Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐ Check the appropriate box: Preliminary Proxy Statement ☐ Definitive Proxy Statement ☐ Definitive Additional Materials ☐ Soliciting Material Pursuant to §240.14a-12 Payment of Filing Fee (Check ☒ No fee required. ☐ Fee paid previously with preliminary materials:☐ ☒ the appropriate box)all boxes that apply): ☐ Fee computed on table belowin exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.
On the Cover: The Potomac Edison Company’s (a subsidiary of FirstEnergy Corp.) EV Driven program is a five-year initiative designed to benefit the state’s environment by reducing auto emissions and supporting Maryland’s goal to reach 300,000 zero-emission vehicles on the road by 2025. Potomac Edison is installing 59 charging stations – including 20 fast-charging stations – across its seven-county Maryland territory over the course of the program, which runs through 2023.
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Dear FellowFirstEnergy Shareholders:
Thank you for your confidence in FirstEnergy. On behalf of your Board of Directors and management team, we cordially invite you to attendwelcome your attendance at our 20202023 Annual Meeting of Shareholders on May 19, 2020. The attached Notice24, 2023. A schedule of the 2020 Annual Meeting of Shareholders and Proxy Statement contains information about the business to be conducted at the Meeting.meeting is available in the attached Notice of the 2023 Annual Meeting of Shareholders, and the accompanying Proxy Statement includes information about your Board, FirstEnergy’s employee, environmental, social and governance (EESG) practices and our executive compensation programs.
The meeting will be conducted online. To make keyattend the virtual event, please follow the registration instructions listed on your proxy card. Additional registration information easieris available in the Questions and Answers section of the accompanying Proxy Statement, under the heading, “Attending the Virtual Annual Meeting.”
Becoming a Premier Utility
I’m proud of FirstEnergy’s progress to find, we are also offeringbecome a new interactive proxy statement with enhanced navigation, available atwww.FirstEnergyCorp.com/AnnualMeeting.premier, forward-thinking electric company that is well positioned to deliver value to stakeholders. We’re harnessing our strengths while enhancing nearly every aspect of the organization, emerging as a more resilient, innovative and efficient company.
In 2019, FirstEnergy successfully executedRecent highlights include executing transformative equity investments to enhance our customer-focused growth strategiesfinancial position and metfuel our commitmentsgrowth; modernizing our work practices and processes to optimize our performance, drive efficiencies and deliver a superior customer experience; and continued progress
fostering a culture rooted in our core values and focused on ethics, integrity and accountability.
We intend to build on this momentum and solidify our position as an industry leader as we continueddrive our transformation intolong-term strategy focused on strengthening our foundation, building a high-performance, pure-play regulated utility. We also took important steps on proactive initiatives designedcustomer-centered focus and enabling the clean energy transition.
Expanding our corporate responsibility focus
Our strategy supports — and is supported by — our approach to meet the future energy needscorporate responsibility. Last year, we enhanced our corporate responsibility framework to include employee along with environmental, social and governance priorities. Recognizing employees as a distinct and essential pillar of customers, drive shareholder valueour corporate responsibility approach pays tribute to their role in our success, as well as our commitment to cultivating a rewarding work environment where they can thrive.
To learn more about our EESG priorities and engagement, improve safety, and buildhow they’re making us a more innovative, diverse, sustainable and sustainableindustry-leading company, I encourage you to review the “Commitments to EESG” section of the accompanying Proxy Statement as well as our refreshed corporate culture. Theseresponsibility website at www.fecorporateresponsibility.com.
The website also includes an updated Climate Report aligned with guidance from the Task Force on Climate-related Financial Disclosures. The new report demonstrates FirstEnergy’s continued commitment to addressing the realities of climate change, while meeting stakeholder expectations for transparency and oversight.
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Upholding high standards of governance
Strong corporate governance is foundational to our business and important to advancing the interests of our shareholders. Your highly independent and diverse Board oversees and guides FirstEnergy’s business strategy, including your Company’s progress building a strong, centralized compliance program, ensuring a culture of ethics and integrity and advancing EESG matters.
We believe our shareholder engagement programs and investor communication efforts are guided byvital to FirstEnergy’s success, and we value the opportunity to further strengthen our engagement with our shareholders. With support from the full Board, our executive management team and integrated shareholder outreach team — consisting of members of Corporate Responsibility, Corporate Secretary department, Legal, Finance, Human Resources and Investor Relations, hold regular conversations with a broad base of investors throughout the year. The feedback and suggestions gathered from these engagements guide the Board as we help FirstEnergy execute its business strategy and fulfill its mission to be a forward-thinking electric utility powered by a diverse team of employees committed to makingmake customers’ lives brighter, the environment better and our communities stronger.
We are focused on creating a more diverse, equitable and inclusive company, including at the senior leadership and Board levels. Our accompanying proxy statement demonstratesBoard nominees demonstrate diversity in the form of gender, ethnicity, age, tenure, thought, background and experience and support our ongoing commitmentgoal of maintaining at least 30% diverse members by race, ethnicity and gender for the foreseeable future.
We also believe it is important to periodically refresh our values, including:Board with new members who bring fresh perspectives to the boardroom. Eight of our 11 director nominees have joined the Board since 2021.
Lighting the Way
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We encourageIt’s an exciting time for FirstEnergy, as we’re poised to leverage our many strengths: from our diverse assets, to the transformation that has taken place since 2020, to the talented employees who are making the company stronger with their drive, passion and ingenuity.
Together with these engaged and motivated employees, your Board and management team are deeply committed to serving our customers, meeting our commitments to stakeholders and strengthening our company for the future.
Your Board and management team will continue to engage with you regularly and keep you updated on your Company’s progress. I invite you to read more about your Board, our corporate governancecompany strategies and EESG practices, and our executive compensation programs in the accompanying proxy statement. We’re grateful forProxy Statement.
We appreciate your support and thank you in advance for voting promptly.promptly.
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Interim President |
| 2023 PROXY STATEMENT |
Notice of Annual Meeting of Shareholders |
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Notice of Annual Meeting of Shareholders
Please carefully review this Notice, the Company’s Annual Report to Shareholders for the year ended December 31, 20192022 (the “2019“2022 Annual Report”), and the accompanying proxy statementProxy Statement and vote your shares by following the instructions on your proxy card/voting instruction form or Notice of Internet Availability of Proxy Materials to ensure your representationvote is cast at the 2023 Annual Meeting.Meeting of Shareholders (the “Annual Meeting”).
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RECORD DATE March 27, 2023 |
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AGENDA
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On behalf of the Board of Directors,
This Notice and accompanying Proxy Statement are being mailed or made available to shareholders on or about
Table of Contents
OUR VALUES
CODE OF CONDUCT FirstEnergy’s Code of Conduct, The Power of Integrity, lays the foundation for what we expect from the Board and all employees. It reflects our collective commitment to keep integrity at the forefront of everything we do — a pledge underscored by the inclusion of integrity in our mission, core values and company strategy. COMPANY STRATEGY FirstEnergy is embracing pivotal changes within our operations and culture that are energizing the company as we further our transformation into a forward-thinking, premium utility. Three pillars of strategy represent the focus of our efforts and investments and are backed by tangible goals.
EESG FOCUS The pillars of our company strategy are supported by our employee, environmental, social and governance (EESG) priorities and aligned with our commitment to corporate responsibility. Because of this strategic integration, improving our EESG performance also advances our strategy and helps us become a more innovative, diverse, sustainable and industry-leading company.
COMPANY CULTURE Transforming our company culture is foundational to achieving our company’s strategy. Our core values are the foundation of our transformation, our strategy and ultimately FirstEnergy’s long-term success. Integrity, Safety, Diversity, Equity and Inclusion (DEI), Performance Excellence, and Stewardship are the bedrock from which we operate, behave and interact every day. We are committed to a strong cultural foundation of ethics and integrity where employees feel safe to be themselves, speak up and bring their best to work every day. Creating a work environment that allows for greater diversity, equity and inclusion and prioritizes employees’ safety, health and well-being is also key to that cultural transformation. As part of our transformation we strive to prioritize, operationalize and live these values in everything we do, internally and externally. They guide our behavior, our decisions and ultimately the actions that create our performance and success. HUMAN CAPITAL MANAGEMENT FirstEnergy’s workforce is essential in our ability to continue moving our company forward by keeping each other safe, delivering value to our stakeholders, and transforming our culture in alignment with our core values. While 2022 continued to present unprecedented challenges, our commitment to our employees and their health and safety has not wavered. Integrity is critical to our path to a stronger, more sustainable FirstEnergy, and reflects our collective commitment to ensuring that we conduct business ethically. We expect all employees do the right thing, and we treat our coworkers and communities with the respect we all deserve. Further details of our focus on keeping our core values and behaviors at the center of everything we do, and our desire to help our employees to do their best each day is included in the “Our Commitment to EESG” section of this Proxy Statement.
Our commitment to climate is a significant component of Reducing Greenhouse Gas Emissions As part of our Climate Strategy, we are also committed to reducing greenhouse gas (GHG) emissions. We’ve pledged to achieve carbon neutrality by 2050, with an interim 30% reduction in greenhouse gases within our direct operational control (Scope 1) by 2030 based on 2019 levels. This Scope 1 GHG goal encompasses companywide emissions across our transmission, distribution and regulated generation operations.
Key steps in working toward carbon neutrality by 2050 include:
To read more about our decarbonization strategy, including near-term actions to achieve our interim 30% GHG reduction target by 2030, please visit our Climate Report (www.firstenergycorp.com/climatereport). Information on our website does not constitute part of (and shall not be deemed incorporated by reference into) this Proxy Statement or any other document we file with the Securities and Exchange Commission (the “SEC”).
Proxy Statement Summary 2023 Annual Meeting of Shareholders (the “Annual Meeting” or the “Meeting”)
Your vote is important! Even if you plan to attend our Annual Meeting
Please follow the instructions provided on your proxy card/voting instruction form (the “proxy card”), Notice of Internet Availability of Proxy Materials, or electronic or other communications included with your proxy materials. You may have multiple accounts and therefore receive more than one proxy card or voting instruction form and related materials. Please vote each proxy card and voting instruction form that you receive.
Your Board Nominees The following Your Board nominees are highly qualified individuals and represent a diversity of gender, ethnicity, age, tenure, thought, background and experiences. Your Board is periodically refreshed with the addition of candidates whom we believe bring new ideas and fresh perspectives into the boardroom.
Key
Corporate Governance
Our corporate governance practices are described in greater detail in the “Corporate Governance and Board of Directors Information” section beginning on page
Executive Compensation Highlights Under our compensation design, the percentage of pay that is based on performance increases as the responsibilities of a Named Executive
We believe
(1) Excludes Mr. Somerhalder due to the interim status of his roles. For more details see the “Performance-based and Time-based Equity Award for Mr. Somerhalder” section. Our executive compensation practices are described in greater detail in the “Executive Compensation” section beginning on page
Corporate Governance and Board of DirectorsInformation Board Leadership Structure The positions of It is the Board’s further policy that, in
In May 2022, the Board, based on a recommendation from the Corporate Governance, Corporate Responsibility and Political Oversight Committee, elected Mr. Somerhalder and Ms. Hicks as its respective Board Chair and Lead Independent Director, each to serve until the first regular Board meeting following the Company’s 2023 annual meeting of shareholders. In September 2022, following the retirement of Mr. Steven Strah, Mr. Somerhalder was appointed by the Board to serve as Interim President and Chief Executive Officer for the duration of our ongoing search for a new CEO. Your Board will continue to consider whether an alternate Board leadership structure is appropriate if changing circumstances dictate. Your Board schedules regular executive sessions for your independent directors to meet without management participation. Because an independent director is required to preside over each such executive session of independent directors, we believe it is efficient and appropriate to have your independent Board Composition and Refreshment Your Board is comprised of individuals who are
discussed in the The Corporate Governance, Corporate Responsibility and
The Corporate Governance, Corporate Responsibility and Political Oversight Committee has sole authority to retain and engage a third-party search firm to identify a candidate or candidates for the Board. Board Oversight Board Response to Government Investigations Your Company has been cooperating fully with requests related to recent government investigations relating to Ohio House Bill 6. We’ve pledged full and continuing cooperation with the government investigations. Your Board has formed various special Board oversight committees since July 2020. Effective July 1, 2021, a Special Litigation Committee was created to take all actions with respect to pending derivative litigation and demands. See “Board Committees – Special Board Oversight Committees” section below. The Independent Review Committee and the Demand Review Committee, both special Board oversight committees, which were previously established were dissolved in July 2021. Effective December 13, 2022, the Compliance Oversight Sub-committee of Legal Proceedings Beginning in July 2020, stockholders of the Company filed shareholder derivative lawsuits in the federal courts for the Northern and Southern Districts of Ohio and in the Court of Common Pleas of Summit County, Ohio, asserting claims on behalf of the Company against various former and current officers and directors of the Company arising out of the circumstances at issue in the investigations and proceedings relating to Ohio House Bill 6. The lawsuits, Gendrich v. Anderson, et al. and Sloan v. Anderson, et al. (Common Pleas Court, Summit County, OH, all actions have been consolidated) and Miller v. Anderson, et al. (Federal District Court, N.D. Ohio); Bloom, et al. v. Anderson, et al.; Employees Retirement System of the City of St. Louis v. Jones, et al.; Electrical Workers Pension Fund, Local 103, I.B.E.W. v. Anderson et al.; Massachusetts Laborers Pension Fund v. Anderson et al.; The City of Philadelphia Board of Pensions and Retirement v. Anderson et al.; Atherton v. Dowling et al.; Behar v. Anderson, et al. (Federal District Court, S.D. Ohio, all actions have been consolidated), assert claims for breach of fiduciary duty and for violation of Section 14(a) of the Securities Exchange Act of 1934, (the “Exchange Act”), among other claims. As previously disclosed on March 11, 2022, the plaintiffs and defendants in the lawsuits, and the Special Litigation Committee acting on behalf of the Company, entered into a settlement agreement to resolve all of the shareholder derivative lawsuits. The settlement includes a series of corporate governance enhancements, that resulted in the following actions in connection with or following the Company’s 2022 annual meeting of shareholder (the “2022 Annual Meeting”):
The settlement also includes a payment to FirstEnergy of $180 million, to be paid by insurance, less the court-ordered attorney’s fees awarded to plaintiffs. On August 23, 2022, the Southern District of Ohio granted final approval of the parties’ Settlement Agreement, fully releasing all claims covered by the Settlement Stipulation, and dismissing the Southern District Action with prejudice. On September 20, 2022, a FirstEnergy shareholder filed a motion for reconsideration of the court’s Order of Final Settlement Approval. That motion is fully briefed and under consideration by the court. In addition, the Court of Common Pleas of Summit County, Ohio, dismissed the shareholder derivative lawsuit with prejudice, while the lawsuit filed in the Northern District of Ohio remains pending. While your Board cannot predict the outcome of the continuing government investigations and related matters, as your stewards, we are
Risk Management The Company Your Board administers its risk oversight function through the full Board, as well as through the various Board
In addition to the Audit Committee’s role in risk oversight, our other Board committees also play a role in risk oversight within each of their areas of responsibility. Specifically, the Compensation Committee reviews, discusses, and assesses risks related to
executive compensation programs, including incentive compensation and equity-based plans, as well as human capital and the relationship between our risk management policies and practices and compensation. See also, “Risk Assessment of Compensation Programs” found in the CD&A section in this Through this oversight process, your Board obtains an understanding of significant risk issues on a
Evaluating Board Effectiveness Your Board is committed to a rigorous evaluation process as further described below. Annually, Board, committee and individual director evaluations are performed and coordinated by the Corporate Governance, Corporate Responsibility and Political Oversight Committee. In 2022, the Corporate Governance, Corporate Responsibility and Political Oversight Committee engaged an independent third party, experienced in corporate governance matters, to assess the effectiveness of the Board, committees and individual directors. 2022 Board Evaluations: A Multi-Step Process
Shareholder Outreach and Engagement Program Commitment to Shareholder Outreach and Engagement FirstEnergy has a long history of meaningful, robust engagement with our shareholders. We believe consistent, transparent dialogue is essential in order to understand investor feedback on a broad range of issues and provides valuable insights for our Board, its committees, and our management team into investor perspectives and priorities.
In connection with our shareholder outreach that focused on EESG and executive compensation matters, we recently reached out to our top shareholders representing over 46% of shares outstanding. In addition to our proactive shareholder engagement throughout the year focused on EESG and executive compensation matters, our management team participates in numerous investor conferences, and in both one-on-one and group meetings.
As part of
Other Governance Practices and Policies
FirstEnergy’s Code of Conduct, The Power of Integrity, lays the foundation for what we expect from all FirstEnergy employees, officers and
Corporate Governance Your Board believes that the Company’s policies and practices should enhance your Board’s ability to represent your interests as shareholders. Your Board established Corporate Governance Policies which, together with Board committee charters, which are reviewed at least annually and serve as a framework for meeting your Board’s duties and responsibilities with respect to the governance of the Company. Our Corporate Governance Policies and Board committee charters can be viewed by visiting our website atwww.firstenergycorp.com/charters. Any amendments to these documents will Director Orientation and Continuing Education Your Board recognizes the importance of its members to keep current on Company, industry and governance issues and their responsibilities as directors. All new directors participate in orientation soon after being elected to your Board. Also, your Board makes available and encourages continuing education programs for Board members, which include internal strategy meetings
Attendance at Board Meetings, Committee Meetings and the Annual Meeting of Shareholders Our Corporate Governance Policies provide that directors are expected to attend all scheduled Board and applicable committee meetings and the Company’s annual meetings of shareholders. Your Board held 18 meetings in 2022. The overall attendance percentage for our directors was approximately 96% in 2022, and all directors attended more than 75% of the Board meetings and the meetings of the committees upon which he or she served in 2022. Also, all of our directors who were members of the Board at the time of the 2022 Annual Meeting attended the 2022 Annual Meeting. Non-management directors met, as annually required, as a group in executive session without the CEO or any other non-independent director or member of management at each of the seven regularly scheduled 2022 Board meetings. Our Lead Independent Director presided over all executive sessions. Other Public Company Board Membership and Related Time Commitments Our Corporate Governance Policies provide that directors will not, without your Board’s approval, serve on a total of more than four public company board of As further described in the “Biographical Information and Qualifications of Nominees for Election as Directors” section below, in addition to being a director of the Company, Mr. Demetriou recently stepped down as chief executive officer of Jacobs Solutions Inc. (formerly Jacobs Engineering Group Inc.) and, effective January 24, 2023, continues to serve as Executive Chair at Jacobs Solutions Inc. Mr. Demetriou also serves as a director of Arcosa, Inc. and as a director and non-executive board chair of C5 Acquisition Corp, a special acquisition company without significant operations. As described more fully on page 25, the Board has evaluated Mr. Demetriou’s current responsibilities and approved his current directorships, due in part to his significantly reduced future commitment expectations as well as the valuable experience and attributes he brings to your Board.
Your Board The Corporate Secretary or a member of her staff reviews all such communications promptly and relay them directly to a member of your Board; provided that such communications (i) bear relevance to the Company and the interests of the shareholder, (ii) are capable of being implemented by your Board, (iii) do not contain any obscene or offensive remarks, (iv) are of a reasonable length, and (v) are not from a shareholder who has already sent two such communications to your Board in the last year. Your Board may modify procedures for sorting shareholders communications or adopt any additional procedures, provided that they are approved by a majority of independent Directors. Your Audit Committee also receives, reviews, and acts on complaints and concerns regarding accounting, internal accounting controls or auditing matters, including complaints regarding material ethical or criminal misconduct on the part of the Board of Directors, the Chief Executive Officer, any officer reporting directly to the Chief Executive Officer, the Controller & Chief Accounting Officer, and complaints regarding matters that could lead to significant reputational damage to the Company. Complaints or concerns specifically related to such matters may be made directly to your Audit Committee. Correspondence to the Audit Committee should be addressed to the attention of the Audit Committee Chair (c/o Corporate Secretary), FirstEnergy Corp., 76 South Main Street, Akron, Ohio 44308-1890.
