SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
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Check the appropriate box:
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Preliminary Information Statement
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¨
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Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2))
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x
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Definitive Information Statement
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Public Service Company of Oklahoma
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(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than
the Registrant)
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Payment of Filing Fee (Check the appropriate box):
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x
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was
determined):
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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(1)
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Form, Schedule or Registration Statement No.:
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Date Filed:
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PUBLIC SERVICE COMPANY OF OKLAHOMA
1 Riverside Plaza
Columbus, Ohio 43215
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF
PUBLIC SERVICE COMPANY OF
OKLAHOMA:
The annual meeting of the shareholders of Public Service Company of Oklahoma will be held on Tuesday, May 4,
2010, at 10:30 a.m. at the principal office of American Electric Power Service Corporation, 1 Riverside Plaza, Columbus, Ohio, for the following purposes:
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To elect ten directors of the Company to hold office for one year or until their successors are elected and qualified; and
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To transact such other business (none known as of the date of this notice) as may legally come before the meeting or any adjournment thereof.
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Only holders of record of Common Stock and Cumulative Preferred Stock, par value $100 per share, at the close of business on
March 16, 2010 are entitled to notice of and to vote at the annual meeting.
THERE WILL BE NO SOLICITATION OF PROXIES
BY THE BOARD OF DIRECTORS OF THE COMPANY.
March 19, 2010
INFORMATION STATEMENT
This information statement is being furnished in connection with the annual meeting of shareholders of Public Service Company of Oklahoma
(the Company), to be held on Tuesday, May 4, 2010 at 10:30 a.m. at the principal office of American Electric Power Service Corporation, 1 Riverside Plaza, Columbus, Ohio.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
Voting at Meeting
On
March 16, 2010, the date for determining shareholders entitled to notice of and to vote at the meeting, there were 52,577 shares of Cumulative Preferred Stock, par value $100 per share, and 9,013,000 shares of Common Stock outstanding.
Each holder of Cumulative Preferred Stock, par value $100 per share, and each holder of Common Stock has the right to one
vote for each share outstanding in such holder’s name on the books of the Company at the close of business on March 16, 2010 for the election of directors and on any other business which may come before the meeting.
Principal Shareholders
American Electric Power Company, Inc. (AEP), 1 Riverside Plaza, Columbus, Ohio 43215, a public utility holding company, owns all of the Company’s outstanding Common Stock. The Common Stock represents approximately 99% of the combined
voting power of the capital stock of the Company entitled to vote at the meeting. As a result, the Company is a “controlled company” as defined by the New York Stock Exchange (NYSE) listing standards. The Company lists only preferred stock
on the NYSE. The Company does not have standing audit, nominating or compensation committees.
AEP also owns, directly or
indirectly, all of the common stock of the other companies which constitute the American Electric Power System (the AEP System). The AEP System is an integrated electric utility system and, as a result, the member companies of the AEP System,
including the Company, have contractual, financial and other business relationships with the other member companies, such as participation in the AEP System savings and retirement plans and tax returns; sales of electricity; and sales,
transportation and handling of fuel. American Electric Power Service Corporation (the Service Corporation), a wholly-owned subsidiary of AEP, renders management, advisory, engineering and other similar services at cost to the principal operating
companies of the AEP System, including the Company.
ELECTION OF DIRECTORS
Ten directors are to be elected to hold office for one year or until their successors are elected and qualified. The Company has been
informed that AEP will nominate, and cast the votes of all of the outstanding shares of Common Stock for, the persons named below. In the event that any of such persons should unexpectedly be unable to stand for election, AEP has informed the
Company that it will cast its votes for a substitute chosen by the Board of Directors of the Company and approved by AEP.
The
following brief biographies of the nominees include their ages as of March 1, 2010, an account of their business experience and the names of certain publicly-held corporations of which they are also directors.
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Name
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Age
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Business Experience
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MICHAEL G. MORRIS
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63
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Chairman of the board, chief executive officer and director of the Company and chairman of the board, chief executive officer, president and director of AEP and the Service
Corporation. A director of Alcoa Inc. and The Hartford Financial Services Group, Inc. Chairman of the board, chief executive officer and director of certain other AEP System companies.
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NICHOLAS K. AKINS
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49
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Vice president and director of the Company, executive vice president of AEP and executive vice president-generation of the Service Corporation. Became vice president-energy
delivery business development of the Service Corporation in 2001, became vice president-energy market services in 2002, was appointed president and chief operating officer of Southwestern Electric Power Company in 2004 and assumed his current
position in 2006. A vice president and director of certain other AEP System companies.
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Age
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Business Experience
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CARL L. ENGLISH
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63
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Vice president and director of the Company, chief operating officer of AEP and chief operating officer and director of the Service Corporation. From 1999-2004 was president and
chief executive officer of Consumers Energy gas division. Joined AEP as president-utility group in 2004 and assumed his current position in 2008. A vice president and director of certain other AEP System companies.
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JOHN B. KEANE
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63
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Vice president and director of the Company, executive vice president, general counsel and secretary of AEP and executive vice president, general counsel, secretary and director
of the Service Corporation. Was president of Bainbridge Crossing Advisors from 2003-2004 and vice president-administration-Northeast Utilities from 1998-2002. A director of certain other AEP System companies.
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RICHARD E. MUNCZINSKI
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57
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Vice president and director of the Company, senior vice president of AEP and senior vice president-regulatory services and director of the Service Corporation. Joined the Service
Corporation in 1978, became vice president-regulatory services in 1996, senior vice president-corporate planning and budgeting in 1998, became senior vice president-shared services in 2008 and assumed his current position in 2009. Vice president and
director of certain other AEP System companies.
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CHARLES R. PATTON
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50
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Vice chairman of the board, vice president and director of the Company and executive vice president-AEP utilities west of the Service Corporation. Joined the Service Corporation
in 2000, became vice president of governmental affairs in 2002, became president and chief operating officer of AEP Texas Central Company, an affiliate of the Company, in 2004, became senior vice president-regulatory and public policy in 2008 and
assumed his present position in 2009. Vice chairman, vice president and director of certain other AEP System companies.
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ROBERT P. POWERS
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52
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Vice president and director of the Company, president-AEP utilities of AEP and president-AEP utilities and director of the Service Corporation. Joined the Service Corporation in
1998 as senior vice president-nuclear generation, became senior vice president-nuclear operations in 2000, executive vice president-nuclear generation and technical services in 2001, executive vice president-generation in 2003, executive vice
president of AEP in 2006 and assumed his present position in 2008. Vice president and director of certain other AEP System companies.
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BRIAN X. TIERNEY
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42
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Vice president and director of the Company, executive vice president of AEP and executive vice president and chief financial officer of the Service Corporation. Joined the
Service Corporation in 1998 and was appointed senior vice president-energy marketing in 2003, became senior vice president-commercial operations in 2005, became executive vie president-AEP utilities east in 2006 and assumed his present position in
2009. Vice president and director of certain other AEP System companies.
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SUSAN TOMASKY
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56
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Vice president and director of the Company, executive vice president of AEP, and president-AEP transmission and director of the Service Corporation. Joined the Service
Corporation in 1998 as senior vice president, general counsel and secretary, became executive vice president-legal, policy and corporate communications in 2000, vice president and chief financial officer of AEP and executive vice president-policy
finance and strategic planning of the Service Corporation in 2001, executive vice present and chief financial officer in 2004, executive vice president-shared services of the Service Corporation in 2006 and assumed her present position in 2008. Vice
president and director of certain other AEP System companies.
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DENNIS E. WELCH
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58
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Vice president and director of the Company, senior vice president of AEP and executive vice president-environment, safety, health and facilities of the Service Corporation.
Joined AEP in 2005 as senior vice president and senior vice president-environment and safety of the Service Corporation and assumed his current position in 2008. Was president and chief operating officer of Yankee Energy System, Inc. and Yankee Gas
Services Company from 2001 to 2005. A vice president and director of certain other AEP System companies.
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Messrs.
Morris, Akins, English, Keane, Munczinski, Powers, Tierney and Welch and Ms. Tomasky are directors of AEP Texas Central Company, AEP Texas North Company, Appalachian Power Company, Columbus Southern Power Company, Kentucky Power Company, Ohio
Power Company and Southwestern Electric Power Company, all of which are direct or indirect subsidiaries of AEP and have one or more classes of publicly held preferred stock or debt securities. Mr. Patton is a director of AEP Texas Central
Company, AEP Texas North Company and Southwestern Electric Power Company. Messrs. Morris, Akins, English, Powers and Tierney and Ms. Tomasky are directors of Indiana Michigan Power Company. Messrs. Morris, Akins, Keane, Powers and Tierney are
also directors of AEP Generating Company, another subsidiary of AEP.
3
GOVERNANCE POLICIES AND PROCESSES
The Company has reviewed the provisions of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley Act), the rules of the Securities and Exchange
Commission (SEC) and the listing standards of the NYSE relating to corporate governance. Based on the SEC’s rule,
Standards Relating to Listed Company Audit Committees
, the Company is exempt from the audit committee requirements set
forth in Section 301 of the Sarbanes-Oxley Act and therefore is not required to have an audit committee or an audit committee report on whether it has an audit committee financial expert. The Company is also exempt from a majority of the
NYSE’s listing standards relating to corporate governance. The Company has voluntarily complied with certain of the NYSE’s listing standards relating to corporate governance where such compliance is in the best interest of the
Company’s shareholders.
DIRECTOR NOMINATION PROCESS
The Company does not have a Nominating Committee. The full board identifies director nominees. AEP owns all of the Common Stock, and, as a
result, AEP’s affirmative vote is sufficient to elect director nominees. Consequently, the board does not accept proposals from preferred shareholders regarding potential candidates for director nominees.
COMMUNICATIONS TO THE BOARD
Shareholders interested in communicating directly with the Company’s board of directors can contact them by writing c/o Corporate Secretary, Public Service Company of Oklahoma, 1 Riverside Plaza,
Columbus, Ohio 43215. The Corporate Secretary will forward the correspondence to the individual director or directors to whom the correspondence is directed.
BOARD ATTENDANCE AT ANNUAL MEETING OF SHAREHOLDERS
The Company does not
have a policy relating to attendance at the Company’s annual meeting of shareholders by directors. The Company does not solicit proxies for the election of directors because the affirmative vote of AEP is sufficient to elect the nominees and,
therefore, holders of the Company’s preferred stock rarely attend the annual meeting. Consequently, a policy encouraging directors to attend the annual meeting of shareholders is not necessary.
CODE OF ETHICS
All of the Company’s directors and officers, including its principal executive, financial and accounting officers are subject to AEP’s Code of Conduct. The AEP Code of Conduct is available on AEP’s website:
www.AEP.com
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OTHER BUSINESS
Management does not intend to bring any matters before the meeting other than the election of directors and does not know of any matters that will be brought before the meeting by others.
4
COMPENSATION DISCUSSION AND ANALYSIS
For purposes of this section, we use the terms “AEP,” the “Company,” “we,” “our” and “us”
to refer to American Electric Power Company, Inc. All references to “board of directors”, “board”, or “directors” refer to the board of directors of AEP. All of the executive officers of the Company identified in the
Summary Compensation Table are employees of the Service Corporation. The compensation of these executive officers are paid by the Service Corporation. The AEP Human Resources Committee (HR Committee) is responsible for the oversight and
administration of the Service Corporation’s executive compensation.
Highlights for 2009
Despite extremely challenging economic conditions that significantly reduced industrial demand and off-system sales, the Company had an
excellent year and delivered ongoing earnings in 2009 that exceeded 2008 ongoing earnings. On a per share basis the Company’s 2009 earnings were reduced significantly as the result of an additional 69 million shares issued in April 2009.
The issuance of these shares raised over $1.6 billion, but resulted in lower earnings per share in 2009. In 2009 the Company also successfully restarted Cook Unit 1 generating station and received excellent overall rate treatment in our regulatory
proceedings.
In setting the goals for the 2009 annual incentive compensation program, the HR Committee considered the
dilutive effect of the equity issuance and decided not to reduce the EPS target for 2009 and, therefore, set the EPS target at the same level as the 2008 target. The HR Committee did, however, lower the EPS threshold vis-a-vis the prior year from
$3.10 per share to $2.90 per share. The HR Committee set the threshold and target at these levels for 2009 because it believed that this struck an appropriate balance between employee and shareholder interests. However, the dilutive effect on 2009
EPS from issuing the additional shares and a difficult economic environment made the target payout largely unachievable. The full EPS performance measure established by the HR Committee was:
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Above the mid-point of our earnings guidance ($2.90 per share) for any payout,
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The high end of our earnings guidance ($3.05 per share) for a 50% of target score and award pool,
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Above the high end of our earnings guidance ($3.20 per share) for a 100% target score and award pool, and
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Substantially above the high end of our earnings guidance ($3.30 per share) for a maximum 200% of target score and award pool.
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If ongoing earnings had been less than or equal to $2.90 per share there would have been no opportunity for
annual incentive compensation for all senior officers and nearly all employees. Had the HR Committee continued its past practice of linking target funding for the annual incentive compensation program to the midpoint of the Company’s earnings
guidance range of $2.85 to $3.05 per share, rather than linking it to the prior year target of $3.20 per share, AEP’s EPS would have produced above target annual incentive award funding.
AEP’s ongoing EPS of $2.97 was above the mid-point of earnings guidance for the year, but resulted in a score of 19.1% of the target
award pool, which was a significant decline from the 2008 score of 136.2%. In addition, AEP experienced two fatal work related accidents in 2009, which resulted in a 25% of target deduction in the payouts for all
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executive officers. Since this fatality deduction was larger than the award score, no annual incentive awards were made to the executive officers for 2009.
In 2009, the Company continued to closely align executive officers’ total compensation opportunity with shareholder’s interests by
providing a substantial percentage of it in the form of stock-based compensation. For example, AEP’s three-year performance unit awards account for approximately 66% of Mr. Morris’ total compensation opportunity.
The HR Committee recognizes that executive compensation is of great interest to the Company’s shareholders and regularly reviews best
practices in executive compensation. In that context, the HR Committee made several other changes to the executive compensation program in 2009. These changes included:
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Freezing salaries for the named executive officers at 2008 levels for 2009,
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Maintaining target annual incentive opportunities, expressed as a percentage of base pay, at the same level as 2008,
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Eliminating company paid country club memberships, effective February 2009,
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Eliminating personal use of Company provided aircraft, effective September 2009, to the extent that such use has an incremental cost to the Company,
except for Mr. Morris who negotiated this as part of his employment agreement. This change also precludes successor CEOs from using company provided aircraft for personal use,
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Eliminating all tax gross-ups effective October 2009, including tax gross-ups on relocation benefits, except those provided under existing agreements,
and
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Eliminating the reimbursement and tax gross-up for excise taxes triggered by a change in control of the Company under change in control agreements
issued to new participants, after October 2009.
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Overview
The HR Committee oversees and determines AEP’s executive compensation. The HR Committee makes recommendations to the independent members
of the board of directors about the compensation of the Chief Executive Officer, and those independent board members determine the CEO’s compensation.
AEP’s executive compensation programs are designed to:
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Attract and retain a superb leadership team with market competitive compensation and benefits,
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Reflect AEP’s financial and operational size and the complexity of its multi-state operations,
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Emphasize performance-based compensation over base salary by providing a substantial majority of executive officers’ total compensation
opportunities in the form of incentive compensation,
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Align the interests of the Company’s executive officers with those of AEP’s shareholders by providing a substantial percentage of the total
compensation opportunity for executive officers in the form of stock based compensation that has a value linked to AEP’s share price and other shareholder return measures,
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Support the implementation of the Company’s business strategy by tying annual incentive awards to earnings per share targets and the achievement
of specific operating and strategic objectives,
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Motivate and reward outstanding individual performance, and
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Promote the stability of the management team by creating strong retention incentives with multi-year vesting schedules for long-term incentive
compensation, and requiring executives to meet stock ownership requirements.
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Overall, AEP’s executive
compensation program is intended to create a total compensation opportunity that, on average, is equal to the median of AEP’s Compensation Peer Group of other utility companies and industrial companies, as described below under
“Compensation Peer Group.” The HR Committee does consider how elements of compensation can affect other elements of compensation. For example, the HR Committee limits the amounts and types of compensation that are included in the qualified
and non-qualified retirement plans. See Benefits on page 14 for a further discussion. The HR Committee’s independent compensation consultant, Towers Watson (Towers Perrin prior to January 1, 2010), participates in HR Committee
meetings, assists the HR Committee in developing the compensation program and meets with the HR Committee in executive session without management present during all meetings. See the Human Resources Committee Report on page 19 for additional
information about the independence of Towers Watson’s advice to the HR Committee.
In September 2009 Towers Perrin
completed an annual executive compensation study for the HR Committee. In aggregate, this study found that base salaries, total cash compensation and total direct compensation were all well within the +/- 15% range that Towers Perrin considers to be
the competitive range.
Compensation Program Design
The compensation program for executive officers includes base salary, annual incentive compensation, long-term incentive compensation, a comprehensive benefits program and limited perquisites. The HR
Committee provides a balance of short-term and long-term incentive compensation that is consistent with the compensation mix provided by AEP’s Compensation Peer Group. For AEP’s annual incentive compensation, the HR Committee balances
meeting AEP’s ongoing 2009 earnings per share target with meeting performance in four categories: safety, operating performance, regulatory performance and strategic initiatives. This approach keeps annual incentive compensation in step with
the earnings of the Company while, at the same time, tying annual incentive compensation to other important non-financial measures, such as safety.
The HR Committee chose earnings per share as the funding factor for the annual incentive plan because it is strongly correlated with shareholder returns, largely reflects management’s performance in
operating the Company and is
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the primary measure by which the Company communicates forward-looking financial information to the investment community. The EPS measure is clearly understood by both our shareholders and
employees. We also believe that EPS growth leads to the creation of long-term shareholder value.
AEP’s long-term
incentive compensation is tied to longer-term shareholder return objectives to maintain an appropriate focus on creating sustainable long-term shareholder value. Specifically, the Company’s long-term incentive compensation is issued in
performance units which are tied to AEP’s three-year total shareholder return relative to all the utility companies in the S&P 500 Index and three-year cumulative earnings per share.
