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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrantý | |||
Filed by a Party other than the Registranto | |||
Check the appropriate box: | |||
o | Preliminary Proxy Statement | ||
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | ||
ý | Definitive Proxy Statement | ||
o | Definitive Additional Materials | ||
o | Soliciting Material Pursuant to §240.14a-12 |
Hawaiian Electric Industries, Inc. | ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
Payment of Filing Fee (Check the appropriate box): | ||||
ý | No fee required. | |||
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||
(1) | Title of each class of securities to which transaction applies: | |||
(2) | Aggregate number of securities to which transaction applies: | |||
(3) | 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): | |||
(4) | Proposed maximum aggregate value of transaction: | |||
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o | Fee paid previously with preliminary materials. | |||
o | 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. | |||
(1) | Amount Previously Paid: | |||
(2) | Form, Schedule or Registration Statement No.: | |||
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(4) | Date Filed: |
HAWAIIAN ELECTRIC INDUSTRIES, INC. • PO BOX 730 • HONOLULU, HI 96808-0730
Constance H. Lau
President and
Chief Executive Officer
March 22, 201021, 2011
Dear Fellow Shareholder:
On behalf of the Board of Directors, it is my pleasure to invite you to attend the Annual Meeting of Shareholders of Hawaiian Electric Industries, Inc. (HEI). The meeting will be held on HEI's premises in Room 805 on the eighth floor of the American Savings Bank Tower, located at 1001 Bishop Street, Honolulu, Hawaii, on May 11, 2010,10, 2011, at 9:30 a.m., local time. A map showing the location of the meeting site appears on page 7985 of the Proxy Statement.
The accompanying Notice of Annual Meeting of Shareholders and Proxy Statement describe the items of business to be conducted during the meeting. In addition, we will review significant events of 20092010 and their impact on you as a shareholder of HEI. HEI officers and Board members will be available before and after the meeting to talk with you and answer questions.
Of particular importance for your attention, this is the first year in which we will be asking our shareholders to submit an advisory vote on the Company's executive compensation. A description of the Company's executive compensation programs, as well as details of the compensation for the Company's named executive officers, is provided in the Proxy Statement.
As a shareholder of HEI, it is important that your views be represented.Please help us obtain the quorum needed to conduct business at the meeting by promptly voting your shares.
The Board and management team of HEI would like to express their appreciation to you for your confidence and support. I look forward to seeing you at the Annual Meeting in Honolulu.
Sincerely,
Recycled |
Hawaiian Electric Industries, Inc. 900 Richards Street Honolulu, Hawaii 96813 | ||
Date and Time | Tuesday, May | |
Place | American Savings Bank Tower, 1001 Bishop Street, 8th floor, Room 805, Honolulu, Hawaii 96813. | |
Items of Business | 1. | |
2. | ||
3. To hold an advisory vote on the frequency of future advisory votes on HEI's executive compensation. | ||
4. To hold an advisory vote on a resolution approving HEI's executive compensation. | ||
5. To ratify the appointment of PricewaterhouseCoopers LLP as HEI's independent registered public accounting firm for | ||
Record Date | March | |
Annual Report | The | |
Proxy Voting | Shareholders of record may appoint proxies and vote their shares in one of four ways: | |
• Via the Internet | ||
• By telephone | ||
• By mail | ||
• In person | ||
Shareholders whose shares are held by a bank, broker or other financial intermediary (i.e., in "street name") should follow the voting instruction card | ||
Any proxy may be revoked in the manner described in the accompanying Proxy Statement. | ||
Attendance at Meeting | Only shareholders of record as of the record date are entitled to receive notice of, attend and vote at the Annual Meeting. If your shares are registered in street name, | |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to | The Proxy Statement and Annual Report to Shareholders are available at www.hei.com/proxymatl.html. |
By Order of the HEI Board of Directors. | ||||
March | Chester A. Richardson Senior Vice President, General Counsel, Secretary and Chief Administrative Officer |
| Page | ||||||
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About the Meeting | 1 | ||||||
Who can attend the meeting? | 1 | ||||||
What are shareholders being asked to vote on? | 1 | ||||||
Voting Procedures | 1 | ||||||
Electronic | 1 | ||||||
Who is eligible to vote? | 2 | ||||||
How many shares are outstanding and entitled to vote? | 2 | ||||||
What constitutes a quorum? | 2 | ||||||
How do shareholders vote? | 2 | ||||||
How do shareholders vote if their shares are held in street name? | 3 | ||||||
How do shareholders vote if their shares are held in the Dividend Reinvestment and Stock Purchase Plan, the HEI Retirement Savings Plan or the American Savings Bank 401(k) Plan? | 3 | ||||||
Can shareholders change their vote? | 3 | ||||||
How many votes are required? | 3 | ||||||
Who will count the votes and are the votes confidential? | 4 | ||||||
Could other matters be decided at the Annual Meeting? | 4 | ||||||
What happens if the Annual Meeting is postponed or adjourned? | 4 | ||||||
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Director Nominees for Election | |||||||
| 5 | ||||||
| 5 | ||||||
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Class | |||||||
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Class III Directors Who Are Not Continuing | |||||||
Proposal No. 1: Election of Class III Directors | 13 | ||||||
Corporate Governance | |||||||
What are HEI's governance policies and guidelines? | |||||||
What is the Board's leadership structure? | |||||||
What is the Board's role in risk oversight? | |||||||
How does the Board select nominees for the Board? | |||||||
Does the Board consider diversity in identifying nominees for the Board? | |||||||
How can shareholders communicate with the directors? | |||||||
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Who are the independent directors of the Board? | |||||||
How often did the Board meet in 2010? | 21 | ||||||
Does the Board meet in executive session without management present? | |||||||
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Did all directors attend last year's Annual Meeting? | |||||||
Does the Board evaluate itself? | 21 | ||||||
Committees of the Board | |||||||
What committees has the Board established and how often did they meet? | |||||||
What are the primary functions of each of the four committees? | 23 | ||||||
Director Compensation | 24 | ||||||
How is director compensation determined? | 24 | ||||||
Director Compensation Table | 27 | ||||||
Proposal No. 2: Approval of 2011 Nonemployee Director Stock Plan | 28 | ||||||
What are the purposes and terms of the 2011 Director Plan? | 29 | ||||||
New 2011 Director Plan Benefits | 31 | ||||||
Equity Compensation Plan Information | 32 | ||||||
Proposal No. 3: Advisory Vote on the Frequency of Future Advisory Votes on HEI's Executive Compensation | 33 |
Page | |||||
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Proposal No. 4: Advisory Vote on Resolution Approving HEI's Executive Compensation | 33 | ||||
Compensation Program Design Summary | 34 | ||||
Pay-for-Performance | 35 | ||||
Alignment with Shareholder Interests | 37 | ||||
Effect of Advisory Vote | 37 | ||||
Compensation Committee Report | |||||
Compensation Discussion and Analysis | |||||
Who were the named executive officers for HEI in | |||||
Summary of Results | |||||
Executive Summary | |||||
Compensation Process | |||||
Who is responsible for determining appropriate executive compensation? | |||||
Can the Compensation Committee modify or terminate executive compensation programs? | |||||
Who is the compensation consultant and what is the consultant's role? |
What is the role of executive officers in determining | |||||
How do HEI's compensation policies and practices relate to HEI's risk management? | |||||
Compensation Program | |||||
What is HEI's philosophy with respect to its executive compensation programs? | 43 | ||||
What are the objectives of HEI's executive compensation | |||||
What is each element of executive compensation? | |||||
Why does HEI choose to pay each element? | |||||
How does HEI determine the amount for each element? | |||||
How does each element fit into HEI's overall compensation objectives? | |||||
Compensation Elements | |||||
What are the base salaries of the named executive officers? | |||||
What was HEI's | |||||
What was HEI's | |||||
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What is HEI's 2009-2011 long-term incentive plan? | |||||
What is HEI's 2010-2012 long-term incentive plan? | 54 | ||||
How does HEI award stock to named executive officers? | |||||
What retirement benefits do named executive officers have? | |||||
Can named executive officers participate in nonqualified deferred compensation plans? | |||||
Do named executive officers have executive death benefits? | |||||
Do named executive officers have change-in-control agreements? | |||||
What other benefits do named executive officers have? | |||||
Executive Compensation | |||||
Summary Compensation Table | |||||
Grants of Plan-Based Awards | |||||
Outstanding Equity Awards at Fiscal Year-End | |||||
Option Exercises and Stock Vested | |||||
Pension Benefits | |||||
Nonqualified Deferred Compensation | |||||
Potential Payments Upon Termination or Change in Control | |||||
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Stock Ownership Information | |||||
Security Ownership of Certain Beneficial Owners | |||||
Does HEI have stock ownership and retention guidelines for directors and | |||||
Section 16(a) Beneficial Ownership Reporting Compliance | |||||
Other Relationships and Related Person Transactions | |||||
Does HEI have a written related person transaction policy? |
Page | ||||
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Are there any family relationships between any HEI executive officer, director and nominee for director? | ||||
Are there any arrangements or understandings between any HEI director or director nominee and another person pursuant to which such director or director nominee was selected? | ||||
Are there any related person transactions with HEI or its subsidiaries? | ||||
Compensation Committee Interlocks and Insider Participation | ||||
Audit Committee Report | ||||
Proposal No. 5: Ratification of Appointment of Independent Registered Public Accounting Firm | 82 | |||
Other Information | ||||
How are proxies solicited and what is the cost? | ||||
What is the deadline for submitting a proposal for next year's Annual Meeting? | ||||
How can business matters be brought before the Annual Meeting? | ||||
How can shareholders recommend or propose persons as nominees to serve on the Board? | ||||
What provisions has HEI made for "householding" | ||||
Map | ||||
Appendix A — Hawaiian Electric Industries, Inc. | A-1 | |||
Appendix B — Hawaiian Electric Industries, Inc. Categorical Standards of Director Independence | B-1 |
HEI is soliciting proxies for the Annual Meeting of Shareholders scheduled for May 11, 2010,10, 2011, at 9:30 a.m., local time, at the American Savings Bank Tower, 1001 Bishop Street, 8th floor, Room 805, Honolulu, Hawaii. The mailing address of the principal executive offices of HEI is P.O. Box 730, Honolulu, Hawaii 96808-0730.
The approximate mailing date for this Proxy Statement, form of proxy and Annual Report to Shareholders is March 22, 2010.21, 2011. The 20092010 Annual Report to Shareholders accompanying this Proxy Statement is not considered proxy soliciting material.
Attendance will be limited to:
If you own shares of HEI Common Stock in the name of a bank, brokerage firm or other holder of record, you must show proof of ownership. This may be in the form of a letter from the holder of record or a recent statement from the bank or broker showing ownership of HEI Common Stock.
Any person claiming to be an authorized representative of a shareholder must produce written evidence of the authorization.
What are shareholders being asked to vote on?
Electronic accessAccess to proxy materialsProxy Materials
HEI provides shareholders the option to access its proxy materials via the Internet. In keeping with our efforts to conserve natural resources, this method of delivery reduces the amount of paper necessary to produce these materials and reduces the costs associated with the printing and mailing of these materials to shareholders. On March 22, 2010,21, 2011, a Notice of Internet Availability of Proxy Materials
(Notice) will be mailed to certain shareholders and our proxy materials will be posted on the website referenced in the Notice (www.ViewMaterial.com/HEI). As more fully described in the Notice, these shareholders may choose to access our proxy materials on the website referred to in the Notice or may request to receive a printed set of our proxy materials. The Notice and website will provide information
regarding how to request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis.
If you currently receive our proxy materials in printed form and would like to receive them electronically in the future, please so indicate on the enclosed proxy, if voting by mail, or by following the instructions provided when using the telephone or Internet voting options described under "How do shareholders vote?" below.
Only persons who own shares of HEI Common Stock as of the close of business on March 3, 20102, 2011 (the proxy record date) are entitled to vote.
How many shares are outstanding and entitled to vote?
On March 3, 2010, 92,658,1232, 2011, 94,915,883 shares of HEI Common Stock were outstanding. Each shareholder is entitled to one vote for each share held. Under the Bylaws of HEI, shareholders do not have cumulative voting rights in the election of directors.
A quorum is needed to conduct business at the Annual Meeting. A majority of the shares of HEI Common Stock outstanding on March 3, 20102, 2011 and entitled to vote, and present in person or by proxy at the Annual Meeting, constitutes a quorum. Abstentions and broker votes of uninstructed shares on routine matters (such as ratification of the appointment of the independent registered public accounting firm) will be counted in the number of shares present in person or by proxy for purposes of determining a quorum. A quorum established for one purpose will apply for all purposes at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, please take the time to vote. You may vote via the Internet, by touchtone telephone or by mail before the Annual Meeting, or in person at the Annual Meeting. The Internet and telephone procedures are designed to authenticate your vote and confirm that your voting instructions are followed. If you vote via the Internet or by telephone, follow the instructions on the Notice or card you received by mail. If you vote by telephone, you will receive additional recorded instructions, and if you vote via the Internet, you will receive additional instructions at the Internet website. You will need to have the control number on your Notice or proxy/voting instruction card, as applicable, available.
Shareholders who vote via the Internet or by telephone shouldnot mail the proxy/voting instruction card.
on the enclosed proxy vote your shares at the meeting, cross out all three names and insert the name of another person to vote your shares at the meeting.
How do shareholders vote if their shares are held in street name?
If your shares are held in "street name" (that is, through a broker, trustee or other holder of record), you will receive a voting instruction card or other information from your broker or other holder of record seeking instruction as to how your shares should be voted.If you do not provide such instruction, your broker or nominee may vote your shares at its discretion on your behalf on routine matters, but not on nonroutine matters. The ratification of the appointment of HEI's independent registered public accounting firm is considered a routine matter. The election of directors, and the approval of the 2010 Equity2011 Nonemployee Director Stock Plan, the advisory vote on the frequency of advisory votes on executive compensation and Incentive Planthe advisory vote on executive compensation are considered nonroutine matters.Please provide instructions to your broker on how to vote your shares on all five proposals to ensure that your shares will be voted on all proposals at the Annual Meeting.
You may not vote shares held in "street name" at the Annual Meeting unless you obtain a legal proxy from your broker or holder of record.
How do shareholders vote if their shares are held in the Dividend Reinvestment and Stock Purchase Plan, the HEI Retirement Savings Plan or the American Savings Bank 401(k) Plan?
If you own shares held in the Dividend Reinvestment and Stock Purchase Plan, the HEI Retirement Savings Plan (including shares previously received under the Tax Reduction Act Stock Ownership Plan) or the American Savings Bank 401(k) Plan, the respective plan trustees will vote those shares of stock according to your directions. For all of these plans, the respective trustees will vote all the shares of HEI Common Stock for which they receive no voting instructions in the same proportion as they vote shares for which they receive instruction.
Can shareholders change their vote?
If you vote by any of the methods described above, you may revoke your proxy or vote at any time before the Annual Meeting in one of three ways:
If a quorum is present at the Annual Meeting, then:
since your options are to vote either "FOR" or to "WITHHOLD" your vote for a nominee. SinceAlthough the election of directors is considered a nonroutine matter, broker nonvotes (i.e., a vote of your shares bywhen your broker or other holder of record whendoes not vote your shares on a nonroutine matter because you have not provided instructions onregarding how to vote on a nonroutinethat matter) will not affect the outcome of this matter.
Who will count the votes and are the votes confidential?
Corporate Election Services will act as tabulator for broker and bank proxies as well as for proxies of the other shareholders of record. Your identity and vote will not be disclosed to persons other than those acting as tabulators except:
Could other matters be decided at the Annual Meeting?
HEI knows of no business to be presented at the 20102011 Annual Meeting other than the items set forth in this Proxy Statement. If other business is properly brought before the Annual Meeting, or any adjournment or postponement thereof, the persons named on the enclosed proxy will vote your stock in accordance with their best judgment, unless authority to do so is withheld by you in your proxy.
What happens if the Annual Meeting is postponed or adjourned?
If the Annual Meeting is postponed or adjourned, your proxy will still be goodremain valid and may be voted at the postponed or adjourned meeting. You will still be able to change or revoke your proxy until it is voted at the Annual Meeting.
1. Election of Class II Directors
The Board of Directors currently consists of 12 directors divided into three classes with staggered terms. Ms. Plotts, a Class II director, will retire from the Board when her current term as a Class II director ends at the Annual Meeting. Concurrently with the retirement of Ms. Plotts from the Board at the Annual Meeting, the authorized size of the Board will decrease from 12 to 11 directors.
The Board proposes three Class II nominees for election at the Annual Meeting:
Each nominee is currently a member of the Board and has consented to serve for the new term expiring at the 2013 Annual Meeting if elected. If a nominee is unable to stand for election, the proxy holders listed in the proxy may vote in their discretion for a suitable substitute.
YOUR BOARD RECOMMENDS THAT YOU VOTE FOR EACH OF THE NOMINEES FOR CLASS II DIRECTOR LISTED ABOVE.
Information regarding the business experience and certain other directorships for each Class II nominee and Class I and III director is provided on pages 16-21 together with a description of the
experience, qualifications, attributes and skills that led to the Board's conclusion that each of the nominees and directors should serve on the Board at the time of this Proxy Statement, in light of HEI's current business and structure.
2. Ratification of appointment of Independent Registered Public Accounting Firm
On February 26, 2010, the Audit Committee engaged PricewaterhouseCoopers LLP as HEI's new independent registered public accounting firm for 2010, subject to shareholder ratification. The Board, upon the recommendation of its Audit Committee, recommends the ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm of HEI for fiscal year 2010 and thereafter until its successor is appointed. KPMG LLP was HEI's independent registered public accounting firm for 2009 and has been the auditor of HEI since 1981. Representatives of KPMG LLP and PricewaterhouseCoopers LLP will be present at the Annual Meeting and each will be given the opportunity to make a statement and to respond to appropriate questions.
On February 23, 2010, the Audit Committee voted to dismiss KPMG LLP as HEI's independent registered public accounting firm, effective as of February 24, 2010. The company informed KPMG LLP of the decision and dismissed KPMG LLP on February 24, 2010. KPMG LLP's reports on HEI's consolidated financial statements as of and for the fiscal years ended December 31, 2009 and 2008 contained no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. The audit reports of KPMG LLP on the effectiveness of internal control over financial reporting as of December 31, 2009 and 2008 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified as to uncertainty, audit scope or accounting principles. During the fiscal years ended December 31, 2009 and 2008 and through February 24, 2010, there were no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG LLP, would have caused it to make reference to the subject matter of the disagreements in connection with its reports for such years. During the fiscal years ended December 31, 2009 and 2008 and through February 24, 2010, there were no reportable events as defined in Item 304(a)(1)(v) of the Securities and Exchange Commission's Regulation S-K.
During the fiscal years ended December 31, 2009 and 2008 and through February 26, 2010, the date of engagement of PricewaterhouseCoopers LLP, neither HEI nor any person on its behalf has consulted with PricewaterhouseCoopers LLP with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on HEI's consolidated financial statements, and no written report or oral advice was provided by PricewaterhouseCoopers LLP to HEI that PricewaterhouseCoopers LLP concluded was an important factor considered by HEI in reaching a decision as to the accounting, auditing, or financial reporting issue; or (ii) any matter that was the subject of either a disagreement as defined in Item 304(a)(1)(iv) of the Securities and Exchange Commission's Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of the Securities and Exchange Commission's Regulation S-K.
YOUR BOARD AND THE AUDIT COMMITTEE RECOMMEND THAT YOU VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR HEI FOR 2010.
3. Approval of 2010 Equity and Incentive Plan
HEI's Compensation Committee believes that the use of long-term incentives that reward selected employees of HEI or its affiliates whose contributions are essential to the growth and success of HEI's business best strengthens the commitment of such persons to HEI and its affiliates, motivates such persons to faithfully and diligently perform their responsibilities and attracts and retains competent and
dedicated persons whose efforts will result in the long-term growth and profitability of HEI. To that end, on February 11, 2010, the Board adopted the Hawaiian Electric Industries, Inc. 2010 Equity and Incentive Plan (2010 Plan), subject to the approval of HEI's shareholders. The purpose of the 2010 Plan is to afford an incentive to regular full-time employees of HEI or any affiliate of HEI to continue as employees, to increase their efforts on behalf of HEI and to promote HEI's business, all in accordance with the Compensation Committee's philosophy set forth below. Subject to shareholder approval of the 2010 Plan, no new awards will be made under HEI's 1987 Stock Option and Incentive Plan, as amended from time to time (1987 Plan). The 1987 Plan will remain in effect with respect to awards previously made under such Plan. If shareholders do not approve the 2010 Plan, the 2010 Plan will have no effect and awards may continue to be granted under the 1987 Plan.
The 2010 Plan is being submitted to HEI's shareholders in order to ensure its compliance with Section 162(m) of the Internal Revenue Code (Section 162(m)) and the New York Stock Exchange (NYSE) listing standards concerning shareholder approval of equity compensation plans and the grant of incentive stock options. The NYSE listing standards provide that shareholders must be given the opportunity to vote on all equity compensation plans and material revisions thereto. The 2010 Plan is an equity compensation plan (i.e., a plan that provides for the delivery of HEI Common Stock to our employees as compensation for their services) and we are asking in this proposal for your approval of the 2010 Plan in compliance with the NYSE listing standards.
Section 162(m) denies a deduction by an employer for certain compensation in excess of $1,000,000 per year paid by a publicly held corporation to the following covered employees who are employed at the end of the corporation's taxable year: the Chief Executive Officer, the Chief Financial Officer and the three other most highly compensated executive officers (other than the Chief Executive Officer and the Chief Financial Officer) for whom compensation disclosure is required under the proxy rules. Certain compensation, including compensation based on the attainment of performance goals, is excluded from this deduction limit if certain requirements are met. Among the requirements for compensation to qualify for this exclusion is that the material terms pursuant to which the compensation is to be paid be disclosed to and approved by the shareholders in a separate vote prior to the payment of any such compensation, and that the plan be administered by "outside directors", as defined in Section 162(m). Accordingly, if the 2010 Plan is approved by shareholders and other conditions of Section 162(m) relating to the exclusion for performance-based compensation are satisfied, compensation paid to covered employees pursuant to the 2010 Plan will not be subject to the deduction limit of Section 162(m). We are asking in this proposal for your approval of the 2010 Plan and the performance goals that are applicable under the 2010 Plan where an award is intended to qualify as performance-based compensation under Section 162(m).
We are also seeking your approval so that we may use the 2010 Plan to grant incentive stock options (options that enjoy certain favorable tax treatment under Sections 421 and 422 of the Internal Revenue Code), if applicable.
The following is a summary of the material terms of the 2010 Plan and is qualified in its entirety by the full text of the 2010 Plan, which is attached as Appendix A to this Proxy Statement.
Purposes
The purposes of the 2010 Plan are to:
Administration of the 2010 Plan
The 2010 Plan will be administered by the Board or, if and to the extent the Board does not administer the 2010 Plan, the Compensation Committee of the Board or a subcommittee of the Compensation Committee. Pursuant to the terms of the 2010 Plan and subject to any restrictions on the authority delegated to it by the Board, the administrator will have the power and authority, without limitation, to:
All decisions made by the administrator pursuant to the provisions of the 2010 Plan will be final, conclusive and binding on all persons, including HEI and the participants.
Eligibility
Awards may be granted to any regular full-time employee of HEI or any of its affiliates who has been selected as an eligible participant by the administrator. Incentive stock options will be granted only to employees (including officers and directors who are also employees) of HEI or any of its 50% or more owned subsidiaries.
Shares Reserved for Issuance
The maximum number of shares of HEI Common Stock reserved for issuance under the 2010 Plan will be 4,000,000 shares, subject to adjustment for certain transactions, provided that shares that are issued in connection with all awards other than options and share appreciation rights or awards whose vesting, exercisability or payment is subject to the attainment of performance goals will be counted against the 4,000,000 limit described above as four shares of HEI Common Stock for every share of HEI Common Stock that is issued in connection with such award. The shares may be authorized but unissued HEI Common Stock or shares that have been or may be reacquired by HEI in the open market, in private transactions or otherwise. If any shares subject to an award are forfeited, cancelled, exchanged or surrendered or if an award otherwise terminates or expires without a distribution of
shares to a participant, the shares with respect to such award will, to the extent of any such forfeiture, cancellation, exchange, surrender, termination or expiration, again be available for awards under the 2010 Plan. If any award (other than a share appreciation right) is settled in part or in full in cash, the shares settled in cash will again be available for issuance in connection with future awards granted under the 2010 Plan. Notwithstanding the foregoing, shares surrendered or withheld as payment of either the exercise price of an award granted under the 2010 Plan (including shares otherwise underlying an award of a share appreciation right that are retained by HEI to account for the grant price of such share appreciation right) and/or withholding taxes in respect of such an award will no longer be available for grant under the 2010 Plan. All shares may be made subject to awards of incentive stock options.
To the extent required to comply with the requirements of Section 162(m), the aggregate number of shares subject to awards (other than other cash-based awards) awarded to any one participant during any calendar year may not, subject to certain equitable adjustments as provided in the 2010 Plan, exceed 100,000 shares, and the maximum value of the aggregate payment that any participant may receive with respect to other cash-based awards in any calendar year is $2,000,000.
The closing price per share of HEI Common Stock on the New York Stock Exchange on March 3, 2010 was $20.66.
Types of Awards
The 2010 Plan provides for the grant of stock options (including incentive stock options), share appreciation rights, restricted shares, deferred shares, performance shares, other share-based awards and other cash-based awards.
Options. The grant of each option will be memorialized in an award agreement, containing such terms and conditions as the administrator will determine. The administrator will have sole and complete authority to determine the participants to whom options will be granted under the 2010 Plan, the number of shares to be subject to options and the terms and conditions of options (including whether the option is an incentive stock option), provided that the exercise price of each option may not be less than 100% of the fair market value (as defined in the 2010 Plan) of the underlying HEI Common Stock on the date of grant. If a participant owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Internal Revenue Code) more than 10% of the combined voting power of all classes of stock of HEI or of any of its subsidiaries and an incentive stock option is granted to such participant, the exercise price of such an incentive stock option (to the extent required at the time of grant by the Internal Revenue Code) will be no less than 110% of the fair market value of the HEI Common Stock on the date such incentive stock option is granted. The term of any option granted under the 2010 Plan may not exceed 10 years, provided, however, that if an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Internal Revenue Code) more than 10% of the combined voting power of all classes of stock of HEI or of any of its subsidiaries and an incentive stock option is granted to such employee, the term of such incentive stock option (to the extent required by the Internal Revenue Code at the time of grant) will be no more than 5 years from the date of grant. Notwithstanding the foregoing, the administrator will have the authority to accelerate the exercisability of any outstanding option at such time and under such circumstances as the administrator, in its sole discretion, deems appropriate.
Options may be exercised in whole or in part by giving written notice of exercise to HEI specifying the number of shares to be purchased, accompanied by payment in full of the aggregate exercise price of the shares so purchased in cash or its equivalent. As determined by the administrator, in its sole discretion, payment for any options in whole or in part may also be made (i) by means of consideration received under any cashless exercise procedure approved by the administrator (including the withholding of shares otherwise issuable upon exercise), (ii) in the form of unrestricted shares already
owned by the participant subject to certain conditions, (iii) any other form of consideration approved by the administrator and permitted by applicable law or (iv) any combination of the foregoing. A participant will have no rights to dividends or any other rights of a shareholder with respect to the shares subject to an option until the participant has given written notice of exercise, paid in full for such shares and satisfied the requirements of the 2010 Plan, and the shares are delivered to the participant.
To the extent that the aggregate fair market value (as defined in the 2010 Plan) of shares of HEI Common Stock with respect to which incentive stock options granted to a participant under the 2010 Plan and all other option plans of HEI or of any subsidiary of HEI become exercisable for the first time by the participant during any calendar year exceeds $100,000 (as determined in accordance with Section 422(d) of the Internal Revenue Code), the portion of such incentive stock options in excess of $100,000 will be treated as a nonqualified stock option.
Share Appreciation Rights. Share appreciation rights may be granted either alone (Free Standing Rights) or in conjunction with all or part of any option granted under the 2010 Plan (Related Rights). Subject to Section 409A of the Internal Revenue Code, in the case of nonqualified stock options, Related Rights may be granted either at or after the time of the grant of such option. In the case of an incentive stock option, Related Rights may be granted only at the time of the grant of the incentive stock option. The administrator will determine the participants to whom, and the time or times at which, grants of share appreciation rights will be made, the number of shares to be awarded, the price per share and all other conditions of share appreciation rights. Share appreciation rights will contain such additional terms and conditions, not inconsistent with the terms of the 2010 Plan, as the administrator will deem desirable, as set forth in an award agreement. Notwithstanding the foregoing, no Related Right may be granted for more shares than are subject to the option to which it relates and any share appreciation right must be granted with an exercise price not less than the fair market value of the underlying HEI Common Stock on the date of grant.
A participant will have no rights to dividends or any other rights of a shareholder with respect to the shares subject to a share appreciation right until the participant has given written notice of its exercise, paid in full for such shares and satisfied the requirements of the 2010 Plan, and the shares are delivered to the participant.
Upon the exercise of a Free Standing Right, the participant will be entitled to receive up to, but not more than, that number of shares equal in value to the excess of the fair market value as of the date of exercise over the price per share specified in the Free Standing Right multiplied by the number of shares in respect of which the Free Standing Right is being exercised.
Share appreciation rights that are Related Rights will be exercisable only at such time or times and to the extent that the options to which they relate are exercisable. A Related Right granted in connection with an incentive stock option will be exercisable only if and when the fair market value (as defined in the 2010 Plan) of shares of the HEI Common Stock subject to the incentive stock option exceeds the exercise price of such option. A Related Right may be exercised by a participant by surrendering the applicable portion of the related option, upon which the participant will be entitled to receive up to, but not more than, that number of shares equal in value to the excess of the fair market value as of the date of exercise over the exercise price specified in the related option multiplied by the number of shares in respect of which the Related Right is being exercised. Options which have been so surrendered, in whole or in part, will no longer be exercisable to the extent the Related Rights have been so exercised.
The administrator may determine to settle the exercise of a share appreciation right in cash in lieu of shares (or in any combination of shares and cash). The term of each Related Right will be the term of the option to which it relates, and no share appreciation right will be exercisable more than 10 years after the date such right is granted.
Restricted Shares, Deferred Shares and Performance Shares. The grant of each award of restricted shares, deferred shares and performance shares will be memorialized in an award agreement, containing such terms and conditions as the administrator will determine. The administrator will have sole and complete authority to determine the participants to whom awards of restricted shares, deferred shares and performance shares will be granted under the 2010 Plan, the number of shares to be subject to the awards and the terms and conditions of the awards, including whether the vesting of such an award will be restricted by time or subject to the attainment of one or more performance goals (as described below). The restricted shares, deferred shares and performance shares will be subject to restrictions and conditions pursuant to the 2010 Plan and as determined by the administrator at the time of grant or, subject to Section 409A of the Internal Revenue Code, at a later time. The administrator may, in its sole discretion, provide for the lapse of restrictions in installments and may accelerate or waive such restrictions in whole or in part based on such factors and such circumstances as the administrator may determine, in its sole discretion, including, but not limited to, the attainment of certain performance related goals; provided, however, that this sentence will not apply to any award which is intended to qualify as "performance-based compensation" under Section 162(m). Except as provided in the applicable award agreement, the participant will generally have the rights of a shareholder of HEI with respect to restricted shares or performance shares during the restricted period. The participant will generally not have the rights of a shareholder with respect to shares subject to deferred shares during the restricted period; provided, however, that, subject to Section 409A of the Internal Revenue Code, an amount equal to dividends declared during the restricted period with respect to the number of shares covered by deferred shares will, unless otherwise set forth in the applicable award agreement, be paid to the participant at the same time as dividends are paid to HEI's shareholders generally, provided that the participant is then providing services to HEI or any affiliate of HEI.
Other Share-Based or Cash-Based Awards. The administrator is authorized to grant awards to participants in the form of other share-based awards or other cash-based awards, as deemed by the administrator to be consistent with the purposes of the 2010 Plan and as evidenced by an award agreement. The administrator will determine the terms and conditions of such awards, consistent with the terms of the 2010 Plan, at the date of grant or thereafter, including any performance goals and performance periods.
Performance Goals
Under the 2010 Plan, the administrator has the authority to determine that vesting or payment of an award will be subject to the attainment of one or more performance goals. The performance goals may include any combination of, or a specified increase or decrease of, one or more of the following over a specified period:
Where applicable, the performance goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one or more of HEI or its affiliates, or a division or strategic business unit of HEI, or may be applied to the performance of HEI relative to a market index, a group of other companies or a combination thereof, all as determined by the administrator. The performance goals may include a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be made (or specified vesting will occur), and a maximum level of performance above which no additional payment will be made (or at which full vesting will occur). Each of the foregoing performance goals will be determined in accordance with generally accepted accounting principles and will be subject to certification by the administrator, provided that the administrator will have the authority to make equitable adjustments to the performance goals in recognition of unusual or nonrecurring events affecting HEI or any of its affiliates or the financial statements of HEI or any of its affiliates, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles, in any case to the extent such adjustment does not cause a loss of deduction under Section 162(m).
Termination of Employment
Unless the applicable award agreement provides otherwise, in the event that the employment of a participant with HEI or any of its affiliates terminates for any reason other than cause, retirement, disability (each such term as defined in the 2010 Plan) or death, the participant's options and share appreciation rights:
The one-year period described above will be extended to three years after the date of such termination in the event of the participant's death during such one-year period.
Unless the applicable award agreement provides otherwise, in the event that the employment of a participant with HEI and all of its affiliates terminates on account of retirement, disability or death, the participant's options and share appreciation rights, to the extent that they were exercisable at the time of such termination, will become fully vested and will remain exercisable until the date that is three years after such termination, on which date they will expire. In the event of the termination of a
participant's employment for cause, all outstanding options and share appreciation rights granted to such participant will expire at the commencement of business on the date of such termination.
In the event of the termination of employment with HEI and all of its affiliates of a participant who has been granted one or more Related Rights, such rights will be exercisable at such time or times and subject to such terms and conditions as set forth in the related options.
The rights of participants granted restricted shares, deferred shares or performance shares upon termination of employment with HEI or any affiliate thereof during the restricted period will be set forth in the applicable award agreement.
Notwithstanding the foregoing, no option or share appreciation right will be exercisable after the expiration of its term.
Effect of a Change in Control
Except as otherwise provided in an award agreement or in an individual agreement between a participant and HEI, in the event of a change in control of HEI (as defined in the 2010 Plan), the surviving entity or acquiring entity (or the surviving or acquiring entity's parent company) will assume all awards outstanding under the 2010 Plan or will substitute for them with similar awards. Any such assumed or substituted award will provide that, if the participant's employment with HEI or an affiliate of HEI (or any successor) is terminated within 24 months following the change in control by HEI or an affiliate without cause or by the participant with good reason (as defined in the 2010 Plan), the award will become fully vested and exercisable and all restrictions on such awards will immediately lapse (with all performance goals or other vesting criteria deemed achieved at 100% of target levels), and each such award that is an option or share appreciation right will remain exercisable for not less than one year following such termination of employment.
To the extent the surviving entity (or acquiring entity or parent company, as the case may be) refuses to assume or substitute for outstanding awards:
Transferability of Awards
Unless otherwise determined by the administrator or provided in an award agreement, awards will not be transferable by a participant except by will or the laws of descent and distribution and will be exercisable during the lifetime of a participant only by such participant or his guardian or legal representative.
Amendment or Termination of the 2010 Plan
The Board may amend, alter or terminate the 2010 Plan, or amend an award, at any time, but no amendment, alteration or termination may be made that would impair the rights of a participant under any award without such participant's consent. Shareholder approval is required for any amendment that would increase the total number of shares (unless pursuant to an equitable adjustment as set forth in
the 2010 Plan), materially increase plan benefits, materially alter eligibility provisions or extend the maximum option term under the plan, or as otherwise required by law or applicable rule.
In addition, the administrator may not reduce the exercise price of an outstanding option or share appreciation right by amending its terms or by canceling such award in exchange for cash or the grant of a new award without first obtaining approval from the shareholders of HEI.
Term of the 2010 Plan
No awards may be made after the ten-year anniversary of the date on which shareholders approve the 2010 Plan but awards made before such tenth anniversary may extend beyond the tenth anniversary date.
The benefits to be derived under the 2010 Plan by participants cannot be determined, since the ultimate value of awards under the 2010 Plan depends on several factors, including the market value of HEI Common Stock, and future grants under the 2010 Plan will be made at the sole discretion of the administrator, based on a variety of considerations.
Certain Federal Income Tax Consequences
The following discussion of certain relevant federal income tax effects applicable to stock options and share appreciation rights granted under the 2010 Plan is a summary only, and reference is made to the Internal Revenue Code and the applicable regulations and rulings thereunder for a complete statement of all relevant federal tax provisions.
Options
With respect to nonqualified stock options, the grantee will recognize no income upon grant of the option, and, upon exercise, will recognize ordinary income to the extent of the excess of the fair market value of the shares on the date of option exercise over the amount paid by the grantee for the shares. Upon a subsequent disposition of the shares received under the option, the grantee generally will recognize capital gain or loss to the extent of the difference between the fair market value of the shares at the time of exercise and the amount realized on the disposition.
In general, no taxable income is realized by a grantee upon the grant of an incentive stock option. If shares are issued to a grantee (option shares) pursuant to the exercise of an incentive stock option granted under the 2010 Plan and the grantee does not dispose of the option shares within the two-year period after the date of grant or within one year after the receipt of such option shares by the grantee (disqualifying disposition), then, generally (i) the grantee will not realize ordinary income upon exercise and (ii) upon sale of such option shares, any amount realized in excess of the exercise price paid for the option shares will be taxed to such grantee as capital gain (or loss). The amount by which the fair market value of the HEI Common Stock on the exercise date of an incentive stock option exceeds the purchase price generally will constitute an item which increases the grantee's "alternative minimum taxable income" (as defined in the Internal Revenue Code).
If option shares acquired upon the exercise of an incentive stock option are disposed of in a disqualifying disposition, the grantee generally would include in ordinary income in the year of disposition an amount equal to the excess of the fair market value of the option shares at the time of exercise (or, if less, the amount realized on the disposition of the option shares) over the exercise price paid for the option shares.
Subject to certain exceptions, an option generally will not be treated as an incentive stock option if it is exercised more than three months following termination of employment. If an incentive stock
option is exercised at a time when it no longer qualifies as an incentive stock option, such option will be treated as a nonqualified stock option as discussed above.
In general, HEI will receive an income tax deduction at the same time and in the same amount as the employee recognizes ordinary income.
Share Appreciation Rights
The recipient of a grant of share appreciation rights will not realize taxable income and HEI will not be entitled to a deduction with respect to such grant on the date of such grant. Upon the exercise of a share appreciation right, the recipient will realize ordinary income equal to the fair market value of any shares received at the time of exercise. In general, HEI will be entitled to a corresponding deduction, equal to the amount of income realized.
