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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. )
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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 |
Hawaiian Electric Industries, Inc. | ||||||||
(Name of Registrant as Specified In Its Charter) | ||||||||
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HAWAIIAN ELECTRIC INDUSTRIES, INC. • PO BOX 730 • HONOLULU, HI 96808-0730
Constance H. Lau
President and
Chief Executive Officer
March 21, 201122, 2012
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 Wednesday, May 10, 2011,9, 2012, at 9:30 a.m., localHonolulu time. A map showing the location of the meeting site appears on page 8575 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 certain significant events of 2010that took place in 2011 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 firstas we did last year, in which we will be asking our shareholdersyou to submitcast an advisory vote on the Company'sto approve HEI's executive compensation. A description of the Company'sHEI's executive compensation programs, as well as details of the compensation for the Company'sHEI's named executive officers, is providedare described 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 theirour 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 | ||
Place | American Savings Bank Tower, 1001 Bishop Street, 8th floor, Room 805, Honolulu, Hawaii 96813. | |
Items of Business | 1. To elect three Class | |
2. To | ||
Record Date | March | |
Annual Report | The | |
Proxy Voting | Shareholders of record may appoint proxies and vote their shares in one of four ways: | |
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Shareholders whose shares are held by a bank, broker or other financial intermediary (i.e., in "street name") should follow the voting instruction card provided by such intermediary. | ||
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, you must bring a letter from your bank or broker or provide other evidence of your beneficial ownership on the record date if you plan to attend the Annual Meeting. | |
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on May | 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 Counsel, Secretary and Chief Administrative Officer |
2012 Proxy Summary
This summary highlights information contained elsewhere in this Proxy Statement. The summary does not contain all of the information that you should consider. Please read the entire Proxy Statement carefully before voting.
Matter | Board Recommendation | See Page | ||||
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Election of Class I Directors | FOR EACH DIRECTOR NOMINEE | 5 | ||||
Advisory Vote to Approve Executive Compensation | FOR | 28 | ||||
Ratification of PwC as Independent Auditor for 2012 | FOR | 72 |
DIRECTOR NOMINEES FOR CLASS I DIRECTORS
Each director nominee is elected for a 3-year term by a plurality of votes cast. Each director nominee is a current director and attended at least 75% of all meetings of the Board and committee on which she or he sits.
| | | | | Committee Membership | | |||||||||||||||
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| | Director Since | | | Other Public Company Boards | ||||||||||||||||
Name | Age | Occupation | Independent | EC | AC | CC | NCGC | ||||||||||||||
Constance H. Lau | 60 | 2006 | President & Chief Executive Officer, HEI | X | Alexander & Baldwin, Inc. | ||||||||||||||||
A. Maurice Myers | 71 | 1991 | Ret. Chairman, CEO & President, Waste Management, Inc. | X | X | Hawaiian Electric Company (HEI subsidiary) | |||||||||||||||
James K. Scott, Ed.D. | 60 | 1995 | President, Punahou School | X | X |
EC—Executive Committee
AC—Audit Committee
CC—Compensation Committee
NCGC—Nominating and Corporate Governance Committee
ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION
We are asking shareholders to approve on an advisory basis HEI's executive compensation, including our executive compensation policies and practices and the compensation of our named executive officers, as described in this Proxy Statement beginning on page 28. The Board recommends a FOR vote because it believes that the compensation policies and practices are effective in achieving the Company's goals of paying for performance and aligning the executives' long-term interests with those of our shareholders. Named executive officer compensation over the past three years, reflected in cash and long-term equity awards, is consistent with and correlates to the Company's performance and earnings over that period.
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Company Performance Highlights
In 2011, we delivered strong financial results and continued to move our business forward. Financial highlights include the following year-over-year comparison:
Performance highlights include:
Sound Compensation Program Design Tied to Performance
The executive officer compensation program is designed to attract, motivate and retain the key executives who drive our success. Pay that reflects performance and alignment with the long-term interests of our shareholders at a reasonable cost are key principles. We achieve these objectives through a compensation program that:
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Other key compensation features, which reflect best practices, include:
Executive Compensation Elements
Type | Form | Terms | ||||||
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Equity | > | Long Term Incentive Plan (LTIP) (performance shares) | > | LTIP has 3-year performance period with objective performance measures, paid 100% in stock beginning with 2010-2012 performance period | ||||
> | Restricted stock units (RSUs) | > | RSUs generally vest 25% per year while employed | |||||
Cash | > | Salary | > | Generally eligible for annual increases; competitively market-based | ||||
> | Annual performance-based incentives | > | Based on quantitative and qualitative goals | |||||
Retirement | > | Pension | > | 5-year vesting, with normal retirement at age 65 and options for early and deferred retirement | ||||
> | Excess pay plan | > | Provides additional retirement benefits that cannot be paid under the standard pension plan due to Internal Revenue Code limits | |||||
> | Supplementary pension (frozen) | > | Frozen as of September 2009, CEO is only participant | |||||
Other | > | Limited perquisites | > | Business club membership |
We use competitive market peer company comparisons to determine the amount of each element of executive compensation. The peer companies are used as a reference in determining appropriate pay levels and mix of pay components by benchmarking toward a competitive median and allowing differences to recognize high performers.
Pay for Performance
Our executive compensation program allows the Compensation Committee and the Board to determine pay based on a comprehensive view of quantitative and qualitative factors designed to produce long-term business success. The alignment between our financial results and executive officer compensation awarded, as described in the "Compensation Discussion and Analysis" (beginning on page 29 of the Proxy Statement), demonstrates the success of this approach.
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The following charts, which compare HEI's total shareholder return (TSR) to the total direct compensation (TDC) of HEI's CEO, show a clear correlation between pay and performance. From 2007 to 2010, CEO TDC generally parallels HEI's TSR under both annual and three-year TSR measures. For 2011, the CEO TDC line slopes downward while HEI TSR continues to rise. This further illustrates pay for performance, since the CEO's compensation for the three-year period ending on December 31, 2011 was based on two performance metrics—TSR and HEI 3-year return on average common equity (ROACE)—and the Company arrived short of its performance expectations for HEI 3-year ROACE.
HEI Annual Total Shareholder Return vs HEI CEO Total Direct Compensation* | HEI 3-year Total Shareholder Return vs HEI CEO Total Direct Compensation* | |
Like CEO TDC, which decreased in 2011 compared to 2010 as illustrated in the charts above, the CEO's total compensation (shown in the Summary Compensation Table on page 51 of the Proxy Statement) was lower in 2011 than in 2010. Total compensation in the Summary Compensation Table differs from TDC in the charts above because it includes the change in pension value, which is affected by interest rates and other actuarial assumptions, and the potential value of long-term incentive awards that may be received in the future but not in the year shown in the Summary Compensation Table.
We are asking that our shareholders ratify the selection of PricewaterhouseCoopers LLP (PwC) as our independent auditor for fiscal year 2012. Below is a summary of PwC's fees for services provided in 2011 and 2010.
| Amount of Fees | ||||||
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Type of Fees | 2011 | 2010 | |||||
Audit Fees | $ | 1,995,000 | $ | 1,750,000 | |||
Audit-Related Fees | 135,000 | 110,000 | |||||
Tax Fees | 166,000 | 298,000 | |||||
All Other Fees | — | — | |||||
Total | $ | 2,296,000 | $ | 2,158,000 |
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About the Meeting | 1 | |||
Who can | 1 | |||
What are shareholders being asked to vote on? | 1 | |||
Voting Procedures | 1 | |||
Electronic Access to Proxy Materials | 1 | |||
Who is eligible to vote? | 2 | |||
How many shares are outstanding and entitled to vote? | 2 | |||
What constitutes a quorum? | 2 | |||
How | 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 | 6 | |||
Nominees for | ||||
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Continuing Directors | 9 | |||
Continuing Class II Directors Whose Terms Expire at the 2013 Annual Meeting | ||||
Continuing Class | 11 | |||
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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? | ||||
Board of Directors | ||||
Who are the independent directors of the Board? | ||||
How often did the Board meet in | ||||
Does the Board meet in executive session without management present? | ||||
Did all directors attend last year's Annual Meeting? | ||||
Does the Board evaluate itself? | ||||
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? | ||||
Director Compensation | ||||
How is director compensation determined? | ||||
Director Compensation Table | ||||
Proposal No. 2: | 28 | |||
Compensation Committee Report | 28 | |||
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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 executive officer | ||||
Are "say-on-pay" vote results considered in determining executive compensation matters? | 34 | |||
How do HEI's compensation policies and practices relate to HEI's risk management? | ||||
Compensation | ||||
What is HEI's philosophy | ||||
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Compensation Elements | 36 | |||
What is each element of executive | ||||
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How does HEI determine the amount for each element? | ||||
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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 2010-2012 long-term incentive plan? | ||||
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Do named executive officers receive equity-based awards other than through the long-term incentive plan? | 46 | |||
What retirement benefits do named executive officers have? | ||||
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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 | ||||
Stock Ownership Information | ||||
Security Ownership of Certain Beneficial Owners | ||||
Does HEI have stock ownership and retention guidelines for directors and officers and does it have a policy regarding hedging the risk of ownership? | ||||
Section 16(a) Beneficial Ownership Reporting Compliance | ||||
Other Relationships and Related Person Transactions | ||||
Does HEI have a |
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. | |||
Other Information | |||
How are proxies solicited and what is the cost? |
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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" and will it provide additional copies of proxy materials upon request? | |||
Map | |||
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HEI is soliciting proxies for the Annual Meeting of Shareholders scheduled for Wednesday, May 10, 2011,9, 2012, at 9:30 a.m., localHonolulu 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 21, 2011.22, 2012. The 20102011 Annual Report to Shareholders accompanying this Proxy Statement is not considered proxy soliciting material.
Who can attend the meeting?attend?
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 Access to Proxy 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 21, 2011,22, 2012, 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, 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 domay shareholders vote?" below.
Only persons who own shares of HEI Common Stock as of the close of business on March 2, 20111, 2012 (the proxy record date) are entitled to vote.
How many shares are outstanding and entitled to vote?
On March 2, 2011, 94,915,8831, 2012, 96,222,725 shares of HEI Common Stock were outstanding. Each shareholder is entitled to one vote for each share held.held on the record date. 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 2, 20111, 2012 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 voting instruction 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 available the control number on your Notice or proxy/voting instruction card, as applicable, available.applicable.
Shareholders who vote via the Internet or by telephone shouldnot mail the proxy/voting instruction card.
on the enclosed proxy card vote your shares at the meeting, cross out all three names and insert the name of anotherthe person you designate 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 from you 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 the approval of the 2011 Nonemployee Director Stock Plan, the advisory vote on the frequency of advisory votes on executive compensation and the advisory vote on executive compensation are considered nonroutine matters.Please provide instructions to your broker on how to vote your shares on all fivethree 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 trusteesyou will vote thosereceive instructions explaining how to direct your vote. Your shares will be voted 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 are given will be voted in the same proportion as they votethe shares for which they receive instruction.voting instructions were given.
Can shareholders change their vote?
If you vote by any of the methods described above, you may revoke your proxy card 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 yourYour options are to vote either "FOR" or to "WITHHOLD" your vote for a nominee. Although the election of directors is considered a nonroutine matter, broker nonvotes (i.e., when your broker or other holder of record does not vote your shares on a nonroutine matter because you have not provided instructions regarding how to vote on that matter) will not affect the outcome of this matter.
The 2011 Nonemployee Director Stock Plan will be approved if the majorityTable of 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 approval of the 2011 Nonemployee Director Stock Plan. Broker nonvotes will have no effect on the outcome of the vote on the 2011 Nonemployee Director Stock Plan, except that they will not count as votes cast for purposes of determining whether the total votes cast represent more than 50% of the shares entitled to vote.Contents
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 20112012 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 card will vote your stock in accordance with their best judgment, unless authority to do so is withheld by you in your proxy.proxy card.
What happens if the Annual Meeting is postponed or adjourned?
If the Annual Meeting is postponed or adjourned, your proxy card will remain valid and may be voted at the postponed or adjourned meeting. You will still be able to change or revoke your proxy card until it is voted at the Annual Meeting.
In accordance with HEI's Bylaws, the Board has fixed the size of the Board at nine directors, divided equally into three classes with staggered terms. The Board proposes that the following three nominees be elected at the 2012 Annual Meeting as Class I directors to serve until the 2015 Annual Meeting, or until his or her respective successor shall be duly elected and qualified:
Ms. Lau, Mr. Myers and Dr. Scott are all currently incumbent Class I directors of HEI. The Board has determined that Mr. Myers and Dr. Scott are independent under the applicable standards for director independence, as discussed below under "Board of Directors—Who are the independent directors of the Board?". Ms. Lau currently serves as the President and Chief Executive Officer of HEI and is therefore not independent. Each nominee has consented to serve for the new term expiring at the 2015 Annual Meeting if elected. If a nominee is unable to stand for election at the time of the 2012 Annual Meeting, the proxy holders listed in the proxy card may vote in their discretion for a suitable substitute.
Information regarding the business experience and certain other directorships for each Class I director nominee and for each continuing Class II and III director is provided on pages 6-12 below 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 I DIRECTOR LISTED ABOVE.
