UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
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PUBLIC SERVICE ENTERPRISE GROUP INCORPORATED
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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 16, 2013
AND
PROXY STATEMENT
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 16, 2013, at 1:00 P.M., for the following purposes:
1. | To elect ten members of the Board of Directors to hold office until the Annual Meeting of Stockholders in 2014, each until his or her respective successor is elected and qualified; |
2. | To consider and act upon an advisory vote on the approval of executive compensation; |
3. | To consider and act upon the approval of an amendment and restatement of the 2004 Long-Term Incentive Plan; |
4. | To consider and act upon the approval of an amendment and restatement of the Employee Stock Purchase Plan; |
5. | To consider and act upon the ratification of the appointment of Deloitte & Touche LLP as independent auditor for 2013; |
6. | To consider and act upon a stockholder proposal relating to simple majority vote requirement, if the proponent presents the proposal at the meeting; and |
7. | To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. |
Stockholders entitled to vote at the meeting are the holders of Common Stock of record on February 15, 2013.
By order of the Board of Directors,
M. Courtney McCormick
Secretary
February 27, 2013
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be Held on April 16, 2013: The Proxy Statement and Annual Report to Stockholders are available at www.ezodproxy.com/pseg/2013/pseg2012ar
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND MAIL THE ACCOMPANYING PROXY CARD PROMPTLY. TELEPHONE AND ELECTRONIC VOTING ARE ALSO AVAILABLE. PLEASE USE THE TOLL-FREE TELEPHONE NUMBER OR THE INTERNET ADDRESS SHOWN ON THE PROXY CARD. |
The approximate date on which this Proxy Statement and the accompanying proxy card were first sent or given to security holders and made available electronically via the Internet was March 8, 2013.
TABLE OF CONTENTS
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
TABLE OF CONTENTS
Forward-Looking Statements
The statements contained in this Proxy Statement about us and our subsidiaries future performance, including, without limitation, future revenues, earnings, strategies, prospects, consequences and all other statements that are not purely historical, are forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. Although we believe that our expectations are based on information currently available and on reasonable assumptions, we can give no assurance they will be achieved. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements made herein. A discussion of some of these risks and uncertainties is contained in our Annual Report on Form 10-K and subsequent reports on Form 10-Q and Form 8-K filed with the Securities and Exchange Commission (SEC), and available on our website: http://www.pseg.com. These documents address in further detail our business, industry issues and other factors that could cause actual results to differ materially from those indicated in this Proxy Statement. In addition, any forward-looking statements included herein represent our estimates only as of the date hereof and should not be relied upon as representing our estimates as of any subsequent date. While we may elect to update forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if our internal estimates change, unless otherwise required by applicable securities laws.
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
PROXY STATEMENT SUMMARY
OUR COMPANY
Public Service Enterprise Group Incorporated (we, us, our, PSEG or the Company) is distributing this Proxy Statement in connection with our 2013 Annual Meeting of Stockholders. We are a holding company that directly owns four subsidiaries:
| PSEG Power LLC (Power), an electric generation and wholesale energy trading company; |
| Public Service Electric and Gas Company (PSE&G), an operating electric and gas utility; |
| PSEG Energy Holdings L.L.C. (Energy Holdings), the owner of electric generation and energy-related investments; and |
| PSEG Services Corporation (Services), which provides management and administrative services to us and our subsidiaries. |
ANNUAL MEETING PROPOSALS
Proposals | Board Recommendation |
Page Number for More Information | ||||||
1. |
Election of Directors vote to elect director nominees to serve one-year terms. |
FOR |
8 | |||||
2. |
Approval of Executive Compensation advisory vote to approve the executive compensation of the named executive officers. |
FOR |
30 | |||||
3. |
2004 Long-Term Incentive Plan approve proposed amendment and restatement of our 2004 Long-Term Incentive Plan. |
FOR |
68 | |||||
4. |
Employee Stock Purchase Plan approve proposed amendment and restatement of the PSEG Employee Stock Purchase Plan. |
FOR |
72 | |||||
5. |
Ratification of Auditor ratification of the appointment of Deloitte & Touche LLP as independent auditor for 2013. |
FOR |
75 | |||||
6. |
Stockholder Proposal stockholder proposal requesting elimination of voting requirements that calls for a greater than simple majority vote. |
AGAINST |
77 |
VOTING AND PROCEDURES
Voting is strongly encouraged. We urge you to sign, date and return the accompanying proxy card whether or not you plan to attend the Annual Meeting. For stockholders of record, we have provided several alternative methods for voting, including voting via the Internet or the toll-free telephone number listed below.
Annual Meeting of Stockholders
Date and Time | April 16, 2013 at 1:00 P.M. | |
Location | The New Jersey Performing Arts Center (NJPAC), One Center Street, Newark, NJ | |
Record Date | February 15, 2013 Holders of Common Stock outstanding on the record date will have one vote per share |
Voting Methods
Internet/Mobile http://www.ematerials.com/peg |
Phone 1-800-560-1965 (toll-free) |
Wells Fargo Shareowner Services, P.O. Box 64873 St. Paul, MN 55164-9397 |
In Person At the Annual Meeting |
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 1
PROXY STATEMENT SUMMARY
To Submit Proposals for 2014 Annual Meeting
Final Date | November 8, 2013 (last day for receipt by us) | |
Contact | Corporate Secretary, PSEG, 80 Park Plaza, T4B, P.O. Box 1171 Newark, New Jersey 07101-1171 |
NOMINEES FOR ELECTION AS DIRECTOR
Name | Age | Director Since |
Primary Occupation | Committee Memberships |
Other
Public Company Boards | |||||||||||
Albert R. Gamper, Jr. | 71 | 2000 | Retired Chairman of the Board and CEO of CIT Group | Lead Director, A, E, F | 1 | |||||||||||
William V. Hickey | 68 | 2001 | Chairman of the Board and CEO of Sealed Air Corporation | F, FG (Chair), NG (Chair), O | 2 | |||||||||||
Ralph Izzo | 55 | 2006 | Chairman of the Board, President and CEO of PSEG | E (Chair) | 0 | |||||||||||
Shirley Ann Jackson | 66 | 2001 | President of Rensselaer Polytechnic Institute | E, F (Chair), FG, NG, O | 4 | |||||||||||
David Lilley | 66 | 2009 | Retired Chairman of the Board, President and CEO of Cytec Industries | A (Chair), F, O | 2 | |||||||||||
Thomas A. Renyi | 67 | 2003 | Retired Executive Chairman of The Bank of New York Mellon | A, CG (Chair), O | 1 | |||||||||||
Hak Cheol (H.C.) Shin | 55 | 2008 | Executive Vice President International Operations of 3M Company | A, CG, FG, NG | 0 | |||||||||||
Richard J. Swift | 68 | 1994 | Retired Chairman of the Board, President and CEO of Foster Wheeler | CG, E, FG, NG, O (Chair) | 4 | |||||||||||
Susan Tomasky | 60 | 2012 | Retired President AEP Transmission of American Electric Power Corporation | A, CG | 2 | |||||||||||
Alfred W. Zollar | 58 | 2012 | Retired General Manager Tivoli Software Division of IBM Corporation | F, FG, NG | 1 |
A=Audit CG=Corporate Governance E=Executive F=Finance FG=Fossil Generation NG=Nuclear Generation O=Organization and Compensation
CORPORATE GOVERNANCE
We have adopted what we believe are strong corporate governance standards and practices to assure effective management by our executives and oversight by our Board of Directors (Board). These measures include the following:
| Independent Directors. The Board has established standards for director independence, which are set forth in our Corporate Governance Principles (Principles). All of our current directors and nominees are independent under our Principles and the requirements of the New York Stock Exchange (NYSE), except Ralph Izzo, our Chairman of the Board, President and Chief Executive Officer (CEO), who is an employee of the Company. |
| Board Leadership. Our Board leadership structure currently consists of a Chairman, (who is also our CEO), a Lead Director, who is elected by the independent directors, and strong committee chairs. Our Board believes that this structure strikes an appropriate balance in providing for independent leadership at the Board level, while ensuring that the individual charged with managing the day-to-day operations of the company is responsible for chairing regular meetings of the Board and leading the discussion on key business and strategic issues. |
| Risk Management Oversight. Risk management is a key part of our strategic planning and business operations. We believe that we have an effective system of risk management with appropriate controls and Board oversight. |
| Code of Ethics. We are committed to operating in accordance with the highest ethical and legal standards. Our Standards of Integrity (Standards) establish a set of common expectations for behavior to which each director and employee must adhere. |
2 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
PROXY STATEMENT SUMMARY
BUSINESS PERFORMANCE
In 2012, our financial results continued to be adversely impacted by lower prices for electricity and natural gas in the markets we serve, while uncertainty concerning regulatory and environmental policies dampened investor returns. Electricity prices remained low due to a combination of a decline in demand growth and sustained low natural gas prices. The slow economic recovery has negatively impacted utility sales, as well as prices in the wholesale energy and capacity markets in which we operate. The continued decline in wholesale natural gas prices, resulting from greater supply from shale production, further contributed to the continuing decline in the wholesale price of electricity.
In response to the challenging conditions facing our industry, we remained committed to our strategy of pursing operational excellence, financial strength and disciplined investment. We ended the year with a strong balance sheet and cash position, reflected in our stable credit ratings and the revision of our dividend payout policy. We settled ten years of IRS audit and leasing issues and obtained important regulatory and environmental approvals. Nuclear and fossil generation remained at consistently high levels, while we managed costs and improved dispatch economics and staffing efficiencies. Our utility again earned national recognition for outstanding reliability and outage response, even as we faced one of the greatest operational challenges in our history due to Superstorm Sandy. We substantially increased capital investments in our utility, concentrating on projects with contemporaneous returns.
Compared to the prior year, year over year earnings were lower, but within our targeted range and the price of our Common Stock was lower at year end. While power prices declined approximately 24% from 2011 to 2012, through executing our strategy the decline in our earnings was, in comparison, approximately 15% during the same period.
Financial Highlights
YE 2012 ($ 000s) |
YE 2011 ($ 000s) |
|||||||
Total Revenues | 9,781 | 11,079 | ||||||
Income from Continuing Operations | 1,275 | 1,407 | ||||||
Net Income | 1,275 | 1,503 | ||||||
Total Assets | 31,725 | 29,821 | ||||||
Earnings Per Share - Diluted |
($) |
($) |
||||||
Income from Continuing Operations |
2.51 | 2.77 | ||||||
Net Income |
2.51 | 2.96 | ||||||
Dividends Paid per Share | 1.42 | 1.37 | ||||||
Market Price per Share | 30.60 | 33.01 |
For a more comprehensive assessment of the Companys performance, please review the entire Proxy Statement and our Annual Report on Form 10-K for the year ended December 31, 2012 (Form 10-K).
EXECUTIVE COMPENSATION
We have designed a competitive performance-oriented executive compensation program that we believe helps us recruit and retain top talent while closely linking pay to performance, which we benchmark to industry peers. We seek to align the interests of our executive officers, including our CEO and the Named Executive Officers (NEOs) reported in this Proxy Statement, with those of our stockholders through short-term and long-term incentive opportunities. Ultimate payment depends upon performance, measured against financial and other business results utilizing internal targets and relevant peer group comparisons. In setting and overseeing executive compensation, our Board utilizes an independent compensation consultant which provides no other services to us. A detailed discussion of our executive compensation program, including its elements, the factors we use in determining compensation and our governance features, appears below in the Compensation Discussion and Analysis (CD&A).
Our program provides the following compensation:
| Base salary; |
| Annual cash incentive opportunity under our Senior Management Incentive Compensation Plan (SMICP), with multiple performance measures, including a strong emphasis on earnings per share (EPS) and potential payments of between zero and 150% of target; |
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 3
PROXY STATEMENT SUMMARY
| Equity-based incentive awards under our 2004 Long-Term Incentive Plan (LTIP) consisting of: |
| 60% performance share units (PSUs), with payment, if any, measured over a three-year period against Return on Invested Capital (ROIC) and relative Total Shareholder Return (TSR), with the opportunity to earn between zero and 200% of target based on performance; and |
| 40% restricted stock units (RSUs), which cliff vest at the end of three years. |
| Market-based retirement and post-employment benefits, including double trigger change-in-control provisions and no excise-tax gross-ups. |
We have adopted executive compensation governance measures, including:
| Pre-clearance for trading in our Common Stock; |
| Clawbacks; |
| A prohibition on hedging and pledging our Common Stock; |
| A stock ownership and retention policy; and |
| An annual compensation risk assessment. |
Pay for Performance
We believe that our pay for performance philosophy is critical to our continued success and that our program effectively focuses our executives on creating sustained stockholder value without encouraging excessive risk. By emphasizing incentive-based compensation, our CEO and NEOs will be rewarded based upon our financial results, with the ultimate payout of a significant portion of their total compensation determined relative to the achievement of our goals. For 2013, the target incentive pay for our CEO was 88% and the average target incentive pay for our NEOs was 71% of targeted total direct compensation, respectively.
When we compared our recent financial performance with the compensation of our CEO and NEOs, we found that the financial measures we examined were at approximately the median of our peer group of companies and our executive compensation was at or below the peer median. Thus, we concluded that our performance and executive compensation are appropriately aligned. Further, performance is reflected in the actual value of the equity incentive compensation paid upon vesting of awards. For the performance share units granted under the LTIP in December 2009 with a three-year performance period ended December 31, 2012, actual payout was at 50% of target, based on our TSR compared to peer companies and ROIC in relation to target, as reported in the Option Exercises and Stock Vested During 2012 Table.
The following table provides highlights of the compensation for our CEO and other NEOs in 2012 as reported in the 2012 Summary Compensation Table in this Proxy Statement. For the complete details of compensation, please review the entire Proxy Statement.
Base Salary | Equity Incentive Plan Compensation |
Non-Equity Incentive Plan Compensation |
Total Compensation |
|||||||||||||
|
2012 | 2012 | 2012 | 2012 | ||||||||||||
NEO | ($) | ($) | ($) | ($)(1) | ||||||||||||
Ralph Izzo | 1,004,715 | 5,724,001 | 1,653,800 | 10,513,543 | ||||||||||||
Caroline Dorsa | 595,691 | 1,099,985 | 567,900 | 3,678,237 | ||||||||||||
William Levis | 560,377 | 1,099,985 | 546,200 | 2,989,703 | ||||||||||||
Randall E. Mehrberg |
553,414 | 924,182 | 499,400 | 2,716,866 | ||||||||||||
J. A. Bouknight, Jr. | 535,570 | 849,495 | 461,300 | 1,926,914 | ||||||||||||
Ralph A. LaRossa | 497,142 | 824,611 | 400,700 | 2,332,861 |
(1) | Reflects all compensation as reported in the 2012 Summary Compensation Table. |
Key Recent Executive Compensation Actions
During 2012, we:
| Reviewed our compensation philosophy and all key elements of our executive compensation program in light of our strategy and objectives as well as the results of the 96% approval of our 2012 Say on Pay vote; and |
| Adopted and recommended that shareholders approve an Amendment and Restatement of the LTIP, with no request to approve additional shares of Common Stock for distribution under the LTIP. |
4 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
ANNUAL MEETING, VOTING AND PROCEDURES
This Proxy Statement is furnished by PSEG on behalf of the Board. We are soliciting proxies to be voted at the 2013 Annual Meeting of Stockholders scheduled to be held on April 16, 2013 and at all adjournments or postponements of that meeting.
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.
In an effort to encourage stockholder voting, we have structured our Proxy Statement in an easy-to-read format. After describing each proposal, we provide the information for you to consider in voting. Accordingly:
| Proposal 1. Election of Directors (page 8) is followed by a discussion of our corporate governance practices, board structure and director nominee biographies; |
| Proposal 2. Advisory Vote on the Approval of Executive Compensation (page 30) is followed by the Report of our Organization and Compensation Committee, our CD&A, with a detailed explanation of executive compensation, and the compensation tables; |
| Proposal 3. Approval of Amended and Restated LTIP (page 68) includes an explanation of its key features; |
| Proposal 4. Approval of Amended and Restated Employee Stock Purchase Plan (ESPP) (page 72) includes an explanation of its key features; |
| Proposal 5. Ratification of the Appointment of Independent Auditor (page 75) is followed by our Audit Committee Report and disclosure of our Independent Auditors fees; and |
| Proposal 6. Stockholder Proposal on Majority Voting (page 77), is followed by our reasons for opposing the proposal. |
We have provided without charge to each person solicited by means of this Proxy Statement, a copy of our Form 10-K, which has been filed with the Securities and Exchange Commission (SEC). Each such copy of the 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: Vice President-Investor Relations, 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/investors/financial_info/index.jsp.