Section 409A of the Internal Revenue Code
The American Jobs Creation Act of 2004 added Section 409A to the Internal Revenue Code (Section 409A), which imposes restrictions on "nonqualified deferred compensation" (as defined in Section 409A). Section 409A generally applies to amounts deferred after December 31, 2004. Generally, options and share appreciation rights with an exercise price at least equal to the fair market value of the underlying stock on the date of grant and restricted stock will not be considered deferred compensation if such awards do not include any other feature providing for the deferral of compensation. Failure to follow the provisions of Section 409A can result in taxation to the grantee of a 20% additional income tax and interest on the taxable amount and, depending on the state, additional state taxes. It is intended that payments and benefits under the 2010 Plan comply with or be exempt from Section 409A. If taxes or penalties under Section 409A are imposed on a grantee in connection with the 2010 Plan, such grantee will be solely responsible and liable for the satisfaction of all such taxes and penalties, and neither HEI nor any affiliate will have any obligation to indemnify or otherwise hold the grantee (or any beneficiary) harmless from any or all of such taxes or penalties.
Under the NYSE listing standards, the 2010 Plan will be approved if a majority of the votes cast are in favor of such approval, so long as the total votes cast represent more than 50% of all shares entitled to vote. Abstentions will be considered votes cast and will have the same effect as voting against the proposal. Broker nonvotes will have no effect on the outcome of the vote on the 2010 Plan.
YOUR BOARD RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE 2010 EQUITY AND INCENTIVE PLAN.
Equity compensation plan information
Information as of December 31, 2009 about HEI Common Stock that may be issued upon the exercise of awards granted under all of the company's equity compensation plans was as follows:
Plan category | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) | (b) Weighted-average exercise price of outstanding options, warrants and rights | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (2) | |||||||
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Equity compensation plans approved by shareholders | 432,677 | $ | 19.73 | 4,099,071 | ||||||
Equity compensation plans not approved by shareholders | — | — | — | |||||||
Total | 432,677 | $ | 19.73 | 4,099,071 | ||||||
Nominees for Class II directors whose terms expireIII Directors Whose Terms Expire at the 20132014 Annual Meeting
Ms. Fowler brings a wealth of knowledge and Business experience and other public company and HEI affiliate directorships since •
• Co-Chief Executive Officer, Portland General Electric Company (PGE), 2009 • President and Chief Executive Officer, PGE, 2000-2008 • Director, PGE, since 1998 • Director, Umpqua Holdings Corporation, since 2009, and Chair of Budget and Compensation Committees, since April 2010 | ||
Skills and qualifications for HEI Board service • • Breadth of proven management, leadership, analytical and technical skills, including crisis management, risk assessment, strategic planning and public relations skills, demonstrated especially by her leadership of PGE after the 2001 bankruptcy of its parent company, Enron Corp., through its independence from Enron in 2006 and by her recognition as Oregon's Most Admired CEO in a 2005Portland Business Journal survey and as Portland's First Citizen in 2007 by the Portland Metropolitan Association of Realtors, an annual award honoring civic achievement and business leadership. • Expertise in financial oversight, regulatory compliance and corporate governance matters gained from her experience as President (1997-2000), CEO (2000-2008) and Chair (2001-2004) of PGE, her service as a director for PGE and the Portland Branch of the | ||
Involvement in certain legal proceedings • | ||
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Mr. Russell has extensive senior management experience in the banking industry. His prior service as chief risk officer of a large financial institution significantly strengthens the Board's capabilities in overseeing risk within the organization. In addition, Mr. Russell's many years of experience in managing and Business experience and other public company and HEI affiliate directorships since
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• President, Russell Financial, Inc. (strategic and financial consulting firm servicing business and high net worth families and individuals), since 2001 • Vice Chair/Chief Risk Officer, Mellon Financial Corp., then Chairman, Mellon West, 1991-2001 • Senior Executive Vice President, then Director, • Director, Nationwide Health Properties, since • Director, Sunstone Hotel Investors, since 2003 • Director, Countrywide Financial, 2003-2008 | ||
Skills and qualifications for HEI Board service
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Class II director whose term will expire at the 2010 Annual Meeting
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Continuing Class III directors whose terms expire at the 2011 Annual Meeting
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Barry K. Taniguchi, age 63, director since 2004 and nominee for 2011 Annual Meeting Audit Committee Chair Executive Committee Member Mr. Taniguchi brings to the Board considerable experience as a business leader in Hawaii, with extensive knowledge of the business climate and significant contacts and relationships within the business community and local governmental agencies. With the successes of his own businesses, and because of his commitment to a wide array of charitable causes, Mr. Taniguchi is one of the most well-respected businesspersons in the state of Hawaii. Business experience and other public company and HEI affiliate directorships since • President and Chief Executive Officer, KTA Super Stores (grocery store chain), since 1989 • President, K. Taniguchi Ltd. (real estate lessor), since 1989 • Director, American Savings Bank, F.S.B. (HEI subsidiary), since 2002 • Director since 2001 and Audit Committee Chair, Hawaiian Electric Company, Inc. (HEI subsidiary) • Director, Hawaii Electric Light Company, Inc. (HEI subsidiary), 1997-2009 • Director, Maui Electric Company, Limited (HEI subsidiary), 2006-2009 | ||
Skills and qualifications for HEI Board service • Current knowledge of and experience with the business community on the island of Hawaii, which is served by one of HEI's utility subsidiaries, Hawaii Electric Light Company, Inc., from serving in his current chief executive officer positions for the last | ||
• Accounting and auditing knowledge and experience gained from obtaining a public accounting certification and working as an auditor and as a controller. | ||
• Extensive corporate and nonprofit board |
Continuing Class I directors whose terms expireDirectors Whose Terms Expire at the 2012 Annual Meeting
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Constance H. Lau, age Executive Committee Member Current and prior positions with the • President and Chief Executive Officer and Director, HEI, since 2006 • Chairman of the Board, Hawaiian Electric Company, Inc. (HEI subsidiary), since 2006 • Chairman of the Board, American Savings Bank, F.S.B. (HEI subsidiary), since 2006 • Chairman of the Board and Chief Executive Officer, American Savings Bank, F.S.B. • Chairman of the Board, President and Chief Executive Officer, American Savings Bank, F.S.B., 2006-2008 • President and Chief Executive Officer and Director, American Savings Bank, F.S.B., 2001-2006 • Senior Executive Vice President and Chief Operating Officer and Director, American Savings Bank, F.S.B., 1999-2001 | ||
• Treasurer, HEI, 1989-1999 | ||
• Financial Vice President and Treasurer, HEI Power Corp. (former HEI subsidiary), 1997-1999 | ||
• Treasurer, Hawaiian Electric Company, Inc., and Assistant Treasurer, HEI, 1987-1989 | ||
• Assistant Corporate Counsel, Hawaiian Electric Company, Inc., 1984-1987 | ||
Other public company directorships since • Director since 2004 and Audit Committee Member, Alexander & Baldwin, Inc. | ||
Skills and qualifications for HEI Board service • Intimate understanding of the | ||
• Familiarity with current management and corporate governance practices from her current service as a director and Audit Committee member for Alexander & Baldwin, Inc. and as a director of AEGIS Insurance Services, Inc. | ||
• Experience with financial oversight and expansive knowledge of the Hawaii business community and the local communities that compose the • Utility and banking industry knowledge from serving as a director or task force member of the Hawaii Bankers Association, the American Bankers Association and the Edison Electric Institute. |
A. Maurice Myers, age Compensation Committee Member Business experience and other public company and HEI affiliate directorships since • Chief Executive Officer and Owner, Myers Equipment Leasing LLC (equipment leasing company), since 2010 • Chief Executive Officer and Director, POS Hawaii LLC (provider of point-of-sale business systems for restaurants and retailers), since 2009 • Chief Executive Officer and Director, Wine Country Kitchens LLC (manufacturer of gourmet food products), since 2007 • Chairman, Chief Executive Officer and President, Waste Management, Inc. (waste and environmental services provider), 1999-2004 • Director, Hawaiian Electric Company, Inc. (HEI subsidiary), 2004-2006 and since 2009 | ||
Skills and qualifications for HEI Board service • 20 years of public company executive and board leadership experience as Chairman, Chief Executive Officer and President of Waste Management, Inc., Chairman, Chief Executive Officer and President of Yellow Corporation, President of America West Airlines and Chief Executive Officer and President of Aloha Airgroup, Inc. | ||
• Practiced skills in risk assessment, strategic planning, financial oversight, customer and public relations and marketing exercised in leading successful restructuring efforts at Waste Management, Yellow Corporation and America West Airlines. | ||
• Diverse business experience and public and private company board experience, including from his prior service as a director and Compensation Committee |
James K. Scott, Ed.D., age Audit Nominating and Corporate Governance Committee Member Business experience and other public company and HEI affiliate directorships since • President, Punahou School (K-12 independent school), since 1994 • Director, American Savings Bank, F.S.B. (HEI subsidiary), since 2008 • Recognized leadership and executive management skills as President of Punahou School for • | ||
• Governance and board leadership experience from his current positions as Chair of the Secondary School Admission Test Board, director and former Chair of the Hawaii Association of Independent Schools, member of the Board of Governors of the Pacific and Asian Affairs Council and member of the Advisory Board of the Klingenstein Center of Teachers College at Columbia University. |
Continuing Class II Directors Whose Terms Expire at the 2013 Annual Meeting
Thomas B. Fargo, age 62, director since 2005 Compensation Committee Chair Nominating and Corporate Governance Committee Member Business experience and other public company and HEI affiliate directorships since 2006 • Operating Executive Board Member, J.F. Lehman & Company (private equity firm), since 2008 • Owner, Fargo Associates, LLC (defense and homeland/national security consultancy), since 2005 • Chief Executive Officer, Hawaii Superferry, Inc. (interisland ferry), 2008-2009 • President, Trex Enterprises Corporation (defense research and development firm), 2005-2008 • Commander, U.S. Pacific Command, 2002-2005 • Director since 2008 and Audit Committee Member, Northrop Grumman Corporation • Director, Hawaiian Holdings, Inc., 2005-2008 • Director since 2005, Hawaiian Electric Company, Inc. (HEI subsidiary) | ||
Skills and qualifications for HEI Board service • Extensive knowledge of the U.S. military, a major customer of HEI's electric utility subsidiary. • Leadership, strategic planning and financial and nonfinancial risk assessment skills developed over 39 years of leading 9 organizations ranging in size from 130 to 300,000 people and managing budgets up to $8 billion. • Experience with corporate governance, including audit, compensation and governance committees, from service on several public and private company boards. |
Kelvin H. Taketa, age 56, director since 1993 Nominating and Corporate Governance Committee Chair Business experience and other public company and HEI affiliate directorships since 2006 • President and Chief Executive Officer, Hawaii Community Foundation (statewide charitable foundation), since 1998 • Director, Hawaiian Electric Company, Inc. (HEI subsidiary), since 2004 • Executive management experience with responsibility for overseeing more than $405 million in charitable assets as President and Chief Executive Officer of the Hawaii Community Foundation. • Proficiency in risk assessment, strategic planning and organizational leadership as well as marketing and public relations obtained from his current position at the Hawaii Community Foundation and his prior experience as Vice President and Executive Director of the Asia/Pacific Region for The Nature Conservancy and as Founder, Managing Partner and Director of Sunrise Capital Inc. • Knowledge of corporate and nonprofit governance issues gained from his prior service as a director for Grove Farm Company, Inc., his current service as Vice Chair of the Independent Sector and Director of the Stupski Foundation and through publishing articles and lecturing on governance of tax-exempt organizations. |
Jeffrey N. Watanabe, age 68, director since 1987 Chairman of the Board since 2006 Executive Committee Chair Business experience and other public company and HEI affiliate directorships since 2006 • Managing Partner, Watanabe Ing & Komeiji LLP, 1972-2007 (now retired) • Director since 2003 and Compensation and Corporate Governance Committee Member, Alexander & Baldwin, Inc. • Director since 1988 and Executive Committee Member, American Savings Bank, F.S.B. (HEI subsidiary) • Director, Hawaiian Electric Company, Inc. (HEI subsidiary), from 1999-2006 and since 2008 • Broad business, legal, corporate governance and leadership experience from serving as Managing Partner of the law firm he founded, advising clients on a variety of business and legal matters for 35 years and from serving on more than a dozen public and private company and nonprofit boards and committees, including his current service on the Compensation and Corporate Governance Committees for Alexander & Baldwin, Inc. • Specific experience with strategic planning from providing strategic counsel to local business clients and prospective investors from the continental United States and the Asia Pacific region for 25 years of his law practice. |
Class I Director Who Intends to Resign at the 2011 Annual Meeting
Shirley J. Daniel, Ph.D., C.P.A., age 57, director since 2002 Audit Committee Member Business experience and other public company and HEI affiliate directorships since 2006 • Professor of Accountancy, Shidler College of Business, University of Hawaii at Manoa, since 1995 • Director, American Savings Bank, F.S.B. (HEI subsidiary), since 2004 • Current expertise in accounting, auditing and corporate governance from teaching courses on these subjects at the Shidler College of Business. • Business and leadership experience from her current service as Director for the Pacific Asian Management Institute and Center for International Business Education and Research and from her prior service as Managing Director for the Pacific Asian Center for Entrepreneurship and E-Business. • Prior experience in accounting and auditing from being a licensed certified public accountant and from working as an auditor and audit manager with the international accounting firm Arthur Young & Company (currently Ernst & Young LLP). |
Class III Directors Who Are Not Continuing After the Expiration of Their Terms at the 2011
Annual Meeting
Don E. Carroll, age 69, director since 1996 Compensation Committee Member Business experience and other public company and HEI affiliate directorships since 2006 • Retired Chairman, Oceanic Time Warner Cable Advisory Board, since 2004 • Director since 2004 and Audit Committee Member, American Savings Bank, F.S.B. (HEI subsidiary) • 38 years of executive and finance management experience as President and Vice President, Finance of Oceanic Cable. • Experience with financial institutions and executive compensation and compensation program oversight from serving as Chair of the Compensation Committee for Island Insurance Company, Ltd. and as a member of the Compensation Committee for Pacific Guardian Life. • In-depth knowledge and familiarity with issues facing HEI and its banking subsidiary gained from 15 years of service as a director for HEI and 7 years of service as a director for American Savings Bank, F.S.B. |
Victor H. Li, S.J.D., age 69, director since 1988 Compensation Committee Member Business experience and other public company and HEI affiliate directorships since 2006 • Co-Chairman, Asia Pacific Consulting Group (Pacific region trade consultancy), since 1992 • Director, American Savings Bank, F.S.B. (HEI subsidiary), since 2004 • Thoughtful leadership and consensus-building skills and marketing and strategic planning experience acquired through his current position for the last 19 years as Co-Chairman of the Asia Pacific Consulting Group, and his former position for 10 years as chief executive for the East-West Center. • Long-term knowledge and understanding of HEI's operations and strategic goals after 21 years on the Board. • Prior energy and public company board experience from serving as a director at Grumman Corporation and AES China Generating Co. Ltd. |
In accordance with the Bylaws of the Company, the Board has fixed the size of the Board to serve from and after the 2011 Annual Meeting at nine directors, divided into three classes with staggered terms. The Board proposes that the following three nominees be elected at the 2011 Annual Meeting as Class III directors to serve until the 2014 Annual Meeting, or until their successors shall be duly elected and qualified:
The Board proposes three Class III nominees for election at the Annual Meeting:
Mr. Taniguchi is currently an incumbent Class III director of HEI. Ms. Fowler and Mr. Russell are new nominees, but they are not new to the HEI family of companies, as they are directors of HEI's principal subsidiaries. Ms. Fowler is a director of Hawaiian Electric Company and Mr. Russell is a director of American Savings Bank, and each has substantial experience in the electric power and banking industries, respectively. Ms. Fowler and Mr. Russell are nominated to fill the positions held by current Class III directors Don E. Carroll and Victor H. Li, who have served several terms on the HEI Board but are not seeking reelection. Mr. Carroll will continue serving the Company as a member of the board of directors for HEI subsidiary Hawaiian Electric Company. The Board has determined that all three nominees are independent under the applicable standards for director independence, as discussed below under "Board of Directors—Who are the independent directors of the Board?". Each nominee has consented to serve for the new term expiring at the 2014 Annual Meeting if elected. If a nominee is unable to stand for election at the time of the 2011 Annual Meeting, the proxy holders listed in the proxy may vote in their discretion for a suitable substitute.
At the 2010 Annual Meeting, the Board was fixed at 11. However, Mr. Richard W. Gushman, II resigned from his position as a Class III director effective September 30, 2010. In addition, Dr. Shirley J. Daniel, a Class I director with a term expiring in 2012, intends to resign from the Board effective at the Annual Meeting (but she will continue to serve the Company as a member of the board of directors of HEI subsidiary American Savings Bank). Following the Annual Meeting, there will thus be a total of nine directors on the HEI Board with three directors in each of the three Board classes of directors.
Information regarding the business experience and certain other directorships for each Class III director nominee and for each continuing Class I and II director is provided on pages 5-12 above together with a description of the experience, qualifications, attributes and skills that led to the Board's conclusion at the time of this Proxy Statement that each of the nominees and directors should serve on the Board in light of HEI's current business and structure.
YOUR BOARD RECOMMENDS THAT YOU VOTE"FOR" EACH OF THE NOMINEES FOR CLASS III DIRECTOR LISTED ABOVE.
What are HEI's governance policies and guidelines?
In 2009,2010, the Board and management continued to review and monitor corporate governance trends and best practices to comply with the corporate governance requirements of the New York Stock Exchange, regulations of the Securities and Exchange Commission and rules and regulations of the Board of Governors of the Federal Reserve, Federal Deposit Insurance Corporation and Office of Thrift Supervision applicable to HEI as a bank holding company. As part of an annual review, the HEI Categorical Standards of Director Independence (see Appendix B), Corporate Governance Guidelines, Corporate Code of Conduct and charters for the Audit, Compensation, Executive and Nominating and Corporate Governance Committees were reviewed and revised as deemed appropriate by the Board. These documents and HEI's Corporate Code of Conduct, are available on HEI's website at www.hei.com.
What is the Board's leadership structure?
Since 2006, Mr. Watanabe has served as the nonexecutive Chairman of the Board since 2006, upon the retirement of former HEI Chairman, President and Chief Executive Officer, Robert F. Clarke. Also since that time, Ms. Lau has served as HEI's President and Chief Executive Officer andOfficer. Since that time, Ms. Lau has also been the only employee director on the Board. Prior to Mr. Watanabe becoming2006, the Company's Chief Executive Officer had also served as Chairman of the Board. During that time, the Board had an independent lead director.Lead Director.
Mr. Watanabe has served on the Board since 1987, but has never been employed by HEI or any HEI subsidiary. The Board has determined that he is independent. Among the many skills and qualifications that Mr. Watanabe brings to the Board, the Board consideredconsidered: (i) his extensive experience in corporate and nonprofit governance from serving on other public company, private company and nonprofit boards; (ii) his reputation for effective consensus and relationship building and business and community leadership, including leadership of his former law firm, andfirm; (iii) his willingness to spend time advising and mentoring members of HEI's senior management; and (iv) his dedication to committing the hard work and time necessary to successfully lead the Board.
As HEI's Chairman, Mr. Watanabe's key responsibilities are to:
The Board's Corporate Governance Guidelines provide that if the Chairman and Chief Executive Officer positions are held by the same individual, or if the Board determines that the Chairman is not independent, the independent directors should designate an independent director to serve as Lead Director. If a Lead Director is designated, the Lead Director's responsibilities would be to: (i) preside
at Board and shareholder meetings when the Chairman is not present, (ii) preside at executive sessions
of the independent directors, (iii) facilitate communication between the independent directors and the Chairman or the Board as a whole, (iv) call meetings of the nonmanagement or independent directors in executive session, (v) participate in approving meeting agendas, schedules and materials for the Board and (vi) perform other functions described in the Corporate Governance Guidelines or as determined by the Board from time to time.
The Board believes that its current leadership structure, which provides for an independent nonemployee Chairman, or an independent Lead Director if the Chairman is not independent, is appropriate and effective in light of HEI's current operations, strategic plans and overall corporate governance structure for several reasons.structure. Several reasons support this conclusion. First, the Board believes that having an independent Chairman or Lead Director has been important in establishing a tone at the top for both the Board and the companyCompany that encourages constructive expression of views that may differ from those of senior management. Second, the Board believes that the presence of an independent Chairman or Lead Director, particularly at this time of growing government and investor scrutiny of public and financial company boards, demonstrates to the Board's desire to inspire confidence in the company'sCompany's regulators and shareholders that the Board is committed to serving the best interests of the companyCompany and its shareholders and not the best interests of management. Third, the Board recognizes that the companyCompany has an uncommon corporate governance structure in that the boards of its two primary operating subsidiaries are also composed mostly of nonemployee directors and that the HEI Chairman plays an important leadership role at these subsidiary boards. For instance, in addition to chairing executive sessions of the nonemployee directors and attending meetings of the audit committees of these subsidiary boards, the Chairman leads each subsidiary board in conducting its annual performance evaluation and assists communications between each of these boards and management of the respective subsidiary company and among members of each subsidiary board.
What is the Board's role in risk oversight?
HEI is a holding company that operates principally through its electric public utility and bank subsidiaries. At the holding company and subsidiary levels, the companyCompany faces a variety of risks, including operational risks, regulatory and legal compliance risks, credit and interest rate risks, competitive risks and liquidity risks. Developing and implementing strategies to manage these risks is the responsibility of management, and that responsibility is carried out by assignments of responsibility to various officers and other employees of the companyCompany under the direction of HEI's Chief Financial Officer, who also serves as HEI's chief risk officer. The role of the Board is to oversee the management of these risks.
The Board's specific risk oversight functions are as follows:
risks and management's assessment of those risks reported by HEI's chief risk officer. As part of
the Board's ongoing risk oversight, HEI's chief risk officer is responsible for providing regular reports to the Board and Audit Committee on the conditionstatus of those risks, any changes to the risk catalog or management's assessment of those risks, and any other risk management matters that the Board may request from time to time. The Board and Audit Committee also receive reports from the company'sHEI's internal auditor evaluating the effectiveness of management's implementation of the approved ERM system.
risks facing the companyCompany and options to mitigate those risks. To facilitate strategic planning through constructive dialogue among management and Board members, members of management who are not directors may be invited to participate in the review. Based on the review, the Board and senior management, including the HEI chief risk officer, identify key issues to be addressed during the course of the next calendar year.
The Board believes that risk oversight is one of the areas in which having an independent Chairman or Lead Director is especially important in order to ensure that views that may differ from those of management are expressed. Since the HEI Chairman attends the meetings of the Board, the subsidiary boards and their respective committees, the HEI Chairman is also in a unique position to assist with communications regarding risk oversight and risk management among the Board and its committees, between the subsidiary boards and their respective committees and between directors and management.
How does the Board select nominees for the Board?
The Board believes that there are skill sets and qualities and attributes that should be represented on the Board as a whole but not necessarily by each director. The Nominating and Corporate Governance Committee and the Board thus consider the qualifications and attributes of directors and director candidates not only individually but also in the aggregate and in light of the current and future needs of HEI and its subsidiaries.
The Nominating and Corporate Governance Committee of the Board assists the Board in identifying and evaluating persons for nomination or re-nominationrenomination for Board service. To identify qualified candidates for HEI Board membership, the committee may consider persons who are serving on its subsidiary boards as well as persons suggested by Board members, management and shareholders or may retain a third-party search firm to help identify potentially qualified candidates. The committee's evaluation process does not vary based on whether or not a candidate is recommended by a shareholder.
Once a person is identified as a potential director candidate, the committee may review publicly available information to assess whether the candidate should be further considered. If so, a committee member or designated representative for the committee will contact the person. If the person is willing to be considered for nomination, the person is asked to provide additional information regarding his or her background, his or her specific skills, experience and qualifications for Board service, and any direct or indirect relationships with the company.Company. In addition, one or more interviews may be conducted with committee and Board members and committee members may contact one or more references provided by the candidate or others who would have first-hand knowledge of the candidate's qualifications.
In evaluating the qualifications and attributes of all candidateseach potential candidate (including incumbent directors) for nomination or re-nomination,renomination, the committee considers:
The Board considers the recommendations of the Nominating and Corporate Governance Committee and then makes the final decision whether to approve and extend an invitation to a candidate to join the Board upon appointment or election, subject to any approvals required by law, rule or regulation.
Ms. Fowler and Mr. Russell, both of whom are new nominees for election as HEI directors but are currently directors of Hawaiian Electric Company and American Savings Bank, respectively, were highly recommended by the Nominating and Corporate Governance Committee based on its observations of the performance of these individuals as directors of these HEI subsidiaries and taking into account their strong experience in the electric power and financial services industries, respectively. Ms. Fowler was recruited to the board of directors of Hawaiian Electric Company in 2009 and Mr. Russell to the American Savings Bank board in 2010, in each instance with the assistance of an international executive search firm.
Does the Board consider diversity in identifying nominees for the Board?
In assisting the Board to identify qualified director candidates, to serve on the Board, the Nominating and Corporate Governance Committee considers the diversity of race, ethnicity, gender, age, cultural background and racial minority diversityprofessional experience of the candidate. The Board believes it functions most effectively with members who collectively possess a range of substantive expertise, skills and experience in areas that are relevant to leading the companyCompany in
accordance with the Board's fiduciary responsibilities. The Board also believes that having a board composed of members who can collectively contribute a range of perspectives, including perspectives that may arise from being female or a racial minority, improves the quality of the Board's deliberations and decisions because it enables the Board to view issues from a variety of angles and thus more richlythoroughly and completely. As the company'sCompany's operations and strategic plans and the Board's composition may evolve over time, the Nominating and Corporate Governance Committee is charged with identifying and assessing the appropriate mix of knowledge areas, qualifications and personal attributes contributed by Board members that will bring the most strategic and decision-making advantage to the company.Company.
With operations almost exclusively in the state of Hawaii, it is natural and advantageous that our Board be composed primarilylargely of members who live and work in the state and have firsthand knowledge of and experience with our customer base and political and regulatory environment. Since a large pool of potential candidates for Board membership come from this state, the Board benefits from the unique racial diversity that exists in Hawaii. Of twelveIf the shareholders vote to elect the three director nominees proposed by the Board members, six membersfor election at the Annual Meeting, the resulting composition of the Board would be as follows: four directors (or 50%44.4%) who are Caucasian, five membersfour directors (or 42%44.4%) who are Asian American and one memberdirector (or 8%11.1%) who is Caucasian, Asian American and native Hawaiian. Three Board membersTwo (or 25%22.2%) of such nine directors, including current nominees, are female.
The Board also recognizes that, due to Hawaii's geographic isolation from the continental United States and the comparatively small number of public companies, banks and regulated utilities based in Hawaii, the Board also benefits from having directors who have gained business experience at companies located in the continental United Statesother states because those Board members can and have contributed valuable information about experiences they have had working at or serving on the boards of other public
companies and companies in similar industries, which also contributes to the breadth of perspectives on the Board.
How can shareholders communicate with the directors?
Interested parties, including shareholders, desiring to communicate with the Board, any director or the nonmanagement or independent directors as a group regarding matters pertaining to the business or operations of HEI may address their correspondence in care of the Corporate Secretary, Hawaiian Electric Industries, Inc., P.O. Box 730, Honolulu, HI 96808-0730. The HEI Corporate Secretary may review, sort and summarize all such correspondence in order to facilitate communications to the Board. In addition, the HEI Corporate Secretary has the authority and discretion to handle any director communication that is an ordinary course of business matter, matter—including routine questions, complaints, comments and related communications that can appropriately be handled by management. Directors may at any time request copies of all correspondence addressed to them. The charter of the HEI Audit Committee, which is available for review at www.hei.com, sets forth procedures for submitting complaints or concerns regarding financial statement disclosures, accounting, internal accounting controls or auditing matters on a confidential, anonymous basis.
The Board conducts an annual evaluation to determine whether it and its committees are functioning effectively. In addition, each director annually evaluates his or her performance as a director and members of the Audit, Compensation and Nominating and Corporate Governance Committees annually evaluate the performance of each committee on which he or she serves. The evaluation process is overseen by the Nominating and Corporate Governance Committee, in consultation with the Chairman. The chairperson of the Nominating and Corporate Governance Committee or the Chairman may meet with individual directors to discuss their performance, as he or she deems appropriate.
Who are the independent directors of the Board?
Under HEI's Corporate Governance Guidelines, a majority of Board members must qualify as independent under the listing standards of the New York Stock Exchange (NYSE) and any additional requirements as determined by the Board from time to time.
The Nominating and Corporate Governance Committee and the Board considered the information below, which was provided by the directors and director nominees and/or by HEI or its subsidiaries, concerning relationships between (i) HEI or its subsidiaries and (ii) the director, director nominee, the director's or director nominee's immediate family members (as defined by NYSE) or entities with
which any of the directors, director nominees or immediate family members have certain affiliations. Based on its consideration of the relationships described below and the recommendations of the Nominating and Corporate Governance Committee, the Board determined at its meeting on February 8, 2011 that all of the nonemployee directors and director nominees of HEI (Messrs. Carroll, Fargo, Gushman, Li, Myers, Russell, Scott, Taketa, Taniguchi and Watanabe and Mses. Daniel and Plotts)Fowler) are independent. The remaining director, Ms. Lau, is the only employee director of HEI. In addition, the Board determined that Richard W. Gushman, II, who resigned from the Board effective September 30, 2010, and Diane J. Plotts, who retired from the Board at the 2010 Annual Meeting of Shareholders, were independent during their service on the Board in 2010.
ability to negotiate rates or other terms, the Board determined that these relationships do not impair the independence of these directors.
officer serves as a director or trustee and determined that none of these relationships affected the independence of these directors. None of these relationships resulted in a compensation committee interlock or would automatically preclude an independence finding under the NYSE listing standards or HEI Categorical Standards.
How often did the Board meet in 2010?
In 2010, there were nine regular meetings and no special meetings of the Board. All directors attended at least 75% of the combined total number of meetings of the Board and Board committees on which they served.
Does the Board meet in executive session without management present?
The nonemployee directors meet regularly in executive sessions without management present. In 2009,2010, these sessions were chaired by Mr. Watanabe, who is the Chairman of the Board and an independent nonemployee director. Mr. Watanabe may request from time to time that other nonemployee directors chair the executive sessions.
How often did the Board of Directors meet in 2009?
In 2009, there were nine regular meetings and one special meeting of the Board of Directors. All directors attended at least 75% of the combined total number of meetings of the Board and Board committees on which they served.
Did all directors attend last year's Annual Meeting?
AllTen of HEI's twelve directors attended the 2009 annual meeting2010 Annual Meeting of shareholders.Shareholders. HEI encourages all directors to attend each year's Annual Meeting of Shareholders.
Does the Board evaluate itself?
The Board conducts annual meetingevaluations to determine whether it and its committees are functioning effectively. In addition, each director annually evaluates his or her performance as a director and each member of shareholders.the Audit, Compensation and Nominating and Corporate Governance Committees annually evaluates the performance of each committee on which he or she serves. The evaluation process is overseen by the Nominating and Corporate Governance Committee, in consultation with the Chairman. The chairperson of the Nominating and Corporate Governance Committee or the Chairman may meet with individual directors to discuss their performance, as he or she deems appropriate.
What committees has the Board established and how often did they meet?
The Board of Directors has four standing committees: Audit, Compensation, Executive and Nominating and Corporate Governance. Members of these committees are appointed annually by the Board, taking into consideration the recommendationrecommendations of the Nominating and Corporate Governance Committee. The table below shows current committee members during 2010 and the number of meetings of each committee held in 2009.2010.
Name | Audit | Compensation | Executive | Nominating and Corporate Governance | Audit | Compensation | Executive | Nominating and Corporate Governance | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Don E. Carroll | X | X | ||||||||||||||||
Shirley J. Daniel | X | X | ||||||||||||||||
Thomas B. Fargo | X | X | (2) | X | X | (2) | X | |||||||||||
Richard W. Gushman, II | X | X | ||||||||||||||||
Constance H. Lau | X | X | ||||||||||||||||
Victor H. Li | X | X | ||||||||||||||||
A. Maurice Myers | X | X | ||||||||||||||||
Diane J. Plotts | X | (2) | X | X | X | (2) | X | X | ||||||||||
James K. Scott | X | X | X | X | ||||||||||||||
Kelvin H. Taketa | X | (2) | X | (2) | ||||||||||||||
Barry K. Taniguchi | X | X | (2) | X | ||||||||||||||
Jeffrey N. Watanabe | X | (2) | X | (2) | ||||||||||||||
Number of Meetings in 2009 | 4 | 4 | 0 | 4 | ||||||||||||||
Number of Meetings in 2010 | 5 | 8 | 0 | 3 | ||||||||||||||
What are the primary functions of each of the four committees?
The primary functions of HEI's standing committees are described below. Each committee operates and acts under written charters that are approved by the Board and available for review on HEI's website at www.hei.com. Each of the Audit, Compensation and Nominating and Corporate Governance Committees may form subcommittees of its members and delegate authority to its subcommittees.
Audit Committee
The Audit Committee is responsible for overseeing (1)(i) HEI's financial reporting processes and internal controls, (2)(ii) the performance of HEI's internal auditor, (3)(iii) risk assessment and risk management policies set by management and (4)(iv) the Corporate Code of Conduct compliance program for HEI and its subsidiaries. In addition, thethis committee is directly responsible for the appointment, compensation and oversight of the independent registered public accounting firm that audits HEI's consolidated financial statements and maintains procedures for receiving and reviewing confidential
reports to the committee of potential accounting and auditing concerns. See "Audit Committee Report" below for additional information about the Audit Committee.
All Audit Committee members are independent and qualified to serve on thethis committee pursuant to NYSE and SEC requirements and the Audit Committee meets the other applicable requirements of the Securities Exchange Act of 1934. None of the Audit Committee members serve on the audit committees of more than two other public companies.
Compensation Committee
The responsibilities of the Compensation Committee include (1)(i) overseeing the compensation plans and programs for employees, executives and nonemployee directors of HEI and its subsidiaries, including equity and incentive plans, (2)plans; (ii) reviewing the extent to which risks that may arise from the company'sCompany's compensation policies and practices, if any, may have a material adverse effect on the companyCompany and recommending changes to address any such risksrisks; (iii) evaluating the compliance of American Savings Bank's incentive compensation practices under the principles for sound incentive compensation plans and (3)(iv) assessing the independence of any compensation consultant involved in determining or recommending director or executive compensation. See "Compensation Discussion and Analysis—Compensation Process" and "Other Relationships and Related Person Transactions—Compensation Committee Interlocks and Insider Participation" below for additional information about the Compensation Committee.
All Compensation Committee members are independent and qualified to serve on thethis committee pursuant to NYSE requirements and also qualify as "outside directors" within the meaning of Section 162(m) of the Internal Revenue Code. At least a majority of the members of the Compensation Committee qualifies as "nonemployee directors" as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934. The Compensation Committee has formed and delegated authority toDuring 2010, a Nonemployee Director Subcommittee to makemade equity grants on behalf of the committee.Compensation Committee; however, the Compensation Committee as a whole has been, and will be, performing this function in 2011. A member of the board of directors of each of Hawaiian Electric Company and American Savings Bank attends meetings of the Compensation Committee as a nonvoting representative of such director's subsidiary board.
Executive Committee
The Executive Committee may exercise the power and authority of the Board when it appears to its members that action is necessary and a meeting of the full Board is impractical. It may also consider other matters concerning HEI that may arise from time to time between Board meetings. The
committee is currently composed of the Chairman of the Board, who chairs the committee, the Audit Committee Chairperson and the HEI President and Chief Executive Officer.
Nominating and Corporate Governance Committee
The functions of the Nominating and Corporate Governance Committee include (1)(i) evaluating the background and qualifications of potential nominees for the Board and for the boards of HEI's subsidiaries, (2)(ii) recommending to the Board the director nominees to be submitted to shareholders for election at the next annual meeting, (3)Annual Meeting, (iii) assessing the independence of directors and nominees, (4)(iv) recommending the slate of executive officers to be appointed by the Board and subsidiary boards, (5)(v) advising the Board with respect to matters of Board and committee composition and procedures, (6)(vi) overseeing the annual evaluation of the Board and (7)(vii) making recommendations to the Board and the boards of HEI's subsidiaries regarding corporate governance and board succession planning matters. See "Corporate Governance" above for additional information regarding the activities of the Nominating and Corporate Governance Committee.
How is director compensation determined?
The Board believes that a competitive package is necessary to attract and retain individuals with the experience, skills and qualifications needed for the challenging role of serving as a director of a publicly traded company with a unique blend of highly regulated industries. The Board chooses to compensate nonemployee directors using a mix of cash and HEI Common Stock to allow for an appropriate level of compensation for services, including stock awards that will align the interests of directors with those of HEI shareholders. Only nonemployee directors are compensated for their service as directors. Ms. Lau, who is the only employee director of HEI, does not receive separate or additional compensation for serving as a director.
The Compensation Committee recommends nonemployee director compensation to the Board. In 2010, the committee asked its independent compensation consultant, Frederic W. Cook & Co. Inc. (Fred Cook & Co.), to conduct an evaluation of HEI's nonemployee director compensation practices. Fred Cook & Co. assessed the structure of HEI's nonemployee director compensation program and its value compared to competitive market practices of financial services and utility peer companies, similar to the assessments used in its executive compensation review, which is described under "Compensation Discussion and Analysis—Compensation Program—How does HEI determine the amount for each element?" below. The 2010 analysis took into consideration the duties and scope of responsibilities of directors, especially in light of HEI's unique business and regulatory structure. The Compensation Committee reviewed the analysis in determining its recommendations to the Board concerning the appropriate nonemployee director compensation, including cash retainers, stock awards and meeting fees. In its meeting on August 9, 2010, the Board approved the Compensation Committee's recommendations on changes to nonemployee director compensation to be effective on January 1, 2011. Although Ms. Lau is a member of the HEI Board, neither she nor any other executive officer of the Company participated in the determination of nonemployee director compensation. There were no increases to the standard director retainer or meeting fees paid to directors in 2010.