Nominees for Class I Directors Whose Terms Expire at the 2015 Annual Meeting
Constance H. Lau, age 60, director 2001-2004 and since 2006 and nominee for election as a Class I director at the 2012 Annual Meeting Executive Committee Member As HEI's President and Chief Executive Officer since 2006, Ms. Lau has extensive senior management experience and thorough knowledge of the Company's operations. Prior to becoming CEO, Ms. Lau served in various leadership capacities that have spanned several functions across HEI and its subsidiaries, including the legal, financial and executive management functions. During her 28 years of service to HEI and its subsidiaries, Ms. Lau acquired significant experience and expertise with respect to the utility and banking industries. Further, having been exposed to virtually all aspects of HEI's operations at both the holding company level and the subsidiary operating company level, Ms. Lau brings a unique and comprehensive perspective to the Board. Ms. Lau's intelligence and leadership stature has been recognized nationally, leading her to having been named to the National Infrastructure Advisory Council (NIAC) by President Obama and the Community Depository Institutions Advisory Council of the Federal Reserve Bank of San Francisco. As a result, Ms. Lau brings to the Board a national perspective, as well as valuable insights regarding physical and cyber infrastructure security and monetary policy, which is critical in today's environment. Current and prior positions with the Company • 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., 2008-2010 • 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 2007 • Director since 2004 and Audit Committee Member, Alexander & Baldwin, Inc. | ||
Skills and qualifications for HEI Board service • Intimate understanding of the Company from serving in various chief executive, chief operating and other executive, finance and legal positions at HEI and its subsidiaries over the last 28 years. • 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 the Associated Electric & Gas Insurance Services, Inc. • Experience with financial oversight and expansive knowledge of the Hawaii business community and the local communities that compose the Company's customer bases from serving as a director for various local industry, business development, educational and nonprofit organizations. • Utility and banking industry knowledge from serving as a director or task force member of the Hawaii Bankers Association, the American Bankers Association, the Edison Electric Institute and the Electric Power Research Institute. |
A. Maurice Myers, age 71, director since 1991 and nominee for election as a Class I director at the 2012 Annual Meeting Compensation Committee Member Mr. Myers brings a wealth of knowledge and leadership skills to the HEI Board. His extensive experience leading successful companies as chief executive officer, both in Hawaii and on the mainland, including several large public companies, provides the Board with significant management expertise. Having served on the Board for twenty years, Mr. Myers has gained in-depth knowledge of HEI and its operations. With this breadth and depth of experience, Mr. Myers is a valuable resource to management and other Board members and contributes substantially to the Board's capabilities in overseeing HEI's operations. Business experience and other public company and HEI affiliate directorships since 2007 • 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 2009-2011 • Director, American Savings Bank, F.S.B. (HEI subsidiary), since 2011 | ||
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 chair for Tesoro Corporation and as a director for BIS Industries Limited and Cheap Tickets. |
James K. Scott, Ed.D., age 60, director since 1995 and nominee for election as a Class I director at the 2012 Annual Meeting Nominating and Corporate Governance Committee Member Dr. Scott has considerable management experience as an executive leader in Hawaii. While Dr. Scott has earned the reputation of being one of the nation's leading education administrators, his unique value to the Company derives from his extensive knowledge, contacts and relationships within Hawaii's business community, non-profit community and local governmental agencies. Dr. Scott's long participation on the Board has contributed significantly to the Board's understanding of Hawaii's unique cultural and business environment. With the success under his leadership of one of the country's most prominent college preparatory schools for nearly two decades, and because of his commitment to a wide array of charitable and civic causes, Dr. Scott is a well-respected leader in the state of Hawaii. Business experience and other public company and HEI affiliate directorships since 2007 • President, Punahou School (K-12 independent school), since 1994 • Director, American Savings Bank, F.S.B. (HEI subsidiary), since 2008 | ||
Skills and qualifications for HEI Board service • Recognized leadership and executive management skills as President of Punahou School for 18 years. • 27 years of experience developing and executing strategic plans as the chief executive at two independent schools, including overseeing fundraising programs and admissions/marketing and finance functions. • 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, 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 63, director since 2005 Compensation Committee Chair Nominating and Corporate Governance Committee Member Business experience and other public company and HEI affiliate directorships since 2007 • 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 • Chairman of the Board and Compensation and Governance Committee Member, Huntington Ingalls Industries, Inc., since 2011 • Director, Alexander & Baldwin, Inc., since 2011 • Director, Northrop Grumman Corporation, 2008-2011 • Director, Hawaiian Holdings, Inc., 2005-2008 • Director, Hawaiian Electric Company, Inc. (HEI subsidiary), since 2005 | ||
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 57, director since 1993 Nominating and Corporate Governance Committee Chair Business experience and other public company and HEI affiliate directorships since 2007 • President and Chief Executive Officer, Hawaii Community Foundation (statewide charitable foundation), since 1998 • Director, Hawaiian Electric Company, Inc. (HEI subsidiary), since 2004 Skills and qualifications for HEI Board service • Executive management experience with responsibility for overseeing more than $500 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 69, director since 1987 Chairman of the Board since 2006 Executive Committee Chair Compensation Committee Member Business experience and other public company and HEI affiliate directorships since 2007 • 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 2008-2011 | ||
Skills and qualifications for HEI Board service • 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. |
Continuing Class III Directors Whose Terms Expire at the 2014 Annual Meeting
Peggy Y. Fowler, age Audit Committee Member Business experience and other public company and HEI affiliate directorships since •
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• Director, Umpqua Holdings Corporation, since 2009, and Chair of Budget and Compensation Committees, since | ||
• | Director and Audit Committee Member, Hawaiian Electric Company, Inc., since 2009 Skills and qualifications for HEI Board service •
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• Proven management, leadership • Expertise in financial oversight, regulatory compliance and corporate governance | |
Involvement in certain legal proceedings • PGE was owned by Enron Corp. from 1997 to 2006. Enron also owned Portland General Holdings, Inc., previously a holding company for the nonregulated business of PGE that became a subsidiary of Enron, holding Enron's nonregulated businesses in Portland. Enron Corp. filed for bankruptcy in 2001. Ms. Fowler was President of Portland General Holdings from 1999 to 2003, when it also filed for bankruptcy protection. The case was procedurally consolidated with the Enron bankruptcy, but Enron's bankruptcy reorganization plan did not expressly pertain to Portland General Holdings. The Portland General Holdings bankruptcy case was dismissed in October 2005, after substantially all of its assets were distributed or placed in segregated accounts. |
Keith P. Russell, age Audit Committee Member Business experience and other public company and HEI affiliate directorships since •
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• Director and Audit Committee Member, American Savings Bank, F.S.B. (HEI subsidiary), since 2010 • Director, Nationwide Health Properties, •
• Director, Countrywide Financial, 2003-2008 | ||
Skills and qualifications for HEI Board service •
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• 9 years of banking industry experience from serving as Senior Vice President and Deputy Administrator for Security Pacific National Bank, with direct responsibility for a wide breadth of operations including leasing, consumer and commercial finance, mortgage banking, venture capital, cash management and trust business. |
Barry K. Taniguchi, age Audit Committee Chair Executive Committee Member Business experience and other public company and HEI affiliate directorships since •
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• Director, Maui Electric Company, Limited (HEI subsidiary), 2006-2009 | ||
Skills and qualifications for HEI Board service •
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• Extensive corporate and nonprofit board and leadership experience, including from his current service on the boards of Hawaii Employers Mutual Insurance Company and Hawaii Community Foundation and from his role as a director and former Chair of the Hawaii Island Economic Development Board. |
Continuing Class I Directors Whose Terms Expire at the 2012 Annual Meeting
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Class I Director Who Intends to Resign at the 2011 Annual Meeting
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Class III Directors Who Are Not Continuing After the Expiration of Their Terms at the 2011Annual Meeting
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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 2010, the2011, HEI's 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(Federal Reserve) and Office of Thrift Supervision (OTS) applicable to HEI as a bankthrift holding company. On July 21, 2011, supervision and regulation of HEI, as a thrift holding company, moved from the OTS to the Federal Reserve. As part of an annual review, the HEI Categorical Standards of Director Independence (see Appendix B),HEI's bylaws, 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, as most recently revised, 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 and Ms. Lau has served as HEI's President and Chief Executive Officer. Since that time, Ms. Lau has also been the only employee director on the Board. Prior to 2006, the Company's Chief Executive Officer had also served as Chairman of the Board. During that time, the Board had an independent 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 considered: (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; (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,person, as was the case prior to 2006, or if the Board determines that the Chairman is not independent, the independent directors should designate an independent director to serve as Lead Director."Lead Director". If a Lead Director is designated, the Lead Director's responsibilities would be to: (i) preside
responsibilities are 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. 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 Company 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 Company's regulators and shareholders that the Board is committed to serving the best interests of the Company and its shareholders and not the best interests of management. Third, the Board recognizes that the CompanyHEI 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 evaluationself-evaluation and assistsfacilitates communications between each of these boards and management of the respective subsidiary company andas well as 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 operating electric public utility and bank subsidiaries. At the holding company and subsidiary levels, the Company faces a variety of risks, including operational risks, regulatory and legal compliance risks, credit and interest rate risks, competitive risks, liquidity risks and liquiditystrategic and reputational 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 Company 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:
with approving this ERM system, the Board reviewed a catalog of 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 status 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 HEI's internal auditor evaluating the effectiveness of management's implementation of the approved ERM system.
risks facing the Company 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 do not necessarily need to be possessed by each director. The Nominating and Corporate Governance Committee and the Board, thus, considerconsiders 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 renomination 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. 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.qualifications and attributes.
In evaluating the qualifications and attributes of each potential candidate (including incumbent directors) for nomination or renomination,re-nomination, the committee considers:
concerns and other factors that the committee considers appropriate in the context of the needs of the Board;
The Board considers the recommendations of the Nominating and Corporate Governance Committee and then makes the final decision whether to re-nominate incumbent directors and 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, the Nominating and Corporate Governance Committee considers whether the candidate would contribute to the expertise, skills and professional experience, as well as to the diversity of the Board in terms of race, ethnicity, gender, age and cultural background and professional experience of the candidate.background. 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 CompanyHEI 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 femalea person's gender or a racial minority,ethnicity, 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 thoroughly and completely. As the Company'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 advantageadvantages to the Company.HEI.
With operations almost exclusively in the state of Hawaii, it is natural and advantageous that our Board be composed largely 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. If the shareholders vote to elect the three director nominees proposed by the Board for election at the Annual Meeting, the resulting composition of the Board would be as follows: four directors (or 44.4%) who are Caucasian, four directors (or 44.4%) who are Asian American and one director (or 11.1%) who is Caucasian, Asian American and native Hawaiian. Two (or 22.2%) of such nine directors, including a current nominees,nominee, are female.
The Board also recognizes that, due to Hawaii's geographic isolation from the continental United States and the comparatively small number of publicpublicly-traded companies, banks and regulated utilities based in Hawaii, the Board also benefits from having among its members directors who have gained business experience at companies located in other states because those Board members can and have contributedcontribute 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 individual director or the 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—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.
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, Li, Myers, Russell, Scott, Taketa, Taniguchi and Watanabe and Mses. Daniel andMs. Fowler) are independent. The remaining director, Ms. Lau, is the only employee director of HEI.HEI and therefore is not independent. In addition, the Board had previously determined that Richard W. Gushman, II,Messrs. Carroll and Li, whose service on the Board ended when their terms expired at the 2011 Annual Meeting of Shareholders, and Dr. Daniel, who resigned from the Board effective September 30, 2010, and Diane J. Plotts, who retired from the Board at the 20102011 Annual Meeting of Shareholders, were independent during their service on the Board in 2010.independent.
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?2011?
In 2010,2011, there were nineseven regular meetings and noone special meetingsmeeting 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 2010,2011, 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.
Did all directors attend last year's Annual Meeting?
TenEight of HEI's twelvenine directors attended the 20102011 Annual Meeting of Shareholders. HEI encourages all directors to attend each year's Annual Meeting of Shareholders.
Does the Board evaluate itself?
The Board conducts annual evaluations to determine whether it and its committees are functioning effectively. In addition, each director annually evaluates his or her performance as a director andAs part of the evaluation process, each member of the Audit, Compensation and Nominating and Corporate Governance Committees annually evaluates the performance of each committee on which he or she serves. Each director up for reelection also evaluates his or her own performance. Beginning with evaluations conducted in early 2012, each nonemployee director completes a peer evaluation of each of the other nonemployee directors. The evaluation process is overseen by the Nominating and Corporate Governance Committee, in consultation with the Chairman. The chairperson ofChairman meets with each director individually to provide feedback from the Nominating and Corporate Governance Committee or the Chairman may meet with individual directors to discuss their performance, as he or she deems appropriate.peer evaluations.
What committees has the Board established and how often did they meet?
The Board 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 recommendations of the Nominating and Corporate Governance Committee. The table below shows committee members during 20102011 and the number of meetings of each committee held in 2010.2011.
Name | Audit | Compensation | Executive | Nominating and Corporate Governance | Audit | Compensation | Executive | Nominating and Corporate Governance | |||||||||
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Don E. Carroll | X | X | |||||||||||||||
Shirley J. Daniel | X | X | |||||||||||||||
Thomas B. Fargo | X | X | (2) | X | X(3) | X | |||||||||||
Richard W. Gushman, II (3) | X | ||||||||||||||||
Peggy Y. Fowler (4) | X | ||||||||||||||||
Constance H. Lau | X | X | |||||||||||||||
Victor H. Li | X | X | |||||||||||||||
A. Maurice Myers | X | X | |||||||||||||||
Diane J. Plotts (5) | X | (2) | X | X | |||||||||||||
Keith P. Russell (4) | X | ||||||||||||||||
James K. Scott | X | X | X | X | |||||||||||||
Kelvin H. Taketa | X | (2) | X(3) | ||||||||||||||
Barry K. Taniguchi | X | (2) | X | X(3) | X | ||||||||||||
Jeffrey N. Watanabe | X | (2) | X | X(3) | |||||||||||||
Number of Meetings in 2010 | 5 | 8 | 0 | 3 | |||||||||||||
Number of Meetings in 2011 | 4 | 5 | 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 (i) HEI's financial reporting processes and internal controls, (ii) the performance of HEI's internal auditor, (iii) risk assessment and risk management policies set by management and (iv) the Corporate Code of Conduct compliance program for HEI and its subsidiaries. In addition, this 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 this 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 (i) overseeing the compensation plans and programs for employees, executives and nonemployee directors of HEI and its subsidiaries, including equity and incentive plans; (ii) reviewing the extent to which risks that may arise from the Company's compensation policies and practices, if any, may have a material adverse effect on the Company and recommending changes to address any such risks; (iii) evaluating the compliance of American Savings Bank's incentive compensation practices under the principles for sound incentive compensation plans for banking organizations and (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 this 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 majorityAll of the members of the Compensation Committee qualifiesqualify as "nonemployee directors" as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934. During 2010, a Nonemployee Director Subcommittee made equity grants on behalf of the 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 (i) evaluating the background and qualifications of potential nominees for the Board and for the boards of HEI's subsidiaries, (ii) recommending to the Board the director nominees to be submitted to shareholders for
election at the next Annual Meeting, (iii) assessing the independence of directors and nominees, (iv) recommending the slate of executive officers to be appointed by the Board and subsidiary boards, (v) advising the Board with respect to matters of Board and committee composition and procedures, (vi) overseeing the annual evaluation of the Board and individual directors, (vii) overseeing talent development and succession planning for senior executive positions and (viii) 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 compensation 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 willdesigned to 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—Elements—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,fees, and 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 annual2011 cash retainer schedule for nonemployee directors of HEI, including those who also serve as directors of certain HEI subsidiaries,subsidiaries. Cash retainers were paid in quarterly installments in 2010, as well as the new schedule for 2011.installments. Nonemployee directors of HEI who also serve on HEI Board committees, or as directors on subsidiary company boards and committees received fees for service on such boards or committees in 20102011 as indicated below. However, starting in 2011, no additionalNo separate fees are paid to HEI directors for service on subsidiary company boards.boards, although the subsidiary companies pay an allocable portion of the overall fee for an HEI director who serves on the applicable subsidiary board. HEI directors who serve on committees of subsidiary boards will continue to receivereceived 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 |
2011 | ||||
---|---|---|---|---|
HEI Nonexecutive Chairman of the Board | $250,000 | |||
HEI Director | 65,000 | |||
HEI Audit Committee Chair | 15,000 | |||
HEI Compensation Committee Chair | 15,000 | |||
HEI Nominating and Corporate Governance Committee Chair | 10,000 | |||
HEI Audit Committee Member | 6,000 | |||
HEI Compensation Committee Member | 6,000 | |||
HEI Nominating and Corporate Governance Committee Member | 4,000 | |||
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 |
An American Savings Bank Risk Committee was established effective January 1, 2012. The chair of the American Savings Bank Risk Committee will receive an annual cash retainer of $10,000 and other nonemployee members of the committee will receive an annual cash retainer of $4,000. In order to bring the American Savings Bank Audit Committee fees into alignment with those of the American Savings Bank Risk Committee and Hawaiian Electric Company Audit Committee, the annual cash retainers for the American Savings Bank Audit Committee Chair and members were reduced to $10,000 and $4,000, respectively, effective January 1, 2012.
Meeting Fees. Nonemployee directors of HEI and its subsidiary company boards are also entitled to meeting fees for each committee meeting attended (as member or chair) after the minimum number of meetings specified below.
| |||||||
---|---|---|---|---|---|---|---|
HEI Audit Committee | $ | 1,500 per meeting after 6 meetings | |||||
American Savings Bank Audit Committee | $ | 1,000 per meeting after 8 meetings | |||||
Hawaiian Electric Company Audit Committee | $ | 750 per meeting after 8 meetings | |||||
HEI Nominating and Corporate Governance Committee | $ | 1,500 per meeting after 6 meetings | |||||
HEI Compensation Committee | $ | 1,500 per meeting after 6 meetings |
Stock Awards. On June 30, 2010,2011, each HEI nonemployee director received 1,800 shares of HEI Common Stock with a value equal to $75,000 as an annual grant under HEI's 19902011 Nonemployee Director Stock Plan as last amended and restated(2011 Director Plan), which was approved by HEI shareholders on May 6, 2008 (1990 Director Plan)10, 2011, 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 specifiedThe 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 bewas determined based on the closing sales price of HEI Common Stock on the New York Stock Exchange on such date.June 30, 2011. Stock grants to nonemployee directors under the 2011 Director Plan are made annually on the last business day in June.
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 theirhis retirement from service as a director, Mr. Myers and Ms. Plotts (who retired from the Board in May 2010) areis 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 theirhis active service through December 31, 1996 (7 years for Mr. Myers and 10 years for Ms. Plotts)(6 years). 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, as amended January 1, 2009, 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. DirectorsNonemployee directors are also eligible to participate in the new 2011HEI Deferred Compensation Plan for HEIimplemented in 2011 and Hawaiian Electric Company described under "Compensation Discussion and Analysis—Compensation Elements—CanMay 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 paid to the HEI nonemployee directors in 2010.2011.
20102011 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 ($) (6) | Total ($) | Fees Earned or Paid in Cash ($) (5) | Stock Awards ($) (6) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (7) | Total ($) | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Don E. Carroll | 75,000 | 41,301 | — | — | 116,301 | 56,991 | 40,000 | — | 96,991 | |||||||||||||||
Shirley J. Daniel | 71,000 | 41,301 | — | 25,560 | 137,861 | 54,480 | 40,000 | — | 94,480 | |||||||||||||||
Thomas B. Fargo | 84,880 | 41,301 | — | — | 126,181 | 84,000 | 75,000 | — | 159,000 | |||||||||||||||
Richard W. Gushman, II (1) | 55,500 | 41,301 | — | 44,513 | 141,314 | |||||||||||||||||||
Peggy Y. Fowler (3) | 64,038 | 75,000 | — | 139,038 | ||||||||||||||||||||
Victor H. Li | 69,000 | 41,301 | — | — | 110,301 | 25,552 | — | — | 25,552 | |||||||||||||||
A. Maurice Myers | 70,000 | 41,301 | 6,024 | — | 117,325 | 71,000 | 75,000 | 5,373 | 151,373 | |||||||||||||||
Diane J. Plotts (2) | 34,965 | — | — | 9,200 | 44,165 | |||||||||||||||||||
Keith P. Russell (3) | 65,038 | 75,000 | — | 140,038 | ||||||||||||||||||||
James K. Scott | 75,000 | 41,301 | — | — | 116,301 | 71,159 | 75,000 | — | 146,159 | |||||||||||||||
Kelvin H. Taketa | 70,000 | 41,301 | — | — | 111,301 | 75,000 | 75,000 | — | 150,000 | |||||||||||||||
Barry K. Taniguchi | 114,221 | 41,301 | — | — | 155,522 | 93,940 | 75,000 | — | 168,940 | |||||||||||||||
Jeffrey N. Watanabe | 341,812 | 41,301 | — | 16,630 | 399,743 | |||||||||||||||||||
Jeffrey N. Watanabe, Chairman (4) | 318,857 | 75,000 | — | 393,857 |
The table below shows cash retainers paid to HEI nonemployee directors in 2010 for each board and committee service (including subsidiary boards and committees) on which each director served in 2010 and for service as nonexecutive HEI Chairman in 2010.2011.
