Item 11
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EXECUTIVE COMPENSATION
Compensation/Human Resources Committee Report
The Compensation Committee reviewed and discussed with our management
the Compensation Discussion and Analysis, or the CD&A, required by Item 402(b) of Regulation S-K. Based on such review and
discussion, the Compensation Committee recommended to the Board that the CD&A be included in this Form 10-K/A.
Dated: February 19, 2016
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Paul M. Barbas, Chairman
Jack B. Dunn, IV
H. Russell Frisby, Jr.
Lester P. Silverman
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Messrs. Barbas, Dunn, Frisby and Silverman constituted the Compensation
Committee of the Board of Pepco Holdings immediately prior to the completion of the Merger. Upon the closing of the Merger each
of Messrs. Barbas, Dunn, Frisby and Silverman ceased to serve as directors of Pepco Holdings.
Compensation Discussion and Analysis
Executive Summary
The following is a brief overview of the more detailed discussion
and analysis set forth in this CD&A section, which focuses on compensation paid with respect to 2015 to each of the Company’s
executive officers who are named in the 2015 Summary Compensation Table (each, a named executive officer, or NEO). The NEOs include:
Name
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Title
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Joseph M. Rigby
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Chairman, President and Chief Executive Officer
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Frederick J. Boyle
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Senior Vice President and Chief Financial Officer
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David M. Velazquez
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Executive Vice President
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Kevin C. Fitzgerald
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Executive Vice President and General Counsel
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John U. Huffman
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President and Chief Executive Officer of Pepco Energy Services, Inc., our wholly owned subsidiary
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Exelon Merger Agreement
As discussed in the Explanatory Note, on July 18, 2014, Pepco
Holdings, Exelon and Merger Sub entered into the Merger Agreement, providing the terms and conditions pursuant to which
the companies would seek to complete the Merger. The Merger Agreement includes provisions for the treatment at the time of the
Merger of outstanding award opportunities under the Pepco Holdings Amended and Restated Annual Executive Incentive Compensation
Plan (EICP) and the Pepco Holdings 2012 Long-Term Incentive Plan (2012 LTIP). For more information, please refer to the descriptions
of the EICP and 2012 LTIP in “— Executive Compensation — Amended and Restated Annual Executive Incentive Compensation
Plan” and “— Executive Compensation — 2012 Long-Term Incentive Plan.” As further discussed in
the Explanatory Note, the Merger was completed on March 23, 2016.
Compensation Philosophy
Our executive compensation philosophy is straightforward: we
reward our executives for their contributions to our business and operational performance and stockholder value creation by tying
a significant portion of their total compensation directly to our short-term and long-term performance.
Our executive compensation program is designed
to:
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provide executives with competitive compensation opportunities and benefits;
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tie a significant portion of compensation to our operational and financial performance;
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align the financial interests of our named executive officers with those of the stockholders;
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provide rewards for executive performance that target recognized key drivers of performance in the utility industry;
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utilize performance metrics that serve to measure increases in value to our stockholders and reflect key operational and regulatory
criteria;
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strike a careful balance between risk and reward so as to not encourage executives to take excessive risk; and
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further ensure that executives’ interests are aligned with stockholders through the use of executive stock ownership
requirements.
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Pay for Performance
We have designed a compensation program that makes a substantial
percentage of executive pay variable, subject to payout or increase when performance goals are achieved or exceeded and forfeiture
or reduction when they are not achieved. Also, a significant portion of the compensation paid to our President and Chief Executive
Officer during 2015 was equity-based, which further aligns his compensation with the interests of our stockholders and provides
for compensation that is tied directly to the continued positive performance of the Company. See “— Executive Summary
— Highlights of Significant 2015 Compensation Actions” and “— Corporate Governance and Pay for Performance.”
2015 Business Results
During 2015, we continued to focus on the successful achievement
of our 2015 financial and operational objectives. For the year ended December 31, 2015, the Company reported consolidated
net income from continuing operations of $318 million, or $1.25 per share, as compared to $242 million, or $0.96 per share,
for the year ended December 31, 2014. Our core Power Delivery Business had net income from continuing operations of $302
million in 2015 compared to $320 million in 2014. Pepco Energy Services’ consolidated net income from continuing operations
was $4 million in 2015 as compared to net loss of $39 million in 2014.
During 2015, we also devoted a significant amount of our business
focus to supporting activities that are helping us comply with the many conditions necessary to close the Merger, including obtaining
required regulatory approvals.
2015 Operational Performance
Each year we track several key operating performance metrics,
including reliability, customer satisfaction and safety, each of which are among our core values and provide the basis upon which
certain of our compensation metrics are derived. In 2015, our performance exceeded the reliability standards set by each of our
regulatory jurisdictions. In addition, we had the best yearly reliability performance in the Company’s tracking history in
terms of both frequency and duration of outages. Our efforts to improve reliability are reflected in all three Pepco Holdings utilities’
strong ratings in 2015 for customer satisfaction with reliability. Delmarva Power & Light Company (DPL) had the highest rating
with a satisfaction level of 90 percent with reliability at year-end, Atlantic City Electric Company (ACE) followed with 88 percent,
and Pepco’s satisfaction level was 84 percent. Pepco Holdings' overall customer satisfaction score for 2015, calculated using
an average of the year’s four quarters, was 74 percent. After several years of encouraging performance in the safety area,
the 2015 rate for recordable injuries (as defined by the Occupational Safety and Health Administration (OSHA)) increased from 1.18
to 1.38 per 100 full-time employees. On a positive note, the statistics for lost time and severity of injuries decreased for the
year, and although the statistics for vehicle accidents increased in 2015, the majority were low-speed, low-impact events.
Highlights of Significant 2015 Compensation Actions
To further align compensation received by our named executive
officers with the interests of our stockholders and to reinforce good corporate governance practices, the Compensation Committee
approved the following actions related to our executive compensation programs in 2015:
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We increased base salaries in 2015 for each NEO, except for Mr. Rigby, with the goal of providing a level of fixed compensation
that is competitive with other comparable utilities.
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We entered into an Employment Extension Agreement with Mr. Fitzgerald (the Fitzgerald Extension Agreement), extending the term
of his employment to the earlier of (i) June 30, 2016, or (ii) the closing date of the Merger.
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Based upon discussions with our institutional stockholders, advice from the Compensation Committee’s independent compensation
consultant, and feedback received from a proxy advisory firm, we evaluated the metrics used under our long-term incentive plan
and determined to add return on invested capital (ROIC), along with relative total shareholder return (TSR), as equally-weighted
performance goals for the 2016 long-term performance-based awards under the 2012 LTIP.
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We continued the practice of using restricted stock units (RSUs), instead of restricted stock, for grants of annual time-based
awards, because the dividend equivalent payments awarded in respect of the RSUs will not vest except to the extent that the underlying
RSUs vest.
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We continued the practice of including compensation recovery (clawback) provisions in our equity award agreements.
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Throughout this CD&A section, unless the context otherwise
requires, with respect to compensation decisions involving our President and Chief Executive Officer, references to the “Compensation
Committee” shall mean the independent members of the Board, in most cases upon the recommendation of the Compensation Committee.
Base Salary
Base salary increases for our named executive officers have
been modest, ranging from 2.36% to 3.00% in 2015, and 2.01% to 2.55% in 2016, for those named executive officers receiving increases.
In accordance with the terms of that certain Employment Extension Agreement, dated April 29, 2014, by
and between Mr. Rigby and the Company (the Rigby Extension
Agreement), Mr. Rigby did not receive a base salary increase for 2015 or 2016. For a description of the Rigby Extension Agreement,
see “—Executive Compensation — Employment Agreements — Joseph M. Rigby.” While Mr. Fitzgerald received
a salary increase in 2015, in accordance with the terms of the Fitzgerald Extension Agreement, Mr. Fitzgerald did not receive
a base salary increase for 2016. For a description of the Fitzgerald Extension Agreement, see “—Executive Compensation
— Employment Agreements — Kevin C. Fitzgerald.” All salary increases were made consistent with the Company’s
compensation philosophy.
Annual Executive Incentive Compensation Plan
To recognize the efforts, contributions and accomplishments
of our executive team which led to the Company’s positive performance in 2015, in December 2015, the Compensation Committee
approved a partial cash payment to certain of our executives (other than Messrs. Rigby, Velazquez and Fitzgerald, who received
restricted stock in lieu of cash, and Mr. Huffman who received no partial payment or stock settlement as it was unclear at such
time whether his performance targets would be met) of 2015 EICP awards in amounts that reflected 75% of target level of performance
(no partial payments were made to energy services executives of Pepco Energy Services). These awards were subject to clawback to
the extent that this level of performance was not ultimately achieved.
In February 2016, the Compensation Committee made a final
determination that the 2015 EICP awards were earned at levels ranging from 0.0% to 124.5%, based on the performance criteria set
forth in these awards, and the amount of each EICP award that exceeded 75% of target was paid to each executive in cash.
Long-Term Incentive Plans
The Compensation Committee determined to settle and pay time-based
RSU awards with respect to the 2013 to 2015 cycle in shares of common stock on December 31, 2015. In this regard, the Compensation
Committee determined on December 31, 2015, the last day of the 2013 to 2015 performance period, that the performance-based
RSU awards for that performance period were earned at approximately the 74th percentile, or at a level of 147.37%, based on relative
TSR.
Based upon discussions with our institutional stockholders,
advice from the Compensation Committee’s independent compensation consultant, and feedback received from a proxy advisory
firm, the Compensation Committee evaluated the metrics used under our long-term incentive plan and determined to add ROIC, along
with relative TSR, as equally-weighted performance goals for the 2016 long-term performance-based awards under the 2012 LTIP.
For 2015, the Company granted to Mr. Fitzgerald performance-based
RSU awards pursuant to the terms of his employment agreement. This award featured performance criteria and goals tied to key regulatory
and business initiatives that the Company believes are drivers of its operational success, and in turn, positive financial performance
and creation of stockholder value. In February 2016, the Compensation Committee determined that 80% of Mr. Fitzgerald’s
award vested based upon his performance under each of the goals. However, pursuant to the terms of these awards, no shares will
be issued in settlement of these awards until the day after Mr. Fitzgerald’s employment with the Company terminates.
Employment Extension Agreement with Mr. Fitzgerald
On September 11, 2015, the Company entered into the Fitzgerald
Extension Agreement with Mr. Fitzgerald, extending the term of his employment to the earlier of (i) June 30, 2016, (ii) the
closing date of the Merger or (iii) the date that is six months after the termination of the Merger Agreement (the
Fitzgerald Extension
Period). The Compensation Committee determined to extend Mr. Fitzgerald’s employment due to his ongoing involvement
in obtaining the remaining regulatory approvals required to complete the Merger. As discussed above, the Merger was completed on
March 23, 2016.
The Fitzgerald Extension Agreement was effective on September 17,
2015, the expiration date of Mr. Fitzgerald’s original employment agreement, dated September 7, 2012 (the Fitzgerald Employment
Agreement). The Fitzgerald Extension Agreement provides that during the Fitzgerald Extension Period the terms of Mr. Fitzgerald’s
employment arrangements will remain the same as those in effect under the Fitzgerald Employment Agreement. In addition, under the
terms of the Fitzgerald Extension Agreement, the termination of Mr. Fitzgerald’s employment at the end of the Fitzgerald
Extension Period would constitute a “Qualifying Termination” under the Pepco Holdings Amended and Restated Change-in-Control
/ Severance Plan for Certain Executive Employees (the CIC Plan), which will entitle Mr. Fitzgerald to receive (i) a severance payment
equal to the sum of (A) his then-current annual salary, and (B) the full amount of his target annual bonus under the EICP; and
(ii) such other benefits specified by the CIC Plan.
Say on Pay
In connection with the annual meeting of stockholders in December
2015, we submitted our say on pay proposal to our stockholders for an advisory vote. The proposal received the support of the holders
of 62.6% of the shares of common stock present and eligible to vote at the annual meeting.
At our 2011 annual meeting of stockholders, our stockholders
indicated their preference, on an advisory basis, that the say on pay proposal be submitted annually for an advisory vote rather
than every two or three years. In response, the Board determined to hold an annual advisory say on pay vote.
2015 Stockholder Outreach Efforts
In connection with 2015 stockholder outreach efforts, we contacted
stockholders owning collectively approximately 40% of the Company’s outstanding shares. While the purpose of these discussions
was to address executive compensation matters and corporate governance, the primary focus of the stockholders was on the pendency
of our proposed Merger with Exelon. During these discussions, no significant concerns were raised by any stockholder regarding
executive compensation or corporate governance matters. The comments received from stockholders reflected general support for
the Company’s compensation philosophy and approach to executive compensation, but a lower level of enthusiasm for the special
retention equity awards made in 2014 in connection with the proposed Merger. The Compensation Committee granted these awards in
order to ensure retention of the Company’s leadership throughout the Merger process, and does not view such awards as a
routine component of the Company’s compensation program. Excluding the retention grants made in light of the extraordinary
situation of the pending Merger and the previously announced retirement of our CEO, the Compensation Committee believes
that the Company’s compensation program achieves each of the objectives for which it was designed, including the alignment
of the financial interests of the Company’s named executive officers with those of stockholders. In addition, in furtherance
of its ongoing efforts to align executive compensation with long-term shareholder value, the Company also engaged with stockholders
regarding possible changes to its long-term incentive program metrics for calendar year 2016. In the course of its decision-making
process for 2016 as discussed herein, the Compensation Committee considered the views of stockholders, proxy advisory policies,
peer group practices and advice from its independent compensation consultant.
Compensation Objectives and Philosophy
The objectives of our executive compensation program are to
attract, motivate and retain talented executives while promoting the interests of the Company and its customers and stockholders.
The core of our compensation philosophy is to reward executives for the achievement by the Company and its business segments of
targeted levels of operational excellence and financial performance and for the achievement of individual performance goals.
As a company that owns three public utilities with operations
focused on the transmission and distribution of electricity, and, to a lesser extent, natural gas, substantially all of our revenues
and net income are derived directly from our utility subsidiaries’ ability to earn their allowed rates of return as determined
through distribution base rate case decisions rendered by the applicable public service commission. The Compensation Committee
believes that positive rate case outcomes stem from our ability to meet or exceed reliability requirements established by our regulators
and customer satisfaction in our service territories with the services provided. These positive rate case outcomes also represent
the single greatest factor driving the Company’s financial results, and in turn, stockholder value. In light of these considerations,
our compensation philosophy rewards our executives when their performance contributes to the achievement by our utilities of key
operational, reliability and customer satisfaction metrics, as well as when stockholder value increases, as measured by reference
to our stock price and dividend yield.
Our executive compensation program is designed
to:
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target median pay practices;
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provide executives with competitive compensation opportunities and benefits consistent with comparable companies in our industry;
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tie a significant portion of the total compensation of our executives to our short-term and long-term operational and financial
performance;
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align the financial interests of our named executive officers with those of the stockholders with compensation that is substantially
variable, that is, subject to payout or increase when corporate targets are achieved or exceeded and forfeiture or reduction when
corporate targets are not achieved;
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provide rewards for executive performance that target key drivers of performance in the utility industry, the achievement of
which we believe directly contributes to our long-term financial health and is responsible for creating long-term value for our
stockholders;
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utilize performance metrics that not only serve to measure increases in value to our stockholders, but also reflect operational
and regulatory criteria that are important to the successful resolution of our utility subsidiaries’ base rate cases, as
well as to our regulators, customers and other stakeholders;
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strike a careful balance between risk and reward so as to not encourage executives to take excessive risk which could have
a material adverse impact on our business, operations and financial results; and
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ensure that executives’ interests are aligned with stockholders through the use of executive stock ownership requirements
of between one and five times base salary, depending on the executive’s position.
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Corporate Governance and Pay for Performance
The cornerstones of our 2015 compensation program are the Company’s
compensation governance framework and pay-for-performance philosophy, which includes the following features:
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We have established a pay-for-performance environment by linking short-term and long-term incentive-based compensation to the
achievement of measurable business and individual performance goals.
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Our executive compensation program continued to focus on both long-term and short-term performance, and to emphasize at-risk
over fixed compensation.
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Our Compensation Committee regularly receives advice on pay composition and levels of compensation from an independent compensation
consultant.
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Base salary increases for the named executive officers are generally modest, and we evaluate base salaries and increases by
reference to a named executive officer’s performance and position, as well as to the salary range for that position.
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Historically,
as part of our equity-based long-term compensation, we have utilized a combination of
time- and performance-based RSUs as a means to align the interests of our named executive
officers with those of our stockholders. In light of the initially anticipated closing
of the Merger in the second or third quarter of 2015, we utilized equity-based, long-term
incentive compensation in the form of time-based RSUs in 2015 in order to retain key
employees through either the closing or termination of the Merger.
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We have not granted stock options since 2002 and no named executive officer holds any Pepco Holdings stock options.
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We believe that the reliability of utility service and the positive performance of our utilities have a direct impact on our
financial success. Public utility commissions view our utilities’ performance and acceptable levels of compensation through
the lens of specific operating metrics. We believe our use of these metrics as a part of incentive compensation performance goals
supports our mission to seek positive relationships with our regulators, customers and other stakeholders. As a result, we have
continued to incorporate critical utility operating metrics into our short-term and long-term incentive awards as permitted by
the relevant plans.
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We have a common stock ownership requirement that applies to all of our named executive officers, except Mr. Huffman,
who is not an officer of the Company. Each of these officers has satisfied this requirement.
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We provide our named executive officers with reasonable amounts of perquisites and personal benefits compared to their total
compensation.
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We maintain a strong risk management program which includes our Compensation Committee’s ongoing evaluation and oversight
of the relationship between our compensation programs and risk.
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We will recoup certain incentive compensation payments made to our Chief Executive Officer and Chief Financial Officer when
required under the Sarbanes-Oxley Act.
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Employment agreements and award agreements for all executives under the 2012 LTIP include clawback provisions intended to satisfy
the requirements of the Sarbanes-Oxley Act, and, when implemented, the Dodd-Frank Act.
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We have adopted “no hedging”, “no pledging” and “no margining” policies that apply to all
of our directors, officers and certain other employees.
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The Compensation Process
The Compensation Committee is responsible for all executive
compensation decisions with respect to each of the named executive officers, except for Mr. Rigby’s compensation, which
is approved by all of the independent directors, in most cases based on the recommendation of the Compensation Committee.
To assist it in carrying out its responsibilities, the Compensation
Committee requests and receives recommendations from the Chief Executive Officer with respect to the compensation packages of the
other named executive officers, including the selection and weighting of the specific performance objectives applicable to short-term
and long-term incentive awards.
When structuring compensation arrangements for the named executive
officers and other executives, the Compensation Committee typically receives advice from its independent compensation consultant
concerning pay mix and levels of compensation, as well as information with respect to the financial costs and tax and accounting
consequences associated with the various elements of compensation. Since 2007, the Compensation Committee has engaged Pearl Meyer
& Partners, referred to as Pearl Meyer, as its independent compensation consultant to advise it on various executive compensation
matters. Pursuant to this engagement, Pearl Meyer annually:
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attends Compensation Committee meetings and provides advice to the Compensation Committee, including a review of materials
related to the meeting;
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conducts peer group reviews and periodically provides benchmarking analyses for the Compensation Committee as requested;
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analyzes certain compensation practices of the companies in our peer group;
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reviews and advises the Compensation Committee on compensation metrics and proposed changes to such metrics;
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upon request of the Compensation Committee, prepares an update on executive compensation trends and changes in proxy advisory
firm policies;
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provides advice on compensation packages and proposed new salary ranges to be provided to Company executives, as well as total
executive compensation, as requested by the Compensation Committee;
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conducts pay-for-performance analyses; and
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provides other various industry and compensation data, as may be requested by the Compensation Committee from time to time.
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Compensation Levels and Benchmarking
Compensation levels for our NEOs are determined based on a number
of factors, including the individual’s roles and responsibilities within the Company, the individual’s experience,
pay levels in the marketplace for similar positions and performance of the individual and the Company as a whole.
The Compensation Committee uses Company-prepared tally sheets
for each named executive officer to assist it in its annual compensation review process. The tally sheet identifies each material
element of the named executive officer’s compensation, including salary, short-term and long-term incentive compensation
opportunities, pension accruals and other benefits, and shows the severance and other payouts to which the executive would be entitled
under various employment termination scenarios. The tally sheet allows the Compensation Committee to review the totality of each
named executive officer’s compensation.
Based on benchmarking data provided by Pearl Meyer, as well
as other data sources, the Compensation Committee assesses competitive market compensation practices. One of the primary ways the
Compensation Committee evaluates the Company’s executive compensation arrangements relative to other companies is to compare
the Company’s practices to a group of companies that are primarily electricity and natural gas distribution companies with
similar amounts of assets and revenues, and similar market capitalization. The composition of this group of peer companies is reassessed
annually and its composition may be changed by the Compensation Committee from year to year to reflect corporate
transactions or other events that may affect the comparability
of one or more of the constituent companies.
For 2015, the Utility Peer Group consisted of the 18 companies
listed below, which we refer to as the 2015 Utility Peer Group. At December 31, 2015, the Company ranked at the 37th percentile
in total assets and at the 21st percentile in market capitalization, relative to the companies that comprised the 2015 Utility
Peer Group.
2015 Utility Peer Group
Alliant Energy Corporation
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Eversource Energy
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Public Service Enterprise Group
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Ameren Corporation
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Great Plains Energy Incorporated
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SCANA Corporation
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CenterPoint Energy, Inc.
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OGE Energy Corp.
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TECO Energy, Inc.
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CMS Energy Corporation
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Pinnacle West Capital Corporation
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WEC Energy Group, Inc.
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Consolidated Edison, Inc.
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Portland General Electric Company
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Westar Energy, Inc.
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DTE Energy Company
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PPL Corporation
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Xcel Energy Inc.
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Based on discussions with Pearl Meyer, aside from the removal
of TECO Energy, Inc. due to its pending merger with Emera Inc., the Compensation Committee did not make any changes on the composition
of the Utility Peer Group for 2016.
Components of the Executive Compensation Program
The main components of the Company’s executive compensation
program for its executives (currently consisting of 59 persons), including the named executive officers, are set forth in the following
table. A more detailed description is provided in the sections below.
Element
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Purpose
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Key Characteristics
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Base Salary
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Provides a fixed level of compensation for an executive to perform the essential elements of the job.
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Based on a combination of factors, including the executive’s
level of experience, tenure with the Company in the position and performance.
Reviewed annually and adjusted when appropriate based on competitive
and other factors.
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Discretionary Bonuses
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Awarded where extraordinary efforts or special circumstances warrant.
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Cash payment that is awarded in rare instances at the discretion of the Compensation Committee.
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Annual Cash Incentive
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Motivates executives to achieve targeted financial results and operational goals, which in turn drives stockholder value.
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Opportunity to earn between zero and 180% of target, which is
equal to a percentage of the executive’s annual base salary.
Performance metrics consist of financial and operational criteria
chosen to support the Company’s mission to seek positive relationships with regulators, customers and other stakeholders.
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Element
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Purpose
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Key Characteristics
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Long-Term Performance-Based RSU Awards
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Rewards executives for strong long-term financial and stock price performance.
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Aligns executives’ financial interests with the long-term
interests of stockholders.
Three-year vesting and subject to forfeiture, with certain exceptions,
if the employment of the executive terminates before the end of the three-year period.
Historically utilized relative TSR as sole performance metric.
For 2016 grants, ROIC was added as an additional performance metric.
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Long-Term Time-Based RSU Awards
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Promotes retention of key employees.
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Three-year vesting and subject to forfeiture, subject to certain exceptions, if the employment of the executive terminates before the end of the three-year period.
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Retirement Programs
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Promotes retention of key employees.
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Generally provides retirement benefits to employees with at
least five years of service.
Supplemental retirement plans provide executives with competitive
benefits, protect against reductions in benefits, which is effective in attracting new executives and encouraging continued employment.
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Health and Welfare Benefits
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Assists in recruitment and promotes retention
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With certain exceptions, executives participate in the Company’s health care, life insurance and disability insurance plans on the same terms as other Company employees.
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Other Perquisites and Personal Benefits
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Assists in recruitment and promotes retention.
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Type and amount of benefits are limited and reasonable in relation to overall compensation and are competitive with peer companies.
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Deferred Compensation
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Promotes retention and allows executives to save for retirement in a tax-effective way.
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Permits participating executives the option to defer the receipt of all or any portion of their salary and annual incentive compensation.
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Compensation Mix
The following charts highlight elements of the compensation
mix for our Chief Executive Officer, as well as our other named executive officers on an average basis, using data contained in
our 2015 Summary Compensation Table.
Consistent with our pay-for-performance philosophy, the percentages
of each named executive officer’s at-risk compensation as compared to fixed compensation are designed to reflect the Compensation
Committee’s view that a significant percentage of each named executive officer’s compensation should be at-risk and
tied to Company, business unit or individual performance. Furthermore, the Compensation Committee generally believes that, as the
level of an executive’s overall responsibility increases, the percentage of the executive’s compensation that is at-risk
should likewise increase.
The following charts show the relationship of at-risk to fixed
compensation with respect to our Chief Executive Officer, as well as our other named executive officers on an average basis. For
purposes of these charts, fixed compensation is composed of base salary, and at-risk compensation is composed of EICP awards paid
with respect to 2015 performance and the grant date fair value of equity awards granted under the 2012 LTIP during 2015, based
on data contained in our 2015 Summary Compensation Table.
Base Salary
The Compensation Committee considers adjustments to base salary
levels annually and also may consider base salary adjustments in connection with promotions and other special circumstances. The
respective employment extension agreements for each of Messrs. Rigby and Fitzgerald provide for a fixed base salary. Accordingly,
neither Mr. Rigby’s nor Mr. Fitzgerald’s base salary was increased for 2016.