Delivery of Documents and Internet Availability
Each stockholder receives his or her own proxy card by which to vote. In future years, we intend to send only a single copy of each of our Annual Report to Stockholders, in which we will include our 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 the stockholders at that address notifies us to request individual copies. This householding saves our company printing and delivery costs. If you share an address with another stockholder and receive 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 our company the cost of producing and mailing them to you, you may do so by following the instructions at www.ematerials.com/peg. 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 Forms 10-K 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 card.
This year, due to a change of our registrar and transfer agent, we are not able to provide householding or electronic delivery.
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 5
ANNUAL MEETING, VOTING AND PROCEDURES
Attendance
Our Annual Meeting will be held on Tuesday, April 16, 2013 at 1:00 P.M., at the NJPAC in Newark, New Jersey. We request that if you plan to attend the Annual Meeting, you should so indicate on the proxy card or when voting your shares telephonically or electronically. We have included transportation information and a map on the back cover of this Proxy Statement. Please bring with you evidence that you are a stockholder.
Holders of record of the 505,961,739 shares of Common Stock outstanding on February 15, 2013 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.
Election of directors under Proposal 1 is subject to our majority vote requirement described below. The say-on-pay vote presented in Proposal 2 is advisory and non-binding, whether or not approved by a majority of the votes cast. The approval of the respective amendment and restatement of each of the LTIP and ESPP under Proposal 3 and Proposal 4, respectively, requires receipt of a majority of the votes cast with respect to each. A majority of the votes cast is needed for the Proposal 5 ratification of the auditor. The stockholder proposal contained in Proposal 6 must receive a majority of the votes cast to be approved, but is non-binding on us. Any change to our governing documents as set forth in Proposal 6 would require additional action by our Board and our stockholders, as described further below.
Proxy Card and Voting of Shares
Every vote is important. We urge you to vote whether or not you plan to attend the Annual Meeting. Kindly sign, date and return the accompanying proxy card or, if you are a stockholder of record, you may vote your proxy using the toll-free telephone number listed on the proxy card or via the Internet at the electronic address also listed on the proxy card. When a proxy card 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 card. The proxy card also includes any shares registered in the names shown on the proxy in Enterprise Direct (our dividend reinvestment and stock purchase plan) and the PSEG ESPP. If a proxy card is dated, signed and returned without specifying choices, the shares will be voted as recommended by the Board. 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 the 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 certain of the proposals in this Proxy Statement at the discretion of the bank or broker in accordance with the rules of the 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 5, Ratification of the Appointment of 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 the Approval of Executive Compensation, Proposal 3. Approval of LTIP, Proposal 4. Approval of ESPP and Proposal 6. Shareholder Proposal on Simple Majority Voting, 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 will not be voted on these matters.
6 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
ANNUAL MEETING, VOTING AND PROCEDURES
If any matters not described in this Proxy Statement should properly come before the Annual Meeting, the persons named in the enclosed proxy card 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.
You may revoke a proxy given in the form of the card 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.
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.
Date for Submission of Stockholder Proposals
Any proposals intended for inclusion in the Proxy Statement in connection with our 2014 Annual Meeting of Stockholders should be sent to: Corporate Secretary, Public Service Enterprise Group Incorporated, 80 Park Plaza, T4B, P.O. Box 1171, Newark, New Jersey 07101-1171, and must be received by November 8, 2013.
Discretionary Proxy Voting Authority
If we are not notified by January 22, 2014 of any proposal intended to be presented for consideration at the 2014 Annual Meeting of Stockholders, then the proxies named by us with respect to that meeting shall have discretionary voting authority with respect to such proposal if presented at that meeting.
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 7
ELECTION OF DIRECTORS
You are being asked to vote on the election of ten individuals nominated by your Board to serve as the Directors of our Company. In this Proxy Statement, we are providing you with information about the Board, director independence, our leadership structure, risk management oversight, Board committees, code of ethics and related matters of corporate governance. We also describe our provisions for majority voting, our director qualifications, diversity and retirement criteria and the specific experience, skills and qualifications of each nominee. We also report to you information about security ownership and director compensation. As recommended by the Board, we ask you to vote for all nominees.
Our business and affairs are managed by or under the direction of the Board, which delegates certain responsibilities to its committees and to management consistent with our By-Laws. The Board has adopted and operates under the 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 Principles are posted on our website, www.pseg.com/info/investors/governance/index.jsp. 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:
| Approves corporate strategy, major management initiatives and significant investments; |
| Monitors and provides oversight of financial and business integrity and performance, including risk management; |
| Selects, evaluates the performance of, and approves succession plans for the CEO and other senior executives; |
| Selects nominees for election to the Board; and |
| Evaluates Board processes and performance. |
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 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 Principles.
8 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
CORPORATE GOVERNANCE
Independence Standards
In order to be independent:
| A director may not be an employee of ours or any of our subsidiaries; |
| No member of a directors immediate family may be one of our executive officers or an executive officer of one of our subsidiaries; |
| A director or immediate family member may not be an employee of any company where any executive of ours or our subsidiaries serves on the compensation committee; |
| A director may not be an employee and an immediate family member may not be an executive officer of any company that makes payments to or receives payments from us and our subsidiaries in any year more than the greater of $1 million or 2% of such companys consolidated gross revenue; |
| A director or immediate family member may not receive more than $50,000 in direct compensation from us (other than fees and compensation provided to directors generally); |
| A director or immediate family member may not be affiliated with or employed by our independent auditor; and |
| A director may not be an executive officer of a charity, if, in any year, contributions by us and our subsidiaries to that charity exceed the greater of $1 million or 2% of the charitys consolidated gross revenue. |
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 and all of the nominees for election as directors are independent under our Principles and the requirements of the NYSE, except Ralph Izzo, our Chairman of the Board, President and CEO. These determinations were based upon a review of the responses submitted by each director and nominee to questionnaires we provided them, relevant business records, publicly available information and applicable SEC and NYSE requirements.
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 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 we face 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. The Board believes that this strikes a desirable balance allowing us to benefit from the advantages of efficiency, coordination and accountability. 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. Mr. Izzos in-depth knowledge and understanding of our strategy, operations, risk profile, regulatory and environmental circumstances and financial condition best position him to head our Board and provide leadership to management, employees, investors, customers, officials and the public. The diverse experience and independence of the other directors allows the Board to maintain effective oversight of operations, long-range planning, finances and risk management.
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. Importantly, all directors play an active role in overseeing the companys business both at the Board and Committee level, bringing fresh and differing viewpoints. The Lead Director coordinates with the Chairs of our various Board committees in setting agendas for committee meetings. Albert R. Gamper, Jr. 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 an additional perspective to that of management. Our Principles provide for the following:
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Lead Director Duties and Responsibilities
| Presides at all meetings of the Board at which the Chairman of the Board is not present, including executive sessions of the independent directors. |
| Serves as principal liaison on Board-wide issues between the Chairman of the Board and the independent directors. |
| Calls meetings of the independent directors, as may be necessary or desirable. |
| Consults with the Chairman of the Board on Board agendas. |
| Advises the Chairman of the Board on the quality and timeliness of information provided to the directors. |
| Serves on the Executive Committee. |
| Receives from the Corporate Secretary communications to, or for consideration by, the non-management directors. |
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. Mr. Gamper was designated as our Lead Director by the Board in April 2012 for a term expiring at the first meeting of directors after the 2013 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 2013 Annual Meeting, in accordance with our policy.
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 Principles and, currently, Mr. Izzo is our only director who is not independent. As discussed below, our Principles also set forth various expectations and criteria for Board membership. All directors must adhere to our Standards 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.
The Board is responsible for the oversight of risk at PSEG, both as a whole and through delegation to Board committees, which meet regularly and report back to the full Board. All committees play significant roles in carrying out the risk oversight function. In particular:
| The Audit Committee oversees risk related to the Companys financial statements, the financial reporting process, accounting and legal matters. The 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. Our Chief Risk Officer and Chief Financial Officer report on risk management to the Audit Committee at its meetings and, through the reports of the Audit Committee Chair, to the Board. |
| The Finance Committee oversees financing transactions and approves appropriate commodity portfolio risk tolerance limits. Compliance is monitored through regular reporting to the Board. The Finance Committee is responsible for monitoring risk related to our investments in our pension and post-retirement benefits and nuclear decommissioning trusts and receives periodic reports on their performance at least annually. |
| The Fossil Generation Operations Oversight Committee and the Nuclear Generation Operations Oversight Committee monitor and evaluate risks associated with our electric station operations, including risks associated with environmental, safety and other compliance and personnel and performance matters. |
| The Organization and Compensation Committee considers the risks and rewards associated with our compensation and human resources philosophy and programs. As discussed below, this Committee has reviewed our compensation policies and practices as they relate to risk management and seeks to administer our compensation plans so as to appropriately balance the incentive nature of the compensation with mechanisms that serve to mitigate risk. |
| The Corporate Governance Committee evaluates Board and committee performance, monitors composition of the Board and the qualifications of the Board members and nominees, assists the Board in administering corporate governance practices and oversees our political participation activities and expenditures. In doing so, the Corporate Governance Committee seeks to ensure our governance and leadership structure is appropriately designed to mitigate reputational risk. |
Risk management is also a key part of our strategic planning and business operations. The Board has approved a Risk Management Policy and it reviews and adopts the Companys Financial Risk Management Practice. 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
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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.
Risk Management Program
The Board also has oversight of the Risk Management Program which consists of policies, processes and controls, including the Risk Management Policy and Financial Risk Management Practice, as well as other policies and practices developed by management relating to:
| Business conduct and integrity; |
| Internal control, risk assessment and control, 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.
We have established a management-level Risk Management Committee (RMC) that is responsible for assessing exposure and determining our overall financial risk management strategy, taking into consideration, when appropriate, operational, regulatory and legal risks. The RMC, consisting of senior executives, is charged with, among other things:
| Establishing the framework for identifying, measuring, aggregating, monitoring, controlling and reporting on our financial-related risks; |
| Establishing trading limits and controls; and |
| Considering and addressing major implications to our generation, transmission and distribution businesses that have a bearing on the management of risks that could impact financial results. |
In addition, our Capital Review Committee, which also consists of senior management employees, provides oversight and reviews proposed capital projects. Investments above a stated amount require approval of our Board or the respective board of Power, PSE&G or Energy Holdings, as applicable. Our Compliance Committee of senior management personnel reviews various compliance issues, including the approval of our Standards, 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 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. 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 to three hours or longer. 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. A Board meeting typically 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.
Our 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. 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 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 2012, each incumbent director attended at least 75% of the aggregate number of Board meetings and committee meetings on which he or she served. Each attended the 2012 Annual Meeting of Stockholders.
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2012 Meetings and Executive Sessions
Board/Committee
|
Meetings
|
Executive Sessions
| ||
PSEG Board |
7* | 7 | ||
PSE&G Board |
6 | 6 | ||
Audit |
8 | 5 | ||
Corporate Governance |
4 | 4 | ||
Executive |
0 | 0 | ||
Finance |
4 | 0 | ||
Fossil Generation Operations Oversight |
3** | 2 | ||
Nuclear Generation Operations Oversight |
3*** | 2 | ||
Organization and Compensation |
5 | 5 |
* | Includes an all-day business strategy session |
** | One meeting held at a generating station |
*** | One meeting held at the site of nuclear generating stations we operate |
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, operations, significant financial, accounting and risk management issues, compliance programs, the Standards, principal officers and internal and independent auditors. During each year, continuing education is provided to all directors on topics of importance to our business.
Our Principles require that directors own shares of our Common Stock (including any restricted stock, whether or not vested, any stock units under the Directors Equity Plan and any phantom stock under the Directors Deferred Compensation Plan) equal to four times the annual cash retainer (currently $70,000) within five years after election to the Board. All incumbent directors currently meet this requirement, except Ms. Tomasky and Mr. Zollar, each of whom was first elected to the Board in 2012.
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.
The committees of the Board, their principal functions, and membership requirements are described below. Each committee has open and free access to all Company 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 duties, 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 that defines its roles and responsibilities and annually conducts a performance evaluation of its activities and a review of its charter. The authority of the Executive Committee is set forth in our By-Laws. The committee charters and our By-Laws are posted on our website, www.pseg.com/info/investors/governance/committees.jsp. We will send you a copy of any or all of them upon request.
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.
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Committee |
Membership Requirements | |
Audit | Comprised of three or more directors, each of whom must be independent of management in accordance with SEC and NYSE rules and meet NYSE requirements for financial literacy. At least one member must have accounting or financial management expertise. The Committee meets at least four times per year, and in executive session without management present at each meeting, unless waived by the Committee.
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 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. | |
Corporate Governance | 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. | |
Executive | Consists of the Chairman of the Board, Lead Director and at least one additional independent director. | |
Finance | Consists of three or more independent directors who meet at least three times per year, and in executive session without management present at each meeting, unless waived by the Committee. | |
Fossil Generation Operations Oversight | Consists of three or more independent directors who meet at least three times per year, and in executive session without management present at each meeting, unless waived by the Committee. | |
Nuclear Generation Operations Oversight | Consists of three or more independent directors who meet at least three times per year, and in executive session without management present at each meeting, unless waived by the Committee. | |
Organization & Compensation | 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.
|
Audit Committee
The Audit Committees responsibilities include:
| Assisting the Board in fulfilling its responsibility for oversight of the integrity of our financial statements and the quality and integrity of our accounting, auditing and financial reporting practices; |
| Appointing, terminating, compensating, including preapproving all services and fees, and overseeing the work of the independent auditor; the independent auditor reports directly to the Audit Committee; |
| Reviewing the independence of the independent auditor, as well as Public Company Accounting Oversight Board (PCAOB) and peer review reports of the independent auditors performance; |
| Reviewing with the independent auditor, management and internal auditors our annual audited and quarterly financial statements and the acceptability and quality of our financial statements and our accounting, reporting and auditing practices; |
| Reviewing with the independent auditor any audit issues or difficulties and managements response, and resolving disagreements which may arise between management and the independent auditor regarding financial reporting; |
| Providing oversight to our internal audit and environmental, health and safety audit functions and legal and business conduct compliance program; |
| Reviewing the status of pending material litigation; |
| Reviewing risk management controls and disclosure controls and procedures; |
| Reviewing earnings press releases, financial information and earnings guidance provided to analysts and rating agencies; and |
| Recommending to the Board the inclusion of the audited financial statements in our Form 10-K. |
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 Albert R. Gamper, Jr., David Lilley (Chair), Thomas A. Renyi, Hak Cheol Shin and Susan Tomasky, each a member of the Audit Committee, possesses accounting or financial management expertise, as defined in the NYSE rules. The Board further has determined that Albert R. Gamper, Jr., David Lilley (Chair),
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 13
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Thomas A. Renyi, and Susan Tomasky, 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 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 under Proposal 5. Ratification of the Appointment of Independent Auditor in this Proxy Statement.
Corporate Governance Committee
The Corporate Governance Committees responsibilities include:
| Assisting the Board in administering the corporate governance practices of the Board and its committees; |
| Monitoring the composition of the Board to assure a reasonable balance of professional interests, business experience, financial expertise, diversity and independence; |
| Considering the qualifications of Board members and evaluating prospective nominees, including those identified by the Committee or by other Board members, management, stockholders or other sources, and recommending to the Board membership changes and nominees; |
| Making a recommendation to the Board as to whether to accept the tendered resignation of any director who fails to receive a majority of votes cast for that directors election in an uncontested election; |
| Recommending to the Board the chairs and members of Board committees; |
| Evaluating performance of the Board and its committees, including a review of the size, structure and composition of the Board and its committees and their governance practices, including interactions with management; |
| Making recommendations to the Board to improve effectiveness of the Board and its committees; |
| Overseeing the directors orientation and continuing education; |
| Reviewing and making recommendations to the Board with respect to compensation of directors; |
| Providing input to the Organization and Compensation Committee regarding the performance of the CEO as Chairman of the Board; |
| Periodically reviewing the Charters of the Board committees and recommending appropriate changes; and |
| Reviewing our political participation activities and expenses. |
The nomination process and criteria utilized are described below under Nominees and Election.
Executive Committee
Except as otherwise provided by law, the Executive Committee may exercise all the authority of the Board when the Board is not in session.