Detail of Cash Retainers for Board and Committee Service | Detail of Cash Retainers for Board and Committee Service | ||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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 ($) | Total (1) ($) | HEI Board Retainer ($) | HEI Comm. Retainer ($) | HEI Chairman of the Board Retainer ($) | HECO Board Retainer ($) | HECO Audit Comm. Retainer ($) | HECO Rep to Comp Comm. Retainer ($) | ASB Board Retainer ($) | ASB Audit Comm. Retainer ($) | Total ($) | ||||||||||||||||||||||||||||||||||||
Don E. Carroll | 40,000 | 5,000 | — | — | — | 25,000 | 5,000 | 75,000 | 23,393 | 2,159 | — | 25,714 | 2,572 | 1,353 | — | 1,800 | 56,991 | ||||||||||||||||||||||||||||||||||||
Shirley J. Daniel | 40,000 | 6,000 | — | — | — | 25,000 | — | 71,000 | 23,393 | 2,159 | — | — | — | — | 25,714 | 3,214 | 54,480 | ||||||||||||||||||||||||||||||||||||
Thomas B. Fargo | 40,000 | 16,728 | — | 25,000 | 3,152 | — | — | 84,880 | 65,000 | 19,000 | — | — | — | — | — | — | 84,000 | ||||||||||||||||||||||||||||||||||||
Richard W. Gushman (2) | 30,000 | 3,000 | — | — | — | 18,750 | 3,750 | 55,500 | |||||||||||||||||||||||||||||||||||||||||||||
Peggy Y. Fowler | 41,786 | 3,857 | — | 14,395 | 4,000 | — | — | — | 64,038 | ||||||||||||||||||||||||||||||||||||||||||||
Victor H. Li | 40,000 | 4,000 | — | — | — | 25,000 | — | 69,000 | 23,393 | 2,159 | — | — | — | — | — | — | 25,552 | ||||||||||||||||||||||||||||||||||||
A. Maurice Myers | 40,000 | 5,000 | — | 25,000 | — | — | — | 70,000 | 65,000 | 6,000 | — | — | — | — | — | — | 71,000 | ||||||||||||||||||||||||||||||||||||
Diane J. Plotts (3) | 14,493 | 6,885 | — | — | — | 9,058 | 4,529 | 34,965 | |||||||||||||||||||||||||||||||||||||||||||||
Keith P. Russell | 41,786 | 3,857 | — | — | — | — | 14,395 | 5,000 | 65,038 | ||||||||||||||||||||||||||||||||||||||||||||
James K. Scott | 40,000 | 10,000 | — | — | — | 25,000 | — | 75,000 | 65,000 | 6,159 | — | — | — | — | — | — | 71,159 | ||||||||||||||||||||||||||||||||||||
Kelvin H. Taketa | 40,000 | 5,000 | — | 25,000 | — | — | — | 70,000 | 65,000 | 10,000 | — | — | — | — | — | — | 75,000 | ||||||||||||||||||||||||||||||||||||
Barry K. Taniguchi | 40,000 | 11,753 | — | 25,000 | 4,471 | 25,000 | 7,997 | 114,221 | 65,000 | 15,000 | — | — | 1,440 | — | — | 12,500 | 93,940 | ||||||||||||||||||||||||||||||||||||
Jeffrey N. Watanabe | 40,000 | — | 250,000 | 25,000 | — | 25,000 | 1,812 | 341,812 | |||||||||||||||||||||||||||||||||||||||||||||
Jeffrey N. Watanabe, HEI Chairman | 65,000 | 3,857 | 250,000 | — | — | — | — | — | 318,857 |
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 Consistent with the advisory vote of our shareholders are being askedat the 2011 Annual Meeting of Shareholders, the Board has determined to casthold an advisory vote on a resolution approvingto approve HEI's executive compensation. The advisory vote on executive compensation described in Proposal No. 4 below, is(commonly referred to as a "say-on-pay" vote. This Proposal No. 3 affords shareholdersvote) each year until the opportunity to cast annext shareholder advisory vote onhow often HEI should include the frequency of say-on-pay votes. Under the Dodd-Frank Act, a say-on-paycompany must hold such a frequency 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 theonce every six years. HEI will hold its next several years, say-on-pay advisory votes should be conducted every year so that shareholders may annually express their viewsvote on the Company's executive compensation. Accordingly, unless shareholders express a strong preference thatfrequency of say-on-pay advisory votes be conducted less frequently, the Board anticipates that it will conduct ano later than 2017.
Like last year, this year's 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 20112012 Annual Meeting of Shareholders.
We urge you to read the "Compensation Discussion and Analysis" and "Executive Compensation" portions of this Proxy Statement that follow this proposal. These sections provide detailed information on the Company's executive compensation policies and practices and the compensation of our named executive officers. The Compensation Committee and Board believe that HEI's primary goals for its executive compensation program areis properly designed to incentincentivize 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 operationsgenerate and motivate executives to achieve a high level of performance that generates shareholdersustain such value.
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 advisorysay-on-pay 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 reviewconsider the votingvote 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.when evaluating HEI's executive compensation program. HEI expects towill continue to engage regularly with shareholders concerned with executive compensation or any other legitimate matter. Shareholders who wantwishing to communicate with HEI'sthe Board or management should visit the Company'sour website at www.hei.com and view "Contact Information."
YOUR BOARD RECOMMENDSAND COMPENSATION COMMITTEE RECOMMEND 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 thatsuch review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and that it be incorporated by reference into HEI's 20102011 Annual Report on Form 10-K.
SUBMITTED BY THE COMPENSATION COMMITTEE OF THE
HEI BOARD OF DIRECTORS
Thomas B. Fargo, ChairpersonDon E. CarrollVictor H. Li
A. Maurice Myers
Jeffrey N. Watanabe
Objectives and Compensation Components
Our executive compensation program is designed to: (i) pay for performance, (ii) align the interests of executives with those of our shareholders, (iii) attract, motivate and retain talented executives who can drive the Company's success and (iv) ensure that the cost of executive compensation is reasonable.
The primary components of executive compensation are base salary, annual incentives (based on achieving performance goals over a one-year period), long-term incentives (contingent on meeting performance goals over rolling three-year periods) and service-based grants of restricted stock units (RSUs) vesting over four years. Other named executive officer benefits include double-trigger change-in-control agreements, eligibility to participate in retirement and nonqualified deferred compensation plans, and limited perquisites. Named executive officer compensation is described in greater detail in the remainder of this Compensation Discussion and Analysis and in the "Executive Compensation" section of this Proxy Statement.
Executive Compensation Practices
The table below highlights our current executive compensation practices—both what we do (to drive performance) and what we don't do (in order to protect our shareholders' long-term interests):
Our Executive Compensation Practices (What We Do) | See Page | |
---|---|---|
• Tie pay to performance | 31 | |
• Balance short-term and long-term compensation to promote sustained performance over time | 42 | |
• Review tally sheets when making compensation decisions | 36 | |
• Mitigate risk through clawback policy, retention requirements and multiple performance metrics | 34 | |
• Double-trigger change-in-control agreements | 48 | |
• Peer benchmarking | 38 | |
• Stringent stock ownership and retention requirements throughout employment with the Company | 35, 67 | |
• Compensation Committee use of an independent compensation consultant | 34 | |
• Prohibit employees from speculating in Company stock | 67 | |
Practices We Do Not Employ (What We Don't Do) | See Page | |
---|---|---|
• No employment contracts | * | |
• No tax gross ups, except under the Executive Death Benefit Plan, which was frozen in 2009 | 49 | |
• No significant perquisites | 49 | |
• No compensation programs that are reasonably likely to create material risk to the Company | 34 | |
• No repricing of underwater stock options | * | |
2011 Program Changes
The Compensation Committee and Board made the following changes in 2011 to further strengthen our executive compensation program:
2011 Performance
For 2010, the named executive officers2011 was a year 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 futureaccomplishment 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.utility and bank subsidiaries. Highlights of our 2011 performance include the following:
In
The
Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Hawaii, the bank continuedour Annual Report on Form 10-K for a more detailed description of our 2011 results.
Pay for Performance
Pay for performance is a fundamental principle of our approach to experience elevated provisions for loan losses, although such losses wereexecutive compensation. For this reason, more than 30% lower than in 2009, and net loan charge-offs remained low compared to the industry. In the second half of 2010, the banking industry was negatively impacted by Regulation E, a federal regulation that prohibits banks from charging customers overdraft fees for ATM and debit card transactions unless the customer opts in to the overdraft service. As a result, the bank experienced lower fee income in 2010. Despite these challenges, the bank maintained strong capital ratios while continuing to provide a healthy dividend to HEI.
HEI's financial results are beginning to reflect the Company's strategic progress. In 2010, HEI's consolidated net income was $113.5 million, or $1.21 diluted earnings per share, compared to $0.91 per share in 2009 and $1.07 per share in 2008. With the achievement of major strategic milestones in 2010, HEI was able to improve earnings, maintain its dividend and achieve a 15%our named executive officers' (NEO) 2011 target total return to shareholders for 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 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, building upon our achievements, to continue to improve performance and shareholder value creation in the future.
The Compensation Committee recommends total compensation programs for executives of HEI and its subsidiaries, subject to the approval of the Board. In 2010, the Compensation Committee held eight 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. The Compensation Committee's focus has been to refine HEI's executive compensation programs by incorporating best practices and aligning executive compensation more directly with shareholder interests.direct
In establishing HEI'scompensation (components in chart below) depends on achievement of pre-established performance goals.
The compensation our named executive compensation programofficers earned for 2010,2011 reflects the Compensation Committee was guided by three principles:strong performance summarized above as well as our performance over the three-year period that ended December 31, 2011:
The following are the major changes to the executive compensation program in 2010:
CEO Compensation and Company Performance Relative to allow executivesPeer Group
In order to defer certain portionsvalidate our pay for performance philosophy, the Compensation Committee also looks at historical data on various financial metrics for the Company relative to its peer group of companies.
The chart below shows HEI's approximate percentile ranking versus peers on various metrics in 2010 (the latest period for which information from other companies was available), as well as the approximate percentile rank of HEI's Chief Executive Officer's total direct compensation versus peers.
HEI has eliminated nearly all tax gross-ups for named executive officers. There are no gross-upsrestricted stock units granted 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 have contractual entitlements to such gross-ups pursuant to their participation in the applicable plan prior to September 9, 2009 (the date the death benefit plan was frozen).
The primary refinement has been to make HEI's executive compensation more performance based. The compensation program applicable to the named executive officers consists of short-term and long-term components. The short-term components comprise base salary and an annual incentive bonus plan, the latter 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 Board believe that the currentour executive compensation program reflects "best practices"best practices and is structured to encourage participants to build long-term value in the Company for the benefit of its shareholders.
Table of Contentsour shareholders and all stakeholders.
The Compensation Committee recommends total compensation programs for executives of HEI and its subsidiaries, subject to approval by the approval of the Board.Board or applicable subsidiary board. The committee has authority tomay retain (or terminate) the services of consultants and advisors to provide advice to the committee. The committee approves, modifies and/or rejectsadvise it in fulfilling its consultants', advisors' or management's recommendations regarding executive compensation programs, including incentive compensation and equity-based plans. The Board approves the actions ofresponsibilities. Each year the committee holds lengthy discussions, with and where the executive is employed by a subsidiary of HEI, the actions of the committee are also approved by the subsidiary board.without management present, to consider best pay practices; evaluate recommendations from its consultants, advisors or management; and approve compensation programs.
The Board conducts an evaluation ofevaluates 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 executivea compensation package for the HEIHEI's President and Chief Executive Officer based on the Board's evaluation. The independent directors ofconsider the Boardcommittee's recommendation and decide whether to approve the compensation of the HEI President and Chief Executive Officer.package.
The Compensation Committee reserves the right tomay 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 itshas discretion to reduce or, increase (exceptexcept to the extent an award or payout is intended to satisfy the requirements for deductibility under Section 162(m) of the Internal Revenue Code)Code, increase the size of any award or payout. In 2010, no portion of any bonus or long-termHEI's incentive compensation paid by HEI or any of its subsidiariesplans and awards are designed to executives was nondeductible undercomply with Section 162(m)., although the Compensation Committee reserves the right to award compensation even when not deductible if it is reasonable and appropriate to do so.
In making its compensation determinations, the Compensation Committee will consider financial accounting and tax consequences, if appropriate. For instance, as noted above, the committee takes into account tax deductibility in establishing executive compensation. As another example, 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 has retained Frederic W. Cook & Co. Inc. (Fred Cook & Co.) as itsis the independent compensation consultant since December 2009. The consultant was engaged directly by the committeeCompensation Committee to provide advice and data with respect to executive compensation analyses, benchmarkingmatters. Fred Cook & Co. assists the committee by (i) reviewing and market practices, including to (i) conduct a review ofadvising the committee on HEI's executive compensation policies and practices; (ii) evaluateevaluating and determinedetermining the appropriate selection of competitive peer groups (forfor benchmarking purposes);purposes; and (iii) examineexamining and recommending the compensation components and pay ranges for the named executive officers; and (iv) recommend the appropriate mix of compensation elements and levels for the named executive officers.
In February 2010,2011, Fred Cook & Co. concluded its executive compensation review on behalf of the Compensation 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 peer 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 Committeecommittee reached its determinations with respect to the 20102011 compensation for the named executive officers. The results of Fred Cook & Co.'s review and the determinations made by the Compensation Committeecommittee are discussed below.
In 20102011 and with the permission of the Compensation Committee, HEI executive officers discussed with Fred Cook & Co. the compensation philosophy of the Company and its methodology and metrics for computing executive incentives. Human resources and finance personnel provided data in response to requests from the requests of the Compensation Committeecommittee and Fred Cook & Co.
Although the HEIHEI's President and Chief Executive Officer is a director onmember of the HEI Board, she did not participate in any Board decisions impacting her own compensation. However, in her role as HEIHEI's 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 participatesparticipated 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 role
Are "say-on-pay" vote results considered in determining directorexecutive compensation other than providing administrativematters?
The Compensation Committee and Board reviewed and discussed the results of the advisory shareholder vote on executive compensation (commonly referred to as "say-on-pay") from the 2011 Annual Meeting of Shareholders. The overwhelming majority of our shareholders voted in favor of the resolution approving HEI's executive compensation. Taking into account the level of support received from our shareholders, and responses to data requests fromthe Compensation Committee's view of the effectiveness of HEI's executive compensation program, the Compensation Committee anddid not recommend major changes to HEI's executive compensation program as a result of the vote. On an ongoing basis, however, the Compensation Committee, working with its independent consultant.compensation consultant, reviews best practices and evaluates HEI's executive compensation programs to ensure such programs are structured to promote shareholder interests.
HEI has anHEI's Enterprise Risk Management function that is principally responsible for identifying and monitoring risk acrossat the holding company and its twoprincipal operating companies,subsidiaries, 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 apprised of the risks whichthat could have a material adverse effect on HEI. The Compensation Committee assessed and considered thesepotential risks when establishing HEI's compensation policies and practices and the executive compensation program
described in this Compensation Discussion and Analysis. The BoardEnterprise Risk Management function conducts an annual risk review of HEI's executive compensation program, and findings from this review are considered by the Compensation Committee havein designing the next year's executive compensation program. The Compensation Committee has concluded that the executive compensation program does not encourage unnecessary or excessive risk-taking.risk-taking and reported such conclusion to the Board.
HEI's compensation policies and practices are designed to encourage executive managementexecutives to maximizebuild value for shareholders, while considering its key stakeholders (including customers, employees and 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 portionmore than half of their pay that is "at risk" and tied directly to HEI performance—namely, the annual incentive bonus plan and long-term equity-based incentives.incentive plan. In addition, annual equity grants to executive officers in the form of restricted stock units ensure that executives share in both the upside potential and downside risk of any shareholder.