In order to provide greater consistency within the Company,
the Compensation Committee has developed base salary levels for the named executive officers and assigned a level to each position
based primarily on the decision-making responsibility associated with the position and market practice. Each base salary level
has a range, with the midpoint of the range fixed at approximately the median of the competitive range as determined by a market
survey of salary levels for comparable positions. Each named executive officer’s base salary is determined based on a combination
of factors, including the executive’s level of experience, tenure with the Company in the position and performance; however,
in reviewing these factors, the Compensation Committee has the discretion to select a base salary for a named executive officer
that is outside the base salary range. The Compensation Committee annually considers adjustments to the base salary range for each
salary level and to individual salaries, as well as adjustments for particular executives, based upon competitive and other factors.
The Compensation Committee, and in the case of Mr. Rigby,
the independent directors, have approved the following base salaries for each of the named executive officers:
Name
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2016
Base
Salary
Level
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2015
Base
Salary
Level
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2014
Base
Salary
Level
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Joseph M. Rigby
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$ 1,015,000
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$ 1,015,000
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$ 1,015,000
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Frederick J. Boyle
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528,000
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515,000
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500,000
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David M. Velazquez
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563,000
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549,000
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534,000
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Kevin C. Fitzgerald
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563,000
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563,000
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550,000
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John U. Huffman
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406,000
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398,000
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388,000
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2015 Base Salary Determinations
Based on published compensation data obtained from Pearl Meyer,
the Compensation Committee approved a merit budget increase equal to 3% of total base salaries, which it allocated among the executive
group. Base salary increases for the Company’s named executive officers described below resulted in 2015 salaries ranging
from 98.1% to 111.5% of the midpoint of the competitive range for comparable positions within the Utility Peer Group.
Mr. Rigby’s 2015 base salary remained at the same
level as in 2014 in accordance with the terms of the Rigby Extension Agreement. With regard to Mr. Rigby’s 2014 performance,
the Compensation Committee acknowledged:
|
Ø
|
Mr. Rigby’s strong performance in executing plans to improve and enhance reliability and customer service, and executing
the Company’s business strategy, including regulatory and Smart Grid initiatives; and
|
|
Ø
|
Mr. Rigby’s leadership, evidenced by:
|
|
o
|
his oversight of the Company through the Merger negotiation process with Exelon and others;
|
|
o
|
regulatory strategy changes designed to obtain the requisite Merger approvals; and
|
|
o
|
strategies implemented to continue to address improvements in reliability and customer satisfaction and enhanced regulatory
relationships with the goal of achieving more positive rate case outcomes.
|
The Compensation Committee increased Mr. Boyle’s
2014 base salary by 3.00% for 2015. In approving the base salary increase for Mr. Boyle, the Compensation Committee noted:
|
Ø
|
his performance in executing the Company’s strategic, financing and regulatory plans;
|
|
Ø
|
his efforts in leading the Merger financial analysis process and navigating the accounting and benefits implications of the
Merger; and
|
|
Ø
|
his leadership of the global tax settlement process.
|
The Compensation Committee increased Mr. Velazquez’s
2014 base salary by 2.81% for 2015. In approving the base salary increase for Mr. Velazquez, the Compensation Committee noted:
|
Ø
|
his continued efforts in executing plans to improve and enhance reliability and customer service, including the District of
Columbia power line undergrounding initiative;
|
|
Ø
|
his involvement in implementation efforts related to the Company’s integrated customer information system;
|
|
Ø
|
his efforts to advance the Company’s activities with respect to cybersecurity; and
|
|
Ø
|
his key role in various regulatory proceedings and public meetings related to rate case filings and the Merger.
|
The Compensation Committee believed that this increase was warranted
in light of Mr. Velazquez’s significant contributions to the Company’s utility operations during 2014.
The Compensation Committee increased Mr. Fitzgerald’s
2014 base salary by 2.36% for 2015.
In approving the base salary increase for Mr. Fitzgerald, the Compensation Committee
noted his performance during the year, including:
|
Ø
|
his leadership of the Company’s legal department; and
|
|
Ø
|
his oversight of several key legal initiatives, including:
|
|
o
|
the Merger negotiation and approval process; and
|
|
o
|
various regulatory proceedings.
|
The Compensation Committee increased Mr. Huffman’s
2014 base salary by 2.58% for 2015. The Compensation Committee also considered Mr. Huffman’s achievements in 2014, including:
|
Ø
|
the improved financial performance of Pepco Energy Services;
|
|
Ø
|
the growth of its underground transmission and distribution construction business; and
|
|
Ø
|
Mr. Huffman’s leadership of issues related to the Atlantic City economy and Pepco Energy Services’ thermal
business.
|
2016 Base Salary Determinations
Based on published compensation data obtained from Pearl Meyer,
the Compensation Committee approved a merit budget increase equal to 2.5% of total base salaries, which it allocated among the
executive group. Base salary increases for the Company’s named executive officers described below resulted in 2016 salaries
ranging from 96.2% to 109.3% of the midpoint of the competitive range for comparable positions within the Utility Peer Group.
Mr. Rigby’s 2016 base salary remained at the same
level as in 2014 and 2015 in accordance with the terms of the Rigby Extension Agreement. With regard to Mr. Rigby’s 2015
performance, the Compensation Committee acknowledged:
|
Ø
|
Mr. Rigby’s strong performance in executing plans to improve and enhance reliability and customer service, and executing
the Company’s business strategy, including regulatory and Smart Grid initiatives; and
|
|
Ø
|
Mr. Rigby’s leadership, evidenced by:
|
|
o
|
his oversight of the Company through the Merger regulatory process;
|
|
o
|
negotiations with Exelon and the District of Columbia government regarding the settlement agreement and the extension of the
Merger Agreement; and
|
|
o
|
regulatory strategy changes designed to obtain the requisite Merger approvals and to address the denial of the merger application
in the District of Columbia with the goal of obtaining a settlement agreement with the District of Columbia government and other
parties opposing the Merger.
|
The Compensation Committee increased Mr. Boyle’s
2015 base salary by 2.52% for 2016. In approving the base salary increase for Mr. Boyle, the Compensation Committee noted:
|
Ø
|
his performance in executing the Company’s strategic, financing and regulatory plans;
|
|
Ø
|
his efforts in leading the Merger financial analysis process and navigating the accounting and benefits implications of the
Merger; and
|
|
Ø
|
his leadership of the global tax settlement process.
|
The Compensation Committee increased Mr. Velazquez’s
2015 base salary by 2.55% for 2016. In approving the base salary increase for Mr. Velazquez, the Compensation Committee noted:
|
Ø
|
his continued efforts in executing plans to improve and enhance reliability and customer service;
|
|
Ø
|
the achievement of key integration initiatives related to the Merger;
|
|
Ø
|
his oversight of the successful implementation of the Company’s new integrated customer information system;
|
|
Ø
|
his efforts to advance the Company’s activities with respect to cybersecurity; and
|
|
Ø
|
his sound management of the operating budgets of the Company’s utility subsidiaries.
|
The Compensation Committee believed that this increase was warranted
in light of Mr. Velazquez’s significant contributions to the Company’s utility operations during 2015.
Mr. Fitzgerald’s 2016 base salary was retained at
the same level as in 2015 in accordance with the terms of the Fitzgerald Extension Agreement.
The Compensation Committee
noted his performance during the year, including:
|
Ø
|
his leadership of the Company’s legal department; and
|
|
Ø
|
his oversight of several key legal initiatives, including:
|
|
o
|
negotiations with Exelon and the District of Columbia government regarding the settlement agreement and the extension of the
Merger Agreement; and
|
|
o
|
various regulatory proceedings in connection with the Merger.
|
In light of the foregoing, the Compensation Committee approved
a non-base payment of $15,000 to Mr. Fitzgerald for his performance in 2015.
The Compensation Committee increased Mr. Huffman’s
2015 base salary by 2.01% for 2016. The Compensation Committee also considered Mr. Huffman’s achievements in 2015, including:
|
Ø
|
the improved financial performance of Pepco Energy Services;
|
|
Ø
|
the growth of the underground transmission and distribution construction business; and
|
|
Ø
|
Mr. Huffman’s leadership of issues related to Pepco Energy Services’ thermal business in light of the downturn
in the Atlantic City economy.
|
Annual Cash Incentive Awards under the EICP
Overview of the EICP
In 2015, the Company provided its executives, including the
named executive officers, with an opportunity to receive an annual cash incentive award under the EICP. For each participating
executive, a target short-term incentive opportunity was established, which is equal to a percentage of the executive’s annual
base salary. Each executive’s EICP opportunity percentage was determined by the Compensation Committee based upon compensation
benchmarking for such position and was intended to place the executive’s total cash compensation opportunity (consisting
of annual base salary and target annual incentive compensation) at a level approximating the midpoint of the competitive range
for that position. Annual cash incentive awards were made under the EICP to the extent performance goals established by the Compensation
Committee were achieved.
The performance criteria used as the basis for awards and the
specific targets can vary from year to year, and may consist entirely, or be a combination, of financial and operational performance
objectives for the Company as a whole or performance objectives for a particular business unit. The performance criteria and goals
for the Company and the respective business units are selected to reward the executive for the achievement of targeted financial
results and operational goals, which are believed to impact regulatory outcomes in rate cases. Some executives also have individual
performance objectives designed to align the executive’s award opportunity with the executive’s individual management
responsibilities. Generally, the financial targets are based on the Company’s annual financial plan. Other quantitative targets
are set at levels that, in most cases, exceed the level of performance in prior years.
A payment of an award under the EICP may be made only if the
performance goals for the award have been determined by the Compensation Committee to have been satisfied. Except with respect
to executives who are covered by Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code), the Compensation Committee
retains the discretion to adjust awards under the EICP, either up or down (up to 30%), taking into account such factors and circumstances
as it determines to be appropriate. The Compensation Committee may not adjust an award with respect to an executive covered by
Section 162(m) of the Code if the adjustment would prevent such payment from being performance-based compensation as defined thereunder.
2015 EICP Award Opportunities
In 2015, each of the named executive officers was granted an
opportunity to earn a cash incentive award under the EICP. Regardless of an executive’s performance, the award may not exceed
180% of the target award opportunity. The target award opportunity granted in 2015 under the EICP, as a percentage of annual base
salary, for each of the eligible named executive officers was as follows:
Name
|
|
|
Target Award
Opportunity as a
Percentage of Annual
Base Salary
(%)
|
Joseph M. Rigby
|
|
|
|
|
100
|
|
Frederick J. Boyle
|
|
|
|
|
60
|
|
David M. Velazquez
|
|
|
|
|
60
|
|
Kevin C. Fitzgerald
|
|
|
|
|
60
|
|
John U. Huffman
|
|
|
|
|
60
|
|
These 2015 award opportunities are shown in the 2015 Grants
of Plan-Based Awards table under the heading “Estimated Future Payouts Under Non-Equity Incentive Plan Awards.”
2015 EICP Performance Criteria
The performance criteria for EICP award opportunities granted
in 2015 to our named executive officers consisted of both financial and operational performance criteria. We believe that the reliability
of utility service and the positive performance of our utilities have a direct impact on our financial success. Public utility
commissions view our utilities’ performance and acceptable levels of compensation through the lens of specific operating
metrics. We believe our use of these operating metrics as a part of incentive compensation performance goals supports our mission
to seek positive relationships with our regulators, customers and other stakeholders.
The financial performance criteria for 2015 EICP award opportunities
were selected from the following:
2015 EICP
Financial
Performance
Criteria
|
|
Description/Definition
|
|
Purpose
|
|
Applicable
NEO(s)
|
Pepco Holdings adjusted earnings per share (EPS) or
Utility adjusted EPS or
Pepco Energy Services adjusted EPS
|
|
Adjusted EPS is based on Pepco Holdings consolidated net income
(or the consolidated net income from our utility subsidiaries, or Pepco Energy Services), after adjustments, divided by the diluted
weighted average shares outstanding.
Achieving at least the threshold target for adjusted EPS is
required for an EICP award to be earned.
|
|
This goal rewards the executive for financial performance of Pepco Holdings, its utility subsidiaries or Pepco Energy Services.
|
|
Pepco Holdings adjusted EPS for Messrs. Rigby, Boyle
and Fitzgerald
Utility adjusted EPS for Mr. Velazquez
Pepco Energy Services adjusted EPS for Mr. Huffman
|
Power Delivery operation and maintenance (O&M) expenses, as compared to budget
|
|
Measures the amount of transmission and distribution O&M expenses in our Power Delivery segment, excluding accruals for Pepco Holdings’ cash incentive programs.
|
|
Pepco Holdings’ ability to keep the amount of O&M expenditures below budget is one way we evaluate the financial performance of Power Delivery operations. The level of O&M expenditures directly impacts the level of earnings, and thus maintaining O&M spending within budgeted amounts helps contribute to the achievement of our earnings goals.
|
|
Mr. Velazquez
|
Core capital expenditures, as compared to budget
|
|
Measures our capital expenditures, excluding expenditures on long-term, multi-year projects which are managed on a total cost basis.
|
|
The use of prudently deployed and controlled capital expenditures is an important way for Pepco Holdings’ utilities to achieve improved reliability, connect new customers and replace aging infrastructure. Completion of capital improvements within budgeted amounts is critical to Pepco Holdings’ financial and operating performance.
|
|
Mr. Velazquez
|
2015 EICP
Financial
Performance
Criteria
|
|
Description/Definition
|
|
Purpose
|
|
Applicable
NEO(s)
|
Gross margin value of new energy services construction (ESCO) contracts signed
|
|
Means the gross margin value of energy efficiency and combined
heat and power contracts signed during 2015. For O&M contracts, gross margin beyond 2019 has been excluded as it is beyond
a five-year planning horizon.
The gross margin value of new ESCO contracts signed during 2015
reflects the amount of gross profit we expect to earn from these contracts.
|
|
This metric is used to assess the strength of the ESCO business development efforts during the year.
|
|
Mr. Huffman
|
Gross margin percentage from energy efficiency construction contracts
|
|
Means the gross margin percentage of energy efficiency construction contracts in place in 2015. Gross margin percentage is calculated by dividing the gross margin by the total revenues generated by these contracts.
|
|
This metric is used to measure whether Pepco Energy Services is achieving the expected profitability of its energy efficiency construction contracts.
|
|
Mr. Huffman
|
Contracted revenue for underground transmission and distribution construction and maintenance contracts signed during 2015
|
|
Means the total amount of contracted revenue under these contracts.
|
|
This metric is used to track the amount of new contract activity that this business has generated during the year.
|
|
Mr. Huffman
|
The operational performance criteria for 2015 EICP award opportunities
were selected from the following:
2015 EICP
Operational
Performance
Criteria
|
|
Description/Definition
|
|
Purpose
|
|
Applicable
NEO(s)
|
Residential utility customer satisfaction
|
|
Overall customer satisfaction during 2015 is measured quarterly by Market Strategies International, an independent market research firm (MSI), using a statistically significant, industry standard methodology.
|
|
Public service commissions formulate decisions regarding utility base rate cases based upon, in significant part, the views expressed by utiliity customers about Pepco Holdings’ utilities.
|
|
Mr. Rigby
Mr. Boyle
Mr. Velazquez
Mr. Fitzgerald
|
2015 EICP
Operational
Performance
Criteria
|
|
Description/Definition
|
|
Purpose
|
|
Applicable
NEO(s)
|
Compliance
|
|
We measure the compliance goal with respect to specific elements of our compliance with standards of the North American Electric Reliability Corporation (NERC), which is responsible for ensuring the reliability of the bulk power system.
|
|
The Federal Energy Regulatory Commission (FERC), which determines the return on equity on transmission assets we own, considers NERC compliance in making this determination. Furthermore, since NERC is charged with overseeing the reliability of the bulk power system, compliance with NERC requirements is an important part of Pepco Holdings’ efforts to maintain and protect that system.
|
|
Mr. Velazquez
|
On-time ESCO project completion rate
|
|
Means the percentage of energy efficiency and combined heat and power contracts projects completed during 2015 on schedule, which is defined as being 99% complete and with all punchlist items completed.
|
|
This metric is used as an efficiency metric to measure the ability of Pepco Energy Services to complete its projects on a timely basis.
|
|
Mr. Huffman
|
SAIDI and SAIFI
|
|
SAIDI stands for “system average interruption duration
index,” and it measures the amount of time our average electricity customer is without service over a specified period of
time.
SAIFI stands for “system average interruption frequency
index,” and it measures the number of sustained outages the average electricity customer has experienced over a specified
period of time.
Transmission and distribution system reliability performance
targets are set internally based on mandated requirements in our various service territories as well as recent historical performance.
|
|
SAIDI and SAIFI are objective, quantifiable metrics used by our public service commissions to measure the reliability of the distribution system. These metrics are part of the mandated reliability standards against which Pepco Holdings’ utilities are measured by applicable public service commissions in its electric distribution base rate cases.
|
|
Mr. Rigby
Mr. Boyle
Mr. Velazquez
Mr. Fitzgerald
|
2015 EICP
Operational
Performance
Criteria
|
|
Description/Definition
|
|
Purpose
|
|
Applicable
NEO(s)
|
Safety
|
|
This goal measures the number or rate of “recordable injuries” (as defined by OSHA) in the calendar year, and preventable fleet accidents, which refer to accidents involving our vehicles which could have been avoided if the driver had acted in a reasonably expected manner. For this goal to be achieved, there can be no fatalities during the year.
|
|
Safety is one of Pepco Holdings’ core values. Being safe in everything we do ensures the protection of employees, contractors, vendors and customers, as well as the communities served.
|
|
All
|
Diversity
|
|
This goal seeks to support our inclusive and diverse workplace.
For Corporate and Power Delivery, this goal measures Pepco Holdings’ progress in diversity in employee hiring and promotions
for the most recent year as well as participation by employees in various diversity activities throughout the year.
For Pepco Energy Services, achievement of the diversity goal
is determined by the percentage of Pepco Energy Services employees (except for employees in its underground transmission and distribution
business) who participated in three or more diversity activities during 2015.
|
|
Diversity is one of Pepco Holdings’ core values. We believe that a diverse workforce allows us to operate more effectively and directly contributes to Pepco Holdings’ financial performance.
|
|
All
|
The EICP award opportunities for each of Messrs. Rigby, Boyle
and Fitzgerald consisted entirely of the following performance criteria:
|
|
|
Performance Goals
(% of Target Award Earned)
|
|
|
|
|
|
|
|
Pepco Holdings Corporate
2015 EICP Performance Criteria
|
|
|
Threshold
(50%)
|
|
|
Target
(100%)
|
|
|
Maximum
(150%)
|
|
|
Weight
(%)
|
|
Pepco Holdings adjusted EPS
(1)
|
|
|
|
$
|
0.90
|
|
|
|
|
$
|
0.96
|
|
|
|
|
$
|
1.02
|
|
|
|
|
|
50.0
|
|
|
Residential utility customer satisfaction
|
|
|
|
|
74
|
%
|
|
|
|
|
76
|
%
|
|
|
|
|
78
|
%
|
|
|
|
|
10.0
|
|
|
System reliability:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SAIDI
|
|
|
|
|
149
|
|
|
|
|
|
108
|
|
|
|
|
|
103
|
|
|
|
|
|
12.5
|
|
|
SAIFI
|
|
|
|
|
1.38
|
|
|
|
|
|
1.15
|
|
|
|
|
|
1.09
|
|
|
|
|
|
12.5
|
|
|
Safety
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power Delivery OSHA recordable injuries
|
|
|
|
|
55
|
|
|
|
|
|
47
|
|
|
|
|
|
42
|
|
|
|
|
|
2.5
|
|
|
Power Delivery OSHA preventable fleet accidents
|
|
|
|
|
52
|
|
|
|
|
|
45
|
|
|
|
|
|
40
|
|
|
|
|
|
2.5
|
|
|
Pepco Energy Services OSHA recordable injury incident rate and preventable fleet accident incident rate
|
|
|
|
|
3.0
|
|
|
|
|
|
2.0
|
|
|
|
|
|
1.3
|
|
|
|
|
|
2.5
|
|
|
Pepco Energy Services OSHA preventable fleet accident incident rate
|
|
|
|
|
6.0
|
|
|
|
|
|
4.5
|
|
|
|
|
|
2.5
|
|
|
|
|
|
2.5
|
|
|
Diversity
|
|
|
|
|
90
|
%
|
|
|
|
|
95
|
%
|
|
|
|
|
98
|
%
|
|
|
|
|
5.0
|
|
|
|
(1)
|
Pepco Holdings adjusted EPS is equal to Pepco Holdings’ consolidated earnings per share, less asset impairment charges,
Merger-related transaction costs and Merger-related integration costs. No EICP award may be given if the threshold Pepco Holdings
adjusted EPS target is not achieved.
|
|
(2)
|
For the safety goal to be earned, there must be no fatalities during the year.
|
Mr. Velazquez’s 2015 EICP award opportunity consisted
entirely of the following performance criteria relating to our Power Delivery business segment:
|
|
|
Performance Goals
(% of Target Award Earned)
|
|
|
Weight
(%)
|
|
Power Delivery 2015 EICP Performance Criteria
|
|
|
Threshold
(50%)
|
|
|
Target
(100%)
|
|
|
Maximum
(150%)
|
|
Utility adjusted EPS
(1)
|
|
|
|
$
|
0.95
|
|
|
|
|
$
|
1.01
|
|
|
|
|
$
|
1.07
|
|
|
|
|
|
20.0
|
|
|
Power Delivery O&M expenses, in millions
|
|
|
|
$
|
970.7
|
|
|
|
|
$
|
951.7
|
|
|
|
|
$
|
932.7
|
|
|
|
|
|
10.0
|
|
|
Core capital expenditures, in millions
|
|
|
|
$
|
1,191.5
|
|
|
|
|
$
|
1,134.8
|
|
|
|
|
$
|
1,021.3
|
|
|
|
|
|
10.0
|
|
|
Compliance
|
|
|
|
|
80
|
%
|
|
|
|
|
90
|
%
|
|
|
|
|
100
|
%
|
|
|
|
|
5.0
|
|
|
Residential utility customer satisfaction
|
|
|
|
|
74
|
%
|
|
|
|
|
76
|
%
|
|
|
|
|
78
|
%
|
|
|
|
|
10.0
|
|
|
System reliability:
|
|
|
|
|
|
SAIDI
|
|
|
|
|
149
|
|
|
|
|
|
108
|
|
|
|
|
|
103
|
|
|
|
|
|
15.0
|
|
|
SAIFI
|
|
|
|
|
1.38
|
|
|
|
|
|
1.15
|
|
|
|
|
|
1.09
|
|
|
|
|
|
15.0
|
|
|
Safety
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Power Delivery OSHA recordable injuries
|
|
|
|
|
55
|
|
|
|
|
|
47
|
|
|
|
|
|
42
|
|
|
|
|
|
5.0
|
|
|
Power Delivery OSHA preventable fleet accidents
|
|
|
|
|
52
|
|
|
|
|
|
45
|
|
|
|
|
|
40
|
|
|
|
|
|
5.0
|
|
|
Diversity
|
|
|
|
|
90
|
%
|
|
|
|
|
95
|
%
|
|
|
|
|
98
|
%
|
|
|
|
|
5.0
|
|
|
|
(1)
|
Utility adjusted EPS is equal to the consolidated per share earnings of Pepco Holdings’ utility subsidiaries, less Merger-related
integration costs. No EICP award may be given if the threshold utility adjusted EPS target is not achieved.
|
|
(2)
|
For the safety goal to be earned, there must be no fatalities during the year.
|
Mr. Huffman’s 2015 EICP award opportunity consisted
entirely of the following performance criteria relating to our Pepco Energy Services business segment:
|
|
|
Performance Goals
(% of Target Award Earned)
|
|
|
Weight
(%)
|
|
Pepco Energy Services 2015 EICP Performance Criteria
|
|
|
Threshold
(50%)
|
|
|
Target
(100%)
|
|
|
Maximum
(150%)
|
|
Pepco Energy Services adjusted EPS
(1)
|
|
|
|
$
|
0.026
|
|
|
|
|
$
|
0.032
|
|
|
|
|
$
|
0.039
|
|
|
|
|
|
50.0
|
|
|
Gross margin value of new ESCO contracts signed, in millions
|
|
|
|
$
|
7.5
|
|
|
|
|
$
|
10.0
|
|
|
|
|
$
|
12.5
|
|
|
|
|
|
12.0
|
|
|
On-time ESCO project completion rate
|
|
|
|
|
75
|
%
|
|
|
|
|
85
|
%
|
|
|
|
|
91
|
%
|
|
|
|
|
8.0
|
|
|
Gross margin percentage from energy efficiency construction contracts
|
|
|
|
|
18
|
%
|
|
|
|
|
20
|
%
|
|
|
|
|
22
|
%
|
|
|
|
|
8.0
|
|
|
Revenue from new signed underground and transmission contracts, in millions
|
|
|
|
$
|
50.0
|
|
|
|
|
$
|
65.0
|
|
|
|
|
$
|
80.0
|
|
|
|
|
|
12.0
|
|
|
Safety
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pepco Energy Services OSHA recordable injury incident rate
|
|
|
|
|
3.0
|
|
|
|
|
|
2.0
|
|
|
|
|
|
1.3
|
|
|
|
|
|
3.3
|
|
|
Pepco Energy Services OSHA preventable fleet accident incident rate
|
|
|
|
|
6.0
|
|
|
|
|
|
4.5
|
|
|
|
|
|
2.5
|
|
|
|
|
|
3.3
|
|
|
Diversity
|
|
|
|
|
90
|
%
|
|
|
|
|
95
|
%
|
|
|
|
|
100
|
%
|
|
|
|
|
3.3
|
|
|
|
(1)
|
Pepco Energy Services adjusted EPS is equal to the consolidated per share earnings of Pepco Energy Services, less the net loss
from its generating facilities, and excluding impairment charges. No EICP award may be given if the threshold Pepco Energy Services
adjusted EPS target is not achieved.
|
|
(2)
|
For the safety goal to be earned, there must be no fatalities during the year.
|
2015 EICP Award Payouts
Given the estimated strength of our 2015 business and financial
performance, the Compensation Committee made a preliminary determination in December 2015 that the performance goals associated
with the EICP (other than those pertaining to the Pepco Energy Service business) would approach or exceed the target level of achievement.