A cumulative earnings measure was chosen to ensure that the total earnings for all three years contribute equally to the award calculations,
as opposed to assessing performance for each of the three years independently, which could encourage sacrificing earnings in one year to better ensure the achievement of earnings objectives in other years. The HR Committee chose a total shareholder
return measure for long-term incentive awards to provide an external performance comparison that reflects the effectiveness of management’s strategic decisions and actions over this period. The HR Committee also uses long-term incentives as a
retention tool to foster management continuity by subjecting these awards to a three-year vesting period.
The HR Committee
annually reviews the mix of base salary, annual incentive and long-term incentive compensation opportunity provided to executives. For 2009, 84% of the total compensation opportunity for the Chief Executive Officer and at least 76% of that for the
other named executive officers was at risk in the form of incentive compensation. More than 66% of the 2009 target compensation opportunity for the CEO and between 52% and 65% percent of that for the other named executive officers is in the form of
long-term, stock based incentive compensation. The ultimate value that executives realize from that compensation opportunity is therefore closely linked to AEP’s long-term total shareholder return.
The HR Committee targets the total compensation opportunity for each individual executive within a range of plus or minus 15% of the median
of the Compensation Peer Group. The HR Committee chooses the median as a target because it corresponds to the Company’s near median position within the Compensation Peer Group for various size measures, such as revenue, number of employees, and
total assets. To the extent that the total compensation opportunity for an executive is above or below the peer group median, the HR Committee adjusts elements of pay over time to bring the total compensation opportunity into the competitive range.
Compensation Peer Group
The HR Committee annually reviews AEP’s executive compensation relative to a peer group of companies that represent the talent markets with which AEP must compete to attract and retain executives.
This Compensation Peer Group is reviewed annually by the HR Committee in consultation with its independent compensation consultant. The Compensation Peer Group is chosen based on comparability in size to AEP in revenues, total assets, market
capitalization, number of employees and business complexity.
8
The chart below compares AEP’s revenues, assets, market capitalization and number of
employees to our Compensation Peer Group at the time the peer group was approved.
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AEP
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Peer Group
Median
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Revenues
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$14.4 billion
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$16.1 billion
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Assets
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$45.2 billion
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$29.9 billion
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Market Capitalization
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$15.0 billion
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$15.5 billion
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Employees
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21,900
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19,700
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In addition, the HR
Committee also considers the one and three year total shareholder return of the industrial companies when selecting the peer group. At the time the peer group was approved, the median one-year and three-year total shareholder return was minus 20%
and 0% for the peer group and minus 15% and minus 2% for AEP. The Compensation Peer Group consists of an approximately equal balance of utility and industrial companies. The HR Committee includes industrial companies outside the utility industry
because AEP must compete with industrial companies to attract and retain executives. In addition, because AEP is one of the largest U.S. utility companies based on assets and employees, the Company also includes the industrial companies in the peer
group to increase the median level of assets and employees in the peer group to more closely compare to AEP. For 2009, the Compensation Peer Group consisted of 14 large and diversified energy services companies and 12 Fortune 500 companies shown in
the table below. The Compensation Peer Group is unchanged from the prior year.
9
AEP’s Compensation Peer Group
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Energy (14 Companies)
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General Industry (12 Companies)
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Centerpoint Energy, Inc.
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3M Company
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Constellation Energy Group, Inc.
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Bristol-Myers Squibb Company
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Dominion Resources, Inc.
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Caterpillar Inc.
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Duke Energy Corporation
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CSX Corporation
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Edison International
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Goodyear Tire & Rubber Company
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Entergy Corporation
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Northrop Grumman Corporation
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Exelon Corporation
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PPG Industries, Inc.
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FirstEnergy Corp.
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Schlumberger N.V.
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FPL Group, Inc.
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Sunoco, Inc.
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PG&E Corporation
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Textron Inc.
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Public Service Enterprise Group Incorporated
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Union Pacific Corporation
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Sempra Energy
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Weyerhaeuser Company
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The Southern Company
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Xcel Energy
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Towers Watson annually provides the HR Committee with an executive compensation study covering all
executive officer positions and many other executive positions based on its survey information for the Compensation Peer Group. This is the only outside compensation survey that the HR Committee used in 2009. The methodology and job matches used in
this study were determined by Towers Watson based on descriptions of each executive’s responsibilities and are reviewed with the HR Committee.
The standard benchmark is the median value of compensation paid by the Compensation Peer Group. However, in 2009 Towers Perrin also used a regression analysis of all energy companies in their database as
the market benchmark for Mr. Powers in his position as President AEP Utilities and Mr. Tierney in his previous position as EVP – AEP Utilities East. These AEP positions have responsibility for substantially larger groups than matching
positions in the Compensation Peer Group so comparable compensation benchmarks could not be provided from this sample of companies. Therefore, Towers Perrin used a regression analysis based on the number of employees directly and indirectly overseen
for all companies in their Energy Services survey to provide comparable compensation benchmarks for these positions. In Towers Perrin’s judgment this provided the most accurate comparison available.
Executive Compensation Program Detail
Executive Compensation Component Summary
.
The following table summarizes the major components of the Company’s Executive Compensation Program.
10
|
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|
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Component
|
|
Purpose
|
|
Key Attributes
|
|
Base Salary
|
|
• To provide a market-competitive and consistent minimum source of income
|
|
• In 2009, there were no salary increases except for Mr.
Tierney because of his promotion to CFO. However, generally, salary increases are awarded by the HR Committee based on:
• The Company’s merit budget,
• Supervisor
performance ratings and merit increase recommendations, which are based on written evaluations of sustained individual performance and competencies,
• The responsibilities, experience and future potential of each executive officer,
• Reporting relationships, and
• The impact that any change in base salary may have on other pay elements.
|
11
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Component
|
|
Purpose
|
|
Key Attributes
|
|
Annual Incentive
Compensation
|
|
• To intensify executive officer focus on annual performance
objectives that are critical to AEP’s success
• For 2009 these objectives were:
• Ongoing earnings per share as the funding measure,
• Safety,
including a 25% deduction if the Company experiences a fatal work-related employee accident,
• Operating performance,
• Regulatory
performance, and
• Strategic initiatives.
|
|
• No annual incentive awards were made to the executive
officers for 2009. Annual incentive targets are established by the HR Committee based on competitive compensation information provided by Towers Watson.
• Actual awards may vary from 0% to 200% of the annual incentive
targets.
• The funding is created only if the Company exceeds the threshold established by the HR Committee, which was $2.90 per share for 2009.
• Without
exceeding the funding described above, individual awards are then determined by the HR Committee based on:
• Each executive’s calculated bonus opportunity, and
• Individual
performance for the prior year.
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|
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Long-Term Compensation
|
|
• To motivate AEP management to maximize shareholder value by
linking this potential compensation directly to shareholder returns.
• To help ensure that Company management remains focused on longer-term results, which the HR Committee considers to be essential given the large amount of long-term
investment required in our business.
• To reduce executive turnover and maintain management consistency.
• Specific performance objectives are:
• Three-year
cumulative earnings per share, and
• Three-year total shareholder return relative to the utilities in the S&P 500.
|
|
• The HR Committee provides long-term incentive awards in the
form of three-year performance units.
• The HR Committee establishes award guidelines for each executive salary grade based on total compensation practices for similar positions in AEP’s Compensation Peer Group.
• Individual
long-term incentive awards are primarily based on:
• Individual performance,
• Award guidelines for each salary grade established by the HR
Committee,
• Market competitive compensation levels, and
• The executive officers’ future potential for
advancement.
|
12
Base Salary
. In light of extremely difficult economic conditions, the HR Committee,
with management’s agreement, froze base salaries for the named executive officers for 2009.
AEP pays base salaries to
provide a market-competitive and consistent minimum source of income to executives. Generally, when determining the salaries for executive officers, the HR Committee considers:
|
|
•
|
|
Evaluations of their sustained individual performance in the following areas: integrity/ethics, communication, willingness to confront tough issues,
business acumen, strategic planning, teamwork, fostering a high performance culture and, for the CEO only, leadership of the board of directors,
|
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|
•
|
|
The responsibilities, experience and future potential of each executive officer,
|
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|
•
|
|
Reporting relationships,
|
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|
•
|
|
Supervisor recommendations, which are constrained by the Company’s merit budget,
|
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|
•
|
|
Tally sheets showing salary history and all other elements of total rewards,
|
|
|
•
|
|
The impact that any change in base salary may have on other pay elements, such as annual incentive compensation, and
|
|
|
•
|
|
The competitiveness of the executive’s total compensation, which includes annual incentive compensation and long-term incentive compensation.
|
Before determining base salaries, the individual performance of each executive officer is evaluated in the
areas described above by the senior executive to whom each reports. The CEO’s performance is assessed by the independent members of the board of directors. To more fully assess the CEO’s performance, the HR Committee Chairman annually
solicits confidential written evaluations from all board members, senior AEP executives and AEP’s auditors.
To develop a
base salary recommendation for the CEO, the HR Committee, in executive session, subjectively weighs the CEO’s performance along with the market compensation information provided by Towers Watson. The HR
13
Committee presents its recommendation to the independent members of AEP’s Board, who make the final determination of the CEO’s salary.
Generally, in determining the base salaries for the other named executive officers, the HR Committee reviews written assessments of their
performance and the market compensation benchmarks provided by Towers Watson. The CEO presents base salary recommendations for the named executive officers, other than himself, to the HR Committee, and the HR Committee makes the final determination.
Annual Incentive Compensation.
Annual Incentive Targets.
The HR Committee, in consultation with Towers Watson and Company management, establishes the annual incentive targets for each executive officer. In setting annual
incentive targets, the Company and the HR Committee consider:
|
|
•
|
|
The compensation survey information provided by Towers Watson, which shows the competitiveness of AEP’s annual incentive compensation targets,
total cash compensation and total compensation for the named executive officers relative to the Compensation Peer Group,
|
|
|
•
|
|
AEP’s progression of incentive targets by salary grade, and
|
|
|
•
|
|
The expense implications of any changes.
|
For 2009 the HR Committee established the following annual incentive targets for the named executive officers:
|
|
•
|
|
110 percent of base earnings for Mr. Morris,
|
|
|
•
|
|
100 percent of base earnings for Mr. Tierney for his earnings in the EVP – AEP Utilities East position and 75% of his earnings in the CFO
position,
|
|
|
•
|
|
75 percent of base earnings for Mr. English, and
|
|
|
•
|
|
70 percent of base earnings for Ms. Koeppel, Mr. Powers and Ms. Tomasky.
|
14
Before 2008, Mr. Tierney oversaw AEP’s Commercial Operation group, which includes
our energy trading and marketing function. That position has a relatively high annual incentive target because it is market competitive for similar positions. In order to develop executive talent and as part of AEP’s succession planning, when
Mr. Tierney was appointed to the EVP – AEP Utilities East position in 2008, his annual incentive target was maintained at the previous 100% level. Effective October 2009, Mr. Tierney was promoted to EVP – CFO and his annual
incentive target was reduced to 75% of his base earnings. This was offset by increases in his long-term incentive target and an increase in his salary to $450,000, effective January 2010.
Funding For Annual Incentive Plan.
In 2009 AEP produced ongoing EPS of $2.97, which was above the mid-point of AEP’s earnings
guidance for the year, and resulted in a score of 19.1% of the target award pool. However, AEP experienced two fatal work related accidents in 2009, which resulted in a 25% of target deduction for executive officers. Since this fatality deduction
was larger than the award score, no annual incentive awards were made to executive officers for 2009.
For 2009, ongoing EPS
was $0.01 more than earnings per share reported in AEP’s financial statements principally because of the reapplication of cost-of-service regulation for the generation portion of electric utility service for the Texas jurisdiction of our
utility subsidiary, Southwestern Electric Power Company.
Annual Performance Objectives.
For 2009 the HR Committee
again used an Executive Council Scorecard to tie the annual incentive awards for AEP’s executive team to four areas of performance: safety, operating performance, regulatory performance and strategic initiatives. The HR Committee uses this
balanced scorecard because it mitigates the risk that executives will focus on one or a few overriding objectives, such as short term financial performance, to the detriment of other objectives. AEP’s balanced scorecard also serves as a tool to
communicate and align the efforts of executive officers and other employees with the performance measures included on the scorecard. The weightings of those targets are determined by the HR Committee. The threshold, target, maximum and actual
performance measures are set forth in the table below. We more fully explain the measures and the reasons we chose the measures in the text following the table.
|
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|
|
|
|
|
|
|
|
Weight
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Actual
Performance
Result
|
|
Actual
Award
Score
(as a percent
of target
opportunity)
|
|
|
FUNDING - Ongoing EPS
|
|
NA
|
|
$
|
2.90
|
|
$
|
3.20
|
|
$
|
3.30
|
|
$
|
2.97
|
|
19.1
|
%
|
|
Deductions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fatality Deduction
|
|
NA
|
|
|
25% of target deduction
in the event of a fatal
work related accident
|
|
|
2 fatalities
|
|
-25
|
%
|
|
Credit Rating Deduction
|
|
NA
|
|
|
10% of target deduction in
the event of a downgrade
of the credit rating for
the Company’s
senior
unsecured long-
term debt
|
|
|
No
Downgrades
|
|
—
|
|
15
|
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|
|
|
|
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|
|
|
Weight
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Actual
Performance
Result
|
|
|
Actual
Award
Score
(as a percent
of target
opportunity)
|
|
|
PERFORMANCE
|
|
|
|
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|
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|
|
|
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|
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|
|
Safety
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recordable Case Rate (the number of Occupational Safety and Health Administration recordable incidents per 200,000 work hours)
|
|
8
|
%
|
|
1.67
|
|
|
1.45
|
|
|
1.23
|
|
|
1.57
|
|
|
45.5
|
%
|
|
Severity Rate (the number of lost and restricted duty days due to Occupational Safety and Health Administration recordable
incidents per 200,000 work hours)
|
|
12
|
%
|
|
29.39
|
|
|
25.56
|
|
|
21.73
|
|
|
29.13
|
|
|
6.8
|
%
|
|
Contractor Recordable Case Rate (the number of Occupational Safety and Health Administration recordable incidents per 200,000
work hours for major AEP contractors)
|
|
4
|
%
|
|
2.30
|
|
|
2.00
|
|
|
1.70
|
|
|
1.61
|
|
|
200.0
|
%
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wires Reliability – CAIDI (Customer Average Incident Duration Index, excluding major storm days)
|
|
9
|
%
|
|
141.5
minutes
|
|
|
138
minutes
|
|
|
134.6
minutes
|
|
|
136.8
minutes
|
|
|
134.8
|
%
|
|
Generating Fleet Availability
• Equivalent availability factor (EAF) relative to budget for our coal and nuclear
plants) – 80% of this component
• Effective forced outage rate
(EFOR) relative to budget for gas and hydro plants – 20% of this component
|
|
12
|
%
|
|
98.5
|
%
|
|
100.0
|
%
|
|
101.0
|
%
|
|
99.3
|
%
|
|
55.0
|
%
|
|
Regulatory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate Recovery – (determined subjectively by the HR Committee based on total dollar value of improvement of AEP’s rate
recovery relative to AEP’s budget)
|
|
20
|
%
|
|
Subjective
|
|
|
Not
Applicable
|
|
|
200
|
%
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weight
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
|
Actual
Performance
Result
|
|
|
Actual
Award
Score
(as a percent
of target
opportunity)
|
|
|
Operating Company ROE – (based on an equally weighted average of major operating company ROEs relative to AEP’s control
budget)
|
|
10
|
%
|
|
90.0
|
%
|
|
100.0
|
%
|
|
110.0
|
%
|
|
102.4
|
%
|
|
124.0
|
%
|
|
Strategic Initiatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental Policy Planning and Leadership – (measured subjectively by the HR Committee based on the extent to which AEP
implements its plan and achieves its desired 2009 outcomes for significant environmental issues)
|
|
10
|
%
|
|
Subjective
|
|
|
Not
Applicable
|
|
|
200
|
%
|
|
Notices of Environmental Violation – (the number of notices received company-wide)
|
|
5
|
%
|
|
5
|
|
|
2
|
|
|
0
|
|
|
5
|
|
|
0.0
|
%
|
|
Culture Development
• Implementation of high priority initiatives
|
|
3.3
|
%
|
|
Half
|
|
|
Majority
|
|
|
All
|
|
|
All
|
|
|
200.0
|
%
|
|
• Timely completion of performance reviews for employees
|
|
3.3
|
%
|
|
90.0
|
%
|
|
95.0
|
%
|
|
100.0
|
%
|
|
98.5
|
%
|
|
170.0
|
%
|
|
• Implementation of performance coaching process for AEP supervisors
|
|
3.3
|
%
|
|
90.0
|
%
|
|
95.0
|
%
|
|
100.0
|
%
|
|
95.7
|
%
|
|
114.0
|
%
|
Safety
. Maintaining the safety of AEP employees, customers and the general public is always a primary consideration, and safety is an AEP core value. Accordingly, the HR Committee tied 24% of the scorecard to reducing the number
of accidents and the severity of injuries across the AEP system. The recordable rate portion of the safety category is measured by the Occupational Safety and Health Administration (OSHA) recordable incident rate. The severity rate portion is
measured by lost and restricted duty work days. The overall 2009 safety score was 51.9% of target. In addition to these measures, the HR Committee also established a fatality deduction, which is discussed below.
Operations
. The HR Committee also tied 21% of the scorecard to the operating performance of AEP’s assets. This category
measures the reliability of our wires assets and the availability of our generating plants. The reliability
17
measure is the average total duration of distribution outage minutes (CAIDI), which is a standard measure in our industry. The availability measure is an indicator of plant availability or, for
some plants, the forced outage rate. In 2009 AEP achieved slightly below target results for overall operations performance, which produced an overall operating performance score of 89.2% of target.
Regulatory.
Since AEP has made significant investments in many major capital improvement projects, recovering these additional
investments with satisfactory returns through rate proceedings is imperative. Therefore, the HR Committee tied a large portion of the Executive Council Scorecard (20%) to AEP’s overall success in achieving rate recovery in regulatory
proceedings at the Federal Energy Regulatory Commission and state public utility commissions. Since AEP exceeded its overall target for rate treatment in 2009, the HR Committee subjectively scored this component at 200% of target. It also tied 10%
of the scorecard to the weighted average return on equity of our principal utility subsidiaries, which produced a score of 124.0% of target. The overall Regulatory score was 174.7% of target.
Strategic Initiatives.