Retainer. The following is the annual cash retainer schedule for nonemployee directors of HEI, including those who also serve as directors of certain HEI subsidiaries, paid in quarterly installments in 2010, as well as the new schedule for 2011. Nonemployee directors of HEI who also serve on Board committees, or as directors on subsidiary company boards and committees, received fees for service on such boards or committees in 2010 as indicated below. However, starting in 2011, no additional fees are paid to HEI directors for service on subsidiary company boards. HEI directors who serve on committees of subsidiary boards will continue to receive fees in 2011 for such committee service, as shown below.
| 2010 | 2011 | |||||
---|---|---|---|---|---|---|---|
HEI Nonexecutive Chairman of the Board | $ | 250,000 | $ | 250,000 | |||
HEI Director | 40,000 | 65,000 | |||||
HEI Audit Committee Chair | 15,000 | 15,000 | |||||
HEI Compensation Committee Chair | 10,000 | 15,000 | |||||
HEI Nominating and Corporate Governance Committee Chair | 5,000 | 10,000 | |||||
HEI Audit Committee Member | 6,000 | 6,000 | |||||
HEI Compensation Committee Member | 4,000 | 6,000 | |||||
HEI Nominating and Corporate Governance Committee Member | 4,000 | 4,000 | |||||
American Savings Bank Director (who is also an HEI Director) | 25,000 | — | |||||
Hawaiian Electric Company Director (who is also an HEI Director) | 25,000 | — | |||||
American Savings Bank Audit Committee Chair | 12,500 | 12,500 | |||||
Hawaiian Electric Company Audit Committee Chair | 10,000 | 10,000 | |||||
American Savings Bank Audit Committee Member | 5,000 | 5,000 | |||||
Hawaiian Electric Company Audit Committee Member | 4,000 | 4,000 |
Meeting Fees. Nonemployee directors of HEI and its subsidiary boards are also entitled to meeting fees for each meeting attended after the minimum number of meetings specified below.
2010 | 2011 | ||||||
---|---|---|---|---|---|---|---|
HEI Audit Committee Member | $ | 1,250 per meeting after 8 meetings | $ | 1,500 per meeting after 6 meetings | |||
American Savings Bank Audit Committee Member | $ | 1,000 per meeting after 8 meetings | $ | 1,000 per meeting after 8 meetings | |||
Hawaiian Electric Company Audit Committee Member | $ | 750 per meeting after 8 meetings | $ | 750 per meeting after 8 meetings | |||
HEI Nominating and Corporate Governance Committee Member | $ | 500 per meeting after 6 meetings | $ | 1,500 per meeting after 6 meetings | |||
HEI Compensation Committee Member | $ | 500 per meeting after 6 meetings | $ | 1,500 per meeting after 6 meetings |
Stock Awards. On June 30, 2010, each HEI nonemployee director received 1,800 shares of HEI Common Stock as an annual grant under HEI's 1990 Nonemployee Director Stock Plan, as last amended and restated on May 6, 2008 (1990 Director Plan) for the purpose of further aligning directors' and shareholders' interests. Stock grants to nonemployee directors under the 1990 Director Plan are made annually on the last business day in June.
As part of the Compensation Committee's 2010 reevaluation of nonemployee director compensation, the committee recommended and the Board approved an increase in the annual stock grants and initially fixed the amount of the grants to a specified dollar value rather than a specified number of shares. If shareholders approve the HEI 2011 Nonemployee Director Stock Plan at the
Annual Meeting (see description below under "Proposal No. 2: Approval of 2011 Nonemployee Director Stock Plan"), HEI nonemployee directors on June 30, 2011 will receive shares of HEI Common Stock equal in value to $75,000, with the number of shares to be issued to each HEI nonemployee director to be determined based on the closing sales price of HEI Common Stock on the New York Stock Exchange on such date.
Retirement Benefit. Pursuant to the termination of the HEI Nonemployee Director Plan on December 17, 1996, previously retired directors continue to receive benefits in accordance with the terms of the plan. Upon their retirement from service as a director, Mr. Myers and Ms. Plotts (who retired from the Board in May 2010) are eligible to receive benefits from the plan in an annual amount of $15,000, paid quarterly, for a period equal to the number of years of their active service through December 31, 1996 (7 years for Mr. Myers and 10 years for Ms. Plotts). All benefits payable under the plan, whether commenced or not, cease upon the death of the nonemployee director.
Deferred Compensation. Nonemployee directors may elect to participate in the HEI Nonemployee Directors' Deferred Compensation Plan, which allows any nonemployee director to defer compensation from HEI for service as a director. The plan allows for either lump sum or installment distributions upon the retirement of the director. Upon the death of the director, the balance of the deferred account will be distributed in a lump sum to a designated beneficiary. Directors are also eligible to participate in the new 2011 Deferred Compensation Plan for HEI and Hawaiian Electric Company described under "Compensation Discussion and Analysis—Compensation Elements—Can named executive officers participate in nonqualified deferred compensation plans?" below.
Preferential Rate Loans. Under a program for American Savings Bank directors that has been discontinued since June 30, 2006, certain HEI directors were eligible to receive preferential rate mortgage loans because they were American Savings Bank directors at the time. When this program was discontinued, existing loans were grandfathered. Information regarding the grandfathered loans that nonemployee directors Messrs. Gushman and Watanabe and Mses. Daniel and Plotts had in 2010 is included under "Other Relationships and Related Person Transactions—Are there any related person transactions with HEI or its subsidiaries?" below. All preferential rate mortgage loans to nonemployee directors were either paid off or refinanced at market rates by January 2011.
Health Benefits. Directors, at their election and at their cost, may participate in the group employee medical, vision and dental plans generally made available to HEI, Hawaiian Electric Company or American Savings Bank employees.
The table below shows compensation to the HEI nonemployee directors in 2010.
2010 DIRECTOR COMPENSATION TABLE
Name | Fees Earned or Paid in Cash ($) (3) | Stock Awards ($) (4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (5) | All Other Compensation ($) (6) | Total ($) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Don E. Carroll | 75,000 | 41,301 | — | — | 116,301 | |||||||||||
Shirley J. Daniel | 71,000 | 41,301 | — | 25,560 | 137,861 | |||||||||||
Thomas B. Fargo | 84,880 | 41,301 | — | — | 126,181 | |||||||||||
Richard W. Gushman, II (1) | 55,500 | 41,301 | — | 44,513 | 141,314 | |||||||||||
Victor H. Li | 69,000 | 41,301 | — | — | 110,301 | |||||||||||
A. Maurice Myers | 70,000 | 41,301 | 6,024 | — | 117,325 | |||||||||||
Diane J. Plotts (2) | 34,965 | — | — | 9,200 | 44,165 | |||||||||||
James K. Scott | 75,000 | 41,301 | — | — | 116,301 | |||||||||||
Kelvin H. Taketa | 70,000 | 41,301 | — | — | 111,301 | |||||||||||
Barry K. Taniguchi | 114,221 | 41,301 | — | — | 155,522 | |||||||||||
Jeffrey N. Watanabe | 341,812 | 41,301 | — | 16,630 | 399,743 |
The table below shows cash retainers paid to HEI nonemployee directors in 2010 for each board and committee (including subsidiary boards and committees) on which each director served in 2010 and for service as nonexecutive HEI Chairman in 2010.
Name | HEI Board Retainer ($) | HEI Comm. Retainer ($) | HEI Chairman of the Board Retainer ($) | HECO Board Retainer ($) | HECO Audit Comm. Retainer ($) | ASB Board Retainer ($) | ASB Audit Comm. Retainer ($) | Total (1) ($) | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Don E. Carroll | 40,000 | 5,000 | — | — | — | 25,000 | 5,000 | 75,000 | |||||||||||||||||
Shirley J. Daniel | 40,000 | 6,000 | — | — | — | 25,000 | — | 71,000 | |||||||||||||||||
Thomas B. Fargo | 40,000 | 16,728 | — | 25,000 | 3,152 | — | — | 84,880 | |||||||||||||||||
Richard W. Gushman (2) | 30,000 | 3,000 | — | — | — | 18,750 | 3,750 | 55,500 | |||||||||||||||||
Victor H. Li | 40,000 | 4,000 | — | — | — | 25,000 | — | 69,000 | |||||||||||||||||
A. Maurice Myers | 40,000 | 5,000 | — | 25,000 | — | — | — | 70,000 | |||||||||||||||||
Diane J. Plotts (3) | 14,493 | 6,885 | — | — | — | 9,058 | 4,529 | 34,965 | |||||||||||||||||
James K. Scott | 40,000 | 10,000 | — | — | — | 25,000 | — | 75,000 | |||||||||||||||||
Kelvin H. Taketa | 40,000 | 5,000 | — | 25,000 | — | — | — | 70,000 | |||||||||||||||||
Barry K. Taniguchi | 40,000 | 11,753 | — | 25,000 | 4,471 | 25,000 | 7,997 | 114,221 | |||||||||||||||||
Jeffrey N. Watanabe | 40,000 | — | 250,000 | 25,000 | — | 25,000 | 1,812 | 341,812 |
HEI's Compensation Committee and Board believe that the use of stock grants as a major part of the compensation to the nonemployee directors of HEI and its operating subsidiaries, whose oversight contributions are essential to the growth and success of HEI's business, best strengthens the commitment of these individuals to HEI and its subsidiaries, motivates such persons to faithfully and diligently perform their oversight responsibilities and attracts and retains competent and experienced persons whose efforts will contribute to the growth and success of HEI. To that end, on February 8, 2011, the Board approved the Hawaiian Electric Industries, Inc. 2011 Nonemployee Director Stock Plan (2011 Director Plan), subject to the approval of HEI's shareholders. The purpose of the 2011 Director Plan is to motivate nonemployee directors of HEI and its operating subsidiaries to continue as directors, to align their interests with those of HEI's shareholders, and to increase their efforts to promote HEI's business. Subject to shareholder approval of the 2011 Director Plan, no new awards will be made under HEI's 1990 Nonemployee Director Stock Plan, as last amended and restated on May 6, 2008 (1990 Director Plan). If shareholders do not approve the 2011 Director Plan, it will have no effect and awards may continue to be granted under the 1990 Director Plan. There currently are 46,678 shares of HEI Common Stock reserved for issuance and unissued under the 1990 Director Plan.
The 2011 Director Plan is being submitted to HEI's shareholders in order to ensure compliance with the New York Stock Exchange (NYSE) listing standards concerning shareholder approval of equity compensation plans. The NYSE listing standards provide that shareholders must be given the opportunity to vote on all equity compensation plans and material revisions to such plans. The 2011 Director Plan is an equity compensation plan (i.e., a plan that provides for the delivery of HEI Common Stock to our nonemployee directors as compensation for their services) and we are asking for your approval of the 2011 Director Plan in compliance with the NYSE listing standards. The purposes,
terms and benefits under the 2011 Director Plan are summarized below and the full text of the plan is attached to this Proxy Statement as Appendix A.
Under the NYSE listing standards, the 2011 Director Plan will be approved if a majority of the votes cast are in favor of such approval, so long as the total votes cast represent more than 50% of all shares entitled to vote. Abstentions will be considered votes cast and will have the same effect as voting against the proposal. Broker nonvotes will have no effect on the outcome of the vote on the 2011 Director Plan.
YOUR BOARD RECOMMENDS THAT YOU VOTE"FOR" APPROVAL OF THE 2011 NONEMPLOYEE DIRECTOR STOCK PLAN.
What are the purposes and terms of the 2011 Director Plan?
The following is a summary of the material terms of the 2011 Director Plan and is qualified in its entirety by the full text of the 2011 Director Plan, which is attached as Appendix A to this Proxy Statement.
Purposes. The 2011 Director Plan, if approved by shareholders, will replace the 1990 Director Plan. The purposes of the 2011 Director Plan are to:
Administration of the 2011 Director Plan. The 2011 Director Plan will be administered in the discretion of a committee which may be the Compensation Committee, a subcommittee of the Compensation Committee or such other committee as may be appointed as administrator from time to time by the Board. The initial administrator of the 2011 Director Plan will be the Compensation Committee.
Eligibility to Participate. The 2011 Director Plan provides benefits to individuals who, on the grant date, are nonemployee directors of HEI and nonemployee directors of HEI operating subsidiaries approved as participating companies by the Board (initially Hawaiian Electric Company and American Savings Bank). If the 2011 Director Plan is approved at the Annual Meeting, we expect that eight HEI nonemployee directors, two American Savings Bank nonemployee directors (who are not also HEI directors) and four Hawaiian Electric Company nonemployee directors (who are not also HEI directors) will be eligible to participate in the Plan in 2011.
Shares Reserved for Issuance under the Plan. The number of shares of HEI Common Stock reserved for issuance under the 2011 Director Plan is 300,000, subject to adjustment for certain changes in capitalization. The shares to be issued under the Plan may, in whole or in part, be authorized but unissued shares of HEI Common Stock or shares that may be reacquired by HEI in the open markets in private transactions or otherwise. The closing price per share of HEI Common Stock on March 2, 2011 was $24.63.
Benefits Under the Plan. The 2011 Director Plan provides for the grant of shares of HEI Common Stock (Stock Payments) to eligible nonemployee directors annually on the Grant Date, which will be each June 30 (or on the next preceding business day if June 30 is not a business day) or, in the case of
a person who is elected or appointed to serve as a new director after June 30, on the date that such person first becomes a director. The amount of HEI Common Stock to be issued to nonemployee directors under the Plan may be expressed either as a specified number of shares or as a specified dollar value. If the Stock Payment is expressed as a dollar value, then the number of shares to be issued on the Grant Date is determined by dividing the specified dollar value by the Fair Market Value (as defined in the Plan) of a share of HEI Common Stock on the Grant Date, with any resulting fractional share to be paid in cash.
Under the 2011 Director Plan, individuals who are serving as nonemployee directors of HEI, Hawaiian Electric Company or American Savings Bank on June 30, 2011 (the 2011 Grant Date) will be entitled to the following Stock Payments:
The amount of the Stock Payment to which participating nonemployee directors may be entitled, and whether the Stock Payment is expressed as a dollar value or in number of shares, may be changed in the discretion of the committee, subject to Board approval and without shareholder approval, but may not be changed more than once between annual meetings of shareholders.
Shareholder Rights. No participant in the 2011 Director Plan shall have any rights as an HEI shareholder with respect to any shares of HEI Common Stock except if and when such shares are issued. Recipients of Stock Payments shall have all the rights of a shareholder from and after the Grant Date with respect to the issued shares of HEI Common Stock granted. Once issued as a Stock Payment, the shares of HEI Common Stock thus granted are not subject to forfeiture.
Transferability of Rights. No participant in the 2011 Director Plan may assign the right to receive any Stock Payment or any other right or interest under the Plan, contingent or otherwise, or cause or permit any encumbrance, pledge or charge of any nature to be imposed on any such right to receive a Stock Payment. Each participant is responsible for complying with all applicable federal and state securities and other applicable laws relating to participation in the Plan or the shares received as a Stock Payment.
Amendment or Termination of the Plan. The Board in its discretion may amend, suspend or terminate the 2011 Director Plan at any time. However, no such amendment will, without approval of the shareholders of HEI, change the class of persons eligible to receive Stock Payments under the Plan (except for changing the subsidiaries whose nonemployee directors are eligible to participate in the Plan) or otherwise modify the requirements as to eligibility for participation in the Plan, or increase the total number of shares of HEI Common Stock which may be issued under the Plan (except for adjustment in the event of certain changes in capitalization). Moreover, no amendment, suspension or termination of the 2011 Director Plan will impair or adversely affect any right or obligation under any Stock Payment previously granted under the Plan. Notwithstanding the foregoing, the Board may, without further action by the shareholders of HEI, amend the 2011 Director Plan or modify the grants of stock under the Plan as described above under "Benefits Under the Plan" or in response to changes in securities or other laws, or rules, regulations or regulatory interpretations thereof, applicable to the Plan, or to comply with stock exchange rules or requirements.
Term of the Plan. The 2011 Director Plan will become effective if it is approved by shareholders at the Annual Meeting and, unless terminated earlier by the Board, will terminate on April 30, 2021.
New 2011 Director Plan Benefits
The number of shares to be received by nonemployee directors under the 2011 Director Plan cannot be determined since the ultimate value of grants under the Plan depends on several factors, including the market value of HEI Common Stock, whether awards are denominated in dollar value or number of shares, the number of directors and the boards on which they serve and the level of future grants under the Plan. The following table shows the number of shares of HEI Common Stock which current nonemployee directors would have been entitled to receive if the 2011 Director Plan had been in effect in 2010, based on the Fair Market Value of HEI Common Stock on June 30, 2010. The table also shows the estimated number of shares that current nonemployee directors and director nominees who are expected to be serving as such on June 30, 2011 will receive assuming that the Fair Market Value of HEI Common Stock on that date is the Fair Market Value of HEI Common Stock on the record date (March 2, 2011).
Nonemployee Director | Number of Shares of HEI Common Stock if 2011 Director Plan had been in effect on 6/30/10 (2) | Number of Shares of HEI Common Stock Estimated to be granted on 6/30/11 (3) | |||||
---|---|---|---|---|---|---|---|
Don E. Carroll (1) | 3,342 | 1,624 | |||||
Shirley J. Daniel (1) | 3,342 | 1,624 | |||||
Thomas B. Fargo | 3,342 | 3,045 | |||||
Victor H. Li | 3,342 | 3,045 | |||||
A. Maurice Myers | 3,342 | 3,045 | |||||
James K. Scott | 3,342 | 3,045 | |||||
Kelvin H. Taketa | 3,342 | 3,045 | |||||
Barry K. Taniguchi | 3,342 | 3,045 | |||||
Jeffrey N. Watanabe | 3,342 | 3,045 | |||||
Nonemployee Director Nominee | |||||||
Peggy Y. Fowler | — | 3,045 | |||||
Keith P. Russell | — | 3,045 |
Equity Compensation Plan Information
Information as of December 31, 2010 about HEI Common Stock that may be issued under all of the Company's equity compensation plans was as follows:
Plan category | (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) | (b) Weighted-average exercise price of outstanding options, warrants and rights (2) | (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (3) | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Equity compensation plans approved by shareholders | 1,131,174 | $ | 20.76 | 3,953,169 | ||||||
Equity compensation plans not approved by shareholders | — | — | — | |||||||
Total | 1,131,174 | $ | 20.76 | 3,953,169 | ||||||
HEI's shareholders are being asked to cast an advisory vote on a resolution approving HEI's executive compensation. The advisory vote on executive compensation, described in Proposal No. 4 below, is referred to as a "say-on-pay" vote. This Proposal No. 3 affords shareholders the opportunity to cast an advisory vote onhow often HEI should include a say-on-pay vote in its proxy materials for future annual shareholder meetings. Under this Proposal No. 3, shareholders may vote to have the say-on-pay vote every year, every two years or every three years, or they may abstain from voting on this proposal.
HEI believes that, at least over the next several years, say-on-pay advisory votes should be conducted every year so that shareholders may annually express their views on the Company's executive compensation. Accordingly, unless shareholders express a strong preference that say-on-pay advisory votes be conducted less frequently, the Board anticipates that it will conduct a say-on-pay vote again next year. The Compensation Committee, which administers the Company's executive compensation programs, and the Board will value the opinions expressed by shareholders in these votes and will consider the outcome of these votes in making decisions on executive compensation.
YOUR BOARD RECOMMENDS THAT YOU VOTE FOR A FREQUENCY OF EVERY1 YEAR FOR THE ADVISORY VOTE ON EXECUTIVE COMPENSATION (AS OPPOSED TO EVERY 2 YEARS OR EVERY 3 YEARS OR ABSTAINING).
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, HEI is submitting for shareholder advisory vote a proposal on executive compensation, commonly known as a "say-on-pay" proposal. The Board is aware of the significant interest in executive compensation matters on the part of investors and the general public, and recognizes that shareholders should have the ability to voice their views on the Company's compensation policies and practices for executives.
The "say-on-pay" proposal gives HEI's shareholders the opportunity to endorse or not endorse the Company's executive compensation program through their vote on the following resolution:
Resolved: that shareholders approve HEI's executive compensation, including its executive compensation policies and practices and the compensation for the named executive officers, as set forth under "Compensation Discussion and Analysis" and "Executive Compensation" in the Proxy Statement for the 2011 Annual Meeting of Shareholders.
HEI's primary goals for its executive compensation program are to incent a high level of business performance that creates value for its shareholders and to attract, motivate and retain talented executives who will provide leadership for the Company's success. The Compensation Committee, which is composed entirely of independent directors, seeks to accomplish these goals in a manner that aligns the interests of its executives with the long-term interests of its shareholders and rewards achievement of the Company's financial, operational and strategic goals.
The Compensation Committee and Board believe that these are the appropriate goals for HEI's executive compensation program and that HEI's compensation is properly designed to achieve these goals. Accordingly, the Compensation Committee and Board recommend that you vote in favor of the shareholder resolution approving HEI's executive compensation.
Compensation Program Design Summary
In making its compensation decisions, the Compensation Committee considered the following primary components of HEI's 2010 executive compensation program, which are described in greater detail below under "Compensation Discussion and Analysis" and "Executive Compensation," and how these components support HEI's compensation goals. Given the complicated nature of the Company's heavily-regulated subsidiaries, the Compensation Committee believes it is imperative to provide, and believes it has provided, an appropriate mix of compensation components at competitive levels relative to the Company's peers in order to attract and retain the highly qualified executives necessary to manage the Company's operations and motivate executives to achieve a high level of performance that generates shareholder value.
Compensation Element/Eligibility | Description | Linkage to Compensation Objectives | ||
---|---|---|---|---|
CURRENT YEAR PERFORMANCE | ||||
Base Salary All HEI and subsidiary executives, including named executive officers | Salary is a market-competitive, fixed level of compensation. | Attract and retain qualified leaders capable of a high level of performance that builds shareholder value. | ||
Annual Incentive All HEI and subsidiary executives, including named executive officers | Cash award based on achievement of Company goals during the year. Combined with salary, target level of annual incentive provides a market-competitive total cash opportunity. Actual annual incentive payout depends on Company performance. Poor performance yields no incentive payment. | Motivate high business performance in furtherance of creating value for shareholders. Attract and retain qualified leaders capable of a high level of performance that builds shareholder value. Vary compensation based on individual and business unit performance. | ||
LONG-TERM INCENTIVE PLAN | ||||
Long-term Performance-based Awards Approximately 25 HEI and subsidiary executives based on job responsibilities, including named executive officers | Long-term incentive award opportunities based on performance and retention objectives for each executive. 2010-2012 long-term incentive plan awards are payable 100% in shares of HEI Common Stock. Award value at different performance levels (minimum, target and maximum) is converted to the number of shares by dividing the planned value by the closing sale price on date of establishing the award opportunity. Level of award is determined at the end of the three-year performance period based on achieving set goals. Payment in HEI shares upon completion of three-year performance period links the compensation value to the long-term performance of HEI. Poor performance yields no incentive payment. | Align executive and shareholder interests and create long-term value. Attract and retain qualified leaders capable of a high level of performance that builds shareholder value. Motivate high business performance in furtherance of creating value for shareholders. Encourage sustained, long-term growth by linking portion of compensation to Company performance over three years. | ||
Compensation Element/Eligibility | Description | Linkage to Compensation Objectives | ||
---|---|---|---|---|
Annual Stock-Based Grant Approximately 15 HEI and subsidiary executives, including named executive officers | Annual equity grants made in the form of restricted stock units (RSUs). The amount of an annual equity grant is a percentage of long-term compensation at market-competitive levels. Awards vest over 4 years. | Align executive and shareholder interests and create long-term value. Attract and retain qualified leaders capable of a high level of performance that builds shareholder value. Motivate high business performance in furtherance of creating value for shareholders. | ||
RETIREMENT, PENSION & SAVINGS | ||||
HEI Retirement Plans All HEI and subsidiary executives, including named executive officers, except for American Savings Bank executives | Executives participate in the defined benefit pension plans and savings plans under the same terms and conditions as all HEI employees. | Attract and retain qualified leaders capable of a high level of performance that creates shareholder value. Enhance long-term employee well-being. | ||
American Savings Bank 401(k) Plan Select American Savings Bank executives, including its president and CEO (who is a named executive officer) | Separate 401(k) plan established to encourage full-career retention of key American Savings Bank executives. | Attract and retain qualified leaders capable of a high level of performance that creates shareholder value. Enhance long-term employee well-being. | ||
HEI Excess Pay Plan HEI and subsidiary executives (other than American Savings Bank) with compensation expected to exceed applicable IRS limits, including named executive officers | Established in accordance with U.S. Department of Labor and Internal Revenue Service guidelines to provide employees with the ability to earn retirement benefits correlated to salary compensation in excess of limits applicable to defined benefit pension plans. | Attract and retain qualified leaders capable of a high level of performance that creates shareholder value. Enhance long-term employee well-being. | ||
HEI Deferred Compensation Plan All HEI and subsidiary executives, including named executive officers, except for American Savings Bank executives | Nonqualified plan for executives and directors of HEI and Hawaiian Electric Company to defer portions of cash compensation, with certain limitations. | Attract and retain qualified leaders capable of a high level of performance that creates shareholder value. Enhance long-term employee well-being. | ||
OTHER BENEFITS | ||||
Change-in-Control Agreements Named executive officers and select HEI and subsidiary executives (7 participants total) | Double-trigger agreements, with 1 times to 3 times payment multiples. (Double-trigger = change in control followed by qualifying loss of employment.) | Attract and retain qualified leaders capable of a high level of performance that creates shareholder value. Encourage focused attention of executives on performance in furtherance of the best interests of shareholders. | ||
HEI Executive Death Benefit Plan Named executive officers employed prior to September 9, 2009 | Form of insurance that provides death benefits to executive's beneficiaries in event of executive's death; plan frozen to those participants who were employees as of September 9, 2009. | Enhance long-term employee well-being. | ||
The Compensation Committee's allocation of the executive compensation components demonstrates its commitment to pay the Company's executives based on the Company's business performance.
The following chart demonstrates the relative mix of compensation elements that made up total direct compensation for the named executive officers in 2010:
The financial and strategic objectives HEI executives must achieve to receive awards under HEI's annual and long-term incentive plans are set at challenging levels to motivate a high degree of performance, with an emphasis on longer-term financial success and prudent risk management. Certain performance metrics under the annual incentive plan (net income and return on average common equity) and the long-term incentive plan (net income, total return to shareholders and performance relative to the Edison Electric Institute Index) focus executives on building the value of the HEI enterprise and sustaining that value over time. By tying incentives to sustained value creation, HEI's incentive plans align each executive's interests with the interest of shareholders in long-term growth in the value of their ownership stake in HEI.
As a result of the Compensation Committee's approach to executive compensation, the annual total direct compensation received by HEI's Chief Executive Officer over the past five years shows a consistent correlation to the performance of the Company. The graph below compares the Chief Executive Officer's annual total direct compensation to HEI's consolidated net income. The dotted line shows adjusted (or non-GAAP) net income, which adjusts GAAP net income to exclude the effects of certain actions taken by American Savings Bank in furtherance of its balance sheet restructure and its multi-year performance improvement initiative (as detailed in the notes to the table).
Correlation of CEO Annual Total Direct Compensation and HEI Consolidated Net Income
Alignment with Shareholder Interests
A significant portion of the named executive officers' 2010 total direct compensation took the form of equity awards (restricted stock units and awards under the long-term incentive plan) and HEI's share ownership guidelines require the named executive officers to hold a significant amount of HEI Common Stock to further align their interests with those of shareholders over the long term. In 2010 the Compensation Committee increased the portion of total direct compensation for the named executive officers that will be in the form of equity in the future by designing the 2010-2012 long-term incentive plan awards to be 100% in the form of equity, rather than a portion in cash and a portion in equity as in previous long-term incentive plans.
While the advisory vote on executive compensation is nonbinding, the Board understands that it is useful and appropriate to seek the views of shareholders when considering the design and initiation of executive compensation programs. Accordingly, the Board and the Compensation Committee will review the voting results and seek to determine the cause or causes of any significant negative vote. Voting results provide little detail by themselves, and the Company may consult directly with shareholders to better understand issues and concerns not previously presented. HEI expects to continue to engage regularly with shareholders concerned with executive compensation or any other matter. Shareholders who want to communicate with HEI's Board or management should visit the Company's website at www.hei.com and view "Contact Information."
YOUR BOARD RECOMMENDS THAT YOU VOTE"FOR" APPROVAL OF THE SHAREHOLDER RESOLUTION APPROVING HEI'S EXECUTIVE COMPENSATION.
The Compensation Committee, which is composed solely of independent directors of the Board, assists the Board in fulfilling its responsibilities with regard to compensation matters, and is responsible under its charter for determining the compensation of HEI's executive officers. The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis that follows. Based on that review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.Statement and that it be incorporated by reference into HEI's 2010 Annual Report on Form 10-K.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE
HEI BOARD OF DIRECTORS
Thomas B. Fargo, Chairperson
Don E. Carroll
Victor H. Li
A. Maurice MyersDiane J. Plotts
Who were the named executive officers for HEI in 2009?2010?
For 2009,2010, the named executive officers of HEI were:
Beginning in 2008, HEI initiated strategies to set both of the operating companies on a new course. Hawaiian Electric Company entered into an agreement with the state of Hawaii to help create a clean energy future for Hawaii, and American Savings Bank set new performance standards while continuing its commitment to help Hawaii's communities grow and prosper. The year 2010 saw major progress on these initiatives and HEI's unique business model continues to provide the Company with a strong balance sheet and the financial resources to invest in the strategic growth of HEI and its operating subsidiaries while providing an attractive dividend to HEI's shareholders.
In 2009,2010, HEI and its subsidiaries continued to aggressively pursue initiatives to improve fundamental operating and financial performance in order to be in a better position to weather the economic downturnimprove profitability and tocapital efficiency, grow earnings, reduce risk and improve capital efficiencybe positioned to benefit as economic conditions improve.
result,
HEI's financial results are beginning to reflect the Company's strategic progress. In 2009,2010, HEI's consolidated net income was $83$113.5 million, or $1.21 diluted earnings per share, compared to $0.91 per share. However, excluding the $19.3 million, or $0.21share in 2009 and $1.07 per share loss fromin 2008. With the nonrecurring liquidationachievement of private-issue mortgage-related securities at the bank, HEI's adjusted consolidated net income was $102.3 million, or $1.12 per share. Despite the economic headwinds faced by HEI and all businesses generallymajor strategic milestones in 2009,2010, HEI was able to preserveimprove earnings, maintain its dividend and achieve a positive15% total return to shareholders in 2009for the year, significantly outperforming the Edison Electric Institute Index. Because of the hard work invested over the last few years, both Hawaiian Electric Company and at the same time,American Savings Bank have strong business models and strategies that align, more than ever, with shareholder and stakeholder interests. We continue to move forward on key strategic initiatives, positioning it for improvedbuilding upon our achievements, to continue to improve performance and shareholder value creation in the near future.
The Compensation Committee recommends total compensation programs for executives of HEI and its subsidiaries, subject to the approval of the Board. In 2009,2010, the Compensation Committee held foureight meetings to consider and approve the overall executive compensation program design. The committee held lengthy discussions, with and without management present, regarding best pay practices and trends. In 2009, theThe Compensation Committee revisedCommittee's focus has been to refine HEI's executive compensation programs to incorporateby incorporating best practices and alignaligning executive compensation more directly with shareholder interests. The primary purpose
Table of the changes was to makeContents
In establishing HEI's executive compensation more performance-based.program for 2010, the Compensation Committee was guided by three principles:
The following are the major revisionschanges to the executive compensation program impacting the above-named executive officers in 2009:2010:
participants for increases in share value and to better align executive incentives with shareholder interests.
HEI has either eliminated or restricted the use ofnearly all tax gross-ups tofor named executive officers. There are no gross-ups in the change-in-control agreements given to the named executive officers and aggregate payments under the agreements are limited to the maximum amount deductible under Section 280G of the Internal Revenue Code. There are no tax gross-ups allowed on club membership initiation or membership fees. Tax gross-ups of death benefits have been restricted to the executives who participatedhave contractual entitlements to such gross-ups pursuant to their participation in the applicable plan prior to September 9, 2009. Relocation and temporary housing expenses of Messrs. Ajello and Rosenblum were grossed up for taxes up2009 (the date the death benefit plan was frozen).
The primary refinement has been to a certain limitmake HEI's executive compensation more performance based. The compensation program applicable to the extentnamed executive officers consists of short-term and long-term components. The short-term components comprise base salary and an annual incentive bonus plan, the gross-ups were withinlatter being performance based. Long-term incentive compensation is made up of a long-term incentive plan (which is performance based) and a restricted stock unit grant (which is time vested over four years). The Compensation Committee and the allowanceBoard believe that the current executive compensation program reflects "best practices" and is structured to encourage participants to build long-term value in the Company for such expenses under their offersthe benefit of employment. This is a common practice for executive relocation policies and was a condition of their recruitment.its shareholders.
The Compensation Committee recommends total compensation programs for HEI and its subsidiaries, subject to the approval of the Board. The committee has authority to retain (or terminate) the services of consultants and advisors to provide advice to the committee. The committee approves, modifies and/or rejects its consultants', advisors' or management's recommendations regarding executive compensation programs, including incentive compensation and equity-based plans. The committee may delegate authority to a subcommittee of no fewer than two members of the committee to determine matters such as equity compensation. The Board approves the actions of the committee and, where the executive works atis employed by a subsidiary of HEI, the actions of the committee are also approved by the subsidiary board.
The Board conducts an evaluation of the performance of the HEI President and Chief Executive Officer in light of corporate goals and objectives relevant to her compensation. The Compensation Committee, with the assistance of its independent compensation consultant, recommends to the Board an executive compensation package for the HEI President and Chief Executive Officer based on the Board's evaluation. The independent directors of the Board approve the compensation of the HEI President and Chief Executive Officer.
The Compensation Committee reserves the right to amend, suspend or terminate any incentive program or other executive compensation program, or any individual executive's participation in such programs. The committee can exercise its discretion to reduce or increase (except to the extent an award or payout is intended to satisfy the requirements for deductibility under Section 162(m) of the Internal Revenue Code) the size of any award or payout. In 2009,2010, no portion of any bonus or long-term incentive compensation paid by HEI or any of its subsidiaries to executives was nondeductible under Section 162(m).
In making its compensation determinations, the Compensation Committee will consider financial accounting and tax consequences, if appropriate. For instance, the committee may determine that there should not be any incentive payout that would otherwise result solely from a new way of accounting for a financial measure. As another example, the committee will take into account tax deductibility in establishing executive compensation, but it reserves the right to award compensation even when not deductible if it is reasonable and appropriate.
The Compensation Committee'sCommittee has retained Frederic W. Cook & Co. Inc. (Fred Cook & Co.) as its independent compensation consultant untilsince December 20092009. The consultant was Towers Watson (formerly Towers Perrin). Theengaged directly by the committee engaged Towers Watson to provide advice and data with respect to executive compensation analyses, benchmarking and market practices. Towers Watson worked with the Compensation Committeepractices, including to develop recommendations to the Board regarding executive compensation initiatives and proposed changes.
During the fourth quarter of 2009, the Compensation Committee conducted a request for proposal process to evaluate compensation consultants for future work, including(i) conduct a review of HEI's executive compensation policies and practices; (ii) evaluate and determine the appropriate selection of competitive peer groups (for benchmarking purposes); (iii) examine the compensation ofcomponents and pay ranges for the named executive officersofficers; and other senior executives at HEI, American Savings Bank(iv) recommend the appropriate mix of compensation elements and Hawaiian Electric Company. As a result oflevels for the selection evaluation process, Frederic W. Cook & Co., Inc. (Fred Cook & Co.) was retained in December 2009 as the Compensation Committee's independent compensation consultant, to provide information, analyses and advice regardingnamed executive compensation.
In 2009, Towers Watson also performed some nonexecutive compensation consulting services for Hawaiian Electric Company, which value did not exceed $120,000. As part of the terms of its engagement, Fred Cook & Co. is not permitted to perform any services at the direction of the management of HEI or its subsidiaries. All services by Fred Cook & Co. are provided at the direction of the Compensation Committee.officers.
In February 2010, Fred Cook & Co. concluded anits executive compensation review on behalf of the Compensation Committee.Committee, which included the selection of peer companies for HEI and its subsidiaries and a comparison of HEI, Hawaiian Electric Company and American Savings Bank executive compensation against executive compensation for such companies. After extensive deliberations in committee meetings held over the course of three months, and after receipt of the report from Fred Cook & Co., the Compensation Committee reached its determinations with respect to the 2010 compensation for the named executive officers. The results of thisFred Cook & Co.'s review and the determinations made by the Compensation Committee are discussed below.
What is the role of executive officers in determining named executive officer and director compensation?
WithIn 2010 and with the permission of the Compensation Committee, in 2009, HEI executivesexecutive officers discussed with Towers Watson and Fred Cook & Co. HEI'sthe compensation philosophy of the Company and theits methodology and metrics for computing executive incentives. Human resources and finance personnel provided data in response to the requests of the Compensation Committee Towers Watson and Fred Cook & Co.
Although the HEI President and Chief Executive Officer is a director on the HEI Board, she did not participate in any Board decisions impacting her own compensation. In February 2009, Ms. Lau recommendedHowever, in her role as HEI President and Chief Executive Officer, she did review the performance of the other named executive officers and made recommendations with respect to their compensation to the Compensation Committee. In addition, she participates in the deliberations of the Board in acting on the recommendations of the Compensation Committee with respect to the compensation of these other named executive officers.
Executive officers do not have a base salary increase effective March 2, 2009 for Mr. Richardsonrole in recognition of his expanded job responsibilities as HEI's Chief Administrative Officer that were effective December 8, 2008.determining director compensation other than providing administrative support and responses to data requests from the Compensation Committee and its independent consultant.
HEI has an Enterprise Risk Management function that is principally responsible for identifying and managingmonitoring risk across the holding company and its two operating companies, and for reporting high risk areas to the boards of directors and designated board committees. As a result, all of the HEI directors, including those who serve on the Compensation Committee, are awareapprised of the risks which could have a material adverse effect on HEI. The Board (through its Compensation Committee) hasCommittee assessed and considered these risks and, with advice of its independent compensation consultant, has establishedwhen establishing HEI's compensation policies and practices and the specific executive compensation program described in this Compensation Discussion and Analysis. The Board and the Compensation Committee have concluded that the executive compensation program does not encourage unnecessary or excessive risk-taking.
HEI's compensation policies and practices are designed to encourage executive management to maximize value for shareholders, while considering its key stakeholders including(including customers, employees and regulators,regulators), and to discourage decisions that introduce risks that may have a material adverse effect on HEI. The executive compensation program is structured to pay for performance and align the executive officers' interests with shareholder interests, as well as encourage executives to focus on profitability, efficient use of capital, earnings growth and stock price appreciation in both the short and long terms. Because the executive officers are in a position to directly influence HEI's performance, compensation for executive officers involves a significant portion of pay that is "at risk" and tied directly to HEI performance—namely, the annual incentive bonus plan and the value of long-term equity-based incentives.
In structuring the incentive compensation plans and setting the particular goals, targets and metrics for awards under those plans, the Compensation Committee incorporates the following elements and practices to encourageensure consistent leadership and appropriate and prudent decision-making among the named executive officers in a manner that requires cooperation and execution without taking unnecessary or excessive risks:
HEI's compensation philosophy is reflected in the following key design priorities that govern its executive compensation decisions:
The compensation programs are designed to support HEI's business goals and promote both short- and long-term profitable growth of the Company. HEI's equity plans are used in its executive compensation programs to align executive compensation with the long-term interests of HEI's shareholders. Total compensation for each executive varies with the performance of HEI and its subsidiaries in achieving financial and nonfinancial objectives.