Finance Committee
The Finance Committees responsibilities include:
| Reviewing and making recommendations to the Board regarding corporate financial policies and processes and significant financial decisions; |
| Reviewing and recommending to the Board annually our financial plan; |
| Reviewing and making recommendations to the Board regarding our dividend policy and capital structure; |
| Discussing with management the application and effects of our policies with respect to risk assessment and risk management, including the limits and authorities contained in the Financial Risk Management Practice; |
| Reviewing and recommending to the Board authorizations with respect to the issuance, sale and redemption of securities by us and our subsidiaries; |
| Reviewing with the Thrift and Pension Investment Committee Chair and monitoring the investment guidelines for and investment performance of the trust funds of our pension plans and our nuclear decommissioning trust fund; |
| Reviewing with management our cash management policies and practices; and |
| Reviewing with management credit agency ratings and analyses. |
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Fossil Generation Operations Oversight Committee
The Fossil Generation Operations Oversight Committees responsibilities include:
| Evaluating the effectiveness of our fossil generation operations, focusing on safety, plant performance, regulatory matters, large construction projects and improvement in operations; |
| Reviewing labor and human relations, environmental, health and safety and legal and compliance issues related to our fossil generation operations; and |
| Reviewing the results of major inspections, evaluations and audit findings by external oversight groups and managements response. |
Nuclear Generation Operations Oversight Committee
The Nuclear Generation Operations Oversight Committees responsibilities include:
| Evaluating effectiveness of our nuclear generation operations, focusing on safety, plant performance, regulatory matters, large construction projects and improvement in operations; |
| Reviewing labor and human relations, environmental, health and safety and legal and compliance issues related to our nuclear generation operations; and |
| Reviewing the results of major inspections, evaluations and audit findings by external oversight groups and managements response. |
Organization and Compensation Committee (O&CC)
The O&CCs responsibilities include:
| Reviewing, approving and modifying, as necessary, our executive compensation policy, programs, plans and awards; |
| Reviewing the stockholder advisory vote on say-on-pay and considering any action it deems appropriate in light of that vote; |
| Reviewing executive compensation levels and targets for consistency and alignment with compensation policy and strategic and operating objectives; |
| Reviewing the risk to us of our compensation policies and practices; |
| Retaining and annually reviewing the performance of its compensation consultant; |
| Reviewing and making recommendations to the Board concerning corporate organization in general and executive compensation including incentive plans and equity-based plans; |
| Administering our incentive compensation plans; |
| Reviewing and approving corporate goals and objectives relevant to CEO compensation; |
| Evaluating the CEOs performance in light of those goals and objectives and, with the independent Board members, determining and approving the CEOs compensation based on this evaluation; |
| Annually reviewing performance for certain other key members of management; |
| Annually reviewing management succession and development plans; |
| Monitoring compliance with the Stock Ownership and Retention Policy; and |
| Reviewing the CD&A and providing its report thereon in this Proxy Statement. |
The O&CC Report on Executive Compensation appears below under Proposal 2. Advisory Vote on the Approval of Executive Compensation.
The O&CC has the authority to retain compensation consultants, with sole authority for their hiring and firing. Since September 2009, the O&CC has retained Compensation Advisory Partners LLC (CAP) as its independent compensation consultant to provide it information and advice that is not influenced by management. CAP is an executive compensation consulting firm that does not perform any other services for us or our subsidiaries. CAP provides advice to the O&CC on executive compensation and may also provide advice to the Corporate Governance Committee on matters pertaining to compensation of directors who are not executive officers. CAP may not perform any other services for us without obtaining the prior approval of the Chair of the O&CC.
Responsibility for assignment to and evaluation of work by CAP is solely that of the O&CC and, with respect to the compensation of non-employee directors, the Corporate Governance Committee.
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The SEC and NYSE require compensation committees to assess the independence of their advisors and determine whether any conflicts of interest exist. In February 2013, the O&CC reviewed CAPs independence relative to the following factors: (i) CAPs provision of other services to the Company; (ii) the amount of fees CAP receives from the Company as a percentage of CAPs total revenue; (iii) the policies and procedures of CAP that are designed to prevent conflicts of interest; (iv) any business or personal relationship between O&CC members and CAP or its compensation consultants; (v) any PSEG stock owned by CAP or its compensation consultants; (vi) any business or personal relationship between our executive officers and CAP or any of its compensation consultants; and (vii) other factors that would be relevant to CAPs independence from management. On the basis of such review, the O&CC concluded that CAP is independent and no conflicts of interest exist.
In furtherance of CAPs independence, management receives copies of certain materials provided by CAP to the O&CC only after the materials have been provided to the O&CC. 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 O&CC. Additional information regarding any such services performed in the past year is included in the CD&A below. The O&CC also utilizes the services of our internal compensation professionals.
Compensation Committee Interlocks and Insider Participation
During 2012, each of the following individuals served as a member of the O&CC: William V. Hickey, Shirley Ann Jackson, David Lilley, Thomas A. Renyi, and Richard J. Swift (Chair). During 2012, no member of the O&CC 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 O&CC had a direct or indirect material interest in any transaction with us.
Standards of Integrity
Our 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; |
| 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 of whom is responsible for understanding and complying with 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; and |
| 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. |
The Standards are posted on our website, www.pseg.com/info/investors/governance/documents.jsp. We will send you a copy on request.
We will post on our website, www.pseg.com/info/investors/governance/documents.jsp:
| Any amendment (other than one that is technical, administrative or non-substantive) that we adopt to the Standards; and |
| Any grant by us of a waiver from the Standards that applies to any director, principal executive officer, principal financial officer, principal accounting officer or Controller, or persons performing similar functions, for us or our direct subsidiaries noted above, and that relates to any element enumerated by applicable SEC requirement. |
A waiver of any provision of the Standards may be granted in exceptional circumstances, but only for substantial cause. A waiver for any director or executive officer may be made only by the Board and, if granted, must be promptly disclosed to our stockholders. In 2012, we did not grant any waivers to the Standards.
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We regularly evaluate our reporting practices to ensure that our disclosure appropriately meets the needs of our shareholders. Accordingly, the Board recently approved a Corporate Political Participation Practice, which we have made publicly available on our website at www.pseg.com/info/investors/governance/documents.jsp. In accordance with this Practice, we provide our stockholders with access to our reported state and federal political contributions. The Political Participation Practice also establishes a controls process, pursuant to which our senior management monitors, assesses, and approves certain political contributions. Our Board is responsible for generally overseeing our political participation activities and expenses. We believe this Political Participation Practice will allow us to minimize reputational and political risks and continue to focus on our operational excellence
Transactions with Related Persons
There were no transactions during 2012, 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 Principles, our Business Conduct Compliance Program (Compliance Program) and the Standards. These are our only written policies and procedures regarding the review, approval or ratification of transactions with related persons.
| The Principles provide written guidelines for directors and management to effectively pursue and support the Companys business objectives. The Principles are reviewed periodically by the Corporate Governance Committee, which recommends appropriate changes to the Board. Under the Principles, a director must notify the Chair of the Corporate Governance Committee if he or she encounters a conflict of interest or proposes to accept a position with an entity which may present a conflict of interest, so that the issue may be reviewed. Potential conflicts of interest include positions that directors or immediate family members hold as directors, officers or employees of other companies with which we do business or propose to do business and charitable and other tax-exempt organizations to which we contribute or propose to contribute. |
| Our Compliance Program establishes an organizational structure and validates the Standards and its mandated procedures, practices and programs. The Audit Committee has overall responsibility for oversight of the Compliance Program and has delegated to our Compliance Committee overall responsibility for the design, implementation and execution of the Compliance Program. The Compliance Committees duties include assurance that we take all reasonable steps to coordinate organization-wide ethics and compliance activities, consistent enforcement of the Standards including the detection and prevention of wrongdoing as a result of compliance investigations and otherwise foster a culture for ethical behavior and a commitment to legal compliance. The Compliance Committee, comprised of members of senior management, is chaired by our Executive Vice President and General Counsel, who has overall responsibility for administering the Compliance Program. |
| The Standards establish a written set of common expectations of behavior for all directors, officers and employees regarding business relationships, personal conduct (including, among other things corporate opportunities, conflicts of interest and supplier, competitor and governmental relations), safeguard of Company property, business controls and compliance with regulatory requirements. In addition, the Standards mandate procedures for seeking ethical guidance, reporting concerns, investigation and discipline. Our Executive Vice President and General Counsel has overall responsibility for administering the Standards. |
| Our written management practices provide that any capital investment with a non-PSEG entity or its affiliate, for which one of our directors or officers serves as a director or executive officer, must be approved by our Board. |
Directors elected at each annual meeting are elected to serve one-year terms. Directors whose terms are to 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, which are summarized in this Proxy Statement. Each of the current directors has been nominated for re-election.
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 ten.
The nominees listed below were selected by the directors upon the recommendation of the Corporate Governance Committee. As discussed above under Annual Meeting, Voting and Procedures, proxies will be voted in accordance with your instructions as indicated on the enclosed proxy card, bank or broker voting card or when voting by telephone or Internet.
If at the time of the 2013 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.
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 17
NOMINEES AND ELECTION
Majority Voting for Election of Directors
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 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 Corporate Governance Committee.
The 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 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 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 any such directors Board service, he or she 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.
18 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
NOMINEES AND ELECTION
Diversity
Diversity is a factor for consideration of nominees for director pursuant to the diversity policy contained in our Principles and the charter of the Corporate Governance Committee. In considering diversity, the Corporate Governance 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 Corporate Governance 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 Corporate Governance 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 recommendations to the Board for election or re-election. The Board then selects nominees based on the Corporate Governance 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.
Nominees and Nomination Process
The present terms of all ten directors, Albert R. Gamper, Jr., William V. Hickey, Ralph Izzo, Shirley Ann Jackson, David Lilley, Thomas A. Renyi, Hak Cheol Shin, Richard J. Swift, Susan Tomasky and Alfred W. Zollar, expire at the 2013 Annual Meeting. Each director has been re-nominated. Each will be presented for election to serve until the 2014 Annual Meeting, or until their respective successors are elected and qualified. All nominees, except Mr. Zollar, who was elected as a director by the Board in June 2012, were elected to their present terms by our stockholders.
Conrad Harper retired from the Board effective December 31, 2012. Mr. Harper had served on the Board since 1997. The members of the Board wish to thank Mr. Harper and express the Boards sincere appreciation for his many years of dedicated service to our Company.
The Corporate Governance Committee on occasion may pay a fee to an executive search firm to assist it in identifying and evaluating potential director nominees meeting our criteria, which are described further below. Any such firms function would be to assist the Committee in identifying potential candidates for its consideration. During 2012, we engaged a third-party firm to conduct a search for potential candidates. Mr. Zollar was identified to us in this process.
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.
The Corporate Governance Committee utilizes the same criteria to evaluate all potential nominees, including those recommended by stockholders or from other sources.
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. |
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 19
NOMINEES AND ELECTION
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. Compensation for service as a director is shown in the Director Compensation Table and accompanying narrative.
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.
Board Composition, Skills and Qualifications
Composition
The Board is comprised of individuals with a diverse mix of knowledge, expertise and backgrounds. Among the ten nominees, we have business leaders from industries including banking, science and technology, energy, consumer products and manufacturing as well as those who have excelled in academia and public service. As a group, they complement one another with a desirable mix of competencies and skills as the Board discharges its 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 growth, meeting regulatory, environmental and safety requirements, overseeing risk management and corporate governance, maintaining an engaged and diverse workforce and adapting to rapidly evolving business conditions. All have served in leadership positions.
Skills and Qualifications
Albert R. Gamper |
William V. Hickey |
Raph Izzo |
Shirley Ann Jackson |
David Lilley |
Thomas A. Renyi |
Hak Cheol Shin |
Richard Swift |
Susan Tomasky |
Alfred W. Zollar | |||||||||||
Accounting/Finance |
X | X | X | X | X | X | X | X | ||||||||||||
Construction/Engineering |
X | |||||||||||||||||||
Consumer Products/ |
X | X | X | X | ||||||||||||||||
Customer Satisfaction & Sales |
X | X | X | X | ||||||||||||||||
Government |
X | X | X | |||||||||||||||||
Industry/Generating Plant Operations |
X | X | X | X | ||||||||||||||||
Legal |
X | |||||||||||||||||||
Management |
X | X | X | X | X | X | X | X | X | X | ||||||||||
Manufacturing |
X | X | X | X | ||||||||||||||||
Science/Scientific |
X | X | ||||||||||||||||||
Technology |
X | X | X | X |
20 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
NOMINEES AND ELECTION
Current committee assignments are presented in the following table. From time to time, Committee assignments and chairs are changed to best utilize the talents of our directors. The last such changes occurred in April 2012 and Mr. Zollar received committee assignments in September 2012. Ongoing committee assignments for all directors are expected to be made at the organizational meeting following the 2013 Annual Meeting of Stockholders.
Audit |
Corporate Governance |
Executive | Finance | Fossil Generation Operations Oversight |
Nuclear Generation Operations Oversight |
Organization
& Compensation | ||||||||
Albert R. Gamper, Jr.* |
X | X | X | |||||||||||
William V. Hickey |
X | C | C | X | ||||||||||
Ralph Izzo |
C | |||||||||||||
Shirley Ann Jackson |
X | C | X | X | X | |||||||||
David Lilley |
C | X | X | |||||||||||
Thomas A. Renyi |
X | C | X | |||||||||||
Hak Cheol Shin |
X | X | X | X | ||||||||||
Richard J. Swift |
X | X | X | X | C | |||||||||
Susan Tomasky |
X | X | ||||||||||||
Alfred W. Zollar |
X | X | X | |||||||||||
C = Committee Chairperson |
||||||||||||||
X = Committee Member |
||||||||||||||
*Also serves as Lead Director |
During 2012, Albert R. Gamper, Jr., Richard J. Swift and Ralph Izzo also served on the Board of Directors of PSE&G. Shirley Ann Jackson became a member of the PSE&G Board of Directors in February 2013. Mr. Izzo also serves on the Boards of Directors of Power, Energy Holdings and Services.
Biographical Information for Nominees for Election as Director
Shown below is the relevant business and biographical information for each of the individuals nominated for election to the Board.
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 21
NOMINEES AND ELECTION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES
|
ALBERT R. GAMPER, JR., age 71 Director since 2000
Experience
Lead Director since April 2011.
Director of PSE&G.
Chairman of the Board of CIT Group, Inc., Livingston, New Jersey, a commercial insurance company, from July 2004 until December 2004; Chairman of the Board and Chief Executive Officer of CIT Group, Inc. from September 2003 to July 2004; Chairman of the Board, President and Chief Executive Officer from June 2002 to September 2003; President and Chief Executive Officer from February 2002 to June 2002; Chairman of the Board, President and Chief Executive Officer from January 2000 to June 2001; President and Chief Executive Officer from December 1989 to December 1999. President and Chief Executive Officer of Tyco Capital Corporation from June 2001 to February 2002.
Trustee to the Fidelity Group of Funds.
Skills and Qualifications
Management/Finance Mr. Gamper acquired extensive management experience in financial services as Chairman of the Board, President and Chief Executive Officer of CIT Group, Inc. Moreover, in that role he had ultimate responsibility for financial matters and the overall operations of that company.
The Board values Mr. Gampers background considering our capital structure, liquidity needs and need to assess and oversee credit and other risks. He brings perspective and leadership to management and governance oversight. | |
|
WILLIAM V. HICKEY, age 68 Director since 2001
Experience
Chairman of the Board and Chief Executive Officer of Sealed Air Corporation, Elmwood Park, New Jersey, which manufactures food and specialty protective packaging materials and systems, since September 2012; President and Chief Executive officer from March 2000 to August 2012; President and Chief Operating Officer from December 1996 to February 2000.
Director of Sealed Air Corporation.
Director of Sensient Technologies Corporation.
Skills and Qualifications
Manufacturing/Product Development/Consumer Products/ Accounting/Finance/Management/Technology Mr. Hickey has a strong industrial and commercial manufacturing background from his service as President and Chief Executive Officer at Sealed Air Corporation. He is also a Certified Public Accountant and, as CEO of Sealed Air Corporation, he had ultimate responsibility for financial matters and overall business performance.
Mr. Hickeys executive managerial experience with product innovation, development, production and marketing contributes to the Boards ability to oversee our Company and focus on operational excellence. |
22 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
NOMINEES AND ELECTION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES
|
RALPH IZZO, age 55 Director since 2006
Experience
Chairman of the Board, President and Chief Executive Officer of PSEG since April 1, 2007.
Chair of the Executive Committee.
Director of PSE&G, Power, Energy Holdings and Services.
President and Chief Operating Officer of PSEG from October 2006 to April 2007; President and Chief Operating Officer of PSE&G from October 2003 to October 2006.