For 2009 the strategic initiatives category accounted for 25% the scorecard. It
included environmental policy and planning leadership, which was subjectively assessed by the HR Committee for AEP’s leadership in reinstating environmental rules and influencing the adoption of CO
2
emission legislation at a score of 200.0% of target. The Company
received five notices of violation during 2009 which resulted in a 0% score for this objective. The cultural development category, focused on items selected by management as high priority culture shaping initiatives and produced a score of 161.3% of
target. The overall performance score for strategic initiatives was 144.5% of target.
The overall Executive Council Scorecard
result was 119.7% of target before application of the EPS Funding Factor and Deductions as described below.
18
EPS Funding Factor.
As stated in the chart above, the EPS funding factor was
19.1%. However, in order to allocate the award pool created by AEP’s EPS to each incentive group (typically a business unit or staff function), the score for each group is divided by the weighted average performance score for all groups. For
2009 the average performance score for all groups in AEP’s annual incentive compensation program was 131.6% of target. The chart below shows the calculation of the overall performance score for the named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
Council
Score
|
|
|
|
EPS Score
|
|
|
|
|
Average
Performance
Score
|
|
|
|
|
Overall
Performance
Score*
|
|
|
119.7%
|
|
×
|
|
19.1
|
%
|
|
÷
|
|
131.6
|
%
|
|
=
|
|
17.4
|
%
|
|
*
|
The maximum overall performance score is 200%
|
Deductions.
The HR Committee again established a fatality deduction for 2009 that deducts 25% of target from the final score for executive officers if the Company experienced one or more fatal
work related employee accidents. Since there were two work-related employee fatalities in 2009, the 25% deduction applied. However, since the final score for executive officers was less than 25%, the fatality deduction eliminated all 2009 annual
incentive award funding and awards for executive officers. For 2009, the HR Committee also added a credit rating deduction to the funding measure. The credit rating deduction would have reduced the overall score for executive officers by 10% at the
HR Committee’s discretion if one of the major credit rating agencies reduced the rating on the Company’s senior unsecured debt during the year. The HR Committee added this feature in 2009 because it believed the Company needed to maintain
good access to the financial markets during the difficult economic times.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overall
Performance
Score
|
|
|
|
Fatality
Deduction
|
|
|
|
|
Credit
Rating
Deduction
|
|
|
|
|
Final
Performance
Score
|
|
|
17.4%
|
|
–
|
|
25
|
%
|
|
–
|
|
0
|
%
|
|
=
|
|
0
|
%
|
The calculated
bonus opportunity is shown in the chart below for each named executive officer. Normally this is the starting point for determining annual incentive awards.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
2009
Base
Earnings
|
|
|
|
Annual
Incentive
Target %
|
|
|
|
|
Overall
Performance
Score
|
|
|
|
|
Calculated
Bonus
Opportunity
|
|
Actual
Awards
|
|
Michael G. Morris
|
|
$
|
1,298,077
|
|
x
|
|
110
|
%
|
|
x
|
|
0.0
|
%
|
|
=
|
|
$
|
0
|
|
$
|
0
|
|
Brian X. Tierney
|
|
|
415,385
|
|
x
|
|
94
|
%
|
|
x
|
|
0.0
|
%
|
|
=
|
|
|
0
|
|
|
0
|
|
Carl L. English
|
|
|
571,154
|
|
x
|
|
75
|
%
|
|
x
|
|
0.0
|
%
|
|
=
|
|
|
0
|
|
|
0
|
|
Robert P. Powers
|
|
|
529,615
|
|
x
|
|
70
|
%
|
|
x
|
|
0.0
|
%
|
|
=
|
|
|
0
|
|
|
0
|
|
Susan Tomasky
|
|
|
529,615
|
|
x
|
|
70
|
%
|
|
x
|
|
0.0
|
%
|
|
=
|
|
|
0
|
|
|
0
|
|
Holly Keller Koeppel
|
|
|
515,385
|
|
x
|
|
70
|
%
|
|
x
|
|
0.0
|
%
|
|
=
|
|
|
0
|
|
|
0
|
19
The HR Committee generally believes that annual incentive compensation should not be purely
based on a formulaic calculation, but should instead be adjusted from this starting point to reflect each executive’s individual performance and contribution. However, since the overall performance score was 0% for all executive officers, the
HR Committee did not award any annual incentive compensation to executive officers for 2009.
Annual incentive compensation is
paid under the Senior Officer Incentive Plan (SOIP). For 2009 the HR Committee established 0.75% of income before discontinued operations, extraordinary items and the cumulative effect of accounting changes (Adjusted Income) as the
performance objective for the SOIP and further allocated a specific percentage of Adjusted Income to each executive officer. This creates a maximum annual incentive award for each executive officer that meets the requirements for tax deductibility
as performance based compensation under Section 162(m) of the Internal Revenue Code. In this way, the HR Committee retains the flexibility to make awards that are based on individual performance without sacrificing tax deductibility under
section 162(m) of the Internal Revenue Code. For additional information about the SOIP, see 2009 Non-Equity Incentive Compensation beginning on page 24.
Long-Term Incentive Compensation
AEP annually reviews the mix of long-term
incentive compensation it provides its executives. Since 2003, the HR Committee has relied exclusively on three year performance units for its regular annual long-term incentive award grants. The HR Committee grants long-term incentive awards on a
fixed annual cycle that currently takes place at its December meeting following its annual executive compensation review. Grants are given to all eligible employees at this time. It is a long-standing HR Committee practice to consider the impact of
any recent and upcoming Company announcements and financial disclosures that may impact AEP’s share price, as well as AEP’s current stock price itself, when determining the number of shares or units to grant under AEP’s long-term
incentive program.
The HR Committee establishes award guidelines for each executive salary grade based on market competitive
total compensation for similar positions in AEP’s Compensation Peer Group. Individual long-term incentive awards are determined by the HR Committee, or, for the CEO, by the independent members of the Board. These determinations are made based
on:
|
|
•
|
|
Award guidelines for each salary grade established by the HR Committee, which creates an overall award pool that AEP management and the HR Committee
use in determining awards,
|
|
|
•
|
|
Individual performance assessments (described under Base Salary above). However, any positive discretionary adjustments based on individual performance
must be offset by negative adjustments to avoid exceeding the above award pool,
|
|
|
•
|
|
Individual executive’s total direct compensation relative to the Compensation Peer Group median, and
|
20
|
|
•
|
|
The executive officers’ future potential for advancement.
|
The HR Committee also regularly reviews tally sheets for the named executive officers that show the potential future payout of outstanding
equity awards. They use these tally sheets to assess whether the value of the potential payout appropriately reflects the Company’s performance and condition and whether the value that executive officers have already received from vested equity
awards is so large as to significantly reduce the need for or effectiveness of any future equity awards. To date, the HR Committee has not reduced the number of performance units awarded to any executive.
Performance Units
The HR
Committee granted performance unit awards, effective January 1, 2009, as follows:
|
|
|
|
|
Name
|
|
Number of
Performance
Units Granted
|
|
Mr. Morris
|
|
175,000
|
|
Mr. Tierney
|
|
28,510
|
|
Mr. English
|
|
61,420
|
|
Mr. Powers
|
|
40,330
|
|
Ms. Tomasky
|
|
40,580
|
|
Ms. Koeppel
|
|
43,870
|
These performance
unit awards were intended to provide peer group median total direct compensation for all executives on average. Differences between the awards for individual executives primarily reflect differences in salary grade.
Recipients must remain employed by AEP through the end of the vesting period to receive a payout unless they retire or are severed by the
company as part of a consolidation, restructuring or downsizing, in which case they receive a prorated payout based on the number of months they actively worked. Dividends are reinvested in additional performance units. The maximum score for each
performance measure is 200 percent. The total number of performance units held at the end of the performance period is multiplied by the weighted score for the two performance measures shown below to determine the award payout.
Performance Measures for 2009 – 2011 Performance Units
|
|
|
|
|
|
|
|
|
|
|
|
Performance Measure
|
|
Weight
|
|
|
Threshold
Performance
|
|
Target
Performance
|
|
Maximum
Payout
Performance
|
|
3-Year Cumulative Earnings Per Share
|
|
50
|
%
|
|
$7.92
(0% payout)
|
|
$9.02
(100% payout)
|
|
$9.90
(200% payout)
|
|
3-Year Total Shareholder Return vs. S&P Electric Utilities
|
|
50
|
%
|
|
20
th
Percentile
(0% payout)
|
|
50
th
Percentile
(100% payout)
|
|
80
th
Percentile
(200% payout)
|
21
For a description of the performance units that vested in 2009, see the discussion on
page 27 under the Option Exercises and Stock Vested table.
Benefits.
AEP generally provides the same health and
welfare benefits to executives as it provides to other employees. AEP also provides the named executive officers with either four or five weeks of paid vacation.
AEP’s named executive officers participate in the same pension and savings plans as other eligible employees. These include tax-qualified and non-qualified defined contribution and defined benefit
plans. AEP’s non-qualified retirement benefit plans are largely designed to provide “supplemental benefits” that would otherwise be offered through the tax-qualified plans except for the limits imposed by the Internal Revenue Code on
those tax-qualified plans. As a result, the non-qualified plans allow the eligible employees to accumulate higher levels of replacement income upon retirement than would be allowed under the tax-qualified plans alone.
The HR Committee recognizes that the non-qualified plans result in the deferral of the Company’s income tax deduction until such
benefits are paid. The HR Committee chooses to provide these supplemental benefits because it believes that (i) executives generally should be entitled to the same retirement benefits, as a percentage of their eligible pay, as other employees
and (ii) such benefits are part of a market competitive benefits program.
The non-qualified plans also provide
contractual benefits such as the starting balance credit of $2,100,000 and an increased credit rate under AEP’s pension program that Mr. Morris negotiated as part of his employment contract to join AEP. The increased pension benefits were
provided to Mr. Morris to make up for pension benefits that he otherwise could have earned from his prior employer. Other executive officers that were recruited to AEP have also negotiated additional years of credited service or an increased
credit rate to offset pension benefits that they would have been able to earn from prior employers for their many years of service.
The Company and the HR Committee believe that AEP’s continued use of its qualified and non-qualified retirement plans (including the enhancements offered through the nonqualified plans) is consistent with competitive practice and
necessary to attract executives. The HR Committee does, however, limit both the amount and types of compensation that are included in the qualified and non-qualified retirement plans because it believes the compensation should not be further
enhanced by including it in retirement benefit calculations. Therefore,
|
|
•
|
|
Long-term incentive compensation is not included in the calculations that determine benefits under AEP’s benefit plans,
|
|
|
•
|
|
The cash balance formula of the AEP Supplemental Benefit Plan limits eligible compensation to the greater of $1 million or twice the participant’s
base salary, and
|
22
|
|
•
|
|
Eligible compensation is also limited to $2 million under the non-qualified Supplemental Retirement Savings Plan.
|
AEP provides group term life insurance benefits to all employees, including the named executive officers, in the amount of two times their
base salary.
Perquisites.
AEP provides limited perquisites that help executives conduct Company business. The HR
Committee annually reviews the perquisites provided by the Company to ensure that they are efficient and effective uses of AEP’s resources. The HR Committee also periodically reviews the value of perquisites provided to each named executive
officer.
For executives who relocate, AEP provides relocation assistance that includes travel costs, costs associated with
the purchase and sale of a home, a fixed payment associated with miscellaneous relocation expenses, limited temporary living expenses and gross-up for taxes on these amounts. Effective for relocations after October 2009, the HR Committee eliminated
the tax gross-up on relocation benefits. AEP’s relocation package is intended to offset nearly all of the cost of a move for AEP executives. This policy is market competitive and is necessary to obtain high quality new hires and internal
candidates for assignments that require relocation.
During 2009 the Company provided personal use of corporate aircraft to
Mr. Morris and, in a few instances, to other executives. While the HR Committee believes that the enhanced security, travel flexibility and reduced travel time that corporate aircraft provide for personal travel benefits the Company, the HR
Committee is also sensitive to concerns over the expense of corporate aircraft and the public perception regarding personal use of such aircraft. Accordingly, effective October 2009, the HR Committee prohibited personal use of corporate
aircraft that has an incremental cost to the Company, except for Mr. Morris, who negotiated the use of corporate aircraft for personal travel as part of his employment agreement. Additionally, the HR Committee has over the years offset
Mr. Morris’s compensation opportunity by an amount approximating the incremental cost to the Company of his personal use of corporate aircraft above that of other CEOs in AEP’s Compensation Peer Group. Taxes are withheld on the value
of executive personal use of corporate aircraft in accordance with IRS standards. AEP does not provide a gross-up for these taxes.
The Company will continue to allow spouses to occasionally accompany executives on trips using business aircraft if there is no incremental cost to the Company, such as when a spouse accompanies an executive on a business trip. For business
trips that occurred prior to October 2009, the Company provided a gross-up to executives on the taxes associated with the travel of their spouse to business meetings that spouses were invited to attend. Effective October 2009, the HR Committee
eliminated this tax gross-up, along with all other tax gross-ups.
In addition, AEP also provides executives with Company
selected independent advisors to assist executives with financial planning and tax issues. Income is imputed to executives and taxes are withheld for financial counseling and tax preparation services. These services help reduce the amount of
assistance AEP’s human resource staff needs to provide in these areas and ensures that these services are provided by someone familiar with AEP’s executive compensation and
23
benefit programs. It also provides the Company with a source of information from the executive’s perspective on executive compensation and benefits.
Stock Ownership Requirements.
The HR Committee believes that linking a significant portion of an executive’s financial rewards
to the Company’s success, as reflected by the value of AEP stock, gives the executive a stake similar to that of the Company’s shareholders and encourages long-term management strategies for the benefit of shareholders. Therefore, the HR
Committee requires senior executives to accumulate and hold a specific amount of AEP common stock or stock equivalents. The HR Committee annually reviews the minimum stock ownership levels for each executive salary grade and periodically adjusts
these levels. Executives generally are expected to achieve their required stock ownership level within five years of the date it is assigned. Due to promotions and changes in ownership requirements, executives may have multiple stock ownership
requirements.
AEP’s stock ownership requirements are specified as a fixed number of shares or share equivalents for
executives in each salary grade. At the time the stock ownership requirements were established, their value was equal to three times base salary for the CEO and two to two and one-half times base salary for the other named executive officers. The HR
Committee believes that its stock ownership requirements are consistent with best practices and the stock ownership practices of the companies in AEP’s Compensation Peer Group. The highest minimum stock ownership requirement assigned to each of
the named executive officers, and their holdings at December 31, 2009, are shown in the table below.
|
|
|
|
|
|
|
|
Name
|
|
Highest
Minimum
Stock
Ownership
Requirement
as of
12/31/2009
(Shares)
|
|
AEP Stock and
Share Equivalent
Holdings on
12/31/2009
|
|
|
Mr. Morris
|
|
109,300
|
|
463,642
|
(1)
|
|
Mr. Tierney
|
|
29,900
|
|
37,730
|
|
|
Mr. English
|
|
62,900
|
|
82,810
|
|
|
Mr. Powers
|
|
52,700
|
|
59,152
|
|
|
Ms. Tomasky
|
|
52,700
|
|
119,906
|
|
|
Ms. Koeppel
|
|
52,700
|
|
60,267
|
|
|
(1)
|
Includes 133,334 unvested restricted shares that vest in equal portions, subject to Mr. Morris’s continued employment, on November 30 of 2010 and 2011.
|
24
AEP maintains the Stock Ownership Requirement Plan which provides a tax deferred method for
executives (currently 58) to meet their minimum stock ownership requirements. If a participant has failed to meet all of their minimum stock ownership requirements, that executive’s performance units are mandatorily deferred into AEP Career
Shares, which are phantom stock units whose rate of return is equivalent to the total return on AEP stock with dividends reinvested. In addition, to the extent an executive has not met a minimum stock ownership requirement within five years of the
date it was assigned, the executive is subject to:
|
|
•
|
|
Mandatory deferral into AEP Career Shares of up to 50% of the executive’s annual incentive compensation award, and
|
|
|
•
|
|
A requirement to retain the AEP shares realized through stock option exercises (net of shares redeemed to satisfy exercise costs and tax withholding
requirements).
|
AEP Career Shares are not paid to participants until after their AEP employment ends.
Recoupment of Incentive Compensation.
Consistent with the requirements of the Sarbanes-Oxley Act, the Board believes
that incentive compensation should be reimbursed to the Company if, in the Board’s determination:
|
|
•
|
|
Such incentive compensation was predicated upon the achievement of financial or other results that were subsequently materially restated or corrected,
|
|
|
•
|
|
The employee from whom such reimbursement is sought engaged in misconduct that caused or partially caused the need for the restatement or correction,
and
|
|
|
•
|
|
A lower payment would have been made to the executive based upon the restated or corrected financial results.
|
The Board adopted this policy in February 2007, and the HR Committee directed the Company to design and administer all of the Company’s
incentive compensation programs in a manner that provides for the Company’s ability to obtain such reimbursement. The Company will seek reimbursement, if and to the extent that, in the Board’s view, such reimbursement is warranted by the
facts and circumstances of the particular case.
Insider Trading Policy.
The Company maintains an insider trading
policy that prohibits directors and officers from directly hedging their AEP stock holdings through short sales and the use of options, warrants, puts and calls or similar instruments. The policy also prohibits directors and officers from placing
AEP stock in margin accounts without the approval of the Company. The Company is unaware of any executive officer who has attempted to directly or indirectly hedge the economic risk associated with minimum stock ownership requirements. The Company
is also not aware of any executive officer or director who has pledged or otherwise encumbered their shares of AEP stock.
Role of the CEO with Respect to Determining Executive Compensation.
The HR Committee has invited the CEO to attend all HR Committee meetings. The HR Committee regularly holds executive sessions without the CEO or other
25
management present to provide a confidential avenue for any concerns to be expressed. The CEO, in his role as Chairman of the Board, has the authority to call a meeting of the HR Committee.
The CEO has assigned AEP’s Senior Vice President—Shared Services, Vice President—Human Resources and Director
of Compensation and Executive Benefits to support the HR Committee. These individuals work closely with the HR Committee Chairman, the CEO and the Committee’s independent compensation consultant (Towers Watson) to research and develop requested
information, prepare meeting materials, implement the HR Committee’s actions and administer the Company’s executive compensation and benefit programs in keeping with the objectives established by the HR Committee. The management supporting
the HR Committee also meets with the CEO, the HR Committee Chairman and Towers Watson prior to meetings to review and finalize the meeting materials.