To recognize the efforts, contributions and accomplishments of our executive team which led to this positive performance, the Compensation
Committee approved an initial payment in December 2015 to our executives (including each of the named executive officers,
other than Mr. Huffman) of 2015 EICP awards in amounts that reflected 75% of target level of performance, in each case subject
to clawback if for some unforeseen reason the final determination did not confirm the achievement of the performance goals at or
above the 75% level.
In order to preserve the deductibility under Section 162(m)
of the Code of the preliminary EICP awards, Messrs. Rigby, Velazquez and Fitzgerald each received, in lieu of cash, a distribution
of shares of performance-based restricted stock under the 2012 LTIP of equal value, the vesting of which was contingent upon the
achievement of performance goals identical to those in that named executive officer’s EICP award opportunity.
In February 2016, the Compensation Committee made the final
determination of the 2015 EICP awards, which reflected performance levels for the NEOs ranging from 0.0% to 124.5% of target. As
a result, shares of restricted stock received by Messrs. Rigby, Velazquez and Fitzgerald vested in February 2016 in full and each
received a cash payment to the extent his performance exceeded the 75% of target level, and Mr. Boyle received his entire EICP
award in cash.
The following table shows the Compensation Committee’s
final determination regarding the 2015 EICP performance criteria with respect to Messrs. Rigby, Boyle and Fitzgerald:
Performance Criteria
|
|
|
Criteria
Result
|
|
|
Target
Payout
(%)
|
|
|
Actual
Payout
(%)
|
|
➢
Pepco
Holdings adjusted EPS
|
|
|
|
|
$ 1.24
|
|
|
|
|
|
50.0
|
|
|
|
|
|
75.0
|
|
|
➢
Residential
utility customer satisfaction
|
|
|
|
|
74
|
%
|
|
|
|
|
10.0
|
|
|
|
|
|
5.0
|
|
|
➢
SAIDI
|
|
|
|
|
107
|
|
|
|
|
|
12.5
|
|
|
|
|
|
13.8
|
|
|
➢
SAIFI
|
|
|
|
|
1.08
|
|
|
|
|
|
12.5
|
|
|
|
|
|
18.8
|
|
|
➢
Safety/Power
Delivery
|
|
|
|
|
67/57
|
|
|
|
|
|
5.0
|
|
|
|
|
|
0.0
|
|
|
➢
Safety/Pepco
Energy Services
|
|
|
|
|
2.3/3.4
|
|
|
|
|
|
5.0
|
|
|
|
|
|
5.3
|
|
|
➢
Diversity
|
|
|
|
|
97
|
%
|
|
|
|
|
5.0
|
|
|
|
|
|
6.6
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
100.0
|
|
|
|
|
|
124.5
|
|
|
The following table shows the Compensation Committee’s
final determination regarding the 2015 EICP performance criteria with respect to Mr. Velazquez:
Performance Criteria
|
|
|
Criteria
Result
|
|
|
Target
Payout
(%)
|
|
|
Actual
Payout
(%)
|
|
➢
Utility adjusted EPS
|
|
|
|
$
|
1.18
|
|
|
|
|
|
20.0
|
|
|
|
|
|
30.0
|
|
|
➢
Power Delivery O&M expense, in millions
|
|
|
|
$
|
1,003.3
|
|
|
|
|
|
10.0
|
|
|
|
|
|
0.0
|
|
|
➢
Core capital expenditures, in millions
|
|
|
|
$
|
1,155.1
|
|
|
|
|
|
10.0
|
|
|
|
|
|
7.8
|
|
|
➢
Compliance
|
|
|
|
|
97
|
%
|
|
|
|
|
5.0
|
|
|
|
|
|
6.8
|
|
|
➢
Residential utility customer satisfaction
|
|
|
|
|
74
|
%
|
|
|
|
|
10.0
|
|
|
|
|
|
5.0
|
|
|
➢
SAIDI
|
|
|
|
|
107
|
|
|
|
|
|
15.0
|
|
|
|
|
|
16.5
|
|
|
➢
SAIFI
|
|
|
|
|
1.08
|
|
|
|
|
|
15.0
|
|
|
|
|
|
22.5
|
|
|
➢
OSHA recordable injuries
|
|
|
|
|
67
|
|
|
|
|
|
5.0
|
|
|
|
|
|
0.0
|
|
|
➢
OSHA preventable fleet accidents
|
|
|
|
|
57
|
|
|
|
|
|
5.0
|
|
|
|
|
|
0.0
|
|
|
➢
Diversity
|
|
|
|
|
97
|
%
|
|
|
|
|
5.0
|
|
|
|
|
|
6.7
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
100.0
|
|
|
|
|
|
95.3
|
|
|
The following table shows the Compensation Committee’s
final determination regarding the 2015 EICP performance criteria with respect to Mr. Huffman:
Performance Criteria
|
|
|
Criteria
Result
|
|
|
Target
Payout
(%)
|
|
|
Actual
Payout
(%)
|
|
➢
Pepco Energy Services adjusted EPS
|
|
|
|
$
|
0.022
|
|
|
|
|
|
50.0
|
|
|
|
|
|
0.0
|
|
|
➢
Gross margin value of ESCO contracts signed, in millions
|
|
|
|
$
|
7.9
|
|
|
|
|
|
12.0
|
|
|
|
|
|
7.0
|
|
|
➢
On-time ESCO project completion rate
|
|
|
|
|
100.0
|
%
|
|
|
|
|
8.0
|
|
|
|
|
|
12.0
|
|
|
➢
Gross margin percentage from energy efficiency construction contracts
|
|
|
|
|
24
|
%
|
|
|
|
|
8.0
|
|
|
|
|
|
12.0
|
|
|
➢
Revenue from new signed underground and transmission contracts, in millions
|
|
|
|
$
|
71.1
|
|
|
|
|
|
12.0
|
|
|
|
|
|
16.4
|
|
|
➢
OSHA recordable injury incident rate
|
|
|
|
|
2.3
|
|
|
|
|
|
3.3
|
|
|
|
|
|
2.8
|
|
|
➢
OSHA preventable fleet accident incident rate
|
|
|
|
|
3.4
|
|
|
|
|
|
3.3
|
|
|
|
|
|
4.2
|
|
|
➢
Diversity
|
|
|
|
|
100
|
%
|
|
|
|
|
3.3
|
|
|
|
|
|
5.0
|
|
|
Total
(1)
|
|
|
|
|
|
|
|
|
|
|
100.0
|
|
|
|
|
|
0.0
|
|
|
|
(1)
|
No EICP award may be given if the threshold Pepco Energy Services adjusted EPS target is not achieved.
|
These awards are reflected in the “Non-Equity Incentive
Plan Compensation” column of the Summary Compensation Table.
Stock-Based Awards Under the 2012 LTIP
Overview
2015 Awards
During 2015, we granted stock-based awards to our executives
under the 2012 LTIP. The Compensation Committee adopted a target long-term stock-based award opportunity for each executive officer
that, consistent with the Company’s compensation philosophy and market practice, is a percentage of the executive’s
salary and is designed to place the executive’s total direct compensation opportunity (consisting of salary, target annual
cash incentive compensation and target stock-based compensation, but excluding in the case of Mr. Fitzgerald the supplemental award
granted to him under the terms of his employment agreement) at a level targeting market median practices.
The target level of long-term stock-based compensation as a
percentage of salary for each of the named executive officers in 2015 (excluding the supplemental award granted to Mr. Fitzgerald
under his employment agreement) was as follows:
Name
|
|
Target
as a
Percentage of
Salary
(%)
|
Joseph M. Rigby
|
|
250
|
Frederick J. Boyle
|
|
125
|
David M. Velazquez
|
|
125
|
Kevin C. Fitzgerald
|
|
125
|
John U. Huffman
|
|
100
|
Historically, the Company has utilized performance-based RSU
awards under a relative TSR metric with the objective of aligning an executive’s financial interests with the long-term interests
of the Company’s stockholders. At the time that the 2015 awards were granted, it was anticipated that the Company would complete
its pending Merger with Exelon during the second or third quarter of 2015, which would have resulted in a performance period of
a length that the Compensation Committee concluded would not be appropriate for purposes of measuring relative TSR. In addition,
the Compensation Committee determined, based upon advice from Pearl Meyer, that the time-based award would more effectively promote
the goal of retaining key executives in the event that the Merger did not close as anticipated.
Accordingly, based on the recommendation of Pearl Meyer, the
Compensation Committee determined, in light of the anticipated closing of the Merger in the second or third quarter of 2015, that
each executive’s long-term stock-based award opportunity for 2015 (excluding the supplemental award granted to Mr. Fitzgerald
in connection with his employment agreement) would be in the form of a time-based RSU award vesting three years from the date of
grant if the executive remains continuously employed during the entire three-year period, subject to the acceleration of vesting
under certain circumstances as provided under the 2012 LTIP and the award agreement. Upon the closing of the Merger, pursuant to
the terms of the Merger Agreement, the award vested on a pro-rata basis at closing.
Each RSU entitles the holder, beginning on the date of grant,
to receive one share of common stock at the end of the restriction period. During the restriction period, an executive does not
own any shares of common stock and cannot vote or receive dividends upon the shares underlying the award. The RSU awards generally
are subject to forfeiture, subject to certain exceptions, if the employment of the executive terminates before the end of the restriction
period.
Our 2015 RSU awards were accompanied by the grant of dividend
equivalent rights. When we pay a dividend on our common stock during the restriction period, the holder of dividend equivalent
rights is credited with additional RSUs having a fair market value equal to the number of his or her then outstanding RSUs multiplied
by the per share amount of the dividend. These additional RSU credits will vest or be forfeited in proportion to the vesting of
the underlying award, thereby enabling the holder to retain the dividend credits to the extent the RSUs to which they correspond
are earned.
The Compensation Committee has granted, and may continue to
grant in accordance with past practice, supplemental long-term stock-based awards under the 2012 LTIP at other times of the year
as it deems necessary or desirable to reflect new executive hires, promotions, increases in an executive’s responsibility
and other compensatory circumstances as determined by the Compensation Committee. Our
current practice is to provide that supplemental
awards vest on the same date as the annual awards granted during that year. In this regard, the Compensation Committee in 2015
granted to Mr. Fitzgerald an award pursuant to the terms of his employment agreement, which is discussed in more detail below,
which award has different terms than the annual RSU grants.
The Merger Agreement provides for terms of the vesting or settlement
of outstanding awards under the 2012 LTIP (or its predecessor) that may be different from the vesting or settlement terms otherwise
described herein. See “— Termination of Employment and Change in Control Benefits — 2012 Long-Term Incentive
Plan” for a description of how these awards vested upon completion of the Merger.
Payout of RSU Awards for 2013 to 2015 Performance Period
The vesting of RSU awards under the LTIP for the 2013 through
2015 performance period were based on relative TSR. The Compensation Committee determined that relative TSR was at approximately
the 74th percentile, and as a result, 147.37% of the target amount of each award was earned. The settlement of the awards in shares
of Common Stock occurred on December 31, 2015.
Changes for 2016 – 2018 LTIP Performance Cycle Metrics
Although the Merger with Exelon remained pending at the time
that the 2016 awards were granted, due to uncertainty regarding the ability to close the Merger, the Compensation Committee determined
that it was appropriate to return to past practice and utilize performance-based RSU awards for the 2016 – 2018 LTIP cycle.
Accordingly, during the third quarter of 2015, the Compensation Committee conducted a review of its use of relative TSR as the
sole performance metric in connection with the grant of long-term performance-based awards under the 2012 LTIP prior to 2015. This
review included, among other things, views of proxy advisory firms regarding performance metrics, discussions with large institutional
investors regarding the metrics that have been utilized by the Company, and a study of the long-term incentive metrics utilized
by the Company’s Peer Group and others in the utility industry. This review revealed that a number of the Company’s
peers and other large utilities used a combination of relative TSR and other financial and/or operating metrics, including earnings
per share, adjusted cash flows, ROIC, income growth, safety, reliability, customer satisfaction and achievement of environmental
commitments.
Pearl Meyer evaluated the use of alternative performance metrics,
including ROIC, and advised that ROIC was appropriate for the Company to utilize in connection with the granting of awards under
the 2012 LTIP. In addition, in discussions with large investors as part of the Company’s 2015 stockholder engagement efforts,
such investors supported the use of ROIC.
Following its review, the Compensation Committee concluded that
ROIC would be an appropriate performance metric for the Company under existing circumstances as a supplement to relative TSR. In
making this determination, the Compensation Committee determined that ROIC would encourage management to focus on the prudent allocation
of the Company’s capital base and on the control of costs, with the expectation that prudent management decision-making in
these areas would be reflected in the Company’s stock price over the long-term, thereby aligning management’s incentives
with the interests of stockholders. In addition, the Compensation Committee believed that strong ROIC results will positively impact
shareholder value over the long-term.
ROIC will be calculated each year by dividing adjusted net operating
profit before tax (NOPBT) by adjusted average invested capital (IC). For purposes of this calculation, (i) NOPBT represents the
Company’s earnings before interest and taxes, as adjusted (EBIT), less interest income (for purposes of this calculation,
EBIT will be adjusted to remove the impact of any pre-tax special items excluded from
adjusted net income from operations); and
(ii) IC represents short-term and long-term debt plus common equity minus cash (for purposes of this calculation, the common equity
component would be adjusted to remove the cumulative after-tax impact of special items excluded from the calculation of adjusted
NOPBT). The ROIC metric for the three-year performance period will be the average of the calculated ROIC for each year in the three-year
performance period.
The Compensation Committee set as the threshold level of performance
an average ROIC over the three-year performance period of 6.49%, which would result in a payout percentage of 50%. The target level
of average ROIC over the three-year performance period was set at 7.02%. The maximum level of average ROIC over the three-year
performance period was set at 7.55%, which would result in a payout percentage of 200% for average ROIC at or above this level.
For ROIC percentages between the threshold, target and maximum level the payout percentage will be interpolated. If the average
ROIC over the three-year performance period is below the threshold level, the payout percentage will result in zero (0%) payout
percentage. The following table illustrates payout percentages relative to the levels of ROIC performance for the 2016 –
2018 LTIP cycle:
|
ROIC
Performance
|
Goal Achievement
Percentage
|
Maximum
|
7.55%
|
200%
|
|
7.42%
|
175%
|
|
7.29%
|
150%
|
|
7.15%
|
125%
|
Target
|
7.02%
|
100%
|
|
6.76 %
|
75%
|
Threshold
|
6.49%
|
50%
|
Below Threshold
|
|
0%
|
The Compensation Committee also evaluated the appropriate allocation
between time and performance-based awards and the continued use of time-based awards, which in prior years (except for 2015, as
discussed above) have represented one-third of the total stock-based award opportunities for executives under the 2012 LTIP. The
Compensation Committee determined, based on advice of Pearl Meyer, that utilizing time-based awards is critical for executive retention
purposes, particularly in light of the uncertainties surrounding the timing of the closing of the Merger. With regard to the balance
of the performance-based component of the award, the Committee determined to add ROIC as an additional metric to accompany relative
TSR which was the sole metric used prior to 2015.
Based on these Compensation Committee decisions, the stock-based
awards under the 2012 LTIP for the 2016 – 2018 cycle are as follows:
|
Ø
|
one-third of the award in the form of time-based RSUs,
|
|
Ø
|
one-third of the award in the form of performance-based RSUs utilizing relative TSR as compared to the Company’s peer
group as a performance metric, and
|
|
Ø
|
one-third of the award in the form of performance-based RSUs utilizing ROIC as a performance metric.
|
The Compensation Committee believes that this combination of
time- and performance-based metrics accomplishes the Company’s goals of incentivizing management to maximize the Company’s
return on investment, aligning executive compensation with the stockholder interests, and retaining key executives, which the Compensation
Committee believes will lead to the creation of long-term stockholder value.
Performance-Based Employment Agreement Award — Mr. Fitzgerald
Overview
On February 19, 2016, the last of a series of three supplemental
annual performance-based awards under the 2012 LTIP vested, which awards were provided to Mr. Fitzgerald under the Fitzgerald Employment
Agreement. The vesting of each of these awards is contingent upon Mr. Fitzgerald’s continued employment through the
end of the annual performance period and achievement of the performance goals established at the commencement of the performance
period. For more information, see “—Executive Compensation — Employment Agreements — Kevin C. Fitzgerald.”
Reasons for Award
In executing their responsibilities on behalf of our stockholders,
the Compensation Committee believes that this award significantly enhanced the pay-for-performance robustness of our long-term
incentive program for the following reasons.
First, the Compensation Committee selected performance criteria
for this award that it generally believed to be objective and quantitative. Certain of the performance criteria consist of measurable
metrics applicable to our utility subsidiaries through established law, regulations or orders, as well as determinations made by
third parties, while others were based on key Company initiatives. Actual performance was then measured against these objective
numerical metrics to determine whether and the extent to which the performance-based award was earned.
Second, in addition to being quantitatively and objectively
measurable, the Compensation Committee and the independent directors believed that the performance criteria addressed operational
and regulatory goals that were critical for us to meet both in the context of our base rate cases and in discussions about executive
compensation with regulators and our customers. As noted, the operational performance criteria above directly supported key components
of our plan to obtain positive rate case outcomes and achieve improvements in our relations with public service commissions, both
of which we believed were critical to stockholder value.
Third, the award and its performance criteria were approved
by the Compensation Committee to support our long-term financial health and our stockholders’ long-term interests.
The award’s performance period was measured over the span
of one year, which the Compensation Committee believed was appropriate because the specific numerical metrics utilized by regulators
are also annual metrics. Prior to the initial execution of the Merger Agreement in April 2014, we had been filing rate cases annually
in an attempt to mitigate regulatory lag. As a result, we had been able to report our progress in these areas to the public service
commissions on a yearly basis. The award’s one-year period was originally aligned with our then regulatory reporting strategy
and assessment plans, as well as with how our public service commissions viewed our operational goals.
Moreover, the Compensation Committee intended for these awards
to serve collectively as a long-term reward rather than as short-term incentives. The performance-based goals seek to reward Mr.
Fitzgerald for continual progress in the Company’s improvement over time in areas that we believed have the greatest impact
on increasing long-term stockholder value and were the most critical to our success.
Additionally, the performance-based awards were designed so
that no shares of common stock will be issued to Mr. Fitzgerald under the vested portion of any of the three awards until his employment
with the Company terminates. This requirement further supported the intention of the Compensation Committee
to provide Mr. Fitzgerald
with compensation that was tied to the Company’s long-term financial health and success. This limitation provided a powerful
and continuing incentive for Mr. Fitzgerald to increase the value of the Company’s stock for so long as he remains employed
by the Company.
The Compensation Committee and the Board believed that these
performance-based awards work together with our EICP award opportunities and the annual stock-based compensation under the 2012
LTIP as a cohesive unit to achieve our compensation philosophy. We believed that the various metrics combined serve to reward Mr.
Fitzgerald for excellence in different areas, which were critical to our long-term success. While Mr. Fitzgerald’s EICP award
opportunity and his 2015 performance-based award also featured residential customer satisfaction and system reliability as performance
criteria, the common metrics recognize the significance that the public service commissions and our customers place on them and
our ability to achieve them. The Compensation Committee believed that both our cash and stock-based incentive programs must explicitly
support these critical operational goals. Having both cash-based short-term and stock-based long-term incentive compensation tied
to these goals showed both the public service commissions and our customers that our compensation structure was also aligned with
their goals.
Finally, this award did not serve to isolate or insulate Mr.
Fitzgerald from the cash incentive and annual stock-based incentive opportunities to improve earnings. Mr. Fitzgerald’s 2015
EICP award opportunity was heavily weighted toward the achievement of the Company’s earnings goal. The EICP award was supplemented
by this performance-based award, which rewarded Mr. Fitzgerald largely for the Company’s regulatory and operational achievements.
In the industry in which we operate, we believed that our stockholders’ interests were much better served by granting awards
with measurable performance criteria designed to satisfy and exceed applicable regulatory requirements as supplements to traditional
earnings.
Performance Criteria
Under the terms of Mr. Fitzgerald’s employment agreement,
the 6,188 RSUs comprising the third in the series of three awards was calculated by dividing $166,667 by the closing market price
of the Company’s common stock on January 1, 2015, the first day of the performance period. The performance criteria for the
2015 award are described in the table below.
Performance Criteria
|
|
|
Description/Definition
|
|
|
Purpose
|
|
|
Weight
(%)
|
|
Achievement of state-mandated reliability standards, including SAIDI and SAIFI, vegetation management requirements and storm restoration standards, as applicable
|
|
|
Transmission and distribution system reliability performance targets are set internally based on mandated requirements in our various service territories as well as on recent historical performance.
|
|
|
State-mandated reliability standards are objective, quantifiable metrics established by our public service commissions to determine the reliability of the distribution system.
|
|
|
40
|
|
Residential utility customer satisfaction
|
|
|
Overall customer satisfaction during 2015 is measured quarterly using a statistically significant, industry standard methodology developed by MSI. The goal is 76%.
|
|
|
Public service commissions formulate decisions regarding our base rate cases based upon, in significant part, the views expressed by our customers regarding our utilities’ reliability.
|
|
|
40
|
|
Performance Criteria
|
|
|
Description/Definition
|
|
|
Purpose
|
|
|
Weight
(%)
|
|
Achievement of all key regulatory dates related to the 2015 project plan in connection with the Company’s DC Power Line Undergrounding Initiative
|
|
|
Key regulatory dates include the timely preparing or filing of required materials or information, including with respect to: ninety day supplement to project plan; public notice of compliance filing; the Undergrounding Project Consumer Education Task Force; various technical documents and annual report; semi-annual meetings with various parties related to the project; DC Public Service Commission hearings; and successful defeat of appeals before DC Court of Appeals.
|
|
|
The DC Power Line Undergrounding Initiative is a key strategic initiative for the Company which will improve overall reliability and resiliency for all District of Columbia customers.
|
|
|
20
|
|
Determination of Performance
In February 2016, the Compensation Committee determined
that 80% of Mr. Fitzgerald’s 2015 performance-based award was earned. The table below explains and analyzes the Compensation
Committee’s determinations and outcome with respect to each of the performance goals under this award.
Performance
Criteria
|
|
|
Determination
|
|
|
Outcome
(%)
|
|
Achievement of state-mandated reliability standards
|
|
|
Goal met, as measured by achievement of state-mandated SAIDI and SAIFI reliability standards and four out of five jurisdictional reliability standards.
|
|
|
40
|
|
Residential utility customer satisfaction
|
|
|
Partial payment for achievement of 74% residential utility customer satisfaction.
|
|
|
20
|
|
Achievement of all key regulatory dates related to the 2015 project plan in connection with the Company’s DC Power Line Undergrounding Initiative
|
|
|
Goal met, as determined by the successful and timely completion of regulatory activities related to the established 2015 project plan, including legal matters which were ultimately satisfactorily resolved in January 2016 due to court-established procedural schedules.
|
|
|
20
|
|
|
|
|
Total
|
|
|
80
|
|
Time-Based Awards
Grants of Time-Based RSU Awards in 2015
The number of time-based RSUs awarded in 2015 to each of the
named executive officers under the 2012 LTIP is shown in the 2015 Grants of Plan-Based Awards table in the column headed “All
Other Stock Awards: Number of Shares of Stock or Units.”
Vesting of Time-Based RSU Awards
The Compensation Committee determined to settle and pay time-based
RSU awards with respect to the 2013 to 2015 LTIP cycle in shares of common stock on December 31, 2015. The number of shares
of common stock that vested under the terms of the time-based RSU awards granted under the LTIP are shown in the 2015 Option Exercises
and Stock Vested table in the column “Stock Awards — Number of Shares Acquired on Vesting.” The acceleration
of the vesting and payment of these awards in December 2015 was effected to mitigate the impact on the Company and its executives
of the provisions of the Code related to excess parachute payments, however, the amount of the award payments was unchanged.
In addition to the foregoing RSU grants, Mr. Rigby received
on January 4, 2012 a time-based award pursuant to an employment agreement between the Company and Mr. Rigby, effective January
1, 2012 (the Rigby Employment Agreement), of 73,891 RSUs, one-third of which vested on January 4, 2013 and the remaining two-thirds
vested ratably on a day-to-day basis over the two-year period ending January 4, 2015. Pursuant to his employment agreement,
Mr. Fitzgerald received a supplemental time-based award of 39,494 RSUs, four-fifteenths of which vested on September 17,
2013, four-fifteenths of which vested on September 17, 2014, and the balance of which vested on September 17, 2015. These
awards were settled in shares of Company common stock on the date the executive’s employment agreement with the Company terminated.
These time-based awards were intended to encourage the named
executive officer to remain in the employ of the Company during the term of each such employment agreement.
Retirement Programs
The Company’s retirement plans, consisting of a tax-qualified
retirement plan and supplemental executive retirement plans, are discussed in detail in the section entitled “ — Executive
Compensation — Description of Pension and Other Retirement Plans.” Under the Pepco Holdings Retirement Plan, all employees
of the Company and certain subsidiaries with at least five years of service (three years in the case of the Conectiv Cash Balance
Sub-Plan) are entitled to receive retirement benefits in accordance with the applicable benefit formula up to the maximum level
that a qualified pension plan is permitted to provide consistent with regulations under the Code.
The Pepco Holdings 2011 Supplemental Executive Retirement Plan
(the 2011 SERP) provides retirement benefits to participating executives in addition to the benefits a participant is entitled
to receive under the Pepco Holdings Retirement Plan to supplement benefits which participants forego due to the limitations on
benefit calculations imposed by the Code. If the benefit payment that otherwise would have been available under the applicable
benefit formula of the Pepco Holdings Retirement Plan is reduced due to a contribution or benefit limit imposed by law, the participant
in the Pepco Holdings Retirement Plan is entitled to a compensating payment. In addition, a participant in the Pepco Holdings Retirement
Plan is entitled to either or both of the following enhancements to the calculation of the participant’s retirement benefit:
|
Ø
|
the inclusion of compensation deferred under the Company’s executive deferred compensation plans; and
|
|
Ø
|
to the extent not permitted by the Pepco Holdings Retirement Plan, the inclusion of annual cash incentive compensation received
by the participant.
|
A similar supplemental retirement plan provides additional retirement
benefits to executives participating in the Conectiv Cash Balance Sub-Plan of the Pepco Holdings Retirement Plan. The supplemental
retirement plan benefits applicable to the named executive officers are described in the section entitled
“— Executive
Compensation — Description of Pension and Other Retirement Plans — Supplemental Executive Retirement Plans.”