In structuring the incentive compensation plans and setting the particularmetrics and goals targets and metrics for awards under those plans, the Compensation Committee incorporates the following elements and practices to ensure consistent leadership and appropriate andpromote prudent decision-making among the named executive officers in a manner that requires cooperation and execution without takingencouraging employees to take unnecessary or excessive risks:
Compensation ProgramPhilosophy
The overall objective of HEI's compensation philosophy is reflected in the following key design prioritiesto have compensation plans that govern its executive compensation decisions:enhance long-term shareholder value while considering HEI's other stakeholders, including customers, employees and regulators. The specific goals that satisfy this objective are:
The compensation programs' objectives of attraction, alignment and cost are designed to be mutually distinct and collectively complete.
What is each element of executive compensation and how does it fulfill HEI's compensation objectives?
The following chart summarizes the components of HEI's executive compensation program and the connection of each component to HEI's executive compensation objectives. Each compensation element is described in further detail in the pages that follow and in the charts and notes in the "Executive Compensation" section of this Proxy Statement.
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 and what are they designed to reward?
The following are the primary objectives of HEI's compensation programs:
HEI's executive compensation elements comprise—
Why does HEI choose to pay each element?
Element | Description | Objectives | ||
---|---|---|---|---|
CURRENT YEAR PERFORMANCE | ||||
Base Salary | Fixed level of cash compensation targeted to peer group median (but may vary based on performance, experience, responsibilities and other factors). | Attract and retain talented executives by providing market-competitive base salary. | ||
Annual Incentive | Cash award based on achievement of Company goals during the year. Awards are at risk because they depend on pre-set performance goals. Poor performance yields no incentive payment. Combined with base salary, target annual incentive provides a market-competitive total annual cash opportunity. | Motivate executives and pay for performance in financial and nonfinancial metrics designed, over time, to build shareholder value. Attract and retain talented leaders by providing competitive annual cash opportunity. Balance compensation cost and return by paying awards based on Company performance. | ||
LONG-TERM COMPENSATION | ||||
Long-term Performance-based Awards | Long-term incentive award opportunity based on meeting performance objectives over rolling three-year periods. Awards are at risk because they depend on pre-set performance goals. Poor performance yields no incentive payment. Target level of performance is based on peer group median. Beginning with 2010-2012 long-term incentive plan, awards are payable 100% in shares of HEI stock. | Motivate executives and pay for performance that creates long-term value for shareholders and considers other key stakeholders. Align executive interests with those of shareholders by focusing on long-term growth and by paying awards in the form of equity. Attract and retain talented leaders by setting target level to be competitive with peer median. Balance compensation cost and return by paying awards based on performance. | ||
Annual Stock-based Grant | Annual equity grants in the form of restricted stock units. Amount of annual grant is a percentage of base salary at market-competitive levels. Awards vest in annual installments over 4 years. | Align executive and shareholder interests by ensuring executives have a significant personal stake in long-term growth of the Company. Motivate high business performance. Retain talented leaders through multi-year vesting. | ||
RETIREMENT, PENSION & SAVINGS | ||||
HEI Retirement Plans | HEI and Hawaiian Electric Company executives participate in the defined benefit pension plans and savings plans under the same terms and conditions as all HEI employees. The HEI Excess Pay Plan enables HEI and Hawaiian Electric Company executives to earn retirement benefits correlated to salary compensation in excess of limits applicable to defined benefit pension plans. | Attract and retain talented leaders by providing retirement income and enhancing long-term employee well-being. | ||
American Savings Bank 401(k) Plan | 401(k) plan established to provide retirement savings opportunity for all American Savings Bank employees. | Attract and retain talented leaders by providing retirement income and enhancing long-term employee well-being. | ||
Element | Description | Objectives | ||
---|---|---|---|---|
HEI and American Savings Bank Deferred Compensation Plans | Enable HEI, Hawaiian Electric Company and American Savings Bank executives to defer portions of cash compensation, with certain limitations. The plan applicable to American Savings Bank executives allows employer matching contributions on certain contributions and allows profit sharing contributions. | Attract and retain talented leaders by providing an additional method of saving for retirement and enhancing long-term employee well-being. | ||
OTHER BENEFITS | ||||
Double Trigger Change-in-control Agreements | Double-trigger agreements, with 2 to 3 times payment multiples for named executive officers. (Double-trigger = change in control followed by qualifying loss of employment.) | Attract and retain qualified leaders capable of a high level of performance. Encourage focused attention of executives in the change-in-control context. | ||
HEI Executive Death Benefit Plan | Form of insurance that provides benefits to executive's beneficiaries in event of executive's death; frozen to those participants who were employees as of September 2009. | Provide peace of mind to enhance long-term employee well-being. | ||
median) to recognize the individual's position, responsibilities, experience, performance and contributions.
How does HEI determine the amount for each element?
Peer Benchmarking
HEI uses competitive marketThe Compensation Committee focuses heavily on peer companygroup comparisons to determine the amountappropriate compensation for named executive officers. The Compensation Committee benchmarks the elements of each elementnamed executive officer compensation toward the median of executive compensation.the peer group, while allowing individual differences based on an executive's importance to the organization, competency and performance, length of time in the position, execution of strategy, competitive options and retention and succession considerations.
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 consultantFred Cook & Co. 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 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 2010
In Februarylate 2010, Fred Cook & Co. conducted a peer group selection and compensation comparison in which the same utilityseparate peer group would applygroups applied to HEI, and Hawaiian Electric Company and a banking peer group would apply to American Savings Bank for purposes of setting 20102011 compensation.
HEI's peers were selected from among utilities with primarily regulated operations and with less than 80% regulated assets. The resulting peer group consisted of 23 publicly-traded utilities with annual
revenue generally between $1.5 and $6 billion, approximately one-half to three-times that of HEI. The results of the review revealed that the total direct compensation levels of Ms. Lau and Messrs. Ajello and Richardson are between the 25th percentile and the median level, and Mr. Rosenblum's total direct compensationFollowing is at the median levelHEI's peer group* for 2010.
The following are the HEI and Hawaiian Electric Company peer group companies* in 2010:2011 compensation:
Allegheny Energy | NV Energy | SCANA | ||||
Alliant Energy | ||||||
TECO Energy | ||||||
Integrys Energy | Pepco Holdings | UniSource Energy | ||||
Black Hills | NiSource | Pinnacle West Capital | Vectren | |||
PNM Resources | Westar Energy | |||||
NSTAR | Portland General Electric |
The following are the American Savings Bank peer group companies* in 2010:
Hawaiian Electric Company's peers were chosen from among utilities with primarily regulated operations. The resulting peer group included 18 public utilities with annual revenue generally between one-half to two-times that of Hawaiian Electric Company. Following is Hawaiian Electric Company's peer group* for 2011 compensation:
Allegheny Energy | Great Plains Energy | OGE Energy | TECO Energy | |||
Alliant Energy | IDACORP | Pinnacle West Capital | UniSource Energy | |||
Avista | NorthWestern | PNM Resources | Vectren | |||
Black Hills | NSTAR | Portland General Electric | Westar Energy | |||
DPL | NV Energy |
American Savings Bank's peers were selected from among high-performing regional banks and thrifts. The resulting peer group included 21 regional banks and thrifts with total assets generally between one-half and two-times that of American Savings Bank. Following is American Savings Bank's peer group for 2011 compensation:
1st Source | Dime Community Bancshares | Independent Bank | ||
BancFirst | First Financial | NBT Bancorp | ||
Bank of Hawaii | Flushing Financial | Park National | ||
Bank of the Ozarks | Glacier Bancorp | Prosperity Bancshares | ||
City Holding Company | Great Southern Bancorp | Republic Bancorp | ||
Community Bank System | Hancock | United Bankshares | ||
CVB Financial | IBERIABANK | Westamerica Bancorporation |
Table The results of ContentsFred Cook & Co.'s review revealed that the 2011 target total direct compensation (comprised of 2011 base salary, 2011 target annual incentive, 2011-2013 target long-term incentive and 2011 restricted stock unit grant) for the Chief Executive Officer and all named executive officers except for the Chief Financial Officer were at approximately median, with the Chief Financial Officer's 2011 target total direct compensation between the median and 75th percentile.
WithIn addition to using the assistance of its compensation consultant,above peer groups as a reference, the Compensation Committee reviews eachconsiders other factors in developing the amount of 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—such as base salary, annual incentives, benefits and long-term 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 reviewsincluding internal equity among the named executive officers, when developing pay recommendations.individual and Company performance, experience and other matters. 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.officers, and that the total compensation for the named executive officers is appropriate given the needs of the Company, the experience, responsibilities, competencies and performance of the executive team and market comparisons.
Base salaries for our named executive officers are targeted to the median of the competitive peer group (with individual differences above or below the median in light of considerations discussed above under "How does HEI determine the amount for each element?") in order to provide a base level of compensation for the year and to attract and retain the talent needed to create shareholder value.
In May 2010,February 2011, the Board evaluated Ms. Lau's performance for the prior year and the Compensation Committee recommended to the Board a salary increase taking into consideration the Board'ssuch evaluation. Also in May 2010,February 2011, Ms. Lau recommended to the Compensation Committee base salary increases for Messrs. Ajello, Richardson and Rosenblum. These adjustments were considered by the Compensation Committee to be relatively modest in light of the salary freeze in effect for named executive officers during 2009 (excluding one salary adjustment in 2009No increase was recommended for Mr. Richardson, who assumed additional responsibilities in 2009).Wacker because he had recently joined (in November 2010) the HEI enterprise as President and CEO of its bank subsidiary. After considering these recommendations, the followingBoard approved the base salary adjustments below for Ms. Lau and Messrs. Richardson and Rosenblum, effective May 1, 2010, wereJanuary 2011. The adjustment shown below for Mr. Ajello is the total of (i) an increase approved by the Board:Board in February 2011 and (ii) a further Board-approved increase in July 2011 due to Mr. Ajello's expanded role and value in driving strategic initiatives across the HEI enterprise and to further encourage his retention.
Name | % Base Salary Increase | $ Base Salary Increase | Base Salary Effective May 1, 2010 | % Base Salary Increase | $ Base Salary Increase | Annualized Base Salary | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 3.0 | % | $ | 23,200 | $ | 795,000 | 2.5% | $20,000 | $815,000 | |||||||
James A. Ajello | 4.0 | % | $ | 17,000 | $ | 442,000 | 13.1% | $58,000 | $500,000 | |||||||
Chester A. Richardson | 3.4 | % | $ | 12,000 | $ | 361,000 | 2.7% | $9,800 | $370,800 | |||||||
Richard M. Rosenblum | 1.2 | % | $ | 7,000 | $ | 587,000 | 2.6% | $15,000 | $602,000 | |||||||
Timothy K. Schools (1) | n/a | n/a | $ | 550,000 | ||||||||||||
Richard F. Wacker (2) | n/a | n/a | n/a | n/a | n/a | $550,000 |
HEI named executive officers have the opportunity to earn an annual cash incentive award based on the achievement of performance goals during the year. Goals under HEI's annual incentive plan, is known as the Executive Incentive Compensation Plan (EICP). For, are designed to (i) focus executives on building fundamental earnings in a controlled risk manner to support the 2010continued payment of the HEI dividend, (ii) promote nonfinancial goals important to HEI's stakeholders and (iii) motivate executives and encourage their commitment to HEI's success. Award ranges are determined in comparison to competitive peers to assist in attracting and retaining high-caliber executives.
Award ranges. Following are the 2011 EICP named executive officer award ranges established by the Compensation Committee in February 2011, shown as a percentage of annual base salary as of January 3, 2011:
Name | Minimum Threshold | Target | Maximum | |||
---|---|---|---|---|---|---|
Constance H. Lau | 45% | 90% | 180% | |||
James A. Ajello | 30% | 60% | 120% | |||
Chester A. Richardson | 25% | 50% | 100% | |||
Richard M. Rosenblum | 35% | 70% | 140% | |||
Richard F. Wacker | 40% | 80% | 160% |
Metrics, goals and results. In February 2011, the Compensation Committee and Board established minimum thresholds for each of the2011 EICP financial and other operational goals of the annual executive incentive plan designed to align management decisions with shareholder value.metric. The table below lists the named executive officer performance metrics, weightings, minimum thresholds, and target and maximum goals and results for the 2010 annual incentive compensation plan.2011 EICP. The executives listed together below shared the same goals.
The 2011 EICP metrics in the chart below were chosen because advancement in those metrics correlates with strengthened financial condition, improvements that benefit our stakeholders, including customers and employees, and, over time, growth in shareholder value. Unless otherwise specified, throughoutreferences in 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. 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 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 2010 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 and net income are determined on a consolidated basis, and are thus impacted by the results from both American Savings Bank and Hawaiian Electric Company.
| ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Metric and Weighting (%) | | Minimum Threshold | | Target | | Maximum | | Result | | ||||||||||
Constance H. Lau, James A. Ajello, Chester A. Richardson | ||||||||||||||||||||
HEI Return on Average Common Equity (1) (50%) | 8.5% | 9.7% | 10.5% | 9.5% (between minimum and target) | ||||||||||||||||
HEI Net Income (2) (50%) | $132 million | $149 million | $160 million | $144 million (between minimum and target) | ||||||||||||||||
Richard M. Rosenblum | ||||||||||||||||||||
Utility Net Income (2) (40%) | $98 million | $109 million | $120 million | $105.7 million (between minimum and target) | ||||||||||||||||
Operations & Maintenance Expense Management (3) (20%) | $420 million | $400 million | $380 million | $373.8 million (maximum) | ||||||||||||||||
Utility Safety (4) (15%) | 2.41 | 1.85 | 1.30 | 1.99 (between minimum and target) | ||||||||||||||||
Hawaii Clean Energy Initiative (5) (15%) | Meet minimum milestones | Meet target milestones | Meet maximum milestones | Met target milestones | ||||||||||||||||
Utility Customer Satisfaction (6) (10%) | 52nd percentile | 54th percentile | 56th percentile | 21st percentile (below minimum) | ||||||||||||||||
Richard F. Wacker | ||||||||||||||||||||
Bank Return on Assets (7) (40%) | 1.05% | 1.15% | 1.25% | 1.23% (between target and maximum) | ||||||||||||||||
Bank Net Income (2) (60%) | $54 million | $60 million | $64 million | $59.8 million |
The following wereCompany (see note 2 below), by average common equity. Average common equity is calculated by taking the award ranges, shown as a percentagesum 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 $272,000 of committee-approved exclusions for severance expenses and lease buyouts related to the performance improvement project, was $113.8 million, which exceeds the 2010 minimum threshold of $105 million, and its adjusted return on common equity was 7.8%, which exceeds the minimum 2010 threshold of 7.2%. As a result, named executive officers Ms. Lau and Messrs. Ajello and Richardson received awards for performance between the minimum threshold and target goal levels. Mr. Rosenblum's bonus was impacted in part because 30 percent of his goals were based on achievement of HEI goals, with the other 70 percent being based on utility goals.
In 2010, the utility met the following annual incentive goals:
October 2008 to proactively reduce the state's dependencyBank Return on fossil fuels by moving toward a future of increasing renewable energy. In 2010, Hawaiian Electric Company met minimum project milestones for the Hawaii Clean Energy Initiative.
With respect to the goals for Messrs. Schools and Wacker,Assets is American Savings Bank's return onGAAP net income divided by its average total assets after approved exclusions for severance expenses and lease buyouts related to the performance improvement project, was 1.21%, which was atperiod. Average total assets is calculated by averaging the maximum leveldaily total assets for that performance metric, and its net income was $58.7 million, which was between the target 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 executiveseach day 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 the aforementioned goals at theperformance levels indicated in the chart above, in February 2012 the Compensation Committee and Board approved in February 2011 the payment of the following 20102011 annual incentive awards to the named executive officers:
Name | Payout | |||
---|---|---|---|---|
Constance H. Lau | $ | 625,202 | ||
James A. Ajello | $ | 203,830 | ||
Chester A. Richardson | $ | 166,770 | ||
Richard M. Rosenblum | $ | 282,037 | ||
Timothy K. Schools | $ | 824,032 | ||
Richard F. Wacker | $ | 103,851 |
Name | Payout | ||
---|---|---|---|
Constance H. Lau | $649,004 | ||
James A. Ajello | $251,505 | ||
Chester A. Richardson | $164,043 | ||
Richard M. Rosenblum | $430,355 | ||
Richard F. Wacker | $577,346 |
What was HEI's 2008-20102009-2011 long-term incentive plan and were there any payouts under this plan?payouts?