The CEO regularly discusses his strategic vision and direction for the Company during HR Committee meetings with Towers Watson in attendance. Likewise, Towers Watson regularly discusses compensation
strategy alternatives, in light of the CEO’s strategic vision and direction, during HR Committee meetings with the CEO in attendance. The HR Committee believes that this open dialog and exchange of ideas is important to develop and implement a
successful executive compensation strategy. The CEO did not retain any outside compensation consulting services or otherwise seek compensation advice regarding AEP’s executive compensation and benefits.
Mr. Morris discusses the individual performance of all the named executive officers (other than himself) with the HR Committee and
recommends their compensation to the HR Committee. As CEO, he also has substantial input into the development of employment offers for outside candidates for executive positions, although all employment offers for executive officer positions require
the approval of the HR Committee.
The CEO does not play any role in determining or recommending director compensation. The
Directors and Corporate Governance Committee is responsible for developing a recommendation as to the compensation of non-management directors. In 2009 the Directors and Corporate Governance Committee hired an outside compensation consultant (Hewitt
Associates), which is independent from both the Company and the HR Committee’s executive compensation consultant, to help it meet this responsibility. The Board of Directors makes the final determination on directors’ compensation. The CEO
attends the Directors and Corporate Governance Committee meetings.
Change In Control Agreements.
The HR Committee
provides change in control agreements to all the named executive officers to help align the interests of these executives with those of AEP’s shareholders by mitigating the financial impact if their employment is terminated as a result of a
change in control. The HR Committee also considers change in control agreements as an important tool in recruiting external candidates for certain executive positions. The HR Committee limits participation to those executives (currently 15) whose
full support and sustained contributions in the course of a lengthy and stressful possible corporate transaction would be critical to the successful completion of a change in control.
While the HR Committee believes these agreements are consistent with the practices of its peer companies, the most important reason for
these agreements is to protect the Company and the interests of shareholders in the event of an anticipated or actual change in control. During such transitions, retaining and continuing to motivate the Company’s
26
key executives would be critical to protecting shareholder value. In a change of control situation, outside competitors are more likely to try to recruit top performers away from the Company, and
our executive officers may consider other opportunities when faced with uncertainty about retaining their positions. Therefore, the HR Committee uses these agreements to provide security and protection to officers in such circumstances for the
long-term benefit of the Company and its shareholders.
The Board has adopted a policy that requires shareholder approval of
future executive severance agreements that provide benefits generally exceeding 2.99 times the sum of the named executive officer’s salary plus bonus. In consultation with Towers Watson, the HR Committee periodically reviews change in control
agreement practices for similar companies, including the companies in our Compensation Peer Group. The HR Committee has found that change in control agreements are common among these companies, and that 2.99 is the most common multiple for executive
officers. Therefore, the HR Committee approved change in control multiples of 2.99 times base and bonus for all of the named executive officers. The HR Committee has also structured AEP’s change in control agreements to include a
“double trigger,” which is a change in control accompanied by an involuntary termination or constructive termination within two years.
If the payments made to a named executive officer on account of his or her termination exceed certain amounts, the Company may not be able to deduct the payments for federal income tax purposes and the
named executive officer could be subject to a 20% excise tax on such payments. The excise tax is in addition to the executive’s regular payroll and income taxes. To offset the effect of the excise tax, AEP’s change in control agreements
provide “gross-up” payments to reimburse executives for the excise tax. However, the total benefit that an executive would receive by reason of the change in control will be reduced by up to 5% if that reduction would avoid the excise tax.
The gross-up payment to reimburse the executive for these excise taxes is no longer being included in change in control agreements entered into with new participants after October 2009.
In addition, in the event of a change in control, all outstanding performance units would vest and would be paid at a target performance
score. Other compensation and benefits provided to executive officers in the event of a change in control are consistent with that provided in the event a participant’s employment is terminated due to a consolidation, restructuring or
downsizing as described below.
Other Employment Separations.
AEP maintains a severance plan that provides two
weeks of base pay per year of service to all employees, including executive officers, if their employment is terminated due to a consolidation, restructuring or downsizing, subject to the employee’s agreement to waive claims against AEP. In
conjunction with his hire, Mr. Morris negotiated an employment agreement that provides him a severance payment equal to two times his annual base salary in the event of his severance, subject to his agreement to waive claims against AEP. In
addition, our severance benefits for all employees include outplacement services and access to health benefits at a reduced net cost for up to 18 months (or until age 65 for employees who are at least age 50 with 10 years of service at the time of
their severance).
Named executive officers and all other employees who separate from service after year-end, other than for
cause, remain eligible for a discretionary annual incentive award for the completed year. The amount of such awards remains
27
discretionary and is determined in accordance with the normal award process. Named executive officers and other employees remain eligible for a prorated portion of their annual incentive award if
they separate from service prior to year-end due to their retirement, severance attributed to restructuring, consolidation or downsizing, or death.
A prorated portion of outstanding performance units vest if a participant retires, which is defined as a termination other than for cause after the executive reaches age 55 with five years of service.
Mr. Morris, Mr. English, Ms. Tomasky and Mr. Powers were retirement eligible in 2009. A prorated portion of outstanding performance units would also vest to a participant’s heirs in the event of a participant’s
death.
Financial Counseling participants, or their spouses, are also entitled to one year of continued service in the event
of their severance or death.
Tax Considerations
Section 162(m) of the Internal Revenue Code limits the Company’s ability to deduct compensation in excess of $1,000,000 paid in any year to the Company’s CEO or any of the next three
highest paid named executive officers named in the Summary Compensation Table, other than the Chief Financial Officer. The HR Committee considers the limits imposed by Section 162(m) when designing compensation and benefit programs for the
Company and its executive officers. Because the annual incentive compensation awarded in 2009 was performance based and awarded by a committee of independent outside directors pursuant to a plan that was approved by shareholders (the Senior Officer
Incentive Plan), its deductibility is not subject to the Section 162(m) limit. Amounts paid to the named executive officers for vested performance units, which were granted under the shareholder approved Long-Term Incentive Plan, also are not
subject to the deductibility limit for the same reasons.
From time to time, AEP awards restricted shares or restricted stock
units for special achievements and circumstances, but they are not part of our regular long term incentive award program. The restricted shares and restricted stock units are not considered to be performance based under Section 162(m), and
therefore any amounts paid are not tax deductible to the extent that the covered executive officer receives total non-performance based compensation in excess of $1,000,000.
By meeting the requirements for performance based compensation under Section 162(m) for annual incentive compensation and
performance units, the Company saved approximately $5.0 million for 2009. The HR Committee intends to continue to utilize shareholder approved plans and performance based awards to allow the Company to deduct most annual and long-term incentive
compensation paid to named executive officers, while maintaining sufficient flexibility to award appropriate incentives to named executive officers.
28
Human Resources Committee Report
Membership and Independence.
The HR Committee had four members until December 2009, when a fifth member (Mr. Cordes) was added.
The Board has determined that each member of the HR Committee is an independent director, as defined by the New York Stock Exchange listing standards.
Purpose.
The primary purpose of the HR Committee is to provide independent oversight of the compensation and human resources policies and practices of the Company. The primary objective of the HR
Committee with respect to executive compensation is to ensure that the executive officers and other key employees are compensated in a manner that is consistent with the Company’s business strategy and risk tolerance, competitive practices,
internal equity considerations, and Company and Board policies.
Functions and Process.
The HR Committee operates
under a written charter adopted by the Board. This charter is available on AEP’s web-site at
www.AEP.com/investors/corporategovernance
.
The HR Committee annually reviews AEP’s executive compensation in the context of the performance of management and the Company. The HR Committee reviews and approves the compensation for all officers
at the senior vice president level and above and other key employees. With respect to the compensation of the CEO, the HR Committee is responsible for making compensation recommendations to the independent members of the Board, who review and
approve his compensation.
In carrying out its responsibilities, the HR Committee addressed many aspects of AEP’s human
resource and executive compensation programs and practices in 2009, including:
|
|
•
|
|
Establishing annual and long-term performance objectives for senior executives as a group and individual performance objectives for the CEO,
|
|
|
•
|
|
Assessing the performance of the CEO, other senior executives and the Company relative to those established performance objectives,
|
|
|
•
|
|
Conducting a 360 degree leadership assessment of the CEO based on written comments from board members, senior AEP management, Mr. Morris’
direct reports and the audit firm partner overseeing AEP’s external audit,
|
|
|
•
|
|
Determining the mix of base salary, short-term incentives and long-term equity based compensation to be provided to executives,
|
|
|
•
|
|
Reviewing an analysis of executive compensation for all senior executives, including the named executive officers,
|
|
|
•
|
|
Reviewing and approving the base salaries, annual incentive awards and long-term incentive award opportunities for all senior executives other than the
CEO, and recommending the CEO’s to the independent members of the board of directors,
|
29
|
|
•
|
|
Reviewing and approving the major elements of the Company’s compensation and benefit programs,
|
|
|
•
|
|
Evaluating whether and how the design of the Company’s executive compensation programs and practices affect risk taking,
|
|
|
•
|
|
Reviewing and approving the major terms of employment, change in control and any other special agreements with executives,
|
|
|
•
|
|
Reviewing the Company’s workforce safety efforts and results,
|
|
|
•
|
|
Reviewing the senior management succession plan, including succession alternatives for the CEO,
|
|
|
•
|
|
Reviewing workforce diversity efforts and results,
|
|
|
•
|
|
Reviewing and approving reports to shareholders regarding executive compensation, and
|
|
|
•
|
|
Selecting and engaging a compensation consultant to provide objective and independent advice to the HR Committee.
|
In establishing performance objectives, the HR Committee considers the interests of other major AEP stakeholders, such as AEP’s
employees, customers and the communities in which AEP operates, in addition to those of AEP’s shareholders. For example, the HR Committee tied 2009 annual incentive compensation for all executive officers to employee safety, customer
reliability and environmental stewardship, while also tying funding for annual incentive compensation to AEP’s earnings per share.
In determining executive compensation, the HR Committee considers all relevant factors, including:
|
|
•
|
|
The CEO’s individual performance assessed by the HR Committee chairman and lead director using a 360 CEO leadership assessment that specifically
covers the areas of integrity/ethics, communication, willingness to confront tough issues, business acumen, strategic planning, teamwork, fostering a high performance culture and leadership of the board of directors,
|
|
|
•
|
|
Individual performance for other executive officers as assessed by the CEO and, for executive officers that do not report directly to the CEO, their
direct manager,
|
|
|
•
|
|
Compensation survey information,
|
|
|
•
|
|
The responsibilities and experience of each senior officer,
|
|
|
•
|
|
Supervisor recommendations,
|
30
|
|
•
|
|
The impact compensation changes may have on other elements of total rewards,
|
|
|
•
|
|
The impact of compensation on risk taking,
|
|
|
•
|
|
The expense implications of any changes, and
|
|
|
•
|
|
Tally sheets, showing each of the named executive officer’s total compensation in multiple scenarios.
|
2009 Policy Changes.
In 2009 the HR Committee made the following significant policy changes with respect to AEP’s executive
compensation programs and practices:
|
|
•
|
|
Effective February 2009, the HR Committee eliminated the Company’s reimbursement for and gross-up on country club dues for executive officers,
|
|
|
•
|
|
Effective October 2009, the HR Committee prohibited personal use of corporate aircraft that has an incremental cost to the Company for all employees,
including future CEOs, other than for Mr. Morris, who negotiated personal use of corporate aircraft as part of his employment agreement,
|
|
|
•
|
|
In November 2009 the HR Committee directed management to amend its policies and practices to eliminate all tax gross-ups, and
|
|
|
•
|
|
In November 2009 the HR Committee also revised AEP’s change in control agreements offered to new participants to eliminate the reimbursement for
excise taxes.
|
The HR Committee’s Independent Compensation Consultant.
In 2009 and again in
2010, the HR Committee engaged a nationally recognized consultant Towers Perrin (now Towers Watson effective January 1, 2010) to provide recommendations to the HR Committee regarding AEP’s executive compensation and benefits programs and
practices. The HR Committee is authorized to retain and terminate the consultant without management approval, and has the sole authority to approve the consultant’s fees. In 2009 Towers Perrin provided information on current trends in executive
compensation and benefits within the electric utility industry and among U.S. industrial companies in general.
The HR
Committee annually assesses and discusses the performance and independence of its executive compensation consultant. As part of this assessment, the HR Committee considers the extent of other business that Towers Perrin performed for AEP and
reviewed the safeguards that were in place to ensure the independence of the advice they receive. A different office of Towers Perrin performed actuarial and benefits consulting services for the Company related to pension plans for the Company, for
which we paid $1,376,000 in 2009. Management regularly reports to the HR Committee the amount of such other business provided to the Company. The HR Committee maintains a policy that requires the Company to seek the HR Committee’s approval
before engaging this firm for new non-recurring work for which the cost is expected to exceed $25,000. The HR Committee has engaged Towers Watson to provide similar services in 2010.
The HR Committee also annually reviews the performance and independence of Towers Watson. The lead consultant providing services to the HR
Committee is Mr. Meischeid. Mr. Meischeid is not directly compensated for increasing the total revenues that Towers Watson receives from the Company or for expanding the types of services the
31
Company receives from them. Towers Watson does not have any role in recommending director compensation. In January 2009 and again in 2010, the HR Committee reviewed the cost of the work Towers
Perrin and now Towers Watson performed for AEP and concluded that, although Towers Watson does perform an extensive amount of other services for the Company, adequate barriers and safeguards were in place to ensure that Towers Watson’s
executive compensation recommendations were not in any way influenced by this other business. The HR Committee further concluded that Towers Watson was not unduly influenced by management and was providing objective and independent advice. The HR
Committee regularly holds executive sessions with Mr. Meischeid to help ensure that it receives full and independent advice.
In fulfilling its oversight responsibilities, the HR Committee reviewed and discussed with management the Compensation Discussion and Analysis set forth in this Proxy Statement. Based on its review and these discussions, the HR Committee
recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and the Company’s proxy statement to be filed in connection
with the Company’s 2010 Annual Meeting of Shareholders, each of which will be filed with the Securities and Exchange Commission.
Human Resources Committee Members
Donald M. Carlton
James F. Cordes
Ralph D. Crosby, Jr.
Thomas E. Hoaglin
Lester A. Hudson, Jr., Chair
32
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
(a)
|
|
Year
(b)
|
|
Salary
($)(1)
(c)
|
|
Bonus
($)
(d)
|
|
Stock
Awards
($)(2)
(e)
|
|
Option
Awards
($)
(f)
|
|
Non-
Equity
Incentive
Plan
Compen-
sation
($)(3)
(g)
|
|
Change in
Pension
Value and
Non-
qualified
Deferred
Compen-
sation
Earnings
($)(4)
(h)
|
|
All
Other
Compen-
sation
($)(5)
(i)
|
|
Total
($)
(j)
|
|
Michael G. Morris
—
|
|
2009
|
|
1,254,808
|
|
—
|
|
5,265,750
|
|
—
|
|
—
|
|
446,490
|
|
572,230
|
|
7,539,278
|
|
Chairman of the board, president and chief executive officer
|
|
2008
|
|
1,259,615
|
|
—
|
|
5,955,000
|
|
—
|
|
1,654,071
|
|
330,564
|
|
818,438
|
|
10,017,688
|
|
|
2007
|
|
1,204,615
|
|
—
|
|
5,515,900
|
|
—
|
|
1,800,000
|
|
446,677
|
|
643,748
|
|
9,610,940
|
|
Brian X. Tierney(6)
—
|
|
2009
|
|
401,539
|
|
—
|
|
857,866
|
|
—
|
|
—
|
|
124,813
|
|
69,767
|
|
1,453,985
|
|
Executive vice president and Chief Financial Officer
|
|
2008
|
|
403,077
|
|
—
|
|
816,550
|
|
—
|
|
665,000
|
|
117,421
|
|
61,134
|
|
2,063,182
|
|
Carl L. English
—
|
|
2009
|
|
552,115
|
|
—
|
|
1,848,128
|
|
—
|
|
—
|
|
108,781
|
|
74,965
|
|
2,583,989
|
|
Chief Operating Officer
|
|
2008
|
|
554,231
|
|
—
|
|
2,136,178
|
|
—
|
|
450,000
|
|
88,541
|
|
69,837
|
|
3,298,787
|
|
|
2007
|
|
511,961
|
|
—
|
|
829,931
|
|
—
|
|
400,000
|
|
99,096
|
|
59,844
|
|
1,900,832
|
|
Robert P. Powers
—
|
|
2009
|
|
511,961
|
|
—
|
|
1,213,530
|
|
—
|
|
—
|
|
692,065
|
|
68,442
|
|
2,485,998
|
|
President-AEP Utilities
|
|
2008
|
|
513,923
|
|
—
|
|
1,396,805
|
|
—
|
|
415,000
|
|
175,962
|
|
84,475
|
|
2,586,165
|
|
|
2007
|
|
491,885
|
|
—
|
|
829,931
|
|
—
|
|
400,000
|
|
32,981
|
|
67,916
|
|
1,822,713
|
|
Susan Tomasky
—
|
|
2009
|
|
511,961
|
|
—
|
|
1,221,052
|
|
—
|
|
—
|
|
1,009,187
|
|
64,060
|
|
2,806,260
|
|
President-Transmission
|
|
2008
|
|
513,923
|
|
—
|
|
1,267,700
|
|
—
|
|
400,000
|
|
251,454
|
|
71,464
|
|
2,504,541
|
|
|
2007
|
|
501,923
|
|
—
|
|
829,931
|
|
—
|
|
425,000
|
|
86,020
|
|
70,361
|
|
1,913,235
|
|
Holly Keller Koeppel
(
7
) —
|
|
2009
|
|
498,077
|
|
—
|
|
1,320,048
|
|
—
|
|
—
|
|
264,759
|
|
315,082
|
|
2,397,966
|
|
Former Chief Financial Officer
|
|
2008
|
|
503,846
|
|
—
|
|
1,338,208
|
|
—
|
|
450,000
|
|
168,745
|
|
68,342
|
|
2,529,141
|
|
|
2007
|
|
451,731
|
|
—
|
|
829,931
|
|
—
|
|
400,000
|
|
89,224
|
|
59,721
|
|
1,830,607
|
|
(1)
|
Amounts in the salary column are composed of executive salaries and additional days of pay earned for years with more than the standard 260 calendar work days and
holidays.