What are the objectives of HEI's executive compensation programs?programs and what are they designed to reward?
The following are the primary objectives of HEI's compensation programs:
To meet theHEI's executive compensation objectives described above, the compensation for named executive officers includes the following elements:elements comprise—
Why does HEI choose to pay each element?
median) to recognize the individual's position, responsibilities, experience, performance and contributions.
HEI uses competitive market peer company comparisons to determine the amount of each element of executive compensation. Peer companies are companies which, in the aggregate, are similar in business focus, financial scope and valuation, provide similar products and services and are sources for talented employees. Peer companies are selected by the Compensation Committee's independent compensation consultant and are reviewed and approved by the Compensation Committee. The resulting peer companies are used as a reference in determining appropriate pay levels and mix of pay components.components by benchmarking toward a competitive median and allowing differences to recognize high performers.
Peer companies for HEI and its subsidiaries should reflect HEI's diverse businesses. HEI is a Hawaii-based holding company with a unique blend of two regulated operating subsidiaries, a bank and electric utilities. HEI supplies power to 95% of Hawaii's population through its electric utilities, Hawaiian Electric Company and its subsidiaries, Hawaii Electric Light Company and Maui Electric
Company, and provides a wide range of financial services to individuals and businesses through American Savings Bank, one of the state's largest financial institutions based on asset size. Among the objectives of the HEI compensation program are (i) to provide differentiated reward strategies among HEI and its operating bank and utility subsidiaries in order to align with specific business needs and talent markets and (ii) to reward performance relative to strategic plans that support shareholder value.
Peer companies in 20092010
In early 2009, Towers Watson conducted a peer group selection by considering companies within a range of one-half to two times the size, based on assets, of HEI, Hawaiian Electric Company or American Savings Bank, eliminating companies that had three-year total shareholder returns that were significantly negative.
The following were the HEI peer group companies in 2009:
The following were the Hawaiian Electric Company peer group companies in 2009:
The following were the American Savings Bank peer group companies in 2009:
Peer companies in 2010
As part of an enterprise-wide review of executive compensation in February 2010, Fred Cook & Co. conducted a peer group selection and compensation comparison in which the same utility peer group would apply to HEI and Hawaiian Electric Company and a banking peer group would apply to American Savings Bank.Bank for purposes of setting 2010 compensation.
The following are the HEI and Hawaiian Electric Company peer group companiescompanies* in 2010:
Allegheny Energy | Pinnacle West Capital | |
Alliant Energy | PNM Resources | |
Great Plains Energy | Portland General Electric | |
Mirant | Questar | |
Northeast Utilities | TECO Energy | |
NSTAR | Vectren | |
NV Energy | Wisconsin Energy | |
OGE Energy |
The following are the American Savings Bank peer group companiescompanies* in 2010:
1st Source | Great Southern Bancorp | |
BancFirst | Hancock | |
Bank of Hawaii | IBERIABANK | |
Bank of the Ozarks | Independent Bank | |
City Holding Company | NBT Bancorp | |
Community Bank System | Oriental Financial Group | |
CVB Financial | Park National | |
Dime Community Bancshares | Prosperity Bancshares | |
First Financial Bankshares | Republic Bancorp | |
FirstMerit | United Bankshares | |
Flushing Financial | Westamerica Bancorporation | |
Glacier Bancorp |
With the assistance of its compensation consultant, the Compensation Committee reviews each compensation element to determine whether it fits into HEI's overall compensation objectives. The committee also requests that, at least annually, management prepare and the consultant review tally sheets on each executive officer to determine how each executive's elements of pay, pay—such as base salary, annual incentives, benefits and long-term incentives, incentives—compared to executives in functionally comparable positions at peer companies. The Compensation Committee uses this information to consider whether any element should be reduced or increased or whether the mix of elements should be changed.
The Compensation Committee also reviewedreviews internal equity among the named executive officers when developing pay recommendations. The Compensation Committee believes that the comparative compensation among the named executive officers is fair, considering job scope, experience, value to the organization and duties relative to the other named executive officers.
The base salariesIn May 2010, the Board evaluated Ms. Lau's performance for the named executive officers are set forthprior year and the Compensation Committee recommended to the Board a salary increase taking into consideration the Board's evaluation. Also, in May 2010, Ms. Lau recommended to the 2009 Summary Compensation Table below.
In February 2009, the named executive officers agreed to waive the meritCommittee base salary increases whichfor Messrs. Ajello, Richardson and Rosenblum. These adjustments were in the budget approvedconsidered by the Compensation Committee and Boards, due to be relatively modest in light of the economic downturn and the projected slow or minor growth for executive officer salaries based on general industry surveys obtained from human resource consulting firms, excluding salary adjustmentsfreeze in effect for named executive officers during 2009 (excluding one salary adjustment in 2009 for Mr. Richardson, who assumed additional responsibilities or to make up forin 2009). After considering these recommendations, the elimination offollowing salary adjustments, effective May 1, 2010, were approved by the HEI-paid carBoard:
Name | % Base Salary Increase | $ Base Salary Increase | Base Salary Effective May 1, 2010 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 3.0 | % | $ | 23,200 | $ | 795,000 | ||||
James A. Ajello | 4.0 | % | $ | 17,000 | $ | 442,000 | ||||
Chester A. Richardson | 3.4 | % | $ | 12,000 | $ | 361,000 | ||||
Richard M. Rosenblum | 1.2 | % | $ | 7,000 | $ | 587,000 | ||||
Timothy K. Schools (1) | n/a | n/a | $ | 550,000 | ||||||
Richard F. Wacker (2) | n/a | n/a | n/a |
Mr. Harada did not receive any salary adjustment in 2009, but did receive a bonus for the partial month that he served as HEI Acting Financial Vice President, Treasurer and Chief Financial Officer at a monthly rate of $15,000 while retaining his role and compensation as HEI Controller and Chief Accounting Officer. The bonus for Mr. Harada was based on his increased responsibilities in his role as acting chief financial officer for HEI until January 25, 2009.
HEI's annual incentive plan is known as the Executive Incentive Compensation Plan. The following werePlan (EICP). For the award ranges, shown as a percentage of annual base salary, that2010 EICP, the Compensation Committee approved in February 2009 for the 2009 annual incentive plan:
Name | Minimum | Target | Maximum | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 42.5 | % | 85 | % | 170 | % | ||||
James A. Ajello | 25.0 | % | 50 | % | 100 | % | ||||
Curtis Y. Harada | 20.0 | % | 40 | % | 80 | % | ||||
Chester A. Richardson | 25.0 | % | 50 | % | 100 | % | ||||
Richard M. Rosenblum | 30.0 | % | 60 | % | 120 | % | ||||
Timothy K. Schools | 40.0 | % | 80 | % | 160 | % |
The Compensation Committee established minimum thresholds for each of the financial and other operational goals of the annual executive incentive plan designed to align management decisions with shareholder value. The table below lists the named executive officer performance metrics, weightings, minimum thresholds and target and maximum goals for the 20092010 annual incentive compensation plan. Unless otherwise specified throughout this Proxy Statement, a reference to utility goals means consolidated goals of the utilities, which include Hawaiian Electric Company and its subsidiaries, Maui Electric Company and Hawaii Electric Light Company.
In setting Mr. Schools' goals, the Compensation Committee determined to exclude one-time charges such as severance and lease buyouts in light of American Savings Bank's aggressive performance improvement project to reduce its cost structure and improve its efficiency, profitability and go-forward earnings. In addition, in light of the recent unprecedented volatility, illiquidity, uncertainty and unusually low asset valuations in the capital markets and in the banking industry, the committee excluded the impact of other-than-temporary impairment charges and goodwill impairment charges and related impacts. The committee, however, retained the discretion to reduce any such award if the resulting payout was not in the best interest of HEI and its shareholders. In setting goals for the other named executive officers, the committee also determined that any adjustments made at American
Savings Bank and Hawaiian Electric Company would also be applied for purposes of calculating HEI metrics.
Name | Weight | Performance Metric | Minimum Threshold | Target Goal | Maximum Goal | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau James A. Ajello Curtis Y. Harada | 60 | % | HEI Return on Average Common Equity | 7.1% | 7.9% | 8.7% | |||||
Chester A. Richardson | 40 | % | HEI Net Income | $101.5 million | $112.8 million | $124.1 million | |||||
100 | % | ||||||||||
Richard M. Rosenblum | 30 | % | HEI Net Income | $101.5 million | $112.8 million | $124.1 million | |||||
20 | % | HEI Return on Average Common Equity | 7.1% | 7.9% | 8.7% | ||||||
20 | % | Utility Net Income | $76.1 million | $84.5 million | $93.0 million | ||||||
10 | % | Utility Safety (Total Cases Incident Rate) | 4.65 | 4.25 | 3.88 | ||||||
10 | % | Hawaii Clean Energy Initiatives (HCEI) (including Big Wind) | Meet minimum project milestones | Meet target project milestones | Meet maximum project milestones | ||||||
10 | % | HECO Customer Satisfaction | 76.6% | 78.2% | 82.0% | ||||||
100 | % | ||||||||||
Timothy K. Schools | 100 | % | Bank Return on Assets | 0.850% | 0.950% | 1.050% |
Name | Weight | Performance Metric | Minimum Threshold | Target Goal | Maximum Goal | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau James A. Ajello Chester A. Richardson | 50 | % | HEI Return on Average Common Equity | 7.2% | 7.9% | 8.5% | |||||
50 | % | HEI Net Income | $105 million | $115 million | $125 million | ||||||
100 | % | ||||||||||
Richard M. Rosenblum | 15 | % | HEI Net Income | $105 million | $115 million | $125 million | |||||
15 | % | HEI Return on Average Common Equity | 7.2% | 7.9% | 8.5% | ||||||
40 | % | Utility Net Income | $75 million | $80 million | $85 million | ||||||
10 | % | Utility Safety (Total Cases Incident Rate) | 3.20 | 2.41 | 1.41 | ||||||
10 | % | Hawaii Clean Energy Initiative (HCEI) | Meet minimum project milestones | Meet target project milestones | Meet maximum project milestones | ||||||
10 | % | Utility Customer Satisfaction | 76.6% | 78.2% | 82.0% | ||||||
100 | % | ||||||||||
Timothy K. Schools Richard F. Wacker | 50 | % | Bank Return on Assets | 1.00% | 1.10% | 1.20% | |||||
50 | % | Bank Net Income | $50 million | $55 million | $60 million | ||||||
100 | % | ||||||||||
The above goals were set by the Compensation Committee and approved by the Board in 20092010 because they were believed to provide the necessary incentives to properly align executive compensation with achievement of performance goals that enhance shareholder value. HEI's goals of net income and return on average common equity are determined on a consolidated basis, and are thus impacted by the results from the bank and utility operating subsidiaries.
Given the deterioration in the mainland housing market in 2009, and with further declines in the value of its private-issue mortgage-related securities expected,both American Savings Bank sold $225 million of those securities in the fourth quarter of 2009 for a realized loss of $19.3 million net of tax. In determining the 2009 annual incentive (and 2007-2009 long-term incentive) plan awards, the Compensation Committee viewed the loss resulting from the sale as the equivalent of the acceleration of future other-than-temporary impairment losses, which were an allowed authorized exclusion set by the Compensation Committee in establishing the goals and metrics for the 2009 annual incentive plan in February 2009. The Compensation Committee, taking into account HEI's financial strategy (including the focus on improving the fundamental earnings power of its subsidiaries), thus concluded that the realized loss from the sale of those securities should be excluded for purposes of determining whether the 2009 compensation measures had been achieved.Hawaiian Electric Company.
The following were the award ranges, shown as a percentage of annual base salary, that the Compensation Committee approved in February 2010 for the 2010 EICP:
Name | Minimum | Target | Maximum | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 42.5 | % | 85 | % | 170 | % | ||||
James A. Ajello | 25 | % | 50 | % | 100 | % | ||||
Chester A. Richardson | 25 | % | 50 | % | 100 | % | ||||
Richard M. Rosenblum | 30 | % | 60 | % | 120 | % | ||||
Timothy K. Schools (1) | 40 | % | 80 | % | 160 | % | ||||
Richard F. Wacker (2) | 40 | % | 80 | % | 160 | % |
HEI's adjusted net income, after excluding from HEI consolidated net income the bank's realized loss from the sale$272,000 of the private-issue mortgage-related securities ($19.3 million net of tax)committee-approved exclusions for severance expenses and other approved exclusions ($12.6 million net of tax) for other-than-temporary impairment losses, lease buyouts and severance costs,related to the performance improvement project, was $114.9$113.8 million, which exceeds the 2009 target income2010 minimum threshold of $112.8$105 million, and its adjusted return on common equity was 8.0%7.8%, which exceeds the 2009 targetminimum 2010 threshold of 7.1%7.2%. As a result, of the $31.9 million in exclusions, named executive officers Ms. Lau and Messrs. Ajello Harada and Richardson received awards for performance between the minimum threshold and target and maximum level. Without the exclusion for the losses from the sale of private-issue mortgage-related securities, the HEI return on common equity and HEI net income goals would have been below minimum level. Ms. Lau voluntarily waived payment of the annual 2009 bonus to align with shareholders and help the company transition under the dividend earn-out strategy toward improved long-term fundamental performance and generation of shareholder value.goal levels. Mr. Rosenblum's bonus was impacted in part by the exclusions because half30 percent of his goals were based on achievement of HEI goals, with the other half70 percent being based on utility goals.
After excluding the bank's realized loss from the sale of the private-issue mortgage-related securities and other approved exclusions from earnings, the bank's return on assets was 1.05%, which was at the maximum level for that performance metric. While the Compensation Committee concluded that it was appropriate to recognize the hard work performed in 2009 by American Savings Bank executives in pursuing the bank's aggressive performance improvement project, it also weighed the fact that, without excluding the realized securities losses, the bank's return on assets would be at a level below the minimum threshold for an annual incentive award. Accordingly, rather than allowing executives of American Savings Bank to achieve the maximum bonus level under the 2009 annual incentive plan based on all the exclusions, the Compensation Committee exercised its discretion under the Plan to reduce the awards to the level of awards payable for performance at 120% of target, which was approximately the level of achievement that would have been reflected in HEI's results if the exclusions were taken into account. As a result of this analysis, Mr. Schools received an award based on performance at a level between the target and maximum levels, instead of at the maximum level.
In 2009,2010, the utility met the following annual incentive goals:
October 2008 to proactively reduce the state's dependency on fossil fuels by moving toward a future of increasing renewable energy. In 2009,2010, Hawaiian Electric Company met its Big Wind/Renewables Integrationminimum project milestonemilestones for the Hawaii Clean Energy Initiative.
With respect to the goals for Messrs. Schools and Wacker, American Savings Bank's return on assets, after approved exclusions for severance expenses and lease buyouts related to the performance improvement project, was 1.21%, which was at the maximum level for that performance metric, and its net income was $58.7 million, which was between the target level.goal and maximum level for that performance metric. The Compensation Committee concluded that it was appropriate to recognize the outstanding performance of American Savings Bank executives in completing the bank's aggressive multi-year performance improvement project. As a result of American Savings Bank's performance, Messrs. Schools and Wacker received an award based on performance at a level between the target and maximum levels. Mr. Schools had earlier agreed to remain with the bank until the performance improvement project was substantially completed. After the project's completion in August 2010, the Company agreed to a September departure by Mr. Schools but with credit for a full year's service in 2010 for purposes of the incentive compensation programs in recognition of his leadership in completing the bank's performance improvement initiative. Mr. Wacker, who was hired on November 15, 2010, received an award prorated for the days worked in 2010.
As a result of achieving thesethe aforementioned goals at the levels indicated above, the Compensation Committee approved in February 2011 the payment of the following 20092010 annual incentive awards were paid to the named executive officers in February 2010:officers:
Name | Payout | Payout | ||||||
---|---|---|---|---|---|---|---|---|
Constance H. Lau | $ | 0 | * | $ | 625,202 | |||
James A. Ajello | $ | 223,889 | $ | 203,830 | ||||
Curtis Y. Harada | $ | 99,119 | ||||||
Chester A. Richardson | $ | 197,916 | $ | 166,770 | ||||
Richard M. Rosenblum | $ | 322,289 | $ | 282,037 | ||||
Timothy K. Schools | $ | 528,000 | $ | 824,032 | ||||
Richard F. Wacker | $ | 103,851 |
* Ms. Lau voluntarily waived her $753,999 payout and did not receive any annual incentive award payment for 2009.
What was HEI's 2007-20092008-2010 long-term incentive plan and were there any payouts under this plan?
HEI's three-year performance incentive plan is otherwise known as the Long-Term Incentive Plan and provides awards measured over rolling three-year performance periods. In 2007,2008, the Compensation Committee approved the following award ranges, shown as a percentage of the salary midpoint (the middle salary level in a salary range for a particular job grade or position), for the following HEI named executive officers who were participants in the 2007-20092008-2010 long-term incentive plan:
Name | Minimum | Target | Maximum | Minimum | Target | Maximum | Super Maximum | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 65 | % | 130 | % | 260 | % | 65 | % | 130 | % | 260 | % | n/a | ||||||||||
Curtis Y. Harada | 20 | % | 40 | % | 80 | % | |||||||||||||||||
Chester A. Richardson (1) | 30 | % | 60 | % | 120 | % | n/a | ||||||||||||||||
Timothy K. Schools (2) | 40 | % | 80 | % | 100 | % | 175 | % |
In addition to the minimum, target and maximum levels, the American Savings Bank 2008-2010 long-term incentive plan also has a super maximum level. This additional level was included for this performance period to focus Mr. Schools and the other American Savings Bank executives on achieving the highest established goals for net income, return on assets and efficiency ratio, and was established for American Savings Bank executives in recognition for the extraordinary work that needed to be achieved by the bank in a short period to improve its performance.
In addition to the basic long-term incentive plan, the Compensation Committee also approved supplemental long-term incentive award levels for the 2008-2010 period for each of the above-named executive officers so that HEI's long-term incentive program would be even more performance-based. Rather than providing restricted stock awards at the levels given in 2007, the Committee reduced the restricted stock awards given to the named executive officers and provided an additional supplemental long-term incentive opportunity, using the same goals, metrics and exclusions as in the 2008-2010 long-term incentive plan. Payment of any awards made under this supplemental program would be paid in a combination of 50% cash and 50% stock (versus 60% cash and 40% stock for the basic long-term incentive plan) to promote greater stock ownership and alignment with shareholder interests. The following are the award levels for these supplemental incentives:
Name | Minimum | Target | Maximum | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 13.5 | % | 27 | % | 54 | % | ||||
Chester A. Richardson (1) | 6.5 | % | 10 | % | 20 | % | ||||
Timothy K. Schools (2) | 10 | % | 20 | % | 42 | % |
Messrs. Ajello, Richardson, Rosenblum and SchoolsWacker did not participate in the 2007-20092008-2010 long-term incentive plan and supplemental 2008-2010 long-term incentive plan because they became employed at their respective companies after the start of this performance period.
The table below shows the performance metrics, weightings, minimum threshold, target, maximum and target andsuper maximum goals for the 2007-20092008-2010 long-term incentive plan and supplemental 2008-2010 long-term incentive plan. The executives listed together below shared the same goals.
Name | Weight | Performance Metric | Minimum Threshold | Target Goal | Maximum Goal | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau Curtis Y. Harada | 40 | % | HEI Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index (1) | 50th percentile of the Edison Electric Institute Index (1) | 70th percentile of the Edison Electric Institute Index (1) | |||||
15 | % | Utility Modified Free Cash Flow | $28.852 million | $32.058 million | $35.263 million | ||||||
15 | % | Utility Return on Average Common Equity | 80% of consolidated allowed return on equity | 90% of consolidated allowed return on equity | 100% of consolidated allowed return on equity | ||||||
15 | % | Bank Net Income | $58.371 million | $64.856 million | $71.342 million | ||||||
15 | % | Bank Return on Assets | 0.862% | 0.958% | 1.054% | ||||||
100 | % | ||||||||||
Name | Weight | Performance Metric | Minimum Threshold | Target Goal | Maximum Goal | Super Maximum Goal | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau Chester A. Richardson | 40 | % | HEI Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index (1) | 50th percentile of the Edison Electric Institute Index (1) | 70th percentile of the Edison Electric Institute Index (1) | n/a | ||||||
15 | % | Utility Free Cash Flow (2) | ($24.1 million) | ($13.0 million) | ($1.8 million) | n/a | |||||||
15 | % | Utility Return on Average Common Equity (3) | 90% of consolidated allowed rate of return on equity less 50 basis points | 95% of consolidated allowed rate of return on equity less 50 basis points | 100% of consolidated allowed rate of return on equity less 50 basis points | n/a | |||||||
15 | % | Bank Net Income (4) | $55.277 million | $57.053 million | $62.025 million | n/a | |||||||
15 | % | Bank Return on Assets (4) | 0.789% | 0.816% | 0.885% | n/a | |||||||
100 | % | ||||||||||||
Timothy K. Schools | 40 | % | Bank Net Income (4) | $55.277 million | $57.053 million | $62.025 million | $68.082 million | ||||||
30 | % | Bank Return on Assets (4) | 0.789% | 0.816% | 0.885% | 0.952% | |||||||
30 | % | Bank Efficiency Ratio (4) | 65.47% | 64.83% | 63.20% | 61.16% | |||||||
100 | % | ||||||||||||
based on total return to shareholders. In 2009,2010, the following companies were in the three-year Edison Electric Institute Index:
Allegheny Energy ALLETE Alliant Energy Ameren American Electric Power Avista Black Hills Centerpoint Energy Central Vermont Public Service CH Energy Group CLECO CMS Energy Consolidated Edison Constellation Energy Group Dominion DPL DTE Energy Duke Energy Edison International | El Paso Electric | The Empire District Electric Entergy Exelon First Energy Great Plains Energy Hawaiian Electric Industries IDACORP Integrys Energy Group MDU Resources Group MGE Energy NEXTERA Energy NiSource Northeast Utilities NorthWestern Energy NSTAR NV Energy OGE Energy Otter Tail | Pepco Holdings PG&E Pinnacle West Capital PNM Resources Portland General Electric PPL Progress Energy Public Service Enterprise Group Scana Sempra Energy Southern TECO Energy UIL Holdings UniSource Energy Unitil Vectren Westar Energy Wisconsin Energy Xcel Energy | |||
The above goals were set by the Compensation Committee and approved by the Board in 2007,2008, because they were believed to provide the necessary incentives to align executive compensation with long-term shareholder value. The minimum performance levels reflected what the Compensation Committee believed to be investors' minimum expectations relative to other investment opportunities and the maximum goal provided greater upside potential for performance stretch goals. Each goal was aligned with HEI's or the operating company's strategic plan and determined by the Compensation Committee to be sufficiently difficult to be worthy of a bonus.
The goals metHEI's three-year total return to shareholders was 19% and HEI ranked in the 2007-200975th percentile of the Edison Electric Institute Index, which was above the maximum level for that performance metric. As a result, named executive officers Ms. Lau and Mr. Richardson received awards at the maximum level for the portion of incentive compensation correlated to that performance measure.
Net income, return on assets and efficiency ratio are standard measurements used by banks to gauge performance. American Savings Bank's results for these goals were measured in the third year of performance to incent bank executives in pursuing its aggressive performance improvement project because the results of these improvements would be fully achieved toward the end of the three-year performance period. American Savings Bank's net income after approved exclusions for severance expenses and lease buyouts of $272,000 related to the performance improvement project was $58.7 million, bank return on assets was 1.21%, and its efficiency ratio was 56%. As a result of American Savings Bank's performance, Ms. Lau and Mr. Richardson received an award based on
performance at a level between the target and maximum levels for net income and at the maximum level for bank return on assets for the long-term incentive plan wereand the HEI Total Returnsupplemental long-term incentive plan. Mr. Schools received an award based on performance at a level between target and maximum for the net income goal for the long-term incentive plan and at a level between minimum and target for the net income goal for the supplemental long-term incentive plan. He received an award at the super maximum level for the return on assets and efficiency ratio goals for the long-term incentive plan and at the maximum level for the return on assets and efficiency ratio goals for the supplemental long-term incentive plan. Mr. Schools had earlier agreed to Shareholders, which was in the 35th percentile for this period, and theremain with American Savings Bank Returnuntil the performance improvement project was substantially completed. After the project's completion in August 2010, the Company agreed to a September 2010 departure by Mr. Schools but with credit for the full three years of service for purposes of the 2008-2010 long-term incentive plan programs to recognize his outstanding performance in completing the bank's aggressive performance improvement effort.
The utility average annual free cash flow was $3.0 million, which was at the maximum level. As a result, named executive officers Ms. Lau and Mr. Richardson received an award based on Assets, which slightly exceeded the minimum goal. The American Savings Bank Return on Assets was 0.875% after allowed exclusions.maximum level for that performance measure.
A better Total Returnhigher total return to Shareholdersshareholders and increased American Savings Bank Returnnet income, return on Assets benefitsassets and efficiency ratio benefit shareholders of HEI, employees and customers by increasing the overall financial strength of the HEI enterprise. Because of the achievement of these goals inat the levels indicated above, on February 2010,4, 2011 the HEI Compensation Committee approved the following long-term incentive awards under the 2007-20092008-2010 long-term incentive plan for the named executive officers who were in the plan, payable 60% in cash and 40% in shares of HEI Common Stock based on the market value of the stock as of the time of the approval of the award:Stock:
Name | Payout | Total Payout | ||||||
---|---|---|---|---|---|---|---|---|
Constance H. Lau | $ | 338,106 | $ | 1,614,618 | ||||
Curtis Y. Harada | $ | 28,555 | ||||||
Chester A. Richardson | $ | 340,113 | ||||||
Timothy K. Schools | $ | 757,362 |
In February 2010, Fred Cook & Co. found that HEI's total target direct compensation (target annual cash plus 2009addition, the Compensation Committee also approved the following supplemental long-term incentive awards) is at the 25th percentile for the named executive officers.awards payable 50% in cash and 50% in shares of HEI Common Stock:
Name | Total Payout | |||
---|---|---|---|---|
Constance H. Lau | $ | 335,344 | ||
Chester A. Richardson | $ | 56,685 | ||
Timothy K. Schools | $ | 162,048 |
HEI's 2008-20102009-2011 long-term incentive plan was explained in the proxy statement for HEI's 2008 annual meeting2009 Annual Meeting of shareholders.Shareholders.
The Compensation Committee modified the design of the long-term incentive plan from the 2008-20102009-2011 performance period for the 2009-20112010-2012 performance period based on companyCompany strategy and recommendations of Towers WatsonFred Cook & Co. after its executive compensation review. Except for Mr. Schools,Awards under the 2009-20112010-2012 long-term incentive plan generally will be paid 60% in cash and 40%100% in shares of HEI Common Stock plus accrued dividends less applicable taxes with a valuethe potential number of shares to be issued determined at the beginning of the performance period, instead of at the time of the payment of the award. By determining share award levels asThe number of shares was determined by the Compensation Committee based on the participant's salary at the beginning of the performance period and the awards underfair market value of HEI Common Stock on the plan havedate the award opportunity was established. The Compensation Committee believes that setting a stronger linkagefixed number of shares determined at the beginning of the performance period, rather than a number of shares determined by the dollar value of the award divided by the market price of the shares at payout, encourages even greater alignment of executive incentives with shareholder interests and will appropriately incentivize and reward executives to improvements inimprove long-term shareholder value. Mr. Schools' 2009-2011 long-term incentive award will be granted in cash to link his incentive compensation solely with the performance
At its meeting onIn February 20, 2009,2010, the Compensation Committee established the following award ranges for the 2010-2012 long-term incentive plan, shown as a percentage of actual annual base salaries on January 1, 2010, for the named executive officers:
Name | Minimum | Target | Maximum | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 70 | % | 140 | % | 280 | % | ||||
James A. Ajello | 40 | % | 80 | % | 160 | % | ||||
Chester A. Richardson | 35 | % | 70 | % | 140 | % | ||||
Richard M. Rosenblum | 45 | % | 90 | % | 180 | % |
Mr. Schools forfeited his participation in the 2010-2012 long-term incentive plan when he resigned in September 2010. Mr. Wacker is not participating in the 2010-2012 long-term incentive plan because he became employed at the bank after the start of this performance period.
The Compensation Committee also approved the following long-term incentive goals for the 2009-20112010-2012 long-term incentive plan performance period for each of the participating named executive officers:officers. The executives listed together below share the same goals.
Name | Weight | Performance Metric | Minimum Threshold | Target Goal | Maximum Goal | Weight | Performance Metric (1) | Minimum Threshold | Target Goal | Maximum Goal | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau James A. Ajello Curtis Y. Harada Chester A. Richardson | 60 | % | HEI Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index | 50th percentile of the Edison Electric Institute Index | 70th percentile of the Edison Electric Institute Index | ||||||||||||||||
Constance H. Lau James A. Ajello Chester A. Richardson | 50 | % | HEI Total Return to Shareholders (2) | 30th percentile of the Edison Electric Institute Index | 50th percentile of the Edison Electric Institute Index | 75th percentile of the Edison Electric Institute Index | ||||||||||||||||
40 | % | HEI Return on Average Common Equity | 9.1% | 10.1% | 11.1% | 50 | % | HEI 2-year Average Consolidated Net Income (3) | $172 million | $191 million | $210 million | |||||||||||
100 | % | 100 | % | |||||||||||||||||||
Richard M. Rosenblum | 60 | % | HEI Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index | 50th percentile of the Edison Electric Institute Index | 70th percentile of the Edison Electric Institute Index | 40 | % | HEI Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index | 50th percentile of the Edison Electric Institute Index | 75th percentile of the Edison Electric Institute Index | ||||||||||
20 | % | HEI Return on Average Common Equity | 9.1% | 10.1% | 11.1% | 30 | % | HEI 2-year Average Consolidated Net Income (3) | $172 million | $191 million | $210 million | |||||||||||
20 | % | Utility Return on Average Common Equity | 90% of consolidated allowed return on equity | 95% of consolidated allowed return on equity | 100% of consolidated allowed return on equity | 30 | % | Utility Consolidated Return on 2-year Average Common Equity (4) | 8.5% | 9.1% | 10.0% | |||||||||||
100 | % | 100 | % | |||||||||||||||||||
Timothy K. Schools | 70 | % | Bank Return on Assets | 1.0% | 1.1% | 1.2% | ||||||||||||||||
30 | % | Bank Net Income | $51-54 million | $56-59 million | $61-65 million | |||||||||||||||||
100 | % | |||||||||||||||||||||
the growth in the price per share of HEI Common Stock as measured from the beginning of the performance period to the end, plus all dividends paid during the period, assuming reinvestment, divided by the beginning price of HEI Common Stock.
The Compensation Committee chose the above goals to encourage long-term achievement of HEI earnings and enhancement of shareholder value. Shareholders, customers and employees all benefit when these goals are met.
From a historical perspective, payouts are not easy to achieve nor are they guaranteed under the long-term incentive plan. In the 2009-2011 horizon, HEI faces tough external challenges in the performance period. Extraordinary leadership on the part of the named executive officers will be needed to achieve the long-term strategic objectives required for incentive payouts. The utility is focused on implementing the Hawaii Clean Energy Initiative agreement and increasing its portfolio of renewable resources, which requires major capital investments over the next several years, and which in turn requires timely filing and regulatory approval in utility rate cases and other important dockets. The bank is focused on reducing expenses and providing a reasonable return on assets and net income in the face of the economic downturn. The Compensation Committee believes that the long-term incentive targets are challenging and that if HEI is successful in achieving these goals, shareholder value is expected to increase.HEI.
The Compensation Committee established the following award ranges for the 2009-2011 long-term incentive plan, shown as a percentage of actual annual base salaries on January 1, 2009, for the named executive officers:
Name | Minimum | Target | Maximum | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 70.0 | % | 140 | % | 280 | % | ||||
James A. Ajello (1) | 40.0 | % | 80 | % | 160 | % | ||||
Curtis Y. Harada | 27.5 | % | 55 | % | 110 | % | ||||
Chester A. Richardson | 35.0 | % | 70 | % | 140 | % | ||||
Richard M. Rosenblum | 45.0 | % | 90 | % | 180 | % | ||||
Timothy K. Schools | 50.0 | % | 100 | % | 200 | % |
HEI provides stock awards to executivesthe named executive officers to strengthen the linkage of executive compensation with improvement in shareholder value and promote executive retention.
Long-term incentive awards
Except for Mr. Schools, as described in the paragraph below, long-termLong-term incentive awards in 20092010 through 20112012 were or will be paid at least partially in the form of stock as follows:
Annual equity awards
ExecutivesThe named executive officers are eligible to receive annual equity awards as determined by the Compensation Committee. The intent of the annual equity awards program is to encourage executive retention by providing for equity compensation based on staying at the companyCompany for a specified period of time.
In 2009,2010, restricted stock units were granted to the named executive officers, except for Mr. Schools.Schools (who received no equity awards in 2010) and Mr. Wacker (who received an award of restricted stock as part of his signing bonus). With restricted stock units, no stock is issued or outstanding until the actual release of the shares at
vesting. The restricted stock units awarded in 2010 vest four years after the grant date, except that monthly pro-rata vesting applies upon an executive's retirement, death or disability. The restricted stock units accrue dividend equivalents until vested. The 2009 grant2010 grants of restricted stock unit awards and restricted stock specific to the named executive officers are summarized in the 20092010 Grants of Plan-Based Awards table and related notes below.
The Compensation Committee determined the number of shares (or units) awarded in service vesting grants (versus shares that are performance based) in consultation with its compensation consultant and considering peer practices. Ms. Lau's restricted stock unit award total was determined after review of grants made to chief executive officers at peer companies and in consideration of her future loss in pension value undertotal direct compensation compared to the HEI Supplemental Executive Retirement Plan, which was frozen in 2008.peer group competitive median. The independent consultant also found that the equity grants to the other named executive officers are generally competitive with peers.
Equity award vesting periods
The unvested value from the long-term incentive plan andin restricted stock units is about twice the annual grant values, based upon the component allocation determined by the Compensation Committee to be appropriate, and which the Compensation Committee views as sufficient for retention purposes. The cliff vesting of the restricted stock units granted in 2010 ensures unvested value extends out four years with no pro-rata vesting before the vesting period ends except(except when the participant's termination is due to retirement, death or disability.disability), and therefore adds support for retention purposes. The restricted stock granted to Mr. Wacker as part of his signing bonus vests annually over a four-year period.
HEI provides retirement benefits to all eligible employees, including the named executive officers (other than the American Savings Bank executive officers), through the tax-qualified HEI Retirement Plan as a means of providing financial security in recognition of their years of service. Additional retirement benefits are also provided to certain named executive officers through the nonqualified HEI Excess Pay Plan, which provides the portion of benefits that cannot be paid from the qualified plan due to Internal Revenue Code limits.
Mr. Schools participated, and Mr. Wacker participates, in the American Savings Bank 401(k) Plan, a qualified defined contribution retirement plan that enables eligible employees to save for retirement on a tax-deferred basis. The plan allows eligible American Savings Bank employees to elect to reduce their salary in return for a tax-deferred contribution to their account in the plan. American Savings Bank provides matching contributions to the accounts of eligible employees of American Savings Bank on a dollar-for-dollar basis up to 4% of eligible compensation, subject to the Internal Revenue Service limit on the amount of annual compensation that can be used for calculating benefits under qualified retirement plans. American Savings Bank also provides discretionary, nonelective profit sharing contributions to the accounts of eligible employees of American Savings Bank. In 2009,2010, Mr. Schools received matching contributions for the 20092010 plan year and a 4% profit sharing contribution for the 20082009 plan year.
Retirement benefits under these plans specific to the named executive officers as of December 31, 20092010 are discussed in further detail in the 20092010 Pension Benefits table and related notes below.
HEI provides named executive officers with the opportunity to participate in deferred compensation plans that allow them to defer compensation and the resulting tax liability.
plan that willto allow employer matching contributions on certain contributions to the plan and profit sharing contributions for plan years beginning January 1, 2010. These matching and profit sharing contributions would be in an amount that would have been made to the named executive officer's American Savings Bank 401(k) Plan account if not for certain tax limits. Since neither Mr. Schools did not electnor Mr. Wacker elected to defer compensation to the plan for the 2010 plan year, no matching contributions will bewere made for either of them for that year. If a profit sharing contribution is madeMr. Wacker also did not elect to defer compensation to the American Savings Bank 401(k) Planplan for the 20102011 plan year, he will receive a profit sharing contribution in his American Savings Bank Select Deferred Compensation Plan account during 2011 based on his 2010 compensation in excess of the IRS dollar limits.
Deferred compensation benefits under these plans specific to the named executive officers in 20092010 are discussed in further detail in the 20092010 Nonqualified Deferred Compensation table and related notes below.
The Executive Death Benefit Plan of HEI and Participating Subsidiaries, which providedprovides death benefits to an executive's beneficiaries in the event of an executive's death while employed or after retirement, was closed to new participants effective September 9, 2009. These death benefits wereare provided to beneficiaries of named executive officers.officers who were participants in the plan prior to that date. In addition, the benefits to beneficiaries of participants who were employees as of such date were frozen (i.e., the plan was amended to foreclose any increase in death benefits that would occur due to salary increases after September 9, 2009). TheUnder the original terms of the Executive Death Benefit Plan contracts with the participants, as in effect before September 9, 2009, the death benefits under this frozen plan arewere grossed up in recognition thatfor tax purposes. This treatment was considered appropriate because the executive death benefit is a form of life insurance and traditionally life insurance proceeds have been tax-exempt. Ms. Lau and Messrs. Ajello, Richardson and Rosenblum are covered under the Executive Death Benefit Plan. Mr. Schools did not participate in the plan. Mr. Wacker is normally tax-exempt. However, freezingnot covered under the plan reduces the amount of gross-up benefits that will be required in the future.because he became an HEI executive officer after September 9, 2009. Death benefits are discussed in further detail in the 20092010 Pension Benefits table and related notes below.
Change-in-controlThe Compensation Committee and Board view change-in-control agreements canto be an appropriate tool to recruit executives as an expected part of the compensation package, to encourage the continued attention of key executives to the performance of their assigned duties without distraction in the event of a potential change in control and to assist in retaining key executives. Change-in-control agreements can also protect against executive flight during a transaction when key executives might, in the absence of the agreement, accept employment with competitors. Accordingly, each of the named executive officers has a change-in-control agreement, except that Mr. Schools' agreement expired upon his resignation from American Savings Bank.