HEI named executive officers have the opportunity to earn awards under HEI's three-year performancelong-term incentive plan is otherwise known as the Long-Term Incentive Plan and provides awards measured(LTIP) based on meeting or exceeding performance goals over rolling three-year performance periods. In 2008,The three-year performance periods provide balance with the Compensation Committee approved the following award ranges, shown as a percentageshorter-term focus of the salary midpoint (the middle salary levelannual incentive program. In addition, the overlapping three-year performance periods encourage sustained high levels of performance because at any one time three separate potential awards are affected by current performance. These incentives also are intended to have a favorable retention impact on executives due to their long-term nature. The 2009-2011 LTIP awards described below were paid in a salary range for a particular job grade or position), formix of cash (60%) and HEI stock (40%). Beginning with the following2010-2012 performance period, LTIP awards will be paid 100% in HEI namedstock to align executive officers who were participants in the 2008-2010 long-term incentive plan:incentives even more closely with shareholder interests.
Name | Minimum | Target | Maximum | Super Maximum | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 65 | % | 130 | % | 260 | % | n/a | ||||||
Chester A. Richardson (1) | 30 | % | 60 | % | 120 | % | n/a | ||||||
Timothy K. Schools (2) | 40 | % | 80 | % | 100 | % | 175 | % |
Award ranges. 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,February 2009, the Compensation Committee also approved supplemental long-term incentiveestablished the following award levelsranges 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 asparticipating in the 2008-2010 long-term incentive plan. Payment2009-2011 LTIP, shown as a percentage of any awards made under this supplemental program would be paid in a combinationannual base salary as 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:January 1, 2009:
Name | Minimum | Target | Maximum | Minimum Threshold | Target | Maximum | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 13.5 | % | 27 | % | 54 | % | 70% | 140% | 280% | |||||||
Chester A. Richardson (1) | 6.5 | % | 10 | % | 20 | % | ||||||||||
Timothy K. Schools (2) | 10 | % | 20 | % | 42 | % | ||||||||||
James A. Ajello | 40% | 80% | 160% | |||||||||||||
Chester A. Richardson | 35% | 70% | 140% | |||||||||||||
Richard M. Rosenblum | 45% | 90% | 180% |
Metrics, goals and 22 months at his HEI Senior Vice President-General Counsel, Secretary and Chief Administrative Officer salary midpoint.
Messrs. Ajello, Rosenblum and Wacker did not participate inresults. As with the 2008-2010 long-term incentive plan and supplemental 2008-2010 long-term incentive plan because they became employed at their respective companies after2011 EICP, the start of thisCompensation Committee established minimum thresholds for each 2009-2011 LTIP performance period.
metric. The table below shows the performance metrics, weightings, minimum threshold,thresholds, target maximum and super maximum goals and results for the 2008-2010 long-term incentive plan and supplemental 2008-2010 long-term incentive plan.2009-2011 LTIP. The executives listed together below shared the same goals.
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 | % | ||||||||||||
Table of Contentslate 2010.
based on total return to shareholders. In 2010, the following companies were in the three-year Edison Electric Institute Index:
The abovemetrics and goals below were set by the Compensation Committee and approved by the Board in 2008,2009 because they were believed to provide the necessary incentives to align executive compensation with the creation of long-term shareholder value. The minimum performance levelsthresholds 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'sHawaiian Electric Company's strategic plan and determined by the Compensation Committee to be sufficiently difficult toat a level which, if achieved, would be worthy of a bonus.the incentive compensation.
| ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Metric and Weighting (%) | | Minimum Threshold | | Target | | Maximum | | Result | | ||||||||||
Constance H. Lau, James A. Ajello, Chester A. Richardson | ||||||||||||||||||||
HEI Total Shareholder Return (TSR) as percentile of Edison Electric Institute (EEI) Index (1) (60%) | 30th percentile | 50th percentile | 70th percentile | 31st percentile | ||||||||||||||||
HEI Return on Average Common Equity (ROACE) (2) (40%) | 9.1% | 10.1% | 11.1% | 8.4% (below minimum) | ||||||||||||||||
Richard M. Rosenblum | ||||||||||||||||||||
HEI TSR as percentile of EEI Index (1) (60%) | 30th percentile | 50th percentile | 70th percentile | 31st percentile | ||||||||||||||||
HEI ROACE (2) (20%) | 9.1% | 10.1% | 11.1% | 8.4% (below minimum) | ||||||||||||||||
Utility ROACE as % of consolidated allowed rate of return on equity (3) (20%) | 90% | 95% | 100% | 64% (below minimum) |
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 measuredgrowth in the third yearprice per share of HEI Common Stock from the beginning of the performance period to incent bank executives in pursuing its aggressive performance improvement project because the results of these improvements would be fully achieved toward the end, plus dividends paid during the period, assuming reinvestment, divided by the beginning price of HEI Common Stock. The EEI is an association of U.S. shareholder-owned electric companies that are representative of comparable investment alternatives to HEI. The EEI's members serve 95% 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 betweencustomers in the targetshareholder-owned segment of the industry and maximum levels forrepresent approximately 70% of the U.S. electric power industry. The following companies were in the three-year EEI Index in 2011:
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 Resources | 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 |
In February 2009, when the 2009-2011 LTIP award opportunities were established, the HEI Compensation Committee and Board determined that the supplemental long-term incentive plan. Mr. Schools received an award opportunities would be defined 60% in cash and 40% in HEI Common Stock, with the number of shares of stock determined based on performance at a level between target and maximumthe price of HEI Common Stock on the date the 2009-2011 award opportunities were established. In accordance with these determinations, the 2009-2011 LTIP award payouts 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 remain with American Savings Bank until 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,HEI named executive officers Ms. Lauwho participated in the plan included both cash and Mr. Richardson received an award basedstock (plus accrued dividends less applicable taxes).
Despite HEI and the utilities' strong performance in 2011, the improvement in HEI and Utility ROACE over the three-year period was slower than anticipated. Based on the maximum level for that performance measure.
A higher total return to shareholders and increased American Savings Bank net income, return on assets and efficiency ratio benefit shareholders of HEI, employees and customers by increasing the overall financial strengthachievement of the HEI enterprise. Because of the achievement of these goals at theperformance levels indicated in the chart above, onin February 4, 20112012 the Compensation Committee approved the following long-term incentive awards under the 2008-2010 long-term incentive plan2009-2011 LTIP for the following named executive officers who were in the plan, payable 60% in cash and 40% in shares of HEI Common Stock:officers:
Name | Total Payout | |||
---|---|---|---|---|
Constance H. Lau | $ | 1,614,618 | ||
Chester A. Richardson | $ | 340,113 | ||
Timothy K. Schools | $ | 757,362 |
Name | Cash Payout | Stock Payout* | ||
---|---|---|---|---|
Constance H. Lau | $204,218 | 8,015 shares | ||
James A. Ajello | $62,475 | 2,451 shares | ||
Chester A. Richardson | $42,521 | 1,668 shares | ||
Richard M. Rosenblum | $98,658 | 3,872 shares |
In addition,
Name | Total Payout | |||
---|---|---|---|---|
Constance H. Lau | $ | 335,344 | ||
Chester A. Richardson | $ | 56,685 | ||
Timothy K. Schools | $ | 162,048 |
HEI's 2009-2011 long-term incentive plan was explained in the proxy statement for HEI's 2009 Annual Meeting of Shareholders.
The Compensation Committee modified the design of the long-term incentive plan from the 2009-2011 performance period for the 2010-2012 performance period based on Company strategy and recommendations of Fred Cook & Co. after its executive compensation review. Awards under theHEI's 2010-2012 long-term incentive plan generallywas explained in the proxy statement for HEI's 2011 Annual Meeting of Shareholders.
In accordance with design changes made by the Compensation Committee beginning with the 2010-2012 LTIP, awards under the 2011-2013 LTIP will be paid 100% in shares of HEI Common Stock
(plus accrued dividends less applicable taxes with thetaxes). The potential number of shares to be issuedwas determined at the beginning of the performance period instead of at the time of the payment of the award. The number of shares was determined by the Compensation Committee based on the participant's salary at the beginning of the performance period and the fair market value of HEI Common Stock on the date the award opportunity was established. The Compensation Committee believes that setting a fixed number of shares determined at the beginning of the performance period, rather than a number of shares determined bybased on the dollar value of the award divided by the market price of the shares at the time of payout, encourages even greater alignment of executive incentives with shareholder interests and will appropriately incentivize and reward executives to improve long-term shareholder value.
Table of Contents Award ranges.
In February 2010,2011, the Compensation Committee established the following 2011-2013 LTIP award ranges for the 2010-2012 long-term incentive plan,named executive officers, shown as a percentage of actual annual base salaries onsalary as of January 1, 2010, for the named executive officers:3, 2011:
Name | Minimum | Target | Maximum | Minimum Threshold | Target | Maximum | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 70 | % | 140 | % | 280 | % | 70% | 140% | 280% | |||||||
James A. Ajello | 40 | % | 80 | % | 160 | % | 40% | 80% | 160% | |||||||
Chester A. Richardson | 35 | % | 70 | % | 140 | % | 35% | 70% | 140% | |||||||
Richard M. Rosenblum | 45 | % | 90 | % | 180 | % | 45% | 90% | 180% | |||||||
Richard F. Wacker | 40% | 80% | 160% |
Mr. Schools forfeited his participation in Metrics and goals. In February 2011 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 2010-2012 long-term incentive plan2011-2013 LTIP performance period for each of the participating named executive officers.metrics, weightings, minimum thresholds, target and maximum goals. The executives listed together below share the same goals.
Name | Weight | Performance Metric (1) | Minimum Threshold | Target Goal | Maximum Goal | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
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 | |||||
50 | % | HEI 2-year Average Consolidated Net Income (3) | $172 million | $191 million | $210 million | ||||||
100 | % | ||||||||||
Richard M. Rosenblum | 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 | |||||
30 | % | HEI 2-year Average Consolidated Net Income (3) | $172 million | $191 million | $210 million | ||||||
30 | % | Utility Consolidated Return on 2-year Average Common Equity (4) | 8.5% | 9.1% | 10.0% | ||||||
100 | % | ||||||||||
| ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Metric and Weighting (%) (1) | | Minimum Threshold | | Target | | Maximum | | ||||||||
Constance H. Lau, James A. Ajello, Chester A. Richardson | ||||||||||||||||
HEI Total Shareholder Return (TSR) as percentile of Edison Electric Institute (EEI) Index (2) (50%) | 30th percentile | 50th percentile | 75th percentile | |||||||||||||
HEI 3-year Average Consolidated Net Income (3) (50%) | $155 million | $175 million | $187 million | |||||||||||||
Richard M. Rosenblum | ||||||||||||||||
HEI TSR as percentile of EEI Index (2) (40%) | 30th percentile | 50th percentile | 75th percentile | |||||||||||||
Utility Consolidated Return on Average Common Equity (ROACE)(4) (30%) | 79% | 84% | 89% | |||||||||||||
Utility 3-year Average Consolidated Net Income (5) (30%) | $118 million | $131 million | $144 million | |||||||||||||
Richard F. Wacker | ||||||||||||||||
Bank Return on Assets (6) (40%) | 1.05% | 1.15% | 1.25% | |||||||||||||
Bank 3-year Average Net Income (7) (40%) | $57 million | $62 million | $66 million | |||||||||||||
HEI TSR as percentile of EEI Index (2) (20%) | 30th percentile | 50th percentile | 75th percentile |
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.
Table of the performance period based on the average net income for 2011 and 2012.
Contents
The Compensation Committee chose the metrics and goals 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. Total Shareholder Return to Shareholders is a performance measure to showshows the return on stock to an investor. Comparing HEI's total return is compared to that of the Edison Electric InstituteEEI Index of investor-owned electric companies. It is a primary measure that reflects the value created for HEI shareholders compared to that created by other investor-owned electric companies. Net income for each of HEI, the utility and the bank is a standard measurement of earnings for the year and supports the continued payment of HEI's dividend to shareholders. Utility Consolidated ROACE is a measure of the utility's ability to earn net income as a percentage of HEI's equity. As Utility Consolidated ROACE increases, it reduces the difference between the ROACE allowed by regulation and itsthe utility's actual ROACE, thus providing more income and thereby increasing the utilities'utility dividends to HEI. HEI, in turn, is made stronger financially and better able to maintain shareholder dividends and invest in value-enhancing investments, including reinvesting in the utilities. There is also a strong correlation between a higher Utility Consolidated ROACE and market value of HEI. Bank return on assets is a widely used performance metric to measure how effectively management uses assets to increase profitability.
From a historical perspective, payouts are not easy to achieve, nor are they guaranteed, under the LTIP. HEI and its utility and bank subsidiaries face significant external challenges in the 2011-2013 performance period. Extraordinary leadership on the part of the named executive officers will be needed to achieve the long-term objectives required for them to earn the incentive payouts. The Compensation Committee believes the LTIP targets are challenging and that all stakeholders will benefit if HEI and its utility and bank subsidiaries are successful in achieving the goals listed above for the 2011-2013 performance period.
How does HEI award stock toDo named executive officers?officers receive equity-based awards other than through the long-term incentive plan?
HEI provides stock awards to the named executive officers are eligible to strengthen the linkage of executive compensation with improvement in shareholder value and promote executive retention.
Long-term incentive awards
Long-term incentive awards in 2010 through 2012 were or will be paid at least partiallyreceive annual equity-based grants in the form of restricted stock as follows:
In February 2011, RSUs were paid ingranted to all of the form of stock, withnamed executive officers. The Compensation Committee determined the number of shares determined atRSUs to be awarded in consultation with its independent compensation consultant and considering peer practices. In July 2011, the timeCompensation Committee approved an additional one-time RSU grant to Mr. Ajello in recognition of payout based onhis expanded leadership role in strategic initiatives for HEI and its subsidiaries and the cash value of his contributions to the awardCompany, and the market value of the shares on the payout date.
Annual equity awards
The named executive officers are eligible to receiveRSUs granted in 2011 vest in equal 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 Company forinstallments over a specifiedfour-year period of time.
In 2010, restricted stock units were granted to the named executive officers, except for Mr. 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.which are paid in conjunction with the annual installment vesting. The 20102011 RSU grants of restricted stock unit awards and restricted stock specific to the named executive officers are summarized in the 20102011 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 consideration of her total direct compensation compared to the 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 in 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 when the participant's termination is due to retirement, death or 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, providesHawaiian Electric Company and American Savings Bank provide retirement benefits to all eligible employees, including the named executive officers (other thanto promote financial security in recognition of years of service and to attract and retain high-quality leaders.
Mr. Schools participated,limits are provided to named executive officers and Mr. Wacker participates,other executives through the nonqualified HEI Excess Pay Plan. Benefits under the HEI Excess Pay Plan are determined using the same formula as the HEI Retirement Plan, but are not subject to the Internal Revenue Code limits on the amount of annual compensation that can be used for calculating benefits under qualified retirement plans and on the amount of annual benefits that can be paid from qualified retirement plans. This allows those participating in the HEI Excess Pay Plan the same general percentage of final average pay benefit afforded to other employees in the HEI Retirement Plan.
Tablebecause he had not yet met applicable length of Contents
Retirement benefits under these plans specific to the named executive officers as of December 31, 2010 are discussed in further detail in the 20102011 Pension Benefits table and related notes below.
HEI provides named executive officers withand other executives the opportunity to participate in deferred compensation plans that allow them to defer compensation and the resulting tax liability.
Executives of HEI Executives'and Hawaiian Electric Company and directors of HEI, Hawaiian Electric Company and American Savings Bank may participate in the HEI Deferred Compensation Plan, is a
nonqualified deferred compensation plan implemented in 2011 that allows andeferral of portions of the participants' cash compensation, with certain limitations, and provides investment opportunities that are substantially similar to those available under HEI's 401(k) Plan. There are no matching contributions under this plan. Messrs. Ajello and Richardson participated in the HEI orDeferred Compensation Plan in 2011. HEI and Hawaiian Electric Company executiveexecutives are also eligible to defer payment of annual and long-term incentive awards and the resulting tax liability. Noliability under a prior nonqualified deferred compensation plan, although no named executive officer participated in thisthat plan in 2010.
The American Savings Bank Select Deferred Compensation Plan is a nonqualified deferred compensation plan that allows a select group of American Savings Bank management and certain other highly compensated American Savings Bank employees to defer up to 100% of current salary, bonus or commissions based upon annual elections made prior to the beginning of each deferral year. In 2009, the Compensation Committee approved an amendment to the plan to 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 neitherMs. Lau participated in the American Savings Bank Select Deferred Compensation Plan during her employment with American Savings Bank. Mr. Schools nor Mr. Wacker elected to defer compensation to the plan for the 2010 plan year, no matching contributions were made for either of them for that year. Mr. Wacker also did not elect to defer compensation to the plan for the 2011 plan year.
Deferred compensation benefits under these plans specific to the named executive officers in 2010 are discussed in further detail in the 20102011 Nonqualified Deferred Compensation table and related notes below.