|
|
(2)
|
The amounts reported in this column relate to performance units granted under our Long-Term Incentive Plan. The amounts shown are based on the aggregate grant date fair
value of the award computed in accordance with FASB ASC Topic 718 for the current and prior years. Depending on the Company’s performance during the relevant three-year period, the potential payout to the executives can range from 0% to 200% of
the target number of performance units, including reinvested dividends, multiplied by the average closing price of AEP common stock for the last 20 trading days of the performance period. Therefore, the maximum amount payable to an executive is
equal to 200% of the target award stated above, plus an amount equal to any reinvested dividends on the performance units multiplied by the percentage increase in AEP’s share price from the grant date.
|
See Note 15 to the Consolidated Financial Statements included in our Form 10-K for the years ended December 31, 2009 and
December 31, 2008, and Note 16 for years ended December 31, 2007 for a discussion of the relevant assumptions used in calculating these amounts. The amounts that vested for the 2007 performance unit grant are shown in the Option Exercises
and Stock Vested table on page 27. For further information on these awards, see the Grants of Plan-Based Awards Table on page 23, the Outstanding Equity Awards at Fiscal Year-End Table on page 26 and the Option Exercises and Stock Vested Table on
page 27.
|
(3)
|
The amounts shown in this column are annual incentive awards made under the Company’s Senior Officer Incentive Plan for the year shown. At the outset of each year,
the HR Committee sets target bonuses and performance criteria that will be used to determine whether and to what extent executive officers will receive payments under this plan.
|
|
(4)
|
The amounts shown in this column are attributable to the increase in the actuarial values of each of the named executive officer’s combined benefits under
AEP’s qualified and non-qualified defined benefit plans determined using interest rate and mortality assumptions consistent with those used in the Company’s financial statements. However, as a result of Ms. Koeppel’s separation
from service as of December 31, 2009, she became entitled to the distribution of these benefits. See table entitled “Pension Benefits” on page 28, and related footnotes for additional information. No named executive officer received
preferential or above-market earnings on deferred compensation. See detailed discussion of Pension Benefits on page 28 and Note 8 to the Consolidated Financial Statements included in our Form 10-K for the years ended December 31, 2009 and
December 31, 2008, and Note 9 for the year ended December 31, 2007 for a discussion of the relevant assumptions.
|
|
(5)
|
A detailed breakout of the amounts shown in the All Other Compensation column for 2009 is shown below. These amounts include subsidiary director fees, tax gross-ups,
and Company contributions to the Company’s Retirement Savings Plan and the Company’s Supplemental Retirement Savings Plan. Prior to October 2009, the Company reimbursed executives for the tax withholding for spouse travel on corporate
aircraft to events that the spouse was invited to attend. This amount is included under tax gross-ups below. Effective November 2009, the HR Committee eliminated all tax gross-ups. The HR Committee also eliminated Company reimbursement for country
club dues effective February 2009.
|
33
For Mr. Morris, Ms. Tomasky and Ms. Koeppel, the amount shown for 2009
includes the aggregate incremental cost associated with their personal use of Company-provided aircraft of $447,818, $1,998 and $41,444, respectively. This amount is the incremental cost to the Company for their personal use of Company-provided
aircraft, including all operating costs such as fuel, trip-related maintenance, on-board catering, landing/ramp fees and other miscellaneous variable costs. Fixed costs that do not change based on usage, such as pilot salaries, the lease costs for
Company aircraft and the cost of maintenance not related to personal trips, are excluded. For proxy reporting purposes, personal use of corporate aircraft includes the incremental cost of relocating aircraft to accommodate personal trips and the
incremental costs of flights for Mr. Morris, Ms. Tomasky and Ms. Koeppel to attend outside board meetings for the public companies and government institution at which they serve as outside directors. Effective September 2009, the HR
Committee eliminated personal use of Company provided aircraft to the extent that such use has an incremental cost to the Company, except for Mr. Morris who negotiated this as part of his employment agreement. Ms. Koeppel received a
separation payment of $212,000 in accordance with an agreement reached with her in exchange for her releasing the Company from any and all claims.
|
(6)
|
Mr. Tierney became an executive officer of AEP in 2008 so only his compensation for 2009 and 2008 is shown.
|
|
(7)
|
Ms. Koeppel resigned as the Company’s Chief Financial Officer effective September 30, 2009, but continued her employment through 2009 in other
capacities.
|
All Other Compensation for 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
|
|
Michael G.
Morris
|
|
Brian X.
Tierney
|
|
Carl L.
English
|
|
Robert P.
Powers
|
|
Susan
Tomasky
|
|
Holly
Keller
Koeppel
|
|
Retirement Savings Plan Match
|
|
$
|
8,296
|
|
$
|
11,025
|
|
$
|
11,025
|
|
$
|
11,025
|
|
$
|
11,025
|
|
$
|
8,247
|
|
Supplemental Retirement Savings Plan Match
|
|
|
81,704
|
|
|
37,592
|
|
|
34,927
|
|
|
31,483
|
|
|
30,808
|
|
|
35,196
|
|
Tax Gross-Ups
|
|
|
5,845
|
|
|
—
|
|
|
525
|
|
|
3,436
|
|
|
—
|
|
|
1,661
|
|
Subsidiary Company Directors Fees
|
|
|
13,300
|
|
|
10,500
|
|
|
11,400
|
|
|
10,450
|
|
|
7,600
|
|
|
12,150
|
|
Director Life and Accident Insurance
|
|
|
803
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Country and Dining Club Dues and Airline Club Dues
|
|
|
2,664
|
|
|
—
|
|
|
683
|
|
|
1,749
|
|
|
2,085
|
|
|
434
|
|
Financial Counseling and Tax Preparation
|
|
|
11,800
|
|
|
10,650
|
|
|
12,500
|
|
|
10,299
|
|
|
10,444
|
|
|
3,950
|
|
Personal Use of Company Aircraft
|
|
|
447,818
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,998
|
|
|
41,444
|
|
Health & Wellness Program Incentives
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100
|
|
|
—
|
|
Relocation Payment
|
|
|
—
|
|
|
—
|
|
|
3,905
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Separation Payment
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
212,000
|
34
Grants of Plan Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
(a)
|
|
Grant Date
Approval(1)
|
|
Grant Date
(b)
|
|
Estimated Possible
Payouts Under Non-Equity
Incentive Plan Awards(2)
|
|
Estimated Future
Payouts Under
Equity Incentive Plan
Awards(4)
|
|
Grant Date
Fair Value of
Stock and
Option
Awards(5)
($)
(h)
|
|
|
|
|
Threshold
($)
(c)
|
|
Target
($)
(d)
|
|
Maximum(3)
($)
(e)
|
|
Threshold
(#)
(f)
|
|
Target
(#)
(g)
|
|
Maximum
(#)
(h)
|
|
|
Michael G. Morris
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Senior Officer Incentive Plan
|
|
—
|
|
1/1/2009
|
|
—
|
|
$
|
1,427,885
|
|
$
|
2,855,769
|
|
|
|
|
|
|
|
|
|
2009 – 2011 Performance Units
|
|
12/10/08
|
|
1/1/2009
|
|
|
|
|
|
|
|
|
|
—
|
|
175,000
|
|
350,000
|
|
5,265,750
|
|
Brian X. Tierney
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Senior Officer Incentive Plan
|
|
—
|
|
1/1/2009
|
|
—
|
|
|
389,423
|
|
|
778,846
|
|
|
|
|
|
|
|
|
|
2009 – 2011 Performance Units
|
|
12/10/08
|
|
1/1/2009
|
|
|
|
|
|
|
|
|
|
—
|
|
28,510
|
|
57,020
|
|
857,866
|
|
Carl L. English
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Senior Officer Incentive Plan
|
|
—
|
|
1/1/2009
|
|
—
|
|
|
428,365
|
|
|
856,731
|
|
|
|
|
|
|
|
|
|
2009 – 2011 Performance Units
|
|
12/10/08
|
|
1/1/2009
|
|
|
|
|
|
|
|
|
|
—
|
|
61,420
|
|
122,840
|
|
1,848,128
|
|
Robert P. Powers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Senior Officer Incentive Plan
|
|
—
|
|
1/1/2009
|
|
—
|
|
|
370,731
|
|
|
741,461
|
|
|
|
|
|
|
|
|
|
2009 – 2011 Performance Units
|
|
12/10/08
|
|
1/1/2009
|
|
|
|
|
|
|
|
|
|
—
|
|
40,330
|
|
80,660
|
|
1,213,530
|
|
Susan Tomasky
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Senior Officer Incentive Plan
|
|
—
|
|
1/1/2009
|
|
—
|
|
|
370,731
|
|
|
741,461
|
|
|
|
|
|
|
|
|
|
2009 – 2011 Performance Units
|
|
12/10/08
|
|
1/1/2009
|
|
|
|
|
|
|
|
|
|
—
|
|
40,580
|
|
81,160
|
|
1,221,052
|
|
Holly Keller Koeppel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Senior Officer Incentive Plan
|
|
—
|
|
1/1/2009
|
|
—
|
|
|
360,769
|
|
|
721,538
|
|
|
|
|
|
|
|
|
|
2009 – 2011 Performance Units
|
|
12/10/08
|
|
1/1/2009
|
|
|
|
|
|
|
|
|
|
—
|
|
43,870
|
|
87,740
|
|
1,320,048
|
|
(1)
|
On December 10, 2008, the HR Committee and the independent members of the board approved the 2009 performance unit awards under AEP’s long-term incentive
plan. The performance and vesting period for these awards is January 1, 2009 through December 31, 2011.
|
|
(2)
|
Consists of potential payouts under the Senior Officer Incentive Plan, which are based on base salary paid during the year.
|
|
(3)
|
The amount shown in this column represents 200% of the target award for each of the named executive officers, which is generally the maximum annual incentive award for
all AEP executives and other employees. However, under the Senior Officer Incentive Plan the HR Committee may make awards on an exception basis up to the limits pertaining to this plan. Award payments for 2009 could not have exceeded 0.75% of income
before discontinued operations, extraordinary items and the cumulative effect of accounting changes. In addition, the maximum award payment for each executive officer was capped at the lesser of:
|
|
|
(ii)
|
400% of the executive’s base salary (prior to any salary reduction or deferral elections) as of the date of grant of the award.
|
|
(4)
|
Consists of performance units awarded under our Long-Term Incentive Plan for the three-year performance period 2009 – 2011. For further information on these
awards, see the description under 2009 Stock Award Grants below.
|
|
(5)
|
The amounts shown in this column relate to performance units granted under our Long-Term Incentive Plan. The amounts are valued based on the aggregate
grant date fair value of the award determined pursuant to FASB ASC Topic 718. See Note 15 to the Consolidated Financial Statements included in
|
35
|
|
our Form 10-K for the year ended December 31, 2009. The value is computed by multiplying the closing price of AEP common stock on December 10, 2008 ($30.09) by the target number of
performance units granted as shown in column g. The actual number of performance units earned will depend on AEP’s performance over the 2009 through 2011 period and could vary from zero percent (0%) to two-hundred percent (200%) of the
target award plus reinvested dividends. The value of performance units earned will be equal to AEP’s average closing share price for the last 20 trading days of the performance period multiplied by the number of performance units earned.
|
2009 Stock Award Grants.
The named executive officers were awarded performance units effective
January 1, 2009. These performance units were granted for a three-year performance period (2009-2011) and generally vest, subject to the participant’s continued employment, at the end of the performance period. Performance units are
generally equivalent in value to shares of AEP common stock. Dividends are reinvested in additional performance units. The 2009-2011 performance units are subject to two equally weighted performance measures for the three-year performance period,
which are:
|
|
•
|
|
Three-year total shareholder return relative to the Utility Sector of the S&P 500 Index, and
|
|
|
•
|
|
Three-year cumulative earnings per share relative to a performance measure established by the HR Committee.
|
These performance measures are described in detail in Compensation Discussion and Analysis-Performance Units on page 14. The scores for
these performance measures determine the percentage of the performance units earned at the end of the performance period and can range from zero percent to 200 percent of the target. The value of each performance unit that is earned equals the
average closing price of AEP common stock for the last twenty trading days of the performance period.
Effective
January 1, 2010, the named executive officers were also awarded performance units for the 2010-2012 three-year performance period under terms that are otherwise similar to those described above for the 2009-2011 performance period. The
three-year cumulative earnings per share target for the 2010-2012 is $9.32. The relative total shareholder return performance measure for these performance units is identical to that for the previously granted performance units.
2009 Non-Equity Incentive Compensation.
For 2009 the HR Committee established the following annual incentive targets for the
named executive officers:
|
|
•
|
|
110 percent of base salary for Mr. Morris,
|
|
|
•
|
|
93.75 percent of base salary for Mr. Tierney,
|
|
|
•
|
|
75 percent of base salary for Mr. English, and
|
|
|
•
|
|
70 percent of base salary for Mr. Powers, Ms. Tomasky and Ms. Koeppel.
|
Actual awards generally may vary from 0% to 200% of the annual incentive target.
36
The HR Committee set target funding for the 2009 annual incentive compensation program at
the same level as the 2008 EPS target ($3.20), despite very difficult economic conditions. The full EPS performance measure established by the HR Committee was:
|
|
•
|
|
Above the mid-point of our earnings guidance ($2.90 per share) for any payout,
|
|
|
•
|
|
The high end of our earnings guidance ($3.05 per share) for a 50% of target score and award pool,
|
|
|
•
|
|
Above the high end of our earnings guidance ($3.20 per share) for a 100% target score and award pool, and
|
|
|
•
|
|
Substantially above the high end of our earnings guidance ($3.30 per share) for a maximum 200% of target score and award pool.
|
In 2009 AEP produced ongoing EPS of $2.97, which was above the mid-point of AEP’s earnings guidance
for the year, and resulted in a score of 19.1% of target. For 2009, ongoing EPS was $0.01 more than earnings per share reported in AEP’s financial statements because of the reapplication of regulatory accounting for one of our public utility
subsidiaries. See our Form 8-K filed on January 28, 2010 announcing 2009 fourth quarter and year-end earnings for a reconciliation of ongoing and reported EPS.
For 2009 the HR Committee again used an Executive Council Scorecard with four performance categories: safety, operating performance, regulatory performance and strategic initiatives. The scores for the
safety, operating performance, regulatory performance and strategic initiatives goals for 2009 combined to produce an Executive Council Scorecard result of 119.7% of target.
In order to allocate the award pool created by AEP’s EPS to each incentive group, including the group that includes the named executive
officers, the resulting score for each group is multiplied by the EPS score and divided by the weighted average performance score for all groups in AEP’s annual incentive compensation program, which was 131.6% of target. This produced a gross
composite score for the named executive officers of 17.4% of target (119.7% x 19.1% / 131.6% = 17.4%).
For 2009, the HR
Committee also established fatality and credit rating deductions. AEP experienced two fatal work related accidents in 2009, which resulted in a 25% of target deduction in the payouts for all our executive officers. Since this fatality deduction was
larger than the award score, no annual incentive awards were made to the executive officers for 2009.
AEP provides annual
incentive compensation to executive officers through the Senior Officer Incentive Plan, which was approved by shareholders at the 2007 annual meeting. This plan establishes the maximum annual incentive award opportunity for each executive officer
but actual awards are generally expected to be less than the maximum award available under this plan. The Senior Officer Incentive Plan also has an absolute maximum individual award of the lesser of $6,000,000 or 400% of the executive’s base
salary at the time of grant.
37
The HR Committee establishes one or more objective performance measures under the Senior
Officer Incentive Plan each year. These objective measures establish the maximum award that each executive officer may receive for such year, although the HR Committee generally expects to award less than this maximum.
38
For 2009 the HR Committee chose a performance objective under the Senior Officer Incentive
Plan that the Company achieve positive income before discontinued operations, extraordinary items and the cumulative effect of accounting changes (Adjusted Income). It also established the maximum amount available for awards under the Senior Officer
Incentive Plan as point seventy five percent (0.75%) of that Adjusted Income for 2009. The HR Committee further allocated a percentage of this maximum to each executive officer, as shown in the table below.
|
|
|
|
|
|
Name
|
|
2009
SOIP Funding
Allocation
|
|
|
Mr. Morris
|
|
32.2
|
%
|
|
Mr. Tierney
|
|
9.4
|
%
|
|
Mr. English
|
|
9.7
|
%
|
|
Mr. Powers
|
|
8.4
|
%
|
|
Ms. Tomasky
|
|
8.4
|
%
|
|
Ms. Koeppel
|
|
8.2
|
%
|
The annual
incentive payment for each executive officer may not exceed either the executive officer’s allocation of the performance measure or the absolute maximum individual award.
In addition to the award calculation described above, consideration is generally given to a subjective assessment of each executive’s
performance in determining their annual incentive award. However, since the performance score was 0.0% for all executive officers for 2009 no individual adjustments were made and no annual incentives were awarded. Accordingly, the Non- Equity
Incentive Plan Compensation column of the Summary Compensation Table shows no awards for 2009. For additional analysis of AEP’s annual incentive program see the Compensation Discussion and Analysis beginning on page 10.
Employment Agreements.
The Company entered into an employment agreement (Agreement) with Mr. Morris that became effective
January 1, 2004 for a three-year period. The Agreement is automatically renewed for additional one-year periods unless Mr. Morris or the Company takes specific action to terminate it. Under the agreement Mr. Morris is eligible to
receive an annual bonus under the Senior Officer Incentive Plan based on a target percentage of at least 100% of his base salary.
The Agreement awarded Mr. Morris a nonqualified stock option grant for 149,000 shares and 200,000 restricted shares, payable in three installments, as a replacement for certain long-term compensation that he forfeited from his prior
employer in order to accept employment with the Company. The first component of 66,666 shares vested on November 30, 2009. The remaining restricted shares will vest, subject to his continued employment, in two equal components of 66,667 shares
on November 30, 2010 and November 30, 2011, respectively.
The Agreement provides that Mr. Morris may use the
Company aircraft for personal use in accordance with Company policies in effect for senior executives. Mr. Morris is entitled to use memberships sponsored by the Company at a local country club and a luncheon club and to participate in the
Company’s financial counseling program.
39
The Company purchased a life insurance policy for Mr. Morris with a $3 million death
benefit, and paid annual premiums for five years through 2008 to maintain that policy. Mr. Morris was provided an opening balance in the AEP Supplemental Retirement Plan of $2.1 million. Mr. Morris vested in this plan in 20% increments on
each of the first five anniversary dates of his employment. Mr. Morris is credited with the maximum rate permitted under the AEP Supplemental Retirement Plan (currently at 8.5%) on all eligible earnings. For further information, see Pension
Benefits on page 28. If the Company terminates the Agreement for reasons other than cause, Mr. Morris will receive a severance payment equal to two times his annual base salary.
