance factors achieved are described under Annual Cash Incentive Compensation in Compensation Discussion and Analysis above.
As explained in the Compensation Discussion and Analysis and shown above, LTIP awards were made to NEOs in 2010, 2009 and 2008. The Committee, in December 2010, approved grants in the form of restricted stock units and performance units to the NEOs. The restricted stock units vest after three years. The three-year performance period for the performance units ends December 31, 2013, with payment, if any, made the following year. Mr. LaRossa received an additional retention award of restricted stock units that vest after five years and performance units with a three-year performance period that ends December 31, 2013.
In previous years, restricted stock awards were made. Generally, restricted stock awards vest one-forth annually. Recipients of restricted stock awards receive dividends at the regular dividend rate and are paid on each regular dividend date. Dividends on restricted stock units accrue and are paid in additional shares at vesting. Generally, unvested shares of restricted stock vest immediately upon retirement which occurs one year or more after the grant and vest on a pro rata basis if retirement occurs prior to that. Unvested restricted stock units vest pro rata upon retirement which occurs within one year of the grant and thereafter according to the original grant schedule. Generally, unvested restricted stock and restricted stock units are forfeited upon resignation.
Performance units are denominated in shares of Common Stock and are subject to achievement of certain performance goals over a three-year period and are payable as determined by us in shares of our Common Stock or cash. Any payments of awards granted in December 2007 will be made in 2011 based on performance for the three-year period that ended on December 31, 2010, which calculation has not yet been made pending availability of comparative audited results of peer companies. Performance units awards granted in January and June 2007 were paid in 2010 based on the three-year performance period that ended December 31, 2009. For those performance units, the maximum payment of 200% was achieved.
Further explanation of performance unit payment determination is set forth under Long-Term Incentive Compensation in Compensation Discussion and Analysis above. For further information about vesting, see Employment Agreements and Potential Payments Upon Termination of Employment or Change-In-Control below.
We entered into a severance agreement with Mr. Izzo on December 16, 2008 incorporating certain of the severance provisions of his expiring employment agreement. The terms are discussed below under Potential Payments Upon Termination of Employment or Change-In-Control.
The agreement executed between us and Ms. Dorsa, covering her employment as Executive Vice President and Chief Financial Officer effective April 9, 2009, provides for an initial base salary of $570,000, with a salary review annually each January. The agreement provided for a cash payment upon employment of $200,000, which must be repaid if Ms. Dorsa leaves the Company (voluntarily or upon termination for cause) within three years. Ms. Dorsa also received a cash payment of $4,322 to make-up for lost compensation due to her acceptance of employment with us. In addition, the agreement provides that Ms. Dorsa will participate in the SMICP and the LTIP during her term of employment. Ms. Dorsas target incentive award under the SMICP was initially set at 60% of base salary. The agreement also provided for an award to Ms. Dorsa of 8,800 shares of Restricted Stock under the LTIP vesting on April 9, 2014, assuming continued employment. Ms. Dorsas
long-term compensation opportunity under the LTIP was set at $900,000 for 2009 (prorated from her date of hire) and will be reviewed annually pursuant to the terms of the LTIP. The agreement also provides that if Ms. Dorsa remains employed through April 9, 2014, she will become a participant in the additional limited benefits provision of the Supplemental Executive Plan and receive 15 years of additional service credit. Ms. Dorsa also participates in the Key Executive Severance Plan. Finally, the agreement provides that we will provide Ms. Dorsa with a car service for commuting purposes.
The agreement executed between us and Mr. Mehrberg, covering his employment as Executive Vice President Planning and Strategy effective September 8, 2008, provides for an initial base salary of $545,000, with an annual salary review beginning January 2010. The agreement provided for cash payments of $250,000 within 45 days of employment and on September 8, 2009, each of which must be repaid if Mr. Mehrberg leaves the Company (voluntarily or upon termination for cause) within three years of the applicable payment. In addition, the agreement provides that Mr. Mehrberg will participate in the SMICP and the LTIP during his term of employment. Mr. Mehrbergs target incentive award under the SMICP was initially set at 60% of base salary. Mr. Mehrbergs long-term compensation opportunity under the LTIP was set at $800,000 for 2008 (prorated from his date of hire) and will be reviewed annually pursuant to the terms of the LTIP. As provided in the agreement, if Mr. Mehrberg resigns on or after September 8, 2012, in order to take a position with a governmental or non-profit entity agreed to by our CEO, any unvested LTIP awards will vest as if he retired. In February 2011, the Organization and Compensation Committee approved a proposed amendment, which has not yet been executed, to provide that if Mr. Mehrberg resigns on or after September 8, 2012, but before January 1, 2017, in order to take a position with a governmental entity or another employer agreed to by our CEO, any unvested LTIP awards would fully vest without proration upon such a resignation. The agreement also provides that if Mr. Mehrberg remains employed through September 8, 2013, he will become a participant in the additional limited benefits provision of the Supplemental Plan. Finally, the agreement provided Mr. Mehrberg with severance benefits that are covered by the terms of the Key Executive Severance Plan.
We entered into an agreement with Mr. Levis effective January 1, 2007, in connection with his initial employment with us, covering his employment as President and Chief Nuclear Officer of Powers subsidiary, Nuclear. The agreement provided for a base salary of $500,000, with a salary review in December 2007 and annually thereafter. The agreement further provided for a cash payment of $500,000, which must be repaid if Mr. Levis leaves the Company (voluntarily or upon termination for cause) within five years. Mr. Levis also received $16,667 to make-up for lost bonus opportunity with his prior employer. In addition, the agreement provides that Mr. Levis will participate in the SMICP and the LTIP during his term of employment. Mr. Leviss target incentive award under the SMICP must be at least 60% of base salary. The agreement awarded to Mr. Levis a grant of 100,000 shares of Restricted Stock, under the LTIP, of which 40,000 shares vested on January 1, 2010. 60,000 shares will vest on January 1, 2013, assuming continued employment, but vest immediately upon a termination without cause. Long-term compensation opportunity is to be reviewed annually pursuant to the terms of the LTIP. Finally, the agreement provides that, should Mr. Levis remain employed through January 16, 2013, he will become a participant in the additional limited benefits provision of the Supplemental Plan.
For additional information regarding severance benefit provisions, see Potential Payments Upon Termination of Employment or Change-in-Control.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (12/31/10) TABLE