Board Qualifications The Corporate Governance, Corporate Responsibility and Political Oversight Committee recommends Board candidates by identifying qualified individuals in a manner that is consistent with criteria approved by your Board. In consultation with the CEO, the Corporate Governance, Corporate Responsibility and Political Oversight Committee, as led by the Board Chair and Lead Independent Director, searches for, recruits, screens, interviews and recommends prospective directors to provide your Board with an appropriate balance of knowledge, experience, diversity attributes and capability on your Board. Suggestions for potential Board candidates come to the Corporate Governance, Corporate Responsibility and Political Oversight Committee from a number of sources, including a third-party search firm, incumbent directors, officers and others. In connection with the Board’s active director succession planning, the Corporate Governance, Corporate Responsibility and Political Oversight Committee regularly evaluates the addition of a director or directors with particular attributes with an appropriate mix of long-, medium-, and short-term tenured directors in its succession planning. The Corporate Governance, Corporate Responsibility and Political Oversight Committee considers suggestions for candidates for membership on your Board, including candidates recommended by shareholders for your Board. Provided that shareholders suggesting director candidates have complied with the procedural requirements set forth in the Corporate Governance, Corporate Responsibility and Political Oversight Committee Charter and Second Amended and Restated Code of Regulations, the Corporate Governance, Corporate Responsibility and Political Oversight Committee applies the same criteria and employs substantially similar procedures for evaluating candidates suggested by shareholders for your Board as it would for evaluating any other Board candidate. The Corporate Governance, Corporate Responsibility and Political Oversight Committee will also give due consideration to all recommended candidates that are submitted in writing to the Corporate Governance, Corporate Responsibility and Political Oversight Committee, in care of the Corporate Secretary, FirstEnergy Corp., 76 South Main Street, Akron, Ohio 44308-1890, received at least 120 days before the publication of the Company’s annual Proxy Statement from a shareholder or group of shareholders owning one half of one percent (0.5 percent) or more of the Company’s voting stock for at least one year, and accompanied by a description of the proposed nominee’s qualifications and other relevant biographical information, together with the written consent of the proposed nominee to be named in the Proxy Statement and to serve on your Board. Also refer to the “Proposals and Business by Shareholders” section of the “Questions and Answers about the Annual Meeting” below for information regarding nominations under the Company’s Second Amended and Restated Code of Regulations. Director Nomination Related Agreements On March 16, 2021, your Company entered into a Director Appointment and Nomination Agreement (the “Icahn Director Nomination Agreement”) with Carl C. Icahn, Andrew Teno, Jesse A. Lynn, Icahn Partners LP, Icahn Partners Master Fund LP, Icahn Enterprises G.P. Inc., Icahn Enterprises Holdings L.P., IPH GP LLC, Icahn Capital LP, Icahn Onshore LP, Icahn Offshore LP and Beckton Corp. (collectively, the “Icahn Group”). Pursuant to the Icahn Director Nomination Agreement, effective as of March 18, 2021, your Board, among other matters agreed to appoint Mr. Jesse A. Lynn and Mr. Andrew Teno (the “Icahn Designees”) to serve as directors of the Company to fill such vacancies, each with a term expiring at the 2021 Annual Meeting. Messrs. Lynn and Teno were elected to your Board by shareholders at the 2022 Annual Meeting and your Board has again nominated each of them to stand for reelection as a director at the 2023 Annual Meeting to continue to serve for a term expiring at the Company’s annual meeting of shareholders in 2024 (the “2024 Annual Meeting”). On November 6, 2021, your Company entered into a Common Stock Purchase Agreement (the “Blackstone SPA”) with BIP Securities II-B L.P., an affiliate of Blackstone Infrastructure Partners L.P. (“Blackstone”), for the private placement of 25,588,535 shares of the Company’s common stock. Pursuant to the Blackstone SPA, your Board, among other matters, agreed to appoint Mr. Sean T. Klimczak to stand for election as a director at the 2022 Annual Meeting. Shareholders elected Mr. Klimczak as a director at the 2022 Annual Meeting, and your Board has nominated him to stand for reelection as a director at the 2023 Annual Meeting to continue to serve for a term expiring at the 2024 Annual Meeting. Summaries of the terms of the Icahn Director Nomination Agreement and the Blackstone SPA are provided in the “Certain Relationships and Related Person Transactions” section below.
Attributes, Experience, Qualifications and Skills of your Board In recruiting and selecting Board candidates, the Corporate Governance, Corporate Responsibility and Political Oversight Committee takes into account the size of your Board and considers a “skills matrix” to determine whether those skills and/or other attributes qualify candidates for service on your Board. The attributes, experiences, qualifications and skills considered in accordance with Corporate Governance Policies and the Corporate Governance, Corporate Responsibility and Political Oversight Committee charter for each director nominee led your Board to conclude that the nominee is qualified to serve on your Board. The high-level overview below depicts some of the attributes, experiences, qualifications and skills of our director nominees the committee takes into account. It is not intended to be an exhaustive list of each director nominee’s skills or contributions to your Board. Also, additional biographical information and qualifications for each nominee is provided in the “Biographical Information and Qualifications of Nominees for Election as Directors” section below and contains information regarding the person’s service as a director, principal occupation, business experience along with key attributes, experience and skills. Each of the nominees brings a strong and unique background and skill set to your Board, giving your Board, as a whole, competence and experience in a wide variety of areas necessary to oversee the operations of the Company.
Board Nominees Skills, Diversity & Committee Memberships
The above takes into account a level of knowledge that could include direct experience, subject matter expertise, directly managing one or more members of management engaged in such activities or exposure as a board or board committee member, including on your Board and Board committees. Board’s Focus on Diversity The Company and your Board is committed to a policy of inclusiveness and believes that well assembled boards consist of a diverse group of individuals who possess a variety of complementary skills and experiences. Accordingly, your Board has set a goal that, for the foreseeable future, at least 30% of your Board will be composed of diverse (by gender, race and ethnicity combined) individuals. The Corporate Governance, Corporate Responsibility and Political Oversight Committee regularly assesses the size and composition of your Board in light of the current operating requirements of the Company and the current needs of your Board, and is also committed to actively seeking out highly qualified candidates of diverse backgrounds – including gender, race, skills, and professional experience and other attributes that contribute in the aggregate to the optimal functioning of your Board – to include in the pool from which future Board nominees are chosen. The Company’s Corporate Governance Policies also provide further opportunity for board refreshment by requiring directors who reach the age of 72 to tender their resignations to the Board to be effective upon acceptance by your Board. Director Independence Your Board annually reviews the independence of each of its members to make the affirmative determination of independence that is called for by our Corporate Governance Policies and required by the Securities Exchange Commission (“SEC”) and New York Stock Exchange (“NYSE”) listing standards, including certain independence requirements of Board members serving on the Audit Committee, the Compensation Committee and the Corporate Governance, Corporate Responsibility and Political Oversight Committee. The definition used by your Board to determine independence is included in our Corporate Governance Policies and can be viewed by visiting our website at www.firstenergycorp.com/charters. Each year, our directors complete a questionnaire to assist your Board in assessing whether each director meets the applicable independence standards and the related provisions in the Company’s Corporate Governance Policies. The Company facilitates this review by examining its records to determine if there were payments made to or received from entities in which each non-employee director or immediate family member has a relationship based on responses to the questionnaires. Subject to the categorical standards approved by your Board and described below, a list of the relevant entities and the amounts the Company paid to or received from those entities is provided to your Board for the non-employee directors. Utilizing this information, the Corporate Governance, Corporate Responsibility and Political Oversight Committee presents to your Board (i) an evaluation, with regard to each director, whether the director has any material relationship with the Company or any of its subsidiaries; (ii) a recommendation of whether the amount of any payments between the Company and relevant entities could interfere with a director’s ability to exercise independent judgment; and (iii) a review of any other relevant facts and circumstances regarding the nature of these relationships, to determine whether other factors, regardless of the categorical standards your Board has adopted or under the NYSE’s independence standards, might impede a director’s independence. Based on a review of information concerning each of its non-employee directors and the recommendation of the Corporate Governance, Corporate Responsibility and Political Oversight Committee, your Board will affirmatively determine whether a director may be considered “independent.” Your Board recognizes that in the ordinary course of business, relationships and transactions may occur between the Company and its subsidiaries and entities with which some of our directors are or have been affiliated. Our Corporate Governance Policies provide categorical standards to assist your Board in determining what does not constitute a material relationship for purposes of determining a director’s independence. Accordingly, the following commercial and charitable relationships will not be considered to be a material relationship that would impair a Director’s independence: (i) if the Director, an immediate family member or a person or organization with which the Director has an affiliation purchases electricity or related products or services from the Company or its subsidiaries in the ordinary course of business and the rates or charges involved in the transaction are fixed in conformity with law or governmental authority or otherwise meet the requirements of Item 404(a) Instruction 7 of Regulation S-K, (ii) the aggregate charitable contributions made by the Company to an organization with which a Director, an immediate family member or a person or organization with which the Director has an affiliation were less than $100,000 in each of the last three fiscal years, or (iii) the aggregate of other payments made by the Company to another entity or organization with which a Director, an immediate family member or a person or organization with which the Director has an affiliation, or received by the Company from that other entity or
organization, were less than the greater of $1 million or 2% of the affiliated company’s revenues in each of the last three fiscal years. Notwithstanding the foregoing, the Board will not treat a director’s relationship with the Company as categorically immaterial if the relationship otherwise conflicts with the NYSE corporate governance listing standards or is required to be disclosed by the Company pursuant to Item 404 of Regulation S-K. Based on the February 2023 independence review, your Board affirmatively determined that each of Jana T. Croom, Steven J. Demetriou, Lisa Winston Hicks, Paul Kaleta, Sean T. Klimczak, Jesse A. Lynn, James F. O’Neil III, Andrew Teno, Leslie M. Turner and Melvin Williams are independent pursuant to our Corporate Governance Polices, the rules and regulations of the SEC and the listing standards of the NYSE. Mr. John W. Somerhalder II is not deemed independent pursuant to the Corporate Governance Policies due to his employment with the Company. Additionally, your Board previously determined that former directors Michael J. Anderson, Julia L. Johnson, Donald T. Misheff, Thomas N. Mitchell, Christopher D. Pappas and Luis A. Reyes, who did not stand for re-election at the 2022 Annual Meeting, were independent. In all cases, your Board determined that the nature of the business conducted and any interest in an entity that the applicable director has a relationship were immaterial both to the Company and to the director. Outside of their service as a Company director, none of the Company’s independent directors currently provide professional or other services to the Company, its affiliates or any officer of the Company and none of the Company’s directors are related to any executive officer of the Company. The Corporate Governance, Corporate Responsibility and Political Oversight Committee also determined that none of the relationships described above constituted a related person transaction requiring disclosure under the heading “Certain Relationships and Related Person Transactions” in this Proxy Statement. Also, in each case where the director is a current executive officer of another company, any transactions constituted less than one percent of the Company’s and the other company’s consolidated gross revenues in each of the last three completed fiscal years.
Biographical Information and Qualifications of Nominees for Election as Directors The following provides information about each director nominee. The information presented below includes each nominee’s specific experiences, qualifications, attributes, and skills that contributed to the conclusion by the Corporate Governance, Corporate Responsibility and Political Oversight Committee and your Board that he or she should serve as a director of your Company.
POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE: Mr. Demetriou serves as executive chair of the board of directors of Jacobs Solutions Inc. (“Jacobs”) (formerly Jacobs Engineering Group Inc.), a provider of technical professional services, including consulting, technical, scientific and project delivery for the government and private sector since January 2023. He previously served as chief executive officer of Jacobs (from 2015 to January 2023). In connection with Jacobs’ succession plan, he currently serves as executive chair of Jacobs’ Board. He also serves as a director (non-executive board chair) of two other public companies: Arcosa, Inc., a provider of infrastructure-related products and solutions since January 2023, and C5 Acquisition Corporation (“C5AC”), a special purpose acquisition company since January 2022, which at this time is not an active business with significant operations. He previously served as chairman and chief executive officer (from 2004 to 2015) of Aleris Corporation, a manufacturer of aluminum rolled products and as a director of Kraton Corporation (from 2009 to 2017). KEY ATTRIBUTES, EXPERIENCE AND SKILLS: Mr. Demetriou received his Bachelor of Science degree in chemical engineering from Tufts University. He has extensive experience in leadership and senior management roles, including the role of chief executive officer. In addition, he brings experience in a variety of industries, including engineering, construction and oil and gas. He also has substantial experience with a company that provides cybersecurity, sustainability and environmental related solutions. His extensive executive and board experience has equipped him with leadership skills and the knowledge of board processes and functions. This experience qualifies him to serve as a member of your Board. OTHER INFORMATION: In assessing whether directors and director nominees, including Mr. Demetriou, have sufficient time to devote to board duties and responsibilities, the Corporate Governance, Corporate Responsibility and Political Oversight Committee and your Board consider, among other things, the commitments of each director on the boards of other public companies. In recommending to the full Board the re-election of Mr. Demetriou, the members of the Corporate Governance, Corporate Responsibility and Political Oversight Committee considered the requirements of the Board’s Corporate Governance Policies, as well as the policies of several of the Company’s major shareholders regarding the number of board of directors upon which an executive chair should serve. In addition to your Board, Mr. Demetriou also serves on the boards of directors of Arcosa, Inc., C5AC, and, since January, 2023, serves as executive chair of Jacobs after stepping down as its chief executive officer as part of ordinary succession planning. Following robust due diligence regarding Mr. Demetriou’s commitments, including feedback from shareholders, your Corporate Governance, Corporate Responsibility and Political Oversight Committee and the Board believe that Mr. Demetriou has demonstrated, and will continue to demonstrate, the ability to dedicate sufficient time to carry out his Board duties effectively. They believe it is in the Company’s best interest that he continue to serve as a director for the following reasons:
The Board appreciates shareholders’ focus on director commitments. The Board will continue to regularly evaluate the roles and responsibilities of all directors and director nominees (including Mr. Demetriou) with respect to your Board to ensure that each director and director nominee continues to be able to dedicate the time necessary to fulfill such responsibilities.
POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE: Lead Independent Director of the Board since May 2022. Retired board chair of MV Transportation, Inc., a privately owned passenger transportation contracting firm and provider of paratransit services (from 2014 to 2022). She served as executive vice president, general counsel and corporate secretary for MV Transportation (from 2012 until 2018). KEY ATTRIBUTES, EXPERIENCE AND SKILLS: Ms. Hicks received a Bachelor of Arts in Political Science from Stanford University and a Juris Doctorate from Harvard Law School. As executive vice president and general counsel of MV Transportation, Hicks directed all company legal affairs including its acquisition of businesses, defense and resolution of litigation, as well as corporate compliance and governance. From 2004 until 2008, Hicks was senior vice president and associate general counsel for TXU Corp., a Dallas based energy holding company. Following the acquisition of TXU Corp by private investors and its name change to Energy Future Holdings, Hicks became its corporate secretary and continued in the role of senior vice president and associate general counsel managing legal and board functions including corporate governance, compliance and security programs, employee benefits and executive compensation, litigation risk and strategy. Earlier in her career she worked as a litigator in private law practice and served in various roles at the U.S. Department of Justice and in the White House where she was Associate Counsel to the President. Ms. Hicks’ legal, regulatory, compliance and energy-sector experience qualifies her to serve as a member of your Board.
POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE: Retired executive vice president, general counsel, federal affairs, chief compliance officer, and corporate secretary of First Solar, Inc., a global solar company (from 2014 to 2020). Managing director of SERC Consulting LLC, an energy policy and strategy firm, since 2020. Previously served as executive vice president, general counsel, shared services, chief compliance officer, and corporate secretary of NV Energy, Inc., an electric and gas utility (from 2006 to 2013). KEY ATTRIBUTES, EXPERIENCE AND SKILLS: Mr. Kaleta received his law degree from Georgetown University Law Center and his undergraduate degree from Hamilton College. He has more than 30 years of leadership and business experience as a senior executive and general counsel for companies across the energy industry, including both regulated utility and clean energy technology companies. He also has served on energy advisory, technology, and industry boards, was a partner in a Washington, D.C. law firm, and was an adjunct professor teaching energy law and business ethics. Mr. Kaleta’s varied and comprehensive utility, energy transition, renewable energy, governmental affairs, and corporate governance and compliance experience qualifies him to serve as a member of your Board.
POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE: Senior managing director and global head of infrastructure at Blackstone Inc., a global investment firm, where Mr. Klimczak has been since 2005. Mr. Klimczak was previously a director of the following: Custom Truck One Source, L.P. (from 2015 to 2021), Cheniere Energy Inc. (from 2021 to 2022) and the general partner of Cheniere Energy Partners L.P. (from 2012 to 2017), as well as serving on the board of numerous other companies throughout his career. KEY ATTRIBUTES, EXPERIENCE AND SKILLS: Mr. Klimczak received a Bachelor of Business Administration in Finance and Business Economics from the University of Notre Dame and a Master of Business Administration from Harvard Business School. Prior to his position at Blackstone, Mr. Klimczak was an Associate at Madison Dearborn Partners. Prior to that, he worked in the Mergers & Acquisitions department of Morgan Stanley & Company’s Investment Banking Division. Mr. Klimczak’s energy infrastructure industry expertise and financial and investment experience qualifies him to serve as a member of your Board.
POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE: General Counsel of Icahn Enterprises L.P., a diversified holding company engaged in a variety of businesses, including investment, energy, automotive, food packaging, real estate, home fashion and pharma, since 2014. Mr. Lynn also has served as chief operating officer of Icahn Capital LP, the entity through which Carl C. Icahn manages investment funds, since April 2021. Mr. Lynn also serves as a director of the following three other public companies: Conduent Incorporated, a provider of business process outsourcing services, since 2019; Crown Holdings, Inc., a supplier of packaging products, and equipment and related services, since December 2022 and Xerox Holdings Corporation, a provider of print and digital document products and services, since 2021. Mr. Lynn was previously a director of Cloudera, Inc., a provider of enterprise data cloud services, from 2019 through its sale in 2021; Herbalife Nutrition Ltd., a nutrition company (from 2014 to 2021); and The Manitowoc Company, Inc., a capital goods manufacturer (from 2015 to 2018). KEY ATTRIBUTES, EXPERIENCE AND SKILLS: Mr. Lynn received a Bachelor of Arts from the University of Michigan and a Juris Doctor from the Boston University School of Law. He has extensive experience in a variety of businesses, including investment, energy, automotive, food packaging, real estate, home fashion and pharma. Prior to his current position, Mr. Lynn was assistant general counsel of Icahn Enterprises L.P. (from 2004 to 2014). Prior to joining Icahn Enterprises L.P., Mr. Lynn worked as an associate in the New York office of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. in its business and finance department and as an associate in the corporate group at Gordon Altman Butowsky Weitzen Shalov & Wein. Mr. Lynn’s legal experience and his experience in a variety of industries along with his broad business skills make him a valuable member of your Board.
POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE: Chief executive officer and vice chairman of Orbital Infrastructure Group, Inc. (formerly Orbital Energy Group, Inc.), a company focused on acquisition and development of innovative companies to create a diversified services platform, since 2019. Principal owner of Forefront Solutions, LLC, which provides consulting services primarily to the energy infrastructure industry, since 2017. Former president, chief executive officer and director of Quanta Services, Inc., a provider of specialty contracting services to the electric power and oil and gas industries (from 2011 to 2016). He served as a director of Hennessy Capital Acquisition Corp IV (from 2019 to 2020), NRC Group Holdings (from 2017 to 2019) and Spark Power Group Inc. (from 2018 to 2019). KEY ATTRIBUTES, EXPERIENCE AND SKILLS: Mr. O’Neil received his Bachelor of Science degree in civil engineering from Tulane University. He has extensive leadership and senior management experience, including the role of chief executive officer, chief operating officer and senior vice president of operations integration and audit. His experience in the electric utility industry also provides him substantial experience in sustainability and environmental related matters. His extensive executive and board experience have equipped him with leadership skills and the knowledge of board processes and functions. Additionally, Mr. O’Neil’s audit, general corporate decision-making and engineering experience makes him a valuable member to your Board.
POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE: Interim President and Chief Executive Officer of your Company since September 2022. He has served as Chair of your Board since May 2022, and previously served as Vice Chair and Executive Director of your Company from March 2021 to May 2022. Mr. Somerhalder also recently served as interim president and chief executive officer of CenterPoint Energy, Inc., an electric and natural gas utility serving several U.S. markets (from February 2020 to July 2020) and served as a member of the CenterPoint Energy’s board of directors (from 2016 through 2020). He serves as a director of one other public company: KKR Infrastructure Conglomerate LLC, a company that operates as an investment vehicle. He also served as a director of Gulfport Energy Corp (from 2020 to 2021), as a director and board chairman of Enable Midstream Partners, LP (from February 2020 to July 2020), as a Director of SunCoke Energy Partners GP LLC (from 2017 to 2019), and as director at Crestwood Equity GP LLC, the general partner of Crestwood Equity Partners LP (from 2013 to 2020). KEY ATTRIBUTES, EXPERIENCE AND SKILLS: Mr. Somerhalder holds a Bachelor of Science degree in chemical engineering from the University of Arizona. He served as interim president and chief executive officer of Colonial Pipeline Company, a U.S. refined products pipeline company (from February 2017 to October 2017). Prior to that, he was president and chief executive officer of AGL Resources Inc., a former publicly traded energy services holding company (from 2006 to his retirement in 2015), and chairman of AGL Resources board of directors (from 2007 to 2015). Prior to joining AGL Resources, Mr. Somerhalder served in a number of roles with El Paso Corporation, a publicly traded natural gas and related energy products provider, where he spent almost 30 years, starting his career as an engineer and progressing through leadership roles before being named president of El Paso Pipeline Group and executive vice president of El Paso Corporation. He has extensive leadership and senior management experience, including the roles of chief executive officer and board chairman. His extensive energy industry, executive and board experience have equipped him with leadership skills and knowledge of the industry, and board processes and functions. Mr. Somerhalder’s extensive experience qualifies him to serve on your Board, lead efforts to rebuild trust with our external stakeholders, support our senior leadership team’s efforts to achieve its priorities, and strengthen your Company’s governance and compliance functions.
POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE: Portfolio manager of Icahn Capital LP., a diversified holding company engaged in a variety of businesses including investment, energy, automotive, food packaging, real estate, home fashion and pharma, since 2020. Prior to his position at Icahn Capital, Mr. Teno worked at Fir Tree Partners (from 2011 to 2020), a New York based private investment firm that invests worldwide in public and private companies, real estate and sovereign debt. Mr. Teno also serves as a director of the following two public companies: Crown Holdings, Inc., a supplier of packaging products, and equipment and related services, since December 2022 and Southwest Gas Holdings, Inc., a holding company with interest in natural gas distribution operations and utility infrastructure services, since 2022. He served as a director of Eco-Stim Energy Solutions, an oilfield services company (from 2017 to 2018), Cheniere Energy, Inc., an energy infrastructure company (from 2021 to June 2022) and Herc Holdings Inc., an equipment rental supplier (from 2021 to March 2023). KEY ATTRIBUTES, EXPERIENCE AND SKILLS: Mr. Teno received an undergraduate business degree from the Wharton School at the University of Pennsylvania. Prior to his current position at Icahn Capital, Mr. Teno worked at Fir Tree Partners, a New York based private investment firm. Prior to Fir Tree, he worked at Crestview Partners as an associate in their private equity business and at Gleacher Partners, a boutique mergers and acquisitions firm. Mr. Teno’s investment expertise and experience in a variety of industries, along with his business skills, make him a valuable member of your Board.
POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE: Retired in 2018 as senior vice president, general counsel and corporate secretary (positions held since 2012) of The Hershey Company, a global confectionery company. KEY ATTRIBUTES, EXPERIENCE AND SKILLS: Ms. Turner received her law degree from the Georgetown University Law Center after graduating from the New York University with a Bachelor of Science degree. She also received a Master of Laws in Law and Government from the American University, Washington College of Law. Ms. Turner has extensive and wide-ranging leadership, legal, governance and corporate strategy skills through her former roles with The Hershey Company and The Coca-Cola Company. Ms. Turner served as senior vice president, general counsel, and corporate secretary of The Hershey Company from 2012 until her retirement in March 2018. In this role, Ms. Turner was the leader of Hershey’s legal, government relations, corporate secretary, and corporate security functions. She also advised Hershey on M&A opportunities and other stakeholder considerations facing publicly traded companies. Prior to joining Hershey, Ms. Turner’s career included progressively more responsible leadership roles at Coca-Cola, Akin Gump Hauer & Feld, LLP and the senior executive service level of the federal government. Ms. Turner’s legal experience and additional regulatory experience qualify her to serve as a member of your Board.
Board Committees Your Board currently has five standing committees
Your Board appoints at least one member of the Audit Committee who, in your Board’s business judgment, is an “Audit Committee Financial Expert,” as such term is defined by the SEC. Your Board determined that Ms. Croom and Messrs.
Effective May 17, 2022, Ms. Hicks and Messrs. Kaleta and Klimczak were appointed to the Compensation Committee. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
No executive hedging or pledging is permitted
Corporate Governance, | ||||||||
Jana T. Croom Sean T. Klimczak Jesse A. Lynn Melvin D. Williams
| The Corporate Governance,
◾ the
◾ oversight of the Company’s policies and practices relating to corporate responsibility. The Committee is also directly responsible for oversight of our (i) political activities and practices and (ii) our Company’s corporate citizenship practices Effective May 17, 2022, Mr. Kaleta was appointed to and as Chair of the Corporate Governance, Corporate Responsibility and Political Oversight Committee, and Ms. Croom and Mr. Klimczak were appointed to the Corporate Governance, Corporate Responsibility and Political Oversight Committee. | |||||||
| 2023 PROXY STATEMENT | 32 |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
Ms. Johnson was appointed Chair of the Corporate Governance and Corporate Responsibility and Mr. Anderson transitioned off of the Corporate Governance and Corporate Responsibility Committee in May 2019.
8 | FirstEnergy Corp.2020 Proxy Statement
| Finance Committee |
| |
Steven J. Demetriou (Chair) John W. Somerhalder II Andrew Teno Leslie M. Turner | The Finance Committee is primarily responsible for monitoring and overseeing the Company’s financial resources and strategies, with emphasis on those issues that are long-term in nature. For a complete list of responsibilities and other information, refer to the Finance Committee Charter available on website atwww.firstenergycorp.com/charters.
Effective May 17, 2022, Mr. | |
Operations | 5 meetings in fiscal year | |
| 2022 | ||
Jesse A. Lynn John W. Somerhalder II Lisa Winston Hicks
| The Operations
Effective May 17, 2022, Mr. | |
| 33 | FIRSTENERGY CORP. |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
| Special Board Oversight Committees | ||
Leslie M. Turner (Chair) Jana T. Croom Andrew Teno | Compliance Oversight Sub-committee of the Audit Committee was dissolved effective December 13, 2022. It was primarily responsible for assessing your Company’s corporate ethics and compliance program and overseeing the implementation of recommended enhancements, as appropriate, and such responsibilities have transitioned back to the Audit Committee directly. This sub-Committee met 4 times in fiscal year 2022. Prior to its dissolution effective December 13, 2022, effective May 17, 2022, Ms. Croom was appointed to the | |
Paul Kaleta (Chair) Lisa Winston Hicks Jesse A. Lynn Melvin D. Williams | Special Litigation Committee is authorized to take all actions as it deems advisable, appropriate, and
| |
| 2023 PROXY STATEMENT | 34 |
9 |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
Items to Be Voted On
| Item 1 | Election of Directors | |
✓ Your Board recommends that you vote FOR all nominees in Item 1 |
You are being asked to vote for the following 11 nominees to serve on your Board for a term expiring at the annual meeting of shareholders in 2023 and until their successors shall have been elected: Jana T. Croom, Steven J. Demetriou, Lisa Winston Hicks, Paul Kaleta, Sean T. Klimczak, Jesse A. Lynn, James F. O’Neil III, John W. Somerhalder II, Andrew Teno, Leslie M. Turner and Melvin Williams.
The “Biographical Information and Qualifications of Nominees for Election as Directors” section of this Proxy Statement provides information for all nominees for election at the Annual Meeting. The “Board Qualifications” section above in this Proxy Statement provides information relating to your Board’s and Corporate Governance, Corporate Responsibility and Political Oversight Committee’s review of nominees. Your Board has no reason to believe that the persons nominated will not be available to serve after being elected. If any of these nominees would not be available to serve for any reason, shares represented by the appointed proxies will be voted either for a lesser number of directors or for another person selected by your Board. However, if the inability to serve is believed to be temporary in nature, the shares represented by the appointed proxies will be voted for that person who, if elected, will serve when able to do so.
Pursuant to the Company’s Second Amended and Restated Code of Regulations, at any election of directors, a nominee shall be elected to your Board only if the vote “For” the candidate exceed the votes “Against” the nominee; abstentions and broker non-votes will have no effect. Our Corporate Governance Policies also provide that in an uncontested election of directors (i.e., an election where the only nominees are those recommended by your Board), any nominee for director who receives a greater number of votes “Against” his or her election than votes “For” his or her election will promptly tender his or her resignation to the Corporate Governance, Corporate Responsibility and Political Oversight Committee following certification of the shareholder vote. The Corporate Governance, Corporate Responsibility and Political Oversight Committee will promptly consider the tendered resignation and will recommend to your Board whether to accept or reject the tendered resignation no later than 60 days following the date of the shareholders’ meeting at which the election occurred. In considering whether to recommend acceptance or rejection of the tendered resignation, the Corporate Governance, Corporate Responsibility and Political Oversight Committee will consider factors deemed relevant by the committee members, including the director’s length of service, the director’s particular qualifications and contributions to the Company, the reasons underlying the majority withheld vote, if known, and whether these reasons can be cured, and compliance with stock exchange listing standards and the Corporate Governance Policies. In considering the Corporate Governance, Corporate Responsibility and Political Oversight Committee’s recommendation, your Board will consider the factors considered by the Corporate Governance, Corporate Responsibility and Political Oversight Committee and any such additional information and factors your Board believes to be relevant. Your Board will act on the Corporate Governance, Corporate Responsibility and Political Oversight Committee’s recommendation no later than at its next regularly scheduled Board meeting.
| Your Board Recommends That You Vote “For” All Nominees in Item 1. ✓ |
| 35 | FIRSTENERGY CORP. |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
| Item 2 | Ratification of the Appointment of the Independent Registered Public Accounting Firm For 2023 | |
✓ Your Board recommends that you vote FOR Item 2 |
You are being asked to ratify the Audit Committee’s appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm to examine the books and accounts of the Company for the fiscal year ending December 31, 2023. While our Second Amended and Restated Code of Regulations does not require shareholders to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm, we are submitting the proposal for ratification as a matter of good corporate governance. However, if shareholders do not ratify the appointment, the Audit Committee will reconsider retaining PricewaterhouseCoopers LLP in future years. Even if the appointment is ratified, the Audit Committee, at its discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders. A representative of PricewaterhouseCoopers LLP is expected to attend the Annual Meeting and will be available to respond to appropriate questions and have an opportunity to make a statement if he or she wishes to do so. We refer you to the “Matters Relating to the Independent Registered Public Accounting Firm” section of this Proxy Statement for information regarding services performed by, and fees paid to, PricewaterhouseCoopers LLP during the years 2021 and 2022. Item 2 requires the affirmative vote of a majority of the votes cast and abstentions will have no effect. There can be no broker non-votes on Item 2 as it is considered a “routine” matter under applicable NYSE rules.
| Your Board Recommends That You Vote “For” Item 2. ✓ |
| 2023 PROXY STATEMENT | 36 |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
| Item 3 | Approve, on an Advisory Basis, Named Executive Officer Compensation | |
✓ Your Board recommends that you vote FOR Item 3 |
The following proposal provides shareholders the opportunity to cast an advisory, non-binding vote to approve the compensation of the NEOs (a “Say-on-Pay” vote) as further described in the CD&A and the related compensation tables and narrative disclosure. This resolution is required pursuant to Section 14A of the Securities Exchange Act of 1934. Currently, the advisory vote is held annually. The next advisory vote on NEO compensation is scheduled to occur at the Company’s 2024 Annual Meeting of Shareholders. Your Board strongly supports the Company’s executive pay practices and asks shareholders to support its executive compensation program by adopting the following resolution:
“RESOLVED, that the shareholders approve, on an advisory basis, the compensation of the FirstEnergy Corp.2020 Named Executive Officers, as such compensation is disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables, and the other related narrative executive compensation disclosure contained in the proxy statement.”
The primary objectives of the Company’s executive compensation program are to attract, motivate, retain, and reward the talented executives, including the NEOs, who we believe can provide the performance and leadership to achieve success in the highly complex energy industry. Our executive compensation program is centered on a pay-for-performance philosophy. While the Company has generally maintained the same structure and design for the executive compensation program since 2018, the Compensation Committee and your Board approved moving relative TSR from a modifier to a weighted metric in the LTIP beginning with the 2022-2024 cycle, to better align executive pay with shareholder interests.
In deciding how to vote on this proposal, we encourage you to read the CD&A for a more detailed discussion of our executive compensation programs and practices applicable to the NEOs, beginning on page 56.
Your Board strongly believes that our compensation philosophy, in conjunction with continued shareholder outreach, is in the best interests of shareholders. We will continue to annually review and evaluate all compensation plans and programs with the goal of aligning such plans and programs with market practice where appropriate and with the best interests of our shareholders. Item 3 is an advisory proposal that requires the affirmative vote of a majority of the votes cast; abstentions and broker non-votes will have no effect.
Although this advisory vote is non-binding, your Board and the Compensation Committee value the views of our shareholders and expect to consider the voting results when considering future executive compensation practices for the NEOs.
| Your Board Recommends That You Vote “For” Item 3. ✓ |
| 37 | FIRSTENERGY CORP. |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
| Item 4 | Approve, on an Advisory Basis, the Frequency of Future Advisory Votes to Approve Named Executive Officer Compensation | |
✓ Your Board recommends that you vote for a frequency of EVERY YEAR under Item 4 |
In accordance with Section 14A of the Exchange Act and related SEC rules, your Company is providing its shareholders an opportunity to cast an advisory vote on how frequently the Company should hold future Say-on-Pay votes. By voting on this proposal, shareholders may indicate whether they would prefer to have future Say-on-Pay Votes “EVERY YEAR”, “EVERY 2 YEARS” or “EVERY 3 YEARS.” You may also “ABSTAIN” from voting. This is a non-binding, advisory vote that is required to be submitted to shareholders at least once every six years. The next advisory vote on how frequently the Company should hold future Say-on-Pay votes is scheduled to occur at the Company’s 2029 annual meeting of shareholders.
After careful consideration, the Board and the Compensation Committee believe that conducting a Say-on-Pay vote every year is currently appropriate for your Company so that our shareholders may annually express their views on the Company’s executive compensation program. An annual Say-on-Pay vote is consistent with our policy of regularly seeking input from, and engaging in discussions with, our shareholders on corporate governance matters and our executive compensation program.
While the Board and the Compensation Committee believe that their recommendation of annual Say-on-Pay votes is appropriate at this time, shareholders are not voting to approve or disapprove the adoption of annual Say-on-Pay votes, but are instead being asked to recommend their view as to how frequently the Company should conduct future Say-on-Pay votes.
Although this advisory vote is non-binding, your Board and the Compensation Committee value the views of our shareholders and will consider the alternative receiving the greatest number of votes when establishing the frequency with which Say-on-Pay votes will be held in the future.
| Your Board Recommends That You Vote For a Frequency of “Every Year” under Item 4. ✓ |
| 2023 PROXY STATEMENT | 38 |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
Item 5 | Approve an Amendment to the Second Amended and Restated Code of Regulations to Reduce the Percentage of Shares Required to Call a Special Meeting of Shareholders | |
✓ Your Board recommends that you vote FOR Item 5 |
Your Board believes that shareholders should have the ability to call special meetings. Currently, the Company’s Second Amended and Restated Code of Regulations permit special shareholder meetings to be called by the Chair of the Board, the President, a majority of the Board of Directors or holders of at least 25% of all shares outstanding. Your Board is continually assessing the appropriate threshold at which shareholders should be able to exercise this right. For example, in 2011, shareholders approved management’s proposal to reduce the requisite threshold needed to call a special shareholder meeting from at least 50% of the shares outstanding to 25% of the shares outstanding. Your Company also regularly engages with shareholders on a wide range of governance topics, including the right of shareholders to call special meetings. Prior to the 2023 annual meeting of shareholders, FirstEnergy’s 25% threshold to call a special shareholder meeting was not identified by our stakeholders as a significant concern.
In consideration of a shareholder proposal presented at the 2022 Annual Meeting, your Board disclosed in the 2022 Proxy Statement
| ◾ | Your Board believes that a 20% ownership threshold for the right to call a special meeting strikes a reasonable and appropriate balance between empowering shareholders with an important right and protecting against the risk that a small minority of shareholders with potentially narrow, short-term interests would call a special meeting. |
| ◾ | Shareholder meetings are significant events that require a substantial monetary commitment on the part of your Company and attention of your Board, officers and employees, thus diverting attention away from their focus on meeting our business objectives and enhancing shareholder value. |
| ◾ | Allowing a small minority of shareholders to call a special meeting for any reason would permit such minority to pursue self-interested goals, which could be detrimental to the interest of a majority of our shareholders and other stakeholders. |
| ◾ | Ownership threshold required to call a special meeting of shareholders should be evaluated in light of the practices of other comparable public companies and the Company’s overall approach to corporate governance. |
| ◾ | Your Board also considered the composition of the Company’s shareholder base, which currently includes several shareholders that individually hold greater than 5% of our common stock. |
The proposed amendment to FirstEnergy’s Second Amended and Restated Code of Regulations is set forth in Appendix A to this Proxy Statement. Your Board cannot unilaterally adopt the proposed amendment because a shareholder vote is necessary under our governing documents and Ohio Law. Accordingly, if this proposal is approved by the requisite vote of our shareholders, the Second Amended and Restated Code of Regulations will be revised as set forth in Appendix A.
Effectiveness and Vote Required
Approval of this proposal requires the affirmative vote of shareholders holding at least a majority of the outstanding shares of common stock of the Company as of the record date. Abstentions and broker non-votes will be counted and have the same effect as a vote “against” this item.
Subject to shareholder approval at the Annual Meeting, your Board has authorized an amendment of the Company’s Second Amended and Restated Code of Regulations, as set forth in Appendix A, and authorized the preparation and filing of any document necessary or advisable to implement such amendments. The amendment, if approved, is expected to become effective promptly after the Annual Meeting.
The above discussion is qualified in its entirety by reference to the full text of the proposed amendment in Appendix A.
| Your Board Recommends That You Vote “For” Item 5. ✓ |
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| Item 6 | Shareholder Ratification of Termination Pay | |
| X Your Board recommends that you vote AGAINST Item 6. |
John Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, California 90278, plans to introduce the following proposal at the Annual Meeting. We have been notified that Mr. Chevedden is the beneficial owner of no less than 90 shares of your Company’s common stock.
NOTE: The graphic below was submitted as part of the shareholder’s proposal.
Proposal 6 — Shareholder Ratification of Excessive Termination Pay
Shareholders request that the Board seek shareholder approval of any senior manager’s new or renewed pay package that provides for severance or termination payments with an estimated value exceeding 2.99 times the sum of the executive’s base salary plus target short-term bonus.
“Severance or termination payments” include cash, equity or other pay that is paid out or vests due to a senior executive’s termination for any reason. Payments include those provided under employment agreements, severance plans, and change-in-control clauses in long-term equity plans, but not life insurance, pension benefits, or deferred pay earned and vested prior to termination.
“Estimated total value” includes: lump-sum payments; payments offsetting tax liabilities, perquisites or benefits not vested under a plan generally available to management employees, post-employment consulting fees or office expense and equity awards if vesting is accelerated, or a performance condition waived, due to termination.
The Board shall retain the option to seek shareholder approval after material terms are agreed upon.
Generous performance-based pay can sometimes be justified but shareholder ratification of “golden parachute” severance packages with a total cost exceeding 2.99 times base salary plus target short-term bonus better aligns management pay with shareholder interests.
Shareholder Ratification of Excessive Termination Pay, the topic of this proposal, received between 51% and 65% support at:
AbbVie (ABBV)
FedEx (FDX)
Spirit AeroSystems (SPR)
Alaska Air (ALK)
Fiserv (FISV)
Please vote yes:
Shareholder Ratification of Excessive Termination Pay – Proposal 6
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Your Company’s Response — Item 6
Your Board has carefully considered the foregoing shareholder proposal and unanimously recommends a vote AGAINST it for the following reasons:
The Company has agreed that it will not enter into any new severance agreements providing cash severance benefits in excess of 2.99 times the sum of an executive officer’s base salary and target short-term bonus.
On February 9, 2023, upon the recommendation of the Compensation Committee of the Board, the Board approved a new policy effective immediately that cash severance payable under the Company’s Executive Severance Benefits Plan or pursuant to any individual contract with an executive officer will not exceed 2.99 times the sum of the executive officer’s base salary plus target annual incentive opportunity under the Short-Term Incentive Program, unless the Company seeks shareholder approval.
The Company’s current cash severance benefits are only payable in limited circumstances and are less than the proposed 2.99x ceiling.
Notwithstanding the aforementioned policy, the proposal is inappropriate because the Company’s current cash severance benefits are only payable in the event of an involuntary separation without cause or following a qualifying termination within two years of a change in control and would result in payments of less than the proposed ceiling of 2.99 times the sum of base salary plus target short-term bonus.
As an initial matter, none of the Company’s named executive officers have employment agreements that provide severance benefits. Rather, cash severance benefits for the named executive officers are governed by the Company’s Amended and Restated Executive Severance Benefits Plan and/or the Change in Control Severance Plan.
In the event of an involuntary separation without cause, the CEO’s severance benefits are not guaranteed and are to be determined by the Compensation Committee, in its discretion, and approved by the independent members of the Board. All named executive officers, other than the CEO, are entitled to receive cash severance in an amount that is based upon the executive’s total years of service, but is not to exceed the maximum benefit of 104 weeks, or two years, of base salary. In the event of a qualifying termination following a change in control, in addition to certain equity components, all named executive officers are entitled to receive a cash severance payment equal to two times their base salary plus annual short-term incentive plan target amount, as well as a prorated short-term incentive plan award at target. In both scenarios, the cash severance payments are less than the proposed ceiling of 2.99 times the sum of base salary plus target short-term bonus. Please see “Compensation Tables – Potential Post-Employment Payments,” for a more detailed discussion of our named executive officers’ post-termination payments.
The proposal disincentivizes the use of performance-based equity awards, which creates misalignment between management and shareholder interests.
Your Board believes that our pay mix, which includes long-term performance-based equity awards, supports the Company’s strategy by rewarding attainment of the Company’s near-term goals, encouraging stock ownership by management and creating economic alignment between management and our shareholders. Specifically, we believe that aligning executive pay and Company performance directly supports shareholder value. However, performance-based equity payouts are not calculated until the end of the relevant performance period and under some circumstances may, in fact, be zero as they are not guaranteed. Requiring the Company to calculate the value of severance pay using the full value of an equity award requires us to treat a performance-based equity award the same as an award of common stock. This disincentivizes the use of performance-based equity awards and would require shareholder approval, irrespective of the actual payout following the applicable performance period. As a result, your Board believes that the proposal has the potential to break the link between pay and performance and create misalignment between management and shareholder interests in contravention of our compensation philosophy.