The Company entered into an employment agreement with Mr. English (English Agreement) that became effective August 2, 2004.
Mr. English is eligible to receive an annual bonus under the Senior Officer Incentive Plan, and his target percentage will be equal to at least 65% of his base salary. The English Agreement awarded Mr. English 30,000 restricted stock
units, which vested in equal thirds in August 2005, 2006 and 2007. Mr. English’s cash balance account under the AEP Supplemental Retirement Plan is credited with the maximum rate permitted (currently at 8.5%) on all eligible earnings.
For further information, see Pension Benefits on page 28.
Mr. Powers, Ms. Tomasky and Ms. Koeppel each have
agreements with the Company, which result in their being credited with 17, 20, and 15.25 years, respectively, of additional service under AEP’s pension plans. For further information on these agreements, see the Pension Benefits Table on
page 28.
In addition to these agreements, each of the named executive officers has entered into a Change In Control
Agreement with AEP. For further information about these Change In Control Agreements see Potential Payments upon Termination or Change in Control on page 31.
40
Outstanding Equity Awards at Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
Name
(a)
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(b)
|
|
Option
Exercise
Price ($)
(c)
|
|
Option
Expiration
Date
(d)
|
|
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
(e)
|
|
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)
(f)
|
|
Number of
Unearned
Shares, Units
or Other
Rights That
Have
Not
Vested
(#)
(g)
|
|
Market or
Payout Value
of Unearned
Shares,
Units or
Other
Rights
That Have Not
Vested ($)
(h)(3)
|
|
Michael G. Morris
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
149,000
|
|
30.76
|
|
1/2/2014
|
|
|
|
|
|
|
|
|
|
Restricted Shares(1)
|
|
|
|
|
|
|
|
133,334
|
|
4,638,690
|
|
—
|
|
—
|
|
2008 – 2010 Performance Units(2)
|
|
|
|
|
|
|
|
—
|
|
—
|
|
138,202
|
|
4,808,048
|
|
2009 – 2011 Performance Units(2)
|
|
|
|
|
|
|
|
—
|
|
—
|
|
185,188
|
|
6,442,691
|
|
2010 – 2012 Performance Units(2)
|
|
|
|
|
|
|
|
—
|
|
—
|
|
155,000
|
|
5,392,450
|
|
Brian X. Tierney
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 – 2010 Performance Units(2)
|
|
|
|
|
|
|
|
—
|
|
—
|
|
18,950
|
|
659,271
|
|
2009 – 2011 Performance Units(2)
|
|
|
|
|
|
|
|
—
|
|
—
|
|
30,170
|
|
1,049,614
|
|
2010 – 2012 Performance Units(2)
|
|
|
|
|
|
|
|
—
|
|
—
|
|
35,060
|
|
1,219,737
|
|
Carl L. English
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 – 2010 Performance Units(2)
|
|
|
|
|
|
|
|
|
|
|
|
49,576
|
|
1,724,749
|
|
2009 – 2011 Performance Units(2)
|
|
|
|
|
|
|
|
|
|
|
|
64,996
|
|
2,261,211
|
|
2010 – 2012 Performance Units(2)
|
|
|
|
|
|
|
|
—
|
|
—
|
|
52,590
|
|
1,829,606
|
|
Robert P. Powers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
29,334
|
|
27.06
|
|
9/25/2012
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
16,667
|
|
27.95
|
|
12/10/2013
|
|
|
|
|
|
|
|
|
|
2008 – 2010 Performance Units(2)
|
|
|
|
|
|
|
|
—
|
|
—
|
|
32,417
|
|
1,127,787
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
Name
(a)
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(b)
|
|
Option
Exercise
Price ($)
(c)
|
|
Option
Expiration
Date
(d)
|
|
Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
(e)
|
|
Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)
(f)
|
|
Number of
Unearned
Shares, Units
or Other
Rights That
Have
Not
Vested
(#)
(g)
|
|
Market or
Payout Value
of Unearned
Shares,
Units or
Other
Rights
That Have Not
Vested ($)
(h)(3)
|
|
2009 – 2011 Performance Units(2)
|
|
|
|
|
|
|
|
—
|
|
—
|
|
42,678
|
|
1,484,768
|
|
2010 – 2012 Performance Units(2)
|
|
|
|
|
|
|
|
—
|
|
—
|
|
36,810
|
|
1,280,620
|
|
Susan Tomasky
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 – 2010 Performance Units(2)
|
|
|
|
|
|
|
|
|
|
|
|
29,420
|
|
1,023,522
|
|
2009 – 2011 Performance Units(2)
|
|
|
|
|
|
|
|
|
|
|
|
42,943
|
|
1,493,987
|
|
2010 – 2012 Performance Units(2)
|
|
|
|
|
|
|
|
—
|
|
—
|
|
35,060
|
|
1,219,737
|
|
Holly Keller Koeppel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 – 2010 Performance Units(4)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
2009 – 2011 Performance Units(4)
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
—
|
|
(1)
|
Mr. Morris has 133,334 remaining restricted shares that he received upon his hire. They will vest, subject to his continued employment, in two equal components of
66,667 shares on November 30, 2010 and November 30, 2011, respectively. He receives dividends on these restricted shares.
|
|
(2)
|
AEP currently grants performance units at the beginning of each year with a three-year performance and vesting period. This results in awards for overlapping successive
three-year performance periods. The performance unit awards for the 2007 – 2009 performance period vested at year-end and are shown in the Options Exercises and Stock Vested table below. The award for the 2010 – 2012 performance period was
approved by the HR Committee on December 7, 2009, effective January 1, 2010. The awards shown for the 2008 – 2010 and 2009 – 2011 performance periods include performance units resulting from reinvested dividends.
|
|
(3)
|
The market value of the performance units reported in this column was computed by multiplying the closing price of AEP’s common stock on December 31, 2009
($34.79) by the target number of performance units issueable set forth in column g. The actual number of performance units issued upon vesting will be based on AEP’s performance over the applicable 3 year period.
|
42
|
(4)
|
Ms. Koeppel’s unvested performance units were forfeited upon her termination of employment effective December 31, 2009.
|
Option Exercises and Stock Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
Name
(a)
|
|
Number
of Shares
Acquired
on
Exercise
(#)
(b)
|
|
Value
Realized
on
Exercise
($)
(c)
|
|
Number
of Shares
Acquired
on
Vesting
(#)
(d)(1)
|
|
Value
Realized
on
Vesting ($)
(e)(2)
|
|
Michael G. Morris
|
|
—
|
|
—
|
|
109,323
|
|
3,803,347
|
|
Brian X. Tierney
|
|
—
|
|
—
|
|
6,576
|
|
228,779
|
|
Carl L. English
|
|
—
|
|
—
|
|
16,449
|
|
572,261
|
|
Robert P. Powers
|
|
—
|
|
—
|
|
16,449
|
|
572,261
|
|
Susan Tomasky
|
|
—
|
|
—
|
|
16,449
|
|
572,261
|
|
Holly Keller Koeppel
|
|
—
|
|
—
|
|
16,449
|
|
572,261
|
|
(1)
|
Represents performance units under the Company’s Long-Term Incentive Plan for the 2007 – 2009 performance period that vested on December 31, 2009.
|
|
(2)
|
As is required, the value shown in this column is computed by multiplying the number of performance units by the market value of these shares on the vesting date
($34.79); however, the actual value realized from these shares was based on the previous 20-day average closing market price of AEP common stock as of the vesting date ($34.869). For a more detailed discussion of vesting of performance units, see
the Long-Term Incentive Compensation section of the Compensation Discussion and Analysis beginning on page 13.
|
Executive officers may only exercise stock options pursuant to AEP’s Insider Trading Policy. In addition, an attorney from AEP’s legal department must approve in advance each sale of AEP stock by an executive officer.
The HR Committee established performance unit targets in December 2006 for the 2007 through 2009 performance period. The HR Committee
established two equally weighted performance measures for this performance period: Total Shareholder Return measured relative to the Utility Companies in the S&P 500 Index and cumulative earnings per share measured relative to a target approved
by the HR Committee. AEP’s total shareholder return for this performance period was at the 38.7 percentile of the Utility Companies in the S&P 500, which produced a score of 62.3%. AEP’s cumulative earnings per share was $9.207 for
this performance period. This produced an earnings per share score of 84.6%. The average of these two scores produced a composite score of 73.5% of the target award. These performance units vested on December 31, 2009 and are further described
in the Long-Term Incentive Compensation section of the Compensation Discussion and Analysis. The final score calculation for these performance measures is shown in the chart below.
43
2007 – 2009 Performance Units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Measures
|
|
Threshold
Performance
|
|
Target
Performance
|
|
Maximum
Payout
Performance
|
|
Actual
Performance
|
|
Score
|
|
|
Weight
|
|
|
Weighted
Score
|
|
|
3-Year Cumulative Earnings Per Share
|
|
$8.46
(25% payout)
|
|
$9.40
(100% Payout)
|
|
$10.34
(200% Payout)
|
|
$9.207
|
|
84.6
|
%
|
|
50
|
%
|
|
42.3
|
%
|
|
3-Year Total Shareholder Return vs. S&P Electric Utilities
|
|
20
th
Percentile
(0% Payout)
|
|
50
th
Percentile
(100% Payout)
|
|
80
th
Percentile
(200% Payout)
|
|
38.7
Percentile
|
|
62.3
|
%
|
|
50
|
%
|
|
31.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composite Result
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73.5
|
%
|
44
Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
(a)
|
|
Plan Name
(b)
|
|
Number of
Years
Credited
Service
(c)
|
|
|
Present Value
of
Accumulated
Benefits(1)
(d)
|
|
Payments
During
Last
Fiscal
Year
(e)
|
|
Michael G. Morris
|
|
AEP Retirement Plan
|
|
6
|
|
|
$
|
100,267
|
|
—
|
|
|
|
AEP Supplemental Benefit Plan
|
|
—
|
(2)
|
|
|
3,914,288
|
|
—
|
|
Brian X. Tierney
|
|
AEP Retirement Plan
|
|
11.7
|
|
|
|
126,893
|
|
—
|
|
|
|
AEP Supplemental Benefit Plan
|
|
11.7
|
|
|
|
455,658
|
|
—
|
|
Carl L. English
|
|
AEP Retirement Plan
|
|
5.5
|
|
|
|
99,449
|
|
—
|
|
|
|
AEP Supplemental Benefit Plan
|
|
—
|
(2)
|
|
|
347,910
|
|
—
|
|
Robert P. Powers
|
|
AEP Retirement Plan
|
|
11.5
|
|
|
|
312,009
|
|
—
|
|
|
|
AEP Supplemental Benefit Plan
|
|
28.5
|
(3)
|
|
|
2,558,685
|
|
—
|
|
Susan Tomasky
|
|
AEP Retirement Plan
|
|
11.5
|
|
|
|
335,553
|
|
—
|
|
|
|
AEP Supplemental Benefit Plan
|
|
31.5
|
(3)
|
|
|
3,837,755
|
|
—
|
|
Holly Keller Koeppel(4)
|
|
AEP Retirement Plan
|
|
9.5
|
|
|
|
180,756
|
|
—
|
|
|
|
AEP Supplemental Benefit Plan
|
|
24.75
|
(3)
|
|
|
1,607,616
|
|
—
|
|
(1)
|
The Present Value of Accumulated Benefits is based on the benefit accrued under the applicable plan through December 31, 2009, and the following assumptions (which
are consistent with those used in AEP’s financial statements):
|
|
|
•
|
|
The named executive officer retires at age 65 (or, for Mr. Tierney, Mr. Powers, Ms. Tomasky and Ms. Koeppel their age 62, when
unreduced benefits would be payable), and commences the payment of benefits (the “accrued benefit”).
|
|
|
•
|
|
The value of the annuity benefit at the named executive officer’s assumed retirement age is determined based upon the accrued benefit, an assumed
interest rate of 6.60% and 5.50% for the benefits accrued under the AEP Retirement Plan and AEP Supplemental Benefit Plan, respectively, and assumed mortality based upon the IRS 2010 sex-distinct mortality tables. The value of the lump sum benefit
at that assumed retirement age is determined based upon the accrued benefit, an assumed interest rate of 6.50% and assumed mortality based on the 2010 IRS Applicable Mortality table. The present value of both the annuity benefit and the lump sum
benefit at each executive’s current age is based upon an assumed interest rate of 5.60% and 5.50% for the benefits accrued under the AEP Retirement Plan and AEP Supplemental Benefit Plan, respectively.
|
|
|
•
|
|
The present value of the accrued benefit is weighted based on 75% lump sum and 25% annuity (or 40% lump sum and 60% annuity for Mr. Powers and
Ms. Tomasky due to their eligibility for early retirement under the final average pay benefit formula), based on the assumption that participants elect those benefit options in that proportion.
|
45
|
(2)
|
Mr. Morris and Mr. English each has an individual agreement that provides for annual credits at the maximum rate provided (currently 8.5%). If not for their
agreements, their combined age and service at December 31, 2009 would have entitled each of them to an annual credit at only 7.0% of eligible pay. Mr. Morris’ agreement further provided him an opening cash balance credit of $2,100,000
as of January 1, 2004. The higher crediting rate for Mr. Morris and Mr. English, and Mr. Morris’ opening cash balance credit, have augmented the present value of their accumulated benefits under the AEP Supplemental Benefit
Plan by $3,012,943 and $82,635, respectively.
|
|
(3)
|
Mr. Powers, Ms. Tomasky and Ms. Koeppel each has an individual agreement with AEP that credits them with years of service in addition to their actual
years of service with AEP. Their additional years of service credit have augmented the present value of their accumulated benefits under the AEP Supplemental Benefit Plan by $1,560,089, $2,652,206 and $1,051,514, respectively.
|
|
(4)
|
Ms. Koeppel separated from service on December 31, 2009. As of January 1, 2010, the options available for the payment of her benefit under the AEP
Retirement Plan included $185,025 as a lump sum or $768 as a monthly single life annuity. Ms. Koeppel’s lump sum benefit under the AEP Supplemental Benefit Plan was $1,624,172 as of January 1, 2010.
|
Overview.
AEP maintains tax-qualified and nonqualified defined benefit pension plans for eligible employees. The nonqualified
plans provide (i) benefits that cannot be paid under the respective tax-qualified plans because of maximum limitations imposed on such plans by the Internal Revenue Code and (ii) benefits pursuant to individual agreements with certain of
the named executive officers. The plans are designed to provide a source of income upon retirement to executives and their spouses, as well as a market competitive benefit opportunity as part of a market competitive total rewards package.
AEP Retirement Plan.
The AEP Retirement Plan is a tax-qualified defined benefit pension plan. As a general
matter, the benefits available under the AEP Retirement Plan are determined by reference to a cash balance formula. In addition, employees who have continuously participated in the AEP Retirement Plan since December 31, 2000 (called
“Grandfathered AEP Participants”) remain eligible for an alternate pension benefit calculated by reference to a final average pay formula. Mr. Tierney, Mr. Powers, Ms. Tomasky, and Ms. Koeppel, are Grandfathered AEP
Participants.
|
A.
|
Cash Balance Formula. Under the cash balance formula, each participant has an account established to which dollar amount credits are allocated each year.
|
|
|
1.
|
Company Credits.
Each year, the plan credits each participant with an amount equal to a percentage of the participant’s current year salary and prior
year earned annual incentive pay. The applicable percentage is based on the participant’s age and years of vesting service. The following table shows the applicable percentage:
|
46
|
|
|
|
|
|
Sum of Age Plus
Years of Service
|
|
Applicable
Percentage
|
|
|
Less than 30
|
|
3.0
|
%
|
|
30-39
|
|
3.5
|
%
|
|
40-49
|
|
4.5
|
%
|
|
50-59
|
|
5.5
|
%
|
|
60-69
|
|
7.0
|
%
|
|
70 or more
|
|
8.5
|
%
|
Each year, the
IRS calculates a limit on the amount of eligible pay that can be used to calculate pension benefits in a qualified plan. For 2009, the limit was $245,000.
|
|
2.
|
Interest Credits.
All amounts in the cash balance accounts earn interest at the average interest rate on 30-year Treasury securities for the month of
November of the prior year. For 2009, the interest rate was 4%.
|
|
B.
|
Final Average Pay Formula. The Grandfathered AEP Participants also remain eligible for a pension benefit using the final average pay formula. Grandfathered AEP
Participants will receive their benefits under the formula that provides the higher benefit.
|
The formula used to
calculate the final average pay benefit for the applicable named executive officers is the participant’s years of service times the sum of (i) 1.1% of the participant’s high 36 consecutive months of base pay (“High
36”); plus (ii) 0.5% of the amount by which the participant’s High 36 exceeds the participant’s average Social Security covered compensation.
On December 31, 2010, each Grandfathered AEP Participant’s final average pay benefit payable at the participant’s normal retirement age will be frozen and unaffected by the
participant’s subsequent service or compensation.
|
C.
|
Vesting. As of December 31, 2009, each of the named executive officers was vested.
|
AEP Supplemental Benefit Plan.
The AEP Supplemental Benefit Plan is a nonqualified defined benefit pension plan. It
generally provides eligible participants with benefits that are calculated under the terms of the AEP Retirement Plan with certain modifications: (i) additional years of service or benefit credits are taken into account; (ii) annual
incentive pay is taken into account for purposes of the final average pay formula; and (iii) the limitations imposed by the Internal Revenue Code on annual compensation and annual benefits are disregarded. However, eligible pay taken into
account under the cash balance formula is limited to the greater of $1 million or two times the participant’s year-end base pay.
AEP previously granted certain named executive officers additional years of credited service, an opening balance credit, special crediting rates and special vesting schedules under the AEP Supplemental Benefit Plan. These special items are
further described under Employment Agreements on page 25.
47
As of December 31, 2009, each of the named executive officers is fully vested in their
AEP Supplemental Benefit Plan benefit.