In recommending the terms of executive change-in-control agreements to the Board, the Compensation Committee varies the severance multiplier among executives, taking into account the executive's expected role in a potential transaction, value to the organization and fairness. The change-in-control agreements are double trigger, which means that the executives receive severance payments only if there is both a change in control and they lose their jobs as a result. The change-in-control agreements approved by the Compensation Committee providedprovide for cash lump sum severance multipliers of three times for Ms. Lau and Mr. Schools, two times for Messrs. Ajello, Richardson, and Rosenblum and one time for Mr. Harada.Wacker. The multiplier is applied to the sum of the executive's annual base salary and annual bonus (determined to be the greater of the current target bonus or the largest actual bonus during the preceding three fiscal years). The severance benefits are subject toconditioned on the Company receiving a release of claims by the executive.
The change-in-control agreements have initial terms of two years and are automatically renewed for an additional year on each anniversary unless 90 daysdays' notice of nonrenewal is provided by either party, so that the protected period is at least one year upon nonrenewal. The agreements remain in effect for two years following a change in control. The change-in-control agreements define a change in control to mean a change in ownership of HEI, a substantial change in the voting power of HEI's securities or a change in the majority of the composition of the Board following a consummation of a merger, tender offer or similar transaction. The change-in-control agreements for Messrs. Rosenblum and SchoolsWacker also define a change in control as a change in ownership of Hawaiian Electric Company
and American Savings Bank, respectively. Change-in-control benefits specific to the named executive officers are discussed in further detail in the Potential Payments upon Termination or Change in Control section and related notes below.
HEI provides certain limited other compensation to the named executive officers because they are commonly provided to business executives in Hawaii, such as club memberships primarily for the purpose of business entertainment, or asare necessary to recruit executives, such as relocation expenses or extra weeks of vacation, or because of legacy programs that have since been discontinued, such as the electricity discount and preferential mortgage loans.
In 2009,2010, each of the named executive officers had a club membership for the primary purpose of business entertainment expected of executives in their positions. Mr. Rosenblum's initiation fee was not grossed up for taxes pursuant to a change in policy. Ms. Lau and Mr. Rosenblum each received a residential electricity discount, which was available to all qualifying Hawaiian Electric Company employees and retirees until this benefit was eliminated in August 2009. Ms. Lau and Mr. Schools continuedcontinues to have a preferential rate loans, which are no longer offered tomortgage loan from American Savings Bank, which ceased offering such loans to its employees and executives effectiveas of July 1, 2009.
HEI has eliminated all tax gross-up practices where possible, particularly with respect to nonbusiness-related perquisites. HEI may, from time to time, reimburse for reasonable business-related expenses and only where reasonable. For example, in the recruitment of Messrs. Ajello and Rosenblum, who joined HEI and Hawaiian Electric Company, respectively, in 2009, other compensation was negotiated. They were each reimbursed for relocation and temporary housing expenses in connection with their moves from the U.S. mainland to Hawaii. These expenses, which were deemed reasonable by HEI, were grossed up for taxes to a certain dollar limit, a common practice for executives relocating to Hawaii, and were a condition of each executive's recruitment. Mr. Ajello was also reimbursed for his real estate fees and expenses incurred in the sale of his home on the U.S. mainland.expenses. Messrs. Ajello and Rosenblum each received a signing bonus upon being hired in 2009 by HEI and Hawaiian Electric Company, respectively, subject to monthly pro-rata reimbursement in the event of a voluntary termination or termination for cause prior to the completion of 36 months of service. As part of their employment offers, Messrs. Ajello and Rosenblum also were extended special 3-year declining severance agreements
that provide that, in the event their employment is terminated without cause on or before the third anniversary of the date of their hire, they will be paid a declining portion of their annual base salary and any target annual bonus amount, depending on the length of their service. Such severance agreements are not uncommon when hiring experienced executives, especially from the mainland United States, who may have difficulty in finding other employment if their job is terminated within months of their hire and relocation. In order to recruit Mr. Rosenblum, an experienced utility executive, Hawaiian Electric Company also agreed to give Mr. Rosenblum a credit of two years age and service for purposes of calculating his retirement benefits under the HEI Excess Pay Plan, which was estimated to increase the annual cost of the HEI Excess Pay Plan by approximately $38,000.Plan. Mr. Rosenblum also received 10ten days of sick leave and four weeks of vacation as part of his offer, which is more than whata new employeesemployee would usually receive. Messrs. Richardson and Schools, who were hired in 2007, and Messrs. Ajello and Rosenblum, who were hired in 2009, each received four weeks of vacation.
For purposes of retention of Mr. Schools, who iswas instrumental to the success of the bank's performance improvement project, American Savings Bank agreed to purchase his residence in Honolulu on or before the earlier(at its original purchase price of $3.635 million, less normal selling costs including brokers' commissions) by June 30, 2011 or, if earlier, his termination as an employee of American Savings Bank provided thatemployee, as long as Mr. Schools remainsremained employed at American Savings Bank in his current capacity through December 31,the end of 2010 or such earlier date as the company may determineCompany determined in its sole discretion and he is not terminated for cause. If such purchase were to occur,discretion. American Savings Bank purchased Mr. Schools' residence in August 2010 in connection with his voluntary resignation from the bank in September 2010.
As part of Mr. Wacker's recruitment, he was granted four weeks of vacation annually upon commencement of his employment, which is more than a new employee would pay Mr. Schools his original purchase price of $3.635 millionusually receive.
Other than the special severance agreements mentioned above for Messrs. Ajello and Rosenblum, there are no separate severance agreements for the residence less normal selling costs borne bynamed executive officers. The named executive officers would participate in the seller (including brokers' commissions). This agreement does not apply if Mr. Schools remainssame manner as all HEI and Hawaiian Electric Company employees in Hawaii for any reason other than his employment atthe Company's standard severance policy based on years of service to the Company. American Savings Bank.
Table of ContentsBank has no severance plan or program applicable to its executives or employees.
The following table below shows the base salary, annual incentive bonus, grant date fair value of stock and option awards, non-equitynonequity incentive compensation under the 2010 Executive Incentive Compensation Plan (EICP) and under the long-term incentive plan for the period 2008-2010, change in pension value and nonqualified deferred compensation earnings and all other compensation and benefits earned by the named executive officers during 2007, 2008, 2009 and 20092010 (as applicable). Only the amounts reported in the "Salary," "Bonus," and "Nonequity Incentive Plan Compensation" columns of the table represent cash compensation earned for the applicable year, which is comprised of base salary, annual incentive bonuses, the cash portion of long-term incentive awards for the performance period ending in the applicable year and, to the extent applicable, the cash portion of a signing bonus awarded to a named executive officer in the year such executive was hired.
20092010 SUMMARY COMPENSATION TABLETABLE*
Name and 2009 Principal Positions | Year | Salary ($) | Bonus ($) (1) | Grant- Date Fair Value of Stock Awards ($) (2) | Grant- Date Fair Value of Option Awards ($) (3) | Non-Equity Incentive Plan Compensation ($) (4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (5) | All Other Compensation ($) (6) | Total ($) | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 2009 | 771,800 | — | 921,483 | — | 338,106 | 774,297 | 34,049 | 2,839,735 | ||||||||||||||||||||
HEI President and Chief | 2008 | 763,200 | — | 197,640 | — | 1,363,695 | 1,394,006 | 40,727 | 3,759,268 | ||||||||||||||||||||
Executive Officer | 2007 | 736,000 | — | 416,320 | — | 67,245 | 475,042 | 51,326 | 1,745,933 | ||||||||||||||||||||
James A. Ajello* | 2009 | 389,583 | 250,000 | 255,509 | — | 223,889 | 157,041 | 209,912 | 1,485,934 | ||||||||||||||||||||
HEI Senior Financial Vice | |||||||||||||||||||||||||||||
Curtis Y. Harada** | 2009 | 215,600 | 11,250 | 62,303 | — | 127,674 | 171,340 | — | 588,167 | ||||||||||||||||||||
HEI Controller and Acting | 2008 | 213,400 | 165,000 | 24,705 | — | 164,010 | 239,884 | 555 | 807,554 | ||||||||||||||||||||
Financial Vice President, | 2007 | 196,655 | — | 52,040 | — | — | 88,455 | 15,570 | 352,720 | ||||||||||||||||||||
Chester A. Richardson*** | 2009 | 344,400 | — | 112,316 | — | 197,916 | 119,845 | 15,111 | 789,588 | ||||||||||||||||||||
HEI Senior Vice President, | 2008 | 317,600 | — | 37,058 | — | 246,492 | 89,487 | 125,768 | 816,405 | ||||||||||||||||||||
Richard M. Rosenblum**** | 2009 | 580,000 | 250,000 | 348,916 | — | 322,289 | 435,513 | 149,881 | 2,086,599 | ||||||||||||||||||||
Hawaiian Electric Company | |||||||||||||||||||||||||||||
Timothy K. Schools***** | 2009 | 550,000 | — | — | — | 528,000 | 85 | 73,121 | 1,151,206 | ||||||||||||||||||||
American Savings Bank President | 2008 | 541,667 | — | 98,820 | — | 632,400 | 19,682 | 87,339 | 1,379,908 | ||||||||||||||||||||
Name and 2010 Principal Positions | Year | Salary ($) | Bonus ($) (1) | Stock Awards ($) (2) | Nonequity Incentive Plan Compensation ($) (3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (4) | All Other Compensation ($) (5) | Total ($) | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 2010 | 787,267 | — | 1,722,253 | 2,575,164 | 1,448,910 | 34,408 | 6,568,002 | ||||||||||||||||||
HEI President and Chief | 2009 | 771,800 | — | 921,483 | 338,106 | 774,297 | 34,049 | 2,839,735 | ||||||||||||||||||
Executive Officer | 2008 | 763,200 | — | 197,640 | 1,363,695 | 1,394,006 | 40,727 | 3,759,268 | ||||||||||||||||||
American Savings Bank Chair Hawaiian Electric Company Chair | ||||||||||||||||||||||||||
James A. Ajello** | 2010 | 436,333 | — | 597,479 | 203,830 | 180,636 | 25,741 | 1,444,019 | ||||||||||||||||||
HEI Senior Financial Vice | 2009 | 389,583 | 250,000 | 255,509 | 223,889 | 157,041 | 209,912 | 1,485,934 | ||||||||||||||||||
President, Treasurer and Chief Financial Officer | ||||||||||||||||||||||||||
Chester A. Richardson*** | 2010 | 357,000 | — | 447,715 | 563,568 | 178,365 | 16,605 | 1,563,253 | ||||||||||||||||||
HEI Senior Vice President, | 2009 | 344,400 | — | 112,316 | 197,916 | 119,845 | 15,111 | 789,588 | ||||||||||||||||||
General Counsel, Secretary and Chief Administrative Officer | 2008 | 317,600 | — | 37,058 | 246,492 | 89,487 | 125,768 | 816,405 | ||||||||||||||||||
Richard M. Rosenblum**** | 2010 | 584,667 | — | 786,620 | 282,037 | 279,777 | 26,335 | 1,959,436 | ||||||||||||||||||
Hawaiian Electric Company | 2009 | 580,000 | 250,000 | 348,916 | 322,289 | 435,513 | 149,881 | 2,086,599 | ||||||||||||||||||
President and Chief Executive Officer | ||||||||||||||||||||||||||
Richard F. Wacker***** | 2010 | 68,750 | 150,020 | 399,980 | 103,851 | — | — | 722,601 | ||||||||||||||||||
American Savings Bank | ||||||||||||||||||||||||||
President and Chief Executive Officer | ||||||||||||||||||||||||||
Timothy K. Schools****** | 2010 | 366,667 | — | — | 1,743,442 | — | 147,752 | 2,257,861 | ||||||||||||||||||
Former American Savings | 2009 | 550,000 | — | — | 528,000 | 85 | 73,121 | 1,151,206 | ||||||||||||||||||
Bank President | 2008 | 541,667 | — | 98,820 | 632,400 | 19,682 | 87,339 | 1,379,908 | ||||||||||||||||||
Mr. Richardson and Mr. Schools. Messrs. Ajello, Rosenblum and Wacker did not participate in the long-term incentive plans for either 2007-2009 or 2008-2010 because they joined HEI after the beginning of the applicable performance periods. The change in Ms. Lau's pension value, reported under "Change in Pension Value and Nonqualified Deferred Compensation Earnings," increased in 2010 compared to 2009 due to a decrease in the discount rate used to calculate pension benefits and due to the inclusion of one additional year of service in the calculation of the present value of her pension benefits. The calculation of the present value of pension benefits depends on a number of variables, which may differ significantly for individual named executive officers and which can change year to year depending on the assumptions used. See the additional notes below for further detail on the items reported in the above table.
in connection with his promotion from HEI Vice President, General Counsel to HEI Senior Vice President, General Counsel and Chief Administrative Officer in December 2008. He became HEI Senior Vice President, General Counsel, Secretary and Chief Administrative Officer in September 2009.
| Perquisites and Other Personal Benefits | | | | |||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Relocation Expenses ($) | Temporary Housing ($) | Preferential Mortgage Loan Interest ($) | Other ($) | Tax Gross-Ups ($) | Contributions to Defined Contribution Plans ($) | Total All Other Compensation ($) | ||||||||||||||||
Constance H. Lau | — | — | 26,506 | 7,543 | — | — | 34,049 | ||||||||||||||||
James A. Ajello | 108,138 | 30,000 | — | 22,954 | 48,820 | — | 209,912 | ||||||||||||||||
Curtis Y. Harada | — | — | — | — | — | — | — | ||||||||||||||||
Chester A. Richardson | — | — | — | 15,111 | — | — | 15,111 | ||||||||||||||||
Richard M. Rosenblum | 94,431 | 19,749 | — | 24,620 | 11,081 | — | 149,881 | ||||||||||||||||
Timothy K. Schools | — | — | 29,080 | 25,041 | — | 19,000 | 73,121 |
Additional narrative disclosure about salary, bonus, stock awards, option awards, non-equity incentive plan compensation, change in pension value and nonqualified deferred compensation earnings and other compensation can be found in the Compensation Discussion and Analysis above.
The table below shows awards that may be made to the named executive officers under the 2009 annual incentive plan for 2009 performance and under the 2009-2011 long-term incentive plan for performance over the 2009-2011 period. Also shown are the restricted stock unit awards granted under the 1987 Stock Option and Incentive Plan in 2009.
2009 GRANTS OF PLAN-BASED AWARDS
| | | | | | | | All Other Stock Awards: Number of Shares of Stock or Units (#) (3) | | | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | All Other Option Awards: Number of Securities Underlying Options (#) | | |||||||||||||||||||||||||
| | Grant Date Fair Value of Stock and Option Awards ($) (4) | ||||||||||||||||||||||||||||
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||
Constance H. Lau | 2/20/09 EICP | 328,015 | 656,030 | 1,312,060 | — | — | — | — | — | — | ||||||||||||||||||||
2/20/09 LTIP | 324,156 | 648,312 | 1,296,624 | 12,723 | 25,446 | 50,893 | — | — | 335,500 | |||||||||||||||||||||
2/20/09 RSU | — | — | — | — | — | — | 34,500 | — | 585,983 | |||||||||||||||||||||
James A. Ajello | 2/20/09 EICP | 97,396 | 194,792 | 389,583 | — | — | — | — | — | — | ||||||||||||||||||||
2/20/09 LTIP | 99,167 | 198,333 | 396,667 | 3,892 | 7,785 | 15,569 | — | — | 102,644 | |||||||||||||||||||||
2/20/09 RSU | — | — | — | — | — | — | 9,000 | — | 152,865 | |||||||||||||||||||||
Curtis Y. Harada | 2/20/09 EICP | 43,120 | 86,240 | 172,480 | — | — | — | — | — | — | ||||||||||||||||||||
2/20/09 LTIP | 35,574 | 71,148 | 142,296 | 1,396 | 2,793 | 5,585 | — | — | 36,825 | |||||||||||||||||||||
2/20/09 RSU | — | — | — | — | — | — | 1,500 | — | 25,478 | |||||||||||||||||||||
Chester A. Richardson | 2/20/09 EICP | 86,100 | 172,200 | 344,400 | — | — | — | — | — | — | ||||||||||||||||||||
2/20/09 LTIP | 67,494 | 134,988 | 269,976 | 2,649 | 5,298 | 10,597 | — | — | 69,853 | |||||||||||||||||||||
2/20/09 RSU | — | — | — | — | — | — | 2,500 | — | 42,463 | |||||||||||||||||||||
Richard M. Rosenblum | 2/20/09 EICP | 174,000 | 348,000 | 696,000 | — | — | — | — | — | — | ||||||||||||||||||||
2/20/09 LTIP | 156,600 | 313,200 | 626,400 | 6,147 | 12,293 | 24,586 | — | — | 162,081 | |||||||||||||||||||||
2/20/09 RSU | — | — | — | — | — | — | 11,000 | — | 186,835 | |||||||||||||||||||||
Timothy K. Schools | 2/20/09 EICP | 220,000 | 440,000 | 880,000 | — | — | — | — | — | — | ||||||||||||||||||||
2/20/09 LTIP | 275,000 | 550,000 | 1,100,000 | — | — | — | — | — | — |
Outstanding Equity Awards at Fiscal Year-End
OUTSTANDING EQUITY AWARDS AT 2009 FISCAL YEAR-END
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | Equity Incentive Plan Awards | ||||||||||||||||||||||
| | | | | | | | | | Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested ($) (3) | |||||||||||||||||||||
| | | | | | | | | Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) (2) | ||||||||||||||||||||||
| | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | | | | |||||||||||||||||||||||
| | Number of Securities Underlying Unexercised Options | | | Shares or Units of Stock That Have Not Vested (1) | ||||||||||||||||||||||||||
| | Option Exercise Price ($) | Option Expira- tion Date | ||||||||||||||||||||||||||||
Name | Grant Year | Exer- ciseable (#) | Unexer- ciseable (#) | Number (#) | Market Value ($) (3) | ||||||||||||||||||||||||||
Constance H. Lau | 2000 | 40,000 | — | — | 14.74 | 4/24/10 | — | — | — | — | |||||||||||||||||||||
2000 DE | 11,172 | — | — | — | 4/24/10 | — | — | — | — | ||||||||||||||||||||||
2001 | 40,000 | — | — | 17.96 | 4/23/11 | — | — | — | — | ||||||||||||||||||||||
2001 DE | 9,409 | — | — | — | 4/23/11 | — | — | — | — | ||||||||||||||||||||||
2002 | 50,000 | — | — | 21.68 | 4/22/12 | — | — | — | — | ||||||||||||||||||||||
2002 DE | 7,985 | — | — | — | 4/22/12 | — | — | — | — | ||||||||||||||||||||||
2003 | 50,000 | — | — | 20.49 | 4/21/13 | — | — | — | — | ||||||||||||||||||||||
2003 DE | 4,790 | — | — | — | 4/21/13 | — | — | — | — | ||||||||||||||||||||||
2004 | 50,000 | — | — | 26.02 | 4/19/14 | — | — | — | — | ||||||||||||||||||||||
2004 DE | 1,831 | — | — | — | 4/19/14 | — | — | — | — | ||||||||||||||||||||||
2005 | 50,000 | — | — | 26.18 | 4/07/15 | — | — | — | — | ||||||||||||||||||||||
2005 DE | 1,136 | — | — | — | 4/07/15 | — | — | — | — | ||||||||||||||||||||||
2006 | — | — | — | — | — | 31,000 | 647,900 | — | — | ||||||||||||||||||||||
2007 | — | — | — | — | — | 16,000 | 334,400 | — | — | ||||||||||||||||||||||
2008 | — | — | — | — | — | 8,000 | 167,200 | — | — | ||||||||||||||||||||||
2009 | — | — | — | — | — | 34,500 | 721,050 | 12,723 | 265,911 | ||||||||||||||||||||||
Total | 316,323 | — | — | — | — | 89,500 | 1,870,550 | 12,723 | 265,911 | ||||||||||||||||||||||
James A. Ajello | 2009 | — | — | — | — | — | 9,000 | 188,100 | 3,892 | 81,343 | |||||||||||||||||||||
Total | — | — | — | 9,000 | 188,100 | 3,892 | 81,343 | ||||||||||||||||||||||||
Curtis Y. Harada | 2004 | 10,000 | — | — | 26.02 | 4/19/14 | — | — | — | — | |||||||||||||||||||||
2004 DE | — | — | — | — | 4/19/14 | — | — | — | — | ||||||||||||||||||||||
2005 | 10,000 | — | — | 26.18 | 4/07/15 | — | — | — | — | ||||||||||||||||||||||
2005 DE | 227 | — | — | — | 4/07/15 | — | — | — | — | ||||||||||||||||||||||
2006 | — | — | — | — | — | 2,000 | 41,800 | — | — | ||||||||||||||||||||||
2007 | — | — | — | — | — | 2,000 | 41,800 | — | — | ||||||||||||||||||||||
2008 | — | — | — | — | — | 1,000 | 20,900 | — | — | ||||||||||||||||||||||
2009 | — | — | — | — | — | 1,500 | 31,350 | 1,396 | 29,176 | ||||||||||||||||||||||
Total | 20,227 | — | — | — | — | 6,500 | 135,850 | 1,396 | 29,176 | ||||||||||||||||||||||
Chester A. Richardson | 2007 | — | — | — | — | — | 3,000 | 62,700 | — | — | |||||||||||||||||||||
2008 | — | — | — | — | — | 1,500 | 31,350 | — | — | ||||||||||||||||||||||
2009 | — | — | — | — | — | 2,500 | 52,250 | 2,649 | 55,364 | ||||||||||||||||||||||
Total | — | — | — | — | — | 7,000 | 146,300 | 2,649 | 55,364 | ||||||||||||||||||||||
Richard M. Rosenblum | 2009 | — | — | — | — | — | 11,000 | 229,900 | 6,147 | 128,472 | |||||||||||||||||||||
Total | — | — | — | — | — | 11,000 | 229,900 | 6,147 | 128,472 | ||||||||||||||||||||||
Timothy K. Schools | 2007 | — | — | — | — | — | 3,000 | 62,700 | — | — | |||||||||||||||||||||
2008 | — | — | — | — | — | 4,000 | 83,600 | — | — | ||||||||||||||||||||||
Total | — | — | — | — | — | 7,000 | 146,300 | — | — |
All information presented has been adjusted for the 2-for-1 stock split in June 2004.
Option Exercises and Stock Vested
2009 OPTION EXERCISES AND STOCK VESTED
| Option Awards | Stock Awards | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Number of Shares Acquired on Exercise (#) (1) | Value Realized on Exercise ($) (1) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | |||||||||
Constance H. Lau | 633 | 8,628 | — | — | |||||||||
James A. Ajello | — | — | — | — | |||||||||
Curtis Y. Harada | 127 | 1,726 | — | — | |||||||||
Chester A. Richardson | — | — | — | — | |||||||||
Richard M. Rosenblum | — | — | — | — | |||||||||
Timothy K. Schools | — | — | — | — |
The table below shows the present value as of December 31, 2009 of accumulated benefits for each of the named executive officers and the number of years of service credited to each such executive under the applicable pension plan and executive death benefit plan, determined using the interest rate, mortality rate and other assumptions described below, which are consistent with those used in HEI's financial statements (see Note 8 to HEI's Consolidated Financial Statements in the HEI 2009 Annual Report to Shareholders):
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($) (6) | Payments During the Last Fiscal Year ($) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | HEI Retirement Plan (1) | 18.8 | 1,070,866 | — | ||||||||
American Savings Bank Retirement Plan (1) | 6.4 | 136,397 | — | |||||||||
HEI Supplemental Executive Retirement Plan (2) | 24.3 | 6,109,300 | — | |||||||||
HEI Excess Pay Plan (3) | 1.0 | 187,580 | — | |||||||||
HEI Executive Death Benefit (4) | — | 330,209 | ||||||||||
James A. Ajello | HEI Retirement Plan (1) | 0.9 | 68,841 | — | ||||||||
HEI Excess Pay Plan (3) | 0.9 | 50,670 | — | |||||||||
HEI Executive Death Benefit (4) | — | 37,530 | — | |||||||||
Curtis Y. Harada | HEI Retirement Plan (1) | 20.4 | 789,034 | — | ||||||||
HEI Excess Pay Plan (3) | 20.4 | 222,307 | — | |||||||||
HEI Executive Death Benefit (4) | — | 79,919 | — | |||||||||
Chester A. Richardson | HEI Retirement Plan (1) | 2.3 | 133,365 | — | ||||||||
HEI Excess Pay Plan (3) | 2.3 | 50,805 | ||||||||||
HEI Executive Death Benefit (4) | — | 84,004 | — | |||||||||
Richard M. Rosenblum | HEI Retirement Plan (1) | 1.0 | 68,199 | — | ||||||||
HEI Excess Pay Plan (3) | 3.0 | 308,367 | — | |||||||||
HEI Executive Death Benefit (4) | — | 58,947 | — | |||||||||
Timothy K. Schools | American Savings Bank Supplemental Executive Retirement, Disability, and Death Benefit Plan (5) | 1.5 | — | 19,767 |
retire at age 60 and above. Ms. Lau and Mr. Harada are eligible for early retirement benefits under the HEI Retirement Plan. Messrs. Ajello, Richardson and Rosenblum are not eligible for early retirement benefits under the HEI Retirement Plan and have no vested interest in the amounts reported above.
Future benefit accruals for all participants under the American Savings Bank Retirement Plan were frozen effective December 31, 2007. Credited service and compensation after December 31, 2007 will not be recognized in calculating retirement benefits under the American Savings Bank Retirement Plan. Normal retirement benefits under the frozen American Savings Bank Retirement Plan are calculated based on a formula of 1.5% × Credited Service to December 31, 2007 (maximum 35 years) × Final Average Compensation at December 31, 2007 (averaged over the highest paying five consecutive calendar years out of the last ten calendar years prior to 2008). Compensation is primarily gross earnings but excludes commissions, stock options and other equity compensation, long-term incentive plan payments, deferrals to and distributions from the American Savings Bank Select Deferred Compensation Plan and other "fringe benefits" as defined in the American Savings Bank Retirement Plan. Early retirement benefits are available for participants who meet the age and service requirements at ages 55-64, with a minimum of 10 years of service. Early retirement benefits are reduced for participants who retire prior to age 65, based on the participant's age at the early retirement date. The accrued normal retirement benefit is reduced by an applicable percentage which ranges from 59.8% for early retirement at age 55 to 2% at age 64. Ms. Lau is a participant in the frozen American Savings Bank Retirement Plan. At the time of her promotion to HEI President and Chief Executive Officer on May 2, 2006, her credited service under the American Savings Bank Retirement Plan was frozen and she resumed participation in the HEI Retirement Plan. Ms. Lau is eligible for early retirement under the American Savings Bank Retirement Plan. Mr. Schools was not a participant in the plan at the time it was frozen and is not entitled to any benefits under this plan.
Methodology: The present values are calculated as of December 31, 2009 based on the credited service and pay of the named executive officer as of such date (or the date of benefit freeze, if earlier).
Assumptions:
unreduced pension benefits would be payable, but no earlier than attained age as of December 31, 2009. Mr. Schools' present value of pension benefits was valued as the equivalent cash-out amount of his frozen accrued normal retirement benefit payable under the terms of the plan. Mr. Rosenblum was granted an additional two years of service and two years added to his age to be applied in the calculation of his benefit under the HEI Excess Pay Plan.
Nonqualified Deferred Compensation
2009 NONQUALIFIED DEFERRED COMPENSATION
Name | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($) | Aggregate Earnings/ (Losses) in Last FY ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau (1) | — | — | 51,323 | — | 216,539 | |||||||||||
James A. Ajello | — | — | — | — | — | |||||||||||
Curtis Y. Harada | — | — | — | — | — | |||||||||||
Chester A. Richardson | — | — | — | — | — | |||||||||||
Richard M. Rosenblum | — | — | — | — | — | |||||||||||
Timothy K. Schools | — | — | — | — | — |
Potential Payments Upon Termination or Change in Control
The table below shows the amount of potential payments to each named executive officer in the event of retirement, voluntary termination, termination for cause, termination without cause and a qualifying termination following a change in control, assuming termination occurred on December 31, 2009. The amounts listed below are estimates; actual amounts to be paid would depend on the actual date of termination and circumstances existing at that time. The amounts shown below for payments made upon a qualifying termination of employment after a change in control were estimated in accordance with the terms of the current change-in-control agreements effective January 1, 2009 as if a change in control occurred on December 31, 2009.
2009 TERMINATION/CHANGE-IN-CONTROL PAYMENT TABLE
Name/ Benefit Plan or Program | Retirement on 12/31/09 ($) (1) | Voluntary Termination on 12/31/09 ($) (2) | Termination for Cause on 12/31/09 ($) (3) | Termination without Cause on 12/31/09 ($) (4) | Qualifying Termination after Change in Control on 12/31/09 ($) (5) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | 1,118,454 | — | — | — | — | |||||||||||
Restricted Stock and Restricted Stock Units (8) | 180,263 | — | — | 886,224 | — | |||||||||||
Preferential Mortgage Loan Interest (9) | 26,506 | — | — | — | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 4,918,593 | |||||||||||
TOTAL | 1,325,223 | — | — | 886,224 | 4,918,593 | |||||||||||
James A. Ajello | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | — | — | — | — | — | |||||||||||
Restricted Stock and Restricted Stock Units (8) | — | — | — | — | — | |||||||||||
Special Severance Payment (10) | — | — | — | 604,814 | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 1,899,684 | |||||||||||
TOTAL | — | — | — | 604,814 | 1,899,684 | |||||||||||
Curtis Y. Harada | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | 106,639 | — | — | — | — | |||||||||||
Restricted Stock and Restricted Stock Units (8) | 7,838 | — | — | 75,189 | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 925,035 | |||||||||||
TOTAL | 114,477 | — | — | 75,189 | 925,035 | |||||||||||
Name/ Benefit Plan or Program | Retirement on 12/31/09 ($) (1) | Voluntary Termination on 12/31/09 ($) (2) | Termination for Cause on 12/31/09 ($) (3) | Termination without Cause on 12/31/09 ($) (4) | Qualifying Termination after Change in Control on 12/31/09 ($) (5) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Chester A. Richardson | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | — | — | — | — | — | |||||||||||
Restricted Stock and Restricted Stock Units (8) | — | — | — | 47,198 | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 1,075,688 | |||||||||||
TOTAL | — | — | — | 47,198 | 1,075,688 | |||||||||||
Richard M. Rosenblum | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | — | — | — | — | — | |||||||||||
Restricted Stock and Restricted Stock Units (8) | — | — | — | — | — | |||||||||||
Special Severance Payment (10) | — | — | — | 825,378 | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 2,700,000 | |||||||||||
TOTAL | — | — | — | 825,378 | 2,700,000 | |||||||||||
Timothy K. Schools (10) | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | — | — | — | — | — | |||||||||||
Restricted Stock and Restricted Stock Units (8) | — | — | — | 69,513 | — | |||||||||||
Preferential Mortgage Loan Interest | — | — | — | — | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 2,278,598 | |||||||||||
TOTAL | — | — | — | 69,513 | 2,278,598 | |||||||||||
Note: All stock-based award amounts were valued using the 2009 year-end closing price of HEI Common Stock of $20.90 per share. Other benefits that are available to all employees on a nondiscriminatory basis and perquisites aggregating less than $10,000 in value have not been listed.
incentive plans. The executive's participation in the change-in-control agreement would also end and the executive's benefit from the nonqualified retirement plans would be forfeited.
In addition, executives would receive continued life, disability, dental, accident and health insurance benefits for the severance period (the number of years equal to the applicable severance multiplier). Executives would receive a lump sum payment equal to the present value of the additional benefit the executives would have earned under their respective retirement and savings plans during the severance period. Executives would also receive the greater of current target or actual projected short- and long-term incentive bonuses, prorated if termination occurs during the first half of the applicable performance period and the full aggregate value if termination occurs after the end of the first half of the applicable performance period. Any unvested restricted stock and restricted stock units will become vested and free of restrictions upon a change in control. For all of the named executive officers except Mr. Schools, additional age and service credit is received for the severance period for purposes of determining retiree welfare benefit eligibility; however, American Savings Bank does not have a post-retirement medical benefits plan and Mr. Schools will not participate in this benefit. Executives would receive financial, tax planning and outplacement services, capped at 15% of annual base salary. Payment would generally be delayed for six months following termination of employment to the extent required to avoid an additional tax under Section 409A of the Internal Revenue Code. Interest would accrue during the six-month delay period at the prevailing six-month certificate of deposit rate and payments would be set aside during that period in a grantor ("rabbi") trust.
Other benefits are provided to the executives upon a change in control under the 1987 Stock Option and Incentive Plan, as described below. All such severance and benefit payments under the change-in-control agreements are limited to the maximum amount deductible under Section 280G
of the Internal Revenue Code, and to the extent necessary to make such payments deductible, the severance and benefit payments may be reduced.
employment is terminated after their second anniversary and on or before their third anniversary of employment, they will receive 6 months of salary and any target annual bonus. Any limitations on the amount of severance under the plan would not apply. After their third year of employment, they will be eligible for severance under the standard terms of the Severance Pay Plan.
For purposes of retention of Mr. Schools, American Savings Bank agreed to purchase his residence in Honolulu on or before the earlier of June 30, 2011 or his termination as an employee of American Savings Bank, provided that he remains employed at American Savings Bank in his current capacity through December 31, 2010 or such earlier date as the company may determine in its sole discretion; and he is not terminated for cause. If such purchase were to occur, American Savings Bank would pay Mr. Schools his original purchase price of $3.635 million for the residence less normal selling costs borne by the seller (including brokers' commissions). This agreement does not apply if Mr. Schools remains in Hawaii for any reason other than his employment at American Savings Bank.
How is director compensation determined?
The Board believes that a competitive package is necessary to attract and retain individuals with the experience, skills and qualifications needed for the challenging role of serving as a director of a publicly traded company with a unique blend of highly regulated industries. The Board chooses to compensate nonemployee directors using a mix of cash and HEI Common Stock to allow for an appropriate level of compensation for services, including stock awards that will align the interests of directors with HEI shareholders. Only nonemployee directors are compensated for their service as directors. Ms. Lau, who is the only employee director, does not receive separate or additional compensation for serving as a director.
The Compensation Committee recommends nonemployee director compensation to the Board. In 2007, the committee asked Towers Watson to conduct a review of HEI's nonemployee director compensation practices. Towers Watson assessed the structure of HEI's nonemployee director compensation program and its value compared to competitive market practices of financial services and utility peer companies, similar to those used in its executive compensation review. The 2007 analysis took into consideration the duties and scope of responsibilities of directors, especially in light of HEI's unique business and regulatory structure. The Compensation Committee reviewed the analysis in determining its recommendations to the Board concerning the appropriate nonemployee director compensation, including cash retainers, stock awards and meeting fees. In its meeting on May 3, 2007, the Board approved the Compensation Committee's recommendations on nonemployee director compensation. Although Ms. Lau is a member of the HEI Board, she did not participate in the determination of nonemployee director compensation. There were no increases to the standard director retainer or meeting fees in 2009.
Retainer
The following is the annual retainer schedule for nonemployee directors of HEI and subsidiary companies paid in quarterly installments. Nonemployee directors of HEI who also serve on Board committees, or as directors on subsidiary company boards and committees, receive additional fees for service on such boards or committees as indicated below.
HEI Nonexecutive Chairman of the Board | $ | 250,000 | ||
HEI Director | 40,000 | |||
HEI Audit Committee Chair | 15,000 | |||
HEI Compensation Committee Chair | 10,000 | |||
HEI Nominating and Corporate Governance Committee Chair | 5,000 | |||
HEI Audit Committee Member | 6,000 | |||
HEI Compensation Committee Member | 4,000 | |||
HEI Nominating and Corporate Governance Committee Member | 4,000 | |||
American Savings Bank Director | 25,000 | |||
Hawaiian Electric Company Director | 25,000 | |||
American Savings Bank Audit Committee Chair | 12,500 | |||
Hawaiian Electric Company Audit Committee Chair | 10,000 | |||
American Savings Bank Audit Committee Member | 5,000 | |||
Hawaiian Electric Company Audit Committee Member | 4,000 |
Meeting Fees
Nonemployee directors of HEI and its subsidiary boards and committees are also entitled to earn meeting fees for each meeting attended after the minimum number of meetings specified below.
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Until January 2009, nonemployee directors on the American Savings Bank Compliance Committee were entitled to receive a meeting fee of $1,000 for each meeting attended. The American Savings Bank Compliance Committee was dissolved in January 2009 and did not hold any meetings in 2009.
Until June 2009, nonemployee directors of HEI who served on the boards of Hawaii Electric Light Company and Maui Electric Company, which are both Hawaiian Electric Company subsidiaries, were entitled to a meeting fee of $500 for each meeting attended. Mr. Taniguchi was the only nonemployee director of HEI who served on these subsidiary boards. He resigned from these boards in June 2009. The members of these subsidiary boards are now composed entirely of officers of HEI and/or its subsidiaries, who are not compensated for their service as directors.
Stock Awards
For 2009, each HEI nonemployee director received 1,800. Stock awards represent the opportunity for executives to earn shares of HEI Commonstock over a four-year vesting period or upon achievement of certain performance goals over a three-year period. Stock awards include restricted shares, restricted stock units and performance awards under the long-term incentive plan established during the applicable year to the extent any actual award at the end of the performance period will be payable in stock. The grant date fair value of restricted shares granted to Mr. Wacker in connection with his hiring in 2010 was $399,980. The grant date fair value of the restricted stock units granted to named executive officers in 2010 was: Ms. Lau $541,750; Mr. Ajello $226,000; Mr. Richardson $180,800; and Mr. Rosenblum $226,000. The grant date fair values of the performance awards under the 2010-2012 long-term incentive plan are based upon the probable outcome of the performance conditions as of the grant date, which is assumed to be the target level. The target value of the performance awards under the 2010-2012 long-term incentive plan is: Ms. Lau $1,180,503; Mr. Ajello $371,479; Mr. Richardson $266,915; and Mr. Rosenblum $560,620. Assuming achievement of the highest level of performance conditions, the maximum value of the performance awards under the 2010-2012 long-term incentive plan is: Ms. Lau $2,360,964; Mr. Ajello $742,916; Mr. Richardson $533,789; and Mr. Rosenblum $1,121,263. Mr. Schools voluntarily resigned from American Savings Bank in September 2010 and forfeited all stock units and performance awards granted annuallyin 2010. For a discussion of the assumptions underlying the amounts set out for the purpose of further aligning directors'restricted shares, restricted stock units and shareholders' interests. Stock grantsperformance awards, see Note 10 to nonemployee directors are made annually on the last business dayHEI's Consolidated Financial Statements in June.