Skills and Qualifications
Management/Strategic Planning/Finance/Industry Operations During Dr. Izzos career as our Chairman of the Board, President and CEO, he has developed broad experience in general management, strategic planning and finance, as well as a thorough understanding of our business operations and the challenges and opportunities of our industry.
Technology/Scientific Research Dr. Izzos background as a research physicist is of much benefit to a company that deals with many technical and scientific matters.
Governmental Matters Dr. Izzos prior service as an energy and policy analyst at the federal and state levels is a significant asset as we position ourselves as a leader in the energy industry and public policy arena. | |
|
SHIRLEY ANN JACKSON, age 66 Director since 2001
Experience
Director of PSE&G.
President of Rensselaer Polytechnic Institute, Troy, New York, since July 1999.
Former director of PSEG from 1987 to 1995.
Chair, U.S. Nuclear Regulatory Commission (NRC) from July 1995 to July 1999.
Director of FedEx Corporation, IBM Corporation, Marathon Oil Corporation and Medtronic, Inc.
Former director of NYSE Euronext and US Steel.
Skills and Qualifications
Management/Government/Science/Finance/Generating Plant Operations - Dr. Jackson is a distinguished scientist, who also brings an array of executive, governmental, scientific and academic experience from her years as Chair of the NRC and President of Rensselaer Polytechnic Institute. Her responsibilities as the head of a major university include financial matters.
We are a heavily regulated business which is very much affected by public policy and scientific developments, so Dr. Jacksons experience and continued involvement in energy policy, scientific research and development, technology and innovation, security and financial services industry oversight is highly valued by the Board. Her background as a nuclear physicist and former NRC Chair is important as we have extensive nuclear operations. |
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 23
NOMINEES AND ELECTION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES
|
DAVID LILLEY, age 66 Director since 2009
Experience
Chairman of the Board, President and Chief Executive Officer of Cytec Industries, Inc., Woodland Park, New Jersey, a global specialty chemicals and materials company from January 1999 until December 2008; President and Chief Executive Officer from May 1998 to January 1999; President and Chief Operating Officer from January 1997 to May 1998.
Director of Rockwell Collins, Inc. and Tesoro Corporation.
Former director of Arch Chemicals, Inc. and Cytec Industries, Inc.
Skills and Qualifications
Product Development/Manufacturing/Sales/Finance/Management Mr. Lilley has experience in product development, manufacturing and sales, gained from his years as Chairman of the Board, President and Chief Executive Officer at Cytec Industries. In this role he also had ultimate responsibility for financial matters and overall business performance.
Mr. Lilleys leadership is very important to us in light of the Boards oversight of our operations and adherence to safety and environmental requirements. | |
|
THOMAS A. RENYI, age 67 Director since 2003
Experience
Executive Chairman of The Bank of New York Mellon Corporation, New York, New York, a provider of banking and other financial services to corporations and individuals, from July 2007 until August 2008.
Chairman of the Board and Chief Executive Officer of The Bank of New York Company, Inc. and The Bank of New York from February 1998 to July 2007.
Director of Hartford Financial Services.
Former director of RiskMetrics Group.
Skills and Qualifications
Finance/Management/Customer Satisfaction Mr. Renyi had a long career with The Bank of New York Mellon and its predecessor, The Bank of New York, where he served as Chairman of the Board and Chief Executive Officer. In that capacity, he had substantial responsibility for the successful implementation of two major mergers. As a result, he brings to us a deep knowledge of finance, as well as significant experience in oversight of the operations of a major enterprise and meeting customer expectations.
The Board views Mr. Renyis background as highly valuable in the oversight of risk management and our continued focus on financial strength, disciplined investment and operational excellence. |
24 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
NOMINEES AND ELECTION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES
|
HAK CHEOL (H.C.) SHIN, age 55 Director since 2008
Experience
Executive Vice President International Operations, of 3M Company, St. Paul, Minnesota, a diversified technology company, with product lines in consumer and office, healthcare electronics, industrial, graphics, transportations, safety and telecommunications markets, since May 2011.
Executive Vice President-Industrial and Transportation Business of 3M Company from January 2006 to May 2011; Executive Vice President-Industrial Business from June 2005 to January 2006; Division Vice President-Industrial Adhesives and Tapes Division from July 2003 to June 2005; Division Vice President-Electronics Markets Materials Division from October 2002 to June 2003; Division Vice President-Superabrasives and Microfinishing Systems Division from March 2001 to October 2002.
Skills and Qualifications
Technology/Manufacturing/Consumer Products/Customer Satisfaction/Management Mr. Shin brings diversified experience in the areas of technology, manufacturing, consumer products and customer satisfaction acquired through various senior positions at 3M Company, a company noted for innovation and operational excellence.
Mr. Shins skills are important as we seek operational excellence and invest in renewable energy technology, while satisfying customer expectations and maintaining reliability. | |
|
RICHARD J. SWIFT, age 68 Director since 1994
Experience
Lead Director from February 2010 until April 2011.
Presiding Director from June 2007 until February 2010.
Director of PSE&G.
Former Chairman of the Financial Accounting Standards Advisory Council from January 2002 to December 2006.
Chairman of the Board, President and Chief Executive Officer of Foster Wheeler, Ltd., Clinton, New Jersey, which provides design, engineering, construction, manufacturing, management, plant operations and environmental services, from April 1994 until October 2001.
Director of CVS Caremark Corporation, Hubbell Incorporated, Ingersoll-Rand Limited and Kaman Corporation.
Skills and Qualifications
Management/Engineering/Construction/Generating Plant Operations/Finance/Manufacturing Mr. Swift is a licensed professional engineer who brings a strong managerial background in engineering, construction and generating plant operations as CEO at Foster Wheeler, Ltd. Mr. Swift also served as Chairman of the Financial Accounting Standards Advisory Council.
The Board believes that we benefit significantly from Mr. Swifts experience as we are heavily engaged in similar endeavors in our generation and utility businesses. While CEO at Foster Wheeler, he had ultimate responsibility for financial matters. |
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 25
NOMINEES AND ELECTION
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES
|
SUSAN TOMASKY, age 60 Director since 2012
Experience
President-AEP Transmission of American Electric Power Corporation, Columbus, Ohio, an electric utility holding company with generation, transmission and distribution businesses, from May 2008 to July 2011.
Executive Vice President Shared Services of American Electric Power Corporation from September 2006 to May 2008; Executive Vice President and Chief Financial Officer from September 2001 to September 2006; Executive Vice President and General Counsel and Corporate Secretary from July 1998 to September 2001.
Former General Counsel, U.S. Federal Energy Regulatory Commission (FERC), from March 1993 to June 1997.
Director of Tesoro Corporation and Summit Midstream Partners, LP.
Skills and Qualifications
Industry Operations/Management/Finance/Legal/Government Ms. Tomasky has broad electric industry executive experience having served in key leadership positions involving transmission operations, services, finance, law and governance at one of the largest utility holding companies in the United States. Her service at the FERC is highly valuable to us as several of our businesses are subject to that agencys regulation.
The Board views Ms. Tomaskys background as providing a valuable resource and perspective on utility management, finance, law and governmental regulation. | |
|
ALFRED W. ZOLLAR, age 58 Director since 2012
Experience
General Manager Tivoli Software division of International Business Machines Corporation (IBM), Armonk, New York, a worldwide information technology and consulting company, from July 2004 to January 2011; General Manager eServer iSeries from January 2003 to July 2004; President and Chief Executive Officer Lotus Software division from January 2000 to 2003; Division General Manager Network Computer Software division from 1996 to 2000.
Director of Chubb Corporation
Skills and Qualifications
Management/Technology/Product Development/Customer Satisfaction Mr. Zollar brings a wealth of knowledge from his executive leadership, product development and information technology experience. He has served in various leadership roles, including senior management positions, in every IBM software group division.
The Board believes that Mr. Zollars executive and managerial experience in business development and technology will greatly contribute to our oversight of operational excellence and customer satisfaction. |
26 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
SECURITY OWNERSHIP
SECURITY OWNERSHIP OF DIRECTORS, MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
Directors, Nominees and Management
The following table sets forth, as of February 15, 2013, beneficial ownership of our Common Stock by the directors, nominees and executive officers named in the 2012 Summary Compensation Table. The information presented includes stock options, stock units and phantom shares. None of these amounts exceeds 1% of our Common Stock outstanding.
Owned (#)(1) |
Restricted Stock (#)(2) |
Stock Units/ Restricted (#)(3) |
Phantom (#)(4) |
Stock (#)(5) |
Total (#) |
|||||||||||||||||||
J.A. Bouknight, Jr. | 8,387 | - | 23,017 | - | 53,625 | 85,029 | ||||||||||||||||||
Caroline Dorsa | 20,825 | 8,800 | 29,199 | - | 110,825 | 169,649 | ||||||||||||||||||
Albert R. Gamper, Jr. | 8,492 | 9,600 | 19,836 | 23,518 | - | 61,446 | ||||||||||||||||||
William V. Hickey | 6,332 | 9,600 | 19,836 | 18,531 | - | 54,299 | ||||||||||||||||||
Ralph Izzo | 389,896 | - | 157,433 | - | 1,209,125 | 1,756,454 | ||||||||||||||||||
Shirley Ann Jackson | 5,604 | 9,600 | 19,836 | - | - | 35,040 | ||||||||||||||||||
Ralph A. LaRossa | 32,298 | - | 57,557 | - | 201,600 | 291,455 | ||||||||||||||||||
William Levis | 58,758 | - | 62,628 | - | 232,200 | 353,586 | ||||||||||||||||||
David Lilley | - | - | 14,174 | 12,240 | - | 26,414 | ||||||||||||||||||
Randall E. Mehrberg | 15,751 | - | 25,429 | - | 179,175 | 220,355 | ||||||||||||||||||
Thomas A. Renyi | 4,628 | 8,800 | 19,836 | 32,646 | - | 65,910 | ||||||||||||||||||
Hak Cheol Shin | - | - | 16,957 | - | - | 16,957 | ||||||||||||||||||
Richard J. Swift | 304 | 14,400 | 19,836 | 45,720 | - | 80,260 | ||||||||||||||||||
Susan Tomasky | - | - | 3,615 | - | - | 3,615 | ||||||||||||||||||
Alfred W. Zollar | - | - | 3,452 | - | - | 3,452 | ||||||||||||||||||
All directors and executive officers as a group (16 persons) |
571,416 | 60,800 | 501,241 | 132,655 | 1,986,550 | 3,252,662 |
(1) | Includes all shares, if any, held directly, in brokerage accounts, under the Thrift and Tax-Deferred Savings Plan (401(k) Plan), Enterprise Direct, ESPP, shares owned jointly by or with a spouse and shares held in a trust or a custodial account. Beneficial ownership is disclaimed as to 360 shares. |
(2) | Includes restricted stock granted to executive officers under the LTIP and restricted stock granted to directors under the former Stock Plan for Outside Directors. |
(3) | Includes restricted stock units granted to executive officers under the LTIP and stock units granted to directors under the Equity Compensation Plan for Outside Directors (Directors Equity Plan), with no voting rights. |
(4) | Includes phantom shares accrued under the Directors Deferred Compensation Plan for those individuals who have elected to have the earnings on their deferred payments calculated based upon the performance of our Common Stock, with no voting rights. |
(5) | Stock options granted under the LTIP and exercisable currently or within 60 days. Excludes stock options not exercisable within 60 days as follows: |
Izzo (#) |
Dorsa (#) |
Levis (#) |
Mehrberg (#) |
Bouknight (#) |
LaRossa (#) |
Group (#) |
||||||||||||||||||
86,975 | 16,575 | 17,500 | 14,725 | 17,875 | 13,800 | 167,450 |
As of February 15, 2013, no person or group was 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.
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 27
DIRECTORS COMPENSATION
Section 16(a) Beneficial Ownership Reporting Compliance
During 2012, 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 Susan Tomasky, one of our Directors. Ms. Tomasky filed one late report on Form 3 to report any ownership by her of our Common Stock at the time of her election to the Board. At that time, Ms. Tomasky did not own any of our Common Stock.
2012 DIRECTOR COMPENSATION TABLE
Fees ($)(2) |
Stock ($)(3) |
Option ($) |
Non-Equity ($) |
Change in Pension Value and Deferred Compensation Earnings ($) |
All Other Compensation ($)(4) |
Total ($) |
||||||||||||||||
Albert R. Gamper, Jr. | 110,000 | 110,019 | - | - | - | 150 | 220,169 | |||||||||||||||
Conrad K. Harper (1) | 98,705 | 76,794 | - | - | - | 5,150 | 180,649 | |||||||||||||||
William V. Hickey | 105,000 | 110,019 | - | - | - | 150 | 215,169 | |||||||||||||||
Shirley Ann Jackson | 97,500 | 110,019 | - | - | - | 5,150 | 212,669 | |||||||||||||||
David Lilley | 100,591 | 110,019 | - | - | - | 5,150 | 215,760 | |||||||||||||||
Thomas A. Renyi | 98,205 | 110,019 | - | - | - | 150 | 208,374 | |||||||||||||||
Hak Cheol Shin | 95,000 | 110,019 | - | - | - | 150 | 205,169 | |||||||||||||||
Richard J. Swift | 100,000 | 110,019 | - | - | - | 5,150 | 215,169 | |||||||||||||||
Susan Tomasky | 60,015 | 110,019 | - | - | - | - | 170,034 | |||||||||||||||
Alfred W. Zollar | 41,588 | 110,025 | - | - | - | - | 151,613 |
(1) | Retired on December 31, 2012; stock award was prorated, as explained in note 3 below. |
(2) | Includes all meeting fees, chair/committee retainer fees and the annual retainer as described below. Includes the following amounts deferred pursuant to the Directors Deferred Compensation Plan, described below: |
Gamper | Harper | Hickey | Jackson | Lilley | Renyi | Shin | Swift | Tomasky | Zollar | |||||||||||||||||||
($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||||||||||||
- | 98,705 | 105,000 | 97,500 | 100,591 | 98,205 | - | - | - | - |
(3) | For each outside director, except Mr. Zollar, the grant date fair value of the award on May 2, 2012, equated to 3,496 stock units based on the then current market price of the Common Stock of $31.47. Mr. Zollars stock units were granted on July 2, 2012, and equated to 3,375 shares based on the then current market price of $32.60. Mr. Harpers stock units were prorated to reflect his retirement on December 31, 2012. In addition, each outside directors account is credited with additional stock units on the quarterly dividend dates at the then current dividend rate. |
The following table shows outstanding stock units granted under the Directors Equity Plan and restricted stock granted under the prior Stock Plan for Outside Directors, as of December 31, 2012.
Gamper (#) |
Harper (#) |
Hickey (#) |
Jackson (#) |
Lilley (#) |
Renyi (#) |
Shin (#) |
Swift (#) |
Tomasky (#) |
Zollar (#) |
|||||||||||||||||||||||||||||||
Stock Units | 19,836 | 19,836 | 19,836 | 19,836 | 14,174 | 19,836 | 16,957 | 19,836 | 3,615 | 3,452 | ||||||||||||||||||||||||||||||
Restricted Stock | 9,600 | 13,200 | 9,600 | 9,600 | - | 8,800 | - | 14,400 | - | - |
(4) | Consists of charitable contributions made by us on behalf of each individual and under our educational matching gift program. |
Director Fees
A director who is an employee of a PSEG Company receives no additional compensation for services as a director.
Directors receive an annual retainer of $70,000 and an annual equity grant of Common Stock units equal to $110,000, paid quarterly. The Lead Director receives an incremental $25,000 cash retainer. The Audit Committee Chair is paid an additional retainer of $25,000, the O&CC Chair is paid an additional retainer of $15,000 and the Chair of any other committee is paid an additional retainer of $12,500. Each Audit Committee member receives an additional $10,000 annually. Each other director is paid an additional $5,000 annually per committee assignment.
28 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
DIRECTORS COMPENSATION
Directors Equity Plan
The Directors Equity Plan is a deferred compensation plan and, under its terms, each outside director is granted an award of stock units each May 1st (in an amount determined from time-to-time by the Board) which is recorded in a bookkeeping account in her/his name and accrues credits equivalent to the dividends on shares of our Common Stock. If a director fails to remain a member of the Board (other than on account of disability or death) until the earlier of the succeeding April 30th or the next Annual Meeting of Stockholders, the award for that year will be prorated to reflect actual service. Distributions under the Directors Equity Plan are made in shares of our Common Stock after the director terminates service on the Board in accordance with distribution elections made by her/him, which may be either in a lump-sum payment or in annual payments over a period of up to ten years.