This proposal puts the Company at a competitive disadvantage by limiting the Compensation Committee’s flexibility to offer competitive, market-based compensation to highly qualified executives.
The Compensation Committee – which was reconstituted in 2022 to be composed entirely of recently tenured, independent directors – is responsible for offering competitive total compensation for our executives in order to attract, retain, focus and reward a talented and diverse executive team. Your Board believes that the proposal would limit its ability to recruit and retain such talent.
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In a competitive labor market, it is imperative that the Compensation Committee has the flexibility to offer key executives competitive compensation packages, including competitive severance benefits upon a qualifying termination. If we did not offer these benefits, our Company would be less attractive to prospective candidates and current employees, alike.
Your Compensation Committee regularly consults with its independent compensation consultant regarding executive compensation market trends and believes our current severance benefits to be consistent with market practice. With so few companies bound by policies similar to the proposal, the uncertainty of compensation offered subject thereto serves as a further deterrent to prospective candidates. A highly qualified candidate may forego employment with the Company in favor of employment elsewhere if we cannot confirm their pay until a shareholder meeting has been held. Time is often of the essence when courting highly qualified executives and a delay of months, or even weeks, so that a special shareholder meeting can be convened can be detrimental to the hiring process. Even accounting for the allowance that such compensation arrangements can be ratified after the fact, the risk of a proposal not receiving shareholder support may dissuade a candidate from accepting an offer from the Company.
Company shareholders have frequent opportunities to opine on our executive compensation program throughout the calendar year. Your Board believes this proposal is unnecessary because we regularly engage our shareholders on the topic of executive compensation and have consistently received positive feedback regarding our compensation practices.
Our shareholders have the opportunity to annually approve on an advisory basis our executive compensation via the Say-on-Pay vote that is put forth at each annual shareholder meeting. In fact, since 2019, at least 95% of Company shareholders have voted in favor of the Company’s Say-on-Pay proposals.
We also have a robust shareholder outreach program through which we solicit input on a variety of topics, including executive compensation, throughout the calendar year. Our shareholder outreach program is described more fully above under “Shareholder Outreach and Engagement Program” while a more fulsome description of the engagement we specifically conduct vis-à-vis executive compensation can be found under “Compensation Discussion & Analysis – Shareholder Engagement and Say-on-Pay Results.” Ahead of filing the 2023 Proxy Statement, we reached out to our top shareholders representing approximately 46% of shares outstanding. In recent history, none of our shareholders raised the topic of our severance practices as an area of concern.
Summary
For the reasons described above, your Board unanimously recommends a vote AGAINST this proposal. A solution without a problem, the proposal seeks to address an issue not previously raised by shareholders throughout the course of our extensive outreach and which is addressed by the Company’s new policy to limit cash severance benefits. Notwithstanding this policy, your Board also believes that the Company’s current severance benefits are reasonable and that it is the Compensation Committee – which is composed entirely of recently tenured, independent directors and which has retained its own independent compensation consultant – that is best positioned to determine whether, and in what amounts, severance benefits should be offered to our named executive officers.
| X Your Board Recommends That You Vote “Against” Item 6. |
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| Item 7 | Establish a New Board Committee on Decarbonization Risk | |
| X Your Board recommends that you vote AGAINST Item 7. |
The National Center for Public Policy Research, 2005 Massachusetts Ave. NW, Washington, DC 20036, plans to introduce the following proposal at the Annual Meeting. We have been notified that The National Center for Public Policy Research is the beneficial owner of more than $2,000 in shares of your Company’s common stock.
Committee on Decarbonization Risk
Resolved: Shareholders of the FirstEnergy Corporation (the “Company”) request that the Board of Directors charter a new Committee on Decarbonization Risk to evaluate the risks and drawbacks of attempting to meet demands for Company decarbonization. The committee should engage in formal review and oversight of corporate strategy, above and beyond matters of legal compliance, to assess the Company’s responses to demands for such decarbonization on activist established deadlines. This review should include the potential impacts on the Company from flaws in activists’ climate models, concerns about technological or economic infeasibility of “green” and “renewable” energy sources, the possibility that “net-zero” decarbonization isn’t possible, that the US will not force decarbonization according to such schedules – thus obviating “stranded asset” calculations – that other countries will not adopt similar targets – thus making Company efforts meaningless – and other relevant considerations.
Supporting Statement:
FirstEnergy has touted its commitment to becoming “carbon neutral” by 2050. 1It’s not conclusive, however, that that’s even possible. And, from publicly available information, it doesn’t appear that the Company has fully considered this or the risks involved with attempting decarbonization on such a schedule.
Claims about the need for decarbonization, especially by some activist-generated date, are based on assumptions that are either counterfactual or insufficiently examined. For decades, claims have been made that carbon emissions must be reduced before some arbitrary date by which it will be too late for human civilization to sustain its existence.2Decade after decade, those deadlines came and went and none of those apocalyptic claims held up. Nonetheless, climate activists continue to demand decarbonization by a certain deadline, assured that this time a catastrophe will ensue if their demands aren’t met in time
While such demands are silly and should be ignored outright, attempting to meet them can have serious ramifications. Propagating climate-catastrophist lies – and acting on them by reducing fossil fuel energy – has real economic, social and political consequences.
Attempting to meet carbon neutral goals raises the price of fossil fuels while subsidizing other unreliable sources of energy. This has a ripple effect on the entire economy – when the price of energy is high, the price of everything else is too.
Additionally, decarbonization is meaningless if other countries don’t follow suit, and there’s abundant evidence they won’t.3The only thing it will do is make the US reliant on other nations, which can have negative geopolitical effects. For example, the US and other Western nations have had to rely on oppressive regimes like Russia for fossil fuels exactly when it was most politically inconvenient to.
The US government has never mandated net-zero by statute or authorized regulatory action4and is unlikely to do so, which contravenes the assumptions of “stranded asset” analysis. If decarbonization is neither required nor technologically feasible, the Company will pointlessly contribute to economic and political turmoil while harming its shareholders in the process.
Such outcomes must be considered before an energy company demonizes its flagship product.
| 1 | https://firstenergycorp.com/environmental.html |
| 2 | https://nypost.com/2021/11/12/50-years-of-predictions-that-the-climate-apocalypse-is-nigh/ |
| 3 | https://www.theepochtimes.com/across-the-world-coal-power-is-back_4671888.html; |
| https://www.realclearenergy.org/articles/2022/06/03/india_and_china_coal_production_surging_by_700m_tons_per_year_thats_greater_than_all_us_coal | _output_835483.html |
| https://www.realclearenergy.org/articles/2022/06/03/india_and_china_coal_production_surging_by_700m_tons_per_year_thats_greater_than_all_us_coal | _output_835483.html |
| https://www.breitbart.com/environment/2022/04/21/worlds- worst-polluter-china-increases-coal-production-by-three-hundred-million-tons/; | https://mishtalk.com/economics/ |
| 4 | https://www.npr.org/2022/06/30/1103595898/supreme-court-epa-climate-change |
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Your Company’s Response — Item 7
Your Board has carefully considered the foregoing shareholder proposal and unanimously recommends a vote AGAINST it for the following reasons:
The proposal attempts to micromanage the Board by proscribing the manner in which your Board should review and set Company strategy, as well as the outcome of such analysis.
Your Board administers its risk oversight function through the full Board, as well as through the various Board committees, and views risk management as an integral part of the Company’s strategic planning process. As discussed more broadly above under the section “Corporate Governance and Board of Directors Information – Board Oversight – Risk Management,” your Board considers risks applicable to the Company at each meeting in connection with its consideration of significant business and financial developments of the Company. The Company has also developed a robust enterprise risk management program to ensure that the Company is identifying, prioritizing, reporting, monitoring, managing, and mitigating its significant risks. The proposal is inappropriate because, though couched as non-binding, it seeks to proscribe a specific method, inputs, and outcome of the Board��s decarbonization analysis in a manner that would severely constrain the Board’s ability to exercise its judgement and discretion in determining the appropriate course of action.
The proposal is duplicative as your Board has already delegated responsibility for certain EESG matters, such as evaluating the risks and drawbacks of meeting a decarbonization target, to its committees.
This proposal is inappropriate because it seeks the creation of a duplicative committee of the Board. Your Board provides oversight and guidance on EESG topics, including climate, significant to the company while ensuring our business strategy, goals and decision-making reflect and align with our corporate responsibility priorities. In addition, your Board has delegated responsibility for specific aspects of EESG to its various standing committees. The Corporate Governance, Corporate Responsibility and Political Oversight Committee is charged with providing general oversight of the Company’s EESG program, targets and initiatives, including climate. Additionally, the Operations and Safety Oversight Committee is tasked with reviewing and monitoring the implementation of the Company’s climate strategy. The issue of whether and how the Company should pursue decarbonization is well-addressed by your Board’s current organizational structure and a committee established solely for the purpose of analyzing decarbonization risk would be duplicative.
Moreover, it is noted that your Company has five standing board committees – Audit, Compensation, Corporate Governance, Corporate Responsibility and Political Oversight, Finance, Operations and Safety Oversight – in addition to the Special Litigation Committee that was formed in 2021. On average, your Company’s directors each serve on 2.4 committees. The creation of a seventh board committee to perform work, as noted above, already delegated to other standing committees would be burdensome to your directors, a waste of time and resources, and would unnecessarily constrain your directors’ ability to otherwise perform their duties as a member of your Board.
Decarbonization is supported by many of the Company’s stakeholders and our related targets were carefully considered by your Board after consultation with a variety of subject matter experts.
Your Board believes that climate change is among the most important issues of our time, and the Company is committed to doing its part to ensure a bright and sustainable future for the communities we serve. The proposal attempts to cast decarbonization efforts as a passing trend, but the Company’s current decarbonization efforts date back to 2015 when it pledged to reduce by 90% of its carbon dioxide (CO2) emissions from 2005 levels by 2045. Through retiring or transferring generation assets, the Company reduced generation-based CO2 emissions by 80% by 2020 – achieving significant progress well ahead of the original 2045 target. As a result, the Company set new, ambitious goals to reduce companywide GHG emissions within its direct control by 30% (from 2019 levels) by 2030 and achieve carbon neutrality by 2050.
In conjunction with the announcement of its 2019 decarbonization goals, the Company also published a Climate Position Statement and a Climate Strategy which described the Company’s plans to mitigate the risks posed by climate change, reduce its greenhouse gas emissions, and enable our customers and communities to thrive in a carbon-neutral economy. The Company’s Climate Strategy is the product of countless hours of proactive engagement, thoughtful deliberation, comprehensive research and robust discussion by and amongst management, external stakeholders and your Board. For additional information about FirstEnergy’s
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Climate Story please see our Corporate Responsibility website http://www.fecorporateresponsibility.com/climatestory. Information on our Corporate Responsibility website does not constitute part of (and shall not be deemed incorporated by reference into) this Proxy Statement or any other document we file with the SEC.
Summary
Your Board unanimously recommends a vote AGAINST this proposal for a number of reasons, but chiefly because it purports to micromanage your Board by proscribing the method, inputs, and outcome of the Board’s decarbonization assessment. The proposal is additionally duplicative of work already performed by your Board and its committees which has already thoughtfully considered when, how and to what extent the Company should pursue decarbonization goals. Finally, your Company believes that climate change is among the most important issues of our time, and is committed to doing its part to ensure a bright and sustainable future for the communities we serve. That the proponent disagrees with your Board’s conclusion is a policy matter - not prima facie evidence that all risks were not adequately considered.
| X Your Board Recommends That You Vote “Against” Item 7. |
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Our Commitment to EESG
We believe our success requires strong management and oversight of EESG matters, as well as transparency and accountability regarding where we need to improve and how we are going to succeed. We also believe staying true to our mission and core values means executing our corporate responsibility to pursue objectives and initiatives that positively impact our stakeholders.
The EESG priorities that are discussed in the introduction of this Proxy Statement comprise our corporate responsibility approach and also support the pillars of our company strategy. We strive to provide transparency, identify risks and opportunities, improve our performance and drive accountability in those core EESG areas, among others.
Our commitment to employees is an essential part of our EESG focus. Our people are the force that move our company forward – advancing our business strategy and driving EESG performance, so we can turn our vision and goals into a reality. As such, FirstEnergy has added “Employee” as the fourth pillar of its corporate responsibility framework. Moving employees to the forefront pays tribute to their role in executing FirstEnergy’s strategy and underscores the company’s commitment to building an inclusive, equitable, rewarding and safe work culture for everyone.
Human Capital Management
FirstEnergy strives to be the employer of choice in our operating areas, known for our diverse team, our culture of equity and inclusion and our dedication to helping our approximately 12,400 employees reach their full potential. We want our culture to empower employees to support our mission, build satisfying and engaging careers at FirstEnergy and drive our success.
Our core values – Integrity, Safety, DEI, Performance Excellence, and Stewardship are the foundation for how FirstEnergy operates, behaves and interacts every day. Our core values encompass what matters most at FirstEnergy. They identify the beliefs or ideals expected by everyone in the organization and guide the decisions made and actions taken. Built upon our core values, our talent management and total rewards processes are designed to attract, retain, focus, reward and develop a diverse and skilled workforce of high-performing employees and teams.
FirstEnergy’s financial and operational performance is the result of our employees’ efforts and behaviors. We aim to foster an environment where integrity and ethical behaviors are expected from all levels within the organization. By focusing not only on what we achieve, but how we achieve it, we build upon and support the Company’s mission to be a forward-thinking electric utility that is powered by a diverse team of employees committed to ethics and integrity and doing the right thing every time. Behaviors such as courage, accountability, customer focus, collaboration and trust are encouraged, and employees are accountable for making the right decisions and speaking up when something does not seem consistent with our core values or violates the FirstEnergy Code of Conduct.
Driving a Culture of Compliance and Integrity
Your Board has previously enhanced its oversight, including the formation of a Compliance Oversight Sub-committee of the Audit Committee – comprised entirely of independent directors – tasked with overseeing the assessment of the Company’s corporate compliance program and governance practices. The Audit Committee recently dissolved this sub-committee based on the progress on efforts to mature the ethics and compliance program and culture. The Audit Committee will continue to oversee the implementation of and enhancements to the Company’s corporate compliance program, structure and governance practices, with the goal of building a best-in-class culture of compliance. Key initial actions are designed to enhance our compliance program and include:
People: centralizing the compliance function with dedicated personnel
| ◾ | Hiring Antonio Fernández as Chief Ethics and Compliance Officer, reporting administratively to the Chief Legal Officer, and reporting to the Audit Committee |
| ◾ | Implementing a dedicated corporate ethics and compliance office, with a diverse and multidisciplinary 21-person team |
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| ◾ | Establishing an ethics and compliance steering committee, Integrity Liaison Program and Integrity Council |
Processes: enhance compliance standards, policies, and procedures, focusing on
| ◾ | Concern Management |
| ◾ | Political and charitable donations |
| ◾ | Interactions with government officials |
| ◾ | Third-party management |
| ◾ | Financial controls and approval authorities |
Reporting: enhance feedback opportunities from employees to the Board and back
| ◾ | Multiple channels of reporting and transparency in process |
| ◾ | Communicate compliance updates through regular cadence of newsletters, updates on the Company Intranet, townhalls, etc. |
| ◾ | Concern Management training for leaders and employees |
Benchmarking: metrics to measure program
| ◾ | Data analytics and trend or issue spotting |
| ◾ | Continuous improvement and sustainability through regular assessments |
| ◾ | Department of Justice hallmarks for an effective compliance program |
Safety
Safety is a core value of FirstEnergy. FirstEnergy employees have the power and responsibility to keep each other safe and eliminate life-changing events, which are injuries that have life-changing impacts or fatal results. Safety metrics, such as injuries that result in days away or restricted time and life-changing events, are regularly monitored, internally reported, and are included in our annual incentive compensation program to reinforce that a safe work environment is crucial to FirstEnergy’s success. FirstEnergy has shifted its focus from achieving low OSHA rates to proactively identifying and mitigating life-changing event exposure. This shift in focus strengthens FirstEnergy’s safety-first culture by aligning our leadership around the same goal and driving safer decisions from an engaged workforce who puts safety first. FirstEnergy continues to embed its “Leading with Safety” learnings and experiences and continues to enhance and reinforce leader and employee safety training and exposure control concepts to improve job site exposure identification, communication and mitigation to prevent life changing events. Further, FirstEnergy continues to expand its “Leading with Safety” experiences with its employees to achieve excellence in personal, contractor and public safety.
Workplace Flexibility
FirstEnergy is committed to supporting employees’ work/life balance by providing flexible work arrangements for many of its employees, and encouraging career growth as well as personal balance. In Fall 2022, FirstEnergy formally adopted guidelines to facilitate flexible work arrangements for eligible full-time and part-time non-bargaining employees. Flexible work arrangements, like permitting certain employees to work from alternate locations or to begin and end work at variable times, offer a variety of approaches to the way employees work. These approaches can help employees achieve their priorities and meet customer and business needs while promoting enhanced convenience and balance between work and personal commitments.
Diversity, Equity and Inclusion
DEI is a core value that positions us to deliver better service to customers, strengthen our operational performance and create an inclusive work environment where employees feel valued and respected. Our DEI strategy aligns around three pillars:
| ◾ | Building a diverse workforce for the future that reflects the communities we serve |
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| ◾ | Advancing our culture of inclusion and belonging |
| ◾ | Partnering so our communities can grow and thrive |
FirstEnergy is committed to advancing DEI in our workplace. Here are some of the highlights:
Currently, we have a 14-member DEI Council focused on enhancing workforce diversity, creating an inclusive work environment, and providing oversight and guidance for FirstEnergy’s integrated DEI strategy. The DEI Council is comprised of various levels of leaders in the organization; five of which are our most senior leaders including our Interim CEO; SVP & Chief Legal Officer (DEI Chairperson); SVP, Chief Human Resources Officer & Corporate Services; SVP, Operations; and SVP, Customer Experience. We also recently developed FirstEnergy Utilities Operations DEI Council focused on DEI related strategy and initiatives specific to operations employees including a large represented physical work group.
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With a commitment from top leadership over the last several years, we moved our DEI efforts forward by building within our culture:
1 | A cross-functional DEI Working Group to develop enterprise-wide action plans and oversee DEI activities across the organization | 2 | DEI Implementation Teams, consisting of over 250 employees, in each business unit to effectively implement actions tailored to each group’s unique needs | |||||||
3 | Employee Business Resource Groups (“EBRGs”) consisting of approximately 2,700 members to help celebrate our differences and support our recruiting, retention, community and employee development efforts | 4 | An annual employee engagement survey measuring the connection employees have toward the work, team and organization and examining the factors that influence it | |||||||
5 | Ongoing training, education and dialogue forums on a variety of DEI topics for employees and leaders | 6 | Continuing to enhance transparency of DEI data, talent processes and measurement of progress in an annual publication to all employees | |||||||
7 | A recruiting strategy that leverages an FE Ambassador Network of over 450 employees to help build a diverse talent pipeline and attract top talent | |||||||||
Through our core values of DEI and stewardship, we believe we can positively impact our customers, communities and other stakeholders, and strive to protect the environment. Stewardship is about putting the needs of our customers, communities and each other first and a commitment to minimizing the environmental impact of our operations. By doing this, we seek and listen to feedback and focus on understanding the needs of our internal and external customers. We also actively support development initiatives that enrich and strive to create equity in our communities.
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Workforce Pay Equity and Compensation
FirstEnergy’s total rewards program is designed to attract, motivate, retain and reward employees for their role in the success of FirstEnergy. The base pay program is designed to provide individual base pay levels that balance an employee’s value to FirstEnergy with comparable jobs at peer companies. FirstEnergy is committed to ensuring that our internal policies and processes support pay equity, which was confirmed in a third-party review of our practices in 2019 and continues to be part of our normal ongoing process. Our internal processes ensure pay equity considerations are part of our normal ongoing process. The annual incentive compensation program is designed to reward the achievement of near-term corporate and business unit objectives. Additionally, FirstEnergy’s long-term incentive compensation program is designed to reward eligible executives for FirstEnergy’s achievement of longer-term goals intended to drive shareholder value and growth. In addition to base pay and incentive compensation plans, FirstEnergy offers a comprehensive benefits program, including a 401(k) savings plan and a defined benefit pension plan.
Employee Growth and Development
We believe understanding our rapidly changing industry and our Company strategy is key to our employees’ abilities to support our mission and meet our customers’ evolving needs. We are committed to preparing our high-performing workforce for the future and helping employees reach their full potential. We provide employees with opportunities to develop their skills and competencies and prepare our emerging leaders for expanded responsibilities. Our career management process requires that employees put an
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intentional focus on their development and identify development plans that support their ability to learn and grow in their current roles and to help prepare for future opportunities. We provide tools, programs and resources to support employees in owning their careers and development. As an example, in 2022, we launched a Talent Management Transparency education series to help employees understand our hiring, performance management and succession planning processes in support of their development.