The Compensation Committee believes that these supplemental
retirement enhancements to the benefits that otherwise would be provided under the Pepco Holdings Retirement Plan are appropriate
because they:
|
Ø
|
provide existing executives with competitive retirement benefits;
|
|
Ø
|
protect eligible executives against reductions in retirement benefits due to limitations under the Code;
|
|
Ø
|
attract new executives to the Company and encourage the continued employment of existing executives; and
|
|
Ø
|
establish a more unified approach to the Company’s retirement programs, consistent with current market practices.
|
Under the terms of the Rigby Employment Agreement, as extended
by the Rigby Extension Agreement, Mr. Rigby is entitled to receive an increase in his benefit so that such benefit would be
equal to 1.65% of such final average base pay and bonus multiplied by years of service (whether his employment terminates during
the original term of his employment agreement or thereafter). See “— Executive Compensation — Description of
Pension and Other Retirement Plans — Supplemental Executive Retirement Plans — Pepco Holdings 2011 Supplemental Executive
Retirement Plan” for additional information regarding the 2011 SERP.
All employees of the Company, including the named executive
officers, are entitled to participate on the same terms as other eligible employees in the Company’s Retirement Savings Plan
(the 401(k) Plan). To encourage participation in the 401(k) Plan, participants in this plan receive a 100% Company-matching contribution
on employee contributions, up to 3% of annual salary, and a 50% Company-matching contribution on employee contributions in excess
of 3% of annual salary, up to 6% of annual salary.
Health and Welfare Benefits
Each of the named executive officers participates in the Company’s
health care, life insurance, and disability insurance plans on the same terms as other Company employees. Other than (i) a Company-paid
annual executive physical, (ii) certain benefits for Mr. Rigby under the terms of the Rigby Extension Agreement and (iii) certain
benefits for participating executives (which does not include Mr. Rigby) under the terms of the CIC Plan, the Company has
no health or welfare plans, programs or arrangements that are available only to executives. See “— Executive Compensation
— Employment Agreements” and “— Executive Compensation — Termination of Employment and Change in
Control Benefits” for more information on these provisions.
Other Perquisites and Personal Benefits
The Company provides its named executive officers with limited
perquisites and other personal benefits on an annual basis, including one or more of the following: (i) a car allowance, (ii) Company-paid
parking, (iii) tax preparation, (iv) financial planning services, (v) the cost of an annual executive physical, (vi) payment of
certain club dues, (vii) personal use of Company-leased entertainment venues and Company-purchased tickets to sporting and cultural
events when not otherwise used for business purposes and related incidental expenses, (viii) relocation costs and (ix) reimbursement
for spousal travel. The Company does not provide tax gross-ups to any named executive officers on any of the aforementioned perquisites.
The Compensation Committee believes that the type and amount of perquisites and other personal benefits provided to the named executive
officers are reasonable in relation to the amount of
their overall compensation. All perquisites and other personal benefits paid
to our named executive officers are more fully described in the Summary Compensation Table.
Pepco Holdings Deferred Compensation Plan
Under the Pepco Holdings Second Revised and Restated Executive
and Director Deferred Compensation Plan (the Pepco Holdings Deferred Compensation Plan), which is described in greater detail in
the section entitled “— Executive Compensation — Nonqualified Deferred Compensation — Description of Nonqualified
Deferred Compensation Plans and Arrangements — Pepco Holdings Deferred Compensation Plan,” the named executive officers
and other executives are permitted to defer the receipt of all or any portion of their salary and annual incentive compensation.
In addition, to the extent an executive is prevented from making a contribution to the 401(k) Plan due to the qualified plan limitations
imposed by the Code, the executive is entitled to defer the excluded amount under the Pepco Holdings Deferred Compensation Plan
and receive an additional credit under the Pepco Holdings Deferred Compensation Plan equal to the matching contribution, if any,
that the Company would have made with respect to the excluded amount under the 401(k) Plan.
The Pepco Holdings Deferred Compensation Plan is designed to
allow participating executives to save for retirement in a tax-effective way. The Company funds its future financial obligations
under the Pepco Holdings Deferred Compensation Plan through the purchase of Company-owned life insurance policies on the lives
of participating executives and other investments.
Employment Agreements
Employment Agreement and Extension Agreement with Mr. Rigby
Effective January 1, 2012, the Company entered into the
Rigby Employment Agreement, which provided for Mr. Rigby’s employment with the Company through December 31, 2014.
In order to ensure Mr. Rigby’s continued service to the Company and maintain his strong leadership and oversight of
the Company during the pendency of the proposed Merger with Exelon or, if the Merger Agreement were to be terminated, during a
six-month transition period after such termination, on April 29, 2014, the Company and Mr. Rigby entered into the Rigby Extension
Agreement. For additional information regarding the terms of the Rigby Extension Agreement with Mr. Rigby, see “—
Executive Compensation — Employment Agreements — Joseph M. Rigby.”
Employment Agreement and Extension Agreement with Mr. Fitzgerald
In September 2012, the Company entered into a three-year
employment agreement with Mr. Fitzgerald. In order to ensure Mr. Fitzgerald’s continued service to the Company
and his stewardship and oversight of the Merger approval process in the District of Columbia during the pendency of the proposed
Merger with Exelon or, if the Merger Agreement were to be terminated, during a six-month transition period after such termination,
on September 11, 2015, the Company and Mr. Fitzgerald entered into the Fitzgerald Extension Agreement, extending the term
of his employment to the earlier of (i) June 30, 2016, (ii) the closing date of the Merger, or (iii) the date that is six
months after the termination of the Merger Agreement. For additional information regarding the terms of the employment agreement
with Mr. Fitzgerald and the extension thereof, see “— Executive Compensation — Employment Agreements —
Kevin C. Fitzgerald.”
Severance and Change-in-Control Benefits
The Company maintains the CIC Plan in which each of the named
executive officers, other than Mr. Rigby, participated as of December 31, 2015. The purpose of the change-in-control
benefit is to ensure that the participating executives are able to remain focused on their responsibilities to the Company in a
change-in-control scenario and are not distracted by the uncertainty of their continued employment.
Under the terms of the Rigby Extension Agreement, Mr. Rigby
waived his right to receive a cash severance payment. As a result, Mr. Rigby is not eligible to receive any cash severance
payment upon the termination of his employment or upon a change in control.
The Board of Directors on April 29, 2014, adopted the Pepco
Holdings, Inc. 2014 Management Employee Severance Plan (the Employee Severance Plan). The Employee Severance Plan provides severance
benefits for full-time and part-time management (non-union) employees of the Company and its subsidiaries, including those management
employees who are not covered under the CIC Plan. The Employee Severance Plan will remain in effect until the second anniversary
of the closing of the Merger. Our named executive officers (other than Mr. Rigby) are eligible to participate in certain benefits
under this plan.
For additional information regarding the terms of these plans
and the Employment Extension Agreement, see “— Executive Compensation — Termination of Employment and Change
in Control Benefits” and “— Executive Compensation — Employment Agreements — Joseph M. Rigby.”
Tax and Accounting Considerations
Tax Considerations
Performance-Based Compensation Under Section 162(m) of
the Code
Under Section 162(m) of the Code, a public company is prohibited
from deducting for federal income tax purposes compensation in excess of $1.0 million paid to the Company’s principal
executive officer and the Company’s three highest compensated executive officers (other than the principal executive officer
or the principal financial officer), except that this prohibition does not apply to compensation that qualifies as “performance-based
compensation” as defined in regulations adopted under Section 162(m).
The payment of shares of common stock under performance-based
awards granted under the LTIP and the 2012 LTIP upon the vesting of such awards, if determined solely by reference to the achievement
of pre-established performance objectives, qualify as “performance-based compensation” under Section 162(m) of the
Code. Time-based RSU awards under the LTIP and the 2012 LTIP do not qualify as “performance-based compensation” because
the awards vest on the basis of continued employment, rather than pre-established performance objectives.
Awards under the EICP qualify as “performance-based compensation”
under Section 162(m) of the Code, so long as the payment of the award under the EICP is based on the achievement of pre-established
performance objectives established using performance criteria specified in the EICP.
The Compensation Committee intends for awards of performance-based
compensation under the LTIP, the 2012 LTIP and the EICP to qualify as “performance-based compensation” under Section
162(m) to the greatest extent reasonably possible to maximize the deductibility by the Company of the payment of
such compensation
for federal income tax purposes. The payment of EICP and LTIP awards for 2015 was effected in accordance with this intention.
The Compensation Committee may from time to time provide an
executive with a discretionary cash bonus to reward the executive for extraordinary effort or where special circumstances warrant.
Depending on the circumstances, such a bonus may or may not qualify as performance-based compensation under Section 162(m).
Nonqualified Deferred Compensation Under Section 409A
of the Code
Section 409A of the Code provides that amounts deferred under
nonqualified deferred compensation plans are includable in an employee’s income when vested unless certain requirements are
met. If these requirements are not met, employees are also subject to additional income tax and interest penalties. Our supplemental
retirement plans, executive employment agreements, severance arrangements, and other nonqualified deferred compensation arrangements
are intended to satisfy the requirements of Section 409A.
Parachute Payments Under Sections 280G and 4999 of the
Code
Section 280G of the Code disallows the Company’s tax deduction
for “excess parachute payments” in connection with the termination of employment related to a change of control (as
defined in the Code). Section 4999 of the Code also imposes a 20% excise tax on any person who receives excess parachute payments.
Mr. Rigby is not entitled to participate in the CIC Plan,
and, under the Rigby Extension Agreement, he has agreed that, if he receives any payments that would be subject to an excess parachute
payment excise tax and the net after-tax amount of such payments is not at least $10,000 greater than the net after-tax amount
he would receive had none of the payments been subject to such excise tax, the payments will be reduced to the greatest amount
that would not give rise to such excise tax. Our other executives, including the other named executive officers, are entitled to
receive payments upon termination of their employment, including termination following a change in control (which did occur in
connection with the completion of the Merger), certain of which may trigger the payment of an excess parachute payment. See “Executive
Compensation — Termination of Employment and Change in Control Benefits.” The Company’s tax deduction would be
disallowed under Section 280G to the extent a payment is determined to be an excess parachute payment.
The partial payment of 2015 EICP awards in December 2015
was effected to mitigate the impact on the Company and its executives of potential consequences under the Code related to excess
parachute payments, however, the amount of the award payments was unchanged and the payment was subject to clawback to the extent
that this level of performance was not ultimately achieved. The shares of unvested performance-based restricted stock vested in
full upon the Compensation Committee’s determination in February 2016 regarding the satisfaction of the performance
goals.
None of the executives participating in the CIC Plan are entitled
to receive excise tax gross-up payments under the CIC Plan or otherwise. The CIC Plan generally provides that if a payment would
be subject to such excise tax, it would be reduced to eliminate such excise tax if such reduction would result in the executive
receiving greater net after-tax amounts than he or she would receive had none of the payments been subject to such excise tax.
Accounting Considerations
Except as noted below, restricted stock and RSU awards are accounted
for based on their grant date fair value, as determined under ASC 718, which is recognized over the service or vesting period applicable
to the grant. Forfeitures are estimated, and the compensation cost of awards will be reversed if the employee does not remain employed
by us throughout the service or vesting period.
For accounting purposes, the restricted stock awards granted
on December 31, 2015 to each of Messrs. Rigby, Velazquez, and Fitzgerald were determined to be liability awards and not equity
awards covered by ASC 718, the compensation expense of which was variable and not determinable until the awards settled in February 2016.
Stock Ownership Requirements
To further align the financial interests of the Company’s
executives with those of our stockholders, the Board in 2005 adopted stock ownership requirements for officers of the Company.
The requirements, which are expressed as a multiple of base salary, are a function of the executive’s rank:
Officer Level
|
|
|
Multiple of
Base Salary
(#)
|
|
Chief Executive Officer
|
|
|
5 times
|
|
Executive Vice President
|
|
|
3 times
|
|
Senior Vice President
|
|
|
2 times
|
|
Vice President
|
|
|
1 times
|
|
Each covered officer had until the later of December 31,
2010, or five years after the date of the officer’s election as an officer, to attain the required ownership level. An individual
who is appointed as an officer or is promoted to a position with a higher stock ownership requirement has five years from the date
of appointment or promotion to attain the applicable stock ownership level. Shares of common stock allocated to an executive’s
401(k) Plan account and the number of shares of common stock underlying unvested time-based RSU awards (plus any dividend equivalents
accrued thereon) are considered owned by the executive for the purpose of meeting the ownership requirement. Immediately prior
to the completion of the Merger, each of Messrs. Rigby and Velazquez met the stock ownership requirement applicable to him. Because
Messrs. Boyle and Fitzgerald joined the Company during 2012, they would have had until 2017 to comply with these requirements.
Mr. Huffman was not subject to the stock ownership requirement because he was not a Company officer; however, if this requirement
were applicable, he nevertheless would have satisfied it at the level of two times his base salary.
Prohibition on Hedging of Economic Risk and Pledging of Stock
Because hedging transactions can result in the misalignment
of the ownership interest of directors, officers and employees relative to that of the Company’s stockholders, the Board
determined that no director, officer or employee of the Company (including executives) may engage in any hedging or similar transactions
that have the effect of reducing or eliminating the investment risks associated with any of the Company’s securities owned
by such person. This prohibition applies whether the securities have been acquired from the Company or have been purchased by the
holder in the market.
Pledging and margining of common stock puts those shares at
risk of sale if the loan cannot otherwise be repaid or if securities in a margin account decrease in value. For these reasons,
in February 2013, the Board adopted a policy that prohibits our directors, officers and non-union employees from:
|
Ø
|
pledging their Company common stock to secure indebtedness of any kind;
|
|
Ø
|
holding Company common stock in a margin account where it serves as collateral for investments in other securities; or
|
|
Ø
|
engaging in any other transaction of a similar nature that has the effect of using the Company’s securities as collateral.
|
Executive Compensation
2015 Summary Compensation
Table
The 2015 Summary Compensation Table below sets forth information
on compensation paid by us and our subsidiaries to, or earned by, each of the following named executive officers:
|
·
|
our principal executive officer;
|
|
·
|
our principal financial officer; and
|
|
·
|
our three other most highly compensated executive officers employed as of December 31, 2015, determined on the basis of their
total compensation for 2015 (excluding the amounts under the column “Change in Pension Value and Nonqualified Deferred Compensation
Earnings” below).
|
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
(1)
|
Non-Equity
Incentive
Plan
Compensation
($)
(2)
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
(3)
|
All Other
Compensation
($)
(4)(5)
|
Total
Compensation
($)
(5)
|
Joseph M. Rigby
Chairman, President and Chief Executive Officer
|
2015
|
1,015,000
|
—
|
2,537,474
|
1,263,675
|
865,924
|
84,553
|
5,766,626
|
2014
|
1,015,000
|
—
|
8,124,283
|
1,429,120
|
4,431,201
|
84,196
|
15,083,800
|
2013
|
1,015,000
|
—
|
3,028,633
|
329,875
|
2,543,035
|
87,938
|
7,004,481
|
Frederick J. Boyle
Senior Vice President and Chief Financial Officer
|
2015
|
515,000
|
—
|
643,739
|
384,705
|
138,074
|
36,546
|
1,718,064
|
2014
|
500,000
|
—
|
613,757
|
422,400
|
124,809
|
35,283
|
1,696,249
|
2013
|
470,000
|
—
|
536,895
|
91,650
|
105,734
|
44,022
|
1,248,301
|
David M. Velazquez
Executive Vice President
|
2015
|
549,000
|
—
|
686,240
|
313,918
|
432,896
|
50,883
|
2,032,937
|
2014
|
534,000
|
—
|
655,500
|
418,122
|
1,151,742
|
50,042
|
2,809,406
|
2013
|
518,000
|
—
|
591,713
|
96,659
|
300,173
|
41,210
|
1,547,755
|
Kevin C. Fitzgerald
Executive Vice
President and General
Counsel
|
2015
|
563,000
|
15,000
|
865,117
|
420,561
|
108,713
|
50,606
|
2,022,997
|
2014
|
550,000
|
—
|
842,074
|
464,640
|
113,521
|
55,319
|
2,025,554
|
2013
|
550,000
|
15,000
|
791,197
|
107,250
|
73,239
|
55,593
|
1,592,279
|
John U. Huffman
President and Chief
Executive Officer,
Pepco Energy Services
|
2015
|
398,000
|
—
|
397,974
|
—
|
61,292
|
48,454
|
905,720
|
2014
|
388,000
|
—
|
381,003
|
254,916
|
214,284
|
47,950
|
1,286,153
|
2013
|
383,000
|
—
|
349,999
|
76,064
|
8,248
|
46,540
|
863,851
|
|
(1)
|
The amount shown for each year is the aggregate grant date fair value as determined in accordance with the Financial Accounting
Standards Board, Accounting Standards Codification Topic 718 —
Compensation —
S
tock
Compensation
, or ASC 718 (excluding the effect of estimated forfeitures), of awards of restricted stock and time-based and
performance-based RSU awards granted during that year. The values shown with respect to each performance-based RSU award (i) assume
that such award will vest at 100% of the target level at the end of the performance period and the recipient will remain employed
by us through such date; and (ii) reflect that dividends have been factored into the determination of grant date fair value, and
with respect to each time-based RSU award that such award will vest in full at the end of the three-year service period. For a
further description of these stock-based awards, see “— Compensation Discussion and Analysis — Components
of the Executive Compensation Program — Stock-Based Awards Under the 2012 LTIP.” For a discussion of the other assumptions
made in determining the aggregate grant date fair value of these awards, see Note (12), “Stock-Based Compensation, Dividend
Restrictions, and Calculations of Earnings Per Share of Common Stock — Stock-Based Compensation” in the
Company’s consolidated financial statements included in the 2015 Form 10-K.
|
|
|
For 2015, 100% of each executive’s RSU awards were time-based in contemplation of the Merger closing in April 2015. For
each of 2014 and 2013, two-thirds of each executive’s RSU awards were performance-based and one-third was time-based. Assuming
vesting of performance-based awards granted in 2014 and 2013 at the maximum level of 200% of target, the grant date fair value
of these performance-based awards would have been as follows:
|
|
|
|
Grant Date Fair Value (Maximum Level) of
Performance-Based Awards Granted In:
|
|
Name
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
Joseph M. Rigby
|
|
|
$
|
-
|
|
|
|
|
|
$
|
3,292,278
|
|
|
|
|
$
|
2,946,165
|
|
|
Frederick J. Boyle
|
|
|
|
-
|
|
|
|
|
|
|
810,881
|
|
|
|
|
|
682,107
|
|
|
David M. Velazquez
|
|
|
|
-
|
|
|
|
|
|
|
866,016
|
|
|
|
|
|
751,778
|
|
|
Kevin C. Fitzgerald
|
|
|
|
-
|
|
|
|
|
|
|
891,980
|
|
|
|
|
|
798,225
|
|
|
John U. Huffman
|
|
|
|
-
|
|
|
|
|
|
|
503,375
|
|
|
|
|
|
444,670
|
|
|
|
(2)
|
Consists of awards under the EICP. The payment of a portion of the 2015 EICP awards was made in cash in December 2015
instead of in February 2016 (except that the portion of the accelerated EICP awards for Messrs. Rigby, Velazquez and Fitzgerald
were settled on December 31, 2015 in shares of unvested performance-based restricted stock under the 2012 LTIP with performance
goals identical to those of the EICP award opportunities). For a further description of these awards, see “— Compensation
Discussion and Analysis — Components of the Executive Compensation Program — Annual Cash Incentive Awards Under the
EICP.”
|
|
(3)
|
Consists of the aggregate annual increase in the actuarial present value of the executive’s accumulated benefit under
all defined benefit and actuarial pension plans. None of the named executive officers received “above-market earnings”
(as defined by SEC regulation) under any of the Company’s nonqualified deferred compensation plans.
|
|
(4)
|
The totals shown in this column for 2015 consist of:
|
Name
|
Company-
Paid
Premiums
on Term Life
Insurance
($)
|
Company
Matching
Contributions
Under 401(k)
Plan
($)
|
Company
Matching
Contributions
on Deferred
Compensation
($)
|
Perquisites
and Other
Personal
Benefits
($)
(a)
|
Total
($)
|
Joseph M. Rigby
|
2,351
|
11,925
|
30,133
|
40,144
|
84,553
|
Frederick J. Boyle
|
1,193
|
11,925
|
6,728
|
16,700
|
36,546
|
David M. Velazquez
|
1,272
|
11,925
|
8,256
|
29,430
|
50,883
|
Kevin C. Fitzgerald
|
1,304
|
11,925
|
8,747
|
28,630
|
50,606
|
John U. Huffman
|
922
|
11,925
|
2,337
|
33,270
|
48,454
|
|
(a)
|
The following perquisites and other personal benefits were paid in 2015 (all amounts shown reflect cash payments made by the
Company, except as otherwise stated):
|
Name
|
Automobile
Allowance
($)*
|
Parking
($)
|
Tax
Preparation
Fee
($)
|
Financial
Planning
Fee
($)
|
Executive
Physical
Fee
($)
|
Club
Dues
($)
|
Spousal
Travel
($)
|
Total
($)
|
Joseph M. Rigby
|
11,700
|
2,400
|
2,600
|
11,930
|
800
|
5,744
|
4,970
|
40,144
|
Frederick J. Boyle
|
11,700
|
2,400
|
2,600
|
—
|
—
|
—
|
—
|
16,700
|
David M. Velazquez
|
11,700
|
2,400
|
2,600
|
11,930
|
800
|
—
|
—
|
29,430
|
Kevin C. Fitzgerald
|
11,700
|
2,400
|
2,600
|
11,930
|
—
|
—
|
—
|
28,630
|
John U. Huffman
|
11,700
|
6,240
|
2,600
|
11,930
|
800
|
—
|
—
|
33,270
|
|
*
|
Consists of a non-accountable expense allowance to compensate executives for the business use of their personal automobiles.
|
In addition, in 2015, Company-purchased tickets
to attend sporting and cultural events were made available to our named executive officers for personal use when not being used
for business purposes. There was no incremental cost to Pepco Holdings for providing these tickets to our named executive officers.
|
(5)
|
As discussed in Footnote (1) above, the values presented under the column Stock Awards reflects that dividends have been considered
in the determination of grant date fair value. The amounts previously reported under All Other Compensation (i) for 2013 and 2014
included the market value of dividend equivalents credited quarterly during the respective year with respect to unvested time-based
and performance-based RSU awards, and (ii) for 2014 included, as applicable, cash dividends paid quarterly during the respective
fiscal year with respect to vested and unvested restricted stock awards. Accordingly, the amounts included in the table above for
All Other Compensation and Total Compensation for 2013 and 2014 have been revised to eliminate dividend equivalents and cash dividends
that were paid.
|
Comparison of 2015 Realized
Pay to Reported Pay
The calculation of total compensation as reported in the 2015
Summary Compensation Table is based upon rules of the SEC and includes compensation that is not received or realized by our NEOs
during the year. For example, total compensation includes the “grant date fair value” of time-based and performance-based
RSU awards that were granted during 2015. These amounts are computed applying specific accounting rules and based on a number of
assumptions, and are included in total compensation even though time-based awards do not vest until the end of the restriction
period and the NEO will not realize any benefit under performance-based awards until the Compensation Committee has determined
whether, and the extent to which, the relevant performance criteria have been satisfied at the end of the performance period.
To supplement the SEC-mandated disclosure, the following table
sets forth the “realized pay” of each NEO in 2015. For purposes of this table, we define “realized pay”
to include the following elements of compensation:
|
·
|
base salary and awards under the EICP earned based on fiscal year 2015 performance;
|
|
·
|
the value of the time-based restricted stock unit awards granted in 2013 under the LTIP to each of the NEOs, which awards vested
in 2015;
|
|
·
|
the value of the performance-based RSU awards that vested at the end of the 2013 to 2015 performance period; and
|
|
·
|
the value of all perquisites and other personal benefits, to the extent they were includible in the named executive officer’s
gross income or otherwise resulted in imputed income for tax purposes.
|
We calculate realized pay with respect to awards settled in
Company common stock by multiplying (i) the average of the high and low trading prices of our common stock on the NYSE on the vesting
date, by (ii) the total number of shares vested, including any shares withheld for tax purposes.
The table does not reflect the vesting of RSU awards granted
under the Rigby Employment Agreement or the Fitzgerald Employment Agreement, because no shares of common stock may be issued in
settlement of these awards until the day after the executive’s employment with the Company terminates.
|
2015 Realized Pay
|
|
|
Name
|
Base Salary,
Bonus and
EICPAwards
($)
|
Vested LTIP
Time-Based
RSU Awards
($)
(1)
|
Vested LTIP
Performance-
Based RSU
Awards
($)
(1)
|
Perquisites
and Other
Personal
Benefits
Included on
W-2
($)
|
Total
Realized Pay
($)
|
2015 Total
Compensation
Reported in
Summary
Compensation
Table
($)
|
Realized
Pay as a
Percentage
of 2015
Reported
Pay
(%)
|
Joseph M. Rigby
|
2,278,675
|
1,316,441
|
3,879,961
|
61,333
|
7,536,410
|
5,766,626
|
130.69
|
Frederick J. Boyle
|
899,705
|
304,764
|
898,346
|
21,028
|
2,123,843
|
1,718,064
|
123.62
|
David M. Velazquez
|
862,918
|
335,921
|
990,123
|
34,486
|
2,223,448
|
2,032,937
|
109.37
|
Kevin C. Fitzgerald
|
998,561
|
356,666
|
1,051,289
|
34,675
|
2,441,191
|
2,022,997
|
120.67
|
John U. Huffman
|
398,000
|
198,687
|
585,676
|
31,977
|
1,214,340
|
905,720
|
134.07
|
(1) The amount shown for each
executive represents the vesting date fair market value for each of the 2013 to 2015 time-based and the 2013 to 2015 performance-based
awards granted under the 2012 LTIP. In addition, for each award cycle the value of accrued dividend equivalents earned during the
vesting period are reflected in the amounts vested. With respect to the 2013 to 2015 performance-based awards, a premium of 47.37%
over target was earned based on relative TSR.