The Executive Death Benefit Plan of HEI and Participating Subsidiaries, which provides death benefits to an executive's beneficiaries in the event of anthe executive's death while employed or after retirement, was closed to new participants effective September 9, 2009. These death benefits are provided to beneficiaries of named executive officersexecutives who were participantsparticipated 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). Under the original terms of the Executive Death Benefit Plan contracts with the participants as in effect before September 9, 2009, the death benefits were grossed up for 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 not covered under the plan because he became an HEI executive officer after September 9, 2009. Death benefits are discussed in further detail in the 20102011 Pension Benefits table and related notes below.
The Compensation Committee and Board view change-in-control agreements to be an appropriate tool to recruit executives as an expected part of thetheir 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, leave the Company and 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.agreement.
In recommendingAll of 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 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
agreements approved by the Compensation Committee provide for cash lump sum severance multipliers of three times for Ms. Lau and two times for Messrs. Ajello, Richardson, Rosenblum and 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). TheAggregate payments under these agreements are limited to the maximum amount deductible under Section 280G of the Internal Revenue Code and there are no tax gross ups with respect to these agreements. Payment of the severance benefits areis conditioned 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 renewedrenew for an additional year on each anniversary unless 90 days' 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 meanas 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 Wacker 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 are 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 preferential mortgage loans. HEI may, from time to time, reimburse for reasonable business-related expenses.
HEI has eliminated nearly all tax gross ups. There are no tax gross ups on club membership initiation or membership fees, or in the change-in-control agreements for the named executive officers. As discussed under "Do named executive officers have executive death benefits?", tax gross ups of death benefits have been restricted to the executives who participated in the Executive Death Benefit Plan prior to September 9, 2009 (the date the plan was frozen). As noted in that discussion, such tax gross ups are pursuant to contracts in effect prior to September 9, 2009 and were considered appropriate because executive death benefits are a form of life insurance, the proceeds of which have traditionally been tax-exempt.
In 2010,2011, each of the named executive officers had a Company-paid club membership for the primary purpose of business entertainment expected of executives in their positions. Ms. Lau continues to have a preferential rate mortgage loan from American Savings Bank, which ceased offering such loans to its employees and executives as of July 1, 2009.
HEI has eliminated all tax gross-up practices where possible, particularly with respect to perquisites. HEI may, from time to time, reimburse for reasonable business-related 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. This reimbursement period ended as of January 2012. As part of their employment offers, Messrs. Ajello and Rosenblumthey also were extended special 3-year declining severance agreements
that provideprovided that, in the event their employment iswas terminated without cause on or before the third anniversary of thetheir date of their hire, they willwould be paid a declining portion of their annual base salary and any target annual bonusincentive compensation amount, depending on the length of their service. These special agreements have now expired since three years have elapsed since the dates on which Messrs. Ajello and Rosenblum were hired. 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 ofreceived two years age andof additional credited service for purposes of calculating his retirement benefits under the HEI Excess Pay Plan. Messrs. Ajello and Richardson receive four weeks of vacation annually and Mr. Rosenblum also receivedreceives ten days of sick leave and four weeks of vacation as partannually, each of his offer, which is more than a newan employee with similar length of service would usually receive.
For purposes Mr. Wacker receives 29 days of retention of Mr. Schools, who was instrumental to the success of the bank's performance improvement project, American Savings Bank agreed to purchase his residence in Honolulu (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 American Savings Bank employee, as long as Mr. Schools remained employed at American Savings Bank through the end of 2010 or such earlier date as the Company determined in its sole 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 vacationpaid time off annually, upon commencement of his employment, which is more than a new employeeemployees with similar length of service below the senior vice president level would usually receive.
Other thanSince the special severance agreements mentioneddiscussed above for Messrs. Ajello and Rosenblum have now expired, there are no separate severance agreements for theany named executive officers. The named executive officers wouldare eligible to participate in the same manner as all HEI, and Hawaiian Electric Company and American Savings Bank employees in the Company'stheir respective company's standard severance policy based on years of service to the Company. American Savings Bank has no severance plan or program applicable to its executives or employees.service.
The following table shows the base salary, bonus (if applicable), grant date fair value of stock awards, nonequity incentive compensation under the 2010 Executive Incentive Compensation Plan (EICP) and under the long-term incentive plan for the period 2008-2010,compensation, change in pension value and nonqualified deferred compensation earnings and all other compensation and benefits earned by the named executive officers during 2008, 2009, 2010 and 20102011 (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,awards, 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.
20102011 SUMMARY COMPENSATION TABLE*TABLE
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 | ||||||||||||||||||
Name and 2011 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 | 2011 | 815,000 | — | 1,951,782 | 853,222 | 1,645,834 | 31,137 | 5,296,975 | |||||||||||||||||
HEI President and Chief | 2010 | 787,267 | — | 1,722,253 | 2,575,164 | 1,448,910 | 34,408 | 6,568,002 | |||||||||||||||||
Executive Officer | 2009 | 771,800 | — | 921,483 | 338,106 | 774,297 | 34,049 | 2,839,735 | |||||||||||||||||
American Savings Bank Chair | |||||||||||||||||||||||||
James A. Ajello* | 2011 | 473,750 | — | 891,260 | 313,980 | 231,273 | 23,469 | 1,933,732 | |||||||||||||||||
HEI Executive Vice | 2010 | 436,333 | — | 597,479 | 203,830 | 180,636 | 25,741 | 1,444,019 | |||||||||||||||||
President, Chief Financial Officer and Treasurer | 2009 | 389,583 | 250,000 | 255,509 | 223,889 | 157,041 | 209,912 | 1,485,934 | |||||||||||||||||
Chester A. Richardson | 2011 | 370,800 | — | 499,596 | 206,564 | 220,841 | 16,574 | 1,314,375 | |||||||||||||||||
HEI Executive Vice | 2010 | 357,000 | — | 447,715 | 563,568 | 178,365 | 16,605 | 1,563,253 | |||||||||||||||||
President, General Counsel, Secretary and Chief Administrative Officer | 2009 | 344,400 | — | 112,316 | 197,916 | 119,845 | 15,111 | 789,588 | |||||||||||||||||
Richard M. Rosenblum** | 2011 | 602,000 | — | 873,872 | 529,013 | 337,515 | 25,696 | 2,368,096 | |||||||||||||||||
Hawaiian Electric | 2010 | 584,667 | — | 786,620 | 282,037 | 279,777 | 26,335 | 1,959,436 | |||||||||||||||||
Company President and Chief Executive Officer | 2009 | 580,000 | 250,000 | 348,916 | 322,289 | 435,513 | 149,881 | 2,086,599 | |||||||||||||||||
Richard F. Wacker*** | 2011 | 550,000 | — | 587,042 | 577,346 | — | 25,000 | 1,739,388 | |||||||||||||||||
American Savings Bank | 2010 | 68,750 | 150,020 | 399,980 | 103,851 | — | — | 722,601 | |||||||||||||||||
President and Chief Executive Officer | |||||||||||||||||||||||||
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.
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(based on probable outcome of the performance conditions as of the grant date, whichdate). See the 2011 Grants of Plan-Based Awards table below for the portion of the amount in the Stock Awards column above that is assumed to be the target level. The target valuecomposed of the2011 grants of restricted stock units and 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 $560,620.2011-2013 LTIP. Assuming achievement of the highest level of performance conditions, the maximum value of the performance awards payable in 2014 under the 2010-20122011-2013 long-term incentive plan is: Ms. Lau $2,360,964;$2,762,645; Mr. Ajello $742,916;$881,322; Mr. Richardson $533,789;$628,445; Mr. Rosenblum $1,266,183; 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 in 2010.Wacker $954,149. For a discussion of the assumptions underlying the amounts set out for the restricted shares, restricted stock units and performance awards, see Note 10 to HEI's Consolidated Financial Statements in HEI's 20102011 Form 10-K.
Name | 2011 EICP ($) | 2009-2011 LTIP ($) | Total Non-Equity Incentive Plan Compensation ($) | |||
---|---|---|---|---|---|---|
Constance H. Lau | 649,004 | 204,218 | 853,222 | |||
James A. Ajello | 251,505 | 62,475 | 313,980 | |||
Chester A. Richardson | 164,043 | 42,521 | 206,564 | |||
Richard M. Rosenblum | 430,355 | 98,658 | 529,013 | |||
Richard F. Wacker | 577,346 | — | 577,346 |
In accordance with Securities and Exchange Commission requirements, the Summary Compensation Table above reports nonequity incentive compensation in the year in which it was earned and equity-based incentive compensation in the year in which the incentive award opportunity was established. Since a portion of the payout for the 2009-2011 performance period (and prior three-year performance periods) was in cash and a portion was in equity, the cash portion was reported in the Nonequity Incentive Plan Compensation column for 2011 (the year earned) and the equity portion was reported in the Stock Awards column for 2009 (the year the award opportunity was established). Beginning with the 2010-2012 performance period, 100% of the long-term incentive payout will be in equity, so 100% of the 2010-2012 and 2011-2013 long-term incentive plan award expected value (based on probable outcome of performance conditions) are reported in the Stock Awards columns for 2010 and 2011, respectively. At the same time, the actual cash portion of the long-term incentive plan payouts for the 2008-2010 and 2009-2011 long-term incentive plan performance periods are reported in the Nonequity Incentive Plan Compensation column for 2010 and 2011, respectively. This causes the amount in the Total column in the Summary Compensation Table above to be greater than it would have been without the conversion to 100% of the long-term incentive plan payouts being in the form of equity.
executive death benefits, which are only paid after retirement or death, as applicable. The amounts shown can vary significantly from year to year based upon changes in the factors involved in calculating the present value of accrued pension and executive death benefits. This calculation is affected by changes in years of service, age, salary, discount rates and other actuarial assumptions. In 2010,2011, the discount rate used to calculate the present value of pension benefits decreased from 2009.2010. The discount rate reflects the market rates currently applicable to settling the benefit obligation or the rates of return on high quality fixed income securities at the measurement date. A reduction in the discount rate usually results in a greater present value of pension benefits owed to the named executive officer. For a further discussion of the applicable plans, see the 20102011 Pension Benefits table and related notes below.
No named executive officer had above-market or preferential earnings on nonqualified deferred compensation for the periods covered in the table above.
| 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 |
Name | Preferential Mortgage Loan Interest ($) | Other ($) | Contributions to Defined Contribution Plans ($) | Total All Other Compensation ($) | ||||
---|---|---|---|---|---|---|---|---|
Constance H. Lau | 21,303 | 9,834 | — | 31,137 | ||||
James A. Ajello | — | 23,469 | — | 23,469 | ||||
Chester A. Richardson | — | 16,574 | — | 16,574 | ||||
Richard M. Rosenblum | — | 25,696 | — | 25,696 | ||||
Richard F. Wacker | — | 25,000 | — | 25,000 |
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 officerscash award opportunities under the 20102011 annual incentive plan, for 2010 performance andequity award opportunities granted under the 2010-20122011-2013 long-term incentive plan for performance over the 2010-2012 period. Also shown are the2011-2013 period and payable in 2014 and restricted stock unit awards granted under the 1987 Stock Option and Incentive Plan in February 2010 and the restricted shares granted2011 under the 2010 Equity and Incentive Plan in December 2010.Plan.
20102011 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) | | | | | | | | | | All Other Stock Awards: Number of Shares of Stock or Units (#) (3) | | ||||||||||||||||||||||||||||||||||||||||||
| | All Other Stock Awards: Number of Shares of Stock or Units (#) (3) | | Compensation Committee Action Date (where differs from Grant Date) | 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 (#) | Grant Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | All Other Stock Awards: Number of Shares of Stock or Units (#) (3) | |||||||||||||||||||||||||||||||||||||||||
Constance H. Lau | 2/11/10 EICP | 333,498 | 666,995 | 1,333,900 | — | — | — | — | 2/04/11 EICP | — | 366,750 | 733,500 | 1,467,000 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
2/08/10 LTIP | 28,517 | 57,035 | 114,069 | — | 2/04/11 LTIP | — | — | — | — | 22,866 | 45,731 | 91,463 | — | 1,381,300 | ||||||||||||||||||||||||||||||||||||||||||
6/09/10 RSU | — | — | — | — | — | — | 25,000 | 541,750 | 2/04/11 RSU | — | — | — | — | — | — | — | 22,865 | 570,482 | ||||||||||||||||||||||||||||||||||||||
James A. Ajello | 2/11/10 EICP | 108,025 | 216,050 | 432,100 | — | — | — | — | — | 2/04/11 EICP | — | 136,500 | 273,000 | 546,000 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
2/08/10 LTIP | 8,973 | 17,947 | 35,893 | — | 371,478 | 2/04/11 LTIP | — | — | — | — | 7,295 | 14,589 | 29,178 | — | 440,666 | |||||||||||||||||||||||||||||||||||||||||
5/11/10 RSU | — | — | — | — | — | — | 10,000 | 226,000 | 2/04/11 RSU | — | — | — | — | — | — | — | 9,118 | 227,494 | ||||||||||||||||||||||||||||||||||||||
8/04/11 RSU | 8/02/11 | — | — | — | — | — | — | 10,000 | 223,100 | |||||||||||||||||||||||||||||||||||||||||||||||
Chester A. Richardson | 2/11/10 EICP | 88,700 | 177,400 | 354,800 | — | — | — | — | — | 2/04/11 EICP | — | 92,700 | 185,400 | 370,800 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
2/08/10 LTIP | 6,448 | 12,895 | 25,790 | — | 266,915 | 2/04/11 LTIP | — | — | — | — | 5,202 | 10,403 | 20,806 | — | 314,217 | |||||||||||||||||||||||||||||||||||||||||
5/11/10 RSU | — | — | — | — | — | — | 8,000 | 180,800 | 2/04/11 RSU | — | — | — | — | — | — | — | 7,430 | 185,379 | ||||||||||||||||||||||||||||||||||||||
Richard M. Rosenblum | 2/11/10 EICP | 176,900 | 353,800 | 707,600 | — | — | — | — | — | 2/04/11 EICP | — | 210,700 | 421,400 | 842,800 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
2/08/10 LTIP | 13,777 | 27,553 | 55,107 | — | 560,620 | 2/04/11 LTIP | — | — | — | — | 10,858 | 21,715 | 43,431 | — | 633,080 | |||||||||||||||||||||||||||||||||||||||||
5/11/10 RSU | — | — | — | — | — | — | 10,000 | 226,000 | 2/04/11 RSU | — | — | — | — | — | — | — | 9,651 | 240,792 | ||||||||||||||||||||||||||||||||||||||
Richard F. Wacker | 11/15/10 EICP | 28,336 | 56,672 | 113,344 | — | — | — | — | — | 2/04/11 EICP | — | 220,000 | 440,000 | 880,000 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
12/09/10 RS | — | — | — | — | — | — | 18,009 | 399,980 | 2/04/11 LTIP | — | — | — | — | 8,818 | 17,635 | 35,271 | — | 477,062 | ||||||||||||||||||||||||||||||||||||||
Timothy K. Schools (5) | 2/11/10 EICP | 222,933 | 445,867 | 891,733 | — | — | — | — | — | �� | ||||||||||||||||||||||||||||||||||||||||||||||
2/08/10 LTIP | 14,516 | 29,031 | 58,063 | — | — | 2/04/11 RSU | — | — | — | — | — | — | — | 4,408 | 109,980 |
Outstanding Equity Awards at Fiscal Year-End
OUTSTANDING EQUITY AWARDS AT 20102011 FISCAL YEAR-END
| Option Awards | Stock Awards | ||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | Equity Incentive Plan Awards | |||||||||||||||||||||
| | | | | | | | | Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) (3) | Market or Payout Value 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 ($) | Option Expira- tion Date | |||||||||||||||||||||||||||
Name | Grant Year | Exer- ciseable (#) | Unexer- ciseable (#) | Number (#) | Market Value ($) (2) | |||||||||||||||||||||||||
Constance H. Lau | 2004 | 50,000 | — | — | 26.02 | 4/19/14 | — | — | — | — | ||||||||||||||||||||
2004 DE | 1,831 | — | — | — | 4/19/14 | — | — | — | — | |||||||||||||||||||||
2005 | 50,000 | — | — | 26.18 | 4/07/15 | — | — | — | — | |||||||||||||||||||||
2008 | — | — | — | — | — | 8,000 | 211,840 | — | — | |||||||||||||||||||||
2009 | — | — | — | — | — | 34,500 | 913,560 | — | — | |||||||||||||||||||||
2010 | — | — | — | — | — | 25,000 | 662,000 | 28,517 | 755,130 | |||||||||||||||||||||
2011 | — | — | — | — | — | 22,865 | 605,465 | 22,866 | 605,492 | |||||||||||||||||||||
Total | 101,831 | — | — | — | — | 90,365 | 2,392,865 | 51,383 | 1,360,622 | |||||||||||||||||||||
James A. Ajello | 2009 | — | — | — | — | — | 9,000 | 238,320 | — | — | ||||||||||||||||||||