Toward that end, we are actively engaged in the following initiatives:
Talent Management | We have robust processes to support recruiting, career management, succession planning, and employee and leadership development. We focus on transparency, consistency and inclusivity in all of our talent processes. We enhanced our diversity recruiting practices and use labor market availability data to guide our sourcing and recruitment efforts, requiring expanded racial/ethnic diversity on the candidate slates for a broader range of positions. Through our FirstEnergy Ambassador Network, we have increased investment in outreach and support to programs, schools and organizations that provide a pipeline of diverse talent and position FirstEnergy as an employer of choice including $200,000 earmarked to support organizations that focus on racially/ethnically diverse talent. ◾ We have trained over 400 hiring champions and experts across FirstEnergy to participate in diverse interviewing panels and follow a rigorous, behavior-based interview process tied to critical competencies and behaviors that ensures unbiased selection of the best candidate. ◾ This transparency fosters a more robust exchange of information and feedback between employees and leaders and promotes a clearer understanding of career management and development opportunities. Meaningful conversations between leaders and their employees empower employees to take ownership of their careers, build trust, and lead to a more inclusive workplace. ◾ We demonstrated continued agility by successfully facilitating our leadership training programs, talent reviews, recruiting, co-op/intern program and onboarding processes in virtual formats supporting our continued commitment to a more flexible and inclusive work environment. | |||
Mentoring Program | We expanded our mentoring program, which is available to all non-physical workers, by encouraging all high performing, high potential racially/ethnically diverse talent to participate in support of their ongoing development. ◾ This program provides the ability for employees to select a mentor from across the organization. It enhances learning, teamwork and collaboration throughout FirstEnergy, cultivates an environment for professional growth and encourages leaders to guide and prepare colleagues. ◾ Our mentoring program supports the development and retention of employees, increases job satisfaction for mentees and mentors, and facilitates skill and knowledge-sharing across the Company. Since its inception, over 500 people have participated in the formal program, and it continues to grow. | |||
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Employee & Leadership Development | We offer multiple leadership and employee development experiences aligned to our core values to build a highly qualified, engaged and diverse leadership pipeline. ◾ Our New Supervisor and Manager Program (“NSM”), designed to provide consistent training and development to new FirstEnergy leaders, graduated 85 participants in 2022. The NSM program has now graduated over 2,400 leaders since its inception in 2008. ◾ The Experienced Leader Program (“ELP”) bridges the development between new supervisors and managers and senior executives by providing development for experienced manager and director-level employees. Through this program, we equip our leadership with the tools to coach and support their teams and ultimately drive FirstEnergy’s long-term success. Since launching ELP in 2020, we have completed three cohort-based programs with more than 75 participants. ◾ In 2022, we launched the inaugural offering of the Aspiring Leader Program tailored for top talent, individual contributors who are ready near-term for a leadership role. This virtual program provides interactive, cohort-based learning sessions on fundamental leadership development topics to prepare participants for a future leadership role. ◾ The Educate to Elevate program provides a pathway to secondary education for employees seeking a 2-or 4-year college degree and is now operational across the FirstEnergy footprint. For the Fall 2022 semester, 46 employees are enrolled to pursue an associate and/or bachelor’s degree. ◾ External partnership with the Center for Creative Leadership® and BeingFirst® for senior and executive leadership development. | |||
Workforce Development | We are piloting different apprenticeship models for lineworker and substation electrician positions that will strengthen FirstEnergy’s competitive edge in obtaining high-quality employees. ◾ We continue to identify opportunities to establish community partnerships, which help us recruit a more diverse candidate pool in support of FirstEnergy’s value of Diversity, Equity, and Inclusion. As these partnerships mature both the organizations and FirstEnergy will be able to meet mutually beneficial objectives that serve the greater community. | |||
Climate Strategy and Oversight
At a high level, our Climate Strategy consists of two major efforts: reducing GHG emissions and enabling the energy transition to a low-carbon future.
Importantly, our Climate Strategy is a key component of our company strategy. That alignment means efforts to implement and execute our Climate Strategy also support and advance our company strategy. Additionally, it means FirstEnergy is well-positioned to strategically consider climate-related risks and capitalize on opportunities that emerge in the energy transition.
Reducing GHG Emissions to Achieve Carbon Neutrality by 2050 | Enabling the Energy Transition to a Low-Carbon Future | |
| Transitioning away from our two regulated coal plants by 2050 | Protecting and enhancing the transmission system to support grid reliability and enable increased renewables and other clean energy trends | |
| Reducing SF6 emissions from transmission equipment | Building the technologically advanced distribution grid of the future by implementing grid management solutions, smart meters, automation, EV charging infrastructure and other emerging technologies | |
| Electrifying our vehicle fleet | Being innovative and forward-thinking with our coal generation fleet as we explore opportunities to incorporate renewable resources and implement emerging technologies | |
| 2023 PROXY STATEMENT | 52 |
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Climate Strategy Oversight
FirstEnergy’s Board of Directors provides oversight and guidance on EESG topics, including climate change. The Board has five standing committees that, through their respective oversight responsibilities, assist in guiding FirstEnergy’s Climate Strategy and related efforts. The Corporate Governance, Corporate Responsibility and Political Oversight Committee has general responsibility for oversight of EESG matters and receives climate-related updates at its meetings. In coordination with the Corporate Governance, Corporate Responsibility and Political Oversight Committee, the Operations and Safety Oversight Committee reviews and monitors environmental-related strategies, initiatives and policies, including in the area of climate change. The Finance, Audit and Compensation Committees also provide specific oversight of EESG matters that fall within the scope of responsibilities set forth in each of their charters. Please see the company’s Climate Report for additional climate-related board oversight information: https://fecorporateresponsibility.com/content/dam/investor/files/climate-report.pdf.
At the management level, responsibilities for climate matters are spread across the company’s five organizational pillars – Finance & Strategy, Customer, Operations, Legal, and Human Resources & Corporate Services. Cross-functional management-level committees – including the Corporate Responsibility Steering Committee and its Climate Subcommittee – are designed to bring relevant leaders together to help ensure FirstEnergy is advancing climate action in alignment with our corporate strategy, identifying and managing climate risks, capitalizing on energy transition opportunities, and providing transparency through disclosure efforts. Visit our Climate Report for more information on these management-level committees: https://fecorporateresponsibility.com/content/dam/investor/files/climate-report.pdf .
Climate Risk Oversight
The full Board provides oversight of risk management practices, reviews material company risks – including the climate-related ones – and helps ensure processes are in place to support a strong risk management culture. In addition, the Board’s Audit Committee oversees the Enterprise Risk Management (ERM) program and process for identifying, assessing, managing and monitoring enterprise risks; ensures risks are appropriately communicated with the Board and its committees; oversees enterprise risks and corresponding control and mitigation steps related to the committee’s specific responsibilities; and annually reviews the risk management governance, guidelines, policies and procedures.
At the management level, the head of our risk management group provides executive-level oversight of day-to-day risk management efforts and prepares enterprise-wide risk management reports for presentation to the Audit Committee and the full Board. In addition, a management-level Enterprise Risk Management Committee provides oversight and monitoring to help ensure that appropriate risk policies and management processes are established and executed.
Climate risks are integrated into our ERM process much like any other enterprise risk. FirstEnergy’s current material climate risks are identified and discussed in our Annual Report on Form 10-K. To read more about FirstEnergy’s risk management oversight and the ERM program and process, including the integration of climate risks, please see the Corporate Responsibility website and our Climate Report.
Political and Public Policy Engagement
As a utility obligated to provide reliable and affordable power to customers, FirstEnergy has a legitimate stake in public policy outcomes and a responsibility to advocate for public policy issues that impact the company and its stakeholders. We have continued to reshape our approach to political and public policy engagement in the past year, ensuring closer alignment to our strategic goals and core values. This enhanced approach also includes more robust oversight and disclosure of the Company’s advocacy going forward. We engage thoughtfully and responsibly as we advocate for our interests and attempt to effect positive change for the customers and communities we serve. Our Political & Public Engagement Policy guides that principled engagement by providing strong, clear expectations for the Company, its directors, officers, employees and those acting on the Company’s behalf. In addition, in conjunction with the responsibilities of the full Board, the Corporate Governance, Corporate Responsibility and Political Oversight Committee Charter includes robust oversight requirements of the Company’s Political and Lobbying Action Plan.
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Physical Security and Cybersecurity
FirstEnergy is committed to protecting its employees, customers, facilities, and the ongoing reliability of its electric system. We work closely with state and federal agencies and our peers in the electric utility industry to identify physical and cybersecurity risks, exchange information, and put safeguards, including training, in place to comply with strict reliability and security standards. From a security standpoint, the electric utility sector is one of the most regulated industries. We have comprehensive cyber and physical security plans in place, but we do not publicly disclose details about these measures that could aid those who want to harm our customers, our employees, or our assets.
Your Board has identified cybersecurity as a key enterprise risk and prioritizes the mitigation of this risk. Your Board receives cybersecurity updates at each of its regularly scheduled meetings. The Operations and Safety Oversight Committee reviews our cybersecurity risk management practices and performance, primarily through reports provided by management, including the Chief Information Security Officer. The Operations and Safety Oversight Committee also reviews and discusses with management the steps taken to monitor, control, and mitigate such exposure, and oversees audits of the cybersecurity program. Among other things, these reports have focused on incident response management and recent cyber risk and cybersecurity developments.
Both cyber and physical security enhancements are also a key component of FirstEnergy’s Energizing the Future transmission investment program. The Company invests heavily in sophisticated and layered security measures that use both technology and physical barriers to protect critical transmission facilities and our digital communications networks. In 2022, your Company did not experience any material breaches due to cybersecurity threats.
Unrelenting Customer Focus
We recognize that our more than 6 million utility customers depend on us to provide the reliable energy they need every day of the year. One of the ways we hold ourselves accountable for service reliability is by including metrics – distribution System Average Interruption Duration Index (SAIDI) and Transmission Outage Frequency (TOF) –in our key performance indicators (KPIs). We also set longer-term goals to drive improvement. We are targeting a 20% reduction in transmission outage frequency on 100 kV-and-above lines by 2025, compared to our 2019 baseline. On the distribution side, we’re targeting a 5%, or nine-minute, reduction in the duration of service interruptions by 2025, compared to our 2019 baseline.
We are building a culture with FE Forward that helps us to maintain a strategic and unrelenting focus on our customers. Through FE Forward, we are putting the customer experience at the center of all we do and developing and implementing improvements designed to create a more modernized and effortless customer experience. This includes delivering a superior customer experience today, anticipating customer expectations, and getting ahead of market demands in the future.
Community Vitality
The FirstEnergy Foundation invests in nonprofit organizations to enable positive, sustainable changes that strengthen the communities we serve. The Foundation’s priorities range from supporting key safety initiatives and promoting workforce and economic development to improving social and cultural aspects of our region. As an overarching priority in line with our companywide focus on DEI, the Foundation also supports organizations and initiatives that serve diverse populations and enhance inclusion.
Our corporate giving strategy also focuses on initiatives that parallel our business interests, while helping our communities and the people who live in them achieve greater success. Whether directed to the United Way or local foodbanks, our corporate contributions and philanthropic outreach support organizations and projects dedicated to improving the environmental, economic, social, educational and cultural aspects of our communities.
We are also committed to supporting employee volunteerism through a robust Employee Volunteer Program and the long-term economic health of the communities we serve through development initiatives that create jobs, support local suppliers and attract new businesses throughout our service area.
| 2023 PROXY STATEMENT | 54 |
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EESG Oversight and Management
Board and executive-level oversight of these EESG topics and other governance topics discussed throughout this Proxy Statement is vital to our commitment to corporate responsibility and our Company’s success.
FirstEnergy’s Board committees each provide oversight and guidance on distinct employee, environmental, social and governance related topics. For a breakdown of their EESG oversight responsibilities, please review the committee charters (www.firstenergycorp.com/charters) and visit the Board Governance page of our Corporate Responsibility website (www.fecorporateresponsibility.com). In addition to these EESG oversight roles and responsibilities, our Corporate Responsibility Department, senior leadership-level Corporate Responsibility Steering Committee, management-level Climate Subcommittee, and Corporate Governance, Corporate Responsibility and Political Oversight Committee of the Board work to ensure the transparency and accountability of FirstEnergy’s EESG efforts and continuously strive to improve our EESG performance across the Company.
EESG Accountability and Transparency
FirstEnergy is committed to providing stakeholders with information about our corporate responsibility approach and EESG initiatives and performance. As part of our commitment to transparency and accountability, we have a dedicated Corporate Responsibility website, which details FirstEnergy’s progress on EESG-related topics. Information on our website, including with respect to our corporate responsibility and EESG initiatives and performance, does not constitute part of (and shall not be deemed incorporated by reference into) this Proxy Statement or any other document we file with the SEC. We also are working toward disclosing EESG information in alignment with leading sustainability reporting frameworks, including the Sustainability Accounting Standards Board, Taskforce on Climate-Related Financial Disclosures, Global Reporting Initiative and Edison Electric Institute ESG/Sustainability Template.
Setting goals and disclosing our progress are also critical parts of demonstrating transparency and accountability on EESG matters. Our companywide goals, available on our Corporate Responsibility website, are designed to prepare us to meet our customers’ future energy needs and move us closer to our vision for a more resilient, innovative, diverse and sustainable FirstEnergy.
In addition, our annual key performance indicators (KPIs) that make up our Short-Term Incentive Program for employees also have strong ties to EESG. Our KPIs measure performance and improvement in areas that are high priorities for the Company and critical to our continued success. Among others, those areas include customer reliability, customer service, environmental protections, safety and diversity, equity and inclusion. These incentive-based KPIs support our commitment to strong EESG performance.
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Executive Compensation
Compensation Committee Report
The Compensation Committee reviewed and discussed the CD&A with management and based on such review and discussions, the Compensation Committee recommended to your Board that the CD&A be included (or incorporated by reference, as applicable) in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and this Proxy Statement.
Compensation Committee: James F. O’Neil III (Chair), Steven Demetriou, Lisa Hicks, Paul Kaleta, and Sean Klimczak.
Compensation Discussion and Analysis
Introduction
This CD&A provides an overview of the Company’s strategy and performance, shareholder engagement process, 2022 executive compensation programs and decisions, and current expectations for the 2023 executive compensation programs. This CD&A focuses on the compensation of our NEOs, who are as follows, for fiscal year 2022:
| Named Executive Officer | Current Title | |
John W. Somerhalder II | Chair of the Board and Interim President and CEO | |
K. Jon Taylor | Senior Vice President, Chief Financial Officer (“CFO”) and Strategy | |
Samuel L. Belcher | Senior Vice President, Operations | |
Hyun Park | Senior Vice President, Chief Legal Officer (“CLO”) | |
Christine L. Walker | Senior Vice President, Chief Human Resources Officer (“CHRO”) & Corporate Services | |
Steven E. Strah | Former President and CEO |
Key Executive Officer Transitions and Appointments
Mr. Somerhalder has served as Chair of the Board since May 2022 and had previously served as Vice Chair and Executive Director from March 2021 to May 2022. On September 15, 2022, the Board appointed Mr. Somerhalder to serve as Interim President and CEO, effective as of September 16, 2022, while continuing to serve in his role as Chair of the Board. Mr. Somerhalder’s appointment followed the decision of Mr. Strah to retire as the President and CEO.
The table below details Mr. Somerhalder’s different roles throughout 2022 as well as the target total compensation (on an annualized basis) and realized compensation of each role:
Title | Dates Served During 2022 | 2022 Annualized Base Salary | 2022 Target Opportunity STIP (% of Base Salary) | 2022 Target Opportunity LTIP Awards (% of Base Salary) | 2022 Other Equity Opportunity (% of Base Salary)(2) | Annual Retainer and Chairman Fee | 2022 Target Total Compensation | 2022 Realized Compensation(3) | ||||||||||||||||||||||
Vice Chair and Executive Director | 1/1-5/20 | $ | 750,000 |
|
| 100 | % |
| N/A |
|
| 334 | % |
| N/A |
| $ | 4,005,000 |
| $ | 2,185,759 |
| ||||||||
Chair of the Board(1) | 5/21-9/15 |
| N/A |
|
| N/A |
|
| N/A |
|
| N/A |
| $ | 512,500 |
| $ | 512,500 |
| $ | 166,002 |
| ||||||||
Interim President and CEO | 9/16-12/31 | $ | 1,250,000 |
|
| 125 | % |
| N/A |
|
| 576 | % |
| N/A |
| $ | 10,012,500 |
| $ | 758,970 |
| ||||||||
(1) Following Mr. Somerhalder’s appointment as non-independent Chair of the Board, the Board approved compensation of an additional $250,000 retainer ($150,000 in cash and $100,000 in equity) for Mr. Somerhalder’s service as Chair of the Board, effective May 21, 2022, in addition to the $250,000 ($275,000, effective July 1, 2022) annual retainer payable under our standard fee structure for non-employee directors. Mr. Somerhalder continued to serve as Chair of the Board after September 16, 2022; however, he is no longer entitled to compensation for the role of non-independent Chair of the Board for the period he serves as Interim President and CEO. See the “Director Compensation in Fiscal Year 2022” section for more details.
(2) For more information on Mr. Somerhalder’s 2022 Other Equity Opportunity, refer to the “Performance-based and Time-based Equity Award for Mr. Somerhalder” section.
(3) For more information on how we calculate Realized Compensation, and for details about the 2022 Realized Compensation of our other NEOs, refer to the “Realized Compensation” section.
| 2023 PROXY STATEMENT | 56 |
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Upon Mr. Strah’s retirement, Mr. Strah’s outstanding incentive awards were prorated according to their original terms, and he did not receive severance benefits or accelerated vesting of any incentive awards, or any enhanced compensation. Mr. Strah commenced his qualified pension subject to the early retirement reduced benefit. Upon his retirement and per Company policy for all employees, Mr. Strah received a payout of his banked and frozen vacation earned prior to 2008 and based on the effective pay rate as of December 31, 2008, when FirstEnergy’s vacation policies were revised, and employees and executives could no longer accumulate banked vacation. For more information, refer to the Departed NEO section.
Additional Information
This CD&A uses certain capitalized terms, which are defined in the Glossary of Terms, beginning on page 82. In general, we use the term “CEO” in this CD&A to refer to the individual serving as our Chief Executive Officer. For 2022, that included Mr. Strah in his role as President and CEO through September 16, 2022, and Mr. Somerhalder in his role as Interim President and CEO beginning September 16, 2022. In addition, certain of the performance incentive metrics discussed and utilized in measuring pay-for-performance are based on non-GAAP figures, and the definitions for those metrics in the Glossary of Terms explain the calculation methodology to the closest GAAP measure. The Compensation Committee believes that using such non-GAAP metrics best aligns NEO incentive opportunity with Company performance, which directly supports long-term shareholder value. Use of such non-GAAP metrics are helpful to understand and evaluate performance trends when assessing pay-for-performance and are aligned with key aspects of the Company’s financial performance disclosures.
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CD&A Quick Reference Guide
| Key Sections | Core Topics | Page | ||||
| Executive Summary | ◾ Executive Summary ◾ Shareholder Engagement and Say-on-Pay Results ◾ Our Responses to Shareholder Feedback | 59 | ||||
| Governance of Our Executive Compensation Programs | ◾ Compensation Philosophy ◾ What We Do and Don’t Do ◾ Role of our Compensation Committee, Management and Compensation Consultant ◾ Benchmarking | 61 | ||||
| Components of Total Direct Compensation Programs | ◾ Key Elements of 2022 NEO Compensation ◾ Compensation Mix ◾ Target Compensation (Base Salary + Target Incentive Compensation) ◾ Incentive Compensation Programs ◾ STIP ◾ KPIs and Weightings for STIP ◾ LTIP (other than Mr. Somerhalder) ◾ Performance-based and Time-based Equity Award for Mr. Somerhalder ◾ Incentive Compensation Payouts for 2022 ◾ STIP Payout ◾ LTIP Payouts (for NEOs other than Mr. Somerhalder) ◾ Award Vesting for Mr. Somerhalder ◾ Award Vesting for Ms. Walker ◾ Outstanding Award Cycles (2021-2023 and 2022-2024) ◾ Realized Compensation ◾ Current Expectations for 2023 Incentive Plan Design and NEO Compensation | 66 | ||||
| Other Compensation Policies and Practices | ◾ Retirement Benefits, Executive Deferred Compensation Plan (“EDCP”), Personal Benefits and Perquisites ◾ Severance Benefits Upon an Involuntary Separation, and Change in Control (“CIC”) Plan ◾ Share Ownership Guidelines ◾ Hedging Policies ◾ Clawback Policy ◾ Risk Assessment of Compensation Programs | 76 | ||||
| CD&A Glossary of Terms | ◾ Key Terms and Definitions | 82 | ||||
| 2023 PROXY STATEMENT | 58 |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
Executive Summary
We have made significant progress to strengthen our financial profile and revitalize our corporate culture while optimizing our performance through customer-centered investments in innovation and technology. These efforts, together with our strong regulated growth strategy, are positioning FirstEnergy as a premier electric company with sustainable, long-term growth. Recent highlights include:
| ◾ | In February 2023, we announced a $3.5 billion equity capital agreement to further enhance our financial position and support sustainable, long-term growth. |
| ◾ | We aligned and centralized our organization through the transition to a 5-state operating model, we are investing in new technology to enhance and streamline the customer experience, and we’re modernizing the way we work to improve productivity and optimize decision making. |
| ◾ | We continue emphasizing an unwavering commitment to compliance, ethics, integrity and accountability across all levels of the Company while cultivating a speak-up culture that empowers employees. |
We are on the right path for long-term stability and success as a leading electric company. We intend to build on our positive momentum as we continue strengthening our foundation, driving a customer-centered focus and enabling the clean energy transition.