48
Nonqualified Deferred Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
(a)
|
|
Plan
Name(1)
(b)
|
|
Executive
Contributions
in Last FY(2)
($)
(c)
|
|
Registrant
Contributions
in Last FY(3)
($)
(d)
|
|
Aggregate
Earnings
in Last
FY(4)
($)
(e)
|
|
Aggregate
Withdrawals/
Distributions
($)
(f)
|
|
Aggregate
Balance at
Last FYE(5)
($)
(g)
|
|
Michael G. Morris
|
|
SRSP
|
|
383,500
|
|
81,704
|
|
522,602
|
|
—
|
|
2,434,833
|
|
|
|
SORP
|
|
—
|
|
—
|
|
1,040,578
|
|
—
|
|
6,279,014
|
|
Brian X. Tierney
|
|
SRSP
|
|
93,338
|
|
37,592
|
|
104,233
|
|
—
|
|
1,049,435
|
|
|
|
SORP
|
|
—
|
|
—
|
|
80,668
|
|
|
|
486,767
|
|
Carl L. English
|
|
SRSP
|
|
46,569
|
|
34,927
|
|
19,443
|
|
—
|
|
427,331
|
|
|
|
SORP
|
|
—
|
|
—
|
|
357,757
|
|
|
|
2,158,764
|
|
Robert P. Powers
|
|
SRSP
|
|
49,623
|
|
31,483
|
|
51,843
|
|
—
|
|
1,549,614
|
|
|
|
ICDP
|
|
—
|
|
—
|
|
18,246
|
|
—
|
|
525,314
|
|
|
|
SORP
|
|
—
|
|
—
|
|
228,028
|
|
—
|
|
1,375,958
|
|
Susan Tomasky
|
|
SRSP
|
|
60,223
|
|
30,808
|
|
134,644
|
|
—
|
|
1,302,051
|
|
|
|
SORP
|
|
—
|
|
—
|
|
627,672
|
|
—
|
|
3,787,470
|
|
Holly Keller Koeppel
|
|
SRSP
|
|
176,577
|
|
35,196
|
|
119,333
|
|
—
|
|
1,232,243
|
|
|
|
SORP
|
|
—
|
|
—
|
|
222,257
|
|
—
|
|
1,341,135
|
|
(1)
|
“SRSP” is the American Electric Power System Supplemental Retirement Savings Plan. “ICDP” is the American Electric Power System Incentive
Compensation Deferral Plan. “SORP” is the American Electric Power System Stock Ownership Requirement Plan.
|
|
(2)
|
The amounts set forth under “Executive Contributions in Last FY” are reported in either (i) the Salary column of the Summary Compensation Table as
compensation for 2009; or (ii) the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table as compensation for 2008.
|
|
(3)
|
The amounts set forth under “Registrant Contributions in Last FY” for the Supplemental Retirement Savings Plan are also reported in the Other Compensation
column of the Summary Compensation Table.
|
|
(4)
|
No amounts set forth under “Aggregate Earnings in Last FY” have been reported in the Summary Compensation Table as there were no above market or preferential
earnings credited to any named executive officer’s account in any of the plans.
|
|
(5)
|
The amounts set forth under “Aggregate Balance at Last FYE” include amounts reported in the Summary Compensation Table in previous years, and previous year
earnings on such amounts, in addition to the current year amounts shown in columns c, d and e. The values shown for the SORP are calculated using the average closing price of AEP common stock for the 20 trading days up to and including the date
shown, which is the methodology used to calculate distribution payments under this plan.
|
49
Overview.
AEP maintains non-qualified deferred compensation plans that
allow eligible employees, including the named executive officers, to defer receipt of a portion of their base salary, annual incentive and performance unit payments. The plans are unfunded, and participants have an unsecured contractual commitment
from the Company to pay the amounts due under the plans from the general assets of the Company. AEP maintains the following plans:
|
|
•
|
|
The American Electric Power System Supplemental Retirement Savings Plan,
|
|
|
•
|
|
The American Electric Power System Incentive Compensation Deferral Plan, and
|
|
|
•
|
|
The American Electric Power System Stock Ownership Requirement Plan.
|
Supplemental Retirement Savings Plan
.
This plan allows eligible participants to save on a pre-tax basis and to
continue to receive Company matching contributions beyond the limits imposed by the Internal Revenue Code.
|
|
•
|
|
Participants may defer up to 20% of the first $2,000,000 of their base pay and annual incentive pay.
|
|
|
•
|
|
The Company matches 100% of the participant’s contributions up to 1% of eligible compensation and 70% of the participant’s contributions from
the next 5% of eligible compensation.
|
|
|
•
|
|
Participants may not withdraw any amount credited to their account until their termination of employment with AEP. Participants may elect a
distribution of their account as a lump-sum or annual installment payments over a period of up to 10 years. Participants may delay the commencement of distributions for up to five years from the date of their termination of employment.
|
|
|
•
|
|
Participants may direct the investment of their plan account. There were no above-market or preferential earnings with respect to the Supplemental
Retirement Savings Plan. The investment options are those available to all employees in AEP’s qualified Retirement Savings Plan, except for one additional option that provides interest at a rate set each December at 120% of the applicable
federal long-term rate with monthly compounding.
|
Incentive Compensation Deferral
Plan
.
This plan allows eligible employees to defer taxes on annual incentive pay and earned performance units.
|
|
•
|
|
Participants may defer up to 80% of the full incentive award.
|
|
|
•
|
|
AEP does not offer any matching contributions.
|
|
|
•
|
|
Participants may direct the investment of their plan accounts. There were no above-market or preferential earnings with respect to the Incentive
Compensation Deferral Plan. The investment options are those available to all employees in AEP’s qualified Retirement Savings Plan.
|
50
|
|
•
|
|
Generally, participants may not withdraw any amount credited to their account until their termination of employment with AEP. However, participants may
withdraw amounts attributable to their pre-2005 contributions once prior to termination of employment, but the withdrawal amount would be subject to a 10% withdrawal penalty. Participants may elect to take distributions from their account in the
same manner as the Supplemental Retirement Savings Plan.
|
Stock Ownership Requirement
Plan
.
This plan assists executives in achieving their minimum stock ownership requirements. It does this primarily by tracking the executive’s AEP Career Shares. AEP Career Shares are a form of deferred compensation, which
are unfunded and unsecured general obligations of AEP. The rate of return on AEP Career Shares is equivalent to the total return on AEP stock with dividends reinvested. AEP Career Shares become payable in cash following the participant’s
termination of employment. Participants may elect to take distribution of their AEP Career Shares in the same manner as the Supplemental Retirement Savings Plan.
Potential Payments upon Termination or Change in Control
The Company has
entered into agreements and maintains plans that will require the Company to provide compensation to the named executive officers in the event of a termination of employment or a change in control of the Company.
SEVERANCE
AEP currently
provides full-time employees, including the named executive officers, with severance benefits in the event their employment is terminated as the direct result of a restructuring or downsizing (“Severance-Eligible Employees”) if the
employee releases AEP from any and all claims. These severance benefits include:
|
|
•
|
|
A lump sum severance payment equal to two weeks of base pay for each year of Company service,
|
|
|
•
|
|
Continued eligibility for medical and dental benefits at the active employee rates for eighteen months or until the participant becomes eligible for
coverage from another employer, whichever occurs first,
|
|
|
•
|
|
For employees who are at least age 50 with 10 years of AEP service and who do not qualify for AEP’s retiree medical benefits or to be bridged to
age 55 (described below), AEP also provides medical and dental benefit eligibility at rates equivalent to those provided to retirees until age 65 or until the participant becomes eligible for coverage from another employer, whichever occurs first,
and
|
|
|
•
|
|
Outplacement services with an incremental cost to the Company of up to $30,000.
|
Severance-Eligible Employees who are within one year of becoming eligible for retiree medical benefits, which is available to those
employees who are at least age 55 with at least 10 years of service (“Retirement-Eligible Employees”) are retained as active employees on a paid leave of absence until they become retirement eligible if they have sufficient severance and
vacation pay to offset their base pay for this period. This benefit applies in lieu of severance and unused vacation payments that these employees would otherwise receive. The Company pays any remaining severance and
51
vacation pay at the time of their retirement. This delay of an employee’s termination date does not apply to the plans providing nonqualified deferred compensation, which define a
participant’s termination date by reference to Code Section 409A.
Although employees generally must be employed
through yearend to be eligible for annual incentive compensation, Severance-Eligible Employees and Retirement-Eligible Employees remain eligible for annual incentive compensation, to the extent of their eligible earnings, for the year of their
termination. The target award for these employees reflects their cumulative base earnings for the plan year, which will be lower if the employee was not employed by the Company for the full plan year. Annual incentive awards for named executive
officers continue to be subject to the performance-based maximum award limits of the Senior Officer Incentive Plan and the discretion of the HR Committee. Any annual incentive awards for severed or retired executive officers would be paid at
approximately the same time as the awards for active employees.
If a Severance-Eligible Employee is terminated, a pro-rata
portion of any outstanding performance units which the executive has held for at least six months remains eligible for payout. These prorated performance units will not become payable until the end of the performance period and remain subject to all
performance objectives.
Severance-Eligible executives are also eligible for financial counseling and tax preparation services
during the remainder of the year of their termination and the following calendar year. These services currently have a maximum annual incremental cost to the Company of $16,540.
CHANGE IN CONTROL
AEP defines “change in control” under its
change in control agreements and long term incentive plan as:
|
|
•
|
|
The acquisition by any person of the beneficial ownership of securities representing more than one-third of AEP’s voting stock,
|
|
|
•
|
|
A merger or consolidation of AEP with another corporation unless AEP’s voting securities outstanding immediately before such merger or
consolidation continue to represent at least two-thirds of the total voting power of the surviving entity outstanding immediately after such merger or consolidation, or
|
|
|
•
|
|
Approval by the shareholders of the liquidation of AEP or the disposition of all or substantially all of the assets of AEP.
|
AEP has a change in control agreement with each of the named executive officers, which is triggered if
there is a “change in control” of AEP and the named executive officer’s employment is terminated in connection with that change in control (i) by AEP without “cause” or (ii) by the named executive officer for
“good reason”. These agreements provide for:
|
|
•
|
|
A lump sum payment equal to 2.99 times the named executive officers’ annual base salary plus target annual incentive under the annual incentive
program,
|
52
|
|
•
|
|
Payment, if required, to make the named executive officer whole for any excise tax imposed by Section 4999 of the Internal Revenue Code, and
|
The lump sum change in control benefit payment is reduced by up to 5% for an executive officer if that reduction would avoid the 4999 excise tax. In November 2009 the HR Committee revised AEP’s
change in control agreements that would be offered to new participants to eliminate the reimbursement for excise taxes.
The
term “cause” with respect to AEP’s change in control agreements means:
|
|
(i)
|
The willful and continued failure of the executive to perform the executive’s duties after a written demand for performance is delivered to the executive by the
Board, or
|
|
|
(ii)
|
The willful conduct or omission by the executive, which the Board determines to be illegal, gross misconduct that is injurious to the Company, or a breach of the
executive’s fiduciary duty to the Company.
|
The term “good reason” with respect to AEP’s
change in control agreements means:
|
|
(i)
|
An adverse change in the executive’s status, duties or responsibilities from that in effect immediately prior to the change in control,
|
|
|
(ii)
|
The Company’s failure to pay in a timely fashion the salary or benefits to which the executive is entitled under any employment agreement in effect on the date of
the change in control,
|
|
|
(iii)
|
The reduction of the executive’s salary as in effect on the date of the change in control,
|
|
|
(iv)
|
Any action taken by the Company that would substantially diminish the aggregate projected value of the executive’s awards or benefits under the Company’s
benefit plans or policies,
|
|
|
(v)
|
A failure by the Company to obtain from any successor the assent to the change in control agreement, or
|
|
|
(vi)
|
The relocation, without the executive’s prior approval, of the office at which the executive is to perform services to a location that is more than fifty
(50) miles from its location immediately prior to the change in control.
|
The Company has an opportunity to
cure any of these circumstances before they may be considered “good reason”.
Also, award agreements issued under
the Long-Term Incentive Plan provide that all outstanding awards will vest immediately upon a change in control. In addition, each type of long-term incentive award will be subject to special payment and valuation provisions upon a change in control
as follows:
Stock Options
—Participants with outstanding stock options are permitted to exercise any of their
options in advance of the change in control and, thereby, receive cash equal to the value received by other AEP shareholders as a result of the change in control transaction (less applicable tax withholdings).
53
Performance Unit Awards
—The performance unit awards will be deemed to have been
fully earned at 100% of the target score, and all outstanding performance unit awards would be paid in a lump sum in cash at the higher of (i) the average closing price of a share of AEP common stock for the last 20 trading days prior to the
change in control or (ii) if the change in control is the result of a tender offer, merger, or sale of all or substantially all of the assets of AEP, the highest price paid per share of common stock in that transaction.
Restricted Stock
—No special provisions apply to AEP’s restricted stock in the event of a change in control, although the HR
Committee has the authority to accelerate the vesting of any and all equity awards.
The AEP Supplemental Benefit Plan also
provides that all accrued supplemental retirement benefits become fully vested upon a change in control.
Termination Scenarios
For the named executive officers who remain employed with the Company, the following tables show the incremental
compensation and benefits that would have been paid to each named executive officer on December 31, 2009 under the circumstances cited in each column.
The values shown in the change in control column are triggered only if both of the following events occur (which is often referred to as a double trigger), except as noted for long-term incentives:
|
|
1)
|
There is a change in control of the Company, and
|
|
|
2)
|
The named executive officer’s employment is terminated by the Company without cause or by the executive with good reason.
|
No information is provided for terminations due to disability, because it is not AEP’s practice to terminate the employment of any
employee so long as they remain eligible for AEP’s long-term disability benefits. AEP successively provides sick pay and then long-term disability benefits for up to two years to employees with a disability that prevents them from returning to
their job. Such disability benefits continue (generally until the employee reaches age 65) for employees that cannot perform any occupation for which they are reasonably qualified. AEP treats a participant’s disability as a termination to the
extent required by the regulations issued under Code Section 409A, but such terminations only trigger the payment of benefits that had previously vested.
54
Potential Incremental Compensation and Benefits
That Would Have Been Provided as the Result of Employment Termination
as of December 31, 2009
For Michael G. Morris
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Benefits and Payments Upon Termination
|
|
Voluntary
Termination or
Retirement
|
|
Severance
|
|
|
For Cause
Termination
|
|
Change-In-
Control
|
|
|
Death
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary ($1.25 million)
|
|
$
|
0
|
|
$
|
2,500,000
|
1
|
|
$
|
0
|
|
$
|
3,737,500
|
|
|
$
|
0
|
|
Annual Incentive for Completed Year
2
|
|
$
|
0
|
|
$
|
0
|
|
|
$
|
0
|
|
$
|
0
|
|
|
$
|
0
|
|
Other Payment for Annual Incentives
3
|
|
$
|
0
|
|
$
|
0
|
|
|
$
|
0
|
|
$
|
4,111,250
|
|
|
$
|
0
|
|
Long-Term Incentives:
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested Restricted Shares (133,334)
5
|
|
$
|
0
|
|
$
|
0
|
|
|
$
|
0
|
|
$
|
0
|
|
|
$
|
0
|
|
Unvested 2008-2010 Performance Units
6
|
|
$
|
0
|
|
$
|
3,205,365
|
|
|
$
|
0
|
|
$
|
4,808,048
|
|
|
$
|
3,205,365
|
|
Unvested 2009-2011 Performance Units
6
|
|
$
|
0
|
|
$
|
2,147,564
|
|
|
$
|
0
|
|
$
|
6,442,691
|
|
|
$
|
2,147,564
|
|
Benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and Welfare Benefits
7
|
|
$
|
0
|
|
$
|
12,634
|
|
|
$
|
0
|
|
$
|
12,634
|
|
|
$
|
14,204
|
|
Financial Counseling
|
|
$
|
0
|
|
$
|
16,540
|
|
|
$
|
0
|
|
$
|
16,540
|
|
|
$
|
16,540
|
|
Outplacement Services
8
|
|
$
|
0
|
|
$
|
30,000
|
|
|
$
|
0
|
|
$
|
30,000
|
|
|
$
|
0
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Control Benefit Reduction
9
|
|
$
|
0
|
|
$
|
0
|
|
|
$
|
0
|
|
($
|
51,420
|
)
|
|
$
|
0
|
|
Tax Gross-up Upon Change In Control
10
|
|
$
|
0
|
|
$
|
0
|
|
|
$
|
0
|
|
$
|
0
|
|
|
$
|
0
|
|
Total Incremental Compensation And Benefits
|
|
$
|
0
|
|
$
|
7,912,103
|
|
|
$
|
0
|
|
$
|
19,107,243
|
|
|
$
|
5,383,673
|
Notes for the Potential
Incremental Termination Scenario tables are provided collectively following the last such table.
55
Potential Incremental Compensation and Benefits
That Would Have Been Provided as the Result of Employment Termination
as of December 31, 2009
For Brian X. Tierney
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Benefits and Payments Upon Termination
|
|
Voluntary
Termination or
Retirement
|
|
Severance
|
|
For Cause
Termination
|
|
Change-In-
Control
|
|
Death
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary ($400,000)
|
|
$
|
0
|
|
$
|
184,615
|
|
$
|
0
|
|
$
|
1,196,000
|
|
$
|
0
|
|
Annual Incentive for Completed Year
2
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
Other Payment for Annual Incentives
3
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
897,000
|
|
$
|
0
|
|
Long-Term Incentives:
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested 2008-2010 Performance Units
6
|
|
$
|
0
|
|
$
|
439,514
|
|
$
|
0
|
|
$
|
659,271
|
|
$
|
439,514
|
|
Unvested 2009-2011 Performance Units
6
|
|
$
|
0
|
|
$
|
349,871
|
|
$
|
0
|
|
$
|
1,049,614
|
|
$
|
349,871
|
|
Benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and Welfare Benefits
7
|
|
$
|
0
|
|
$
|
27,569
|
|
$
|
0
|
|
$
|
27,569
|
|
$
|
73,807
|
|
Financial Counseling
|
|
$
|
0
|
|
$
|
16,540
|
|
$
|
0
|
|
$
|
16,540
|
|
$
|
16,540
|
|
Outplacement Services
8
|
|
$
|
0
|
|
$
|
30,000
|
|
$
|
0
|
|
$
|
30,000
|
|
$
|
0
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Control Benefit Reduction
9
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
Tax Gross-up Upon Change In Control
10
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
Total Incremental Compensation and Benefits
|
|
$
|
0
|
|
$
|
1,048,109
|
|
$
|
0
|
|
$
|
3,875,994
|
|
$
|
879,732
|
Notes for the Potential Incremental
Termination Scenario tables are provided collectively following the last such table.