Under the Directors Equity Plan, with respect to grants made in 2012 and future years, directors may elect to commence distribution of a particular years deferrals either upon termination of service or after a specified number of years thereafter. A director may elect to receive distribution of such deferrals in the form of a lump-sum payment, or annual installments over a period of three to fifteen years. Distribution elections must be made prior to the date that services giving rise to the awards are performed.
Shares granted under the prior Stock Plan for Outside Directors are subject to forfeiture if a director leaves service prior to age 72, except after a change-in-control or if waived by non-participating directors.
Directors Deferred Compensation Plan
Under the Directors Deferred Compensation Plan, directors who are not employees may elect to defer any portion of their cash retainer by making appropriate elections in the calendar year prior to the year in which the services giving rise to such compensation being deferred is rendered. At the same time he/she elects to defer such compensation, the participant must make an election as to the timing and the form of distribution from his/her Directors Deferred Compensation Plan account. Distributions are made in cash or, at the election of the participant in the case of amounts credited with earnings by reference to the performance of our Common Stock, in shares of Common Stock.
For amounts deferred prior to 2012, distributions may commence (a) on the thirtieth day after the date he/she terminates service as a director or, in the alternative, (b) on January 15th of any calendar year following termination of service elected by him/her, but in any event no later than the later of (i) January of the year following the year of his/her 71st birthday or (ii) January following termination of service. Participants may elect to receive the distribution of their Directors Deferred Compensation account in the form of one lump-sum payment, or annual distributions over a period selected by the participant, up to 10 years.
With respect to compensation deferred in 2012 and future years, directors may elect to commence distribution of a particular years deferrals, either (a) within 30 days of termination of service, or (b) a specified number of years following termination of service. They may elect to receive distribution of such deferrals in the form of a lump-sum payment, or annual installments over a period of three to fifteen years.
Participants may make changes of distribution elections on a prospective basis. Participants may also make changes of distribution elections with respect to prior deferred compensation as long as any such new distribution election is made at least one year prior to the date that the commencement of the distribution would otherwise have occurred and the revised commencement date is at least five years later than the date that the commencement of the distribution would otherwise have occurred.
Participants may choose to have amounts deferred under the Directors Deferred Compensation Plan credited with earnings based on (i) the performance of one or more of pre-mixed lifestyle investment portfolio funds, (ii) at the rate of Prime plus 1/2%, capped at 120% of the applicable federal long-term rate, or (iii) by reference to the performance of our Common Stock, in such percentages designated by the participant. These are the same investment options offered under our 401(k) plan to employees (except the Schwab Personal Choice Retirement Account). A participant who fails to provide a designation will accrue earnings on his/her account at the rate of Prime plus 1/2%, capped at 120% of the applicable federal long-term rate. A participant may change fund selection daily, except for the Common Stock Fund, for which selection may be made only prior to deferral.
For 2012, the one-year rates of return as of December 31, 2012 for the offered funds as computed by the recordkeeper for the Directors Deferred Compensation Plan were as follows:
Pre-Mixed Portfolios | Target Retirement Funds | |||||||||
Conservative Portfolio | 8.93 | % | Target Retirement Income | 8.13 | % | |||||
Moderate Portfolio | 12.03 | % | Target Retirement 2010 | 10.02 | % | |||||
Aggressive Portfolio | 15.09 | % | Target Retirement 2015 | 11.27 | % | |||||
Target Retirement 2020 | 12.25 | % | ||||||||
Funds | Target Retirement 2025 | 13.19 | % | |||||||
Stable Value | 2.56 | % | Target Retirement 2030 | 14.14 | % | |||||
Diversified Bond | 4.82 | % | Target Retirement 2035 | 15.06 | % | |||||
Large Company Stock Index | 15.89 | % | Target Retirement 2040 | 15.45 | % | |||||
Mid-Cap Index | 15.94 | % | Target Retirement 2045 | 15.47 | % | |||||
Institutional Developed Markets Index | 18.85 | % | Target Retirement 2050 | 15.48 | % | |||||
Small-Cap Index | 18.18 | % | Other | |||||||
Enterprise Common Stock | -4.27 | % | Prime Plus 1/2% | 3.00 | % |
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 29
EXECUTIVE COMPENSATION
We are providing you with an opportunity to cast an advisory vote on our executive compensation programs as described in this Proxy Statement. This is commonly referred to as say-on-pay. We plan to do this each year, in accordance with the applicable rules of the SEC.
This vote is advisory and thus it is non-binding on us and the Board. However, management, the O&CC and the Board intend to carefully review the voting results and take them into consideration when making future decisions regarding our executive compensation. In accordance with applicable SEC requirements, we will disclose to you in our future proxy statements how our compensation policies and decisions have taken into account the results of the most recent stockholder advisory vote on our executive compensation.
At the 2012 Annual Meeting of Stockholders, our stockholders voted over 96% in favor of our say-on-pay proposal. We were gratified by this result and believe this demonstrated strong support for our executive compensation policies and practices and our approach to aligning pay and performance. In furtherance of our pay for performance philosophy, we continuously review and make changes to our executive compensation program in recognition of investor concerns, evolving trends and best practices. We annually review and adjust as necessary the compensation of our executives in light of their performance, their role in our management, our business results and our financial condition. Based on this review, we did not make any significant changes to our program.
We have disclosed in this Proxy Statement an overview of the philosophy and elements of our executive compensation program, as well as the details of the individual compensation paid or awarded to each of our NEOs and our process for making those determinations. We have provided below the Report of our O&CC, our CD&A and compensation tables. In our CD&A, we have explained the reasons supporting our executive pay decisions as reported in the various Tables and accompanying narrative included in this Proxy Statement.
We believe our executive compensation is reasonable and appropriate, reflecting market conditions. We are asking you to indicate your support of our executive compensation program as described in this Proxy Statement. This vote is not intended to address any specific item of compensation or any specific individual. Rather, it is an indication of your agreement with the overall philosophy, policies, practices and compensation of our executive officers as described in this Proxy Statement. Accordingly, as recommended by the Board, we ask for you to vote in favor of the following resolution:
Resolved, that the stockholders hereby approve, on an advisory basis, the compensation of the NEOs, as disclosed in the Companys Proxy Statement for the 2013 Annual Meeting of Stockholders pursuant to the applicable rules of the SEC, including the CD&A, compensation tables and narrative discussion.
The Board of Directors recommends a vote FOR the resolution in this proposal.
30 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
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:
Richard J. Swift, Chair
William V. Hickey
Shirley Ann Jackson
David Lilley
Thomas A. Renyi
February 19, 2013
COMPENSATION DISCUSSION AND ANALYSIS
This CD&A explains our executive compensation philosophy and the material elements of our executive compensation program and the decisions made regarding our CEO and the NEOs in this Proxy Statement. 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 compensation, including:
| Compensation Philosophy; |
| Elements of Executive Compensation; and |
| Executive Compensation Governance Features and Controls. |
We provide an explanation of the data reported in the Tables in this Proxy Statement, with respect to pay for performance, say-on-pay, compensation risk, the components of our compensation, calculations as to SMICP and LTIP incentive payouts and certain compensation policies.
2012 NEOs
| Ralph Izzo, Chairman of the Board, President and CEO |
| Caroline Dorsa, Executive Vice President and Chief Financial Officer (CFO) |
| William Levis, President and Chief Operating Officer (COO) of our subsidiary, Power |
| Randall E. Mehrberg, Executive Vice President-Strategy and Development of our subsidiary, Services, and the President and COO of our subsidiary, Energy Holdings |
| J. A. Bouknight, Jr., Executive Vice President and General Counsel |
| Ralph A. LaRossa, President and COO of our subsidiary, PSE&G |
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 31
COMPENSATION DISCUSSION AND ANALYSIS
Executive compensation is administered under the direction of the O&CC. The O&CC is made up of directors who are independent under NYSE rules and our requirements for independent directors. The O&CC receives advice from its independent compensation consultant, CAP, which provides only executive compensation consulting services to the O&CC.
Executive Compensation Philosophy - Pay for Performance, Peer Group and Pay Mix
Our executive compensation program is designed to closely link pay to performance and align the interests of executives, including our NEOs, with stockholders. We have structured our program to tie executive compensation to the successful execution of our strategic plans, meeting our financial and operational goals and delivery of strong returns to our shareholders. This translates into higher compensation in years of strong performance and stockholder returns and lower compensation when performance is not as strong. We seek to create stockholder value by attracting and retaining exceptional executive talent needed for long-term success and providing incentives for our executives to achieve outstanding individual performance and business results. Our senior management team, headed by our NEOs, continues to provide strategic and operational leadership in a difficult market and regulatory environment. We do this with competitive compensation opportunities relative to our industry peers for similar positions, with actual compensation payments determined by individual and business performance, without encouraging excessive risk.
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. To most effectively evaluate executive compensation, we believe that an analysis of the pay mix, or Total Direct Compensation (base salary plus target annual incentive and target long-term incentive) is a better measure for evaluating executive compensation as opposed to focusing on each of the elements individually. We target Total Direct Compensation at the median of the industry peer group) within a range that recognizes differences in roles, performance, tenure and volatility of market data from year to year:
| We consider a range of +/-20% 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; |
| The overwhelming amount of our CEOs and NEOs compensation is performance-based and tied to stockholders interests rather than to base salary; and |
| For 2012, the target percentage of incentive compensation, both annual and long-term, constituted 88% of targeted Total Direct Compensation for our CEO and 71% for our other NEOs as a group. |
The O&CC regularly reviews, and evaluates at least annually, the philosophy, objectives, design and effectiveness of our compensation program, including the performance of the NEOs. The O&CC 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 peer group best practices.
Our compensation consists primarily of the following components:
| Base Salary: We pay a base salary which is determined based on position responsibilities, individual experience, performance and the competitive market for the position. |
| Annual Cash Incentive: We provide an opportunity for an annual cash incentive through our SMICP with actual payment determined by the achievement of key financial and operating goals (at the individual, business unit and PSEG level) using multiple performance measures, with a strong emphasis on EPS and with the O&CC exercising overall judgment. The maximum award fund for all participants is 2.5% of net income. Individual payments are capped at 150% of target. |
| Equity-Based Awards: Equity-based awards are provided under our LTIP, consisting of performance share units (60%), as well as restricted stock units (40%). Pay-out of performance share units, if any, is dependent on achievement of long-range financial targets measured by ROIC and the market performance of our Common Stock with reference to TSR relative to our peers. LTIP performance share unit payouts may be as low as zero and are capped at 200% of target. The value of vested restricted stock units is dependent on the market price our Common Stock. Long-term incentive grants are made with a multi-year timeframe for vesting and payouts. |
| Retirement and Post-Employment Benefits: We provide benefits that are comparable to those of companies with whom we compete for executive talent. |
32 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Executive Compensation Practices
The table below highlights our executive compensation practices which remain consistent with our compensation philosophy. The left column outlines the practices we believe are conducive to encouraging sound performance by our senior executives and the right column describes those practices that we have chosen not to implement because we do not believe they further our stockholders long-term interests.
Our Executive Compensation Practices (What We Do)
|
NOT Our Executive Compensation Practices (What We Dont Do)
| |
We tightly align pay and performance and the O&CC validates this alignment annually and ensures performance-based compensation comprises a significant portion of executive compensation. | We do not provide perks except in cases where there is a compelling business reason and only provide limited tax gross-up for new hire relocation. | |
We establish goals and targets in the beginning of the performance period and hold our executives accountable for achieving specified levels to earn a payout under the incentives. | We do not adjust targets, nor do we re-price options. In addition, we do not provide guarantees on bonus payouts, unless needed for one year when recruiting a new executive. | |
We position pay around market median and require strong performance to deliver pay above these levels. | We do not pay above-market compensation and except in very limited circumstances do not commit to salary increases. | |
We have double trigger vesting on equity and severance for change in control. | We do not provide gross-ups for excise taxes upon a change-in-control. | |
We have caps on potential incentive payments and we have a robust clawback policy. | We do not have plans that encourage excessive risk taking. | |
Our qualified plan retirement formulas are the same for the executives as for all other non-union employees. | We no longer provide any additional service credit to executives and have not in several years. | |
We require executives to hold meaningful amounts of stock and also require them to hold 25% of proceeds from equity awards until retirement. | We do not allow hedging or pledging of our stock by executives. | |
The O&CC engages an independent compensation consultant. | The consultant does no other work for us and has no conflicts of interest. |
2012 Performance Highlights
2012 was another challenging year for us and our industry due to low market prices for electricity and natural gas, uncertain regulatory and environmental requirements and difficult economic conditions. Earnings for 2012 were within our targeted range, but lower than the prior year, while the price of our Common Stock was modestly lower at year-end. Despite regulatory, environmental and economic challenges during 2012, among other things, we met our strategic and operational objectives.
Our long-range strategy, with its emphasis on business fundamentals, helped to mitigate the impact on earnings. Our shift of investment capital in recent years from generation to the rate-regulated utility business has enabled us to limit the decline in earnings despite the dramatic fall in power prices while also ensuring that we are able to provide reliable service to our utility customers. We benefited too from our emphasis on cost controls and operational efficiencies. As a result, we were able to maintain a strong balance sheet and cash position, which allowed us to increase our dividend under a revised payout formula. We were again recognized for our superior reliability as a utility and our response to Superstorm Sandy, which placed enormous strain on our employees and operations. Macroeconomic pressures, industry dynamics and unplanned events like Superstorm Sandy emphasize our need to maintain our focus on operational excellence, financial strength and disciplined investment by attracting and retaining the top talent that is critical for us to accomplish these objectives. We believe that our performance-based compensation programs have and will continue to deliver the appropriate compensation based on our results relative to both our business plan and our peers, helping us manage through an evolving business environment.
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 33
COMPENSATION DISCUSSION AND ANALYSIS
2012 Accomplishments
| Achieved high levels of nuclear, fossil and utility operational performance. |
| Employed our hedging strategy to mitigate the full impact of difficult market conditions and low electricity prices. |
| Obtained regulatory and environmental approvals for key transmission investments. |
| Continued a strategic emphasis on utility investment with more stable regulated returns. |
| Received national recognition for reliability. |
| Maintained our credit ratings and increased our dividend within our revised payout formula. |
| Strengthened our balance sheet and refinanced debt at historically low cost. |
| Pursued growth opportunities, invested in energy infrastructure and enhanced our utility capital program. |
| Settled ten years of outstanding Internal Revenue Service audits. |
| Managed the risks, including adverse tax and credit consequence, associated with our lease portfolio. |
| Managed expenses with continued cost control measures. |
Say-On-Pay, Key O&CC Actions and Stockholder Engagement
We provide our stockholders with an annual opportunity to cast an advisory Say-on-Pay vote.
| We believe that this voting opportunity can provide valuable insights into our stockholders views on our compensation programs. At the 2012 Annual Meeting, our stockholders voted over 96% in favor of our say-on-pay proposal, demonstrating their concurrence that our programs reflect our strong pay for performance philosophy. |
The O&CC considered recommendations from CAP and management with regard to compensation design and effectiveness and reviewed competitive practices within our peer group. In addition, the O&CC monitors trends and developments in the market, with the assistance of CAP, as they relate to executive compensation. Based on the reviews and analyses undertaken by the O&CC, we did not make any significant changes to our programs. The O&CC considered this strong stockholder reinforcement of our compensation philosophy and program in determining to continue with our consistent results-oriented pay for performance approach. The O&CC took the following actions related to compensation:
| Analyzed pay for performance by comparing our recent financial results with the compensation of our CEO and NEOs and found them to be appropriately aligned; |
| Approved payouts under the SMICP and LTIP based on its assessment of CEO, NEOs and Company performance relative to pre-established goals for 2012 measured substantially on EPS, ROIC and TSR; |
| Approved incentive compensation awards having a significant degree of difficulty; |
| Approved an amendment and restatement of the LTIP with no shares added to the amount previously authorized by stockholders in 2004, in furtherance of a judicious, tax-efficient use of equity-based compensation; |
| Approved an amendment and restatement of the ESPP providing for a greater discount for non-union employees; and; |
| Recommended that the LTIP and ESPP, each as amended and restated, be presented to stockholders for adoption at the 2013 Annual Meeting. |
As noted elsewhere in this Proxy Statement, we had determined in 2011 to move the timing of our annual award of LTIP grants to February from the previous December. As a result, no annual LTIP grants were awarded in 2011 and accordingly, no such grants for that year are shown in our Summary Compensation Table, except for the special retention award to Mr. Levis. The grants made in February 2012 are included in the Summary Compensation Table. The amount shown for 2012, as compared to 2011, does not represent an increase in or addition of a new component of executive compensation. The difference between those two years with regard to the LTIP compensation reported in the CD&A and this Proxy Statement is due solely to the award timing difference. Changes in salary and SMICP are discussed in detail below.