Shareholder Engagement and Say-on-Pay Results
Our Board and management are committed to engaging our shareholders and soliciting their perspectives on key performance, compensation and governance issues. Consistent with prior years, select board members and management representatives conducted extensive outreach ahead of the filing of this Proxy Statement. Through this outreach, we have not received shareholder concerns regarding the Company’s Say-on-Pay or general executive compensation matters, and the Company continues to design its programs consistent with shareholder feedback.
Our 2022 Say-On-Pay vote successfully passed with over 95% support, which we consider to be a strong endorsement of our pay practices and is consistent with the vote results in 2021 of over 96% approval. In 2022, we maintained the same general structure and design for our NEO incentive compensation plans and programs with few modifications. In an effort to improve the relationship between pay and performance, better tie our executive compensation programs to our business strategies, and drive the right executive behaviors, we periodically make incentive design adjustments to FirstEnergy’s incentive programs. While the 2022 design and goals of our short-term incentive compensation program has a similar structure to that of prior years, our long-term incentive compensation program for 2022 maintained the Cumulative Operating EPS metric (increasing the weighting from 50% to 65%) while eliminating Average Capital Effectiveness metric and replacing it with a standalone Relative TSR metric, weighted at 35%. This design change simplifies the structure of the plan, enhances the link to shareholder value and is similar to the approach used by our utility peer companies.
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Our Responses to Shareholder Feedback
| Shareholder Feedback | Actions | |||
| Shareholders want pay-for-performance alignment; metrics should drive Company strategy and long-term shareholder value | ◾ Programs linked to key drivers of shareholder value: ◾ STIP tied to a funding “gate” based on Operating Earnings; ◾ LTIP tied to Operating Earnings per Share (“Operating EPS”) and Relative TSR, both of which are strong indicators of shareholder value in the utility industry; and ◾ External segment reporting is consistent with the internal financial reports to regularly assess performance of the business and allocate resources; ◾ LTIP includes a TSR cap (if absolute TSR is negative over the three-year LTIP period, the payout will be capped at 100%); and ◾ Maintained current cap on STIP and LTIP (maximum payout 200%), and decreased the threshold payout opportunity level from 50% to 25% of target in the LTIP. These payout opportunity levels are consistent with market practices and further align the incentive program with that of your Company’s peers. | |||
| Shareholders prefer performance-based vs. time-based awards | ◾ 100% performance-based LTIP, a leading practice compared to your Company’s peers. | |||
| Shareholders prefer 3-year cumulative vs. successive annual performance periods for the long-term incentive plans | ◾ LTIP includes 3-year cumulative goals focused on an Operating EPS KPI and 3-year Relative TSR measured against the S&P 500 Utility Index; ◾ Maintained an absolute TSR cap; and ◾ Maintained LTIP design with cumulative metrics. | |||
| Goals need to be set rigorously and the process needs to be transparent | ◾ Maintained additional stretch-level performance measure through goal setting process. As an example, in the 2022 STIP, to achieve maximum payout, we required performance above the top end of fiscal year 2022 guidance as disclosed in November 2021; ◾ Established performance levels to align pay opportunity with performance; and ◾ Established goals with detailed reconciliations following an independent assessment of the rigor of incentive compensation performance goals for their reasonableness and competitiveness. | |||
| STIP and LTIP metrics should be relevant to the business and not overlapping | ◾ STIP incorporates financial Operating Earnings and cash flow goals, operational goals, safety goals, and DEI goals; and ◾ LTIP incorporates 3-year Cumulative Operating EPS growth and Relative TSR goals to reward the achievement of longer-term goals and to drive shareholder value. | |||
| 2023 PROXY STATEMENT | 60 |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
Governance of our Executive Compensation Programs
Compensation Philosophy
The primary objectives of our executive compensation programs are to:
| ◾ | Attract, retain, focus and reward our talented and diverse executive team who drive our success in the highly complex utility industry by offering overall competitive total compensation for our executives; |
| ◾ | Reflect our collective commitment to ensuring that we conduct business with integrity, help all employees do the right thing and treat our coworkers and communities with the respect we all deserve; |
| ◾ | Promote the long-term financial health of the business, and the creation of value for the sustained benefit of shareholders, by emphasizing long-term incentives in the pay mix; |
| ◾ | Seek to calibrate pay for performance to help ensure the interests of our executives and shareholders are aligned, such that 50th percentile compensation is realized for strong corporate performance, above 50th percentile compensation is realized for exceptional performance, and below 50th percentile compensation is realized for below expected performance; |
| ◾ | Tie executive awards to corporate results as well as to overall business unit performance to hold executives accountable for their areas of responsibility; |
| ◾ | Recognize individual contributions, including individual performance, experience, and future potential in determining actual pay levels to help ensure that the Company retains our most critical talent; and |
| ◾ | Conduct ourselves in a way that comports with standards of good governance, consistent with creating long-term value for shareholders, and encourages a culture of diversity, equity and inclusion. |
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What We Do and Don’t Do
We continually strive to make improvements to our executive compensation plans and programs. Below is a summary consistent with previous disclosures of what we do and don’t do with respect to executive compensation, the totality of which we believe aligns with the long-term interests of our shareholders and with commonly viewed best practices in the market:
WHAT WE
|
◾ LTIP(1) is 100% at risk, with no solely time-based vesting requirements ◾ STIP is 100% at risk
◾ Threshold financial performance hurdle for Operating Earnings must be achieved before any STIP award is paid ◾ Individual STIP awards capped at 200% (consistent with our peer companies) ◾ Individual LTIP awards capped at 200% (consistent with our peer companies) and capped at 100% if absolute Total Shareholder Return (“TSR”) over the performance period is negative
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WHAT WE
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(1) Excludes Mr. Somerhalder due to the interim status of his role. For more details see the “Performance-based and Time-based Equity Award for Mr. Somerhalder” section.
Role of our Compensation Committee, Management and Compensation Consultant
The Compensation Committee is responsible for overseeing executive compensation and making recommendations to the Board for establishing appropriate salary and incentive compensation for our executive officers, which includes our NEOs. The Compensation Committee oversees executive compensation in accordance with our compensation philosophy, which incorporates a consistent and uncompromising commitment to ethical conduct in all that we do, while also aligning our executives’ interests with Company and business unit performance, business strategies and corporate objectives, including EESG-related goals, and drivers for growth in shareholder value. The Compensation Committee is further responsible for administering our compensation plans in a manner consistent with these objectives. In this process, the Compensation Committee evaluates information provided by its independent compensation consultant and our CEO, as discussed below. Since December 2017, the Compensation Committee has engaged the services of Farient Advisors (“Farient”) as the Compensation Committee’s independent compensation consultant. The Compensation Committee reviews the mix and level of compensation by each component individually and in the aggregate. The Compensation Committee, using tally sheets and accumulated wealth summaries, also reviews current and previously awarded but unvested compensation.
| 2023 PROXY STATEMENT | 62 |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
Management continually works to help ensure that high-performing, diverse leaders within the Company are appropriately recognized and considered during succession planning discussions. The Company’s talent philosophy is that all leaders, regardless of level, must demonstrate the ability to motivate future performance, be accountable for their behaviors and results, deliver results and enable employees to do their best every day. Executive succession is reviewed periodically by the CEO, the Senior Vice President and CHRO and Corporate Services, and the Compensation Committee. Executive succession plans are previewed by the Compensation Committee, as applicable, and with the full Board at its annual strategy retreat. With respect to our CEO’s compensation, the Compensation Committee also annually:
| ◾ | Reviews, determines, and recommends to the Board the Company’s goals and objectives; and |
| ◾ | Makes compensation recommendations to the Board for its approval or ratification based upon the CEO’s performance, competitive compensation benchmarking survey data and the utility peer group proxy data. |
The Compensation Committee and Board are responsible for establishing the compensation of the Company’s Section 16 Officers, including the NEOs, as well as the remaining most senior leaders. Neither the CEO nor any other NEO makes recommendations for setting their own compensation. The recommendation of the CEO’s compensation is determined in Compensation Committee meetings during an executive session and is presented to the independent members of your Board for review and approval. Annually, the Compensation Committee also reviews the goals and targets of the incentive compensation programs with a focus on setting challenging, but realistic, targets to drive performance and to improve shareholder value over the long term.
The CEO, with input from Human Resources, the non-independent Chair of the Board, and the Lead Independent Director (as applicable), typically makes recommendations to the Compensation Committee with respect to the compensation of the NEOs not serving on the Board of Directors. To the extent an NEO is also serving on the Board (“Executive Director”), the Compensation Committee makes recommendations to the independent directors regarding compensation of the Executive Director. The CEO possesses insight regarding individual performance, experience, future promotion potential, and intentions in retaining particular senior executives. The CEO presents his recommendations to the Compensation Committee for review. However, the Compensation Committee may modify or disregard the CEO’s recommendations. Farient, as discussed below, regularly provides market-level commentary and observations regarding compensation adjustments to the Compensation Committee.
The Compensation Committee engaged Farient to provide independent advice with respect to executive and director compensation and corporate governance matters related to executive compensation. The Compensation Committee relies on Farient’s expertise in benchmarking and familiarity with competitive compensation practices in the utility and general industry sectors. In addition, the Compensation Committee regularly requests advice from Farient concerning the design, communication, and implementation of our incentive compensation plans and other programs.
The services provided by Farient to the Compensation Committee in 2022 included:
| ◾ | Review of our compensation philosophy, including the alignment of our executive compensation practices with our compensation philosophy and assessing potential changes to address trends in market practice and shareholder expectations; |
| ◾ | Review of our peer groups used for compensation benchmarking purposes for executives and directors; |
| ◾ | Independent review and assessment of the rigor of incentive compensation performance goals and the goal setting process, including: |
| ◾ | Evaluating historical and projected performance; |
| ◾ | Reviewing analyst estimates to understand external expectations; |
| ◾ | Analyzing historical and projected peer data; and |
| ◾ | Calculating the probability of achievement of targets to assess the competitiveness of goals; |
| ◾ | Analysis of competitive compensation practices for executives and directors within our peer groups; |
| ◾ | Review of the description of our executive compensation practices in our annual proxy statement and apprising the Compensation Committee of Farient’s recommendations and suggested changes; |
| ◾ | Review of share ownership guidelines; |
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| ◾ | Review of all aspects of STIP and LTIP plan designs, including measures, weightings, leverage, and cash versus equity mix; |
| ◾ | Review of our current clawback policy and alignment with competitive practice and regulatory requirements; |
| ◾ | Review of CIC benefits to help ensure alignment with our compensation philosophy and competitive practice; |
| ◾ | Regularly informing the Compensation Committee of legislative and regulatory changes, market trends and current issues with respect to executive compensation, and educating members on our processes, plans and programs; |
| ◾ | Preparation for and attendance at all Compensation Committee meetings, including executive sessions, if applicable and as needed; and |
| ◾ | Ad hoc analysis and research for the Compensation Committee as requested and when necessary. |
The Compensation Committee considered representations from Farient that they were an independent consultant and that they had no conflicts of interest. The Compensation Committee assessed the independence of Farient, as required by SEC and NYSE rules and requirements. The Compensation Committee also considered and assessed relevant factors that could give rise to a potential conflict of interest with respect to Farient and their work. Based on this review, the Compensation Committee is not aware of any conflict of interest that has been raised by the work performed by Farient.
Benchmarking
The Compensation Committee uses competitive benchmarking data to evaluate compensation practices and develop compensation recommendations for each of the NEOs. The Company uses a combination of a utility peer group and a general industry peer group to determine an overall competitive total rewards package. Employee and executive compensation, executive benefits and perquisites, broad-based benefits (retirement benefits, death benefits, long-term disability and health care) and director compensation are all benchmarked against the same peer groups. The Compensation Committee uses competitive “blended” market data (the average of the revenue-regressed 50th percentile of our utility peer group and general industry peer group, referred to as the “Blended Median”) to set compensation levels, to assist in determining any compensation adjustments and to assess the competitiveness of base salary, short- and long-term target incentive opportunities and total target compensation. The Compensation Committee considers a range of 80% to 120% of the Blended Median for each component of pay to be competitive for any covered individual.
For 2022, the general industry peer group is comprised of companies that are both larger and smaller than FirstEnergy by revenue size. The median revenue of the utility and general industry peer groups is aligned with FirstEnergy’s revenue of approximately $10.6 billion in 2022. The 2022 peer groups were based on the following criteria:
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Following the peer group review, Harley-Davidson, Howmet Aerospace and Progressive were removed from the general industry peer group for 2022 benchmarking as they have either not participated in external surveys for the past two years or they fell outside of the revenue screening criteria between 0.5x and 2.5x of FirstEnergy’s revenue of approximately $10.6 billion. Conversely, FirstEnergy added five companies to its 2022 general industry peer group that better fit the screening criteria (General Mills, International Paper Company, Kinder Morgan, Owens Corning, and Whirlpool). As a result, the peer groups for 2022 included the following 23 utility peer companies and 34 general industry peer companies:
| 2022 Utility Peer Group | ||||
AES CORPORATION AMEREN CORPORATION AMERICAN ELECTRIC POWER CO INC CENTERPOINT ENERGY INC CMS ENERGY CORP CONSOLIDATED EDISON, INC DOMINION ENERGY, INC DTE ENERGY COMPANY | DUKE ENERGY CORPORATION EDISON INTERNATIONAL ENTERGY CORPORATION EVERSOURCE ENERGY EXELON CORPORATION NEXTERA ENERGY, INC NISOURCE INC NRG ENERGY, INC | PG&E CORPORATION PPL CORPORATION PUBLIC SERVICE ENTERPRISE GROUP SEMPRA ENERGY SOUTHERN COMPANY WEC ENERGY GROUP XCEL ENERGY INC |
| 2022 General Industry Peer Group | ||||
AIR PRODUCTS & CHEMICALS INC ALCOA CORPORATION AUTOMATIC DATA PROCESSING INC BALL CORPORATION BORGWARNER INC CAMPBELL SOUP COMPANY CONAGRA BRANDS, INC EASTMAN CHEMICAL COMPANY EATON CORPORATION FORTUNE BRANDS HOME & SECURITY, INC GENERAL MILLS, INC. HANESBRANDS, INC | HONEYWELL INTERNATIONAL INC HORMEL FOODS CORPORATION INTERNATIONAL PAPER COMPANY KELLOGG COMPANY KINDER MORGAN, INC. L 3 HARRIS TECHNOLOGIES, INC MASCO CORPORATION ONEOK INC OWENS CORNING PARKER HANNIFIN CORP PPG INDUSTRIES INC | PVH CORP ROCKWELL AUTOMATION, INC STANLEY BLACK & DECKER, INC TEXTRON INC THE CLOROX COMPANY THE ESTEE LAUDER COMPANIES INC THE GOODYEAR TIRE & RUBBER CO THE HERSHEY COMPANY THE SHERWIN WILLIAMS COMPANY V.F.CORPORATION WHIRLPOOL CORPORATION |
In December 2021, at the Compensation Committee’s request, Farient collected benchmark compensation data for our peer companies based on Willis Towers Watson executive surveys and AonHewitt’s Total Compensation Measurement database, and determined that our executives’ total direct compensation, in the aggregate, continues to be positioned at approximately the 50th percentile of the market. The total compensation for our NEOs (excluding Mr. Somerhalder due to the interim status of his roles in 2022), in the aggregate, was approximately 97% of the Blended Median, which is within the established competitive range of 80% to 120%.
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Components of Total Direct Compensation Programs
Key Elements of 2022 NEO Compensation
The key elements of our NEO compensation program to attract, retain and motivate key executive leaders are described below:
| Element | Description | Key Characteristics and Considerations | ||||
| Base Salary | FIXED CASH Bi-weekly, fixed cash compensation designed to reward past performance and motivate strong performance in the future | ◾ The Compensation Committee uses the Blended Median to set base salary levels and assist in determining any adjustments ◾ Other factors including individual experience, performance, impact by role, and recent compensation adjustments for the NEO are also considered ◾ The Compensation Committee, CEO and Board annually review each NEO’s base salary (excluding Executive Directors whose compensation is reviewed by independent directors of the Board) | ||||
Short-Term Incentive Program (STIP) | VARIABLE CASH COMPENSATION Designed to reward the achievement of near-term corporate and business and DEI performance measures, including EESG-related goals | ◾ The Compensation Committee uses the Blended Median to set target opportunity levels ◾ Completely at-risk compensation and 100% performance-based ◾ Payouts may range from 0% to 200% of target opportunity levels ◾ For 2022, the STIP goals included: – Financial: Operating Earnings and Company cash flow performance – Operational: Includes a mix of customer, reliability and environmental operating metrics – Safety: Includes Life Changing Events (“LCEs”) and Days Away/Restricted or Job Transfer Rate (“DART Rate”) – DEI: Includes metrics for diverse succession planning, diverse hiring, and percentage of “agree” and “strongly agree” responses on the Employee Engagement Survey inclusion index – Ethics and Compliance Modifier: Serves as a negative modifier at the individual level, with downward adjustments only, that can be up to 100% ◾ A threshold financial performance hurdle must be reached based on Operating Earnings (as defined below in the “CD&A Glossary of Terms” section) ◾ Weighted 60% for corporate financial performance and 40% for operational performance, including safety and DEI | ||||
Long-Term Incentive Program (LTIP)(1) | VARIABLE EQUITY COMPENSATION | ◾ The Compensation Committee uses the Blended Median to set target opportunity levels ◾ Completely at-risk compensation and 100% performance-based ◾ Payouts may range from 0% to 200% of target opportunity levels ◾ Comprised entirely of performance-adjusted RSUs with 2/3 of the earned award payable in stock and 1/3 of the earned award settled in cash ◾ The 2022-2024 cycle of the LTIP will vest, if at all, after a three-year performance period based on the achievement of two financial KPIs measured over the performance period: – Operating EPS Growth (cumulative) weighted at 65% –Relative TSR weighted at 35% – Includes a payout cap (100% target) if absolute TSR is negative over the three-year performance period | ||||
(1) Mr. Somerhalder does not participate in the LTIP. For more details see the next page as well as the “Performance-based and Time-based Equity Award for Mr. Somerhalder” section.
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Compensation Mix
We review our compensation philosophy, pay mix and pay vehicles for our NEOs annually to help ensure that they support our strategy and align with shareholder interests. The Compensation Committee sets NEO overall compensation levels consistent with the Blended Median but provides a greater portion of target pay in the form of performance-based LTIP awards compared to our peer groups. Under our compensation design, the percentage of pay that is based on performance increases as a NEO’s responsibilities increase. The charts below illustrate the pay mix as well as the variable pay mix based on each NEO’s final 2022 total target pay levels as described in the “Target Compensation (Base Salary + Target Incentive Compensation)” section below. For the continuing NEOs, the values shown are effective as of December 31, 2022. During his role as Vice Chair and Executive Director (March 2021 to May 2022), Mr. Somerhalder’s pay mix for 2022 was made up of approximately 19% for his base salary, 19% for his target STIP award, 31% for his performance-based restricted stock units (“RSUs”) and 31% for his time-based restricted stock. Although Mr. Somerhalder’s compensation package in his role as Vice Chair and Executive Director did not match that of the other NEOs, the performance goals aligned with those of other executives at FirstEnergy. During his role as Interim President and CEO, Mr. Somerhalder’s pay mix for 2022 is made up of approximately 12% for his base salary, 16% for his target STIP award, and 72% for his time-based restricted stock. Mr. Somerhalder’s pay mix in his current role is less variable than that of the other NEOs due to the interim status of his role. The charts below do not include Mr. Somerhalder due to the interim status of both of his roles in 2022.
Target Compensation (Base Salary + Target Incentive Compensation)
In December 2021, the Compensation Committee reviewed a competitive benchmarking analysis prepared by Farient. This report assessed each then-serving NEO’s compensation levels and mix against the Blended Median. In February 2022, the Committee decided, with input from the CEO and Farient, to approve increases in compensation for certain NEOs and other executive officers based on multiple factors described later and to continue to align with the Blended Median, in the aggregate.