Comparison
of Key Elements of Total Compensation
The chart below provides a comparison of the key elements of
total compensation for 2015 for each named executive officer, including the percentage of salary and bonus compared to total compensation.
This section uses information contained in the 2015 Summary Compensation Table.
Employment Agreements
Joseph M. Rigby
Effective January 1, 2012, the Company entered into the
Rigby Employment Agreement, which provided for Mr. Rigby’s employment with the Company through December 31, 2014.
Our independent directors, based upon the recommendation of Pearl Meyer, approved the Rigby Employment Agreement.
On January 24, 2014, Mr. Rigby notified the Company’s
Board of Directors of his intention to step down from his position as President and CEO in 2014. Subsequent to this announcement,
the Company entered into merger negotiations with Exelon, which led to the execution of the Merger Agreement in April 2014. In
view of this development, the Board of Directors requested that Mr. Rigby extend his employment until the completion of the Merger.
The Board of Directors’ desire to extend the term of employment of
Mr. Rigby was based on its determination that his continued
guidance and leadership of the Company were critical to securing the required regulatory approvals necessary to the successful
completion of the Merger. As inducement for Mr. Rigby to delay his planned retirement and extend the term of his employment with
the Company, the Board of Directors granted to Mr. Rigby awards of vested and unvested restricted stock, all of which were
subject to restrictions on transferability until Mr. Rigby’s employment terminates. Subject to certain exceptions, the
shares of unvested restricted stock will be forfeited if Mr. Rigby’s employment with the Company terminates before the
end of the 24-month employment extension period on April 29, 2016. Exelon supported the extension of Mr. Rigby’s employment
and the restricted stock grants to Mr. Rigby, and the restricted stock grant to Mr. Rigby did not have any impact on the determination
of the merger consideration of $27.25 per share.
On April 29, 2014, the Company and Mr. Rigby entered into
the Rigby Extension Agreement, extending the term of his employment as the Company’s President and Chief Executive Officer
for a period (the Rigby Extension Period) beginning on January 1, 2015, and ending on the first to occur of:
|
·
|
the closing date of the Merger;
|
|
·
|
the date that is six months after the Merger Agreement is terminated; or
|
As discussed above, the Merger was completed on March 23, 2016.
The following table provides a summary of the material terms
of the Rigby Extension Agreement.
Provision of Employment Extension Agreement
|
|
Description
|
Annual salary
|
|
Fixed at $1,015,000 pursuant to the Rigby Extension Agreement, which was the same as Mr. Rigby’s base salary for 2014 under the terms of the Rigby Employment Agreement.
|
Restricted stock awards
|
|
As an inducement to extend his employment, Mr. Rigby received
two awards of restricted stock under the 2012 LTIP, as follows:
➢
73,394
shares of fully-vested restricted stock (36,110 shares after withholding of shares for taxes), which, during the term of the Rigby
Extension Agreement, may not be sold or otherwise transferred except to satisfy his tax withholding obligations associated with
the award of the shares.
➢
110,092
shares of unvested restricted stock (54,165 shares after withholding of shares for taxes), which vest in full on the last day of
the Rigby Extension Period or if, prior to that date, Mr. Rigby’s employment is terminated by us without “cause,”
by Mr. Rigby for “good reason” (each as defined in the Rigby Employment Agreement), or as a result of Mr. Rigby’s
disability or death.
|
Retirement and other benefit plans
|
|
Mr. Rigby will participate, in a manner similar to other senior executives, in retirement plans, fringe benefit plans, supplemental benefit plans and other plans and programs (including insurance coverage) provided by us for our executives or employees, except that under the Rigby Employment Agreement, Mr. Rigby was granted an annual minimum annuity benefit under the 2011 SERP in an amount equal to 1.65% of his five-year average base pay and bonus multiplied by years of service as determined under the Pepco Holdings Sub-Plan (for all other executives, the 2011 SERP provides for an annual benefit equal to 1.45% of the five-year average base pay
|
Provision of Employment Extension Agreement
|
|
Description
|
|
|
and bonus multiplied by years of service).
|
Provisions with respect to termination of employment during Employment Extension Period
|
|
See “— Executive Compensation — Termination
of Employment and Change in Control Benefits — Rigby Extension Agreement” for a description of various benefits that
Mr. Rigby may be entitled to receive under the Rigby Extension Agreement in connection with the termination of his employment.
Mr. Rigby is subject to a three-year post-termination non-competition
covenant and two-year post-termination non-solicitation and non-hiring covenants with respect to any person who is serving as our
executive officer at the time of the solicitation.
|
Performance cash bonus
|
|
Mr. Rigby will be eligible to receive a cash award in an amount up to $1,500,000 as determined in the sole discretion of the Board based upon the recommendation of the Compensation Committee. The amount of the award will be based on an evaluation of Mr. Rigby’s performance during the Rigby Extension Period and will be subject to his continued employment until the expiration of that period and his execution of a release of claims in favor of the Company.
|
Change in control benefit
|
|
Mr. Rigby is not entitled to any cash severance under the Rigby Extension Agreement or any other Company agreement or plan.
|
Clawback provisions
|
|
The Rigby Extension Agreement includes provisions intended to satisfy the compensation recovery provisions of both the Dodd-Frank Act and the Sarbanes-Oxley Act.
|
Kevin C. Fitzgerald
Effective September 17, 2012, the Company, upon the approval
of the Compensation Committee, and Mr. Fitzgerald entered into the Fitzgerald Employment Agreement, which provided for Mr. Fitzgerald’s
employment with the Company through September 16, 2015.
On September 11, 2015, the Company entered into the Fitzgerald
Extension Agreement with Mr. Fitzgerald, extending the term of his employment to June 30, 2016, or, if earlier, (i) the closing
date of the Merger or (ii) the date that is six months after the termination of the Merger Agreement. As discussed above, the Merger
was completed on March 23, 2016.
The Fitzgerald Extension Agreement was effective on September 17,
2015, the expiration date of the Fitzgerald Employment Agreement. The Fitzgerald Extension Agreement provides that during the Fitzgerald
Extension Period the terms of Mr. Fitzgerald’s employment arrangements will remain the same as those in effect under the
Fitzgerald Employment Agreement, except as set forth in the following table which provides a summary of the material terms of the
Fitzgerald Employment Agreement, as amended by the Fitzgerald Extension Agreement:
Provision of Employment Agreement and
Fitzgerald Extension Agreement
|
|
Description
|
Annual salary
|
|
Fixed at $563,000 pursuant to the Fitzgerald Extension Agreement, which was the same as Mr. Fitzgerald’s base salary for 2015 under the terms of the Fitzgerald Employment Agreement.
|
Cash incentive compensation
|
|
Mr. Fitzgerald is entitled to a target incentive opportunity under the EICP equal to 60% of his annual base salary.
|
Retirement and other benefit plans
|
|
Mr. Fitzgerald is eligible to participate (in a manner similar to other senior executives of Pepco Holdings of comparable rank) in Pepco
|
Provision of Employment Agreement and
Fitzgerald Extension
Agreement
|
|
Description
|
|
|
Holdings’
retirement, supplemental retirement benefit, savings, deferred compensation, health, welfare and insurance plans, and in other
plans and programs provided by Pepco
Holdings from time to time for its senior executives
of comparable rank. Mr. Fitzgerald is entitled to receive such perquisites and other personal benefits provided by Pepco Holdings
from time to time to its senior executives of comparable rank.
|
Long-term incentive plan compensation
|
|
Mr. Fitzgerald is entitled to receive awards under the 2012 LTIP with aggregate target award opportunities equal to 125% of his base salary.
|
RSU awards
|
|
Pursuant to the Fitzgerald Employment Agreement, Mr. Fitzgerald
is entitled to receive a series of three annual performance-based awards under the 2012 LTIP:
➢
to
be granted over the term of the employment agreement;
➢
each
to consist of such number of RSUs equal to $166,666.67, divided by the closing price of a share of common stock on the last trading
day prior to the first day of the calendar year in which the award is executed and delivered; and
➢
the
vesting of which is contingent upon Mr. Fitzgerald’s continued employment with the Company during the annual performance
period and achievement of the performance goals covered by each award.
|
|
|
Mr. Fitzgerald also received a time-based award of 39,494 RSUs
under the 2012 LTIP, four-fifteenths of which vested on September 17, 2013, four-fifteenths of which vested on September 17,
2014, and the balance which vested on September 17, 2015.
Mr. Fitzgerald may not settle vested RSUs under these awards
until the day after his employment with the Company terminates, except that he may elect to surrender vested RSUs as permitted
to satisfy applicable tax withholding obligations. Vested RSUs will be credited with dividend equivalents in the form of additional
fully-vested RSUs.
|
Payments upon termination or change in control
|
|
Pepco Holdings may terminate Mr. Fitzgerald’s
employment at any time, with or without cause, and Mr. Fitzgerald may resign as an employee at any time and for any reason, in
each case without further compensation under the employment agreement.
Mr. Fitzgerald is a participant in the CIC Plan and
the Employee Severance Plan. See “— Executive Compensation — Termination of Employment and Change in Control
Benefits” for a discussion of the terms and conditions of these plans. Pursuant to the Fitzgerald Extension Agreement, the
termination of Mr. Fitzgerald’s employment at the end of the Fitzgerald Extension Period would constitute a “Qualifying
Termination” under the CIC Plan, which will entitle Mr. Fitzgerald to receive (i) a severance payment equal to the sum of
(A) his then-current annual salary and (B) the full amount of his target annual bonus under the EICP, and (ii) such other benefits
specified by the CIC Plan.
|
Clawback provisions
|
|
The employment agreement includes provisions intended to satisfy the compensation recovery provisions of both the Dodd-Frank Act and the Sarbanes-Oxley Act.
|
2015 Grants of Plan-Based
Awards
The following table provides certain
information regarding plan-based awards, including award opportunities under the EICP, granted to each of the named executive officers
in 2015.
|
|
|
Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards
(1)
|
|
Estimated Future Payouts Under
Equity Incentive Plan Awards
|
All Other
Stock
Awards:
Number of
Shares of
Stock or Units
(#)
|
Grant Date
Fair Value of
Stock and
Option
Awards
($)
(3)
|
Name
|
Grant
Date
|
Approval
Date
|
Threshold
($)
(2)
|
Target
($)
|
Maximum
($)
|
|
Threshold
Number of
Shares
(#)
|
Target
Number
of Shares
(#)
|
Maximum
Number
of Shares
(#)
|
Joseph
M. Rigby
EICP
(4)
|
1/22/15
|
1/22/15
|
253,750
|
1,015,000
|
1,827,000
|
|
—
|
—
|
—
|
—
|
—
|
2012 LTIP—Time-based RSU award
(5)
|
1/22/15
|
1/22/15
|
—
|
—
|
—
|
|
—
|
—
|
—
|
92,541
|
2,537,474
|
Frederick J. Boyle
EICP
(4)
|
1/22/15
|
1/22/15
|
77,250
|
309,000
|
556,200
|
|
—
|
—
|
—
|
—
|
—
|
2012 LTIP—Time-based RSU award
(5)
|
1/22/15
|
1/22/15
|
—
|
—
|
—
|
|
—
|
—
|
—
|
23,477
|
643,739
|
David M. Velazquez
EICP
(4)
|
1/22/15
|
1/22/15
|
32,940
|
329,400
|
592,920
|
|
—
|
—
|
—
|
—
|
—
|
2012 LTIP—Time-based RSU award
(5)
|
1/22/15
|
1/22/15
|
—
|
—
|
—
|
|
—
|
—
|
—
|
25,027
|
686,240
|
Kevin C. Fitzgerald
EICP
(4)
|
1/22/15
|
1/22/15
|
84,450
|
337,800
|
608,040
|
|
—
|
—
|
—
|
—
|
—
|
2012 LTIP—Time-based RSU award
(5)
|
1/22/15
|
1/22/15
|
—
|
—
|
—
|
|
—
|
—
|
—
|
25,665
|
703,734
|
2012 LTIP—Performance-based RSU award pursuant to employment agreement
(6)
|
2/26/15
|
2/26/15
|
—
|
—
|
—
|
|
—
|
6,188
|
—
|
—
|
161,383
|
John U. Huffman
EICP
(4)
|
1/22/15
|
1/22/15
|
59,700
|
238,800
|
429,840
|
|
—
|
—
|
—
|
—
|
—
|
2012 LTIP—Time-based RSU award
(5)
|
1/22/15
|
1/22/15
|
—
|
—
|
—
|
|
—
|
—
|
—
|
14,514
|
397,974
|
|
(1)
|
The “target” amount represents the amount of payment for an award opportunity under the EICP based upon achievement
of the performance criteria at the “target” level as determined by the Compensation Committee. The “threshold”
amount represents the minimum amount of an award which may be received by the executive under the EICP, assuming that an award
is paid. The “maximum” amount represents the highest possible payment with respect to an EICP award based on performance,
which for 2015 was equal to 180% of the target payment.
|
|
(2)
|
The amounts in this column do not reflect the Compensation Committee’s retained discretion to increase or reduce these
minimum award amounts by up to 30% of the target amount of the award opportunity.
|
|
(3)
|
Represents the grant date fair value, as determined in accordance with ASC 718 (excluding the effect of estimated forfeitures),
of restricted stock, time-based RSUs and performance-based RSUs granted under the 2012 LTIP. The grant date fair value of each
performance-based RSU award has been calculated using the “target” number of shares, consistent with the estimate of
aggregate compensation cost to be recognized over the service period in accordance with ASC 718.
|
|
(4)
|
For a further description of these award opportunities, see “— Compensation Discussion and Analysis —
Components of the Executive Compensation Program — Annual Cash Incentive Awards Under the EICP” and footnote (2) to
the Summary Compensation Table.
|
|
(5)
|
Subject to the provisions of the Merger Agreement and the acceleration of vesting under certain other circumstances as described
in “— Executive Compensation — Termination of Employment and Change in Control Benefits,” this time-based
RSU award vests on the third anniversary of the date of grant if the executive has been continuously employed by us through that
date.
|
|
(6)
|
This award is the last in a series of three annual performance-based awards pursuant to the Fitzgerald Employment Agreement,
the vesting of which is contingent upon continued employment during the annual performance period and achievement of the performance
goals established for the annual performance period.
|
2012 Long-Term Incentive
Plan
The Pepco Holdings, Inc. 2012 Long-Term Incentive Plan provides
for long-term incentives to attract, retain and reward highly competent officers and key employees of Pepco Holdings and its subsidiaries,
as well as directors of Pepco Holdings who are not employees or officers of Pepco Holdings or any subsidiary.
Except as otherwise provided in the 2012 LTIP, the Compensation
Committee will generally be the administrator of the 2012 LTIP and has sole authority to generally make all determinations advisable
for the administration of the 2012 LTIP in order to achieve its stated objectives.
The number of shares of common stock subject to awards under
the 2012 LTIP may not exceed, in the aggregate, 8,000,000 shares, subject to appropriate adjustments in the event of any change
in the outstanding shares of common stock by reason of any dividend or split, recapitalization, reorganization, combination, division
or exchange of shares, or other similar changes in the common stock. For purposes of determining the number of shares of common
stock available for issuance under the 2012 LTIP, whenever an award lapses, is cancelled or forfeited, is delivered or surrendered
to us as part or full payment for the exercise of an option, or the rights of the participant to whom an award was granted terminate,
the shares subject to such award will again be available for future awards under the 2012 LTIP.
The Compensation Committee may grant awards under the 2012 LTIP
to officers or key employees of Pepco Holdings or any subsidiary, including such officers or employees who are members of the Board.
The Compensation Committee also may grant director awards under the 2012 LTIP to directors of Pepco Holdings who are not employees
or officers of Pepco Holdings or any subsidiary. As of December 31, 2015, 68 persons were eligible to participate in the 2012 LTIP.
Unless earlier terminated by the Board, the 2012 LTIP shall terminate on May 18, 2022, but the 2012 LTIP shall remain in effect
thereafter solely to settle all matters related to the payment of outstanding awards and the termination of the 2012 LTIP.
Awards permitted to be granted under the 2012 LTIP include incentive
stock options, nonqualified stock options, stock appreciation rights (SARs), restricted stock, RSUs, performance shares, performance
units, unrestricted stock and director awards. Director awards are equity awards granted in lieu of some or all of a non-employee
director’s cash compensation.
Dividend equivalents may be granted under the 2012 LTIP without
consideration from the participant in conjunction with the grant or deferral of restricted stock awards, RSU awards, performance
share awards, performance unit awards or any director awards (other than a director award in the form of an option or SAR). Each
dividend equivalent will entitle the participant to receive an amount equal to the dividend paid with respect to a share of common
stock on each dividend payment date from the date of grant to the date the dividend equivalent lapses. However, no payment may
be made as to any dividend equivalent associated with a performance-based award under the 2012 LTIP, unless the Compensation Committee
has determined that the target performance objectives with respect thereto have been achieved or exceeded.
If a participant under the 2012 LTIP is subject to the clawback
provisions of the Sarbanes-Oxley Act or is covered under a clawback policy adopted by Pepco Holdings in accordance with rules promulgated
by the SEC under the Dodd-Frank Act, an award agreement shall require the participant to comply with all provisions and requirements
of such rules and policies.
Amended and Restated Annual Executive Incentive Compensation
Plan
The EICP is a cash-based incentive program designed to align
executive compensation with the performance of Pepco Holdings and its subsidiaries. Throughout this section, the term “award”
refers to a cash incentive payment made to a participant under the EICP. Awards under the EICP to a participant who is a “covered
employee” within the meaning of Section 162(m) of the Code (Covered Executives) are intended to qualify as “performance-based
compensation,” eligible for the exception to the non-deductibility provision of Section 162(m) of the Code.
The EICP is administered by the Compensation Committee of the
Board (or its designee), except that, to the extent required for an award to a covered executive to qualify as “performance-based
compensation” under Section 162(m) of the Code, the EICP shall be administered by the Compensation Committee, which must
consist solely of two or more “outside directors” as defined under Section 162(m) of the Code.
No award shall be made in respect of any calendar year that
begins on or after January 1, 2022.
Participants in the EICP for any calendar year may include any
executive or employee of the Company or any subsidiary selected by the administrator, upon the recommendation of the Company’s
chief executive officer, to participate in the EICP. As of December 31, 2015, 59 persons were eligible to participate in the EICP.
The Compensation Committee shall establish, with the advice
and recommendation of the chief executive officer, target and maximum incentive opportunities. A target incentive opportunity is
established annually as an amount (expressed as a percentage of base salary) payable to a participant if all established performance
goals are met. A maximum incentive opportunity represents the maximum incentive payment that may be made to a participant under
the EICP during that year. The maximum award that may be paid in any single year to any Covered Executive is $3,000,000.
Whether a participant receives an award under the EICP will
depend upon, in part, the achievement of one or more corporate performance goals, business unit performance goals and individual
performance goals pursuant to performance criteria determined by the Compensation Committee.
A participant in the EICP will be eligible to receive an award
based on the level of achievement, as determined by the administrator, of the performance goals associated with that participant’s
award opportunities. In no event shall any award under the EICP be paid unless the performance goals and any applicable future
service requirements for that award have been satisfied.
Outstanding
Equity Awards at December 31, 2015
The following table provides information regarding outstanding
equity awards held by each of the named executive officers at December 31, 2015. None of the named executive officers had outstanding
option awards at December 31, 2015.
|
Stock Awards
|
Name
|
Number of
Shares or
Units of Stock
That Have
Not Vested
(#)
(1)
|
Market Value
of Shares or
Units of Stock
That Have
Not Vested
($)
(1)(2)
|
Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested
(#)
(3)
|
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights That
Have Not Vested
($)
(2)(3)
|
Joseph M. Rigby
|
|
|
|
|
Awarded 1-22-15
|
96,462
|
2,508,977
|
—
|
—
|
Awarded 4-30-14
(4)
|
54,165
|
1,408,832
|
—
|
—
|
Awarded 1-23-14
|
48,570
|
1,263,306
|
194,276
|
5,053,119
|
Frederick J. Boyle
|
|
|
|
|
Awarded 1-22-15
|
24,472
|
636,517
|
—
|
—
|
Awarded 1-23-14
|
11,963
|
311,158
|
47,850
|
1,244,579
|
David M. Velazquez
|
|
|
|
|
Awarded 1-22-15
|
26,087
|
678,523
|
—
|
—
|
Awarded 1-23-14
|
12,776
|
332,304
|
51,106
|
1,329,267
|
Kevin C. Fitzgerald
|
|
|
|
|
Awarded 2-26-15
(5)
|
—
|
—
|
6,188
|
160,950
|
Awarded 1-22-15
|
26,752
|
695,820
|
—
|
—
|
Awarded 1-23-14
|
13,161
|
342,318
|
52,634
|
1,369,010
|
John U. Huffman
|
|
|
|
|
Awarded 1-22-15
|
15,129
|
393,505
|
—
|
—
|
Awarded 1-23-14
|
7,425
|
193,124
|
29,702
|
772,549
|
|
(1)
|
These are time-based restricted stock and RSU awards granted under the 2012 LTIP. Except as otherwise noted, RSU awards vest
in full on the third anniversary of the grant date if the named executive officer has been continuously employed by us through
that date, subject to the acceleration of vesting under certain circumstances. See “— Executive Compensation —
Termination of Employment and Change in Control Benefits.” Except as otherwise noted, amounts with respect to time-based
RSU awards include additional RSUs credited to an executive when the Company pays a dividend on the common stock during the vesting
period, although the shares of common stock underlying such credited RSUs are earned if and only to the extent that an award vests.
|
|
(2)
|
Market value is calculated by multiplying the number of shares shown in the immediately preceding column by $26.01, the closing
market price of a share of common stock on December 31, 2015.
|
|
(3)
|
These are performance-based RSU awards under the 2012 LTIP, which entitle the named executive
officer to earn shares of common stock to the extent pre-established performance objectives are satisfied for the three-year performance
period beginning on January 1, 2014 and ending on December 31, 2016. For each award, the named executive officer is eligible
to earn a number of shares of common stock ranging from 25% to 200% of the target performance award depending on the extent to
which the performance objectives are achieved, assuming that the named executive officer has been continuously employed by us during
the performance period. For each named executive officer, the number in this column reflects the number of shares that could be
earned pursuant to each performance-based RSU award outstanding as of December 31, 2015, based on the maximum assumed level
of performance and a relative TSR as of December 31, 2015 of 198.25
%
.
Amounts include additional RSUs that may be credited to an executive when the Company pays a dividend on the common stock during
the performance period, although the shares of common stock underlying such credited RSUs are earned if and only to the extent
that an award vests.
|
|
(4)
|
This is an unvested award of restricted stock granted to Mr. Rigby under the terms of the Rigby Extension Agreement. For further
discussion of the terms of this award, see “—Executive Compensation — Employment Agreements — Joseph M.
Rigby.”
|
|
(5)
|
This
RSU award is the last in a series of three annual performance-based awards granted to
Mr. Fitzgerald pursuant to the Fitzgerald Employment Agreement. This award covers the
performance period beginning on January 1, 2015 and ending on December 31,
2015, with vesting ranging from 0% to 100%. Dividend equivalents accrue only on the vested
portion of the award. If and to the extent the award has vested, settlement of the award
in shares of common stock will be deferred (subject to certain exceptions and the
applicable provisions of the Merger Agreement) until the day after the day Mr. Fitzgerald’s
employment with the Company terminates. For a discussion of the terms of this award and
the payout to Mr. Fitzgerald thereunder, see “— Compensation Discussion and
Analysis — Components of the Executive Compensation Program — Stock-Based
Awards Under the 2012 LTIP — Performance-Based Employment Agreement Awards - Mr.
Fitzgerald.”
|
2015
Option Exercises and Stock Vested
The following table provides certain information regarding the
following awards that vested in whole or in part during 2015:
|
·
|
time-based RSU awards (including dividend equivalents) granted in 2013 that vested during 2015;
|
|
·
|
performance-based RSU awards (including dividend equivalents) that vested during 2015 with respect to the 2013 to 2015 performance
period;
|
|
·
|
Mr. Rigby’s and Mr. Fitzgerald’s performance-based awards pursuant to their respective employment agreements, each
of which vested on February 26, 2015 with respect to the 2014 performance period, including dividend equivalents that accrued
after vesting during 2015 (although the shares underlying such RSU awards are not to be received until the day after employment
with the Company terminates (subject to certain exceptions and the applicable provisions of the Merger Agreement)); and
|
|
·
|
The 2015 portion of Mr. Fitzgerald’s time-based RSU award pursuant to the Fitzgerald Employment Agreement, four-fifteenths
of which vested on each of September 17, 2013 and 2014, and the balance of which vested on September 17, 2015, including dividend
equivalents that accrued during 2015 (although the shares underlying such RSU award are not to be received until the day after
his employment with the Company terminates (subject to certain exceptions and the applicable provisions of the Merger Agreement)).
|
No options were outstanding during 2015.