Our Company has a long-standing practice of engaging in constructive dialogue with our stockholders on various matters of interest to them, including executive compensation and governance. We do this by meeting periodically with our major stockholders and groups of investors as well as by regular written communications. These interactions provide us with valuable insights. In recent years we have enhanced our efforts with regard to matters of executive compensation and corporate governance to keep pace with evolving investor priorities and expectations. We strive to be clear and transparent in the information we provide to investors in our Proxy Statement, Form 10-K and other reports filed with the SEC and in our investor communications. We continue to welcome feedback from our stockholders and will continue to consider the outcome of the say-on-pay vote when making future compensation decisions regarding our NEOs.
34 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Pay for Performance
We believe it is important to link pay with performance and long-term stockholder value. We utilize compensation to further align the interests of our executives with those of our stockholders. However, we believe that it is crucial to our stockholders long-term interests that we not measure performance too narrowly on merely a single years results. Our compensation programs are designed to assess and reward for varying time horizons. Our SMICP focuses on financial and operating performance over a one-year period while our LTIP is focused on multi-year performance criteria and payouts. Similarly, the goals of individual NEOs, including our CEO, place a high value on strategic initiatives, long-range planning and operational excellence. While the impact of this approach may not necessarily be seen in any single year, over time the actual value of compensation, especially equity grants, should reflect our Companys performance.
Our ability to compete and reliably serve our customers as a recognized industry leader, while adjusting to evolving industry and market factors is to a great degree dependent on our ability to appropriately incent the performance of our senior executives and retain their continued employment. When we establish performance targets, we consider internal and external factors and set stretch goals to reflect an appropriate degree of difficulty. Our incentive compensation payouts are determined based on measures that align CEO and NEO compensation with stockholder interests, as EPS, TSR and ROIC are used in calculating the amounts. Although these are important components for evaluating pay for performance, we do not believe it is particularly meaningful to merely compare EPS or Common Stock price at year-end with CEO and NEO reported compensation. For example, a meaningful pay for performance analysis entails more than a mere comparison of year-end quantitative measures such as TSR to compensation as reported. Among other things, the reported compensation, in particular the equity compensation shown in the tables in the Proxy Statement, is based on an accounting valuation of targeted future payouts. These could differ significantly from what is ultimately earned by the executives depending on actual results of the performance measures and the value of equity awards at the time they are earned, if at all. The O&CC considers these factors when it assesses the pay for performance relationship.
Viewing performance in this broad context, we believe the total compensation paid to senior executives in recent years and as structured for future payouts has achieved the desired results. In general, our delivered performance in 2012, relative to the degree of difficulty, was aligned with our pre-set goals and our business plan. As described in more detail below, in 2012, financial results reflect the current industry and Company circumstances while our CEO and NEOs have continued to focus on strategic responses and operational efficiencies to optimize earnings and returns while positioning us for continued success. For another year, these efforts have helped mitigate the effects of low gas and power prices and regulatory uncertainty.
As part of our pay for performance review during 2012, the O&CC considered relative financial performance data comparing us to those companies in our peer group for whom data was available. A further discussion regarding peer group analysis is provided below. With the assistance of CAP, we analyzed key performance metrics and compensation for 2011, the most recent year for which data was available. Included in the metrics were revenue growth, EPS growth, return on capital and TSR. The total cash compensation included base salary and SMICP and the total direct compensation included those two items plus the grant date fair value of LTIP awards, all of which are reported in our 2012 Summary Compensation Table. These performance metrics were broader than the measures we use in determining award payouts under the SMICP and LTIP. We believe they provide a more expansive view of our relative performance.
Based on this assessment, and as further discussed below, while the most recent year was challenging for us and the rest of the industry, we performed well on a relative basis over a longer period (i.e., three years). In particular, when we consider our TSR over the timeframe, we have delivered returns better than those in our peer group whose business most closely approximates ours as a whole, the integrated holding companies. In evaluating the compensation of the NEOs and in particular the CEO, we assessed the amount relative to the performance delivered and continue to conclude the two are aligned.
2012 Performance
2012 was another challenging year for us, as reflected in our lower earnings and modestly lower year-end Common Stock price, compared to 2011. Natural gas prices continued to decline. This depressed the market price for electricity and capacity and, thus, reduced our profit margins. We expect this downward pressure on natural gas and wholesale electric prices to continue through 2013 and beyond. Economic conditions and customer usage patterns also lowered demand and revenues. Lower market prices and greater competition again created incentives for increased customer migration to alternate electric suppliers, reducing margins although to a lesser degree than in the prior year. We expect these trends to continue as long as the economy remains weak and natural gas prices stay low.
Much of executive managements focus in guiding our Company has been to respond strategically to market forces, low natural gas and electricity prices and weak regional economic conditions. The requisite analytical judgment and operational and managerial abilities that we expect of our senior executives are critical factors in positioning us for the future. Their efforts have been aimed at mitigating the impacts of these pressures by improving performance, actively influencing legislative and regulatory policies and adjusting our business mix by shifting investment to best take advantage of emerging opportunities for growth, particularly in connection with utility rate-regulated returns. While these activities are not easily measured over the short-term by reference solely to current EPS and stock price in comparison to the levels in the recent past, the ability of our management team to address these challenges successfully are vital skills on which we place significant value in setting total compensation for our NEOs.
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 35
COMPENSATION DISCUSSION AND ANALYSIS
2012 Highlights
| Our focus remained on operational excellence, improving our financial strength and making disciplined investments in view of the challenges we face. |
| Earnings declined at Power, largely due to lower natural gas prices but the effects of these adverse events were mitigated in part through continued cost control measures and the pursuit of growth investments at PSE&G and Holdings. |
| We benefited from our hedging strategy and operational flexibility which enabled us to avoid the full impact of difficult power and capacity market conditions. |
| We further strengthened our balance sheet and successfully refinanced debt at historically low cost. |
| We maintained our credit ratings and substantial liquidity resources and increased our dividend within our revised payout policy. |
| We achieved high levels of nuclear, fossil and utility performance. Utility operations again received industry recognition as among the best in the nation. |
| We enhanced our utility capital program with investments in our solar, energy efficiency and economic stimulus programs for which we receive contemporaneous returns. |
| We continued to pursue other growth opportunities that complement our businesses and can earn appropriate risk adjusted returns. |
| We received necessary regulatory and environmental approvals for planned utility transmission projects. |
| We managed the risks, including adverse tax and credit consequences, associated with our lease portfolio and settled ten years of IRS audits. |
| At year-end we were severely challenged by Superstorm Sandy, but responded well. |
As a result of the continued focus on operational excellence, financial strength and disciplined investment, our management team has effectively responded to challenging conditions. For example, despite the steep reduction in power prices over the past five years, our EPS for the same period has experienced a more modest decline, as depicted below:
(1) | Historical PJM Western Hub Round-the-Clock (RTC) price |
(2) | Compound Annual Growth Rate |
In 2013, we will continue to focus on strong management of operations, including generation capacity and utility reliability, pursuit of new investments, strengthening our relationships with key stakeholders, sustained advocacy for competitive markets, adequate rate treatment and cost recovery and environmentally responsible rules. Our success will depend upon our ability to maintain strong operational and financial performance and appropriately invest in growth opportunities in a difficult economy and cost-constrained environment, amidst continued low natural gas and power prices, reduced demand, threats to competitive markets and more stringent environmental controls. We believe that our executive compensation programs reward and create incentives for our executives, from whom we expect superior performance, to meet these challenges now and in the future. We have made decisions with regard to executive compensation based on
36 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
2012 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.
If you would like additional information about our 2012 Performance, including our financial statements and a more complete description of our business, please see our Form 10-K.
Peer Group
A second element of our compensation philosophy includes an evaluation of the compensation of our NEOs relative to an identified peer group. We set executive compensation to be competitive within the peer group which was developed to reflect similarly-sized energy companies with comparable businesses. We believe that these companies appropriately reflect the landscape of our industry and the market in which we compete for talent. We have included regulated utilities, merchant generators and combined holding companies such as us. We have attempted to include a broad enough group to provide diversity for balanced comparison while selecting only those we think sufficiently similar to provide a meaningful benchmark.
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 and assessing the market from which we draw executive talent as well as investor capital. Each year, we re-evaluate the peer group to assess its continuing appropriateness. For 2012, we removed Constellation Energy Group and Progress Energy, as they were acquired in 2012 by others in the peer group.
Thus, substantially the same peer group was used as a reference point for setting pay levels at the end of 2011 for 2012 as well as setting pay for 2013 at the end of 2012. The O&CC 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 LLC assists in analyzing the annual Towers Watson Energy Services Executive Compensation SurveyU.S. 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. As shown below, based on the most recently available data, as provided by CAP, our revenue and market capitalization were below the median, while our net income exceeded the median.
Peer Group
Company Name | Revenue 2011 ($ Millions) |
Net Income 2011 ($ Millions) |
Market Capitalization at 12/31/11 ($ Millions) |
|||||||||
Ameren Corporation | 7,531 | 519 | 8,025 | |||||||||
American Electric Power Company, Inc. | 15,116 | 1,946 | 19,949 | |||||||||
Consolidated Edison, Inc. | 12,938 | 1,062 | 18,169 | |||||||||
Dominion Resources, Inc. | 14,379 | 1,408 | 30,235 | |||||||||
DTE Energy Company | 8,897 | 711 | 9,216 | |||||||||
Duke Energy Corporation | 14,529 | 1,706 | 29,320 | |||||||||
Edison International | 12,760 | 22 | 13,489 | |||||||||
Entergy Corporation | 11,229 | 1,367 | 12,865 | |||||||||
Exelon Corporation | 18,924 | 2,495 | 28,755 | |||||||||
FirstEnergy Corp. | 16,346 | 885 | 18,527 | |||||||||
NextEra Energy, Inc. | 15,341 | 1,923 | 25,724 | |||||||||
PG&E Corporation | 14,956 | 844 | 16,730 | |||||||||
PPL Corporation | 12,737 | 1,495 | 17,014 | |||||||||
Sempra Energy | 10,036 | 1,365 | 13,190 | |||||||||
Southern Company | 17,657 | 2,268 | 39,899 | |||||||||
Xcel Energy Inc. | 10,655 | 841 | 13,404 |
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 37
COMPENSATION DISCUSSION AND ANALYSIS
Company Name |
Revenue ($ Millions) |
Net Income 2011 ($ Millions) |
Market ($ Millions) |
|||||||||
PSEG | 11,079 | 1,503 | 16,700 | |||||||||
Peer Group 75th Percentile | 15,172 | 1,760 | 26,482 | |||||||||
Peer Group Median | 13,659 | 1,366 | 17,591 | |||||||||
Peer Group 25th Percentile | 11,085 | 843 | 13,351 |
Compensation Benchmark
The data used for the comparisons below are from the most recent data available for the companies in the peer group. The O&CC considers a range of approximately +/- 20% of the 50th percentile of comparable positions to be within the competitive median.
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 noted below. Decisions on salary and other pay elements, except the LTIP, are typically made at the O&CC meeting each December. Below is each executives market positioning as of the time those decisions were made:
% of Comparative Median Benchmark Levels (2012)
NEO | Izzo (%) |
Dorsa (%) |
Levis (%) |
Mehrberg (%) |
Bouknight (%) |
LaRossa (%) |
||||||||||||||||||
Base Salary | 78 | 96 | 107 | N/A | 105 | 102 | ||||||||||||||||||
Total Cash Compensation | 87 | 96 | 110 | N/A | 105 | 102 | ||||||||||||||||||
Total Direct Compensation | 108 | 96 | 112 | N/A | 103 | 106 |
The target LTIP award that is included in Total Direct Compensation was determined by the O&CC in February 2012. The O&CC kept the same annual incentive target for the NEOs, except for Messrs. Bouknight and LaRossa, whose targets were each increased to 65% from 60% to align with market. For Total Direct Compensation, we included the salaries and bonus targets that were approved in December 2011 and effective for 2012. For Mr. Levis, there was insufficient relevant data for the peer group companies, so we compared his compensation to that of an expanded sample of all energy companies in the Towers Watson survey. For Mr. Mehrberg, due to the uniqueness of his role in having multiple responsibilities, we were unable to identify relevant market data. It is difficult to precisely benchmark Mr. Mehrbergs compensation because of his diverse duties. We could 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 compared Mr. Mehrbergs position to one encompassing his administrative staff duties and added an amount to reflect expanded duties in order to align Mr. Mehrbergs compensation with our other senior executives for internal equity within that group. Each NEOs Total Direct Compensation was within +/-20% of the median, which we believe is consistent with our philosophy.
Pay Mix
The final element of our compensation philosophy is a consideration of the total mix of pay. The O&CC 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.
38 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
The mix of base salary, target annual cash incentive and long-term incentives for 2012 are presented below for the CEO as well as the average for the other NEOs. We have also provided a comparison of the targeted pay mix to that of the peer group.
(1) | Excludes the CEO and, as explained above, Mr. Mehrberg |
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.
Compensation Element |
Description | Objective | ||
Base Salary | Fixed cash compensation | Provides compensation for the executive to perform his/her job functions
Assists with recruitment and retention | ||
Annual Cash Incentive | Paid each year if warranted by performance
Opportunity to earn between zero and 150% of target award, which is based on a percentage of base salary
Metrics and goals (typically earnings, operational and other) are established at the beginning of each year and the payout is made based on performance |
Intended to reward for driving best-in-class operating and financial results over a one-year timeframe
Creates a direct connection between business success and financial reward
Provides strong line of sight | ||
Long-Term Incentives (See Table under LTIP) |
Performance Share Units, typically with the opportunity to earn from zero to 200% of target at the end of the three year performance period
Restricted Stock Units generally vest at the end of three years
Stock Options (while no longer being used as a core part of the long-term incentive, executives still hold options that were granted in prior years) |
Rewards strong financial and stock price performance
Provides for strong alignment with stockholders
Assists with retention
Intended to reward for driving financial results over a multi-year time frame | ||
Retirement Plans | Defined benefit pension plans
Defined contribution 401(k) plan with a partial Company matching contribution
Supplemental retirement benefits for certain employees beyond qualified plan benefits, in view of IRS limits |
Provides retirement income for participants in recognition of length of service
Assists with recruitment and retention | ||
Deferred Compensation Plans | Permits participants to defer receipt of a portion of cash and equity compensation | Provides participants with the opportunity to more effectively manage their taxes
Assists with retention | ||
Post-Employment Benefits | Severance and change-in-control benefits | Assures the continuing performance of executives in the face of a possible termination of employment without cause
Assists with retention | ||
Other Benefits | Health and welfare programs Limited perquisites |
To be competitive with peer companies
Aids safety and efficiency Assists with recruitment and retention |
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 39
COMPENSATION DISCUSSION AND ANALYSIS
CEO Compensation
Mr. Izzos compensation is designed to position his total pay around the median of the market. Mr. Izzo has demonstrated strong performance over his tenure as CEO and the O&CC believes this arrangement is appropriate. The changes to the key terms of Mr. Izzos compensation in 2012 were as follows:
| Base Salary: The median salary for a CEO in the peer group is approximately $1.24 million. In view of his exceptional performance during his tenure as CEO, the O&CC has intended to position Mr. Izzos salary at approximately the median of the peer group. However, given the challenging economic environment, since December 2008, Mr. Izzo had volunteered to forego a salary increase. He expressed a desire to receive no salary increase again for 2012; however, the O&CC believed at least a modest salary increase was appropriate so as not to fall further behind the competitive market and to recognize the CEOs performance and leadership throughout his tenure. A base salary of $980,000 was effective for 2012, a $30,000 increase over 2011. At the end of 2012, the O&CC increased Mr. Izzos salary to $1.1 million for 2013. It took this action to better position the CEO relative to peers as it felt that paying a salary that was more than 20% below median to a CEO who has delivered outstanding results was not in the best interest of the Company and its stockholders. |
| Annual Cash Incentive: The CEOs annual incentive target for 2012 was equal to 125% of salary, which when combined with his salary, positioned his target cash compensation at 87% of the market median for 2012. In conjunction with the salary increase for 2013 noted above, the O&CC decided to reduce the CEOs target annual incentive for 2013 to 120% of salary. It had been set at 125% in recognition of his well below median salary to give a more balanced compensation at risk profile. |
| Long-term Incentive: The CEOs grant of long-term incentive (in February 2012) was equal to $5.725 million, which, when combined with the CEOs salary and target bonus, positioned his total direct compensation for 2012 at 108% of the market median. The long-term incentive grant awarded in 2012 was unchanged from his previous grant. Due to his base salary increase for 2012, the CEOs Total Direct Compensation was slightly higher than for 2011. The long-term incentive opportunity target level was determined so as to position the CEOs pay around the median recognizing that his cash compensation continues to be below median. This puts a greater emphasis on long-term compensation for the CEO which is at risk based on performance. Consistent with our pay for performance approach, we believe this appropriately focuses him on the long-term success of the organization and driving stockholder value. |
The CEOs 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 O&CC by management. After meeting in executive session, without the CEO present, the O&CC determined CEO compensation in consultation with all the independent directors.