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For 2022, target opportunities continued to be set at or near the Blended Median of our peer groups. As of December 31, 2022 (or, for Mr. Somerhalder, during his roles as Vice Chair and Executive Director or Interim President and CEO, as shown in detail on page 56, and for Mr. Strah, immediately prior to his retirement), target compensation levels for the NEOs on an annualized basis were as follows:
Executive | 2022 Annualized Base Salary | 2022 Target Opportunity STIP (% of Base Salary) | 2022 Target Opportunity LTIP Awards (% of Base Salary)(7) | 2022 Other Equity (% of Base Salary)(7) | 2022 Annualized Target Total Compensation | ||||||||||||||||||||
John W. Somerhalder II (1) (Interim President and CEO) | $ | 1,250,000 |
| 125 | % |
| N/A |
| 576 | % | $ | 10,012,500 | |||||||||||||
John W. Somerhalder II (1) (Vice Chair and Executive Director) | $ | 750,000 |
| 100 | % |
| N/A |
| 334 | % | $ | 4,005,000 | |||||||||||||
K. Jon Taylor (2) | $ | 850,000 |
| 90 | % |
| 250 | % |
| N/A | $ | 3,740,000 | |||||||||||||
Samuel L. Belcher (3) | $ | 750,000 |
| 75 | % |
| 250 | % |
| N/A | $ | 3,187,500 | |||||||||||||
Hyun Park (4) | $ | 700,000 |
| 75 | % |
| 225 | % |
| N/A | $ | 2,800,000 | |||||||||||||
Christine L. Walker (5) | $ | 470,000 |
| 65 | % |
| 135 | % |
| N/A | $ | 1,410,000 | |||||||||||||
Steven E. Strah (6) | $ | 1,250,000 |
| 125 | % |
| 525 | % |
| N/A | $ | 9,375,000 | |||||||||||||
(1) Mr. Somerhalder has served as Interim President and CEO since September 16, 2022, and served in the role of Vice Chair and Executive Director from March 1, 2021 through May 20, 2022. Mr. Somerhalder received Director Compensation between May 21, 2022, and September 15, 2022, which is not reflected in this table. See the Summary Compensation Table and the “Director Compensation in Fiscal Year 2022” section for more details.
(2) Reflects annualized base salary rate and target opportunity levels as a percent of base salary in effect following increases from $785,000 to $850,000 in base salary rate and increase from 85% to 90% in STIP target opportunity level in September 2022. In March 2022, he received an increase from $725,000 to $785,000 in base salary rate.
(3) Reflects annualized base salary rates and target opportunity levels as a percent of base salary in effect following increases in March 2022. Prior to Mr. Belcher’s increase, the annual base salary rate was $700,000 and STIP and LTIP target opportunity levels were 75% and 235%, respectively.
(4) Reflects annualized base salary rates and target opportunity levels as a percent of base salary in effect following increases in March 2022. Prior to Mr. Park’s increase, the annual base salary rate was $650,000 and STIP and LTIP target opportunity levels were 75% and 225%, respectively.
(5) Reflects annualized base salary rates and target opportunity levels as a percent of base salary in effect following increases in March 2022. Prior to Ms. Walker’s increase, the annual base salary rate was $440,000 and STIP and LTIP target opportunity levels were 60% and 130%, respectively.
(6) Mr. Strah’s annualized base salary rate and STIP and LTIP target opportunity levels as a percent of base salary shown are as in effect prior to his retirement on September 15, 2022. In March 2022, he received an increase from $1,100,000 to $1,250,000 in base salary rate and increases from 115% to 125% in STIP target opportunity and 450% to 525% in LTIP target opportunity.
(7) For each of the NEOs other than Mr. Somerhalder, all LTIP awards, if earned, are paid 1/3 in cash and 2/3 in stock. Equity awards granted to Mr. Somerhalder in 2022 are described below in the “Performance-based and Time-based Equity Award for Mr. Somerhalder” section.
The maximum payout under both the STIP and LTIP is 200% of an individual’s target opportunity. However, unlike market practices, the LTIP is 100% performance-based and does not contain any time-based components. The NEOs may earn nothing, may receive payments that are below their target opportunities for the incentive awards if the Company falls short of its pre-established goals, or may earn above their target opportunities if the Company performs above its pre-established goals. Except in limited circumstances as described in the plan documents, the Compensation Committee may use discretion to make adjustments to awards.
Incentive Compensation Programs
Shareholders previously approved the 2015 Incentive Compensation Plan, and in May 2020, shareholders approved the new 2020 Incentive Compensation Plan (together, the “Incentive Compensation Plans”). The purpose of the 2020 Incentive Compensation Plan is to promote the success of FirstEnergy by permitting the grant of incentives to certain employees that link their personal interests to both short-term performance on key metrics and the long-term financial success of your Company to increase shareholder value, providing for various types of awards including equity and equity-based awards and cash-based awards. At the core of our incentive compensation philosophy, integrity is the foundation and reflects our collective commitment to ensuring that we conduct business ethically with honesty, humility and accountability.
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As outlined above in the “Role of our Compensation Committee, Management and Compensation Consultant” section, the Compensation Committee, with support from Farient, conducted its annual goal rigor analysis to establish the goal ranges for the 2022 STIP and LTIP awards. In setting the goals, the Compensation Committee considers prior year results, Company performance, investor expectations, and strategic accomplishments for the year and over the long-term, on both a relative and absolute basis. Our 2022 Operating Earnings and Cumulative Operating EPS targets declined year-over-year primarily due to customer rate credits associated with the PUCO-approved Ohio Stipulation and regulatory accounting changes resulting in lower capitalization of vegetation management and corporate support costs. The Compensation Committee expects goals that are realistic but challenging and that drive differentiating performance year-over-year.
STIP
The STIP provides annual cash awards to executives whose contributions support the achievement of your Company’s identified financial and operational KPI goals, which are linked to the Company’s business strategy and corporate objectives, including EESG-related goals. The Compensation Committee annually reviews the goals and targets with a focus on setting challenging but realistic targets that are intended to align with shareholder value.
The Compensation Committee annually establishes the KPIs under the STIP that must be satisfied for a NEO to receive an award for such performance period and recommends that the Board approve the relative weightings for each KPI with respect to each participating NEO. The Compensation Committee recommended, and the Board approved, the following design elements for the 2022 STIP:
| ◾ | Maintained the stretch (maximum) payout opportunity level at 200% of target to remain consistent with market practices and align with that of your Company’s peers; |
| ◾ | Preserved focus on an Operating Earnings KPI, as distinguished from the LTIP KPI (which is Operating EPS); |
| ◾ | Maintained a financial KPI centered around your Company’s cash flow (Cash from Operations less Investment Activity), which was introduced in 2021 and is intended to drive additional organizational focus on the cash generated from our business as well as optimize working capital and reinforce the importance of conserving and managing cash; |
| ◾ | Maintained weighting of safety metrics at 15% in the STIP to promote our core value of safety: |
| ○ | Maintained the weightings of DART Rate and LCEs each at 7.5% in 2022. Weightings were increased from 5% to 7.5% in 2020 while eliminating Occupational Safety and Health Administration (“OSHA”) Recordable Incidents as a compensable metric; |
| ◾ | Maintained weighting of DEI KPI goals at 15%: |
| ○ | The Compensation Committee last increased the weighting from 10% to 15% in 2019; and |
| ○ | For 2022, our definition of diverse was expanded to include individuals with military service and the succession planning component of our DEI Index was updated to measure the percentage of Companywide manager-and-above succession plans that have one or more diverse candidates who are ready to fill the position within two years; and |
| ◾ | Continued the use of a financial performance gate for the STIP, requiring that threshold level Operating Earnings is met before any payouts are made. For 2022, achieving the Operating Earnings threshold of $1,313 million, including the cost of the STIP payments, was required. |
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KPIs and Weightings for STIP
The Compensation Committee reviewed, and the Board approved, the STIP performance metrics and weightings for each of the NEOs in February 2022. For 2022, the NEOs had the following metrics and weightings.
| KPI Measures | Rationale | All Other NEOs | ||
| Financial | ||||
Operating Earnings | ◾ Drives shareholder value while providing greater focus on driving the Regulated Distribution and Regulated Transmission businesses ◾ Increases in Operating Earnings indicate growth and efficiency of the business ◾ Provides a consistent and comparable measure of performance to help shareholders understand performance trends | 35% | ||
Cash Flow (Cash from Operations less Investment Activity) | ◾ Drives organizational focus on cash flow while optimizing working capital and investment spend | 25% | ||
| Operational | ||||
Operations Index | ◾ Based on five key operating metrics equally weighted ◾ Focused on customer service, reliability and environmental metrics that drive the Company’s long-term success | 10% | ||
| Safety | ||||
Systemwide DART Systemwide LCEs | ◾ Measured for the Company and each business unit ◾ Based on two key metrics that are equally weighted: systemwide LCEs and DART Rate ◾ Focused on the severity of injuries to drive better conversations and safety performance with employees ◾ Fatality Reduction Rule applies – in the event of a fatality of any employee, other than certain no-fault fatalities, there will be no payout on the Safety KPI as part of the STIP ◾ Infectious Disease Reduction Rule applies – in the event of secondary workplace exposure to COVID-19 infection, there will be no impact to the payout on the Safety KPI as part of the STIP | 15% | ||
| Diversity, Equity & Inclusion | ||||
Diversity, Equity and Inclusion Index | ◾ Key aspect of delivering exceptional customer service, strengthening operating performance and building an inclusive work environment ◾ Based on three key metrics that are equally weighted ◾ Measures diverse succession planning, diverse hiring, and percentage of “agree” and “strongly agree” responses on the Employee Engagement Survey inclusion index ◾ Racially and ethnically diverse performance gates that must be achieved to trigger payout of diverse succession planning and diverse hiring metrics | 15% | ||
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Threshold, target, and stretch levels are established for the KPIs based on Operating Earnings, cash flow, and achieving continuous improvement in safety and operational performance. Management and the Compensation Committee strive to set challenging and achievable goals and establish all threshold, target and stretch STIP goals at equal or more rigorous levels compared to the prior year, whenever possible. In 2022, the threshold, target, and stretch levels under the STIP for the NEOs were (dollars in millions):
2022 STIP Goal Ranges(1) | ||||||||||||
| 2022 KPI Measures | Threshold | Target | Stretch | |||||||||
Financial |
|
|
|
|
|
|
|
|
| |||
Operating Earnings | $ | 1,313 | $ | 1,370 | $ | 1,450 | ||||||
Cash Flow (Cash from Operations Less Investment Activity) | $ | (665 | ) | $ | (465 | ) | $ | (265 | ) | |||
Operational |
|
|
|
|
|
|
|
|
| |||
Operations Index | 2.50 | 5.00 | 7.50 | |||||||||
Safety |
|
|
|
|
|
|
|
|
| |||
Systemwide LCE | 2 | 1 | 0 | |||||||||
Systemwide DART Rate | 0.67 | 0.36 | 0.22 | |||||||||
Diversity, Equity and Inclusion |
|
|
|
|
|
|
|
|
| |||
Diversity, Equity and Inclusion Index | 1.50 | 3.00 | 4.50 | |||||||||
(1) Interpolated for performance between discrete points. Refer to the “Incentive Compensation Payouts for 2022” section below for details regarding 2022 payouts.
LTIP (other than Mr. Somerhalder)
The 2022 LTIP design continues to include Cumulative Operating EPS as a financial goal and a cumulative three-year performance period for measuring goals, as well as a relative shareholder performance measure. The weighting for Cumulative Operating EPS increased from 50% to 65%. Average Capital Effectiveness and the Relative TSR modifier were eliminated and replaced with a standalone Relative TSR metric, weighted at 35%. These performance measures support continued financial improvement and increase focus on earnings across the Company’s Regulated Distribution and Regulated Transmission businesses while creating a direct line of sight for executives to drive shareholder value and evaluate the overall performance against the market. See the chart below within this section, which identifies the KPI measures under the 2022 LTIP for more information. For information on Mr. Somerhalder’s long-term incentive compensation, see the “Performance-based and Time-based Equity Award for Mr. Somerhalder” section below.
The LTIP is comprised entirely of performance-adjusted RSUs with 2/3 of the earned award payable in Company stock and 1/3 of the earned award payable in cash. Both the stock-settled and cash-settled portions of the performance-adjusted RSU awards have a minimum payout of 0% and a maximum payout of 200% based on a formulaic structure where actual performance results are evaluated against the threshold, target and stretch performance goals over a three-year performance period. Performance results are interpolated on a straight-line basis between the minimum payout and maximum payout. For the 2022-2024 cycle, Relative TSR will be measured against the S&P 500 Utility Index. Threshold performance begins if our performance is at the 25th percentile, while stretch performance, with a maximum payout of 200%, begins at the 85th percentile. This change in design, which puts more emphasis on Relative TSR, more closely aligns with the interests of our shareholders and is similar to metrics used by our utility peer companies. Consistent with the 2021-2023 cycle, the threshold payout for the 2022-2024 LTIP will be at 25% of target, with the maximum payout remaining at 200%. Payout will continue to be capped at 100% of target if our absolute TSR is negative over the three-year performance period.
The Compensation Committee recommended and the Board approved the LTIP grants for the NEOs (other than Mr. Somerhalder) at the Board’s meeting on February 3, 2022. For 2022, the grant date for performance-adjusted RSUs for both the stock-settled and cash-settled portions of the awards was March 1, 2022. We use the target LTIP award opportunity by individual and divide by the average of the high and low prices of our common stock as of the date of grant to determine the number of units comprising each participating NEO’s award of performance-adjusted RSUs. Any equity grants awarded or vesting near an earnings announcement or other market event are coincidental.
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The “Grants of Plan-Based Awards in Fiscal Year 2022” table provides the target number of performance-adjusted RSUs granted to each NEO in 2022 based on the percentage of base salary as described earlier in the CD&A. Additional details regarding the 2022-2024 LTIP grants are provided in the narrative following the “Grants of Plan-Based Awards in Fiscal Year 2022” table.
The KPIs used for performance-adjusted RSUs under the 2022-2024 LTIP cycle were based on:
| KPI Measures | Weighting | Rationale | ||
| Cumulative Operating EPS | 65% | A non-GAAP measure of the financial performance of business units’ contribution to Operating Earnings growth over the 2022-2024 cycle. | ||
| Relative TSR | 35% | A non-GAAP measure of the total return of FirstEnergy common stock to an investor, evaluating our overall performance over the performance period against the S&P Utility Index. | ||
The performance goals for the 2022-2024 performance period are based on:
2022-2024 LTIP Goal Ranges | ||||||||||||
| 2022 Financial KPIs | Threshold | Target | Stretch | |||||||||
Cumulative Operating EPS | $ | 7.11 | $ | 7.72 | $ | 8.06 | ||||||
Relative TSR is calculated over the three-year performance period as compared against the S&P 500 Utility Index and will be based on a continuous function between the 25th and 85th percentile up to a maximum of 200% payout.
If the Company’s absolute TSR is negative for the three-year cumulative performance period of 2022-2024, the LTIP awards will be capped at a target opportunity level of payout (100%).
Performance-based and Time-based Equity Award for Mr. Somerhalder
Since beginning his role as Vice Chair and Executive Director in March 2021, Mr. Somerhalder partnered with senior management to lead efforts to rebuild trust with FirstEnergy’s external stakeholders and employees as well as support FirstEnergy leadership’s efforts to achieve its priorities and strengthen the Company’s governance and compliance functions. On May 17, 2022, in conjunction with Mr. Somerhalder’s appointment as Chair of the Board and his employment as an executive of FirstEnergy ending effective May 20, 2022, and in consultation with Farient, the Compensation Committee recommended, and the Board approved a grant of performance-based restricted stock units as a reward for his service as an executive of the Company from March 1, 2022 to May 20, 2022, with such units equal in target value to $185,132 based on the number of days in the performance period. The performance-based restricted stock units, which are to be paid in stock, have generally similar terms to the long-term incentive compensation awards provided to the other executives for 2022 and, as such, are expected to vest upon the completion of, and to be subject to performance metrics and goals previously established by the Board for, the 2022-2024 performance cycle for the LTIP, and to pay from 0% to 200% of the target award. Mr. Somerhalder did not previously receive a 2022 long-term incentive compensation award.
Upon appointment of Mr. Somerhalder as the Interim President and CEO on September 15, 2022, as disclosed on the Form 8-K filed on September 15, 2022, the Board intended to provide Mr. Somerhalder with the right to receive payments in FirstEnergy common stock and dividend equivalents (“Share Payments”) for his interim executive service. On October 28, 2022, in consultation with Farient, the Compensation Committee recommended, and the Board approved the final form of restricted stock units award agreements for the Share Payments, which provide for the actual value, calculation, timing of delivery and holding period provisions for such Share Payments generally outlined in the Form 8-K filed on September 15, 2022.
The Share Payments consist of two different equity awards – one for 53,260 initial shares estimated for his service in 2022 with a grant date of October 28, 2022 (the date of Board approval), and one for 85,228 initial shares estimated for his service in 2023 through June 30, 2023, with a grant date of January 4, 2023, conditioned on Mr. Somerhalder remaining in his current role as of such date. Mr. Somerhalder’s second Share Payment will vest the earlier of July 5, 2023, or on a prorated basis upon the transition to the new CEO. The
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Share Payments are each based on an estimated value of $600,000 for each month of his interim executive service (prorated for partial months of service) based on FirstEnergy’s average of the highest and lowest closing stock price during each such month or partial month of service, with such estimated share amounts to be updated at the time of payment. In January 2023, Mr. Somerhalder received a payout of his first Share Payment, which consisted of the original 53,260 shares plus an additional 57 shares earned during such months. The Share Payments are paid in shares of FirstEnergy common stock (net of taxes) and are subject to a one-year holding period following his interim executive service.
Incentive Compensation Payouts for 2022
STIP Payout
In February 2023, based on actual 2022 KPI results, the Compensation Committee recommended, and the independent members of the Board approved, the following 2022 short-term incentive KPI results for our NEOs (dollars in millions):
2022 STIP Results | ||||||||||||||||||||
| 2022 KPI Measures | Threshold | Target | Stretch | Actual Results | Payout Results | |||||||||||||||
Financial |
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Operating Earnings | $ | 1,313 | $ | 1,370 | $ | 1,450 | $ | 1,376 | | Between Target and Stretch | | |||||||||
Cash Flow (Cash from Operations Less Investment Activity) | $ | (665 | ) | $ | (465 | ) | $ | (265 | ) | $ | (405 | ) | | Between Target and Stretch | | |||||
Operational |
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Operations Index |
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2.50 |
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5.00 |
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7.50 |
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2.50 |
| | Meets Threshold | | |||||
Safety |
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Systemwide LCE | 2 | 1 | 0 | 0 | Meets Stretch | |||||||||||||||
Systemwide DART Rate |
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0.67 |
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0.36 |
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0.22 |
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0.72 |
| | Below Threshold | | |||||
Diversity, Equity and Inclusion |
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Diversity, Equity and Inclusion Index |
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1.50 |
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3.00 |
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4.50 |
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1.10 |
| | Below Threshold | | |||||
In February 2023, based on actual 2022 KPI results, the Compensation Committee recommended, and the independent members of the Board approved or ratified, the following 2022 short-term incentive award payouts for our NEOs:
| Executive | 2022 STIP (prorated as | 2022 STIP Award - Actual Payout($)(1) | Actual Payout as % of STIP Target (rounded) | |||||||||
John W. Somerhalder II | $ | 745,720 | $ | 672,080 | 90 | % | ||||||
K. Jon Taylor | $ | 733,912 | $ | 661,438 | 90 | % | ||||||
Samuel L. Belcher | $ | 562,501 | $ | 506,954 | 90 | % | ||||||
Hyun Park | $ | 525,000 | $ | 473,156 | 90 | % | ||||||
Steven E. Strah | $ | 1,104,452 | $ | 995,388 | 90 | % | ||||||
(1) Amounts for Mr. Somerhalder and Mr. Strah are calculated using a prorated 2022 base salary based on their dates of appointment and retirement, respectively.
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LTIP Payouts (for NEOs other than Mr. Somerhalder)
Our incentive structure measures actual performance against threshold, target and stretch goals based on 3-year cumulative and average goals over the performance period. The 2020-2022 LTIP was comprised of the following two performance measures, weighted equally: Cumulative Operating EPS and Average Capital Effectiveness.
Additionally, FirstEnergy’s three-year annualized Relative TSR ranked at the 11th percentile relative to the S&P 500 Utility Index during the 2020-2022 performance cycle, which triggered a Relative TSR modifier and resulted in an interpolated result that reduced the LTIP payout by 25%. Further, our average stock prices with reinvested dividends for December 2022 of $46.91 was less than the average stock price in December 2019 of $48.23. As a result, the absolute TSR modifier reduced the 2020-2022 cycle payout to be capped at 100% of target for all award participants.
Below is a summary of the results for the 2020-2022 cumulative performance period:
| 2020-2022 LTIP Results | ||||||||||||||||||
KPI Measures | Threshold | Target | Stretch | Actual Results | Payout Results | |||||||||||||
Cumulative Operating EPS | $ | 7.57 |
| $ | 7.84 |
| $ | 8.15 |
| $ | 7.98 |
| Between Target and Stretch | |||||
Average Capital Effectiveness |
| 4.00 | % |
| 4.15 | % |
| 4.31 | % |
| 4.33 | % | Meets Stretch | |||||
Based on the results of the two performance measures, the Relative TSR modifier and the absolute TSR cap for the 2020-2022 cycle described above, the independent members of the Board approved the payout at 100% of target payout opportunity, plus dividend equivalents, for our participating NEOs. Upon his hire in January 2021, Mr. Park was granted prorated stock-based performance-adjusted RSUs based on his annual salary and total LTIP target opportunity and a proration factor of two-third for the 2020-2022 LTIP cycle. In March 2023, the performance-adjusted RSUs granted in 2020 were paid in shares of our common stock and cash respectively as follows: Mr. Taylor: 12,113 shares and $233,846; Mr. Belcher: 26,086 shares and $504,724; Mr. Park: 23,533 shares and n/a for cash-based RSUs; Ms. Walker: 9,118 shares and $175,509; and Mr. Strah: 23,437 shares and $459,179.