Name
|
Stock Awards
|
Number of
Shares
Acquired on
Vesting
(#)
|
Value Realized
on Vesting
($)
(1)
|
Joseph M. Rigby
(2)
|
242,878
|
6,374,948
|
Frederick J. Boyle
|
46,105
|
1,203,110
|
David M. Velazquez
|
50,816
|
1,326,044
|
Kevin C. Fitzgerald
(3)(4)
|
82,848
|
2,127,841
|
John U. Huffman
|
30,058
|
784,363
|
|
(1)
|
Represents the aggregate market value of the shares realized on vesting, calculated by multiplying the vested number of shares
by the average of the high and low trading prices of a share of common stock on the vesting date (or (i) on the last trading day
prior thereto when the vesting day occurs on a non-trading day and (ii) with respect to Mr. Rigby’s time-based award pursuant
to the Rigby Employment Agreement, market value of the vested shares has been calculated using an average of the daily closing
prices during 2015).
|
|
(2)
|
Of these vested shares, 43,744 shares (representing an aggregate amount of $1,178,547 realized upon vesting) will not
be received by Mr. Rigby until the day after his employment with the Company terminates (subject to certain exceptions and the
applicable provisions of the Merger Agreement).
|
|
(3)
|
Does not include 4,950 shares underlying a performance-based award pursuant to the Fitzgerald Employment Agreement, which award
vested on February 19, 2016. The value realized as of the vesting date with respect to this award was $131,398. This amount was
calculated by multiplying the vested number of shares by the average of the high and low trading prices of a share of common stock
on the vesting date.
|
|
(4)
|
Of these vested shares, 28,893 shares (representing an aggregate amount of $719,886 realized upon vesting) will not
be received by Mr. Fitzgerald until the day after his employment with the Company terminates (subject to certain exceptions and
the applicable provisions of the Merger Agreement).
|
Pension
Benefits at December 31, 2015
The following table provides certain information regarding pension
benefits for each of the named executive officers at December 31, 2015.
Name
|
Plan Name
(1)
|
Number of Years
of Credited
Service
(#)
|
Present Value of
Accumulated Benefits
($)
(2)
|
Payments
During Last Fiscal
Year
($)
|
Joseph M. Rigby
|
Conectiv Cash Balance Sub-Plan
(3)
|
29 yrs., 11 mos.
|
1,790,752
|
—
|
|
2011 SERP/Conectiv SERP
|
36 yrs., 11 mos.
|
14,749,830
|
—
|
|
Contractual benefit
(4)
|
36 yrs., 11 mos.
|
2,281,460
|
—
|
Frederick J. Boyle
|
Pepco Holdings Sub-Plan
|
3 yrs., 8 mos.
|
117,638
|
—
|
|
2011 SERP
|
3 yrs., 8 mos.
|
279,138
|
—
|
David M. Velazquez
|
Conectiv Cash Balance Sub-Plan
(5)
|
30 yrs., 0 mos.
|
1,227,801
|
—
|
|
2011 SERP/Conectiv SERP
|
34 yrs., 6 mos.
|
5,114,025
|
—
|
Kevin C. Fitzgerald
|
Pepco Holdings Sub-Plan
|
3 yrs., 3 mos.
|
83,811
|
—
|
|
2011 SERP
|
3 yrs., 3 mos.
|
215,938
|
—
|
John U. Huffman
|
Pepco Holdings Sub-Plan
|
10 yrs., 0 mos.
|
287,754
|
—
|
|
2011 SERP
|
10 yrs., 0 mos.
|
526,087
|
—
|
|
(1)
|
For executives who were participants in a Company supplemental executive retirement plan prior to August 1, 2011, the
2011 SERP provides a supplemental retirement benefit equal to the amount, if any, by which the executive’s benefit calculated
under the benefit formula of the 2011 SERP exceeds the supplemental retirement benefit provided under the predecessor plan. Where
the predecessor plan provides for a greater benefit, the executive will receive the supplemental pension benefit provided for under
the predecessor plan.
|
|
(2)
|
Represents the actuarial present value of the executive’s accumulated pension benefit calculated as of December 31,
2015, assuming the executive retires at the earliest time he may retire under the applicable plan without any benefit reduction
due to age. The valuation method and all material assumptions applied in calculating the actuarial present value are set forth
in Note (9), “Pension and Other Postretirement Benefits,” to our consolidated financial statements, which are included
in the 2015 Form 10-K.
|
|
(3)
|
The Conectiv Cash Balance Sub-Plan provides for certain “grandfathered” rights under predecessor plans, as described
further below under “— Executive Compensation — Description of Pension and Other Retirement Plans —
Pepco Holdings Retirement Plan — Conectiv Cash Balance Sub-Plan.” Under these grandfathering provisions, the benefit
is calculated for all years of service up to December 31, 2008. The number of actual years of service with the Company and
its predecessors for Mr. Rigby under this plan is 36 years, 11 months.
|
|
(4)
|
Represents the net present value of accumulated pension benefits provided under the Rigby Employment Agreement.
|
|
(5)
|
The pension benefit of the participants in the Conectiv Cash Balance Sub-Plan is the greater of the benefit calculated under
that plan or the benefit determined by applying the Pepco Holdings Sub-Plan formula, under which the number of years of credited
service is capped at 30 years. As of December 31, 2015, Mr. Velazquez’s benefit under the Pepco Holdings Sub-Plan formula
exceeded his benefit under the Conectiv Cash Balance Sub-Plan. The number of actual years of service with the Company and its predecessors
for Mr. Velazquez is 34 years, 6 months.
|
Retirement Plans
The Company’s retirement
plans and benefits are described below.
Pepco Holdings Retirement
Plan
The Pepco Holdings Retirement Plan is a defined benefit plan
which consists of several sub-plans and which is qualified under applicable provisions of the Code. Each of the named executive
officers participates in the Pepco Holdings Sub-Plan, the Pepco General Retirement Sub-Plan or the Conectiv Cash Balance Sub-Plan.
Pepco Holdings Sub-Plan
Persons who become employees (other than certain union employees)
of the Company on or after January 1, 2005 are eligible to participate in the Pepco Holdings Sub-Plan, including Messrs. Boyle,
Fitzgerald and Huffman. The Pepco Holdings Sub-Plan provides participating employees who have at least five years of service with
retirement benefits based on the participant’s average base salary for the final five years of employment and the number
of years of credited service under the plan at the time of retirement. The normal retirement date generally is the first day of
the month after the participant attains age 65. Participants who have reached age 55 and who have ten years of credited service
are eligible for retirement benefits prior to normal retirement age, at a benefit level that is reduced from the benefit level
at normal retirement age by 3% for each year that the early retirement date precedes the normal retirement date. A participant
may retire with full benefits at age 62, provided the participant has 20 years of service. Benefits under the plan are paid in
the form of a monthly annuity selected by the participant from among several available annuity options. As of December 31, 2015,
neither Mr. Boyle nor Mr. Fitzgerald had accrued the years of service required to be eligible for benefits under the Pepco Holdings
Sub-Plan.
Pepco General Retirement Sub-Plan
All employees who were employed by Pepco on August 1, 2002,
or by the Company in the Pepco service territory prior to January 1, 2005, are eligible to participate in the Pepco General Retirement
Sub-Plan. The Pepco General Retirement Sub-Plan provides participating employees who have at least five years of credited service
with retirement benefits based on the participant’s average salary for the final three years of employment and the number
of years of service under the plan at the time of retirement. The normal retirement date under the Pepco General Retirement Sub-Plan
generally is the first day of the month after the participant attains age 65. Participants who have reached age 55 and have at
least 30 years of credited service are eligible for early retirement without any reduction in benefits. Participants who have reached
age 55 and who have ten years of credited service are eligible for retirement benefits prior to normal retirement age, at a benefit
level that is reduced from the benefit level at normal retirement age by 2% for each year that the early retirement date precedes
the normal retirement date. Benefits under this plan are partially offset by the Social Security benefits received by the participant
and are paid in the form of a monthly annuity selected by the participant from among several available annuity options.
Conectiv Cash Balance Sub-Plan
Most non-unionized employees who were employed by Conectiv on
August 1, 2002, or by the Company in the former Conectiv service territory prior to December 31, 2004, are eligible to participate
in the Conectiv Cash Balance Sub-Plan, including Messrs. Rigby and Velazquez. Under the Conectiv Cash Balance Sub-Plan, a record-keeping
account in a participant’s name is credited with an amount equal to a percentage (which varies depending on the participant’s
age at the end of the plan year) of the participant’s total pay, consisting of base pay, overtime and bonuses. Also, participants
in the Atlantic City Electric Retirement Plan, in which Mr. Rigby participated, and the Delmarva Retirement Plan, in which
Mr. Velazquez participated, who had at least ten years of credited service as of December 31, 1998, the inception date of the Conectiv
Cash Balance Sub-Plan, are eligible to receive additional transition credits until the participant’s combined years of service
under the prior plan and the Conectiv Cash Balance Sub-Plan total 35 years.
Participants employed by DPL or ACE on December 31, 1998 were
credited with an initial cash balance equal to the present value of their annuity benefits as of that date earned under the Atlantic
City Electric Retirement Plan or the Delmarva Retirement Plan, respectively. Each participant’s account balance is supplemented
annually with interest credits equal to the prevailing 30-year U.S. Treasury bond rate. Benefits become vested after three years
of service. When a participant terminates employment (regardless of age), the amount credited to his or her account, at the election
of the participant, is converted into one of several actuarially equivalent annuities selected by the participant or is paid to
the participant in a lump sum (which cannot exceed 6.5 times the participant’s final average compensation).
For 2015, Mr.
Rigby had a Company credit percentage of 10%. For 2015, Mr. Velazquez had a Company credit percentage of 10%, and through 2016,
receives an annual transition credit of 3% of total pay.
The Conectiv Cash Balance Sub-Plan also provides for certain
“grandfathered” rights from the Delmarva Retirement Plan and the Atlantic City Electric Retirement Plan, which apply
to employees who had either 20 years of credited service or had attained age 50 on or before January 1, 1999. Under these
grandfathering provisions, eligible employees are assured a minimum retirement benefit calculated for all years of service up to
December 31, 2008, according to their original benefit formula under the applicable plan. Mr. Rigby, who was a participant
in the Atlantic City Electric Retirement Plan, is the only named executive officer eligible to receive these grandfathered benefits.
Participants in the Conectiv Cash Balance Sub-Plan are entitled
to the greater of the benefit calculated under the Conectiv Cash Balance Sub-Plan or a benefit calculated using the Pepco Holdings
Sub-Plan formula. In determining the benefit under the Pepco Holdings Sub-Plan, a participant’s prior years of service are
taken into account up to a maximum of 30 years of credited service. As of December 31, 2015, Mr. Rigby’s benefits
under the Conectiv Cash Balance Sub-Plan exceeded those under the Pepco Holdings Sub-Plan (which is described above). Mr. Velazquez’s
benefits under the Pepco Holdings Sub-Plan formula exceeded his benefits under the Conectiv Cash Balance Sub-Plan as of that date.
The present value of accumulated benefits shown in the 2015
Pension Benefits table for the Conectiv Cash Balance Sub-Plan reflects pension benefits that would be paid for Mr. Rigby’s
and Mr. Velazquez’s respective lifetimes as an annuity commencing upon attainment of their eligibility to receive unreduced
retirement benefits. Had either of them retired on December 31, 2015 and started receipt of their pension benefit amounts at that
time (as an annuity or a lump sum, if available), the net present value of their pension benefit amounts under the Conectiv Cash
Balance Sub-Plan for Mr. Rigby and Mr. Velazquez would be $1,864,896, and $1,406,601, respectively.
Supplemental Executive Retirement Plans
Pepco Holdings
2011 Supplemental Executive Retirement Plan
In 2011, the Company adopted the 2011 SERP, a nonqualified supplemental
executive retirement plan, to supplement benefits paid from the Pepco Holdings Retirement Plan. The 2011 SERP replaces the Executive
Retirement Plan and the Conectiv Supplemental Executive Retirement Plan (each as described below) as the supplemental retirement
plan for new eligible employees of Pepco Holdings and its subsidiaries hired on or after August 1, 2011. The 2011 SERP also includes
provisions that may augment the supplemental retirement benefits to which participants in the pre-existing plans, including each
of the named executive officers, are entitled.
The principal purposes of the 2011 SERP are to provide competitive
retirement benefits, to protect eligible participants against reductions in retirement benefits due to the qualified plan limitations
(as defined below), to encourage the continued employment of and to attract new employees to work for the Company, and to establish
a more unified approach to the Company’s retirement programs. The establishment of the 2011 SERP is consistent with the Company’s
efforts to align retirement benefits provided by the Company and its subsidiaries with current market practices, as recommended
by the Compensation Committee’s independent compensation consultant.
The benefit formula under the 2011 SERP is 1.45% times final
average pay (as determined in accordance with the terms of the 2011 SERP) times years of credited service. Benefits under the 2011
SERP are calculated without reduction for limitations placed by the Code on the computation of retirement benefits under a qualified
benefit plan (the qualified plan limitations). These limitations cap both the amount of
the annual retirement benefit and the amount of compensation
that may be used to calculate the annual benefit and exclude from the benefit calculation compensation that is deferred under the
terms of a nonqualified plan. Under the 2011 SERP, the supplemental retirement benefit is calculated by including in final average
pay the average annual bonus (as determined in accordance with the terms of the 2011 SERP). Accordingly, if a participating executive’s
retirement benefit under the Pepco Holdings Retirement Plan is reduced by the qualified plan limitations or the Pepco Holdings
Retirement Plan final average pay formula does not include EICP payments, the 2011 SERP will pay a supplemental retirement benefit
equal to the difference between (i) the participant’s actual benefit under the Pepco Holdings Retirement Plan and (ii) the
participant’s benefit as calculated under the terms of the 2011 SERP.
The 2011 SERP benefit formula, including its application to
participants in the pre-existing supplemental retirement plans, is designed to provide executives with retirement benefits that
in the aggregate target median peer group retirement benefits based upon the research provided by Pearl Meyer. Eligibility for
participation in the 2011 SERP is determined by the Compensation Committee. Because the 2011 SERP is a nonqualified supplemental
retirement plan, participation is limited to selected members of the Company’s management.
For participants in the pre-existing supplemental executive
retirement plans, in addition to the benefit under the pre-existing plan, the 2011 SERP provides a minimum supplemental retirement
benefit equal to the amount, if any, by which the executive’s benefit calculated under the 2011 SERP benefit formula exceeds
the supplemental retirement benefit provided under the pre-existing plan. Where the pre-existing plan provides for a greater benefit,
the executive will receive the benefit provided for under the pre-existing plan.
Generally, a participant will become vested in the 2011 SERP
upon the later of attaining age 65 or having five years of service. Earlier vesting is permitted under the 2011 SERP when a participant
attains age 55 and is credited with at least ten years of service under the 2011 SERP.
Generally, the only form of benefit intended to be provided
under the 2011 SERP is a lifetime annuity, subject to certain exceptions, including after a change of control of the Company, in
which case the benefit will be paid in a lump sum. Also, benefits under the 2011 SERP will be paid in a lump sum amount to any
participant in the 2011 SERP who also participates in the Conectiv Supplemental Executive Retirement Plan (which itself pays benefits
in the form of a lump sum) or to any participant in the 2011 SERP who does not participate in any other supplemental executive
retirement plan, but only if the value of the benefit payable under the 2011 SERP is considered to be “de minimis”
under the Code. Benefit payments will commence immediately following the participant’s separation from service, subject to
the requirements of Section 409A of the Code.
Executive Retirement Plan
The Executive Retirement Plan is a nonqualified supplemental
executive retirement plan that combines two different retirement structures: the Supplemental Benefit Structure and the Executive
Performance Supplemental Retirement Benefit Structure. The Executive Retirement Plan was closed to new participants effective August
1, 2011, and has been replaced by the 2011 SERP. The Executive Retirement Plan serves the same purpose as the 2011 SERP, as discussed
above. Mr. Huffman is a participant in the Executive Retirement Plan.
Supplemental Benefit Structure
An executive’s benefit under the Supplemental Benefit
Structure is an amount equal to the additional retirement benefit the executive would have received under the Pepco General Retirement
Sub-Plan, if
the qualified plan limitations (as discussed in the description of the 2011 SERP above) were not taken into account
in calculating the executive’s benefit. Benefits under the Supplemental Benefit Structure are payable in the form of a monthly
annuity following the termination of a participant’s employment, subject to the requirements of Section 409A of the Code.
Executive Performance Supplemental Retirement Benefit Structure
An executive’s benefit under the Executive Performance
Supplemental Retirement Benefit Structure is the additional retirement benefit the executive would have received under the Pepco
General Retirement Sub-Plan if final average salary had included the average annual bonus (as determined in accordance with the
terms of the Pepco General Retirement Sub-Plan). Benefits under the Executive Performance Supplemental Retirement Benefit Structure
are payable only to executives who remain employed through age 59, unless the termination of the executive’s employment follows
a change in control of the Company. Benefits are paid in the form of a monthly annuity, except that if the employment of a participant
terminates following a change in control, the payments due will be paid in a lump sum amount equal to the present value of the
annuity payments to which the participant otherwise would be entitled. The timing of benefit payments are subject to Section 409A
of the Code.
Conectiv Supplemental Executive Retirement Plan
The Conectiv
Supplemental Executive Retirement Plan (the Conectiv SERP) is a nonqualified supplemental executive retirement plan that
provides a supplemental retirement benefit equal to the additional retirement benefit a participating executive would have
received under the Conectiv Cash Balance Sub-Plan of the Pepco Holdings Retirement Plan, if the qualified plan limitations
were not taken into account in the benefit calculation. As participants in the Conectiv Cash Balance Sub-Plan, Messrs. Rigby
and Velazquez participate in the Conectiv SERP. In the case of Mr. Rigby, the Conectiv SERP benefit is based on his
grandfathered benefit under the Atlantic City Electric Retirement Plan calculated without taking the qualified plan
limitations into account. The benefit under the Conectiv SERP is payable in a lump sum following the termination of a
participant’s employment, subject to the requirements of Section 409A of the Code. If Messrs. Rigby or Velazquez
had retired on December 31, 2015, the net present value of each of their retirement benefits as of that date under the
Conectiv SERP would have been $2,458,812 and $609,470, respectively.
Nonqualified Deferred Compensation
The following table provides certain information regarding the
nonqualified deferred compensation benefits of each of the named executive officers at December 31, 2015.
Name
|
Executive
Contributions
in Last Fiscal
Year
($)
(1)
|
Registrant
Contributions
in Last Fiscal
Year
($)
(2)
|
Aggregate
Earnings
in Last
Fiscal Year
($)
|
Aggregate
Withdrawals/
Distributions
($)
|
Aggregate
Balance at
Last Fiscal
Year End
($)
(3)
|
Joseph M. Rigby
|
|
|
|
|
|
Conectiv Deferred Compensation Plan
|
-
|
-
|
747
|
-
|
112,825
|
Pepco Holdings Deferred Compensation Plan
|
40,283
|
30,133
|
4,273
|
-
|
1,038,522
|
Deferred Settlement of Awards Pursuant to Employment Agreement
|
-
|
991,021
|
23,006
|
-
|
4,636,543
|
Frederick J. Boyle
|
|
|
|
|
|
Pepco Holdings Deferred Compensation Plan
|
33,461
|
6,728
|
844
|
-
|
308,473
|
David M. Velazquez
|
|
|
|
|
|
Pepco Holdings Deferred Compensation Plan
|
11,021
|
8,256
|
1,108
|
-
|
96,988
|
Kevin C. Fitzgerald
|
|
|
|
|
|
Pepco Holdings Deferred Compensation Plan
|
11,864
|
8,747
|
(54)
|
-
|
65,034
|
Deferred Settlement of Awards Pursuant to Employment Agreement
|
-
|
672,351
|
51,368
|
-
|
1,537,113
|
John U. Huffman
|
|
|
|
|
|
Pepco Holdings Deferred Compensation Plan
|
3,182
|
2,337
|
427
|
-
|
56,448
|
|
(1)
|
All amounts shown are included in the “Salary” column of the Summary Compensation Table for the year 2015.
|
|
(2)
|
All amounts shown with respect to the Pepco Holdings Deferred Compensation Plan and the Conectiv Deferred Compensation Plan
are included in the “All Other Compensation” column of the Summary Compensation Table for the year 2015.
|
|
(3)
|
Includes the following amounts reported as compensation in the Summary Compensation Table for years prior to 2015:
|
Name
|
Pepco Holdings Deferred
Compensation Plan
($)
|
Conectiv Deferred
Compensation Plan
($)
|
Deferred Settlement of
Employment Agreement
RSU Awards
($)
|
Joseph M. Rigby
|
784,462
|
21,468
|
3,215,384
|
Frederick J. Boyle
|
239,860
|
—
|
—
|
David M. Velazquez
|
51,225
|
—
|
—
|
Kevin C. Fitzgerald
|
42,012
|
—
|
715,826
|
John U. Huffman
|
29,146
|
—
|
—
|
Description of Nonqualified Deferred Compensation Plans
and Arrangements
The Company maintains the following nonqualified deferred compensation
plans and arrangements, as to which one or more of the NEOs participate.
Pepco Holdings Deferred
Compensation Plan
Under the Pepco Holdings Deferred Compensation Plan, participating
executives (including each of the named executive officers) and directors (including each of our non-employee directors) are permitted
to defer the receipt of all or any portion of their compensation, including, in the case of executives, incentive compensation.
In addition, to the extent an executive is precluded from making contributions to the 401(k) Plan due to the qualified plan limitations,
the executive is eligible to defer under the Pepco Holdings Deferred Compensation Plan an amount equal to the contribution the
executive is prevented from contributing to the 401(k) Plan and receive an additional credit under the Pepco Holdings Deferred
Compensation Plan equal to the matching contribution, if any, that we would have made to the executive’s account under the
401(k) Plan. For a discussion of the 401(k) Plan’s matching contributions, see “— Compensation Discussion
and Analysis — Components of the Executive Compensation Program — Retirement Programs.”
The Pepco Holdings Deferred Compensation Plan permits participants
to elect to defer compensation into one or more of three separate accounts, enabling the participant to earn a return on the deferred
compensation: a prime rate account, an investment fund account and a Pepco Holdings phantom share account. However, we currently
do not permit our executives to defer compensation into the Pepco Holdings phantom share account. We credit on a monthly basis
to each participant’s account balance an amount corresponding to, as elected by the participant:
|
·
|
the interest at the prime rate that would have been paid on an amount equal to the participant’s prime rate account balance;
|
|
·
|
an amount equal to the return that the participant would have earned had his or her investment fund account balance been invested
in any one or a combination of the investment funds selected by the Compensation Committee; and
|
|
·
|
an amount equal to the return the participant would have earned had the phantom share account balance been invested in shares
of common stock.
|
Subject to applicable law and Company policy, participants may
change these elections as frequently as they wish.
Payment of benefits under the Pepco Holdings Deferred Compensation
Plan begins when selected by the participant among various options, but subject to any limitation necessary to comply with the
requirements of Section 409A of the Code. Once every 12 months, an executive may apply to the Compensation Committee for an early
distribution of all or any part of the executive’s accounts which are not subject to Section 409A of the Code. This early
distribution, less a 10% penalty (which is reduced to 5% if the distribution is submitted within 60 days after a change in control),
must be paid to the executive in a lump sum.
Eligibility of executives to participate in the Pepco Holdings
Deferred Compensation Plan is determined by our chief executive officer pursuant to authority delegated by the Board (and, in the
case of the chief executive officer, by the Board).
Conectiv Deferred Compensation Plan
Prior to the merger of Pepco and Conectiv, Conectiv maintained
the Conectiv Deferred Compensation Plan. Under this plan, participating executives were permitted to defer the receipt of all or
any portion of their compensation, including incentive compensation, and to receive employer matching credits on deferrals corresponding
to contributions the executive was precluded from making to Conectiv’s 401(k) Plan due to the qualified plan limitations.
On August 1, 2002, employee deferrals and matching employer credits under the Conectiv Deferred Compensation Plan were discontinued.
Prior to August 1, 2002, participant deferrals and employer
matching contributions were credited to a deferred compensation account and were deemed invested, as elected by the executive,
in any of the investment options available to participants under the Conectiv 401(k) Plan as of August 1, 2002. Employer matching
contributions were credited to an employer matching account in the form of Conectiv common stock equivalents, which at the time
of the merger were converted into Company common stock equivalents on which additional credits were made when cash dividends were
paid on the common stock based on the number of shares that could be purchased with the cash dividend. Of the named executive officers,
only Mr. Rigby maintains an account balance under the Conectiv Deferred Compensation Plan.
Distributions under the Conectiv Deferred Compensation Plan
commence at a time selected by the executive at the time of deferral from among various options.
Deferred Settlement of Awards Pursuant to Employment Agreements
Each of Messrs. Rigby and Fitzgerald received a time-based award
and performance-based awards pursuant to their respective employment agreements. Shares of the Company’s common stock underlying
the vested portion of these RSU awards may not be received by Mr. Rigby or Mr. Fitzgerald until the day after his employment with
the Company terminates (subject to exceptions and the applicable terms of the Merger Agreement).
Termination of Employment
and Change in Control Benefits
The following is a description of our plans and arrangements
that provide for payments to the named executive officers, following or in connection with the termination of the executive’s
employment, a change in control of the Company or a change in the executive’s responsibilities.
Rigby Extension Agreement
As of April 29, 2014, under the Employment Extension Agreement,
Mr. Rigby is not entitled to any cash severance payments upon the termination of his employment. Also, Mr. Rigby is not entitled
to receive any excise tax gross-up payments under any plan or agreement with us, and, consistent with the Rigby Extension Agreement,
if Mr. Rigby receives any payments that would be subject to such excise tax and the net after-tax amount of such payments is not
at least $10,000 greater than the net after-tax amount he would receive had none of the payments been subject to such excise tax,
the payments will be reduced to the greatest amount that would not give rise to such excise tax.
Mr. Rigby also agreed to a three-year post-termination non-compete
covenant and two-year post-termination non-solicitation and non-hiring covenants.
The Employment Extension Agreement provides Mr. Rigby with limited
benefits if his employment is terminated under various circumstances, as described below.
Termination by the Company Other than for Cause or by Mr.