2010 | — | — | — | — | — | 10,000 | 264,800 | 8,973 | 237,605 | |||||||||||||||||||||
2011 | — | — | — | — | — | 19,118 | 506,245 | 7,295 | 193,172 | |||||||||||||||||||||
Total | — | — | — | — | — | 38,118 | 1,009,365 | 16,268 | 430,777 | |||||||||||||||||||||
Chester A. Richardson | 2008 | — | — | — | — | — | 1,500 | 39,720 | — | — | ||||||||||||||||||||
2009 | — | — | — | — | — | 2,500 | 66,200 | — | — | |||||||||||||||||||||
2010 | — | — | — | — | — | 8,000 | 211,840 | 6,448 | 170,743 | |||||||||||||||||||||
2011 | — | — | — | — | — | 7,430 | 196,746 | 5,202 | 137,749 | |||||||||||||||||||||
Total | — | — | — | — | — | 19,430 | 514,506 | 11,650 | 308,492 | |||||||||||||||||||||
Richard M. Rosenblum | 2009 | — | — | — | — | — | 11,000 | 291,280 | — | — | ||||||||||||||||||||
2010 | — | — | — | — | — | 10,000 | 264,800 | 13,777 | 364,815 | |||||||||||||||||||||
2011 | — | — | — | — | — | 9,651 | 255,558 | 10,858 | 287,520 | |||||||||||||||||||||
Total | — | — | — | — | — | 30,651 | 811,638 | 24,635 | 652,335 | |||||||||||||||||||||
Richard F. Wacker | 2010 | — | — | — | — | — | 13,507 | 357,665 | — | — | ||||||||||||||||||||
2011 | — | — | — | — | — | 4,408 | 116,724 | 8,818 | 233,501 | |||||||||||||||||||||
Total | — | — | — | — | — | 17,915 | 474,389 | 8,818 | 233,501 |
| 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
20102011 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 ($) | |||||||||
Constance H. Lau | 100,581 | (1) | 838,170 | 31,000 | (2) | 718,115 | |||||||
James A. Ajello | — | — | — | — | |||||||||
Chester A. Richardson | — | — | — | — | |||||||||
Richard M. Rosenblum | — | — | — | — | |||||||||
Richard F. Wacker | — | — | — | — | |||||||||
Timothy K. Schools | — | — | — | — |
Option Awards | Stock Awards | |||||||
---|---|---|---|---|---|---|---|---|
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||
Constance H. Lau | 112,775 (1) | 807,871 | 16,000 (2) 8,015 (3) | 392,320 239,649 | ||||
James A. Ajello | — | — | 2,451 (3) | 73,285 | ||||
Chester A. Richardson | — | — | 3,000 (2) 1,668 (3) | 76,590 49,873 | ||||
Richard M. Rosenblum | — | — | 3,872 (3) | 115,773 | ||||
Richard F. Wacker | — | — | 4,502 (2) | 99,989 |
The table below shows the present value as of December 31, 20102011 of accumulated benefits for each of the named executive officers and the number of years of service credited to each such executive under the applicable pension plan and executive death benefit plan, determined using the interest rate, mortality rate and other assumptions described below, which are consistent with those used in HEI's financial statements (see Note 9 to HEI's Consolidated Financial Statements in HEI's 20102011 Form 10-K):
Name | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($) (6) | Payments During the Last Fiscal Year ($) | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($) (6) | Payments During the Last Fiscal Year ($) | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | HEI Retirement Plan (1) | 19.8 | 1,353,370 | — | HEI Retirement Plan (1) | 20.8 | 1,621,108 | — | ||||||||||||
American Savings Bank Retirement Plan (2) | 6.4 | 163,253 | — | American Savings Bank Retirement Plan (2) | 6.4 | 186,019 | — | |||||||||||||
HEI Supplemental Executive Retirement Plan (3) | 24.3 | 6,980,440 | — | HEI Supplemental Executive Retirement Plan (3) | 24.3 | 8,032,541 | — | |||||||||||||
HEI Excess Pay Plan (4) | 2.0 | 370,688 | — | HEI Excess Pay Plan (4) | 3.0 | 592,497 | — | |||||||||||||
HEI Executive Death Benefit (5) | — | 415,511 | HEI Executive Death Benefit (5) | — | 496,931 | |||||||||||||||
James A. Ajello | HEI Retirement Plan (1) | 1.9 | 138,384 | — | HEI Retirement Plan (1) | 2.9 | 222,351 | — | ||||||||||||
HEI Excess Pay Plan (4) | 1.9 | 105,024 | — | HEI Excess Pay Plan (4) | 2.9 | 180,660 | — | |||||||||||||
HEI Executive Death Benefit (5) | — | 94,269 | — | HEI Executive Death Benefit (5) | — | 165,939 | — | |||||||||||||
Chester A. Richardson | HEI Retirement Plan (1) | 3.3 | 213,004 | — | HEI Retirement Plan (1) | 4.3 | 309,996 | — | ||||||||||||
HEI Excess Pay Plan (4) | 3.3 | 87,763 | HEI Excess Pay Plan (4) | 4.3 | 140,823 | |||||||||||||||
HEI Executive Death Benefit (5) | — | 145,772 | — | HEI Executive Death Benefit (5) | — | 216,561 | — | |||||||||||||
Richard M. Rosenblum | HEI Retirement Plan (1) | 2.0 | 133,097 | — | HEI Retirement Plan (1) | 3.0 | 212,048 | — | ||||||||||||
HEI Excess Pay Plan (4) | 4.0 | 436,498 | — | HEI Excess Pay Plan (4) | 5.0 | 588,150 | — | |||||||||||||
HEI Executive Death Benefit (5) | — | 145,695 | — | HEI Executive Death Benefit (5) | — | 252,607 | — | |||||||||||||
Timothy K. Schools (7) | — | — | — | — | ||||||||||||||||
Richard F. Wacker (8) | — | — | — | — | ||||||||||||||||
Richard F. Wacker (7) | — | — | — | — |
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. Effective April 1, 2011, accelerated distribution options (the $50,000 single sum distribution option and a Social Security level income option) under the HEI Retirement Plan became subject to partial restrictions because the funded status of the HEI Retirement Plan was deemed to be less than 80%. Generally, while the partial restrictions are in effect, a retiring participant may only elect an accelerated distribution option for 50% of the participant's total benefit. The partial restrictions are expected to continue through 2012.
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. SubjectChanges to the collective bargaining process,retirement benefits for HEI has amended the HEIand Utility employees commencing employment after April 30, 2011 include a modified defined benefit plan (the Retirement Plan for Employees of Hawaiian Electric Industries, Inc. and Participating Subsidiaries) with a lower payment formula than the formula in the plan for employees hired before May 1, 2011 and the addition of a 50% match by the applicable employer on the first 6% of employee deferrals through the defined contribution plan under the Hawaiian Electric Industries Retirement Savings Plan (HEIRSP). In addition, new eligibility rules and contribution levels applicable to reducecertain HEI and Utility employees hired prior to May 1, 2011 and all employees hired after April 30, 2011 were adopted for postretirement welfare benefits. In general, defined pension benefits are based on 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 fiveemployees' years of employment with HEI or its subsidiaries.) Under the amended plan, early retirement subsidies are reduced for participants who retire prior to age 62service 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.compensation. 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. Benefit payments are made in cash. Ms. Lau is eligible for early retirement benefits under the HEI Supplemental Executive Retirement Plan based on 2627 years and 3 months of actual service with all HEI affiliated companies as of December 31, 2010.2011. Upon her retirement, Ms. Lau's benefits from this plan will be payable based upon benefits earned through December 31, 2008.
Pay Plan that granted Mr. Rosenblum an additional two years of credited service and two years added to his age to be applied in the calculation of his benefit under the HEI Excess Pay Plan. This resulted in the present value of his accumulated benefit under the HEI Excess Pay Plan shown in the table above being $291,021 more than it would have been without the additional credited years (i.e., without the additional credited years, the present value of his accumulated benefit under the HEI Excess Pay Plan would be $297,129). Ms. Lau is eligible for early retirement benefits under the HEI Excess Pay Plan. Messrs. Ajello, Richardson and Rosenblum are not eligible for early retirement benefits under the HEI Excess Pay Plan and have no vested interest in the amounts reported above because none of them have satisfied the five-year minimum service requirement.
Methodology: The present values are calculated as of December 31, 20102011 based on the credited service and pay of the named executive officer as of such date (or the date of benefit freeze, if earlier).
Assumptions:
Nonqualified Deferred Compensation
20102011 NONQUALIFIED DEFERRED COMPENSATION
Name | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($) | Aggregate Earnings/ (Losses) in Last FY ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($) | Aggregate Earnings/ (Losses) in Last FY ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau (1) | — | — | 28,183 | — | 244,722 | — | — | (11,631) | — | 233,091 | ||||||||||||||||
James A. Ajello | — | — | — | — | — | 50,000 | — | 77 | — | 50,077 | ||||||||||||||||
Chester A. Richardson | — | — | — | — | — | 50,000 | — | 872 | — | 50,872 | ||||||||||||||||
Richard M. Rosenblum | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||
Richard F. Wacker | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||
Timothy K. Schools | — | — | — | — | — |
Potential Payments Upon Termination or Change in Control
The table below shows the amount of potential payments to each named executive officer in the event of retirement, voluntary termination, termination for cause, termination without cause and a qualifying termination following a change in control, assuming termination occurred on December 31, 2010.2011. The amounts listed below are estimates; actual amounts to be paid would depend on the actual date of termination and circumstances existing at that time.
20102011 TERMINATION/CHANGE-IN-CONTROL PAYMENT TABLE
Name/ Benefit Plan or Program | Retirement on 12/31/10 ($) (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) | Retirement on 12/31/11 ($) (1) | Voluntary Termination on 12/31/11 ($) (2) | Termination for Cause on 12/31/11 ($) (3) | Termination without Cause on 12/31/11 ($) (4) | Qualifying Termination after Change in Control on 12/31/11 ($) (5) | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | ||||||||||||||||||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||
Long-Term Incentive Plan (7) | 1,252,099 | — | — | — | — | 907,050 | — | — | — | — | ||||||||||||||||||||||
Restricted Shares, Restricted Stock and Restricted Stock Units (8) | 464,346 | — | — | 461,498 | — | 1,126,161 | — | — | 196,393 | — | ||||||||||||||||||||||
Preferential Mortgage Loan Interest (9) | 168,753 | — | — | — | — | 156,943 | — | — | — | — | ||||||||||||||||||||||
Change-in-Control Agreement | — | — | — | — | 5,341,338 | — | — | — | — | 5,849,562 | ||||||||||||||||||||||
TOTAL | 1,885,198 | — | — | 461,498 | 5,341,338 | 2,190,154 | — | — | 196,393 | 5,849,562 | ||||||||||||||||||||||
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 | — | — | — | — | 250,000 | — | ||||||||||||||||||||||
Change-in-Control Agreement | — | — | — | — | 2,477,091 | — | — | — | — | 2,190,663 | ||||||||||||||||||||||
TOTAL | — | — | — | 442,000 | 2,477,091 | — | — | — | 250,000 | 2,190,663 | ||||||||||||||||||||||
Chester A. Richardson | ||||||||||||||||||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||
Long-Term Incentive Plan (7) | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||
Restricted Shares, Restricted Stock and Restricted Stock Units (8) | — | — | — | 76,099 | — | — | — | — | 36,824 | — | ||||||||||||||||||||||
Change-in-Control Agreement | — | — | — | — | 1,289,045 | — | — | — | — | 1,365,676 | ||||||||||||||||||||||
TOTAL | — | — | — | 76,099 | 1,289,045 | — | — | — | 36,824 | 1,365,676 | ||||||||||||||||||||||
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) | Retirement on 12/31/11 ($) (1) | Voluntary Termination on 12/31/11 ($) (2) | Termination for Cause on 12/31/11 ($) (3) | Termination without Cause on 12/31/11 ($) (4) | Qualifying Termination after Change in Control on 12/31/11 ($) (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 | — | — | — | — | 301,000 | — | ||||||||||||||||||||||
Change-in-Control Agreement | — | — | — | — | 2,491,646 | — | — | — | — | 2,580,856 | ||||||||||||||||||||||
TOTAL | — | — | — | 587,000 | 2,491,646 | — | — | — | 301,000 | 2,580,856 | ||||||||||||||||||||||
Richard F. Wacker | ||||||||||||||||||||||||||||||||
Executive Incentive Compensation Plan (6) | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||
Restricted Shares, Restricted Stock and Restricted Stock Units (8) | — | — | — | 410,425 | 410,425 | — | — | — | 357,665 | — | ||||||||||||||||||||||
Change-in-Control Agreement | — | — | — | — | — | — | — | — | — | 2,982,171 | ||||||||||||||||||||||
TOTAL | — | — | — | 410,425 | 410,425 | — | — | — | 357,665 | 2,982,171 | ||||||||||||||||||||||
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 20102011 year-end closing price of HEI Common Stock of $22.79$26.48 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 plan2011 EICP or the 2008-2010 long term incentive plan or supplemental long-term incentive plan2009-2011 LTIP because those amounts would have vested without regard to voluntary termination since December 31, 20102011 was the end of the applicable performance periods.
amend, suspend or terminate any incentive award or any portion of it at any time. "Cause" generally means a violation of the HEI Corporate Code of Conduct or, for purposes of awards under the SOIP and EIP, has the meaning set forth in those Plans. Unless otherwise provided in a separate agreement, terminationTermination for cause results in the forfeiture of all vested but unexercised nonqualified stock options and stock appreciation rights and related dividend equivalents, the unvested portion of all awards of restricted stock, restricted shares and restricted stock units, whether awarded under the SOIP or EIP, and participation in 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.
"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 or American Savings Bank, respectively. The aggregate payments under the agreements are limited to the maximum amount deductible under Section 280G of the 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, in each case applied to the sum of the executive's base salary and annual bonus (determined to be the greater of the current target bonusincentive compensation or the largest actual bonusincentive compensation 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,compensation, 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")(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. Payment of the foregoing benefits is subject to a release of claims by the applicable named executive officer.
Other benefits are provided to the executives upon a change in control as described below.
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 20102011 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, 20117, 2012 (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 2010,2011, each nominee for director and each named executive officer (as listed in the 20102011 Summary Compensation Table above) 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 (1) | Shared Voting or Investment Power (2) | Other Beneficial Ownership (3) | Stock Options/ Restricted Stock and RSUs (4) | 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. (5) | 4,940,150 | 4,940,150 | 5.14 | % | ||||||||||||||||||||||||||||||||||
Nonemployee directors | ||||||||||||||||||||||||||||||||||||||
Don E. Carroll | 26,130 | — | — | — | 26,130 | * | ||||||||||||||||||||||||||||||||
Shirley J. Daniel | 16,535 | — | — | — | 16,535 | * | ||||||||||||||||||||||||||||||||
Thomas B. Fargo | 14,612 | — | — | — | 14,612 | * | 18,566 | — | — | — | 18,566 | * | ||||||||||||||||||||||||||
Richard W. Gushman, II (5) | 16,003 | — | — | — | 16,003 | * | ||||||||||||||||||||||||||||||||
Victor H. Li | 5,851 | 12,097 | 558 | — | 18,505 | * | ||||||||||||||||||||||||||||||||
Peggy Y. Fowler | 1,081 | 6,283 | — | — | 7,364 | * | ||||||||||||||||||||||||||||||||
A. Maurice Myers | 39,481 | — | — | — | 39,481 | * | 42,848 | — | — | — | 42,848 | * | ||||||||||||||||||||||||||
Diane J. Plotts (5) | 18,680 | — | — | — | 18,680 | * | ||||||||||||||||||||||||||||||||
Keith P. Russell | 4,117 | — | — | — | 4,117 | * | ||||||||||||||||||||||||||||||||
James K. Scott | 22,864 | — | — | — | 22,864 | * | 27,246 | — | — | — | 27,246 | * | ||||||||||||||||||||||||||
Kelvin H. Taketa | 23,122 | — | — | — | 23,122 | * | 27,357 | — | — | — | 27,357 | * | ||||||||||||||||||||||||||
Barry K. Taniguchi | — | 23,727 | — | — | 23,727 | * | — | 25,756 | — | — | 25,756 | * | ||||||||||||||||||||||||||
Jeffrey N. Watanabe | 33,449 | — | 4 | — | 33,453 | * | 38,373 | — | 4 | — | 38,377 | * | ||||||||||||||||||||||||||
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 | 226,065 | — | 7,617 | 139,860 | 372,112 | * | 261,966 | — | 8,012 | 45,501 | 315,479 | * | ||||||||||||||||||||||||||
Other Named Executive Officers | ||||||||||||||||||||||||||||||||||||||
James A. Ajello | 2,000 | — | — | — | 2,000 | * | 5,936 | — | — | — | 5,936 | * | ||||||||||||||||||||||||||
Chester A. Richardson | 14,366 | — | 3,036 | — | 17,402 | * | 11,502 | 3,349 | 6,193 | — | 21,044 | * | ||||||||||||||||||||||||||
Richard M. Rosenblum | 700 | — | — | — | 700 | * | 6,168 | — | — | — | 6,168 | * | ||||||||||||||||||||||||||
Timothy K. Schools (5) | 15,338 | — | — | — | 15,338 | * | ||||||||||||||||||||||||||||||||
Richard F. Wacker | 18,009 | — | — | — | 18,009 | * | 14,218 | 26,502 | — | — | 40,720 | * | ||||||||||||||||||||||||||
All directors and executive officers as a group (16 persons) | 444,183 | 37,758 | 11,214 | 139,860 | 633,015 | * | ||||||||||||||||||||||||||||||||
All directors and executive | 459,378 | 61,890 | 14,209 | 45,501 | 580,978 | * | ||||||||||||||||||||||||||||||||
Does HEI have stock ownership and retention guidelines for directors and 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, stock ownership guideline targets are five times their annual Board and Board committee cash retainer. As of January 1, 2011,2012, each director who has reached his or her initial compliance date had achieved his or her stock ownership target. Ms. Lau's initial compliance date is January 1, 2015; however, she has already reachedexceeds the specified level of stock ownership for her position. The initial compliance date for Messrs. Ajello, Richardson, Rosenblum and Wacker is January 1, 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.