Deferred Compensation. Nonemployee directors may elect to participateThis column includes the following annual incentive awards paid for 2010 performance under HEI's Executive Incentive Compensation Plan (EICP): Ms. Lau $625,202; Mr. Ajello $203,830; Mr. Richardson $166,770; Mr. Rosenblum $282,037; Mr. Wacker $103,851 and Mr. Schools $824,032. Long-term incentive plan awards are generally determined in the HEI Nonemployee Directors' Deferred Compensation Plan, which allows any nonemployee director to defer compensation from HEIfirst quarter of each year for service as a director. The plan allows for either lump sum or installment distributions upon the retirementthree-year cycle ending on December 31 of the director. Uponprevious calendar year. This column also includes the deathfollowing long-term incentive awards paid for the 2008-2010 performance period: Ms. Lau $1,949,962; Mr. Richardson $396,798 and Mr. Schools $919,410. The 2008-2010 long-term incentive awards were paid 60% in cash and 40% in shares (or 50% in cash and 50% in shares for the supplemental LTIP awards) of the director, the balance of the deferred account will be distributed in a lump sum to a designated beneficiary.
Perquisites—Preferential Rate Loans. Under a program for American Savings Bank directors that has been discontinued since June 30, 2006, certain HEI directors were eligible to receive preferential rate mortgage loans because they were American Savings Bank directors at the time. When this program was discontinued, their existing loans were grandfathered. Information regarding the grandfathered loans to nonemployee directors Messrs. Gushman, Li and Watanabe and Mses. Daniel and Plotts is included under "Other Relationships and Related Person Transactions—Are there any related person transactions with HEI or its subsidiaries?" below. The loan to Dr. Li was fully repaid in February 2009.
Perquisites—Health Benefits. Directors, at their election and at their cost, may participate in the group employee medical, vision and dental plans generally made available to HEI, Hawaiian Electric Company or American Savings Bank employees. Mr. Gushman participates in this program, but, since he pays all of the premiums, no aggregate incremental cost is attributed to HEI.
The table below shows compensation to the HEI nonemployee directors in 2009.
2009 DIRECTOR COMPENSATION TABLE
Name | Fees Earned or Paid in Cash ($) (1) | Stock Awards ($) (2) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) (4) | Total ($) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Don E. Carroll | 74,000 | 34,236 | — | — | — | — | 108,236 | |||||||||||||||
Shirley J. Daniel | 71,000 | 34,236 | — | — | — | 27,797 | 133,033 | |||||||||||||||
Thomas B. Fargo | 85,000 | 34,236 | — | — | — | — | 119,236 | |||||||||||||||
Richard W. Gushman, II | 74,000 | 34,236 | — | — | — | 62,869 | 171,105 | |||||||||||||||
Victor H. Li | 69,000 | 34,236 | — | — | — | — | 103,236 | |||||||||||||||
A. Maurice Myers | 54,417 | 34,236 | — | — | 3,970 | (3) | — | 92,623 | ||||||||||||||
Diane J. Plotts | 96,500 | 34,236 | — | — | — | (3) | 13,453 | 144,189 | ||||||||||||||
James K. Scott | 75,000 | 34,236 | — | — | — | — | 109,236 | |||||||||||||||
Kelvin H. Taketa | 70,000 | 34,236 | — | — | — | — | 104,236 | |||||||||||||||
Barry K. Taniguchi | 107,000 | 34,236 | — | — | — | — | 141,236 | |||||||||||||||
Jeffrey N. Watanabe | 345,000 | 34,236 | — | — | — | 20,288 | 399,524 |
| Perquisites and Other Personal Benefits | | | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Relocation Expenses ($) | Preferential Mortgage Loan Interest ($) | Other ($) | Payments Received Upon Termination ($) | Contributions to Defined Contribution Plans ($) | Total All Other Compensation ($) | ||||||||||||||
Constance H. Lau | — | 23,209 | 11,199 | — | — | 34,408 | ||||||||||||||
James A. Ajello | 4,746 | — | 20,995 | — | — | 25,741 | ||||||||||||||
Chester A. Richardson | — | — | 16,605 | — | — | 16,605 | ||||||||||||||
Richard M. Rosenblum | — | — | 26,335 | — | — | 26,335 | ||||||||||||||
Richard F. Wacker | — | — | — | — | — | — | ||||||||||||||
Timothy K. Schools | — | 19,785 | 17,125 | 92,222 | 18,620 | 147,752 |
Additional narrative disclosure about salary, bonus, stock awards, option awards, non-equity incentive plan compensation, change in pension value and nonqualified deferred compensation earnings and other compensation can be found in the Compensation Discussion and Analysis above.
The table below shows awards that may be made to the named executive officers under the 2010 annual incentive plan for 2010 performance and under the 2010-2012 long-term incentive plan for performance over the 2010-2012 period. Also shown are the restricted stock unit awards granted under the 1987 Stock Option and Incentive Plan in February 2010 and the restricted shares granted under the 2010 Equity and Incentive Plan in December 2010.
2010 GRANTS OF PLAN-BASED AWARDS
| | | | | | | | All Other Stock Awards: Number of Shares of Stock or Units (#) (3) | | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Estimated Future Payouts Under Nonequity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | | |||||||||||||||||||||||
| | Grant Date Fair Value of Stock Awards ($) (4) | |||||||||||||||||||||||||
Name | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | ||||||||||||||||||||
Constance H. Lau | 2/11/10 EICP | 333,498 | 666,995 | 1,333,900 | — | — | — | — | — | ||||||||||||||||||
2/08/10 LTIP | 28,517 | 57,035 | 114,069 | — | 1,180,503 | ||||||||||||||||||||||
6/09/10 RSU | — | — | — | — | — | — | 25,000 | 541,750 | |||||||||||||||||||
James A. Ajello | 2/11/10 EICP | 108,025 | 216,050 | 432,100 | — | — | — | — | — | ||||||||||||||||||
2/08/10 LTIP | 8,973 | 17,947 | 35,893 | — | 371,478 | ||||||||||||||||||||||
5/11/10 RSU | — | — | — | — | — | — | 10,000 | 226,000 | |||||||||||||||||||
Chester A. Richardson | 2/11/10 EICP | 88,700 | 177,400 | 354,800 | — | — | — | — | — | ||||||||||||||||||
2/08/10 LTIP | 6,448 | 12,895 | 25,790 | — | 266,915 | ||||||||||||||||||||||
5/11/10 RSU | — | — | — | — | — | — | 8,000 | 180,800 | |||||||||||||||||||
Richard M. Rosenblum | 2/11/10 EICP | 176,900 | 353,800 | 707,600 | — | — | — | — | — | ||||||||||||||||||
2/08/10 LTIP | 13,777 | 27,553 | 55,107 | — | 560,620 | ||||||||||||||||||||||
5/11/10 RSU | — | — | — | — | — | — | 10,000 | 226,000 | |||||||||||||||||||
Richard F. Wacker | 11/15/10 EICP | 28,336 | 56,672 | 113,344 | — | — | — | — | — | ||||||||||||||||||
12/09/10 RS | — | — | — | — | — | — | 18,009 | 399,980 | |||||||||||||||||||
Timothy K. Schools (5) | 2/11/10 EICP | 222,933 | 445,867 | 891,733 | — | — | — | — | — | �� | |||||||||||||||||
2/08/10 LTIP | 14,516 | 29,031 | 58,063 | — | — |
Outstanding Equity Awards at Fiscal Year-End
OUTSTANDING EQUITY AWARDS AT 2010 FISCAL YEAR-END
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | Equity Incentive Plan Awards | ||||||||||||||||||||||
| | | | | | | | | | Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested ($) (2) | |||||||||||||||||||||
| | | | | | | | | Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) (3) | ||||||||||||||||||||||
| | | | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | | | | | |||||||||||||||||||||||
| | Number of Securities Underlying Unexercised Options | | | Shares or Units of Stock That Have Not Vested (1) | ||||||||||||||||||||||||||
| | Option Exercise Price ($) | Option Expira- tion Date | ||||||||||||||||||||||||||||
Name | Grant Year | Exer- ciseable (#) | Unexer- ciseable (#) | Number (#) | Market Value ($) (2) | ||||||||||||||||||||||||||
Constance H. Lau | 2002 | 50,000 | — | — | 21.68 | 4/22/12 | — | — | — | — | |||||||||||||||||||||
2002 DE | 7,985 | — | — | — | 4/22/12 | — | — | — | — | ||||||||||||||||||||||
2003 | 50,000 | — | — | 20.49 | 4/21/13 | — | — | — | — | ||||||||||||||||||||||
2003 DE | 4,790 | — | — | — | 4/21/13 | — | — | — | — | ||||||||||||||||||||||
2004 | 50,000 | — | — | 26.02 | 4/19/14 | — | — | — | — | ||||||||||||||||||||||
2004 DE | 1,831 | — | — | — | 4/19/14 | — | — | — | — | ||||||||||||||||||||||
2005 | 50,000 | — | — | 26.18 | 4/07/15 | — | — | — | — | ||||||||||||||||||||||
2007 | — | — | — | — | — | 16,000 | 364,640 | — | — | ||||||||||||||||||||||
2008 | — | — | — | — | — | 8,000 | 182,320 | — | — | ||||||||||||||||||||||
2009 | — | — | — | — | — | 34,500 | 786,255 | 12,723 | 289,957 | ||||||||||||||||||||||
2010 | — | — | — | — | — | 25,000 | 569,750 | 57,035 | 1,299,828 | ||||||||||||||||||||||
Total | 214,606 | — | — | — | — | 83,500 | 1,902,965 | 69,758 | 1,589,785 | ||||||||||||||||||||||
James A. Ajello | 2009 | — | — | — | — | — | 9,000 | 205,110 | 3,892 | 88,699 | |||||||||||||||||||||
2010 | — | — | — | — | — | 10,000 | 227,900 | 17,947 | 409,012 | ||||||||||||||||||||||
Total | — | — | — | — | — | 19,000 | 433,010 | 21,839 | 497,711 | ||||||||||||||||||||||
Chester A. Richardson | 2007 | — | — | — | — | — | 3,000 | 68,370 | — | — | |||||||||||||||||||||
2008 | — | — | — | — | — | 1,500 | 34,185 | — | — | ||||||||||||||||||||||
2009 | — | — | — | — | — | 2,500 | 56,975 | 2,649 | 60,371 | ||||||||||||||||||||||
2010 | — | — | — | — | — | 8,000 | 182,320 | 12,895 | 293,877 | ||||||||||||||||||||||
Total | — | — | — | — | — | 15,000 | 341,850 | 15,544 | 354,248 | ||||||||||||||||||||||
Richard M. Rosenblum | 2009 | — | — | — | — | — | 11,000 | 250,690 | 6,147 | 140,090 | |||||||||||||||||||||
2010 | — | — | — | — | — | 10,000 | 227,900 | 27,553 | 627,933 | ||||||||||||||||||||||
Total | — | — | — | — | — | 21,000 | 478,590 | 33,700 | 768,023 | ||||||||||||||||||||||
Richard F. Wacker | 2010 | — | — | — | — | — | 18,009 | 410,425 | — | — | |||||||||||||||||||||
Total | — | — | — | — | — | 18,009 | 410,425 | — | — | ||||||||||||||||||||||
Timothy K. Schools | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||
Total | — | — | — | — | — | — | — | — | — |
All information presented has been adjusted for the 2-for-1 stock split in June 2004.
Option Exercises and Stock Vested
2010 OPTION EXERCISES AND STOCK VESTED
| Option Awards | Stock Awards | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | |||||||||
Constance H. Lau | 100,581 | (1) | 838,170 | 31,000 | (2) | 718,115 | |||||||
James A. Ajello | — | — | — | — | |||||||||
Chester A. Richardson | — | — | — | — | |||||||||
Richard M. Rosenblum | — | — | — | — | |||||||||
Richard F. Wacker | — | — | — | — | |||||||||
Timothy K. Schools | — | — | — | — |
The table below shows cash retainers paid to HEI nonemployee directors in 2009the present value as of December 31, 2010 of accumulated benefits for each boardof the named executive officers and committee (including subsidiary boardsthe number of years of service credited to each such executive under the applicable pension plan and committees) onexecutive death benefit plan, determined using the interest rate, mortality rate and other assumptions described below, which each director servedare consistent with those used in 2009 and for service as the nonexecutive HEI ChairmanHEI's financial statements (see Note 9 to HEI's Consolidated Financial Statements in 2009.HEI's 2010 Form 10-K):
Name | HEI Board Retainer ($) | HEI Comm. Retainer ($) | HEI Chairman of the Board Retainer ($) | HECO Board Retainer ($) | HECO Audit Comm. Retainer ($) | HELCO Board Meeting Fee ($) | MECO Board Meeting Fee ($) | ASB Board Retainer ($) | ASB Audit Comm. Retainer ($) | Total (1) ($) | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Don E. Carroll | 40,000 | 4,000 | — | — | — | — | — | 25,000 | 5,000 | 74,000 | |||||||||||||||||||||
Shirley J. Daniel | 40,000 | 6,000 | — | — | — | — | — | 25,000 | — | 71,000 | |||||||||||||||||||||
Thomas B. Fargo | 40,000 | 16,000 | — | 25,000 | 4,000 | — | — | — | — | 85,000 | |||||||||||||||||||||
Richard W. Gushman | 40,000 | 4,000 | — | — | — | — | — | 25,000 | 5,000 | 74,000 | |||||||||||||||||||||
Victor H. Li | 40,000 | 4,000 | — | — | — | — | — | 25,000 | — | 69,000 | |||||||||||||||||||||
A. Maurice Myers (2) | 40,000 | 4,000 | — | 10,417 | — | — | — | — | — | 54,417 | |||||||||||||||||||||
Diane J. Plotts | 40,000 | 19,000 | — | — | — | — | — | 25,000 | 12,500 | 96,500 | |||||||||||||||||||||
James K. Scott | 40,000 | 10,000 | — | — | — | — | — | 25,000 | — | 75,000 | |||||||||||||||||||||
Kelvin H. Taketa | 40,000 | 5,000 | — | 25,000 | — | — | — | — | — | 70,000 | |||||||||||||||||||||
Barry K. Taniguchi | 40,000 | 6,000 | — | 25,000 | 10,000 | 500 | 500 | 25,000 | — | 107,000 | |||||||||||||||||||||
Jeffrey N. Watanabe | 40,000 | — | 250,000 | 25,000 | — | — | — | 25,000 | 5,000 | 345,000 |
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($) (6) | Payments During the Last Fiscal Year ($) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | HEI Retirement Plan (1) | 19.8 | 1,353,370 | — | ||||||||
American Savings Bank Retirement Plan (2) | 6.4 | 163,253 | — | |||||||||
HEI Supplemental Executive Retirement Plan (3) | 24.3 | 6,980,440 | — | |||||||||
HEI Excess Pay Plan (4) | 2.0 | 370,688 | — | |||||||||
HEI Executive Death Benefit (5) | — | 415,511 | ||||||||||
James A. Ajello | HEI Retirement Plan (1) | 1.9 | 138,384 | — | ||||||||
HEI Excess Pay Plan (4) | 1.9 | 105,024 | — | |||||||||
HEI Executive Death Benefit (5) | — | 94,269 | — | |||||||||
Chester A. Richardson | HEI Retirement Plan (1) | 3.3 | 213,004 | — | ||||||||
HEI Excess Pay Plan (4) | 3.3 | 87,763 | ||||||||||
HEI Executive Death Benefit (5) | — | 145,772 | — | |||||||||
Richard M. Rosenblum | HEI Retirement Plan (1) | 2.0 | 133,097 | — | ||||||||
HEI Excess Pay Plan (4) | 4.0 | 436,498 | — | |||||||||
HEI Executive Death Benefit (5) | — | 145,695 | — | |||||||||
Timothy K. Schools (7) | — | — | — | — | ||||||||
Richard F. Wacker (8) | — | — | — | — |
service with HEI or other participating companies (Hawaiian Electric Company, Maui Electric Company and Hawaii Electric Light Company). Additional credited service of up to eight months is used to calculate benefits for participants who retire at age 55 or later with respect to unused sick leave from the current year and prior two years. Credited service is also granted to disabled participants who are vested at the time of disability for the period of disability. The normal form of benefit is a joint and 50% survivor annuity for married participants and a single life annuity for unmarried participants. Other actuarially equivalent optional forms of benefit are also available. Participants who qualify to receive benefits immediately upon termination may also elect a single sum distribution of up to $50,000 with the remaining benefit payable as an annuity. At early retirement, the single sum distribution option is not actuarially equivalent to the other forms of benefit. Retirement benefits are increased by an amount equal to approximately 1.4% of the initial benefit every twelve months following retirement. The plan provides benefits at early retirement (prior to age 65), normal retirement (age 65), deferred retirement (over age 65) and death. Early retirement benefits are available for participants who meet the age and service requirements at ages 50-64. Early retirement benefits are reduced for participants who retire prior to age 60, based on the participant's age at the early retirement date. The accrued normal retirement benefit is reduced by an applicable percentage, which ranges from 30% for early retirement at age 50 to 1% at age 59. Accrued or earned benefits are not reduced for eligible employees who retire at age 60 and above. Subject to the collective bargaining process, HEI has amended the HEI Retirement Plan to reduce the early retirement subsidies for benefits accrued after January 31, 2011. The retirement benefits, including the early retirement subsidies, accrued by all participants through January 31, 2011, will remain unchanged. These amendments do not apply to participants who had attained age 45 and were fully vested in their retirement benefits as of January 31, 2011. (Generally, a participant becomes fully vested after completing five years of employment with HEI or its subsidiaries.) Under the amended plan, early retirement subsidies are reduced for participants who retire prior to age 62 and are eliminated for participants who retire prior to age 55. For retirements between the ages of 55 and 61, there will be a 3% reduction for each year prior to age 62. For retirements prior to age 55, no subsidy will be available. A participant retiring after age 50 and before age 55 will receive the actuarial equivalent of the age 65 benefit. Ms. Lau is eligible for early retirement benefits under the HEI Retirement Plan. Messrs. Ajello, Richardson and Rosenblum are not eligible for early retirement benefits under the HEI Retirement Plan and have no vested interest in the amounts reported above because none of them have satisfied the five-year minimum service requirement.
Disability and Death Benefit Plan and social security. Early retirement and death benefits similar to those available under the HEI Retirement Plan are available under the HEI Supplemental Executive Retirement Plan. Ms. Lau is eligible for early retirement benefits under the HEI Supplemental Executive Retirement Plan based on 26 years and 3 months of actual service with all HEI affiliated companies as of December 31, 2010. Upon her retirement, Ms. Lau's benefits from this plan will be based upon benefits earned through December 31, 2008.
Methodology: The present values are calculated as of December 31, 2010 based on the credited service and pay of the named executive officer as of such date (or the date of benefit freeze, if earlier).
Assumptions:
Nonqualified Deferred Compensation
2010 NONQUALIFIED DEFERRED COMPENSATION
Name | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($) | Aggregate Earnings/ (Losses) in Last FY ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau (1) | — | — | 28,183 | — | 244,722 | |||||||||||
James A. Ajello | — | — | — | — | — | |||||||||||
Chester A. Richardson | — | — | — | — | — | |||||||||||
Richard M. Rosenblum | — | — | — | — | — | |||||||||||
Richard F. Wacker | — | — | — | — | — | |||||||||||
Timothy K. Schools | — | — | — | — | — |
Potential Payments Upon Termination or Change in Control
The table below shows the amount of potential payments to each named executive officer in the event of retirement, voluntary termination, termination for cause, termination without cause and a qualifying termination following a change in control, assuming termination occurred on December 31, 2010. The amounts listed below are estimates; actual amounts to be paid would depend on the actual date of termination and circumstances existing at that time.
2010 TERMINATION/CHANGE-IN-CONTROL PAYMENT TABLE
Name/ Benefit Plan or Program | Retirement on 12/31/10 ($) (1) | Voluntary Termination on 12/31/10 ($) (2) | Termination for Cause on 12/31/10 ($) (3) | Termination without Cause on 12/31/10 ($) (4) | Qualifying Termination after Change in Control on 12/31/10 ($) (5) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | 1,252,099 | — | — | — | — | |||||||||||
Restricted Shares, Restricted Stock and Restricted Stock Units (8) | 464,346 | — | — | 461,498 | — | |||||||||||
Preferential Mortgage Loan Interest (9) | 168,753 | — | — | — | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 5,341,338 | |||||||||||
TOTAL | 1,885,198 | — | — | 461,498 | 5,341,338 | |||||||||||
James A. Ajello | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | — | — | — | — | — | |||||||||||
Restricted Shares, Restricted Stock and Restricted Stock Units (8) | — | — | — | — | — | |||||||||||
Special Severance Payment (10) | — | — | — | 442,000 | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 2,477,091 | |||||||||||
TOTAL | — | — | — | 442,000 | 2,477,091 | |||||||||||
Chester A. Richardson | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | — | — | — | — | — | |||||||||||
Restricted Shares, Restricted Stock and Restricted Stock Units (8) | — | — | — | 76,099 | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 1,289,045 | |||||||||||
TOTAL | — | — | — | 76,099 | 1,289,045 | |||||||||||
Name/ Benefit Plan or Program | Retirement on 12/31/10 ($) (1) | Voluntary Termination on 12/31/10 ($) (2) | Termination for Cause on 12/31/10 ($) (3) | Termination without Cause on 12/31/10 ($) (4) | Qualifying Termination after Change in Control on 12/31/10 ($) (5) | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Richard M. Rosenblum | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Long-Term Incentive Plan (7) | — | — | — | — | — | |||||||||||
Restricted Shares, Restricted Stock and Restricted Stock Units (8) | — | — | — | — | — | |||||||||||
Special Severance Payment (10) | — | — | — | 587,000 | — | |||||||||||
Change-in-Control Agreement | — | — | — | — | 2,491,646 | |||||||||||
TOTAL | — | — | — | 587,000 | 2,491,646 | |||||||||||
Richard F. Wacker | ||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | |||||||||||
Restricted Shares, Restricted Stock and Restricted Stock Units (8) | — | — | — | 410,425 | 410,425 | |||||||||||
Change-in-Control Agreement | — | — | — | — | — | |||||||||||
TOTAL | — | — | — | 410,425 | 410,425 | |||||||||||
Mr. Schools received no benefits under his change-in-control agreement upon his departure from the Company in September 2010.
Note: All stock-based award amounts were valued using the 2010 year-end closing price of HEI Common Stock of $22.79 per share. Other benefits that are available to all employees on a nondiscriminatory basis and perquisites aggregating less than $10,000 in value have not been listed.
not include amounts payable under the 2010 executive incentive compensation plan or the 2008-2010 long term incentive plan or supplemental long-term incentive plan because those amounts would have vested without regard to voluntary termination since December 31, 2010 was the end of the applicable performance periods.
"Change in control" generally means a change in ownership of HEI, a substantial change in the voting power of HEI's securities or a change in the majority of the composition of the Board following the consummation of a merger, tender offer or similar transaction. Mr. Rosenblum's and Mr. Wacker's change-in-control agreements define "change in control" to also mean a sale of (or equivalent transaction involving) Hawaiian Electric Company boardor American Savings Bank, respectively. The aggregate payments under the agreements are limited to the maximum amount deductible under Section 280G of directors effective Augustthe Internal Revenue Code and there are no excise tax gross ups provided for in the agreements. The change-in-control agreements are also double trigger, meaning that severance payments are made only if a change in control occurs and the named executive officer also loses his or her job under the qualifying circumstances described in his or her change-in-control agreement. Ms. Lau has a lump sum severance multiplier of three times and Messrs. Ajello, Richardson, Rosenblum and Wacker have a lump sum severance multiplier of two times applied to the sum of the executive's base salary and annual bonus (determined to be the greater of the current target bonus or the largest actual bonus during the preceding three years).
In addition, under the change-in-control agreements executives would receive continued life, disability, dental, accident and health insurance benefits for the severance period (i.e., the number of years equal to the applicable severance multiplier). Executives would receive a lump sum
payment equal to the present value of the additional benefit the executives would have earned under their respective retirement and savings plans during the severance period. Executives would also receive the greater of current target or actual projected short- and long-term incentive bonuses, prorated if termination occurs during the first half of the applicable performance period and the full aggregate value if termination occurs after the end of the first half of the applicable performance period. Any unvested restricted stock and restricted stock units awarded under the SOIP will become vested and free of restrictions upon a change in control. For restricted shares, restricted stock units, nonqualified stock options and stock appreciation rights awarded under the EIP, in the event of a change in control either (i) the acquiring entity shall assume all outstanding awards or substitute similar awards for all outstanding awards or (ii) all outstanding awards shall become fully vested and, if applicable, exercisable. For the named executive officers who are eligible to participate in the HEI Retirement Plan, additional age and service credit is received for the severance period for purposes of determining retiree welfare benefit eligibility. Executives would receive financial, tax planning and outplacement services, capped at 15% of annual base salary. Payment would generally be delayed for six months following termination of employment to the extent required to avoid an additional tax under Section 409A of the Internal Revenue Code. Interest would accrue during the six-month delay period at the prevailing six-month certificate of deposit rate and payments would be set aside during that period in a grantor ("rabbi") trust.
Other compensation benefits are provided to the executives upon a change in control as described below. All the foregoing benefit amounts are included in this column but the total severance amount shown is limited to the maximum amount deductible under Section 280G of the Internal Revenue Code with respect to each named executive officer.
in footnote 5 above. Restricted stock vests on a pro-rata basis (based on service to date compared to the original vesting period) upon termination without cause and becomes fully vested upon a change in control. For all other termination events, the unvested restricted stock is forfeited. Upon termination due to death, disability or retirement, restricted stock units awarded under the SOIP vest on a pro-rata basis (based on completed quarters of service over the original vesting period) and restricted stock units awarded under the EIP vest (i) based on actual performance if the restrictions are performance-based and (ii) on a pro-rata basis if the restrictions are based on lapse of time (based on service to date compared to the original vesting period). The effect of a change in control on restricted stock units awarded under the EIP is described in footnote 5 above. All other termination events result in the forfeiture of the unvested restricted stock units, whether awarded under the SOIP or the EIP. The amount shown is based on the 2010 year-end closing price of vested shares. The vesting of restricted shares, restricted stock and restricted stock units and severance payments in the event of a change in control are described in footnote 5 above and have been quantified as part of the Change-in-Control Agreement payment in the table above.
Security Ownership of Certain Beneficial Owners
The table below shows the number of shares of HEI Common Stock beneficially owned as of February 8, 20102011 (or such other date as indicated below) by (a) each person known by HEI to own beneficially more than five percent of the outstanding shares of HEI Common Stock, (b) each director who is a current director or served as a director during any part of 2010, each nominee for director and each named executive officer (as listed in the 20092010 Summary Compensation Table aboveabove) and (c) all directors and executive officers as a group, based in part on information furnished by the respective shareholders. No HEI directors, executive officers or named executive officers own any shares of Preferred Stock of HEI's wholly owned subsidiary, Hawaiian Electric Company.
Amount and Nature of Beneficial Ownership of HEI Common Stock
Name of Individual or Group | Sole Voting or Investment Power (2) | Shared Voting or Investment Power (3) | Other Beneficial Ownership (4) | Stock Options/ Restricted Stock Units (5) | Total | Percent of Class | Sole Voting or Investment Power (1) | Shared Voting or Investment Power (2) | Other Beneficial Ownership (3) | Stock Options/ Restricted Stock and RSUs (4) | Total | Percent of Class | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
BlackRock, Inc. (1) | 4,800,957 | — | — | — | 4,800,957 | 5.22 | % | |||||||||||||||||||||||||||||||
Nonemployee directors | ||||||||||||||||||||||||||||||||||||||
Don E. Carroll | 24,330 | — | — | — | 24,330 | * | 26,130 | — | — | — | 26,130 | * | ||||||||||||||||||||||||||
Shirley J. Daniel | 14,735 | — | — | — | 14,735 | * | 16,535 | — | — | — | 16,535 | * | ||||||||||||||||||||||||||
Thomas B. Fargo | 12,067 | — | — | — | 12,067 | * | 14,612 | — | — | — | 14,612 | * | ||||||||||||||||||||||||||
Richard W. Gushman, II | 13,383 | — | — | — | 13,383 | * | ||||||||||||||||||||||||||||||||
Richard W. Gushman, II (5) | 16,003 | — | — | — | 16,003 | * | ||||||||||||||||||||||||||||||||
Victor H. Li | 4,051 | 11,204 | 536 | — | 15,791 | * | 5,851 | 12,097 | 558 | — | 18,505 | * | ||||||||||||||||||||||||||
A. Maurice Myers | 37,419 | — | — | — | 37,419 | * | 39,481 | — | — | — | 39,481 | * | ||||||||||||||||||||||||||
Diane J. Plotts | 18,680 | — | — | — | 18,680 | * | ||||||||||||||||||||||||||||||||
Diane J. Plotts (5) | 18,680 | — | — | — | 18,680 | * | ||||||||||||||||||||||||||||||||
James K. Scott | 19,869 | — | — | — | 19,869 | * | 22,864 | — | — | — | 22,864 | * | ||||||||||||||||||||||||||
Kelvin H. Taketa | 17,704 | — | — | — | 17,704 | * | 23,122 | — | — | — | 23,122 | * | ||||||||||||||||||||||||||
Barry K. Taniguchi | — | 22,627 | — | — | 22,627 | * | — | 23,727 | — | — | 23,727 | * | ||||||||||||||||||||||||||
Jeffrey N. Watanabe | 34,456 | — | 4 | — | 34,460 | * | 33,449 | — | 4 | — | 33,453 | * | ||||||||||||||||||||||||||
Nonemployee director nominees | ||||||||||||||||||||||||||||||||||||||
Peggy Y. Fowler | — | 1,934 | — | — | 1,934 | * | ||||||||||||||||||||||||||||||||
Keith P. Russell | 1,000 | — | — | — | 1,000 | * | ||||||||||||||||||||||||||||||||
Employee director and Named Executive Officer | ||||||||||||||||||||||||||||||||||||||
Constance H. Lau | 177,292 | — | 7,202 | 224,136 | 408,630 | * | 226,065 | — | 7,617 | 139,860 | 372,112 | * | ||||||||||||||||||||||||||
Other Named Executive Officers | ||||||||||||||||||||||||||||||||||||||
James A. Ajello | — | — | — | — | — | * | 2,000 | — | — | — | 2,000 | * | ||||||||||||||||||||||||||
Curtis Y. Harada | 5,602 | — | — | 469 | 6,071 | * | ||||||||||||||||||||||||||||||||
Chester A. Richardson | 7,554 | — | — | — | 7,554 | * | 14,366 | — | 3,036 | — | 17,402 | * | ||||||||||||||||||||||||||
Richard M. Rosenblum | 700 | — | — | — | 700 | * | 700 | — | — | — | 700 | * | ||||||||||||||||||||||||||
Timothy K. Schools | 7,000 | — | — | — | 7,000 | * | ||||||||||||||||||||||||||||||||
All directors and executive officers as a group (16 persons) (5) | 389,240 | 33,831 | 7,742 | 224,136 | 654,949 | * | ||||||||||||||||||||||||||||||||
Timothy K. Schools (5) | 15,338 | — | — | — | 15,338 | * | ||||||||||||||||||||||||||||||||
Richard F. Wacker | 18,009 | — | — | — | 18,009 | * | ||||||||||||||||||||||||||||||||
All directors and executive officers as a group (16 persons) | 444,183 | 37,758 | 11,214 | 139,860 | 633,015 | * | ||||||||||||||||||||||||||||||||
Does HEI have stock ownership and retention guidelines for directors and officers?officers and does it have a policy regarding hedging the risk of ownership?
In 2003, the Board adopted stock ownership and retention guidelines for HEI's directors, executive officers and controller. Each officer and director subject to the guidelines has until January 1 of the year following the fifth anniversary of the later of (i) amendment to the guidelines affecting his or her specified level of stock ownership or (ii) his or her first becoming subject to the guidelines to achieve the specified level of stock ownership (compliance date). In 2009, the Board increased the specified level of stock ownership guidelines for the HEI President and Chief Executive Officer to five times (from two and a half times) her base salary. In December 2010, the Board increased the stock ownership guidelines for the HEI named executive officers (other than the HEI President and Chief Executive Officer) to two times (from one and one-half times) their respective base salaries. In addition, the Board increased the Chairman of the Board's stock ownership level from one times his annual cash retainer to two times. For other directors, and officers, stock ownership guideline targets are: (1) Chairman of the Board—1are five times Chairman's annual cash retainer, (2) other directors—5 timestheir annual Board and Board committee cash retainer and (3) other officers subject to the guidelines—1.5 times annual base salary.retainer. As of January 1, 2010,2011, each director who has reached his or her initial compliance date had achieved his or her stock ownership target. Admiral Fargo will reach hisMs. Lau's initial compliance date onis January 1, 2011. Messrs. Gushman and Richardson will reach their initial compliance dates on January 1, 2013. Mr. Schools will reach his2015; however, she has already reached the specified level of stock ownership for her position. The initial compliance date onfor Messrs. Ajello, Richardson, Rosenblum and Wacker is January 1, 2014. Ms. Lau and Messrs. Ajello, Rosenblum and Kostecki (who is HEI's controller) will reach their initial compliance dates on January 1, 2015.2016.
Prior to his or her initial compliance date, directors and officers subject to the stock ownership and retention guidelines must observe the following stock retention requirements: (i) HEI directors must retain all shares received under their annual stock retainer and (ii) HEI and subsidiary officers subject to the guidelines must retain all shares received in payout under the Long-Term Incentive Plan and 20% of shares received through the exercise of nonqualified stock options or stock appreciation rights
or through the vesting of restricted stock or restricted stock units. The Compensation Committee has the authority to approve temporary hardship exceptions to these retention requirements.
Table The Company's Insider Trading Policy prohibits all directors, officers and employees of ContentsHEI and its subsidiaries (as well as the spouses, minor children, adult family members sharing the same household and any other person for whom the director, officer or employee exercises substantial control over such persons' securities trading decisions) from trading in options, warrants, puts, calls or similar instruments on Company securities, making short sales in Company securities, holding Company securities in margin accounts or pledging Company securities.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires HEI's executive officers, controller, directors and persons who own more than ten percent of a registered class of HEI's equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission (SEC). Such reporting persons are also required by SEC regulations to furnish HEI with copies of all Section 16(a) forms they file. Based solely on its review of such forms provided to it, or written representations from some of those persons that no Forms 5 were required from such persons, HEI believes that each of the persons required to comply with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 with regard to HEI, including its executive officers, controller, directors and persons who own more than ten percent of a registered class of HEI's equity securities, complied with thesuch reporting requirements of Section 16(a) of the Securities Exchange Act of 1934 for 2009,2010, except for Mr. Carroll,David M. Kostecki, HEI Vice President, Controller and Chief Accounting Officer, who inadvertently failed to report one transaction in a timely fashion, and Mr. Taketa,Constance H. Lau, HEI President and Chief Executive Officer, who inadvertently failed to report two transactions that occurred on the same date in a timely fashion. Eachfashion one transaction wherein she became a beneficiary of thesea trust. These reports hashave now been filed.
Does HEI have a written related person transaction policy?
The Board of Directors has adopted a written related person transaction policy that is separate fromspecifically incorporated in HEI's Corporate Code of Conduct. The related person transaction policy is specific to transactions between the companyCompany and related persons such as executive officers and directors, their immediate family members or entities with which they are affiliated in which the amount involved exceeds $120,000 and in which any related person had or will have a direct or indirect material interest. Under the policy, the Board, acting through the Nominating and Corporate Governance Committee, will approve a related person transaction involving a director or an officer if the Board determines in advance that the transaction is not inconsistent with the best interestinterests of HEI and its shareholders. The Board, acting through the Audit Committee, will approve a related person transaction involving an officer if the Board determines in advance that the transactionshareholders and is not in violation of HEI's Corporate Code of Conduct.
Are there any family relationships between any HEI executive officer, director and nominee for director?
There are no family relationships between any HEI executive officer, director or nominee for director.
Are there any arrangements or understandings between any HEI director or director nominee and another person pursuant to which such director or director nominee was selected?
There are no such arrangements or understandings.
Are there any related person transactions with HEI or its subsidiaries?
HEI's subsidiary, American Savings Bank, no longer extends preferential rate loans to its directors and employees. Effective June 30, 2006, preferential rate loans that had already been extended to certain American Savings Bank directors who are also HEI directors were grandfathered and no future preferential rate loans to directors are allowed. Effective July 1, 2009, preferential rate loans that had already been extended to employees were grandfathered and no future preferential rate loans to employees are allowed.
The table below shows the grandfathered preferential rate loans to the directors and officers listed below. Each loan was made in accordance with Regulation O of the Federal Reserve Board regarding loans to insiders. Dr. Li fully repaid his loan in February 2009.As of January 2011, all nonemployee directors had either paid off their loans or refinanced their loans at market rates.
Name | Largest Principal Amount Outstanding During 2009 | Principal Amount Outstanding on 2/15/10 | Amount of Principal Paid in 2009 | Amount of Interest Paid in 2009 | Type of Transaction | Average Interest Rate Charged (1) | Largest Principal Amount Outstanding During 2010 | Principal Amount Outstanding on 2/8/11 | Amount of Principal Paid in 2010 | Amount of Interest Paid in 2010 | Type of Transaction | Average Interest Rate Charged (1) | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shirley J. Daniel | 1,405,218 | 1,372,363 | 30,177 | 55,758 | First Mortgage | 4.000% | 1,374,941 | 1,340,794 | 31,406 | 54,529 | First Mortgage | 4.000% | ||||||||||||||||||||||||
Richard W. Gushman, II | 1,731,038 | 1,677,974 | 48,783 | 55,667 | First Mortgage | 3.250% | 1,682,123 | — | 1,686,260 | 44,513 | First Mortgage | 3.250% | ||||||||||||||||||||||||
Constance H. Lau | 750,122 | 724,011 | 24,024 | 19,455 | First Mortgage | 2.625% | 726,046 | 701,330 | 24,662 | 18,817 | First Mortgage | 2.625% | ||||||||||||||||||||||||
Constance H. Lau | 29,769 | 26,160 | 3,319 | 892 | Second Mortgage | 3.125% | 26,442 | — | 26,723 | 667 | Second Mortgage | 3.125% | ||||||||||||||||||||||||
Victor H. Li | 324,465 | 0 | 325,181 | 1,133 | First Mortgage | 3.000% | ||||||||||||||||||||||||||||||
Diane J. Plotts | 408,748 | 294,708 | 12,918 | 10,603 | First Mortgage | 2.625% | 395,802 | 279,391 | 115,471 | 8,051 | First Mortgage | 2.625% | ||||||||||||||||||||||||
Timothy K. Schools | 2,908,000 | 2,908,000 | 0 | (2) | 185,385 | First Mortgage | 6.375% | 2,908,000 | — | 2,908,000 | (2) | 126,130 | First Mortgage | 6.375% | ||||||||||||||||||||||
Jeffrey N. Watanabe | 501,732 | 480,913 | 19,128 | 18,547 | First Mortgage | 3.750% | 482,544 | 462,646 | 18,175 | 17,817 | First Mortgage | 3.750% |
American Savings Bank has made other loans and extensions of credit to directors and executive officers, members of their immediate families and entities with which the foregoing are affiliated. These loans and extensions of credit were made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectibility or present other unfavorable features.