Rigby for Good Reason
If at any time during the Rigby Extension Period, Pepco Holdings
terminates Mr. Rigby’s employment, other than for cause, or Mr. Rigby terminates his employment with Pepco Holdings for good
reason, Mr. Rigby will be entitled to the following:
|
•
|
payment of unpaid salary and accrued vacation time through the date of termination, as well as any earned and unpaid bonus
for the year prior to the year in which the termination occurs;
|
|
•
|
with respect to the unvested portion of any time-based restricted stock or RSU awards under the 2012 LTIP:
|
|
o
|
if the award was granted prior to April 29, 2014, the award will vest on a prorated basis for the length of service through
the date of termination, except that if the termination occurs within one year following a change in control (as defined in the
Rigby Employment Agreement), the award will vest in full; and
|
|
o
|
if the award was granted on or after April 29, 2014 (other than with respect to the unvested restricted stock award granted
to Mr. Rigby on April 30, 2014, which is covered below), the award will vest on a prorated basis for the length of his service
through the date of termination;
|
|
•
|
with respect to the unvested portion of all performance-based restricted stock or RSU awards under the 2012 LTIP:
|
|
o
|
if the award was granted prior to April 29, 2014, the award will vest to the extent earned based on performance through the
end of the performance period on a prorated basis for the length of his service through the date of termination, except that if
the termination occurs within one year following a change in control (as defined in the Rigby Employment Agreement), the award
will vest on the date of such termination and the amount of the award shall be determined on the assumptions that:
|
|
§
|
Mr. Rigby had remained employed through the end of the performance period; and
|
|
§
|
the target level of performance had been achieved; and
|
|
o
|
if the award was granted on or after April 29, 2014, the award will vest to the extent earned based on performance through
the end of the performance period on a prorated basis for the length of his service through the date of termination;
|
|
•
|
with respect to the unvested restricted stock award granted to Mr. Rigby on April 30, 2014, the restrictions on such award
will lapse in full; and
|
|
•
|
for a period equal to the greater of (i) one year following the termination of Mr. Rigby’s employment and (ii) the remainder
of the Rigby Extension Period, the Company will reimburse Mr. Rigby for the cost of purchasing a health insurance policy comparable
to the Company-sponsored healthcare plan in which he was enrolled immediately prior to the termination of his employment to the
extent the Company is not otherwise providing or paying for such coverage.
|
For purposes of these provisions, “cause” is defined
as:
|
·
|
intentional fraud or material misappropriation with respect to the business or assets of Pepco Holdings;
|
|
·
|
the persistent refusal or willful failure to perform substantially his duties and responsibilities to Pepco Holdings after
notice of, and an opportunity to remedy, such failure have been given; or
|
|
·
|
conduct that constitutes disloyalty to Pepco Holdings or that materially damages the property, business or reputation of Pepco
Holdings.
|
Mr. Rigby may terminate his employment for good reason if:
|
·
|
his base salary is reduced (other than a reduction consistent and proportional with the overall reduction, due to extraordinary
business conditions, in the compensation of all other senior executives of the Company);
|
|
·
|
he is not considered in good faith for incentive awards under the Company’s plans in which senior executives are eligible
to participate;
|
|
·
|
the Company fails to provide him with retirement, fringe and supplemental benefits in a manner similar to other senior executives;
|
|
·
|
the Company relocates Mr. Rigby’s place of employment to a location further than 50 miles from Washington, D.C. (other
than the Washington, D.C. or Wilmington, Delaware metropolitan areas); or
|
|
·
|
he is removed from the position of Chief Executive Officer (other than due to his disability).
|
Resignation or Termination of Employment for Any Other Reason
Upon a termination of Mr. Rigby’s employment for any other
reason, including upon his death or disability (which shall be deemed to have occurred if he becomes entitled to long-term disability
benefits under the Company’s disability plan or policy), Mr. Rigby will be entitled to receive unpaid salary, accrued
vacation pay and unpaid annual bonus for the year prior to the year in which the termination occurs, as well as any benefits to
which he may be entitled under the Company’s benefit plans. In
addition, the restrictions on Mr. Rigby’s unvested restricted
stock award will lapse in full if his employment is terminated because of his death or disability.
Amended and Restated Change-in-Control / Severance Plan for
Certain Executive Employees
The CIC Plan provides for certain benefits to executives of
the Company if their employment is terminated under specified circumstances. Under the CIC Plan, if, within two years following
a change in control, a participating executive’s employment is terminated by the Company without “cause” or the
executive terminates his or her employment for “good reason,” the executive will be entitled to the following termination
benefits:
|
·
|
a severance payment equal to the sum of executive’s salary and target annual bonus for the year in which the termination
occurs, multiplied by a benefit factor of 1.5, 2 or 3, depending upon the executive’s position;
|
|
·
|
a prorated portion (based on the number of days the executive was employed during the year) of the executive’s target
annual bonus for the year in which the termination occurs; and
|
|
·
|
for a period of one year, Pepco Holdings will make available medical, dental, group life and disability benefits that generally
are at least at a level substantially similar to the level in effect prior to the change in control.
|
Currently, 18 of Pepco Holdings’ executives are eligible
to participate in this change-in-control portion of the CIC Plan, including Messrs. Boyle, Fitzgerald and Velazquez (each with
a benefit factor of 3), and Mr. Huffman (with a benefit factor of 2).
To ensure that Pepco Holdings’ executives are able to
remain focused on their responsibilities to Pepco Holdings and will not be distracted by the uncertainty of continued employment,
the CIC Plan also provides for a benefit to a covered Pepco Holdings executive following a termination of his or her employment
by Pepco Holdings without cause, regardless of whether there has been a change in control. In the event of such a termination of
employment, a covered Pepco Holdings executive will receive a severance benefit equal to one year of base salary and the annual
target bonus (each as determined under the CIC Plan), a cash payment of $10,000 (intended to cover outplacement and job search
services), and six months of Company-paid COBRA continuation benefits for medical, dental and vision insurance. Currently, 58 executives,
including each of the named executive officers (other than Mr. Rigby), were eligible to receive this severance benefit.
The receipt of benefits under the CIC Plan is contingent upon
the execution by the executive of (i) a general release and a non-disparagement agreement and (ii) a covenant agreeing not to compete
against the Company or solicit its employees, each in form and substance satisfactory to the Company.
No tax gross-up payment will be made with respect to any severance
paid under the CIC Plan. The CIC Plan generally provides that if a payment would be subject to such excise tax, it would be reduced
to eliminate such excise tax if such reduction would result in the executive receiving greater net after-tax amounts than he or
she would receive had none of the payments been subject to such excise tax.
2014 Management Employee Severance Plan
On April 29, 2014, the Board adopted the Employee Severance
Plan. This plan provides severance benefits for full-time and part-time management (non-union) employees of the Company and its
subsidiaries, including employees who are not covered under the CIC Plan. The Employee Severance Plan is effective as of April
29, 2014 and will remain in effect until the second anniversary of the closing of the Merger, unless extended by the Company. Our
named executive officers (other than Mr. Rigby) are eligible to participate in certain benefits under the Employee Severance Plan,
as described below.
Severance benefits are triggered under the Employee Severance
Plan upon termination of employment by the Company or any subsidiary without “cause” or, if the termination occurs
after a change in control of the Company and during the term of the Employee Severance Plan, by the employee for “good reason.”
Severance benefits under the Employee Severance Plan consist of the following:
|
·
|
a cash payment equal to two times the product of the employee’s weekly base pay and the number of full years of vesting
service under the Retirement Plan (excluding any years paid under a prior severance plan), subject to a minimum of eight weeks
of base pay;
|
|
·
|
an amount equivalent to the employee’s target level bonus for the year in which the termination occurs, prorated through
the last day of employment; and
|
|
·
|
an additional cash payment of $10,000 (or $5,000, if the employee has less than five years of vesting service under the Retirement
Plan).
|
Under the Employee Severance Plan, eligible employees may elect,
at the time their active employment terminates, to end their employment immediately or to take a leave of absence. An employee
may elect a “personal leave of absence” for a period of time equal to the number of weeks for which the employee is
entitled to receive severance pay. During any personal leave of absence, the Company will pay a portion of the employee’s
COBRA premiums for medical, dental and vision coverage. As of March 23, 2016, Messrs. Boyle and Fitzgerald were our only named
executive officers eligible to take a personal leave of absence.
If the employee is a participant in the Pepco Holdings Retirement
Plan and is at least 52 years of age, he or she also may elect a “special leave of absence” for up to a maximum of
three years to reach the minimum early retirement age under the Retirement Plan or to meet the minimum qualifications for retiree
medical and life benefits. During a special leave of absence, an employee would be entitled to receive paid basic life insurance
and subsidized health plan benefits. As of March 23, 2016 none of our named executive officers were eligible to elect to take a
special leave of absence.
Severance benefits are conditioned upon the employee providing
the Company with a general release of claims in a form provided by the Company.
Payments under the Employee Severance Plan will be reduced on
a dollar for dollar basis (but not below zero) for certain employees who are eligible to receive any other severance payment under
another Company agreement or plan in effect prior to a change in control (an Other Agreement or Plan), including the CIC Plan.
The benefits of such an employee under the Employee Severance Plan will be reduced to the extent the employee receives (i) one
or more lump-sum cash severance payments under an Other Agreement or Plan and (ii) any bonus for the year of separation from service
(determined without regard to any leave of absence described above). If such an employee terminates his or her employment for good
reason and is not otherwise entitled to a severance benefit from the Company under an Other Agreement or Plan, the employee will
be entitled to receive the severance benefits he or she would have received under the Other Agreement or Plan as if employment
had been terminated by the Company other than for cause. These employees also are entitled to the leave of absence benefits described
above. Because each
of Messrs. Boyle, Velazquez, Fitzgerald and Huffman participate in the CIC Plan, any benefits they may otherwise
be eligible to receive under the Employee Severance Plan would be reduced on a dollar-for-dollar basis by any benefits they receive
under the CIC Plan.
In addition to these benefits, if employment is terminated by
us without cause or by the employee for good reason, and an employee is participating or has participated in our Educational Assistance
Program (the EAP), he or she will not be required to repay any amounts paid by us for any courses taken under the EAP or any courses
which are in progress on the date active employment ends.
For purposes of the Employee Severance Plan, “cause”
is defined to mean:
|
·
|
intentional fraud or material misappropriation with respect to the business or assets of the Company;
|
|
·
|
the persistent refusal or willful failure to perform substantially the employee’s duties and responsibilities to the
Company, which continues after notice of such refusal and a period of not less than 45 days to remedy the refusal or failure to
the satisfaction of the Board; or
|
|
·
|
conduct that constitutes disloyalty to the Company or that materially damages the property, business or reputation of the Company.
|
For purposes of the Employee Severance Plan, “good reason”
is defined to mean the occurrence of any of the following circumstances, after written notification of such circumstances is provided
to the Company no later than 90 days from the original occurrence of such circumstances, the Company fails to fully correct such
circumstances within 30 days of receipt of such notification, and employment is terminated with the Company within two years after
the original occurrence of such circumstances:
|
·
|
the assignment of any duties inconsistent in any materially adverse respect with an employee’s position, authority, duties
or responsibilities immediately prior to the change in control (except for a reduction in duties and responsibilities based upon
performance);
|
|
·
|
a material reduction in base compensation (except for a reduction based on performance); or
|
|
·
|
employment in any office or location more than 50 miles from that location at which the employee performed services immediately
prior to the occurrence of a change in control, except for travel reasonably required in the performance of the employee’s
responsibilities.
|
2012 Long-Term Incentive Plan
If a participant in the 2012 LTIP has a “qualifying termination”
(as defined in the 2012 LTIP), the participant will be eligible to receive an accelerated payout or accelerated vesting of an award
as described below. For purposes of the 2012 LTIP, a “qualifying termination” means:
|
·
|
the termination of employment by Pepco Holdings or any subsidiary, or
|
|
·
|
a participant terminating his or her employment with Pepco Holdings or any subsidiary for “good reason” (as defined
in the 2012 LTIP),
|
each within 12 months following a change in control involving
Pepco Holdings.
The term “good reason” in the 2012 LTIP means, in
connection with any award, the occurrence of a change in control of any circumstances constituting “good reason” provided
for in an award agreement. If no such circumstances are provided, then “good reason” will be deemed to occur upon the
occurrence of:
|
·
|
the assignment of any duties inconsistent in any materially adverse respect with an employee’s position, authority, duties
or responsibilities from those in effect immediately prior to the change in control;
|
|
·
|
a material reduction in base compensation as in effect immediately before the change in control;
|
|
·
|
a material diminution in the authority, duties or responsibilities of the supervisor to whom the participant is required to
report;
|
|
·
|
a material diminution in the budget over which the participant retains authority; or
|
|
·
|
the requirement by Pepco Holdings or a subsidiary that the participant be based in any office or location more than 50 miles
from that location at which the employee performed services immediately prior to the occurrence of a change in control, except
for travel reasonably required in the performance of the employee’s responsibilities.
|
Furthermore, any termination of employment with the Company
by the participant must occur within two years after the original occurrence of such circumstances. The participant must provide
Pepco Holdings with written notification of such circumstances no later than 90 days from the original occurrence of the circumstances,
and Pepco Holdings must fail to fully correct such circumstances within 30 days of receipt of such notification.
A change in control followed by a qualifying termination will
cause unvested time-based RSUs under the 2012 LTIP to immediately vest and become free of restrictions, and a percentage of unvested
performance-based RSUs to immediately vest and become free of restrictions on a prorated basis, assuming that all target performance
objectives shall have been achieved at the 100% level.
A participant in the 2012 LTIP whose employment is terminated
by the Company for “cause” or by the participant (other than due to death or “disability”) (each as defined
in the 2012 LTIP), and other than within 12 months following a change in control, during the restriction period of a time-based
or performance-based award will forfeit 100% of the unvested portion of such award upon the date of termination, except that, in
the case of a retirement of a participant, the Compensation Committee may, in its sole discretion, provide for the lapse of the
restriction period in whole or in part.
A participant in the 2012 LTIP whose employment is terminated
without “cause,” or due to “disability” or death (as such terms are defined in the 2012 LTIP) during the
restriction period (other than within 12 months following a change in control) will forfeit a prorated portion of the award, based
upon the number of days remaining during the restriction period as of the date of termination.
Upon the completion of the Merger, notwithstanding the provisions
described above, outstanding awards under the 2012 LTIP (or its predecessor plan) as of the effective time of the Merger will be
vested and settled in the following manner:
|
·
|
At the effective time of the Merger, each share of our common stock (other than certain excluded shares), including vested
or unvested restricted stock awards, will be converted into the right to receive from Exelon $27.25 per share, without interest.
|
|
·
|
At the effective time of the Merger, each outstanding time-based RSU, whether vested or unvested, will be cancelled and converted
into the right of the holder to receive from the Company an amount in cash.
|
|
o
|
For RSUs granted on or prior to April 29, 2014, the amount of cash will be equal to the product of the number RSUs multiplied
by $27.25 per share.
|
|
o
|
For RSUs granted after April 29, 2014 and outstanding as of the effective time, the amount will be prorated based on the number
of days elapsed from the grant date (in the case of grants made in 2015 or 2016, January 1, 2015 or 2016, respectively) through
the
|
|
|
closing date of the Merger relative to 1,095 days (or, with respect to director awards having a one-year retention period (which
were paid as part of our non-management directors’ annual retainer), 365 days).
|
|
·
|
At the effective time of the Merger, each outstanding performance-based RSU, whether vested or unvested, will be cancelled
and converted into the right to receive from the Company an amount in cash.
|
|
o
|
For RSUs granted on or prior to April 29, 2014 (including RSUs required to be granted pursuant to an agreement in place as
of that date), the amount of cash will be equal to the product of $27.25 multiplied by the total number of shares of common stock
subject to the RSU immediately prior to the effective time determined based on achievement of applicable performance objectives
at the greater of:
|
|
§
|
actual performance as reasonably determined by the Compensation Committee prior to the effective time, or
|
|
§
|
the target level of 100%.
|
|
o
|
For RSUs granted after April 29, 2014 (other than RSUs required to be granted pursuant to an agreement in place as of that
date) and outstanding as of the effective time, the amount will be calculated as described in the immediately preceding sub-bullet,
prorated based on the number of days elapsed from the grant date (or, in the case of grants made in 2015 or 2016, January 1, 2015
or 2016, respectively) through the closing date relative to 1,095 days (or, with respect to awards having a one-year performance
period, 365 days).
|
|
·
|
At the effective time of the Merger, each right of any kind, whether vested or unvested, to receive shares of Company common
stock or benefits measured by the value of such shares, and each award of any kind consisting of such shares that may be held,
awarded, outstanding, payable, or reserved for issuance under our stock or benefit plans (other than the common stock or RSUs described
above) will be cancelled and converted into the right of the holder to receive from the Company an amount in cash equal to the
product of the number of our shares subject to the award immediately prior to the effective time determined, without proration,
and, if performance-based, based on achievement of applicable performance objectives at the greater of (i) actual performance as
reasonably determined by the Compensation Committee prior to the effective time or (ii) the target level of 100%, multiplied by
$27.25 (or if the award provides for payments to the extent the value of such shares exceeds a specified reference or exercise
price, the amount, if any, by which $27.25 exceeds the reference or exercise price).
|
As discussed above, the Merger was completed on March 23, 2016.
Amended and Restated Annual Executive Incentive Compensation
Plan
Except as otherwise required for an award to a Covered Executive
to be considered “performance-based compensation” under Section 162(m) of the Code, the EICP provides for the following
adjustments of awards in the event of the termination, retirement, death or disability of a participant during a calendar year
with respect to an award opportunity:
Termination Event
|
Definition of Termination
Event under the EICP
|
Adjustment to Award for
Termination Event During Year
|
Death
|
Death of the participant
|
Award opportunity will be reduced proportionately for the year based on the date of death
|
Disability
|
Permanent and total disability of the participant, as determined by the Compensation Committee
|
Award opportunity will be reduced proportionately for the year based on the date of disability
|
Retirement
|
Separating from service with Pepco Holdings or any subsidiary on or after attaining age 55 and achieving at least 10 years of continuous employment with Pepco Holdings or any subsidiary
|
Award opportunity will be reduced proportionately for the year based on the date of separation from service
|
Termination
|
Any other resignation or discharge from employment not covered above
|
No award shall be made
|
To the extent that any award is reduced or eliminated as noted
above, the Compensation Committee may reallocate the amount of such award to other participants, other than to a Covered Executive
if such reallocation would prevent any award to a Covered Executive from being “performance-based compensation” under
Section 162(m) of the Code.
Upon the completion of the Merger on March 23, 2016, notwithstanding
the provisions described above, 2016 outstanding award opportunities under the EICP were earned on a pro-rated basis based on the
number of days that lapsed in the performance period from the grant date January 1, 2016 through the closing date.
Retirement Plan Benefits
Messrs. Rigby and Velazquez participate in the Conectiv Cash
Balance Sub-Plan of the Pepco Holdings Retirement Plan. Messrs. Boyle, Fitzgerald and Huffman are participants in the Pepco Holdings
Sub-Plan of the Pepco Holdings Retirement Plan. For a description of the benefits provided under these defined benefit retirement
plans and under the corresponding nonqualified supplemental executive retirement plans following termination of employment, see
“— Retirement Plans.”
Deferred Compensation Plans
Each of Messrs. Rigby, Boyle, Velazquez, Fitzgerald and Huffman
is a participant in the Pepco Holdings Deferred Compensation Plan. Mr. Rigby also is a participant in the Conectiv Deferred
Compensation Plan. For a discussion of the benefits which our named executive officers are entitled to receive under these plans
following a termination of employment, see “— Description of Nonqualified Deferred Compensation Plans and Arrangements.”
Upon the completion of the Merger, each Pepco Holdings phantom
share (or equivalent) credited to a participant in any deferred compensation plan was cancelled and thereafter represented the
right to receive $27.25 in cash, payable as soon as reasonably practicable after the effective time of the Merger, or, if subject
to Section 409A of the Code, at the earliest time permitted under the Pepco Holdings Deferred Compensation Plan that will not trigger
a tax or penalty under Section 409A of the Code (with interest at the rate specified in the Merger Agreement from the closing date
through such payment date).
Indemnification and Directors’ and Officers’
Liability Insurance Coverage Benefits Under the Merger Agreement
Pursuant to the terms of the Merger Agreement, the Company’s
directors and officers (including the named executive officers) will be entitled to certain ongoing indemnification and coverage
under directors’ and officers’ liability insurance policies.
From and after the effective time of the Merger, Exelon and
Pepco Holdings will indemnify and hold harmless (and Exelon will, subject to repayment under certain limited circumstances, advance
expenses to) our and our subsidiaries’ present and former directors and officers (including the named executive officers)
against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages or liabilities
incurred in connection with any claim, action, suit, proceeding or investigation, arising out of or related to such director’s
or officer’s service as a director or officer of ours or our subsidiaries (or services performed at our or our subsidiaries’
request) at or prior to the effective time of the Merger (including the transactions contemplated by the Merger Agreement), to
the fullest extent permitted by law.
Pursuant to the Merger Agreement, we obtained a six-year “tail”
insurance policy with respect to the currently existing directors’ and officers’ liability insurance policies and fiduciary
and employment practices liability insurance policies.
Quantification of Termination of Employment Payments and
Benefits
Although the Merger was completed on March 23, 2016, the following
discussion quantifies the payments and benefits that:
|
·
|
each of Messrs. Rigby, Boyle, Velazquez, Fitzgerald and Huffman would have been entitled to receive under each of the Company’s
compensation plans if the executive’s employment had terminated under specified circumstances on December 31, 2015 (other
than pursuant to the Merger);
|
|
·
|
each of Messrs. Rigby, Boyle, Velazquez, Fitzgerald and Huffman would have been entitled to receive under the Merger Agreement,
if the Merger was completed on December 31, 2015;
|
|
·
|
each of Messrs. Rigby, Boyle, Velazquez, Fitzgerald and Huffman would have been entitled to receive by reason of a change in
control that had occurred on December 31, 2015 (other than as a result of the Merger);
|
|
·
|
Mr. Rigby would have been entitled to receive under the terms of the Rigby Extension Agreement (other than the discretionary
cash bonus of up to $1.5 million thereunder) if his employment had terminated under specified circumstances on December 31, 2015
(other than as a result of the Merger); and
|
|
·
|
Mr. Fitzgerald would have been entitled to receive under the terms of the Fitzgerald Extension Agreement if his employment
had terminated under specified circumstances on December 31, 2015 (other than as a result of the Merger).
|
In each case below (other than the completion of the Merger),
the calculations related to the market value of stock-based awards were based on a price of $26.01 per share of Company common
stock, which was the closing market price on December 31, 2015. With respect to the completion of the Merger, these calculations
were based on a price of $27.25 per share of Company common stock, which is the per share consideration paid under the Merger Agreement
upon completion of the Merger. For purposes of this discussion, all RSU awards with respect to the 2013 to 2015 LTIP cycle (which
were
settled on December 31, 2015) were deemed to have been settled prior to the occurrence of any termination of employment or
change in control.
The following discussion does
not include payments and benefits that would be received by the named executive officers under the Company’s defined benefit
retirement plans and corresponding supplemental executive retirement plans and arrangements and under the Company’s deferred
compensation plans, the payments and benefits under which are described above in “— Retirement Plans” and “—
Description of Nonqualified Deferred Compensation Plans and Arrangements.”