The Company's Insider Trading Policy prohibits all directors, officers and employees of HEI 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'person's 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 1934reporting requirements with regard to HEI including its executive officers, directors and persons who own more than ten percent of a registered class of HEI's equity securities, complied with such reporting requirements for 2010,2011, except forthat on one occasion several officers failed to file timely reports due to a computer software failure connected with the filing of such reports. With respect to one filing comprising two transactions were officers David M. Kostecki, HEIController, Constance H. Lau, Chief Executive Officer, and Chester A. Richardson, Executive Vice President Controller and General Counsel. With respect to one filing covering one transaction were officers Richard M. Rosenblum, Hawaiian Electric Company Chief AccountingExecutive Officer, whoand Richard F. Wacker, American Savings Bank Chief Executive Officer. Ms. Lau also inadvertently failed to report one transactionfile in a timely fashion and Constance H. Lau, HEI President and Chief Executive Officer, who inadvertently failed toanother report in a timely fashionreflecting one transaction wherein she became a beneficiary of a trust. Thesetransaction. All reports have 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 specifically incorporated in HEI's Corporate Code of Conduct. The related person transaction policy is specific to transactions between the Company 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 interests of HEI and its shareholders 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 remaining grandfathered preferential rate loansloan to the directorsa director and officers listed below. Eachofficer. The loan was made in accordance with Regulation O of the Federal Reserve Board regarding loans to insiders. 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 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 | 1,374,941 | 1,340,794 | 31,406 | 54,529 | First Mortgage | 4.000% | ||||||||||||
Richard W. Gushman, II | 1,682,123 | — | 1,686,260 | 44,513 | First Mortgage | 3.250% | ||||||||||||
Constance H. Lau | 726,046 | 701,330 | 24,662 | 18,817 | First Mortgage | 2.625% | ||||||||||||
Constance H. Lau | 26,442 | — | 26,723 | 667 | Second Mortgage | 3.125% | ||||||||||||
Diane J. Plotts | 395,802 | 279,391 | 115,471 | 8,051 | First Mortgage | 2.625% | ||||||||||||
Timothy K. Schools | 2,908,000 | — | 2,908,000 | (2) | 126,130 | First Mortgage | 6.375% | |||||||||||
Jeffrey N. Watanabe | 482,544 | 462,646 | 18,175 | 17,817 | First Mortgage | 3.750% |
Name | Largest Principal Amount Outstanding During 2011 | Principal Amount Outstanding on 2/07/12 | Amount of Principal Paid in 2011 | Amount of Interest Paid in 2011 | Type of Transaction | Average Interest Rate Charged* | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 701,330 | 675,958 | 25,317 | 18,161 | First Mortgage | 2.625% |
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.affiliated entities. 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.
As 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 had agreed, for purposes of retention of Mr. Schools, who was instrumental to the success of the bank's performance improvement project, to purchase his home at his original purchase price of $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 employee of American Savings Bank, provided that Mr. Schools remained employed as President of American Savings Bank through yearend 2010 or such earlier date as the Company determined in its sole discretion. Upon his termination, the home 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. PlottsJeffrey N. Watanabe were members of the HEI Compensation Committee during 2010.2011. Admiral Fargo served as Compensation Committee Chairperson.
Ms. Plotts has had the benefitThe terms of Don E. Carroll and Victor H. Li as HEI directors and members of the preferential rate loan described above. She retired as an HEI directorCompensation Committee expired at the 20102011 Annual Meeting of Shareholders. Jeffrey N. Watanabe, HEI's Chairman of the Board, was appointed as a member of the Compensation Committee in May 2011.
No member who served on the Compensation Committee during 2011 was an employee or former employee of HEI. During fiscal year 2011, none of HEI's executive officers served on the compensation committee (or its equivalent) or board of directors of another entity, excluding tax-exempt organizations, one of whose executive officers served on HEI's Compensation Committee or Board of Directors.
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. On May 10, 2011, Dr. Daniel resigned from the Board and Audit Committee, Dr. Scott ended his service on the Audit Committee and Ms. Fowler and Mr. Russell joined the Audit Committee. The Board has determined that the three directors currently serving on the Audit Committee (Ms. Fowler and Messrs. Russell and Taniguchi) meet, and the two prior members (Dr. Daniel and Messrs. Scott and Taniguchi) meetDr. Scott) met, the independence and other qualification requirements of the New York Stock Exchange Listed Company Manual and applicable securities laws. Dr. Daniel and Dr. Scott, during their service on the Audit Committee, and Ms. Fowler and Messrs. ScottRussell 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 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.
Auditors' Fees
The following table sets forth the fees paid or payable to PricewaterhouseCoopers LLP (PwC), the Company's independent registered public accounting firm for 2010, relating to the audit of the 2010 consolidated financial statements2011 and fees for other professional services billed in 2010 with comparative amounts for 2009 that were paid to KMPG LLP (KPMG), HEI's former principal independent registered public accounting firm:2010:
| 2010 | 2009 | 2010 | 2011 | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 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) | $ | 1,750,000 | 81.1 | $ | 1,652,000 | 94.3 | ||||||||||||||||||||
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) | $ | 1,750,000 | 81.1 | $ | 1,995,000 | 86.9 | ||||||||||||||||||||
Audit-related fees (principally consisted of fees associated with the audit of the financial statements of certain employee benefit plans) | 110,000 | 5.1 | 82,000 | 4.7 | 110,000 | 5.1 | 135,000 | 5.9 | ||||||||||||||||||
Tax fees (tax compliance services with respect to federal and state taxes) | 298,000 | 13.8 | 17,713 | 1.0 | 298,000 | 13.8 | 166,000 | 7.2 | ||||||||||||||||||
All other fees | — | — | — | — | — | — | — | — | ||||||||||||||||||
$ | 2,158,000 | 100.0 | $ | 1,751,713 | 100.0 | $ | 2,158,000 | 100.0 | $ | 2,296,000 | 100.0 | |||||||||||||||
Pursuant to its charter, the Audit Committee preapproves 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 preapprovals 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 PwC and determined that the provision of nonaudit services was compatible with the maintenance of the 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 fivefour regular meetings in 2010, one with KPMG LLP, HEI's former principal independent registered public accounting firm, and three2011 with PwC, HEI's principal independent registered public accounting firm for 2010.firm. 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 PwC described above and review of PwC'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 20102011 Form 10-K.
SUBMITTED BY THE AUDIT COMMITTEE OF THE
HEI BOARD OF DIRECTORS
Barry K. Taniguchi, ChairpersonShirley J. DanielPeggy Y. FowlerJames K. ScottKeith P. Russell
PricewaterhouseCoopers LLP (PwC) has served as HEI's independent registered public accounting firm since February 2010. On February 7, 2011,6, 2012, the Audit Committee selected PwC as HEI's independent registered public accounting firm for 2011,2012, 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 20112012 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.
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 2011.2012.
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 Phoenix Advisory Partners to assist in the distribution of proxy materials and solicitation of proxies (including by telephone) from shareholders at a cost of $7,500$8,000 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 20122013 Annual Meeting of Shareholders must notify the Corporate Secretary in writing. The proposal must be received by November 22, 2011.2012.
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.
To be timely for the 20122013 Annual Meeting of Shareholders, notice must be received by the Corporate Secretary no later than March 11, 201210, 2013 and no earlier than February 10, 2012.8, 2013. The notice must include, as to each matter the shareholder proposes to bring before the Annual Meeting: (i) a brief description of the business desired to be brought before the Annual Meeting and the reasons for conducting such business at the 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 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, 20112012 for consideration by the Nominating and Corporate Governance Committee for the 20122013 Annual Meeting of 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 11, 201210, 2013 and no earlier than February 10, 2012.8, 2013. The notice must include:
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, 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 commence or 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 writingwrite to us at the following address: Hawaiian Electric Industries, Inc. Shareholder Services, P.O. Box 730, Honolulu, Hawaii 96808-0730, or by e-mailinge-mail 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.
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Please vote your proxy as soon as possible to ensure that your shares will be counted at the Annual Meeting.
Chester A. Richardson Chief Administrative Officer |
March 21, 201122, 2012
HAWAIIAN ELECTRIC INDUSTRIES, INC.2011 NONEMPLOYEE DIRECTOR STOCK PLAN
1. Purposes of the Plan
The purposes of this Hawaiian Electric Industries, Inc. 2011 Nonemployee Director Stock Plan (the "Plan") are to advance the interests of Hawaiian Electric Industries, Inc. (the "Company") and its shareholders by aligning the personal interests of members of the Board of Directors of the Company and members of the boards of directors of its principal subsidiaries who are not employees with the interests of the Company and its shareholders. Accordingly, the Plan provides participating 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 owned by such nonemployee directors, thereby assisting them in meeting the Company's stock ownership guidelines, through the issuance of Common Stock under the Plan as part of their compensation.
Upon 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 have the respective meanings set forth below:
(a) "Annual Meeting of Shareholders" means the annual meeting of shareholders of the Company at which directors of the Company are elected.
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means the Compensation Committee of the Board, or subcommittee thereof, or such other committee appointed from time to time by the Board to administer the Plan in accordance with Section 4(a) hereof, which Committee shall consist of two or more "nonemployee directors" as defined under Rule 16b-3(3)(i) promulgated under the Securities Exchange Act of 1934).
(d) "Common Stock" means the common stock, without par value, of the Company.
(e) "Company" means Hawaiian Electric Industries, Inc., a Hawaii corporation, and any successor corporation.
(f) "Employee" means any officer or employee of the Company or any of its direct or indirect subsidiaries or affiliates (whether or not such subsidiary or affiliate participates in the Plan).
(g) "Fair Market Value" means, as of any given 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; or (iii) the fair market value of a share of Common Stock as otherwise determined by the Committee in the good faith exercise of its discretion.
(h) "Grant Date" shall be June 30 of each year except that (i) if June 30 falls on a day that is not a 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 Annual Meeting of Shareholders in the next year shall be the date on which such person's service as a director commences. For the avoidance of doubt, clause (ii) does not apply to a person who serves as a
director of the Company or a Participating Company but then also (or instead) is elected or appointed to serve in another director position.
(i) "Nonemployee Company Director" means any person who is elected or appointed 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 appointed to the Board 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 whose participation in the Plan has been approved by the Board.
(m) "Plan" means this 2011 Nonemployee Director Stock Plan, as it may be amended from time to time.
(n) "Stock Payment" means a grant under the Plan of shares of Common Stock to a Nonemployee Company Director or a Nonemployee Participating Company Director rather than cash as compensation for services rendered as a director of the Company or a Participating Company, as provided in Section 6 hereof.
3. Shares of Common Stock Subject to the Plan
Subject to adjustment as provided in Section 8 below, the maximum aggregate number of shares of Common Stock that may be issued under the Plan is 300,000 shares. The Common Stock to be issued under the Plan may, in whole or in part, be authorized but unissued shares of Common Stock of the Company or shares that 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) Subject to the express provisions of the Plan, 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 the 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 Plan or any transaction arising under the Plan or any omission in connection with the Plan in the absence of willful misconduct or gross negligence.
5. Participation in the Plan
(a) All Nonemployee Company Directors and Nonemployee Participating Company Directors shall participate in the Plan, subject to the conditions 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 6 of the 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 Grant 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 Stock Payment even if he or she serves as a director of both the Company and a Participating Company or more than one Participating Company andprovided,further, that the Stock Payment for a new director whose Grant Date is determined pursuant to Section 2(h)(ii) shall be prorated based on a fraction in which the numerator is the number of days remaining between the date on which such Participant becomes a director and the date of the next Annual Meeting of Shareholders and the denominator is 365 days.
(b) Stock Payments may be designated in either dollar value or in a number of shares of Common Stock. The number of shares to be issued to each Participant as a Stock Payment if the Stock Payment is designated by dollar value shall be determined by dividing the Fair Market Value of the Common Stock on the applicable Grant Date into the applicable dollar value of the Stock Payment,provided that no 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 Stock Payment will be $75,000.
(d) The amount of the 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 once between any two Annual Meetings of Shareholders.
(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 her as a Stock Payment pursuant to the Plan notwithstanding any change in status of such director which renders him or her ineligible to continue as a participant in the Plan after the Grant Date.
7. Shareholder Rights
(a) Nonemployee Company Directors and Nonemployee Participating Company Directors shall not be deemed for any purpose to be or have rights as shareholders of the Company with respect to any shares of Common Stock except as and when such shares are issued and then in any event not earlier than the Grant Date. No adjustment shall be made for dividends or distributions or other rights for which the record date precedes the Grant Date.
(b) Subject to the provisions of Section 7(a) above, Nonemployee Company Directors and Nonemployee Participating Company Directors will have all rights of a shareholder with respect to
Common Stock once issued as a Stock Payment on the Grant 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 Capitalization
If the outstanding shares of Common Stock of the Company are increased, decreased, or exchanged for a different number or kind of shares or other securities, or if additional shares or new or different shares or other securities are distributed with respect to such shares of Common Stock or other securities, through merger, consolidation, sale of all or substantially all of the property 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 such shares of Common Stock or other securities or other 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 the Plan or any action taken pursuant to the Plan shall be construed 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 any period of time or at a particular retainer or other 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 Board 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 in no event be obligated, to register the shares of Common Stock issuable under the Plan pursuant to the Securities Act of 1933, as now or hereafter amended, or to qualify or register such shares under any securities laws of any state upon their issuance under the Plan or at any time thereafter, or to take any other action in order to cause the issuance and delivery of such shares under the Plan or 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
therefrom is available), or with the provisions of Rule 144 promulgated thereunder, if available, or any successor provisions.
11. Nontransferability of Rights
No Nonemployee Company Director or Nonemployee Participating Company Director shall have the right to assign the right to receive any Stock 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 imposed on any such right to 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 power in its discretion, to amend, suspend or terminate the Plan at any time. No such amendment will, without approval of the shareholders of the Company:
(i) Change the class of persons eligible to receive Stock Payments under the Plan or otherwise modify the requirements as to eligibility for participation in the Plan; or
(ii) Increase the number of shares of Common Stock which may be issued under the Plan (except for adjustments as provided in Section 8 hereof).
(b) No amendment, suspension or termination of the Plan will, without the consent of the Nonemployee Company Director or Nonemployee Participating Company Director, alter, terminate, impair, or adversely affect any right or obligations under any Stock Payment previously granted under the Plan to such Participant, unless such amendment, suspension or termination is required by applicable law.
(c) Notwithstanding the foregoing, the Board may, without further action by the shareholders of the Company, amend the Plan or modify Stock Payments under the Plan (i) in response to changes in securities or other laws, or rules, regulations or regulatory interpretations thereof, applicable to the Plan, or (ii) to comply with stock exchange rules or requirements.
13. Governing Law
The laws of the State of Hawaii shall govern and control the interpretation and application of the terms of the Plan.
14. Effective Date and Duration of 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 INDEPENDENCEAmended as of December 13, 2010
A director 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" means Hawaiian Electric Industries, Inc. and includes subsidiaries of Hawaiian Electric Industries, Inc. as is relevant to any determination under the independence standards set forth above.
VOTE BY TELEPHONE Have your proxy card available when you call the Toll-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 website www.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 the postage-paid envelope provided or return it to: Corporate Election Services, |
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