Until FebruaryAs described above under "Compensation Discussion and Analysis—Compensation Elements—What other benefits do named executive officers have?" and "Executive Compensation—Summary Compensation Table," in August 2010 American Saving Bank purchased the Honolulu home of Mr. Schools, who voluntarily resigned from his position as President of the bank in September 2010. American Savings Bank leased commercial spacehad agreed, for onepurposes of its branches from Finance Enterprises, Ltd. and oneretention of its wholly owned subsidiaries. Ms. Lau's husband, Russell J. Lau, is President, Chief Executive Officer and Director of Finance Enterprises, Ltd. and also owns an equity interest in that entity. Ms. Lau's father-in-law, Daniel B.T. Lau, is ChairmanMr. Schools, who was instrumental to the success of the Board and Secretarybank's performance improvement project, to purchase his home at his original purchase price of Finance Enterprises, Ltd. and also indirectly owns$3.635 million less normal selling costs borne by the seller on or before the earlier of June 30, 2011 or his termination as an equity interest in that entity through a family limited partnership (of which Ms. Lau is not a partner). The lease initially commenced in 1995 with other parties and the lessor and lessee obligations were subsequently assumed by Finance Enterprises, Ltd. and its wholly owned subsidiary jointly in 1996 and byemployee of American Savings Bank, in 1997, until ownershipprovided that Mr. Schools remained employed as President of the property was transferred in February 2010 to an entity unaffiliated with Finance Enterprises, Ltd. or HEI or any of its subsidiaries. The assumption of the lease by American Savings Bank through yearend 2010 or such earlier date as the Company determined in 1997 occurred prior toits sole discretion. Upon his termination, the adoptionhome was appraised at $3.376 million. Selling costs including broker's commission totaled $247,891 and Mr. Schools' recognized taxable income from the sale was $11,109.
Compensation Committee Interlocks and Insider Participation
Don E. Carroll, Thomas B. Fargo, Victor H. Li, A. Maurice Myers and Diane J. Plotts were members of the HEI Compensation Committee during 2009.2010. Admiral Fargo served as Compensation Committee Chairperson.
Dr. Li and Ms. Plotts receivedhas had the benefit of the preferential rate loansloan described above. Dr. Li fully repaid his loan in February 2009.
TableShe retired as an HEI director at the 2010 Annual Meeting of ContentsShareholders.
The Audit Committee is responsible for providing independent, objective oversight of HEI's accounting functions and internal controls. It operates and acts under a written charter, which was adopted and approved by the committee and the HEI Board of Directors. The Board has determined that the fivethree directors ofon the Audit Committee (Dr. Daniel and Messrs. Scott and Taniguchi) meet the independence and other qualification requirements of the New York Stock Exchange Listed Company Manual and applicable securities laws. Ms. Plotts, Dr. Daniel and Mr.Messrs. Scott and Taniguchi have been determined by the Board of Directors to be the "audit committee financial experts" on the Audit Committee. In addition, the Audit Committee has authority to retain its own independent legal counsel and accounting advisers at HEI's expense.
The Audit Committee assists the Board of Directors with its financial and risk oversight responsibilities. Management has the primary responsibility for HEI's consolidated financial statements and reporting process, including the systems of internal control. The independent registered public accounting firm has the responsibility for the independent audit of the consolidated financial statements and for expressing an opinion on the conformity of those audited consolidated financial statements with U.S. generally accepted accounting principles.
In connection with these responsibilities, the Audit Committee held four regular meetings in 2009. In these meetings with management and KPMG LLP, HEI's independent registered public accounting firm for 2009, the committee's review and discussion included the audited consolidated financial statements, audit plan and quality/adequacy of internal controls. The committee believes that management maintains effective systems of internal control that result in fairly presented consolidated financial statements. Discussions with KPMG LLP included the matters required by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, which incorporates information regarding the scope and results of the audit.
Independent Registered Public Accounting Firm's Independence
KPMG LLP provided the Audit Committee with written disclosures and a letter regarding its independence from management as required by professional standards and other regulatory requirements, including applicable requirements of the Public Company Accounting Oversight Board. Based on its review of the disclosure statements and discussions with KPMG LLP, the Audit Committee satisfied itself as to the independence of the external auditor.
Auditors' Fees
The following table sets forth the fees paid or payable to KPMGPricewaterhouseCoopers LLP (PwC), the Company's independent registered public accounting firm for 2010, relating to the audit of the 20092010 consolidated financial statements and fees for other professional services billed in 20092010 with comparative amounts for 2008:2009 that were paid to KMPG LLP (KPMG), HEI's former principal independent registered public accounting firm:
| 2009 | 2008 | 2010 | 2009 | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fees | % | Fees | % | Fees | % | Fees | % | ||||||||||||||||||
Audit fees (principally consisted of fees associated with the audit of HEI's, Hawaiian Electric Company's and American Savings Bank's consolidated financial statements and internal control over financial reporting (Sarbanes-Oxley Act of 2002, Section 404), quarterly reviews, issuances of letters to underwriters, statutory audits, review of registration statements and issuance of consents) | $ | 1,652,000 | 94.3 | $ | 2,080,000 | 95.5 | $ | 1,750,000 | 81.1 | $ | 1,652,000 | 94.3 | ||||||||||||||
Audit-related fees (principally consisted of fees associated with the audit of the financial statements of certain employee benefit plans) | 82,000 | 4.7 | 64,400 | 3.0 | 110,000 | 5.1 | 82,000 | 4.7 | ||||||||||||||||||
Tax fees (tax compliance services with respect to federal and state taxes) | 17,713 | 1.0 | 32,500 | 1.5 | 298,000 | 13.8 | 17,713 | 1.0 | ||||||||||||||||||
All other fees | — | — | — | — | — | — | — | — | ||||||||||||||||||
$ | 1,751,713 | 100.0 | $ | 2,176,900 | 100.0 | $ | 2,158,000 | 100.0 | $ | 1,751,713 | 100.0 | |||||||||||||||
AllTable of the foregoing amounts were pre-approved.Contents
Pursuant to its charter, the Audit Committee pre-approvespreapproves all audit and permitted nonaudit services to be performed by the independent registered public accounting firm. The Audit Committee may delegate this responsibility to one or more of its members, provided that such member or members report any such pre-approvalspreapprovals to the full Audit Committee at its next regularly scheduled meeting. All of the amounts set forth in the table above were preapproved. In addition, the Audit Committee reviewed the professional fees billed by KPMG LLPPwC and determined that the provision of nonaudit services was compatible with the maintenance of the auditors'auditor's independence.
Change in Registered Public Accounting Firm
KPMG was HEI's independent registered public accounting firm for fiscal year 2009 and for several prior years, but on February 23, 2010 the HEI Audit Committee voted to dismiss KPMG, and to retain PwC as its independent registered public accounting firm for fiscal year 2010. The Company informed KPMG of this decision and dismissed KPMG on February 24, 2010. PwC's reports on HEI's consolidated financial statements as of and for the fiscal year ended December 31, 2010, and KPMG's reports on HEI's consolidated financial statements as of and for the fiscal years ended December 31, 2009 and 2008, contained no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. The audit reports of PwC on the effectiveness of internal control over financial reporting as of December 31, 2010, and the audit reports of KPMG on the effectiveness of internal control over financial reporting as of December 31, 2009 and 2008, did not contain an adverse opinion or disclaimer of opinion, nor were they qualified as to uncertainty, audit scope or accounting principles. During the fiscal years ended December 31, 2009 and 2008 and through February 24, 2010, there were no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG, would have caused it to make reference to the subject matter of the disagreements in connection with its reports for such periods. During the fiscal years ended December 31, 2009 and 2008 and through February 24, 2010, there were no reportable events as defined in Item 304(a)(1)(v) of the SEC's Regulation S-K.
During the fiscal years ended December 31, 2009 and 2008 and through February 26, 2010, the date of engagement of PwC, neither HEI nor any person on its behalf consulted with PwC with respect to (i) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on HEI's consolidated financial statements, and no written report or oral advice was provided by PwC to HEI that PwC concluded was an important factor considered by HEI in reaching a decision as to the accounting, auditing or financial reporting issue, or (ii) any matter that was the subject of either a disagreement as defined in Item 304(a)(1)(iv) of the SEC's Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of the SEC's Regulation S-K.
Independence of Registered Public Accounting Firm and Recommendation to Include Financial Statements in Form 10-K
In connection with its responsibilities, the Audit Committee held five regular meetings in 2010, one with KPMG LLP, HEI's former principal independent registered public accounting firm, and three with PwC, HEI's principal independent registered public accounting firm for 2010. In its meetings with management and PwC, the committee's review and discussion included the audited consolidated financial statements, audit plan and quality/adequacy of internal controls. The committee believes that management maintains effective systems of internal control that result in fairly presented consolidated financial statements. Discussions with PwC included the matters required by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards Vol. 1, AU Section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, which incorporates information regarding the scope and results of the audit.
PwC provided the Audit Committee with written disclosures and a letter regarding its independence from management as required by professional standards and other regulatory requirements, including applicable requirements of the Public Company Accounting Oversight Board. Based on its review of the disclosure statements and discussions with PwC, the Audit Committee satisfied itself as to the independence of the external auditor.
Based on its reviews and discussions with management and KPMG LLPPwC described above and review of KPMG'sPwC's representations and disclosures, the Audit Committee recommended to the Board of Directors that HEI's audited consolidated financial statements be included in HEI's 20092010 Form 10-K.
SUBMITTED BY THE AUDIT COMMITTEE OF THE
HEI BOARD OF DIRECTORS
Diane J. Plotts,Barry K. Taniguchi, Chairperson
Shirley J. DanielThomas B. Fargo
James K. ScottBarry K. Taniguchi
PricewaterhouseCoopers LLP (PwC) has served as HEI's independent registered public accounting firm since February 2010. On February 7, 2011, the Audit Committee selected PwC as HEI's independent registered public accounting firm for 2011, subject to shareholder ratification. The Board, upon the recommendation of its Audit Committee, recommends the ratification of the appointment of PwC as the independent registered public accounting firm of HEI for fiscal year 2011 and thereafter until its successor is appointed. Representatives of PwC will be present at the Annual Meeting, will be given the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
Table of Contents THE AUDIT COMMITTEE AND YOUR BOARD RECOMMEND THAT YOU VOTE"FOR" THE RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR HEI FOR 2011.
How are proxies solicited and what is the cost?
HEI will solicit proxies by mail, telephone or other means of communication and will bear the cost of such solicitation. We have engaged Laurel HillPhoenix Advisory GroupPartners to assist in the distribution of proxy materials and solicitation of proxies (including by telephone) from shareholders at a cost of $7,500 plus reasonable expenses. We will also reimburse brokers, fiduciaries and custodians for their costs in forwarding proxy materials to beneficial owners of our Common Stock.
What is the deadline for submitting a proposal for next year's Annual Meeting?
Shareholders who want to have a proposal included in the proxy statement and form of proxy for the 2011 annual meeting2012 Annual Meeting of shareholdersShareholders must notify the Corporate Secretary in writing. The proposal must be received by November 22, 2010.2011.
How can business matters be brought before the Annual Meeting?
Shareholders who wish to present business before the Annual Meeting must provide a written notice to the Corporate Secretary that is received no later than 60 days nor earlier than 90 days prior to the anniversary date of the preceding year's annual meeting.Annual Meeting.
To be timely for the 2011 annual meeting2012 Annual Meeting of shareholders,Shareholders, notice must be received by the Corporate Secretary no later than March 12, 201111, 2012 and no earlier than February 10, 2011.2012. The notice must include, as to each matter the shareholder proposes to bring before the annual meeting:Annual Meeting: (i) a brief description of the business desired to be brought before the annual meetingAnnual Meeting and the reasons for conducting such business at the annual meeting,Annual Meeting, (ii) the name and record address of the shareholder, (iii) the number of shares of HEI Common Stock that are owned by the shareholder, (iv) a description of all arrangements or understandings between the shareholder and any other person or persons (including their names) in connection with the proposal of such business by the shareholder and any material interest of the shareholder in such business and (v) a representation that the shareholder intends to appear in person or by proxy at the annual meetingAnnual Meeting to bring such business before the meeting.
How can shareholders recommend or propose persons as nominees to serve on the Board?
Shareholders may recommend any person to serve on the Board by writing to the Nominating and Corporate Governance Committee in care of the Corporate Secretary, Hawaiian Electric Industries, Inc., P.O. Box 730, Honolulu, Hawaii 96808-0730. Recommendations must be received by November 22, 20102011 for consideration by the Nominating and Corporate Governance Committee for the 2011 annual meeting2012 Annual Meeting of shareholders.Shareholders. The recommendation must include (a) a resume and other relevant biographical information regarding the person's skills and qualifications to serve on the Board, (b) the nominee's consent to serve as a director and (c) the number of shares of HEI Common Stock owned by the shareholder.
Shareholders may propose persons as nominees to serve on the Board by providing a written notice to the Corporate Secretary that is received no later than March 12, 201111, 2012 and no earlier than February 10, 2011.2012. The notice must include:
Section 14 of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder; and
A written consent of each proposed nominee to being a nominee and to serve as a director if elected must also accompany the notice.
What provisions has HEI made for "householding"? and will it provide additional copies of proxy materials upon request?
As permitted by rules of the Securities and Exchange Commission, HEI has adopted a procedure referred to as "householding," under which only one annual report to shareholders will be delivered to
shareholders sharing the same address, unless contrary instructions are received. Householding reduces the volume of duplicate information received at your household, the cost to HEI of preparing and mailing duplicate materials and the environmental burden of excess paper usage. Certain shareholder accounts at a householded address will continue to receive separate proxy statements and proxy cards.cards, and we will also deliver promptly upon your written or oral request a separate copy of the annual report, proxy statement or Notice of Internet Availability if you are a security holder at a shared address to which a single copy of the requested documents was delivered. Dividend payments and account statements are not affected. Householding will continue until you are notified otherwise or until you notify us that you wish to receive a separate annual report. You will be removed from the householding program within 30 days after receipt of your notice. If you wish to discontinue householding of the annual report to shareholders, you may notify us by calling us at (808) 532-5841 or toll free at (866) 672-5841 between 7:30 a.m. and 3:30 p.m., Hawaii Standard Time. You may also discontinue householding by writing to us at the following address: Hawaiian Electric Industries, Inc. Shareholder Services, P.O. Box 730, Honolulu, Hawaii 96808-0730, or by e-mailing us at invest@hei.com.
If you hold your shares in "street name," please contact your bank, broker or other holder of record to request information about householding.
* * *
Please vote your proxy as soon as possible to ensure that your shares will be counted at the Annual Meeting.
Chester A. Richardson Senior Vice President, General Counsel, Secretary and Chief Administrative Officer |
March 22, 201021, 2011
HAWAIIAN ELECTRIC INDUSTRIES, INC.2010 EQUITY AND INCENTIVE2011 NONEMPLOYEE DIRECTOR STOCK PLAN
Section 1. PurposePurposes of Plan.
the Plan
The namepurposes of this Plan is the Hawaiian Electric Industries, Inc. 2010 Equity and Incentive2011 Nonemployee Director Stock Plan (the "Plan""Plan"). The purpose are to advance the interests of Hawaiian Electric Industries, Inc. (the "Company") and its shareholders by aligning the personal interests of members of the Plan is to provide an additional incentive to selected employeesBoard of Directors of the Company or its Affiliates whose contributions are essential to the growth and successmembers of the Company's business, in order to strengthenboards of directors of its principal subsidiaries who are not employees with the commitmentinterests of such persons to the Company and its Affiliates, motivate such persons to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated persons whose efforts will result in the long-term growth and profitability of the Company. To accomplish such purposes,shareholders. Accordingly, the Plan provides thatparticipating nonemployee directors with incentives to maintain their status as directors and improve the Company's performance by increasing the level of Common Stock of the Company may grant Options, Share Appreciation Rights, Restricted Shares, Deferred Shares, Performance Shares, Other Share-Based Awards, Other Cash-Based Awards or any combinationowned by such nonemployee directors, thereby assisting them in meeting the Company's stock ownership guidelines, through the issuance of the foregoing.
As of the Effective Date, no new awards shall be madeCommon Stock under the Company's 1987 Stock Option and Incentive Plan as amended from time to time.
Section 2. Definitions.
part of their compensation.
For purposesUpon the effective date of the Plan, the Company's 1990 Nonemployee Director Stock Plan, as last amended and restated on May 6, 2008 (the "Prior Plan"), shall terminate and no further shares of Common Stock of the Company shall thereafter be issued under the Prior Plan.
2. Definitions
When used herein, the following terms shall be defined ashave the respective meanings set forth below:
(a) "AdministratorAnnual Meeting of Shareholders" means the Board, or, if and toannual meeting of shareholders of the extentCompany at which directors of the Board does not administer the Plan, the Committee in accordance with Section 3 hereof.Company are elected.
(b) "Affiliate" means a Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified. An entity shall be deemed an Affiliate of the Company for purposes of this definition only for such periods as the requisite ownership or control relationship is maintained.
(c) "Award" means any Option, Share Appreciation Right, Restricted Share, Deferred Share, Performance Share, Other Share-Based Award or Other Cash-Based Award granted under the Plan.
(d) "Award Agreement" means any written agreement, contract or other instrument or document evidencing an Award.
(e) "Bylaws" mean the amended and restated bylaws of the Company, as may be amended and/or restated from time to time.
(f) "Beneficial Owner" (or any variant thereof) has the meaning defined in Rule 13d-3 under the Exchange Act.
(g) "Board" means the Board of Directors of the Company.
(h) "Cause" shall have the meaning assigned to such term in any individual employment or severance agreement or Award Agreement with the Participant or, if no such agreement exists or the agreement does not define "Cause," Cause shall mean (i) the refusal or neglect of the Participant to perform substantially his or her employment-related duties, (ii) the Participant's personal dishonesty, incompetence, willful misconduct or breach of fiduciary duty, (iii) the Participant's indictment for, conviction of or entering a plea of guilty ornolo contendere to a crime constituting a felony or his or her willful violation of any applicable law (other than a traffic violation or other offense or violation outside of the course of employment which in no way adversely affects the Company and its Subsidiaries or their reputation or the ability of the Participant to perform his or her employment-related duties or to represent the Company or any Subsidiary of the Company that employs such Participant), (iv) the Participant's failure to reasonably cooperate, following a request to do so by the
Company, in any internal or governmental investigation of the Company or any of its Subsidiaries or (v) the Participant's material breach of any written covenant or agreement with the Company or any of its Subsidiaries not to disclose any information pertaining to the Company or such Subsidiary or not to compete or interfere with the Company or such Subsidiary.
(i) "Certificate of Incorporation" means the amended and restated certificate of incorporation of the Company, as may be further amended and/or restated from time to time.
(j) "Change in Capitalization" means any (i) merger, consolidation, reclassification, recapitalization, spin-off, spin-out, repurchase or other reorganization or corporate transaction or event, (ii) dividend (whether in the form of cash, Common Stock or other property), stock split or reverse stock split, (iii) combination or exchange of shares, (iv) other change in corporate structure or (v) declaration of a special dividend (including a cash dividend) or other distribution, which, in any such case, the Administrator determines, in its sole discretion, affects the Shares such that an adjustment pursuant to Section 6 hereof is appropriate.
(k) "Change in Control" shall be deemed to have occurred if an event set forth in any one of the following paragraphs shall have occurred:
(i) any Person is or becomes (other than in connection with a transaction described in Paragraph (iii) below) the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or any of its Affiliates) representing more than thirty percent (30%) of the combined voting power of the Company's then outstanding securities; or
(ii) during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including without limitation a consent solicitation, relating to the election of directors of the Company) whose election by the Board or nomination for election by the Company's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute a majority thereof; or
(iii) consummation of a merger or consolidation of the Company or any Subsidiary of the Company with any other company, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, more than fifty percent (50%) of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person acquires more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities; or
(iv) the shareholders of the Company approve a plan of complete liquidation of the Company; or
(v) there is consummated an agreement for the sale, disposition or long-term lease by the Company of all or substantially all of the Company's assets.
Notwithstanding the foregoing, a "Change in Control" shall not be deemed to have occurred (1) by virtue of the consummation of any transaction or series of integrated transactions immediately following which the record holders of the Common Stock of the Company immediately prior to such
transaction or series of transactions continue to have substantially the same proportionate ownership in one or more entities which, singly or together, immediately following such transaction or series of transactions, own all or substantially all of the assets of the Company as constituted immediately prior to such transaction or series of transactions, or (2) with respect to any Award subject to Section 409A of the Code, unless the applicable event also constitutes a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company under Section 409A(a)(2)(A)(v) of the Code and regulations thereunder.
(l) "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto.
(m)(c) "Committee" means any committeethe Compensation Committee of the Board, may appointor subcommittee thereof, or such other committee appointed from time to time by the Board to administer the Plan or a subcommittee thereof. Subject to the discretion of the Board, thein accordance with Section 4(a) hereof, which Committee shall be composed entirelyconsist of individuals who meettwo or more "nonemployee directors" as defined under Rule 16b-3(3)(i) promulgated under the qualificationsSecurities Exchange Act of an "outside director" within the meaning of Section 162(m) of the Code, a "non-employee director" within the meaning of Rule 16b-3 and any other qualifications required by the applicable stock exchange on which the Common Stock is traded. If at any time or to any extent the Board shall not administer the Plan, then the functions of the Administrator specified in the Plan shall be exercised by the Committee. Except as otherwise provided in the Certificate of Incorporation or Bylaws, any action of the Committee with respect to the administration of the Plan shall be taken by a majority vote at a meeting at which a quorum is duly constituted or unanimous written consent of the Committee's members.1934).
(n)(d) "Common Stock" means the common stock, nowithout par value, per share, of the Company.
(o)(e) "Company" means Hawaiian Electric Industries, Inc. (or, a Hawaii corporation, and any successor corporation, except as the term "Company" is used in the definition of "Change in Control" above).corporation.
(p)(f) "Covered Employee" shall have the meaning set forth in Section 162(m) of the Code.
(q) "Deferred Shares" means the right granted pursuant to Section 10 hereof to receive Shares at the end of a specified deferral period or periods and/or upon attainment of specified performance objectives.
(r) "Disability" means, with respect to any Participant, that such Participant (i) as determined by the Administrator in its sole discretion, is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company or an Affiliate thereof.
(s) "Effective Date" means the date as of which this Plan is approved by the shareholders of the Company.
(t) "Eligible Recipient" means any regular full-timeofficer or employee of the Company or any Affiliate of its direct or indirect subsidiaries or affiliates (whether or not such subsidiary or affiliate participates in the Company who has been selected as an eligible participant by the Administrator.Plan).
(u) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.
(v) "Exercise Price" means, with respect to any Award under which the holder may purchase Shares, the per share price at which a holder of such Award granted hereunder may purchase Shares issuable upon exercise of such Award.
(w)(g) "Fair Market Value" means, as of any given date, with respect to any Awards granted hereunder:date: (i) the closing sale price of a share of Common Stock on such date on the national
securities and exchange on which the Company's equity securities are principally listed or traded, or, if on such date no trade was conducted, the most recent preceding date on which there was such a trade; (ii) if the shares of Common Stock are then traded in an over-the-counter market, the average of the closing bid and asked prices for the shares of Common Stock in such over-the-counter market for the last preceding date on which there was a sale of such Common Stock in such market; (iii) the fair market value of a share of Common Stock as determined in accordance with a method prescribed in the applicable Award Agreement; or (iv)(iii) the fair market value of a share of Common Stock as otherwise determined by the AdministratorCommittee in the good faith exercise of its discretion and, as required, in compliance with Section 409A of the Code.discretion.
(x)(h) "Free Standing RightsGrant Date" shall have the meaning as set forth in Section 9 hereof.
(y) "Good Reason" means any material reduction in the Participant's annual base compensation (exceptbe June 30 of each year except that (i) if June 30 falls on a reduction pursuant to across-the-board reductions that similarly affect all similarly situated employees of the Company or any Affiliate, as applicable).
(z) "Incentive Stock Option" or "ISO" means any Option intended to be an "incentive stock option" within the meaning of Section 422 of the Code.
(aa) "Non-Qualified Stock Option" or "NQSO" means any Optionday that is not an Incentive Stock Option, including any Option that provides (asa business day in Honolulu, Hawaii, then the Grant Date shall be the next preceding business day and (ii) the Grant Date for a person who first becomes a director after June 30 of a year and before the timeAnnual Meeting of Shareholders in the next year shall be the date on which such Option is granted) that it willperson's service as a director commences. For the avoidance of doubt, clause (ii) does not be treated as an Incentive Stock Option.
(bb) "Option" means an option to purchase shares of Common Stock granted pursuant to Section 8 hereof. An Option may be either an ISO or an NQSO.
(cc) "Other Cash-Based Award" means a cash Award grantedapply to a Participant under Section 11 hereof, including cash awardedperson who serves as a bonus or upon the attainment of Performance Goals or otherwise as permitted under the Plan.
(dd) "Other Share-Based Award" means a right or other interest granted to a Participant under the Plan that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Common Stock, including, but not limited to, unrestricted Shares, restricted stock units, dividend equivalents or performance units, each of which may be subject to the attainment of Performance Goals or a period of continued employment or other terms or conditions as permitted under the Plan.
(ee) "Participant" means any Eligible Recipient selected by the Administrator, pursuant to the Administrator's authority provided for in Section 3 hereof, to receive grants of Options, Share Appreciation Rights, Restricted Shares, Deferred Shares, Performance Shares, Other Share-Based Awards, Other Cash-Based Awards or any combination of the foregoing, and, upon his or her death, his or her successors, heirs, executors and administrators, as the case may be.
(ff) "Performance Goals" means performance goals based on one or more of the following criteria: (i) total return to shareholders; (ii) earnings per share of Common Stock; (iii) net income (before or after taxes); (iv) earnings before all or any interest, taxes, depreciation and/or amortization ("EBIT", "EBITA", or "EBITDA"); (v) gross revenue; (vi) return on assets; (vii) market share; (viii) cost reduction goals; (ix) earnings from continuing operations, levels of expense, cost or liability; (x) performance against operational budgets; (xi) a Participant's individual operational project goals; (xii) return on average common equity; (xiii) individual performance goals; (xiv) free cash flow; (xv) modified free cash flow (net income plus depreciation and amortization less net capital expenditures); (xvi) shareholder value added; (xvii) pre-tax, pre-provision income; (xviii) efficiency ratio; (xix) net charge offs; and (xx) any combination of, or a specified increase or decrease of one or more of the foregoing over a specified period. Where applicable, the Performance Goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase
or decrease in the particular criteria, and may be applied to one or moredirector of the Company or Affiliate thereof,a Participating Company but then also (or instead) is elected or a divisionappointed to serve in another director position.
(i) "Nonemployee Company Director" means any person who is elected or strategic business unitappointed to the Board of Directors of the Company and who is not an employee.
(j) "Nonemployee Participating Company Director" means any person who is elected or may be appliedappointed to the performanceBoard of Directors of any one or more Participating Companies and who is not an Employee.
(k) "Participant" means any Nonemployee Company Director or Nonemployee Participating Company Director.
(l) "Participating Company" means any direct or indirect subsidiary or affiliate of the Company relative to a market index, a group of other companies or a combination thereof, all as determinedwhose participation in the Plan has been approved by the Committee. The Performance Goals may include a threshold level of performance below which no payment shall be made (or no vesting shall occur), levels of performance at which specified payments shall be made (or specified vesting shall occur), and a maximum level of performance above which no additional payment shall be made (or at which full vesting shall occur). Each of the foregoing Performance Goals shall be determined in accordance with generally accepted accounting principles and shall be subject to certification by the Committee;provided, that the Committee shall have the authority to make equitable adjustments to the Performance Goals in recognition of unusual or non-recurring events affecting the Company or any Affiliate thereof or the financial statements of the Company or any Affiliate thereof, in response to changes in applicable laws or regulations, or to account for items of gain, loss or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or related to the disposal of a segment of a business or related to a change in accounting principles, in any case to the extent such adjustment does not cause a loss of deduction under Section 162(m) of the Code.Board.
(gg) "Performance Shares" means Shares that are subject to restrictions that lapse upon the attainment of specified performance objectives and that are granted pursuant to Section 10 hereof.
(hh) "Person" shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the Company or any Subsidiary thereof, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary thereof, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) a corporation owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(ii)(m) "Plan" shall have the meaningmeans this 2011 Nonemployee Director Stock Plan, as set forth in Section 1 hereof.
(jj) "Related Rights" shall have the meaning as set forth in Section 9 hereof.
(kk) "Restricted Period" means any such period asit may be set by the Administrator commencing on the date of grant of an Award, subject to the provisions of the Plan and the applicable Award Agreement, during which the Participant shall not be permitted to sell, transfer, pledge or assign shares subject to such Award granted under the Plan;provided,however, that the Administrator may, in its sole discretion, provide for the lapse of such restrictions in installments and may accelerate or waive such restrictions in whole or in part based on such factors and such circumstances as the Administrator may determine, in its sole discretion, including, but not limited to, the attainment of certain performance related goals, the Participant's termination of employment with the Company or any of its Affiliates, the Participant's death or Disability, or the occurrence of a Change in Control.
(ll) "Restricted Shares" means Shares granted pursuant to Section 10 hereof subject to certain restrictions that lapse at the end of a specified period or periods.
(mm) "Retirement" means a termination of a Participant's employment, other than for Cause, on or after the attainment of age fifty-five (55) with at least five (5) years of continuous employment.
(nn) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act, as amended from time to time.
(oo)(n) "SharesStock Payment" means a grant under the Plan of shares of Common Stock reserved for issuance under the Plan, as adjusted pursuant to the Plan, and any successor (pursuant to a merger, consolidation or other reorganization) security.
(pp) "Share Appreciation Right" means the right pursuant to an Award granted under Section 9 hereof to receive an amount equal to the excess, if any, of (i) the aggregate Fair Market Value, as of the date such Award or portion thereof is surrendered, of the Shares covered by such Award or such portion thereof, over (ii) the aggregate Exercise Price of such Award or such portion thereof.
(qq) "Subsidiary" means, with respect to any Person, as of any date of determination, any other Person as to which such first Person owns or otherwise controls, directly or indirectly, more than fifty percent (50%) of the voting shares or other similar interestsNonemployee Company Director or a sole general partner interest or managing member or similar interest of such other Person. An entity shall be deemedNonemployee Participating Company Director rather than cash as compensation for services rendered as a Subsidiary of the Company for purposes of this definition only for such periods as the requisite ownership or control relationship is maintained.
(a) The Plan shall be administered by the Administrator and shall be administered in accordance with the requirements of Section 162(m) of the Code (but only to the extent necessary and desirable to maintain qualification of awards under the Plan under Section 162(m) of the Code) and, to the extent applicable, Rule 16b-3. The Plan is intended to comply, and shall be administered in a manner that is intended to comply, with Section 409A of the Code and shall be construed and interpreted in accordance with such intent. To the extent that an Award, issuance and/or payment is subject to Section 409A of the Code, it shall be awarded and/or issued or paid in a manner that will comply with Section 409A of the Code, including any applicable regulations or guidance issued by the Secretary of the Treasury and the Internal Revenue Service with respect thereto.
(b) Pursuant to the terms of the Plan, the Administrator, subject, in the case of any Committee, to any restrictions on the authority delegated to it by the Board, shall have the power and authority, without limitation:
(1) to select those Eligible Recipients who shall be Participants;
(2) to determine whether and to what extent Options, Share Appreciation Rights, Restricted Shares, Deferred Shares, Performance Shares, Other Share-Based Awards, Other Cash-Based Awards or a combination of any of the foregoing, are to be granted hereunder to Participants;
(3) to determine the number of Shares to be covered by each Award granted hereunder;
(4) to determine the terms and conditions, not inconsistent with the terms of the Plan, of each Award granted hereunder (including, but not limited to, (i) the restrictions applicable to Restricted Shares or Deferred Shares and the conditions under which restrictions applicable to such Restricted Shares or Deferred Shares shall lapse, (ii) the Performance Goals or other performance related objectives and periods applicable to Performance Shares, (iii) the Exercise Price of each Award, (iv) the vesting schedule applicable to each Award, (v) the number of Shares subject to each Award and (vi) subject to the requirements of Section 409A of the Code (to the extent applicable), any amendments to the terms and conditions of outstanding Awards, including, but not limited to, extending the exercise period of such Awards and accelerating the vesting schedule of such Awards);
(5) to permit a Participant to elect to defer receipt of all or any portion of the cash or shares of Common Stock that are payable under an Award and provide that such deferred amount shall be credited with an interest rate or such other rate of return as shall be specified by the Administrator, all on such terms and conditions as may be established by the Administrator; provided, however, that any such election and deferral shall comply with the requirements of Section 409A of the Code;
(6) to determine the terms and conditions, not inconsistent with the terms of the Plan, which shall govern all written instruments evidencing Options, Share Appreciation Rights, Restricted Shares, Deferred Shares, Performance Shares or Other Share-Based Awards, Other Cash-Based Awards or any combination of the foregoing granted hereunder;
(7) to determine the Fair Market Value;
(8) to determine the duration and purpose of leaves of absence which may be granted to a Participant without constituting termination of the Participant's employment for purposes of Awards granted under the Plan;
(9) to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable; and
(10) to construe and interpret the terms and provisions of the Plan and any Award issued under the Plan (and any Award Agreement relating thereto), and to otherwise supervise the administration of the Plan and to exercise all powers and authorities either specifically granted under the Plan or necessary and advisable in the administration of the Plan.
(c) All decisions made by the Administrator pursuant to the provisions of the Plan shall be final, conclusive and binding on all persons, including the Company and the Participants. No member of the Board or the Committee, nor any officer or employeedirector of the Company or any Subsidiary thereof acting on behalfa Participating Company, as provided in Section 6 hereof.
3. Shares of the Board or the Committee, shall be personally liable for any action, omission, determination, or interpretation taken or made in good faith with respectCommon Stock Subject to the Plan and all members of the Board or the Committee and each and any officer or employee of the Company and of any Subsidiary thereof acting on their behalf shall,
Subject to adjustment as provided in Section 8 below, the maximum extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, omission, determination or interpretation.
Section 4. Shares Reserved for Issuance Under the Plan.
(a) Subject to subsection (b) below and Section 6 hereof, theaggregate number of shares of Common Stock that are reserved and available for issuance pursuant to Awards grantedmay be issued under the Plan is 4,000,000300,000 shares. Shares ofThe Common Stock that are issued in connection with all Awards other than Options and Share Appreciation Rights or Awards whose vesting, exercisability or payment is subject to the attainment of Performance Goals shall be counted against the 4,000,000 limit described above as four shares of Common Stock for every share of Common Stock that is issued in connection with such Award. Shares issued under the Plan may, in whole or in part, be authorized but unissued Sharesshares of Common Stock of the Company or Sharesshares that shall have been or may be reacquired by the Company in the open market, in private transactions or otherwise.
4. Administration of the Plan
(a) The Plan will be administered by the Committee. The Company shall pay all costs of administration of the Plan.
(b) If any Shares subject to an Award are forfeited, cancelled, exchanged or surrendered or if an Award otherwise terminates or expires without a distribution of sharesSubject to the Participant,express provisions of the SharesPlan, the Committee has and may exercise such powers and authority of the Board as may be necessary or appropriate for the Committee to carry out its functions under the Plan. Without limiting the generality of the foregoing, the Committee shall have full power and authority (i) to determine all questions of fact that may arise under the Plan, (ii) to interpret the Plan and to make all other determinations necessary or advisable for the administration of the Plan, and (iii) to prescribe, amend, and rescind rules and regulations relating to the Plan, including, without limitation, any rules which the Committee determines are necessary or appropriate to ensure that the Company, each Participating Company and the Plan will be able to comply with all applicable provisions of any federal, state or local law, including securities laws and laws relating to the withholding of tax. All interpretations, determinations, and actions by the Committee will be final, conclusive, and binding upon all parties. Any action of the Committee with respect to such Awardthe administration of the Plan shall be taken pursuant to a majority vote at a meeting of the Committee (at which members may participate by telephone) or by the unanimous written consent of its members.
(c) Neither the Company, nor any Participating Company, nor any representatives, employees or agents of the Company or any Participating Company, nor any member of the Board or the Committee or any designee thereof will be liable for any damages resulting from any action or determination made by the Board or the Committee with respect to the extent ofPlan or any such forfeiture, cancellation, exchange, surrender, termination or expiration, again be available for Awardstransaction arising under the Plan. IfPlan or any Award (other than a Share Appreciation Right) is settled in part or in full in cash, the Shares settled in cash shall again be available for issuanceomission in connection with future Awards granted under the Plan. NotwithstandingPlan in the foregoing, Shares surrenderedabsence of willful misconduct or withheld as payment of either the exercise price of an Award granted hereunder (including Shares otherwise underlying an Award of a Share Appreciation Right that are retained by the Company to account for the grant price of such Share Appreciation Right) and/or withholding taxes in respect of such an Award shall no longer be available for grant under the Plan.
(c) All Shares may be made subject to Awards of ISOs.gross negligence.
Section 5. Overall Award Limitations; Section 162(m) ofParticipation in the Code
Plan
(a) ToAll Nonemployee Company Directors and Nonemployee Participating Company Directors shall participate in the extent requiredPlan, subject to comply with the requirementsconditions and limitations of the Plan, so long as they shall be a nonemployee director of the Company or a Participating Company on the Grant Date.
(b) Nonemployee Company Directors and Nonemployee Participating Company Directors shall be eligible for Stock Payments pursuant to the terms of Section 162(m)6 of the Code,Plan.
6. Determination of Nonemployee Directors' Stock Payments
(a) Each Nonemployee Company Director and each Nonemployee Participating Company Director who serves in that capacity on the aggregate number of Shares subject to Awards (other than Other Cash-Based Awards) awardedGrant Date shall receive, in addition to any annual retainer and other amounts that may be payable to such Nonemployee Company Director or Nonemployee Participating Company Director, a Stock Payment;provided, however, that no Participant shall be entitled to receive more than one Participant during any calendar year may not, subject to adjustmentStock Payment even if he or she serves as provided in Section 6 hereof, exceed 100,000 Shares.
(b) Toa director of both the extent required to comply withCompany and a Participating Company or more than one Participating Company andprovided,further, that the requirements of Section 162(m) of the Code, the maximum value of the aggregate payment that any Participant may receive with respect to Other Cash-Based AwardsStock Payment for a new director whose Grant Date is determined pursuant to Section 11 hereof2(h)(ii) shall be prorated based on a fraction in any calendar yearwhich the numerator is $2,000,000.