Mr. Izzos salary, annual cash incentive and long-term incentive exceed 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 whom the Board holds fully accountable for the execution of corporate business plans.
Further detail regarding the CEOs compensation is set forth below.
Base Salary
As the reference point for competitive base salaries, the O&CC 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 O&CC also considers the executives current salary and makes adjustments based principally on individual performance, including achievement of targets, and experience. Each NEOs base salary level is reviewed annually by the O&CC using a budget it establishes for merit increases and salary survey data provided by Pay Governance and reviewed by CAP. The NEOs individual performance and, other than the CEO, his/her business units performance are considered in setting salaries. Base salaries for satisfactory performance are targeted at the median of the relevant competitive benchmark data.
The O&CC considers base salaries and salary adjustments for individual NEOs, other than the CEO, based on:
| Recommendations of the CEO: considering the respective 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: as reflected in the CEOs recommendations, including achievement of financial targets, safety and operational results, customer satisfaction, regulatory outcomes and other factors. |
| Additional factors: leadership ability, managerial skills and other personal aptitudes and attributes. For 2012, the O&CC set the merit increase budget at 2.0%. |
Salaries for the NEOs for 2012 were approved at the December 2011 meeting of the O&CC. Salaries for 2013 were approved by the O&CC in December 2012, with each of the NEOs receiving an increase based on his/her performance and to better align with the peer group:
40 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
NEO | Base Salary ($) |
Base Salary ($) |
||||||
Izzo | 980,000 | 1,100,000 | ||||||
Dorsa | 590,000 | 619,500 | ||||||
Levis | 550,000 | 566,500 | ||||||
Mehrberg | 545,000 | 561,400 | ||||||
Bouknight | 530,000 | 545,900 | ||||||
LaRossa | 485,000 | 500,000 |
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. 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 Board 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 2012 performance under the SMICP, these limits were $31,875,000 for the total award pool (of which $ 7,546,600 was awarded), $3,187,500 for the CEOs maximum award and $2,390,625 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 2012 was EPS from Continuing Operations. We believe sustained EPS is a significant driver of stockholder 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, which for Power excluded from Income from Continuing Operations gains or losses associated with our nuclear decommissioning trust, mark-to-market accounting and Superstorm Sandy costs, adjusted to include interest variances from the business plan, and which for PSE&G were adjusted to exclude Superstorm Sandy costs and interest variances from the business plan.
For 2013, the Committee kept the same annual incentive targets for the NEOs, except for Mr. Izzo, as discussed above.
We maintained the same overall annual incentive structure as we have had for the last several years as we believe it supports our objectives of rewarding strong financial performance driven by operational excellence. We believe that through outstanding operations we can deliver the greatest long-term financial returns to our stockholders. The maximum result of this calculation is a comparative performance of 1.5. The corporate factor in 2012 could range from zero to 1.5 based on pre-determined EPS goals. The payout factor and related targets for 2012 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. Levis, Mehrberg and LaRossa have business unit (BU) earnings and multiple BU scorecard (financial, operational and strategic) metrics and goals. Ms. Dorsa and Mr. Bouknight each have multiple BU scorecard metrics and goals. All participants have strategic metrics and goals: for Mr. Izzo, operational excellence, financial strength and disciplined investment; for Ms. Dorsa and Messrs. Levis, Mehrberg, Bouknight and LaRossa, employee engagement. 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.
Weighting x Corporate EPS (0-150%) |
+ | Weighting x BU Earnings (0-150%) |
+ | Weighting x BU Scorecard (0-150%) |
+ | Weighting x Strategic Goals (0-150%) |
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 41
COMPENSATION DISCUSSION AND ANALYSIS
The corporate performance goal targets and payout factors at each target performance level for 2012 are set forth below:
EPS from Continuing Operations ($) |
Corporate Payout Factor (#) | |||
< 2.25 | 0.000 | |||
2.25 | 0.500 | |||
2.37 | 1.000 | |||
2.50 | 1.500 |
The respective business unit performance goal targets and payout factors at each target performance level for 2012 for Power and PSE&G are set forth below:
Adjusted Operating Earnings ($ Millions) | ||||||||||||
Power | PSE&G | Payout Factor | ||||||||||
<583.7 | <517.5 | 0.000 | ||||||||||
583.7 | 517.5 | 0.500 | ||||||||||
614.9 | 545.1 | 1.000 | ||||||||||
648.6 | 575.0 | 1.500 |
For Energy Holdings, the business unit performance goal targets and payout factors are based on a four-factor formula tied to its year-end balance sheet values of owned and leased assets as compared to business plan target values. The four asset/lease categories are merchant energy leases (50%), global assets (10%), real estate investments (20%) and other assets (20%).
The actual corporate and business unit results and corresponding payout factors for the performance levels achieved for 2012 are set forth below:
Factors |
Actual Results ($) |
Payout Factor (#) |
||||||
Corporate EPS | 2.51 | 1.500 | ||||||
($ | Millions | ) | ||||||
Power | 649.1 | 1.500 | ||||||
PSE&G | 546.2 | 1.019 | ||||||
Holdings | N/A | 1.245 |
Each factor (corporate earnings, BU earnings, BU 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 2012 is detailed below, together with the actual achievement factor attained in 2012:
NEO | Weight and Payout Factor |
Corporate EPS |
BU Earnings |
BU Scorecard |
Individual Strategic |
Overall Achievement Factor |
||||||||||||||||
Izzo | Weight | 75% | - | - | 25% | |||||||||||||||||
Achievement | 1.500 | - | - | 0.900 | 1.350 | |||||||||||||||||
Dorsa | Weight | 75% | - | 15% | 10% | |||||||||||||||||
Achievement | 1.500 | - | 1.336 | 0.500 | 1.375 | |||||||||||||||||
Levis | Weight | 60% | 15% | 15% | 10% | |||||||||||||||||
Achievement | 1.500 | 1.500 | 0.990 | 0.500 | 1.324 | |||||||||||||||||
Mehrberg | Weight | 60% | 15% | 15% | 10% | |||||||||||||||||
Achievement | 1.500 | 1.245 | 1.145 | 0.500 | 1.309 | |||||||||||||||||
Bouknight | Weight | 75% | - | 15% | 10% | |||||||||||||||||
Achievement | 1.500 | - | 1.096 | 0.500 | 1.339 | |||||||||||||||||
LaRossa | Weight | 60% | 15% | 15% | 10% | |||||||||||||||||
Achievement | 1.500 | 1.019 | 1.121 | 0.500 | 1.271 |
The final step in the process is for the O&CC 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.
42 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
The SMICP awards of the NEOs for 2012 are shown below and in the 2012 Summary Compensation Table. The Committee made its determinations regarding SMICP awards for the 2012 performance year in February 2013, for payment that month. Based upon the executives overall achievement factor, his/her current base salary and target annual incentive opportunity and any O&CC modifications, if applicable, each earned the following payout for 2012, as to which we also show the percent relative to salary:
NEO | Base Salary ($) |
Target Annual Incentive Percentage (%) |
Target ($) |
Overall Achievement Factor |
Modification (if applicable) |
Payout Earned (1) |
Percent of Salary (%) |
|||||||||||||||||
Izzo | 980,000 | 125 | 1,225,000 | 1.350 | - | 1,653,800 | 168.8 | |||||||||||||||||
Dorsa | 590,000 | 70 | 413,000 | 1.375 | - | 567,900 | 96.3 | |||||||||||||||||
Levis | 550,000 | 75 | 412,500 | 1.324 | - | 546,200 | 99.3 | |||||||||||||||||
Mehrberg | 545,000 | 70 | 381,500 | 1.309 | - | 499,400 | 91.6 | |||||||||||||||||
Bouknight | 530,000 | 65 | 344,500 | 1.339 | - | 461,300 | 87.0 | |||||||||||||||||
LaRossa | 485,000 | 65 | 315,250 | 1.271 | - | 400,700 | 82.6 |
(1) | Reflects rounding |
The O&CC believes that the 2012 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. It made no discretionary modifications. To ensure that pay and performance are aligned the O&CC, 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 O&CC, 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 achievement of long-range corporate goals, provide incentive compensation opportunities that are competitive with those of companies with whom we compete for talent and align participants interests with those of stockholders.
The LTIP was approved by stockholders at the 2004 Annual Meeting and in accordance with the actions of the O&CC and recommendation of the Board of Directors we are submitting an amendment and restatement of the plan extending its term for an additional ten years for approval by stockholders at this years Annual Meeting, as part of this proxy statement. We are not proposing to increase the number of shares of Common Stock authorized to be issued under the Amendment and Restatement of the LTIP and are otherwise making only relatively minor revisions to provide consistency with our other compensation and benefit plans and ease of administration. You may find additional information below under Proposal 3. To permit flexibility, the LTIP provides for different forms of equity awards: restricted stock, restricted stock units, performance share units and stock options. Currently, the maximum number of shares that may be awarded under grants to any one individual is 1,000,000 during any 36 month period. Under the Amended and Restated LTIP, the maximum will be 500,000 during any calendar year. In general, since 2010, we have been granting performance share units and restricted stock units.
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 43
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Element |
Description | Objective | ||
Performance Share Units | Right to receive full value shares that are earned based upon independent metrics measured over a three-year period: TSR relative to peers
ROIC against our internal goals
Participants have the opportunity to earn from zero to 200% of their target award based on performance
Dividend equivalents are accrued as declared and paid on earned shares |
Rewards for strong financial and stock price performance over a longer time frame than annual rewards
Full value shares assist with retention | ||
Restricted Stock Units | Right to receive shares of full value stock at vesting dates
Generally, cliff vest at the end of three years
Dividend equivalents are accrued as declared |
Serves as retention device as recipient must remain an employee through vesting dates to earn payout |
The CEO develops recommendations for LTIP awards for each NEO, with the exception of himself and submits these recommendations to the O&CC for approval. Factors that are considered in the determination of award amounts are:
| The competitive market as defined by the peer group, which in general is targeted around median; |
| An individuals role and responsibilities within the Company; |
| Contribution of the executive; and |
| How critical the role is to the organization and need to retain the individual. |
In general, when making LTIP grants, the O&CCs determinations are made independently from any consideration of the individuals prior LTIP awards. With respect to the CEO, the O&CC develops a recommended award opportunity in consultation with CAP and submits the proposal to the Board. The value of an executives current holdings is not a consideration, though it is reviewed periodically by the O&CC. Beginning in 2012, grants are typically being made each February. Previously the grants were made in December. Restricted stock units generally cliff vest after three years.
In previous years, restricted stock awards were made. Generally, these restricted stock awards vested one-fourth annually as determined at the time of grant. Recipients of restricted stock awards have full voting rights and 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 and unvested restricted stock units vest pro-rata if retirement occurs within one year of the grant and thereafter according to the original vesting schedule. Generally, unvested restricted stock is forfeited upon resignation but is paid upon an involuntary termination of employment, while unvested restricted stock units are forfeited upon resignation or involuntary termination of employment.
Performance share 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. Dividend equivalent units accrue but are only paid if the underlying performance share units are ultimately earned.
Performance Share Unit Payouts On Prior Years Awards for Performance Period Ended December 31, 2012
LTIP awards of performance share units made in December 2009 were reported in our 2010 Proxy Statement at fair value at the time of the grants. These performance share unit grants were subject to the achievement of goals related to TSR and ROIC over a three-year performance period ended December 31, 2012. Based on the performance results for that period, in 2013, Messrs. Izzo, Levis, Mehrberg, Bouknight and LaRossa and Ms. Dorsa received payment of shares of our Common Stock equal to 50% (see table below) of the grant target amounts.
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 stockholders and provides the incentive to deliver a return to stockholders greater than that of our peers. ROIC was used to ensure that 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 between zero and 200% of their target. We believe that the ROIC goal represents a
44 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
significant degree of difficulty. We determine ROIC by dividing Income from Continuing Operations (adjusted for certain interest expense) by debt and equity (adjusted for securitized debt and cash).
Recipients will receive 100% of their grant amount if:
| For the three-year performance period TSR places us in the 50th percentile of the peer group; and |
| Our ROIC for the three-year performance period meets a pre-set target based on our business plan. |
Payment, if any, is made early in the following year, once results are reviewed and approved by the O&CC. 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. Upon retirement, death or disability, performance share units are prorated for each month of service during the performance period and paid following the end of the period based on actual performance.
For these grants, the performance schedule for relative TSR, which can earn an individual 50% of the performance share unit award, is detailed below:
TSR Performance Vs. Peers (1) | Percent Payout Factor for TSR Component |
|||
Below 35th Percentile | 0% | |||
35th Percentile | 25% | |||
50th Percentile | 100% | |||
75th Percentile | 200% |
(1) | Beginning with grants made in 2012, TSR performance will be measured by comparing our numerical ranking among peer group companies in respect to the TSR performance component. |
For these grants, the performance schedule for relative ROIC, which can earn an individual 50% of the performance share unit award, is detailed below:
2010 Performance Share Unit Grant 3 Year Average ROIC Target |
||||||||||||||||||||
2010 | 2011 | 2012 | 3 Yr Average | Payout%(1) | ||||||||||||||||
Maximum (110% of Goal) | 10.70% | 200% | ||||||||||||||||||
Target | 10.80% | 9.60% | 8.80% | 9.70% | 100% | |||||||||||||||
Threshold ( 90% of Goal) | 8.70% | 25% |
(1) | Payout % above and below target will be interpolated based on the three-year average. |
Actual results of the three-year period ended December 31, 2012 were:
TSR | ROIC | |||||||
PSEG Ranking: | 11th of 15 peer companies | Actual 3-year Average: | 9.70% | |||||
Percentile: | 28.6% | Internal Goal: | 9.70% | |||||
Payout: | 0 | Payout: | 100% | |||||
Performance Share Unit Payout Factor: | 50% |
Based on these results, the dollar amount of each payment, made in shares of our Common Stock, is shown below, calculated using the average of the high and low price of our Common Stock on February 19, 2013, $31.40.
NEO | Performance Share Units Granted (#) |
Performance Share Units Earned (#) (1) |
Performance Share Units Earned ($) (1) |
|||||
Izzo | 64,450 | 36,710 | 1,152,694 | |||||
Dorsa | 12,250 | 6,978 | 219,109 | |||||
Levis | 12,950 | 7,376 | 231,606 | |||||
Mehrberg | 10,900 | 6,209 | 194,963 | |||||
Bouknight | 10,900 | 6,209 | 194,963 | |||||
LaRossa | 10,250 | 5,838 | 183,313 |
(1) | Performance units earned and market value reflect rounding. Includes accrued dividend equivalents earned. |
These amounts are reported in the Option Exercises and Stock Vested During 2012 Table below.
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 45
COMPENSATION DISCUSSION AND ANALYSIS
2012 Grants
The structure of the long-term incentive is consistent with the prior grant as described above which is in the form of 60% performance share units and 40% restricted stock units vesting at the end of three years. The mix between performance share units and restricted stock units was determined based on our desire to provide the majority of long-term incentives in a performance-based vehicle while providing for strong retention during a challenging period in the industry. The greater emphasis on performance share units places more of our NEOs potential compensation payouts at risk. Grants are typically made each February.
As discussed above, in 2011 we moved the date for annual LTIP awards to February from December of the previous year. Accordingly, no grants were made in 2011 and the 2012 grants do not represent a significant new element or amount of compensation. The amounts approved in February 2012 for the NEOs are shown below. These awards are reported in the Summary Compensation Table at the grant date fair value.