Joseph M. Rigby
Termination Event
|
Severance
Payment
($)
(1)
|
EICP
Payment
($)
(2)
|
Accelerated
Vesting of
Restricted
Stock and
Time-Based
RSUs
($)
(3)(4)
|
Accelerated
Vesting of
Performance
-Based RSUs
($)
(4)(5)
|
Welfare
Plan Benefit
Payment
($)
|
Healthcare
and Related
Benefits
($)
|
Accrued But
Unpaid
Vacation Pay
($)
(6)
|
Total
($)
|
Change in Control – General
(7)
|
—
|
1,012,219
|
3,459,627
|
2,526,559
|
5,018
|
11,847
|
117,115
|
7,132,385
|
Change in Control – Merger Agreement
(8)
|
—
|
1,015,000
|
3,675,725
|
2,647,011
|
5,018
|
11,847
|
117,115
|
7,471,716
|
Voluntary Termination
|
—
|
1,012,219
|
—
|
—
|
—
|
—
|
117,115
|
1,129,334
|
Termination Without Cause/For Good Reason
(9)
|
—
|
1,012,219
|
3,012,398
|
1,682,836
|
—
|
11,847
|
117,115
|
5,836,415
|
Retirement With Consent of Board
|
—
|
1,012,219
|
—
|
—
|
—
|
—
|
117,115
|
1,129,334
|
Death or Disability
|
—
|
1,012,219
|
3,012,398
|
1,682,836
|
—
|
—
|
117,115
|
5,824,568
|
Termination With Cause
(9)
|
—
|
—
|
—
|
—
|
—
|
—
|
117,115
|
117,115
|
|
(1)
|
Under the terms of the Rigby Extension Agreement, Mr. Rigby is not entitled to receive any severance payment in connection
with a termination of his employment.
|
|
(2)
|
Under the terms of the EICP, to the extent Mr. Rigby’s performance goals are deemed to be achieved, a separation from
service from the Company on December 31, 2015 for any reason (except termination for “cause”) would result in
the payment of a prorated award to him, because he was at least 55 years old and had more than 10 years of continuous employment
with the Company as of such date. These amounts represent the award that would have been received assuming target level performance
occurred in 2015.
|
|
(3)
|
Except as otherwise provided in footnote (7), these amounts (i) include unvested restricted stock and time-based RSU awards
granted under the LTIP and the 2012 LTIP that would vest and become non-forfeitable immediately upon the date of termination of
employment; and (ii) do not include 36,110 fully vested shares of restricted stock that are subject only to transfer restrictions.
|
|
(4)
|
These amounts include additional shares that Mr. Rigby would have been entitled to receive upon vesting of his RSU awards as
a result of accrued dividend equivalents thereon, in each of the following circumstances:
|
|
Additional Shares Vested As a Result of Accrued
Dividend Equivalents on Accelerated RSU Awards
|
Termination Event
|
Time-Based
(#)
|
Performance-Based
(#)
|
Termination Without Cause/For Good Reason Following Change in Control (non-Merger)
|
5,166
|
7,868
|
Termination Without Cause/For Good Reason Not Following Change in Control
|
3,773
|
5,241
|
Death or Disability
|
3,773
|
5,241
|
Termination Without Cause Following Exelon Merger
|
5,242
|
7,868
|
|
(5)
|
Except as otherwise provided in footnote (7), these amounts (i) do not include shares of performance-based restricted stock
granted to Mr. Rigby in settlement of his 2015 EICP award and (ii) include shares of common stock that Mr. Rigby would have been
entitled to receive under performance-based RSU awards granted to Mr. Rigby under the 2012 LTIP:
|
|
·
|
if such termination occurs in connection with a termination of his employment by the Company without “cause” or
by Mr. Rigby for “good reason” (each as defined in the Rigby Employment Agreement) following a change in control (other
than the Merger), calculated based on the assumption that he had remained employed with the Company through the end of the performance
period and that the target level of performance had been achieved; and
|
|
·
|
other than following a change in control, if such termination occurs in connection with a termination of his employment by
the Company without “cause” or by Mr. Rigby for “good reason” (each as defined in the Rigby
|
|
|
Employment
Agreement), or due to his death or disability, at the end of the performance period (i) based on the assumption that the Compensation
Committee had determined that the performance goals had been met at target and (ii) prorated for the number of days employed during
the performance period.
|
|
(6)
|
The amount of vacation pay has been calculated based upon the maximum number of eligible vacation days in accordance with the
Company’s vacation policy.
|
|
(7)
|
Assumes the termination of Mr. Rigby’s employment by the Company other than for “cause” or by Mr. Rigby for
“good reason” (each as defined under the Rigby Employment Agreement), within one year following a change in control,
other than as a result of the Merger.
|
|
(8)
|
Assumes (i) the completion of the Merger and (ii) the termination of Mr. Rigby’s employment (A) by the Company other
than for “cause” or (B) by Mr. Rigby for “good reason” (each as defined under the Rigby Employment Agreement),
each as of December 31, 2015.
|
|
(9)
|
Other than in connection with a change in control.
|
Frederick J. Boyle
Termination Event
|
Severance
Payment
($)
(1)
|
EICP
Payment
($)
(2)
|
Accelerated
Vesting of
Time-Based
RSUs
($)
(3)(4)
|
Accelerated
Vesting of
Performance-
Based RSUs
($)
(4)(5)
|
Welfare Plan
Benefit
Payment
($)
|
Healthcare
and Related
Benefits
($)
|
Total
($)
|
Change in Control – General
(6)
|
2,781,000
|
—
|
947,674
|
414,481
|
1,381
|
20,773
|
4,165,309
|
Change in Control – Merger Agreement
(7)
|
2,781,000
|
309,000
|
548,279
|
651,956
|
1,381
|
20,773
|
4,312,389
|
Voluntary Termination
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
Termination Without Cause
(8)
|
834,000
|
—
|
400,786
|
414,481
|
—
|
10,594
|
1,659,861
|
Termination for Good Reason
(8)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
Death or Disability
|
—
|
308,153
|
400,786
|
414,481
|
—
|
—
|
1,123,420
|
Termination With Cause
(8)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
(1)
|
In accordance with the terms of the CIC Plan, calculated based upon Mr. Boyle’s target EICP award opportunity.
|
|
(2)
|
These amounts represent the award that would have been received under the EICP assuming target-level performance occurred in
2015.
|
|
(3)
|
These amounts include unvested time-based RSU awards granted under the 2012 LTIP that would have vested and become non-forfeitable
immediately upon the date of termination of employment.
|
|
(4)
|
These amounts include the following number of additional shares that Mr. Boyle would have been entitled to receive upon vesting
of his RSU awards as a result of accrued dividend equivalents thereon, in each of the following circumstances:
|
|
Additional Shares Vested As a Result of Accrued
Dividend Equivalents on Accelerated RSU Awards
|
Termination Event
|
Time-Based
(#)
|
Performance-Based
(#)
|
Termination by Pepco Holdings or by the Executive For Good Reason Following Change in Control (non-Merger)
|
1,965
|
1,291
|
Termination Without Cause Not Following Change in Control
|
939
|
1,291
|
Death or Disability
|
939
|
1,291
|
|
(5)
|
Includes shares of common stock that Mr. Boyle would have been entitled to receive under performance-based RSU awards in the
following circumstances, as follows:
|
|
·
|
upon termination of Mr. Boyle’s employment by the Company or by Mr. Boyle for “good reason” (as defined in
the 2012 LTIP) following a change in control (other than the Merger), (i) based on the assumption that, as of the date of termination,
target level of performance had been achieved and (ii) prorated for the number of days employed during the performance period;
and
|
|
·
|
upon termination of his employment by the Company without “cause” (as defined in the 2012 LTIP) not following a
change in control, or due to his death or disability (i) based on the assumption that, at the end of the performance period, the
Compensation Committee had determined that the performance goals had been met at target and (ii) prorated for the number of days
employed during the performance period.
|
|
(6)
|
Assumes the termination of Mr. Boyle’s employment by the Company other than for “cause” or by Mr. Boyle for
“good reason” (each as defined under the CIC Plan) within two years following a change in control; however, the accelerated
vesting of RSUs would apply only in the event of a termination of Mr. Boyle’s employment either by the Company with or without
“cause,” or by Mr. Boyle for “good reason” (each as defined under the 2012 LTIP), each within one year
following a change in control.
|
|
(7)
|
Assumes (i) the completion of the Merger and (ii) the termination of Mr. Boyle’s employment by the Company other than
for “cause” or by Mr. Boyle for “good reason” (each as defined under the CIC Plan), each as of December 31,
2015.
|
|
(8)
|
Other than in connection with a change in control.
|
David M. Velazquez
Termination Event
|
Severance
Payment
($)
(1)
|
EICP
Payment
($)
(2)
|
Accelerated
Vesting of
Time-Based
RSUs
($)
(3)(4)
|
Accelerated
Vesting of
Performance-
Based RSUs
($)
(4)(5)
|
Welfare Plan
Benefit
Payment
($)
|
Healthcare
and Related
Benefits
($)
|
Total
($)
|
Change in Control – General
(6)
|
2,964,600
|
328,497
|
1,010,827
|
442,685
|
2,708
|
20,773
|
4,770,090
|
Change in Control – Merger Agreement
(7)
|
2,964,600
|
329,400
|
585,103
|
696,319
|
2,708
|
20,773
|
4,598,903
|
Voluntary Termination
|
—
|
328,497
|
—
|
—
|
—
|
—
|
328,497
|
Termination Without Cause
(8)
|
888,400
|
328,497
|
427,630
|
442,685
|
—
|
10,594
|
2,097,806
|
Termination for Good Reason
(8)
|
—
|
328,497
|
—
|
—
|
—
|
—
|
328,497
|
Death or Disability
|
—
|
328,497
|
427,630
|
442,685
|
—
|
—
|
1,198,812
|
Termination With Cause
(8)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
(1)
|
In accordance with the terms of the CIC Plan, calculated based upon Mr. Velazquez’s target EICP award opportunity.
|
|
(2)
|
Under the terms of the EICP, to the extent Mr. Velazquez’s performance goals are deemed to be achieved, a separation
from service from the Company on December 31, 2015 for any reason (except termination for “cause”) would result
in the payment of a prorated award to him, because he was at least 55 years old and had more than 10 years of continuous employment
with the Company as of such date. These amounts represent the award that would have been received assuming target-level performance
occurred in 2015.
|
|
(3)
|
These amounts include unvested time-based RSU awards granted under the 2012 LTIP that would have vested and become non-forfeitable
immediately upon the date of termination of employment.
|
|
(4)
|
These amounts include the following number of additional shares that Mr. Velazquez would have been entitled to receive upon
vesting of his RSU awards as a result of accrued dividend equivalents thereon, in each of the following circumstances:
|
|
Additional Shares Vested As a Result of Accrued
Dividend Equivalents on Accelerated RSU Awards
|
Termination Event
|
Time-Based
(#)
|
Performance-Based
(#)
|
Termination by Pepco Holdings or by the Executive For Good Reason Following Change in Control (non-Merger)
|
2,095
|
1,379
|
Termination Without Cause Not Following Change in Control
|
1,001
|
1,379
|
Death or Disability
|
1,001
|
1,379
|
|
(5)
|
These amounts (i) do not include shares of performance-based restricted stock granted to Mr. Velazquez in settlement of his
2015 EICP award and (ii) include shares of common stock that Mr. Velazquez would have been entitled to receive under performance-based
RSU awards, as follows:
|
|
·
|
upon termination of Mr. Velazquez’s employment by the Company or by Mr. Velazquez for “good reason” (as defined
in the 2012 LTIP) following a change in control, (i) based on the assumption that, as of the date of termination, target level
of performance had been achieved and (ii) prorated for the number of days employed during the performance period; and
|
|
·
|
upon termination of his employment by the Company without “cause” (as defined in the 2012 LTIP) not following a
change in control, or due to his death or disability (i) based on the assumption that, at the end of the performance period, the
Compensation Committee had determined that the performance goals had been met at target and (ii) prorated for the number of days
employed during the performance period.
|
|
(6)
|
Assumes the termination of Mr. Velazquez’s employment by the Company other than for “cause” or by Mr. Velazquez
for “good reason” (each as defined under the CIC Plan) within two years following a change in control; however, the
accelerated vesting of RSUs would apply only in the event of a termination of Mr. Velazquez’s employment either by the Company
with or without “cause,” or by Mr. Velazquez for “good reason” (each as defined under the 2012 LTIP), each
within one year following a change in control.
|
|
(7)
|
Assumes (i) the completion of the Merger and (ii) the termination of Mr. Velazquez’s employment by the Company other
than for “cause” or by Mr. Velazquez for “good reason” (each as defined under the CIC Plan), each as of
December 31, 2015.
|
|
(8)
|
Other than in connection with a change in control.
|
Kevin C. Fitzgerald
Termination Event
|
Severance
Payment
($)
(1)
|
EICP
Payment
($)
(2)
|
Accelerated
Vesting of
Time-Based
RSUs
($)
(3)(4)
|
Accelerated
Vesting of
Performance
-Based RSUs
($)
(4)(5)
|
Welfare
Plan Benefit
Payment
($)
|
Healthcare
and Related
Benefits
($)
|
Total
($)
|
Change in Control – General
(6)
|
3,040,200
|
—
|
1,038,137
|
616,870
|
2,778
|
17,770
|
4,715,755
|
Change in Control – Merger Agreement
(7)
|
3,040,200
|
337,800
|
601,635
|
885,761
|
2,778
|
17,770
|
4,885,944
|
Voluntary Termination
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
Termination Without Cause
(8)
|
910,800
|
—
|
439,528
|
616,870
|
—
|
9,063
|
1,976,261
|
Termination For Good Reason
(8)
|
—
|
—
|
—
|
160,950
|
—
|
—
|
160,950
|
Death or Disability
|
—
|
336,874
|
439,528
|
616,870
|
—
|
—
|
1,393,272
|
Termination With Cause
(8)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
(1)
|
In accordance with the terms of the CIC Plan, calculated based upon Mr. Fitzgerald’s target EICP award opportunity.
|
|
(2)
|
These amounts represent the award that would have been received under the EICP assuming target-level performance occurred in
2015.
|
|
(3)
|
Includes unvested time-based RSU awards granted under the 2012 LTIP that would have vested and become non-forfeitable immediately
upon the date of termination of employment.
|
|
(4)
|
These amounts include the following number of additional shares that Mr. Fitzgerald would have been entitled to receive upon
vesting of his RSU awards as a result of accrued dividend equivalents thereon, in each of the following circumstances:
|
|
Additional Shares Vested As a Result of Accrued
Dividend Equivalents on Accelerated RSU Awards
|
Termination Event
|
Time-Based
(#)
|
Performance-Based
(#)
|
Termination by Pepco Holdings or by the Executive For Good Reason Following Change in Control (non-Merger)
|
2,155
|
1,419
|
Termination Without Cause Not Following Change in Control
|
1,031
|
1,419
|
Death or Disability
|
1,031
|
1,419
|
|
(5)
|
These amounts (i) do not include shares of performance-based restricted stock granted to Mr. Fitzgerald in settlement of his
2015 EICP award and (ii) include shares of common stock that Mr. Fitzgerald would have been entitled to receive under performance-based
RSU awards, as follows:
|
|
·
|
in the case of the 2015 performance-based award pursuant to the Fitzgerald Employment Agreement, at the end of the performance
period, calculated by assuming that he had remained employed with the Company through the end of the performance period and that
the target level of performance had been achieved; and
|
|
·
|
in the case of all other performance-based RSU awards granted to Mr. Fitzgerald under the 2012 LTIP:
|
|
o
|
if such termination occurs in connection with a termination of his employment by the Company without “cause” or
by Mr. Fitzgerald with “good reason” (each as defined in the 2012 LTIP) following a change in control, (i) based on
the assumption that, as of the date of termination, target level of performance had been achieved and (ii) prorated for the number
of days employed during the performance period; and
|
|
o
|
upon termination of his employment by the Company without “cause” (as defined in the 2012 LTIP) not following a
change in control, or due to his death or disability (i) based on the assumption that, at the end of the performance period, the
Compensation Committee had determined that the performance goals had been met at target and (ii) prorated for the number of days
employed during the performance period.
|
|
(6)
|
Assumes the termination of Mr. Fitzgerald’s employment by the Company other than for “cause” or by Mr. Fitzgerald
for “good reason” (each as defined under the CIC Plan) within two years following a change in control; however, the
accelerated vesting of RSUs would apply only in the event of a termination of Mr. Fitzgerald’s employment either by the Company
with or without “cause,” or by Mr. Fitzgerald for “good reason” (each as defined under the 2012 LTIP),
each within one year following a change in control.
|
|
(7)
|
Assumes (i) the completion of the Merger and (ii) the termination of Mr. Fitzgerald’s employment by the Company other
than for “cause” or by Mr. Fitzgerald for “good reason” (each as defined under the CIC Plan), each as of
December 31, 2015.
|
|
(8)
|
Other than in connection with a change in control.
|
John U. Huffman
Termination Event
|
Severance
Payment
($)
(1)
|
EICP
Payment
($)
(2)
|
Accelerated
Vesting of
Time-Based
RSUs
($)
(3)(4)
|
Accelerated
Vesting of
Performance-
Based RSUs
($)
(4)(5)
|
Welfare
Plan
Benefit
Payment
($)
|
Healthcare
and Related
Benefits
($)
|
Total
($)
|
Change in Control – General
(6)
|
1,512,400
|
238,146
|
586,630
|
257,281
|
1,964
|
17,770
|
2,614,191
|
Change in Control – Merger Agreement
(7)
|
1,512,400
|
238,800
|
339,753
|
404,690
|
1,964
|
17,770
|
2,515,377
|
Voluntary Termination
|
—
|
238,146
|
—
|
—
|
—
|
—
|
238,146
|
Termination Without Cause
(8)
|
646,800
|
238,146
|
248,264
|
257,281
|
—
|
9,063
|
1,399,554
|
Termination for Good Reason
(8)
|
—
|
238,146
|
—
|
—
|
—
|
—
|
238,146
|
Death or Disability
|
—
|
238,146
|
248,264
|
257,281
|
—
|
—
|
743,691
|
Termination With Cause
(8)
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
(1)
|
In accordance with the terms of the CIC Plan, calculated based upon Mr. Huffman’s target EICP award opportunity.
|
|
(2)
|
Under the terms of the EICP, to the extent Mr. Huffman performance goals are deemed to be achieved, a separation from service
from the Company on December 31, 2015 for any reason (except termination for “cause”) would result in the payment
of a prorated award to him, because he was at least 55 years old and had more than 10 years of continuous employment with the Company
as of such date. These amounts represent the award that would have been received assuming target-level performance occurred in
2015.
|
|
(3)
|
These amounts include unvested time-based RSU awards granted under the 2012 LTIP that would have vested and become non-forfeitable
immediately upon the date of termination of employment.
|
|
(4)
|
These amounts include the following number of additional shares that Mr. Huffman would have been entitled to receive upon vesting
of his RSU awards as a result of accrued dividend equivalents thereon, in each of the following circumstances:
|
|
Additional Shares Vested As a Result of Accrued
Dividend Equivalents on Accelerated RSU Awards
|
Termination Event
|
Time-Based
(#)
|
Performance-Based
(#)
|
Termination by Pepco Holdings or by the Executive For Good Reason Following Change in Control (non-Merger)
|
1,216
|
801
|
Termination Without Cause Not Following Change in Control
|
581
|
801
|
Death or Disability
|
581
|
801
|
|
(5)
|
These amounts include shares of common stock that Mr. Huffman would have been entitled to receive under performance-based RSU
awards, as follows:
|
|
·
|
upon termination of Mr. Huffman’s employment by the Company or by Mr. Huffman for “good reason” (as defined
in the 2012 LTIP) following a change in control, (i) based on the assumption that, as of the date of termination, target level
of performance had been achieved and (ii) prorated for the number of days employed during the performance period; and
|
|
·
|
upon termination of his employment by the Company without “cause” (as defined in the 2012 LTIP) not following a
change in control, or due to his death or disability (i) based on the assumption that, at the end of the performance period, the
Compensation Committee had determined that the performance goals had been met at target and (ii) prorated for the number of days
employed during the performance period.
|
|
(6)
|
Assumes the termination of Mr. Huffman’s employment by the Company other than for “cause” or by Mr. Huffman
for “good reason” (each as defined under the CIC Plan and the Management Severance Plan) within two years following
a change in control; however, the accelerated vesting of RSUs would apply only in the event of a termination of Mr. Huffman’s
employment either by the Company with or without “cause,” or by Mr. Huffman for “good reason” (each as
defined under the 2012 LTIP), each within one year following a change in control.
|
|
(7)
|
Assumes (i) the completion of the Merger and (ii) the termination of Mr. Huffman’s employment by the Company other than
for “cause” or by Mr. Huffman for “good reason” (each as defined under the CIC Plan), each as of December 31,
2015.
|
|
(8)
|
Other than in connection with a change in control.
|
Compensation Policies and Practices Relating to Risk Management
The Compensation Committee’s
charter requires that the Compensation Committee review and assess risks and risk mitigation strategies applicable to the Compensation
Committee’s specific areas of primary responsibility.
In February 2016, the
Compensation Committee reviewed the results of the annual risk assessment of the Company’s compensation policies and practices
for all employees, including executives. This assessment, which included, among other things, a review of the Company’s 2015
short-term and long-term incentive-based compensation, sought to identify features of the Company’s compensation policies
and practices that could encourage excessive risk-taking.
In order to focus employees
on performance objectives that promote the best interests of the Company and its stockholders, short-term and long-term incentive-based
compensation are linked to the achievement of measurable financial and business goals, and, in the case of short-term incentives,
individual performance goals. The risk assessment conducted found that these arrangements are coupled with compensation design
elements and other controls that discourage business decision-making that is focused solely on the compensation consequences. These
compensation design elements and other controls include:
|
·
|
strong enterprise-wide risk management policies and programs, which have undergone third-party
risk assessments;
|
|
·
|
cash incentives that are earned only if, in addition to the satisfaction of stated performance
metrics, a corporate or business unit earnings threshold is exceeded;
|
|
·
|
the absence of compensation arrangement features often identified as encouraging excessive
risk-taking as applied to companies in the regulated utility industry;
|
|
·
|
program designs that provide a balanced mix of cash and equity and short-term and long-term
incentives;
|
|
·
|
performance metrics, not all of which are financial in nature, such as safety, reliability,
diversity and customer satisfaction;
|
|
·
|
share ownership guidelines that are applicable to officers of the Company at the level of
vice president and above.
|
On the basis of its review
of the Company’s compensation programs, it was concluded, and the Compensation Committee was advised, that the Company’s
compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.
Compensation Committee Interlocks and Insider Participation
In 2015, Messrs. Barbas, Dunn, Frisby, Harker (until he resigned
from the Board effective as of June 30, 2015) and Silverman, and Ms. Krumsiek served as members of the Compensation Committee.
No person who served as a member of the Compensation Committee during the year ended December 31, 2015, was a current or former
officer or employee of the Company, or engaged in certain transactions with the Company required to be disclosed as “related
person transactions” under SEC regulations. There were no compensation committee “interlocks” during the fiscal
year ended December 31, 2015, which generally means that none of our executive officers served as a director or member of
the compensation committee of another entity, one of whose executive officers served as a member of the Board or as a member of
the Compensation Committee.
Director Compensation
Elements of Director
Compensation
During 2015, each non-management
director of Pepco Holdings was paid an annual Board retainer comprised of $50,000 in cash and $65,000 in Pepco Holdings equity.
The equity portion of the retainer was paid in the form of RSU awards issued under the 2012 LTIP. These RSUs vest upon the earlier
of one year after the date of grant or on the date of the next annual meeting of stockholders. During 2015, the Audit Committee
chair and Lead Independent Director received supplemental cash retainers of $10,000 and $25,000, respectively. Each director also
received a fee of $2,000 per meeting attended in person or by telephone conference call.
These directors are permitted
to elect to defer the receipt of their cash retainer and meeting fees under the terms of the Pepco Holdings Second Revised and
Restated Executive and Director Deferred Compensation Plan, or the Deferred Compensation Plan. Pepco Holdings Deferred Compensation
Plan deferrals are deemed invested, at the election of the participating director, in a prime rate interest account, an investment
fund account selected by the Compensation Committee, or a phantom share account that mirrors an investment in shares of common
stock. For information on the Pepco Holdings Deferred Compensation Plan, see “Executive Compensation — Nonqualified
Deferred Compensation — Description of Nonqualified Deferred Compensation Plans and Arrangements — Pepco Holdings Deferred
Compensation Plan.”
The Board has approved a non-management
director deferral program that permits such directors to elect to defer the common stock settlement of the RSUs awarded as the
equity component of the annual Board retainer, until:
|
·
|
the date the director leaves the Board;
|
|
·
|
the January 31 after the director leaves the Board; or
|
|
·
|
another date to be specified by the director in advance, which with respect to 2015 deferrals
may not be before January 31, 2018.
|
We provide non-management
directors with travel accident insurance for Company-related travel and directors’ and officers’ liability insurance
coverage, and reimburse them for travel, hotel and other out-of-pocket expenses incurred in connection with the performance of
their duties as directors.
We also provide non-management
directors with free parking at our headquarters. Directors also may use these parking spaces other than in connection with the
performance of their duties as directors. In addition, during 2015, Company-leased entertainment venues and Company-purchased tickets
to sporting and cultural events were made available to non-management directors for personal use when not being used by us for
business purposes. There was no incremental cost to us for providing these benefits to non-management directors.
Review and Oversight
of Director Compensation
The compensation of the non-management directors is reviewed
periodically by the Nominating Committee, which makes recommendations for changes, if any, to the Board for its approval. No changes
were made to non-management director compensation in 2015.
2015 Director Compensation Table
The following table sets forth the compensation earned by our
non-management directors during 2015. No non-management director received or earned any other compensation from the Company during
2015, other than the compensation described in this section.
Name
|
Fees Earned or Paid
in Cash ($)
(1)
|
Stock Awards
($)
(2)
|
Total ($)
|
Paul M. Barbas
|
109,000
|
65,000
|
174,000
|
Jack B. Dunn, IV
|
112,000
|
65,000
|
177,000
|
H. Russell Frisby, Jr.
|
106,000
|
65,000
|
171,000
|
Terence C. Golden
|
104,000
|
65,000
|
169,000
|
Patrick T. Harker
(3)
|
56,000
|
65,000
|
88,500
|
Barbara J. Krumsiek
|
104,000
|
65,000
|
169,000
|
Lawrence C. Nussdorf
|
100,000
|
65,000
|
165,000
|
Patricia A. Oelrich
|
112,000
|
65,000
|
177,000
|
Lester P. Silverman
|
145,000
|
65,000
|
210,000
|
|
(1)
|
The following table sets forth, as of December 31, 2015 and March 23, 2016 (immediately prior to the completion of the Merger),
the number of phantom shares (each corresponding to one share of common stock) credited to the account of the non-management directors
who participate in the Pepco Holdings Deferred Compensation Plan and who have elected to have director compensation deferred into
the phantom share account. Phantom shares under the Pepco Holdings Deferred Compensation Plan may be settled only in cash. No directors
deferred any compensation into the phantom share account in 2015.
|
|
Phantom Shares Credited (#)
|
Name
|
As of
December 31, 2015
|
As of
March 23, 2016
|
Terence C. Golden
|
7,781
|
7,781
|
Barbara J. Krumsiek
|
22,119
|
22,119
|
Lawrence C. Nussdorf
|
5,102
|
5,102
|
Lester P. Silverman
|
29,073
|
29,073
|
|
(2)
|
The amount shown for 2015 is the aggregate grant date fair value, as determined in accordance with ASC 718 (excluding the effect
of estimated forfeitures), of awards of time-based RSUs granted as the equity component of the annual Board retainer during that
year. For a discussion of the assumptions made in determining the aggregate grant date fair value of these awards, see Note (12),
“Stock-Based Compensation, Dividend Restrictions, and Calculations of Earnings Per Share of Common Stock —
Stock-Based Compensation” in the Company’s consolidated financial statements included in the 2015 Form 10-K.
|
|
(3)
|
Dr. Harker resigned from the board as of June 30, 2015.
|
Director Stock Ownership
Requirements
Prior to the completion of the Merger, non-management directors
were required to own common stock or common stock equivalents (which include, without limitation, phantom shares under the Pepco
Holdings Deferred Compensation Plan and RSUs issued under the 2012 LTIP) that had a market value equal to at least four times the
annual board cash retainer. Immediately prior to the completion of the Merger, the annual Board cash retainer was $50,000 per year.
Non-management directors serving on the Board as of May 18, 2012 had until May 18, 2017 to reach this share ownership level. Directors
elected or appointed to the Board for the first time thereafter had five years after the date of their initial election or appointment
to meet this requirement. As of immediately prior to the completion of the Merger, all of the Company’s directors either
met the share ownership requirement or joined the Board within the last five years and were subject to the phase-in provision under
the policy.