(c) To the extent thatnumber of days remaining between the Plan is subject to Section 162(m)date on which such Participant becomes a director and the date of the Code, no payment shall be made to a Participant whonext Annual Meeting of Shareholders and the denominator is likely to be a Covered Employee prior to the certification by the Committee that the Performance Goals (if any) have been attained.
Section 6. Equitable Adjustments.
365 days.
In the event of any Change in Capitalization, an equitable substitution or proportionate adjustment shall be made, in each case, as(b) Stock Payments may be determined by the Administrator,designated in its sole discretion,either dollar value or in (i) the aggregatea number of shares of Common Stock reserved for issuance under the Plan and the maximumStock. The number of Shares that mayshares to be subject to Awards granted to any Participant in any calendar or fiscal year, (ii) the kind, number and Exercise Price subject to outstanding Options and Share Appreciation Rights granted under the Plan, and (iii) the kind, number and purchase price of Shares subject to outstanding Restricted Shares, Deferred Shares, Performance Shares or Other Share-Based Awards granted under the Plan, in each case as may be determined by the Administrator, in its sole discretion,provided,however, that any fractional shares resulting from the adjustment shall be eliminated. Such other equitable substitutions or adjustments shall be made as may be determined by the Administrator, in its sole discretion. No such adjustment shall be made that would cause any Award that is or could be subject to Section 409A of the Code to fail to comply with the requirements of such section, and with respect to ISOs, any adjustment shall be made in accordance with the provisions of Section 424(h) of the Code and any regulations or guidance promulgated thereunder. Without limiting the generality of the foregoing, in connection with a Change in Capitalization, the Administrator may provide, in its sole discretion, for the cancellation of any outstanding Award granted hereunder in exchange for payment in cash or other property having an aggregate Fair Market Value of the Shares covered by such Award, reduced by the aggregate Exercise Price or purchase price thereof, if any. Any Awards with an aggregate exercise price (or aggregate base in the case of a Share Appreciation Right) or part thereof canceled that is greater than the aggregate Fair Market Value of the shares of Common Stock subject to the Award or part thereof canceled, may be cancelled for no consideration. The Administrator's determinations pursuant to this Section 6 shall be final, binding and conclusive.
The Participants under the Plan shall be selected from time to time by the Administrator, in its sole discretion, from among Eligible Recipients. Awards may be granted to Eligible Recipients;provided,however, that ISOs shall be granted only to employees (including officers and directors who are also employees) of the Company or any of its Subsidiaries.
(a) General. The grant of each Option shall be memorialized in an Award Agreement, containing such terms and conditions as the Administrator shall determine, in its sole discretion, including among other things the Exercise Price of the Option, the term of the Option, provisions regarding exercisability of the Option, and whether the Option granted thereunder is an ISO or an NQSO. The provisions of each Option need not be the same with respectissued to each Participant. More
than one Option may be granted toParticipant as a Stock Payment if the same Participant and be outstanding concurrently hereunder. Options granted under the Plan shall be subject to the terms and conditions set forth in this Section 8 and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable and set forth in the applicable Award Agreement.
(b) Exercise Price. The Exercise Price of Shares purchasable under an OptionStock Payment is designated by dollar value shall be determined by the Administrator in its sole discretion at the time of grant, but in no event shall the exercise price of an Option be less than one hundred percent (100%) ofdividing the Fair Market Value of the Common Stock on the date of grant. If a Participant owns or is deemed to own (by reasonapplicable Grant Date into the applicable dollar value of the attribution rules applicable under Section 424(d) of the Code) more than ten percent (10%) of the combined voting power of all classes of stock of the Company or of any of its Subsidiaries and an Incentive Stock Option is granted to such Participant, the Exercise Price of such Incentive Stock Option (to the extent required at the time of grant by the Code) shall be no less than one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the date such Incentive Stock Option is granted.
(c) Option Term. The maximum term of each Option shall be fixed by the Administrator, but no Option shall be exercisable more than ten (10) years after the date such Option is granted;Payment,provided,however, that if an employee owns or is deemed to own (by reasonno fractional shares shall be issued (cash shall be paid in lieu thereof).
(c) For Nonemployee Company Directors and Nonemployee Participating Company Directors serving in that capacity on June 30, 2011, the Stock Payment shall be designated in dollar value as follows: (i) for Nonemployee Company Directors, $75,000 and (ii) for Nonemployee Participating Company Directors, $40,000. For a Nonemployee Company Director who also serves as a Nonemployee Participating Company Director on June 30, 2011, the applicable dollar value of the attribution rules of Section 424(d)Stock Payment will be $75,000.
(d) The amount of the Code)Stock Payment, and whether it is expressed as a dollar value or in number of shares, may be changed in the discretion and upon recommendation of the Committee and approval by the Board, but shall not be changed more than ten percent (10%)once between any two Annual Meetings of the combined voting power of all classes of stock ofShareholders.
(e) No Nonemployee Company Director or Nonemployee Participating Company Director shall be required to forfeit or otherwise return to the Company any shares of Common Stock issued to him or of any of its Subsidiaries and an Incentiveher as a Stock Option is granted to such employee, the term of such Incentive Stock Option (to the extent required by the Code at the time of grant) shall be no more than five (5) years from the date of grant. Each Option's term is subject to earlier expirationPayment pursuant to the applicable provisionsPlan notwithstanding any change in status of such director which renders him or her ineligible to continue as a participant in the Plan andafter the Award Agreement. Notwithstanding the foregoing, the Administrator shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as the Administrator, in its sole discretion, deems appropriate.Grant Date.
7. Shareholder Rights
(d) Exercisability. Each Option (a) Nonemployee Company Directors and Nonemployee Participating Company Directors shall be exercisable at such time or times and subject to such terms and conditions, including the attainment of preestablished corporate performance goals, as shall be determined by the Administrator in the applicable Award Agreement. The Administrator may also provide that any Option shall be exercisable only in installments, and the Administrator may waive such installment exercise provisions at any time, in whole or in part, based on such factors as the Administrator may determine in its sole discretion. Notwithstanding anything to the contrary contained herein, an Option may not be exerciseddeemed for a fraction of a share.
(e) Method of Exercise. Options may be exercised in whole or in part by giving written notice of exercise to the Company specifying the number of Sharesany purpose to be purchased, accompanied by payment in fullor have rights as shareholders of the aggregate Exercise Price of the Shares so purchased in cash or its equivalent, as determined by the Administrator. As determined by the Administrator, in its sole discretion,Company with respect to any Option or categoryshares of Options, paymentCommon Stock except as and when such shares are issued and then in whole or in part may alsoany event not earlier than the Grant Date. No adjustment shall be made (i) by means of consideration received under any cashless exercise procedure approved byfor dividends or distributions or other rights for which the Administrator (includingrecord date precedes the withholding of Shares otherwise issuable upon exercise), (ii) in the form of unrestricted Shares already owned by the Participant which, in the case of unrestricted Shares acquired upon exercise of an Option, (x) have been owned by the Participant for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equalGrant Date.
(b) Subject to the aggregate exercise priceprovisions of the Shares as to which such Option shall be exercised, (iii) any other form of consideration approved by the AdministratorSection 7(a) above, Nonemployee Company Directors and permitted by applicable law or (iv) any combination of the foregoing.
(f) Rights as Shareholder. A Participant shallNonemployee Participating Company Directors will have no rights to dividends or any otherall rights of a shareholder with respect to the Shares subject to an Option until the Participant has given written notice of the exercise thereof, has paid in full for such Shares and has satisfied the requirements of Section 15 hereof, and the Shares are delivered to the Participant.
(g) Termination of Employment.
(1) Unless the applicable Award Agreement provides otherwise, in the event that the employment of a Participant with the Company and all Affiliates thereof shall terminate for any reason other than Cause, Retirement, Disability, or death, (A) Options granted to such Participant, to the extent that they are exercisable at the time of such termination, shall remain exercisable until the date that is one year after such termination, on which date they shall expire, and (B) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. The one year period described in this Section 8(g)(1) shall be extended to three (3) years after the date of such termination in the event of the Participant's death during such one year period. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term.
(2) Unless the applicable Award Agreement provides otherwise, in the event that the employment of a Participant with the Company and all Affiliates thereof shall terminate on account of the Retirement, Disability, or death of the Participant, Options granted to such Participant, to the extent that they were exercisable at the time of such termination, shall become fully vested as to all Shares covered thereby and shall remain exercisable until the date that is three (3) years after such termination, on which date they shall expire. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term.
(3) In the event of the termination of a Participant's employment for Cause, all outstanding Options granted to such Participant shall expire at the commencement of business on the date of such termination.
(h) Other Change in Employment Status. An Option shall be affected, both with regard to vesting schedule and termination, by leaves of absence, changes from full-time to part-time employment, partial disability or other changes in the employment status of an Participant, in the discretion of the Administrator.
(i) Annual Limit on Incentive Stock Options. To the extent that the aggregate Fair Market Value (determined as of the date the Incentive Stock Option is granted) of shares of Common Stock with respect to which Incentive Stock Options granted to a Participant under this Plan and all other option plans of the Company or of any Subsidiary of the Company become exercisable for the first time by the Participant during any calendar year exceeds $100,000 (as determined in accordance with Section 422(d) of the Code), the portion of such Incentive Stock Options in excess of $100,000 shall be treated as Non-Qualified Stock Options.
Section 9. Share Appreciation Rights.
(a) General. Share Appreciation Rights may be granted either alone ("Free Standing Rights") or in conjunction with all or part of any Option granted under the Plan ("Related Rights"). Subject to Section 409A of the Code, in the case of a Non-Qualified Stock Option, Related Rights may be granted either at or after the time of the grant of such Option. In the case of an Incentive Stock Option, Related Rights may be granted only at the time of the grant of the Incentive Stock Option. The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, grants of Share Appreciation Rights shall be made, the number of Shares to be awarded, the price per Share, and all other conditions of Share Appreciation Rights. Notwithstanding the foregoing, no Related Right may be granted for more Shares than are subject to the Option to which it relates and any Share Appreciation Right must be granted with an Exercise Price not less than the Fair Market Value of Common Stock on the date of grant. The provisions of Share Appreciation Rights need not be the same with respect to each Participant. Share Appreciation Rights granted under the Plan shall be subject to the following terms and conditions set forth in this Section 9 and shall contain such
additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable, as set forth in the applicable Award Agreement.
(b) Awards; Rights as Shareholder. The grant of each Share Appreciation Right shall be memorialized in an Award Agreement, containing such terms and conditions as the Administrator shall determine, in its sole discretion. A Participant shall have no rights to dividends or any other rights of a shareholder with respect to the Shares subject to a Share Appreciation Right until the Participant has given written notice of the exercise thereof, has paid in full for such Shares and has satisfied the requirements of Section 15 hereof, and the Shares are delivered to the Participant.
(c) Exercisability.
(1) Share Appreciation Rights that are Free Standing Rights shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Administrator in the applicable Award Agreement.
(2) Share Appreciation Rights that are Related Rights shall be exercisable only at such time or times and to the extent that the Options to which they relate shall be exercisable in accordance with the provisions of Section 8 hereof and this Section 9;provided,however, that a Related Right granted in connection with an Incentive Stock Option shall be exercisable only if and when the Fair Market Value of the Common Stock subject to the Incentive Stock Option exceeds the Exercise Price of such Option.
(d) Payment Upon Exercise.
(1) Upon the exercise of a Free Standing Right, the Participant shall be entitled to receive up to, but not more than, that number of Shares equal in value to the excess of the Fair Market Value as of the date of exercise over the price per share specified in the Free Standing Right multiplied by the number of Shares in respect of which the Free Standing Right is being exercised, with the Administrator having the right to determine the form of payment.
(2) A Related Right may be exercised by a Participant by surrendering the applicable portion of the related Option. Upon such exercise and surrender, the Participant shall be entitled to receive up to, but not more than, that number of Shares equal in value to the excess of the Fair Market Value as of the date of exercise over the Exercise Price specified in the related Option multiplied by the number of Shares in respect of which the Related Right is being exercised, with the Administrator having the right to determine the form of payment. Options which have been so surrendered, in whole or in part, shall no longer be exercisable to the extent the Related Rights have been so exercised.
(3) Notwithstanding the foregoing, the Administrator may determine to settle the exercise of a Share Appreciation Right in cash (or in any combination of Shares and cash).
(e) Termination of Employment.
(1) Unless the applicable Award Agreement provides otherwise, in the event that the employment of a Participant with the Company and all Affiliates thereof (who has been granted one or more Free Standing Rights) shall terminate for any reason other than Cause, Retirement, Disability, or death, (A) Free Standing Rights granted to such Participant, to the extent that they are exercisable at the time of such termination, shall remain exercisable until the date that is one year after such termination, on which date they shall expire, and (B) Free Standing Rights granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. The one year period described in this Section 9(e)(1) shall be extended to three (3) years after the date of such termination in the event of the Participant's death during such one year period. Notwithstanding the foregoing, no Free Standing Right shall be exercisable after the expiration of its term.
(2) Unless the applicable Award Agreement provides otherwise, in the event that the employment of a Participant with the Company and all Affiliates thereof (who has been granted one or more Free Standing Rights) shall terminate on account of the Retirement, Disability, or death of the Participant, Free Standing Rights granted to such Participant, to the extent that they were exercisable at the time of such termination, shall become fully vested as to all Shares covered thereby and shall remain exercisable until the date that is three (3) years after such termination, on which date they shall expire. Notwithstanding the foregoing, no Free Standing Right shall be exercisable after the expiration of its term.
(3) In the event of the termination of a Participant's employment for Cause, all outstanding Free Standing Rights granted to such Participant shall expire at the commencement of business on the date of such termination.
(4) In the event of the termination of employment with the Company and all Affiliates thereof of a Participant who has been granted one or more Related Rights, such rights shall be exercisable at such time or times and subject to such terms and conditions as set forth in the related Options.
(f) Term.
(1) The term of each Free Standing Right shall be fixed by the Administrator, but no Free Standing Right shall be exercisable more than ten (10) years after the date such right is granted.
(2) The term of each Related Right shall be the term of the Option to which it relates, but no Related Right shall be exercisable more than ten (10) years after the date such right is granted.
Section 10. Restricted Shares, Deferred Shares and Performance Shares.
(a) General. Restricted Shares, Deferred Shares or Performance Shares may be issued either alone or in addition to other awards granted under the Plan. The Administrator shall determine the Eligible Recipients to whom, and the time or times at which, Awards of Restricted Shares, Deferred Shares or Performance Shares shall be made; the number of Shares to be awarded; the price, if any, to be paid by the Participant for the acquisition of Restricted Shares, Deferred Shares or Performance Shares; the Restricted Period, if any, applicable to Restricted Shares, Deferred Shares or Performance Shares; the Performance Goals and/or other performance related objectives (if any) applicable to Restricted Shares, Deferred Shares or Performance Shares; and all other conditions of the Restricted Shares, Deferred Shares and Performance Shares. If the restrictions, performance objectives and/or conditions established by the Administrator are not attained, a Participant shall forfeit his or her Restricted Shares, Deferred Shares or Performance Shares in accordance with the terms of the grant. The provisions of the Restricted Shares, Deferred Shares or Performance Shares need not be the same with respect to each Participant.
(b) Awards and Certificates. The grant of each Award of Restricted Shares, Deferred Shares or Performance Shares shall be memorialized in an Award Agreement, containing such terms and conditions as the Administrator shall determine, in its sole discretion. Except as otherwise provided below in Section 10(c), (i) each Participant who is granted an Award of Restricted Shares or Performance Shares may, in the Company's sole discretion, be issued a stock certificate in respect of such Restricted Shares or Performance Shares; and (ii) any such certificate so issued shall be registered in the name of the Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to any such Award.
The Company may require that the stock certificates, if any, evidencing Restricted Shares or Performance Shares granted hereunder be held in the custody of the Company until the restrictions thereon shall have lapsed, and that, as a condition of any award of Restricted Shares or Performance
Shares,Common Stock once issued as a Stock Payment on the Participant shall have delivered a stock power, endorsedGrant Date, including the right to vote the shares and receive all dividends and other distributions paid or made with respect thereto.
8. Adjustment for Changes in blank, relating toCapitalization
If the Shares covered by such Award.
With respect to Deferred Shares, at the expirationoutstanding shares of Common Stock of the Restricted Period, stock certificates in respectCompany are increased, decreased, or exchanged for a different number or kind of such Deferred Shares may, in the Company's sole discretion, be delivered to the Participant,shares or his legal representative, in a number equal to the number of Shares covered by the Deferred Shares Award.
Notwithstanding anything in the Plan to the contrary, any Restricted Shares, Deferred Shares (at the expiration of the Restricted Period)other securities, or Performance Shares (whether beforeif additional shares or after any vesting conditions have been satisfied) may, in the Company's sole discretion, be issued in uncertificated form pursuant to the customary arrangements for issuingnew or different shares in such form.
Further, notwithstanding anything in the Plan to the contrary,or other securities are distributed with respect to Deferred Shares, at the expirationsuch shares of Common Stock or other securities, through merger, consolidation, sale of all or substantially all of the Restricted Period, Shares shall promptly be issued (either in certificated or uncertificated form) to the Participant, unless otherwise deferred in accordance with procedures established by the Company in accordance with Section 409A of the Code, and such issuance shall in any event be made within such period as is required to avoid the imposition of a tax under Section 409A of the Code.
(c) Restrictions and Conditions. The Restricted Shares, Deferred Shares and Performance Shares granted pursuant to this Section 10 shall be subject to the following restrictions and conditions and any additional restrictions or conditions as determined by the Administrator at the time of grant or, subject to Section 409A of the Code, thereafter:
(1) The Administrator may, in its sole discretion, provide for the lapse of restrictions in installments and may accelerate or waive such restrictions in whole or in part based on such factors and such circumstances as the Administrator may determine, in its sole discretion, including, but not limited to, the attainment of certain performance related goals, the Participant's termination of employment with the Company or any Affiliate thereof, or the Participant's death or Disability;provided,however, that this sentence shall not apply to any Award which is intended to qualify as "performance-based compensation" under Section 162(m) of the Code. Notwithstanding the foregoing, upon a Change in Control, the outstanding Awards shall be subject to Section 12 hereof.
(2) Except as provided in Section 16 hereof or in the Award Agreement, the Participant shall generally have the rights of a shareholderproperty of the Company, reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, combination of shares, rights offering, distribution of assets or other distribution with respect to Restricted Shares or Performance Shares during the Restricted Period. The Participant shall generally not have the rightssuch shares of a shareholder with respect to Shares subject to Deferred Shares during the Restricted Period;provided,however, that, subject to Section 409A of the Code, an amount equal to dividends declared during the Restricted Period with respect to the number of Shares covered by Deferred Shares shall, unless otherwise set forth in an Award Agreement, be paid to the Participant at the same time as dividends are paid to the Company's shareholders generally, provided that the Participant is then providing services to the Company or any Affiliate of the Company. Certificates for Shares of unrestricted Common Stock may, in the Company's sole discretion, be delivered to the Participant only after the Restricted Period has expired without forfeiture in respect of such Restricted Shares, Deferred Shares or Performance Shares, except as the Administrator, in its sole discretion, shall otherwise determine.
(3) The rights of Participants granted Restricted Shares, Deferred Shares or Performance Shares upon termination of employment with the Company or any Affiliate thereof during the Restricted Period shall be set forth in the Award Agreement.
Section 11. Other Share-Based or Cash-Based Awards.
(a) The Administrator is authorized to grant Awards to Participants in the form of Other Share-Based Awards or Other Cash-Based Awards, as deemed by the Administrator to be consistent with the purposes of the Plan and as evidenced by an Award Agreement. The Administrator shall determine the terms and conditions of such Awards, consistent with the terms of the Plan, at the date of grant or thereafter, including any Performance Goals and performance periods. Common Stock or other securities or property deliveredother change in the corporate structure or shares of Common Stock, the maximum number of shares and/or the kind of shares that may be issued under the Plan may be appropriately adjusted by the Committee. Any determination by the Committee as to any such adjustment will be final, binding, and conclusive. The maximum number of shares issuable under the Plan as a result of any such adjustment shall be rounded up to the nearest whole share.
9. Continuation of Director or Other Status
Nothing in the Plan or in any instrument executed pursuant to an Award in the nature of a purchase right granted under this Section 11Plan or any action taken pursuant to the Plan shall be purchasedconstrued as creating or constituting evidence of any agreement or understanding, express or implied, that the Company or any other Participating Company, as the case may be, will retain a Nonemployee Company Director or Nonemployee Participating Company Director as a director or in any other capacity for such consideration, paid forany period of time or at such times, by such methods, and in such forms, including, without limitation, Shares, other Awards, notesa particular retainer or other property,rate of compensation, as conferring upon any director any legal or other right to continue as a director or in any other capacity, or as limiting, interfering with or otherwise affecting any right of the Company or a Participating Company or their respective shareholders may have to terminate a director in his or her capacity as a director or otherwise at any time for any reason, with or without cause, and without regard to the effect that such termination might have upon him or her as a participant under the Plan.
10. Compliance with Government Regulations
Neither the Plan nor the Company shall be obligated to issue any shares of Common Stock pursuant to the Plan at any time unless and until all applicable requirements imposed by any federal and state securities and other laws, rules, and regulations, by any regulatory agencies or by any stock exchanges upon which the Common Stock may be listed have been fully met. As a condition precedent to any issuance of shares of Common Stock and delivery of notice of share ownership evidencing such shares pursuant to the Plan, the Board or the Committee may require a Nonemployee Company Director or Nonemployee Participating Company Director to take any such action and to make any such covenants, agreements and representations as the AdministratorBoard or the Committee, as the case may be, in its discretion deems necessary or advisable to ensure compliance with such requirements. The Company may elect, but shall determine, subjectin no event be obligated, to any required corporate action.
(b) The Committee may establish other rules applicableregister the shares of Common Stock issuable under the Plan pursuant to the Other Share-Based Awards and the Other Cash-Based AwardsSecurities Act of 1933, as it may determine in its discretion.
Section 12. Change in Control; Termination in Connection with a Change in Control.
(a) Except as otherwise provided in an Award Agreementnow or in an individual agreement between a Participant and the Company, in the eventhereafter amended, or to qualify or register such shares under any securities laws of a Change in Control, the surviving entity or acquiring entity (or the surviving or acquiring entity's parent company) shall assume all Awards outstandingany state upon their issuance under the Plan or shall substitute similar awards for Awards outstanding under the Plan. Notwithstanding the foregoing, to the extent the surviving entity (or acquiring entity or parent company, as the case may be) refuses to assume outstanding Awardsat any time thereafter, or to substitute an equivalent award or right therefor (as determined bytake any other action in order to cause the Administrator in its sole discretion), all such outstanding Awards shall become fully vestedissuance and exercisable and all restrictions on such Awards shall immediately lapse (with all performance goals or other vesting criteria deemed achieved at one hundred percent (100%) of target levels) and, with respect to Options and Share Appreciation Rights, the Participant in the discretion of the Administrator (i) shall have the right to exercise such Awards for a period of time determined by the Administrator or (ii) shall be entitled to receive an amount in cash equal to the excess (if any) of (A) the product of (x) the number of Shares subject to such Awards and (y) the per Share consideration paid as of the date of the occurrence of the Change in Control for the Shares pursuant to the Change in Control, less (B) the aggregate exercise pricedelivery of such Awards, and all Awards not assumed or continued, or for which an equivalent award or right is not substituted therefor, shall terminate upon the Change in Control.
(b) Except as otherwise provided in an Award Agreement or in an individual agreement between a Participant and the Company, any Award that is assumed or for which a substitution is made in accordance with subsection (a) above shall provide that, if the Participant's employment with the Company or an Affiliate thereof (or any successor) is terminated within twenty-four (24) months following the Change in Control by the Company or Affiliate without Cause or by the Participant with Good Reason, the Award shall become fully vested and exercisable and all restrictions on such Awards shall immediately lapse (with all performance goals or other vesting criteria deemed achieved at one hundred percent (100%) of target levels), and each such Award that is an Option or Share Appreciation Right shall remain exercisable for not less than one (1) year following such termination of employment.
Section 13. Amendment and Termination.
The Board may amend, alter or terminate the Plan, but no amendment, alteration, or termination shall be made that would impair the rights of a Participant under any Award theretofore granted without such Participant's consent, or that without the approval of the Company's shareholders would, (i) except as provided in Section 6 hereof, increase the total number of Shares, (ii) materially increase benefits providedshares under the Plan (iii) materially alter the eligibility provisionsor any subsequent offer, sale or other transfer of such shares to comply with any such law, regulation or requirement. Nonemployee Company Directors and Nonemployee Participating Company Directors are responsible for complying with all applicable federal and state securities and other laws, rules and regulations in connection with any offer, sale or other transfer by them of the shares of Common Stock issued under the Plan or any interest therein including, without limitation, compliance with the registration requirements of the Securities Act of 1933, as amended (unless an exemption
(iv) extendtherefrom is available), or with the maximum option term under Section 8(c) hereof. Unless the Board determines otherwise, the Board shall obtain approvalprovisions of the Company's shareholders forRule 144 promulgated thereunder, if available, or any amendment that would require such approval in order to satisfy the requirementssuccessor provisions.
11. Nontransferability of Sections 162(m) or 422 of the Code or Rule 16b-3, any rules of the stock exchange on which the Common Stock is traded or other applicable law. The Administrator may amend the terms of any Award theretofore granted, prospectively or retroactively, but, subject to Section 6 hereof and the immediately preceding sentence, no such amendment shall impair the rights of any Participant without his or her consent;provided,however, that the Administrator may not reduce the Exercise Price of an outstanding Option or Share Appreciation Right by amending the terms of such Option or Share Appreciation Right or by canceling such Option or Share Appreciation Right in exchange for cash or the grant of a new Award without first obtaining approval from the shareholders of the Company.
Section 14. Unfunded Status of Plan.
Rights
The Plan is intended to constitute an "unfunded" plan for incentive compensation. With respect to any payments not yet made to a Participant by theNo Nonemployee Company nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company.
Section 15. Withholding Taxes.
Each Participant shall, no later than the date as of which the value of an Award first becomes includible in the gross income of such Participant for federal and/Director or state income tax purposes, pay to theNonemployee Participating Company or make arrangements satisfactory to the Administrator regarding payment of, any federal, state, or local taxes of any kind required by law to be withheld with respect to the Award. The obligations of the Company under the Plan shall be conditional on the making of such payments or arrangements, and the Company shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to such Participant. Whenever cash is to be paid pursuant to an award granted hereunder, the CompanyDirector shall have the right to deduct therefrom an amount sufficientassign the right to satisfyreceive any federal, state and local withholding tax requirements related thereto. Whenever Shares areStock Payment or any other right or interest under the Plan, contingent or otherwise, or to cause or permit any encumbrance, pledge or charge of any nature to be delivered pursuantimposed on any such right to an Award,receive any Stock Payment (prior to the issuance of a stock certificate or notice of share ownership evidencing such Stock Payment, which the Company shall endeavor to cause to occur on the Grant Date or as soon as practicable thereafter).
12. Amendment and Termination of Plan
(a) The Board will have the rightpower in its discretion, to requireamend, suspend or terminate the Participant to remit to the Company in cash an amount sufficient to satisfyPlan at any related federal, state and local taxes to be withheld and applied to the tax obligations. With thetime. No such amendment will, without approval of the Administrator, a Participant may satisfyshareholders of the foregoing requirement by electingCompany:
(i) Change the class of persons eligible to havereceive Stock Payments under the Company withhold from deliveryPlan or otherwise modify the requirements as to eligibility for participation in the Plan; or
(ii) Increase the number of Shares or by delivering already owned unrestricted shares of Common Stock in each case, having a value not exceeding the federal, state and local taxes to be withheld and applied to the tax obligations. Such shares shall be valued at their Fair Market Value on the date of which the amount of tax to be withheld is determined. Fractional share amounts shall be settled in cash. Such an election may be made with respect to all or any portion ofissued under the Shares to be delivered pursuant to an Award. The Company may also use any other method of obtaining the necessary payment or proceeds,Plan (except for adjustments as permitted by law, to satisfy its withholding obligation with respect to any Option or other Award.
Section 16. Transfer of Awards.
Unless otherwise determined by the Administrator or provided in an Award Agreement, Awards shall not be transferable by a Participant except by willSection 8 hereof).
(b) No amendment, suspension or the laws of descent and distribution and shall be exercisable during the lifetime of a Participant only by such Participant or his guardian or legal representative. Any purported transfer of an Award or any economic benefit or interest therein in violationtermination of the Plan or an Award Agreement shall be null and voidab initio, and shall not create any obligation or liabilitywill, without the consent of the Nonemployee Company andDirector or Nonemployee Participating Company Director, alter, terminate, impair, or adversely affect any person purportedly acquiringright or obligations under any Award or any economic benefit or interest therein transferred in violation ofStock Payment previously granted under the Plan to such Participant, unless such amendment, suspension or an Award Agreement shall not be entitled to be recognized as a holder of such Shares.
Section 17. Continued Employment.
termination is required by applicable law.
The adoption of(c) Notwithstanding the Plan shall not confer upon any Eligible Recipient any right to continued employment with the Company or any Affiliate thereof, as the case may be, nor shall it interfere in any way with the right of the Company or any Affiliate thereof to terminate the employment of any of its Eligible Recipients at any time.
Section 18. Effective Date; Shareholder Approval.
The Plan was adopted byforegoing, the Board on February 11, 2010, and shall become effectivemay, without further action on the date as of which this Plan is approved by the shareholders of the Company. The grant of any Award hereunder shall be contingent upon shareholder approval ofCompany, amend the Plan being obtained within twelve (12) months before or aftermodify Stock Payments under the date the Board adopts the Plan.
No Award shall be granted pursuantPlan (i) in response to changes in securities or other laws, or rules, regulations or regulatory interpretations thereof, applicable to the Plan, on or after the tenth (10th) anniversary of the Effective Date, but Awards theretofore granted may extend beyond that date.(ii) to comply with stock exchange rules or requirements.
Section 20. Section 409A of the Code.
13. Governing Law
The intent of the parties is that payments and benefits under the Plan comply with Section 409A of the Code to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and be administered to be in compliance therewith. Any payments described in the Plan that are due within the "short-term deferral period" as defined in Section 409A of the Code shall not be treated as deferred compensation unless applicable law requires otherwise. Notwithstanding anything to the contrary in the Plan, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to the Plan during the six (6) month period immediately following the Participant's termination of employment shall instead be paid on the first business day after the date that is six (6) months following the Participant's separation from service (or upon the Participant's death, if earlier). Notwithstanding any provision to the contrary in this Plan, no payment or distribution under this Plan that constitutes an item of deferred compensation under Section 409A of the Code and becomes payable by reason of a Participant's termination of employment will be made to such Participant unless such Participant's termination of employment constitutes a "separation from service" (as such term is defined in Section 409A of the Code). In addition, for purposes of the Plan, each amount to be paid or benefit to be provided to the Participant pursuant to the Plan, which constitutes deferred compensation subject to Section 409A of the Code, shall be construed as a separate identified payment for purposes of Section 409A of the Code.
The Plan shall be governed by and construed in accordance with the laws of the State of Hawaii without giving effect to principlesshall govern and control the interpretation and application of conflictsthe terms of lawthe Plan.
14. Effective Date and Duration of such state.the Plan
The Plan has been approved by the Board and will become effective upon approval by the Shareholders of the Company at the 2011 Annual Meeting of Shareholders. Unless previously terminated by the Board, the Plan will terminate on April 30, 2021.
HAWAIIAN ELECTRIC INDUSTRIES, INC.
CATEGORICAL STANDARDS OF DIRECTOR INDEPENDENCE
Amended as of November 16, 2009December 13, 2010
A director who is not independent if:
"Immediate family member" includes a person's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law and anyone (other than domestic employees) who shares such person's home.
References to "the company" meanCompany" means Hawaiian Electric Industries, Inc. and its consolidated subsidiaries.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OFPROXY MATERIALS FOR THE HAWAIIAN ELECTRIC INDUSTRIES, INC.ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 11, 2010
Notice of Annual Meeting of Shareholders
WHEN AND WHERE IS THE SHAREHOLDERS MEETING?
The 2010 Annual Meeting of Shareholdersincludes subsidiaries of Hawaiian Electric Industries, Inc. (HEI) will be held in Room 805 onas is relevant to any determination under the eighth floor of the American Savings Bank Tower in Honolulu, Hawaii on May 11, 2010, at 9:30 a.m., local time.independence standards set forth above.
WHAT IS BEING VOTED ON AT THE SHAREHOLDERS MEETING?
WHAT DOES THE BOARD OF DIRECTORS RECOMMEND?
The Board of Directors recommends a vote FOR all nominees and FOR proposals 2 and 3.
HOW CAN I GET A COMPLETE SET OF PROXY MATERIAL?
This is not a proxy card. If you wish to cast your vote on a traditional proxy card, you must request a paper copy of the proxy material by following the instructions below.
This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. We encourage you to access and review all of the important information contained in the proxy materials before voting.
The following proxy materials can be viewed at: www.ViewMaterial.com/HEI
If you want to receive a paper or e-mail copy of these documents, you must request one. There is no charge to you for requesting a copy. Please make your request for a copy as instructed below on or before April 27, 2010 to facilitate timely delivery.
You may request a paper or e-mail copy of the proxy materials listed above and/or all proxy materials for future annual meetings of shareholders by following the instructions below. You will be asked to provide the control number (located by the arrow in the box below).
VOTE BY TELEPHONE | ||
Have your proxy card available when you call theToll-Free number 1-888-693-8683 using a touch-tone telephone and follow the simple instructions presented to record your vote. | ||
VOTE BY INTERNET | ||
Have your proxy card available when you access the websitewww.cesvote.com and follow the simple instructions presented to record your vote. | ||
VOTE BY MAIL | ||
Please mark, sign and date your proxy card and return it in thepostage-paid envelope provided or return it to: Corporate Election Services, PO Box 1150, Pittsburgh, PA 15230. |
Vote by Telephone CallToll-Free using a touch-tone telephone: 1-888-693-8683 | Vote by Internet Access the Website and cast your vote: www.cesvote.com | Vote by Mail Return your proxy in the postage-paid envelope provided. |
Vote 24 hours a day, 7 days a week until May 10, 2010 11:59 P.M. EST.
If you vote by telephone or Internet, please do not send your proxy by mail.
HAWAIIAN ELECTRIC INDUSTRIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 11, 2010, AT 9:30 A.M., IN THE AMERICAN SAVINGS BANK TOWER, 8TH FLOOR, ROOM 805, 1001 BISHOP STREET, HONOLULU, HAWAII 96813.
The undersigned hereby constitutes and appoints Constance H. Lau, Chester A. Richardson and Jeffrey N. Watanabe and each of them the proxy of the undersigned, with full power of substitution, to vote all the Common Stock of Hawaiian Electric Industries, Inc. which the undersigned may be entitled to vote at the Annual Meeting of Shareholders to be held on May 11, 2010 or at any adjournment or postponement thereof.
the Annual Meeting of Shareholders to be held on May 10, 2011 or at any adjournment or postponement thereof. Date: | ||||
Signature(s) | ||||
Signature(s) | ||||
YOUR VOTE IS IMPORTANT
If you do not vote by telephone or Internet, please sign and date this proxy card and return it promptly in the enclosed postage-paid envelope, or otherwise to Corporate Election Services, PO Box 1150, Pittsburgh, PA 15230, so that your shares may be represented at the Annual Meeting. If you vote by telephone or Internet, it is not necessary to return this proxy card.
Please fold and detach card at perforation before mailing. |
PROXY TO BE SIGNED AND DATED ON THE REVERSE SIDE YOUR VOTE IS IMPORTANT If you do not vote by telephone or Internet, please sign and date this proxy card and return it promptly in the enclosed postage-paid envelope, or otherwise to Corporate Election Services, PO Box 1150, Pittsburgh, PA 15230, so your shares may be represented at the Annual Meeting. If you vote by telephone or Internet, it is not necessary to return this proxy card. HAWAIIAN ELECTRIC INDUSTRIES, INC. PROXY The proxies named on the reverse side of this card are instructed to vote as indicated below. If no direction is indicated, said proxies will vote FOR all Nominees and FOR proposals 2, 4 and 5 and 1 YEAR in proposal 3. Said proxies are also authorized to vote in their discretion with respect to any other matters that may come before the Annual Meeting or at any adjournment or postponement thereof. The Board of Directors recommends a vote FOR all of the Nominees, FOR proposals 2, 4 and 5 and 1 YEAR in proposal 3. 1. Elect three Class III directors for a three-year term expiring at the 2014 Annual Meeting of Shareholders Nominees: (1) Peggy Y. Fowler (2) Keith P. Russell (3) Barry K. Taniguchi FOR all nominees listed above WITHHOLD authority to vote (except as marked to the contrary below) for all nominees listed above To withhold authority to vote for any individual nominee, strike a line through the nominee’s name above. 2. Approve the 2011 Nonemployee Director Stock Plan FOR AGAINST ABSTAIN 3. Recommend, by non-binding vote, the frequency of executive compensation votes 1 YEAR 2 YEARS 3 YEARS ABSTAIN 4. Approve, by non-binding vote, the shareholder resolution approving HEI’s executive compensation FOR AGAINST ABSTAIN 5. Ratify the appointment of PricewaterhouseCoopers LLP as HEI’s independent registered public accounting firm for 2011 FOR AGAINST ABSTAIN Please check this box if you consent to access future Annual Reports and Proxy Statements via the Internet. Please fold and detach card at perforation before mailing. |
The proxies named on the reverse side of this card are instructed to vote as indicated below.If no direction is indicated, said proxies will vote FOR all Nominees and FOR proposals 2 and 3. Said proxies are also authorized to vote in their discretion with respect to any other matters that may come before the Annual Meeting or at any adjournment or postponement thereof.
The Board of Directors recommends a vote FOR all of the Nominees and FOR proposals 2 and 3.
1. | Elect three Class II directors for a three-year term expiring at the 2013 Annual Meeting of Shareholders | |||||||||||||||
Nominees: | (1) | Thomas B. Fargo | (2) | Kelvin H. Taketa | (3) | Jeffrey N. Watanabe | ||||||||||
o | FOR all nominees listed above (except as marked to the contrary below) | o | WITHHOLD authority to vote for all nominees listed above | |||||||||||||
To withhold authority to vote for any individual nominee, write that nominee's name or number on the line below. | ||||||||||||||||
2. | Ratify the appointment of PricewaterhouseCoopers LLP as HEI's independent registered public accounting firm for 2010 | |||||||||||||||
o | FOR | o | AGAINST | o | ABSTAIN | |||||||||||
3. | Approve the 2010 Equity and Incentive Plan | |||||||||||||||
o | FOR | o | AGAINST | o | ABSTAIN | |||||||||||
o | Please check this box if you consent to access future Annual Reports and Proxy Statements via the Internet. |
PROXY TO BE SIGNED AND DATED ON THE REVERSE SIDE