NEO | PSU (#) |
PSU ($) |
RSU (#) |
RSU ($) |
Total LTIP Award ($) |
|||||||||||||||
Izzo | 109,900 | 3,435,000 | 74,050 | 2,290,000 | 5,725,000 | |||||||||||||||
Dorsa | 21,100 | 660,000 | 14,250 | 440,000 | 1,100,000 | |||||||||||||||
Levis | 21,100 | 660,000 | 14,250 | 440,000 | 1,100,000 | |||||||||||||||
Mehrberg | 17,750 | 555,000 | 11,950 | 370,000 | 925,000 | |||||||||||||||
Bouknight | 16,300 | 510,000 | 11,000 | 340,000 | 850,000 | |||||||||||||||
LaRossa | 15,850 | 495,000 | 10,650 | 330,000 | 825,000 |
Retirement Benefits
We provide certain qualified retirement benefits under the Pension Plan of PSEG (Pension Plan) and the 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. Participation depends upon the date of hire of the individual. Messrs. Izzo and LaRossa participate in the Pension Plan as they each began employment before January 1, 1996. Each of the other NEOs participates in the Cash Balance Plan as they were hired after that date.
In addition to the qualified plans, we provide certain limited nonqualified retirement benefits under the Retirement Income Reinstatement Plan (Reinstatement Plan) and the 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.
| The Reinstatement Plan is an unfunded retirement plan that provides retirement benefits that would have been paid under our qualified retirement plans but for the limitations of the IRC which caps the amount of an employees compensation that may be considered for qualified plan purposes. All employees who are affected by the compensation limit are eligible to participate in this plan. SMICP amounts are also included in computing benefits under this plan. |
| The Supplemental Plan is an unfunded retirement benefit plan that provides supplemental limited retirement and death benefits to participants nominated by the CEO and designated by our Employee Benefits Policy Committee. It also provides retirement benefits based upon additional credited years of service for prior allied professional or industrial experience to employees selected by the CEO. The plan is primarily used as a recruitment and retention tool. In 2011, the O&CC decided that we will no longer provide any additional years of credited service under the Supplemental Plan to individuals not previously provided with that benefit. |
All of our NEOs participate in the Reinstatement Plan. Messrs. Izzo and LaRossa participate in the additional limited provisions of the Supplemental Plan. Ms. Dorsa and Messrs. Levis and Mehrberg will be eligible to participate in the additional limited provisions of the Supplemental Plan in accordance with their respective employment agreements. As described in the Pension Benefits Table, as part of their promotion and hiring, Mr. Izzo and Ms. Dorsa respectively are eligible to receive additional years of credited service under certain circumstances.
Additional information is provided in the Pension Benefits Table and the accompanying narrative, below.
We also maintain a defined contribution 401(k) Plan and provide a partial employer matching contribution for 401(k) Plan participants.
46 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Deferred Compensation Plans
We offer a deferred compensation plan to our officers, including the NEOs, 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 investment options based upon the choices available in our 401(k) Plan, as well as a market-based rate of Prime plus 1/2%, capped at 120% of the applicable federal long-term rate.
We also have a plan to permit deferral of equity compensation. Generally, the election to defer shares underlying an equity award must be made before the services giving rise to the equity award are performed. Deferred shares will be held in a Rabbi Trust.
Additional details about these deferred compensation plans are provided in the descriptions following the Non-Qualified Deferred Compensation Table.
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 our industry and provide a level of financial security to the executive in periods of uncertainty in the event of a termination without cause. All of our NEOs participate in our Key Executive Severance Plan. Mr. Izzo is also eligible for certain other severance benefits.
We 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 the 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, who may be 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. Both the Key Executive Severance Plan and Mr. Izzos severance agreement include a double-trigger provision on benefits, which are paid only in the event of termination of employment following a change-in-control. Performance share payments, if any, are prorated.
Severance and change-in-control benefits are described under Potential Payments Upon Termination of Employment or Change-in-Control below.
Perquisites
We provide certain perquisites that we believe are reasonably within compensation practices of our peers or provide benefit to us, such as providing an appropriate degree of personal security to executives with a high public profile and 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, charitable contributions on behalf of the individual and limited personal entertainment. These perquisites are described in the 2012 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.
EXECUTIVE COMPENSATION GOVERNANCE FEATURES AND CONTROLS
Independent Compensation Consultant
The O&CC has retained CAP to provide information, analyses and advice regarding executive and director compensation, as described in this Proxy Statement. CAP reports directly to the O&CC and the O&CC has established procedures that it considers adequate to ensure that CAPs advice is objective and not influenced by management. These procedures include an agreement specifying what information can and cannot be shared with management. In addition, CAP regularly meets with the O&CC in executive session, without the presence of management. CAP provides only executive compensation consulting services.
At the O&CCs direction, CAP provided the following services:
| Evaluated the competitive positioning of our NEOs base salaries, annual incentive and long-term incentive compensation relative to our peers and compensation philosophy; |
| Advised the O&CC on CEO and other NEO target award levels within the annual and long-term incentive programs; |
| Reviewed our annual and long-term incentive programs to ensure they continue to be aligned with our philosophy, drive performance and consider market practices; |
| Briefed the O&CC on executive compensation trends among our peers and broader industry and compared them to our current practices; |
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 47
COMPENSATION DISCUSSION AND ANALYSIS
| Analyzed the results of the stockholder advisory say-on-pay vote; |
| Informed the O&CC on changes in the regulatory environment as they relate to executive compensation; |
| Reviewed the composition of our Peer Group; |
| Advised the O&CC on the performance measures and performance targets for the annual and long-term incentive programs and advised on the payout leverage (the extent of the pay opportunity and the degree of difficulty) for the plans; |
| Reviewed our total share usage and burn rate for the LTIP; |
| Conducted an assessment to determine whether any elements of our employee compensation programs create a potential incentive to take on excessive risk; |
| Advised on issues related to shareholder advisory groups; |
| Validated the pay for performance alignment of the compensation programs including considering the realizable pay for the CEO; |
| Evaluated our share ownership guidelines relative to our peers and broader industry; and |
| Reviewed and commented on this CD&A. |
In the course of conducting its activities, CAP attended five meetings of the O&CC in 2012 and presented its findings and recommendations for discussion.
Management also retains a compensation consultant, Pay Governance, to provide market compensation data for our officers, including the NEOs. This data is made available to CAP.
Compensation Risk Assessment
CAP, in consultation with management, conducted an update in 2012 to the comprehensive assessment of our compensation programs originally analyzed in 2010 and updated in 2011 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 our Company. 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 PresidentHuman Resources, participated in this process. Management and CAP reviewed this assessment with the O&CC. In addition, final decisions regarding our executive compensation policies and programs, as well as specific approval of individual NEO compensation, are determined by the O&CC, all of whose members are independent of management and, as appropriate, the full Board, all of whose members, except our CEO, are independent of management. Based on this review, the O&CC 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:
48 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Risk Assessment Factors
| There are strong governance processes and controls in place at the senior leadership levels under the oversight of the O&CC and, where appropriate, the full Board. |
| We provide a balanced total compensation package that includes fixed compensation (e.g., salary and benefits) and at-risk compensation (e.g., annual and long-term incentive). |
| There were no material changes to our incentive compensation plans since the original analysis in 2010. |
| Long-term incentives vest over a multi-year timeframe. |
| There are caps on the total amount of SMICP and LTIP incentive compensation that can be earned. |
| Multiple dimensions of performance are used in the incentive structure, including: |
| A balanced scorecard; |
| EPS for corporate financial performance; |
| Earnings for business unit performance; and |
| Key strategic and operational metrics that specifically address identified risks. |
| We use performance share units, with payout determined by: |
| ROIC; and |
| TSR compared to peers. |
| We use a consistent incentive framework for the entire organization. |
| Executives receive a significant portion of their compensation in the form of equity, which discourages them from making short-term decisions that may result in long-term harm to the organization. |
| Our stock ownership and retention policy further discourage this behavior and, under our insider trading policy, all transactions in our Common Stock by officers need pre-clearance by the General Counsels office. |
| We have a recoupment (clawback) policy, requiring forfeiture or repayment of incentive amount, resulting from misconduct, accounting restatement or breach of agreement. |
| Our corporate culture demands the highest level of ethical behavior and requires all employees to take ethics training annually. |
| We have policies in place to govern financial and enterprise risk, as discussed above in Risk Management Overview. |
Role of CEO
The CEO attends O&CC meetings, other than executive sessions. Other executive officers and internal compensation professionals may attend portions of O&CC meetings, as requested by the O&CC. The CEO recommends changes to the salaries of his direct reports (who include the NEOs). The CEO develops and the OCC 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 O&CCs discussions of those recommendations.
The design and effectiveness of compensation policies and programs are reviewed by the CEO in conjunction with CAP, and periodically in light of general industry practices and in comparison to the peer group trends. The CEO also reviews such compensation matters with our internal compensation professionals. Recommendations for changes are made to the O&CC as deemed appropriate by the CEO. The O&CC 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.
Recent O&CC Actions
The O&CC considered recommendations from CAP and management with regard to compensation design and effectiveness and reviewed competitive practices within our peer group. In addition, the O&CC monitors trends and developments in the market, with the assistance of CAP, as they relate to executive compensation. The O&CC took the following actions related to compensation:
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 49
COMPENSATION DISCUSSION AND ANALYSIS
| Reviewed our compensation program following the 2012 annual say-on-pay advisory vote of stockholders and determined that no material changes were needed, particularly in light of the more than 96% favorable vote for each of the last two years; |
| Approved salary increases for 2012 and 2013, to remain competitive with benchmarked peers; |
| Approved payouts under the SMICP and LTIP based on its assessment of CEO, NEOs and Company performance relative to pre-established goals; |
| Reviewed the peer group used for benchmarking compensation and performance and made no changes other than removing Constellation Energy Group and Progress Energy, as they were acquired in 2012 by others in the peer group; |
| Analyzed pay for performance by comparing our recent financial results with the compensation of our CEO and NEOs and found them to be appropriately aligned; |
| Reviewed our management succession plan and affirmed the approach and considered whether any compensation actions were needed to support the succession plan; |
| Reviewed our stock ownership guidelines and compliance and affirmed the standards; |
| Retained the SMICP annual target incentives for 2013 for NEOs and reduced the CEOs annual target incentive for 2013 to 120% from 125%, in view of the increase to his 2013 base salary; |
| Affirmed the current structure of the LTIP long-term incentive component, which is comprised of 60% performance share units and 40% restricted stock units; |
| Migrated LTIP grant timing to February of each year, starting with the February 2012 grants, in order to better align with peer practices and our business planning cycle; |
| Established 2013 performance targets for the NEOs under the SMICP, with 75% based on PSEG and business unit earnings results; |
| Reviewed the risk assessment conducted by CAP and management and determined that our compensation programs do not create a potential incentive for individuals, either NEOs or others, to take excessive risks which are reasonably likely to have a material adverse effect on us; |
| Approved an Amendment and Restatement of the LTIP without adding any shares to the amount authorized in 2004 and recommended that it be presented to shareholders for adoption at the 2013 Annual Meeting; and |
| Approved an Amendment and Restatement of the ESPP providing for a greater discount for non-union employees and recommended that it be presented to shareholders for adoption at the 2013 Annual Meeting. |
Trading Pre-clearance
Under our Insider Trading Practice, all of our officers, including the NEOs, are required to obtain pre-clearance from the Office of the General Counsel prior to engaging in any transaction involving our Common Stock. In addition, our Insider Trading Practice does not permit any such transactions except during open window periods. These are limited times following the public release of earnings and disclosure of material information.
Hedging and Pledging
We have a policy which prohibits officers, including NEOs, from hedging, short-selling or pledging our Common Stock.
Clawbacks
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. We anticipate adjusting the terms of our clawback policy to comply with the Dodd-Frank Act once further guidance is released from the SEC.
Employment Agreements
We have entered into agreements with Messrs. Levis, Mehrberg and Bouknight and Ms. Dorsa and a severance agreement with Mr. Izzo. These are discussed following the Grants of Plan-Based Award Table below.
50 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
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 by January 1 following the fifth anniversary of the date of the adoption of the Policy or the date they are elected or promoted. In addition to shares individually or jointly owned directly, through a broker or in Enterprise Direct or the ESPP, the following 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 share 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 Practice does not permit such hedging or pledging.
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 share unit awards and exercise of option grants, until his or her 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 received from equity awards granted after the ownership requirement has been met, 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 O&CC 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 requiring all or part of any SMICP or LTIP award to be held in shares. The O&CC 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 O&CC in making the 2012 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 19, 2013. Messrs. Izzo, Levis and LaRossa and Ms. Dorsa each have met their respective requirement as of their January 1, 2013 compliance date. The compliance date for Mr. Bouknight is January 1, 2015, and for Mr. Mehrberg it is January 1, 2014.
NEO | Multiple Required |
Required Amount |
Amount Held as of ($)(2) |
|||||||||
Izzo | 5 | 5,500,000 | 19,364,303 | |||||||||
Dorsa | 3 | 1,858,500 | 2,314,230 | |||||||||
Levis | 3 | 1,699,500 | 4,226,921 | |||||||||
Mehrberg | 3 | 1,684,200 | 1,654,089 | |||||||||
Bouknight | 3 | 1,637,700 | 1,317,660 | |||||||||
LaRossa | 3 | 1,500,000 | 3,142,560 |
(1) | Determined as of January 1, 2013, the effective date of the current salary of each of the NEOs. |
(2) | Based on average price of Common Stock for the twelve months preceding the effective date of the current base salary of the respective NEO. Does not include performance share units which vested December 31, 2012. |
Accounting and Tax Implications
The O&CC 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 Form 10-K) regarding the expensing of equity awards in determining the nature of the grants under the LTIP. The O&CC, 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 O&CC 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 SMICP was received at the 2004 Annual Meeting of Stockholders. As a result, payment of qualifying performance-based compensation under this plan is not now subject to the limitation on deductions contained in Section 162(m). Although stockholders approval of the LTIP was received at the 2004 Annual
PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement 51
COMPENSATION DISCUSSION AND ANALYSIS
Meeting of Stockholders, applicable IRC provisions require that stockholders give such approval at least every five years for performance-based compensation plans that permit the O&CC to change the criteria used from year to year. Since we have not subsequently sought such approval, the payments of performance share units made to the NEOs (except the CFO, to whom the deduction limitation is not applicable) in 2013 with respect to such LTIP grants made in 2009 for the three-year performance period ended December 31, 2012, are subject to the limitation on deductions. Any future payments, if earned, with respect to LTIP grants of performance share units made in 2010, 2011 and 2012 are likewise subject to this limitation. Further the O&CC believes that restricted stock and restricted stock units are valuable components of incentive compensation as they align the interest of the recipients with those of stockholders. However, because the vesting of such grants is not performance-based, restricted stock and restricted stock unit grants do not qualify for tax-deductibility under Section 162(m).
We are asking our shareholders to approve the Amended and Restated 2004 Long-Term Incentive Plan at this years Annual Meeting of Stockholders. If approval is received, future payments, if any are earned, on performance share units granted during the five-year period following such approval will not be subject to the limitation and should qualify for tax-deductibility under Section 162(m).
In 2012, none of our NEOs had compensation in excess of the amount deductible under Section 162(m) of the IRC. Amounts deferred by the NEOs are not included in the Section 162(m) calculations because they are not otherwise deductible under applicable tax law. The O&CC 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 Boards general policy is to present all incentive compensation plans in which executive officers participate to stockholders for approval prior to implementation.
52 PUBLIC SERVICE ENTERPRISE GROUP | 2013 Proxy Statement
EXECUTIVE COMPENSATION
2012 SUMMARY COMPENSATION TABLE
The following table summarizes the compensation of our NEOs for the years shown. The NEOs are our CEO, CFO and four most highly compensated executive officers in 2012.
Name and Principal Position(1) |
Year | Salary ($) (2) |
Bonus ($) |
Stock Awards ($)(3) |
Option Awards ($) |
Non-Equity Compensation ($)(4) |
Change
in ($)(5) |
All Other Compensation ($)(6,7) |
Total ($) |
|||||||||||||||||||||||
Ralph Izzo |
2012 | 1,004,715 | - | 5,724,001 | - | 1,653,800 | 2,064,000 | 67,027 | 10,513,543 | |||||||||||||||||||||||
Chairman of the Board, | 2011 | 946,450 | - | - | - | 1,535,400 | 1,710,000 | 185,306 | 4,377,156 | |||||||||||||||||||||||
President and CEO | 2010 | 946,450 | - | 5,726,042 | - | 1,113,900 | 1,384,000 | 63,422 | 9,233,814 | |||||||||||||||||||||||
Caroline Dorsa |
2012 | 595,691 | - | 1,099,985 | - |