56
Potential Incremental Compensation and Benefits
That Would Have Been Provided as the Result of Employment Termination
as of December 31, 2009
For Carl L. English
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Benefits and Payments Upon Termination
|
|
Voluntary
Termination or
Retirement
|
|
Severance
|
|
For Cause
Termination
|
|
Change-In-
Control
|
|
Death
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary ($550,000)
|
|
$
|
0
|
|
$
|
126,923
|
|
$
|
0
|
|
$
|
1,644,500
|
|
$
|
0
|
|
Annual Incentive for Completed Year
2
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
Other Payment for Annual Incentives
3
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
1,233,375
|
|
$
|
0
|
|
Long-Term Incentives:
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested 2008-2010 Performance Units
6
|
|
$
|
0
|
|
$
|
1,149,833
|
|
$
|
0
|
|
$
|
1,724,749
|
|
$
|
1,149,833
|
|
Unvested 2009-2011 Performance Units
6
|
|
$
|
0
|
|
$
|
753,737
|
|
$
|
0
|
|
$
|
2,261,211
|
|
$
|
753,737
|
|
Benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and Welfare Benefits
7
|
|
$
|
0
|
|
$
|
14,637
|
|
$
|
0
|
|
$
|
14,637
|
|
$
|
8,818
|
|
Financial Counseling
|
|
$
|
0
|
|
$
|
16,540
|
|
$
|
0
|
|
$
|
16,540
|
|
$
|
16,540
|
|
Outplacement Services
8
|
|
$
|
0
|
|
$
|
30,000
|
|
$
|
0
|
|
$
|
30,000
|
|
$
|
0
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Control Benefit Reduction
9
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
Tax Gross-up Upon Change In Control
10
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
3,169,595
|
|
$
|
0
|
|
Total Incremental Compensation and Benefits
|
|
$
|
0
|
|
$
|
2,091,670
|
|
$
|
0
|
|
$
|
10,094,607
|
|
$
|
1,928,928
|
Notes for the Potential
Incremental Termination Scenario tables are provided collectively following the last such table.
57
Potential Incremental Compensation and Benefits
That Would Have Been Provided as the Result of Employment Termination
as of December 31, 2009
For Robert P. Powers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Benefits and Payments Upon Termination
|
|
Voluntary
Termination or
Retirement
|
|
Severance
|
|
For Cause
Termination
|
|
Change-In-
Control
|
|
Death
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary ($510,000)
|
|
$
|
0
|
|
$
|
235,385
|
|
$
|
0
|
|
$
|
1,524,900
|
|
$
|
0
|
|
Annual Incentive for Completed Year
2
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
Other Payment for Annual Incentives
3
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
1,067,430
|
|
$
|
0
|
|
Long-Term Incentives:
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested 2008-2010 Performance Units
6
|
|
$
|
0
|
|
$
|
751,858
|
|
$
|
0
|
|
$
|
1,127,787
|
|
$
|
751,858
|
|
Unvested 2009-2011 Performance Units
6
|
|
$
|
0
|
|
$
|
494,923
|
|
$
|
0
|
|
$
|
1,484,768
|
|
$
|
494,923
|
|
Benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and Welfare Benefits
7
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
Financial Counseling
|
|
$
|
0
|
|
$
|
16,540
|
|
$
|
0
|
|
$
|
16,540
|
|
$
|
16,540
|
|
Outplacement Services
8
|
|
$
|
0
|
|
$
|
30,000
|
|
$
|
0
|
|
$
|
30,000
|
|
$
|
0
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Control Benefit Reduction
9
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
Tax Gross-up Upon Change In Control
10
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
2,028,722
|
|
$
|
0
|
|
Total Incremental Compensation and Benefits
|
|
$
|
0
|
|
$
|
1,528,706
|
|
$
|
0
|
|
$
|
7,280,147
|
|
$
|
1,263,321
|
Notes for the Potential
Incremental Termination Scenario tables are provided collectively following the last such table.
58
Potential Incremental Compensation and Benefits
That Would Have Been Provided as the Result of Employment Termination
as of December 31, 2009
For Susan Tomasky
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Benefits and Payments Upon Termination
|
|
Voluntary
Termination or
Retirement
|
|
Severance
|
|
For Cause
Termination
|
|
Change-In-
Control
|
|
Death
|
|
Compensation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary ($510,000)
|
|
$
|
0
|
|
$
|
215,769
|
|
$
|
0
|
|
$
|
1,524,900
|
|
$
|
0
|
|
Annual Incentive for Completed Year
2
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
Other Payment for Annual Incentives
3
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
1,067,430
|
|
$
|
0
|
|
Long-Term Incentives:
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested 2008-2010 Performance Units
6
|
|
$
|
0
|
|
$
|
682,348
|
|
$
|
0
|
|
$
|
1,023,522
|
|
$
|
682,348
|
|
Unvested 2009-2011 Performance Units
6
|
|
$
|
0
|
|
$
|
497,996
|
|
$
|
0
|
|
$
|
1,493,987
|
|
$
|
497,996
|
|
Benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and Welfare Benefits
7
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
Financial Counseling
|
|
$
|
0
|
|
$
|
16,540
|
|
$
|
0
|
|
$
|
16,540
|
|
$
|
16,540
|
|
Outplacement Services
8
|
|
$
|
0
|
|
$
|
30,000
|
|
$
|
0
|
|
$
|
30,000
|
|
$
|
0
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Control Benefit Reduction
9
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
Tax Gross-up Upon Change In Control
10
|
|
$
|
0
|
|
$
|
0
|
|
$
|
0
|
|
$
|
1,908,307
|
|
$
|
0
|
|
Total Incremental Compensation and Benefits
|
|
$
|
0
|
|
$
|
1,442,653
|
|
$
|
0
|
|
$
|
7,064,686
|
|
$
|
1,196,884
|
|
(1)
|
Mr. Morris’ employment agreement provides a severance benefit equal to two times his base pay in the event his employment is terminated not for cause, as
defined therein.
|
|
(2)
|
Executive officers are eligible for an annual incentive award if they remain employed with AEP through year-end unless their employment is terminated for cause.
However, the calculated bonus opportunity was 0.0% for 2009 for all executive officers, as shown on page 13, so no annual incentive awards were paid to executive officers for 2009. A complete description of the award determination process is
provided in the Compensation Discussion and Analysis.
|
|
(3)
|
Represents a severance payment of 2.99 times each named executive officer’s current target annual incentive as of December 31, 2009.
|
|
(4)
|
The long-term incentive values shown represent the values that would be paid under such circumstances shown in each column, which are different from the values
calculated in accordance with FASB ASC Topic 718. The amounts shown in the change in control column are payable upon the change in control regardless of whether the executive’s employment has been terminated.
|
|
(5)
|
Mr. Morris’ restricted shares will be forfeited upon termination prior to vesting unless the HR Committee determines that the circumstances of the termination
warrant otherwise.
|
59
|
(6)
|
The target value of performance unit awards are shown. However, except in the event of a change in control, performance criteria continue to apply to performance units
that vest early and award payments are not accelerated.
|
|
(7)
|
The amount reported upon severance or a change in control represents the cost to the Company of providing subsidized medical and dental benefits at employee rates for
18 months for those named executive officers who are not retirement-eligible. The amount reported upon death represents the present value of the cost to the Company of providing 50%- subsidized medical and dental coverage to the employee’s
surviving spouse until the spouse reaches age 65.
|
|
(8)
|
Represents the maximum cost of Company paid outplacement services, which the Company provides through an unaffiliated third party vendor.
|
|
(9)
|
Represents a reduction in the lump sum change in control benefit payment of up to 5% that applies for an executive officer if that reduction would avoid 4999 excise
taxes.
|
|
(10)
|
Represents a tax gross-up for the excise tax under section 4999 of the Internal Revenue Code, including all applicable taxes on this tax gross-up itself. The amount
does not reflect any reductions attributable to non-compete agreements or other provisions to which the executive must agree to be eligible for change in control benefits.
|
60
The following table shows the value of additional compensation and benefits as of
December 31, 2009 that would have been provided to each named executive officer after a termination of his or her employment on such date. These amounts were generally earned or vested over multiple years of service to AEP and only a portion is
attributable to compensation for 2009.
Non-Incremental Post-Termination Compensation and Benefits as of December 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
(a)
|
|
Long-Term Incentives
|
|
Benefits
|
|
|
|
|
Vested Stock
Options
(b)(1)
|
|
Vested
Performance
Units
(c)(2)
|
|
AEP Career
Shares
(d)(3)
|
|
Vacation
Payout
(e)(4)
|
|
Post Retirement
Benefits
(f)(5)
|
|
Deferred
Compensation
(g)(6)
|
|
Michael G. Morris
|
|
$
|
600,470
|
|
$
|
3,803,347
|
|
$
|
6,264,788
|
|
$
|
64,904
|
|
$
|
3,867,342
|
|
$
|
2,434,833
|
|
Brian X. Tierney
|
|
$
|
—
|
|
$
|
228,779
|
|
$
|
485,664
|
|
$
|
23,798
|
|
$
|
592,868
|
|
$
|
1,049,435
|
|
Carl L. English
|
|
$
|
—
|
|
$
|
572,261
|
|
$
|
2,153,874
|
|
$
|
81,442
|
|
$
|
458,722
|
|
$
|
427,331
|
|
Robert P. Powers
|
|
$
|
340,754
|
|
$
|
572,261
|
|
$
|
1,372,841
|
|
$
|
0
|
|
$
|
2,744,161
|
|
$
|
2,074,928
|
|
Susan Tomasky
|
|
$
|
—
|
|
$
|
572,261
|
|
$
|
3,778,889
|
|
$
|
1,471
|
|
$
|
3,794,053
|
|
$
|
1,302,051
|
|
Holly Keller Koeppel
|
|
$
|
—
|
|
$
|
572,261
|
|
$
|
1,338,096
|
|
$
|
23,077
|
|
$
|
1,809,197
|
|
$
|
1,232,243
|
|
(1)
|
Represents the value that would have been realized had the named executive officer exercised his or her vested and outstanding stock options at the closing price of AEP
common stock on December 31, 2009.
|
|
(2)
|
Represents the value of performance units that vested on December 31, 2009 calculated, as is required, using the market value of these shares on December 31,
2009. However, the actual value realized from these shares in February 2010 was based on the previous 20-day average closing market price of AEP common stock as of the vesting date. For a more detailed discussion of vesting of performance units, see
page 27.
|
|
(3)
|
Represents the value of AEP share equivalents deferred mandatorily into AEP’s Stock Ownership Requirement Plan using the market value of these shares on
December 31, 2009.
|
|
(4)
|
Represents payment of accumulated but unused vacation for the current year and any carry-over from prior years.
|
|
(5)
|
Represents the lump sum benefit calculated for the named executive officer pursuant to the terms of the AEP Retirement Plan and AEP Supplemental Benefit Plan as of
January 1, 2010, and, for Mr. Powers and Ms. Tomasky, the actuarial present value of postretirement welfare benefits pursuant to the current terms of AEP’s medical, dental and life insurance plans, based on an assumed (or, in the
case of Ms. Koeppel, actual) separation from AEP service on December 31, 2009.
|
|
(6)
|
Includes balances from the Supplemental Retirement Savings Plan and Incentive Compensation Deferral Plans, but does not include AEP Career Share balances, which are
reported in column (d).
|
61
In addition to the amounts above, the Company entered into a separation agreement that
provided Ms. Koeppel with the following compensation and benefits upon her December 31, 2009 separation from service.
|
|
•
|
|
A separation payment in the amount $212,000, which is equal to two weeks of base pay for each year of her service to AEP and the value of subsidized
medical insurance for 18 months.
|
|
|
•
|
|
Since Ms. Koeppel remained employed by AEP through year-end, she was eligible for a 2009 annual incentive award, although no award was paid to her
or any executive officer.
|
|
|
•
|
|
Since Ms. Koeppel remained employed by AEP through the vesting date (December 31, 2009), she received payment for the 2007—2009 performance
unit awards. All of Ms. Koeppel’s unvested performance unit awards (2008-2010 and 2009-2011 performance units) were canceled.
|
|
|
•
|
|
Ms Koeppel was also eligible for outplacement and financial counseling services, although she has not utilized these services and the Company has not
incurred any expense with respect to them.
|
62
SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the beneficial ownership of AEP Common Stock and stock-based units as of January 1, 2010 for all
nominees to the Board of Directors, each of the persons named in the Summary Compensation Table and all such directors and executive officers as a group. Unless otherwise noted, each person had sole voting and investment power over the number of
shares of AEP Common Stock and stock-based units of AEP set forth across from his or her name. Fractions of shares and units have been rounded to the nearest whole number.
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Shares
|
|
|
Stock
Units(a)
|
|
Options
Exercisable
Within 60 Days
|
|
Total
|
|
N. K. Akins
|
|
—
|
|
|
23,012
|
|
5,900
|
|
28,912
|
|
C. L. English
|
|
20,899
|
|
|
61,911
|
|
—
|
|
82,810
|
|
J. B. Keane
|
|
11,071
|
|
|
31,700
|
|
—
|
|
42,771
|
|
M. G. Morris
|
|
283,568
|
(c)
|
|
180,074
|
|
149,000
|
|
612,642
|
|
R. E. Munczinski
|
|
10,998
|
(b)
|
|
3,120
|
|
—
|
|
14,118
|
|
C. R. Patton
|
|
528
|
(b)
|
|
15,343
|
|
—
|
|
15,871
|
|
R. P. Powers
|
|
19,691
|
(b)
|
|
39,461
|
|
46,001
|
|
105,153
|
|
J. S. Solomom
|
|
—
|
|
|
13,831
|
|
5,000
|
|
18,831
|
|
B. X. Tierney
|
|
23,770
|
(b)
|
|
13,960
|
|
—
|
|
37,730
|
|
S. Tomasky
|
|
11,286
|
(b)
|
|
108,620
|
|
—
|
|
119,906
|
|
D. E. Welch
|
|
—
|
|
|
28,684
|
|
—
|
|
28,684
|
|
All directors, nominees and executive
officers as a group (11 persons)
|
|
381,811
|
(d)
|
|
519,716
|
|
205,901
|
|
1,107,428
|
|
(a)
|
This column includes amounts deferred in Stock Units and held under AEP’s various officer benefit plans. Includes the following numbers of career shares:
Mr. Morris, 180,074; Mr. English, 61,911; Mr. Powers, 39,461; Mr. Tierney, 13,960; Ms. Tomasky, 108,620; and all directors and executive officers as a group, 507,819.
|
|
(b)
|
Includes the following numbers of share equivalents held in the AEP Retirement Savings Plan: Mr. Powers, 812; Mr. Tierney, 6,216; Ms. Tomasky, 4,820; and
all directors and executive officers as a group, 21,054.
|
|
(c)
|
Includes restricted shares with different vesting schedules.
|
|
(d)
|
Represents less than 1% of the total number of shares outstanding.
|
MEETINGS OF THE BOARD OF DIRECTORS
Regular meetings of the Board of
Directors were held once each month during the year. In addition, the Board of Directors holds special meetings from time to time as required. During 2009, the Board held twelve regular meetings.
Directors of the Company receive a fee of $50 for each meeting of the Board of Directors attended in addition to their salaries.
The Board of Directors of the Company has no committees.
63
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The independent registered public accounting firm of Deloitte & Touche LLP has been selected as the independent registered public
accounting firm of the Company for the year 2010.
A representative of Deloitte & Touche LLP will not be present at
the meeting unless prior to the day of the meeting the Secretary of the Company has received written notice from a shareholder addressed to the Secretary at 1 Riverside Plaza, Columbus, Ohio 43215, that such shareholder will attend the meeting and
wishes to ask questions of a representative of the firm.
Audit and Non-Audit Fees
The following table presents fees for professional audit services rendered by Deloitte & Touche LLP for the audit of the
Company’s annual financial statements for the years ended December 31, 2009 and December 31, 2008, and fees billed for other services rendered by Deloitte & Touche LLP during those periods. The fees listed below also include
an allocated portion of Deloitte & Touche LLP fees paid by the AEP System. While the Company has neither an Audit Committee nor pre-approval procedures, AEP’s Audit Committee pre-approval procedures are applicable to the Company.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
Audit Fees(1)
|
|
$
|
797,212
|
|
$
|
791,546
|
|
Audit-Related Fees(2)
|
|
|
21,495
|
|
|
79,679
|
|
Tax Fees(3)
|
|
|
18,506
|
|
|
46,906
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
837,213
|
|
$
|
918,131
|
|
|
|
|
|
|
|
|
|
(1)
|
Audit fees in 2008 and 2009 consisted primarily of fees related to the audit of the Company’s annual consolidated financial statements. Audit fees also included
auditing procedures performed in accordance with Sarbanes-Oxley Act Section 404 and the related Public Company Accounting Oversight Board Auditing Standard Number 5 regarding the Company’s internal control over financial reporting. This
category also includes work generally only the independent registered public accounting firm can reasonably be expected to provide.
|
|
(2)
|
Audit related fees consisted principally of regulatory, statutory, employee benefit plan audits.
|
|
(3)
|
Tax fees consisted principally of tax compliance services. Tax compliance services are services rendered based upon facts already in existence or transactions that have
already occurred to document, compute, and obtain government approval for amounts to be included in tax filings.
|
The AEP Audit Committee has considered whether the provision of services other than audit services by Deloitte & Touche LLP and its domestic and global affiliates is compatible with maintaining independence, and the AEP Audit
Committee believes that this provision of services is compatible with maintaining Deloitte & Touche LLP’s independence.
AEP’s Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
The AEP Audit Committee’s policy is to pre-approve all audit and non-audit services provided by the independent auditor. These services may include audit services, audit-related services, tax services and other services. Pre-approval
is provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is subject to a specific limitation. The independent auditor and management are required to report to the AEP Audit Committee at
each regular meeting regarding the extent of services provided by the independent auditor in accordance with this pre-approval policy, and the fees for the services performed to date. The AEP Audit Committee may also pre-approve particular services
on a case-by-case basis. In 2009, all Deloitte & Touche LLP services were pre-approved by the AEP Audit Committee.
FORM 10-K
A copy of the Company’s 2009 Annual Report to the SEC, including the Company’s financial
statements for the year ended December 31, 2009, is being furnished with this information statement. The 2009 Annual Report is also available on AEP’s website at
www.AEP.com
.
March 19, 2010
64
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