Award Vesting for Mr. Somerhalder
On February 17, 2021, at the recommendation of the Compensation Committee, the Board approved as part of Mr. Somerhalder’s compensation package a grant of time-based restricted stock upon his appointment to the positions of Vice Chair and Executive Director, effective March 1, 2021. This award vested 100% on May 20, 2022, with respect to 37,139 shares (rounded) at a value of $1,563,552 upon the completion of his initial executive service to FirstEnergy. Those shares are subject to a one-year holding requirement following the vesting date. Based on the terms of the award agreement, the dividends earned were paid in cash at a value of $72,421 upon vesting of the award.
Award Vesting for Ms. Walker
On August 20, 2015, Ms. Walker was awarded a restricted stock award under the FirstEnergy Corp. 2015 Incentive Compensation Plan for retention purposes. This award vested 100% on September 15, 2022, with respect to 13,373 shares (rounded) at a value of $546,455.
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Outstanding Award Cycles (2021-2023 and 2022-2024)
Participating NEOs were granted the following number of target RSUs in 2021 and 2022 for each three-year LTIP cycle, respectively. Cash-settled RSUs have been rounded for illustration. Although dividend equivalents accrue and are reinvested throughout the performance period, subject to the same restrictions and performance conditions as the underlying awards, they are excluded in the table below.
| Number of Performance-Based RSUs Granted At Target | ||||||||||||||||||||||||
Executive | Number of Cash-Settled RSUs granted for the 2021-2023 Cycle | Number of Stock-Settled RSUs granted for the 2021-2023 Cycle | Total RSUs granted for the 2021-2023 Cycle | Number of Cash-Settled RSUs granted for the 2022-2024 Cycle | Number of Stock-Settled RSUs granted for the 2022-2024 Cycle | Total RSUs granted for the 2022-2024 Cycle | ||||||||||||||||||
John W. Somerhalder II |
| — |
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| 33,210 |
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| 33,210 |
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| — |
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| 4,395 |
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| 4,395 |
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K. Jon Taylor |
| 15,735 |
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| 31,660 |
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| 47,395 |
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| 15,674 |
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| 31,536 |
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| 47,210 |
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Samuel L. Belcher |
| 16,318 |
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| 32,833 |
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| 49,151 |
|
| 14,975 |
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| 30,130 |
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| 45,105 |
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Hyun Park |
| 13,692 |
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| 27,384 |
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| 41,076 |
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| 12,629 |
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| 25,259 |
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| 37,888 |
| ||||||
Christine L. Walker |
| 5,314 |
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| 10,752 |
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| 16,066 |
|
| 5,088 |
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| 10,176 |
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| 15,264 |
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Steven E. Strah |
| 46,342 |
|
| 92,684 |
|
| 139,026 |
|
| 52,622 |
|
| 105,245 |
|
| 157,867 |
| ||||||
The values shown for Mr. Somerhalder are based on the prorated number of performance-based restricted stock units granted instead of LTIP awards for each LTIP cycle. Upon his hire as Vice Chair and Executive Director in March 2021 and approved by the Board on July 20, 2021, Mr. Somerhalder was granted performance-based restricted stock units in lieu of the 2021-2023 LTIP cycle and, in connection with the conclusion of his role as Vice Chair and Executive Director in May 2022, on May 17, 2022, he was granted performance-based restricted stock units for his service as an executive of the Company from March 1, 2022, to May 20, 2022. The performance metrics for Mr. Somerhalder’s performance-based restricted stock units granted in 2021 and 2022 align with the 2021-2023 and 2022-2024 LTIP cycles, respectively. The values shown for Mr. Park for the 2021-2023 LTIP cycle are based on the prorated number of RSUs granted for that cycle. Upon his hire in January 2021, Mr. Park was granted prorated LTIP awards based on annual salary and total LTIP target opportunity and based on a proration factor of two-thirds for the 2020-2022 LTIP cycle. Given that the 2021- 2023 and 2022-2024 cycles of performance-adjusted RSUs are based on three-year cumulative metrics, the performance and actual payout is unknown at this time.
Realized Compensation
We provide this alternative view of compensation paid to the NEOs as a supplement to, but not as a substitute for, the Summary Compensation Table (“SCT”) because this realized compensation table below illustrates the way our Compensation Committee views the actual compensation earned or received by our continuing NEOs in 2022 under the STIP and the 2020-2022 cycle of the LTIP.
The table below summarizes realized compensation in 2022 for our NEOs:
Executive | 2022 Earned Salary | 2022 STIP (Paid in 2023) | Performance- Adjusted RSUs (Earned in three- year period ended in 2022, Paid in 2023) | Restricted Award (Vested in | Total 2022 Realized Compensation | |||||||||||||||
John W. Somerhalder II | $ | 636,676 |
| $ | 672,080 |
|
| N/A |
| $ | 1,635,973 |
| $ | 2,944,729 |
| |||||
K. Jon Taylor | $ | 790,223 |
| $ | 661,438 |
| $ | 705,599 |
|
| N/A |
| $ | 2,157,260 |
| |||||
Samuel L. Belcher | $ | 742,116 |
| $ | 506,954 |
| $ | 1,520,677 |
|
| N/A |
| $ | 2,769,747 |
| |||||
Hyun Park | $ | 691,978 |
| $ | 473,156 |
| $ | 916,537 |
|
| N/A |
| $ | 2,081,671 |
| |||||
Christine L. Walker | $ | 465,324 |
| $ | 275,332 |
| $ | 530,617 |
| $ | 546,455 |
| $ | 1,817,728 |
| |||||
Steven E. Strah | $ | 863,984 |
| $ | 995,388 |
| $ | 1,371,992 |
|
| N/A |
| $ | 3,231,364 |
| |||||
(1) Reflects the value of Mr. Somerhalder’s restricted stock award as well as the dividends that were earned and paid in cash upon vesting; 100% of the award vested on May 20, 2022, as discussed in the “Award Vesting for Mr. Somerhalder” section above.
(2) Reflects the value of Ms. Walker’s restricted stock award; 100% of the award vested on September 15, 2022, as discussed in the “Award Vesting for Ms. Walker” section above.
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Current Expectations for 2023 Incentive Plan Design and NEO Compensation
Following substantial changes to our short-term and long-term incentive compensation programs in 2018 as well as strong Say-on-Pay results, the Company has maintained the same general structure and design, with a few key modifications, for both of our incentive compensation programs through 2022, for the NEOs listed below. In February 2023, your Board approved several changes to the short-term incentive compensation program designed to focus on key areas that are essential to achieving our strategic goals. For 2023, a pool of funds will be established where payment of any STIP award will be contingent upon FirstEnergy achieving the Operating Earnings threshold level, after accounting for the cost of the STIP payout. If Operating Earnings do not achieve mid-point earnings guidance the STIP payout will be reduced based on a certain percentage reduction level and would apply to the STIP payout for all employees. Also new for 2023, the FE Cash Flow KPI will be replaced with a baseline O&M KPI to enhance line of sight and further align business unit accountability to our Financial KPIs. While we will maintain the DEI Index for 2023, your Board approved replacing one of the three components within the DEI Index. A supplier diversity component will replace the diverse succession planning component. This change further aligns the DEI Index to our DEI strategic framework and with our commitment to invest in the communities we serve.
Consistent with the 2022-2024 cycle, the LTIP for the 2023-2025 cycle will maintain the Cumulative Operating EPS at a weighting of 65% and the Relative TSR metric, which will be measured against the S&P 500 Utility Index and weighted at 35%. Threshold performance begins if our performance is at the 25th percentile, while stretch performance begins at the 85th percentile. The threshold payout for the 2023-2025 will continue to be at 25% of target, with the maximum payout at 200%. Payouts will continue to be capped at 100% of target if our Absolute TSR is negative over the three-year performance period.
For 2023, target opportunities continue to be set at or near the Blended Median of our peer groups, other than for Mr. Taylor. The 2023 target compensation levels for the continuing NEOs are as follows:
Executive | 2023 Base Salary Rate | 2023 STIP (as a % of Base Salary) | 2023 LTIP (as a % of Base Salary) | 2023 Other Equity Opportunity (as a % of Base Salary) | ||||||||||||
John W. Somerhalder II(1) | $ | 1,250,000 |
|
| 125 | % |
| N/A |
|
| 576 | % | ||||
K. Jon Taylor | $ | 875,000 |
|
| 90 | % |
| 325 | % |
| N/A |
| ||||
Samuel L. Belcher | $ | 770,000 |
|
| 75 | % |
| 250 | % |
| N/A |
| ||||
Hyun Park | $ | 730,000 |
|
| 75 | % |
| 225 | % |
| N/A |
| ||||
Christine L. Walker | $ | 495,000 |
|
| 65 | % |
| 150 | % |
| N/A |
| ||||
(1) Mr. Somerhalder’s target compensation for 2023 remains unchanged due to the interim status of his role.
Other Compensation Policies and Practices
Retirement Benefits
We offer retirement benefits to our NEOs through our qualified plan, the FirstEnergy Corp. Master Pension Plan, and our nonqualified supplemental plans, the FirstEnergy Corp. Amended and Restated Executive Deferred Compensation Plan (“EDCP”) and the FirstEnergy Corp. Cash Balance Pension Restoration Plan (“Cash Balance Restoration Plan”). The qualified plan benefit historically has been based on earnings, length of service, and age at retirement and is considered a defined benefit plan under the Internal Revenue Code (“IRC”). For employees hired or rehired on or after January 1, 2014, the qualified plan benefit uses a cash-balance formula based on age and service. The qualified plan benefit is subject to applicable federal and plan limits. The EDCP and Cash Balance Restoration Plan are designed to provide a benefit to executives that is competitive and comparable to that for our general employee population.
In recognition of Mr. Park’s extensive legal expertise, first-hand experience dealing with crisis situations, utility industry knowledge, and compliance focus, as well as to incentivize him to join the Company and to encourage retention, Mr. Park will be provided an additional credit of $275,000 into the Cash Balance Restoration Plan after five years of continuous employment. Pursuant to an arrangement upon his hire, Mr. Belcher is eligible to receive five additional years of credited service for purposes of calculating the nonqualified supplemental pension benefit. For more information, refer to the “Pension Benefits as of December 31, 2022” table on page 92. Retirement benefits for the NEOs are further discussed in the narrative section following the Pension Benefits table later in this Proxy Statement.
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EDCP (Elective Deferrals)
NEOs may elect to defer a portion of their compensation into the EDCP. They may defer from 1% to 50% of base salary to a cash retirement account; from 1% to 85% of STIP awards to either a cash or stock account; and from 1% to 85% of LTIP awards to a stock account. In his role as Vice Chair and Executive Director through May 2022, Mr. Somerhalder was eligible to participate in the EDCP and make elective deferrals from 1% to 50% of base salary to a cash retirement account and from 1% to 85% of STIP awards to either a cash or stock account. Upon his appointment to Interim President and CEO effective September 16, 2022, Mr. Somerhalder was not eligible to participate as the EDCP requires that a former participant who becomes eligible again must wait 24 months from his most recent date of eligibility. The EDCP offers executives the opportunity to accumulate assets denominated both in cash and in Company common stock, on a tax-favored basis. Beginning in 2017, any deferral elections to a cash or stock account made by a participant will ultimately be paid only in cash based upon the participant’s distribution elections.
Earnings on deferrals in the EDCP stock accounts of NEOs track FirstEnergy shares. Earnings on deferrals into the cash retirement accounts of NEOs were credited at the Moody’s Corporate Long-term Bond Yield Index rate plus 3% for funds deferred prior to 2013 and the Moody’s Corporate Long-term Bond Yield Index rate plus 1% for funds deferred in 2013 and later. Any above-market earnings for 2022 are included in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column of the SCT.
Personal Benefits and Perquisites
The Company does not provide excessive perquisites to our NEOs.
In 2022, our NEOs could use the corporate aircraft for limited personal use. With CEO approval, other executives, including the NEOs, may from time to time use corporate aircraft for personal travel, which may include family travel. We have a written policy that sets forth guidelines regarding the personal use of corporate aircraft by executive officers and other employees in accordance with the IRS regulations and customary compensation practices. FirstEnergy’s executive relocation program provides reimbursement or payment for relocation-related expenses, including travel, temporary living expenses, new home closing costs, home sale assistance, and gross-up on certain relocation benefits for estimated federal, state and FICA taxes on expenses which are not tax deductible.
The Compensation Committee believes the foregoing perquisites are reasonable, competitive, and consistent with our overall compensation philosophy.
Severance Benefits Upon an Involuntary Separation
In the event of an involuntary separation without cause, the CEO’s severance benefits, if any, are to be determined by the Compensation Committee, in its discretion, and approved by the independent members of the Board. All other NEOs are covered in the event of an involuntary separation under the FirstEnergy Corp. Amended and Restated Executive Severance Benefits Plan (the “Severance Plan”).
The Severance Plan provides severance benefits to executives who are involuntarily separated due to the sale or closing of a facility, merger, acquisition, corporate restructuring, reduction in the workforce or job elimination. Benefits under the Severance Plan are also offered if an executive rejects a job assignment that would result in the occurrence of any one or more of the following events: (1) a 15% or greater reduction in the executive’s then current base salary; (2) a requirement that the executive make a 50-mile or greater relocation from his or her current residence for reasons related to the new job; or (3) a requirement that the executive make a 50-mile or greater change in his or her daily commute from their residence to a new reporting location.
The Severance Plan provides for three weeks of base salary for each full year of service with a minimum benefit of 52 weeks of base salary and a maximum benefit of 104 weeks of base salary. Additionally, executives who elect continuation of health care for the severance period will be provided this benefit at active employee rates, not to exceed 18 months. Executives must pay taxes on any continuation of health care value in excess of what employees with the same level of service would receive under the FirstEnergy Employee Severance Benefits Plan.
On February 9, 2023, upon the recommendation of the Compensation Committee of the Board, the Board approved a new policy effective immediately that cash severance payable under the Severance Plan or pursuant to any individual contract with an
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executive officer will not exceed 2.99 times the sum of the executive officer’s base salary plus target annual incentive opportunity under the Short-Term Incentive Program, unless the Company seeks shareholder approval.
CIC Plan
The Compensation Committee believes that your Company’s Change in Control Severance Plan (“CIC Plan”) is aligned with the market practices of our peer groups and it is available to all NEOs. All of the NEOs participated in the CIC Plan in 2022 excluding Mr. Somerhalder who is no longer a participant since May 2022 upon being named Chair of the Board. Although Mr. Somerhalder is not a participant, the role of President and CEO is considered a covered position under the CIC Plan. The initial term of the CIC Plan commenced on January 1, 2017. Annually, the Committee determines if any changes need to be recommended to the Board for approval. If no changes are needed, then the CIC Plan will automatically renew for an additional year. In December 2021, the Compensation Committee determined that no changes were needed and the term of the CIC Plan automatically extended to December 31, 2023 by its terms. All participating NEOs are eligible for the same level of benefits following a CIC and qualifying termination of employment (double-trigger), which include:
| ◾ | A two-times base salary plus target STIP award multiplier for cash severance; |
| ◾ | The annual STIP paid at target, prorated for the number of days worked in the year; |
| ◾ | If the LTIP is not replaced by a buyer, LTIP awards will be paid at target, prorated for the number of full months worked in the cycle; |
| ◾ | Continued health and welfare coverage for 2 years; |
| ◾ | Outplacement services for one year following the CIC, capped at a value of $30,000; and |
| ◾ | Non-competition and non-disparagement obligations that protect the Company. |
Time-based restricted stock awards vest in full upon a CIC. There are no excise tax “gross-up” provisions. Payments are “cut back” in the event that an excise tax would otherwise apply to the safe harbor amount minus one dollar, unless the participant would receive greater after-tax proceeds absent such cutback. In such a case, the participating NEOs will receive payment of all CIC benefits and will be responsible for paying any excise tax imposed on the payment.
Share Ownership Guidelines
We believe it is critical that the interests of executives, directors and shareholders are clearly aligned. Therefore, the Compensation Committee maintains share ownership guidelines to promote meaningful stock ownership by our executives, including our participating NEOs and directors. Your Company not only wants executives to meet their required share ownership levels in a timely manner, but also to build an ownership mentality and demonstrate commitment to aligning their interests with shareholders. These guidelines specify the value of Company shares that our participating executives must accumulate within five years of becoming an executive officer. Additionally, executives who are not on track to meet their required share ownership levels or have failed to achieve required share ownership levels within the five-year compliance period may be subject to the following consequences imposed at the discretion of the Compensation Committee, subject to approval by the Board:
| ◾ | Reduce or eliminate the annual STIP award opportunity (as necessary) and consider replacement with a discretionary stock award; and/or |
| ◾ | Require executives to purchase sufficient shares to meet their required share ownership levels. |
Each participating executive is required to retain all Company shares earned under equity grants or purchased or accumulated until the executive meets his or her share ownership guidelines. In October 2022, to better align with market practice, ensure consistency, and eliminate the risk of subjectivity, the Compensation Committee approved the removal of the additional requirement that participating executives obtain CEO approval before any sale. The specific share ownership guidelines are based on a multiple of an executive officer’s base salary, with the higher multiples applicable to the executives having the highest levels of responsibility.
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The share ownership multiples for the continuing NEOs in 2022 were as follows:
Executive(1) | Share Ownership Multiple | |
K. Jon Taylor | 4X base salary | |
Samuel L. Belcher | 3X base salary | |
Hyun Park | 3X base salary | |
Christine L. Walker | 3X base salary |
(1) Mr. Somerhalder is not subject to the Company’s share ownership guidelines for executives due to the transitional nature of his executive role.
Although not shown in the table above due to transitional roles, the CEO multiple is 7X base salary. To be consistent with an entirely performance-based long-term incentive plan design, unvested performance-adjusted RSUs are not counted as eligible shares for executives to meet their share ownership requirements. The following types of holdings apply toward the share ownership guidelines:
| ◾ | Shares directly or jointly owned in certificate form or in a stock investment plan, including 60% of any unvested restricted stock; |
| ◾ | Shares owned through the FirstEnergy Corp. Savings Plan; |
| ◾ | Shares held individually or jointly by a broker, or, in certain circumstances, held in trust, or in an IRA, shares held by a spouse, or other beneficially owned shares, to the extent known by the Company; and |
| ◾ | Units deferred pursuant to the EDCP. |
As of December 31, 2022, Mr. Taylor, Mr. Belcher and Ms. Walker had met their share ownership requirements. Mr. Park has not yet met his share ownership requirements, but has until January 11, 2026 to do so. Mr. Strah is no longer an executive officer of FirstEnergy and is no longer subject to the stock ownership guidelines. Although the Compensation Committee established share ownership guidelines for executives, such equity ownership typically does not impact the establishment of compensation levels. The Compensation Committee does review previously granted awards, both vested and unvested, that are still outstanding on a regular basis. For more information on ownership guidelines for directors, refer to the “Director Compensation in Fiscal Year 2022” section.
Hedging Policies
As described more in this section, we prohibit our employees (including officers) and directors from engaging in hedging or monetizing transactions that would allow them to own Company securities without the full risks and rewards of ownership, including economic exposure to potential decreases in the market value of Company securities.
Your Company has adopted formal policies as part of its Insider Trading Practice regarding hedging practices. The following categories of “Covered Persons” are covered by our Insider Trading Practice:
| ◾ | all of the Company’s independent directors; |
| ◾ | all officers (including NEOs) and employees of the Company and its affiliates and subsidiaries; and |
| ◾ | any other persons that the Company determines should be covered, such as contractors, consultants and professional advisors who have access to material nonpublic information. |
In addition to the Insider Trading Practice applying to Covered Persons, the following are also covered by our Insider Trading Practice:
| ◾ | the portfolio manager and other individuals who can trade in (or make changes in investments in) Company Securities for the Covered Persons; and |
| ◾ | the Covered Persons’ Related Persons (except family members who do not reside with a Covered Person — unless such family member confers with the Covered Person when making investment decisions in Company Securities or is directed, influenced or controlled by the Covered Person with respect to transactions in Company Securities); and |
| ◾ | any entities that the Covered Persons influence or control. |
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For these purposes, we consider “Related Persons” of a Covered Person to be her family members and others who reside with her, and any family members who do not live with her but whose transactions in Company Securities are directed, influenced or controlled by her. In addition, “Company Securities” broadly includes all securities of the Company and of its direct and indirect subsidiaries, including but not limited to common stock, options, preferred stock, convertible debentures or other debt securities, and warrants (as well as derivative securities not issued by the Company or its subsidiaries, such as exchange-traded put or call options or swaps relating to any of the foregoing securities).
The Insider Trading Practice generally prohibits a Covered Person from engaging in certain transactions regarding Company Securities owned by her or that she beneficially owns, but the Insider Trading Practice does not apply to transactions in Company Securities where such transactions are not initiated by the Covered Person or approved by her, or are not subject to her influence or control (such as mutual fund transactions in Company Securities). More specifically, the prohibition on pledging, hedging or other monetization transactions for Covered Persons explicitly covers a number of possible transactions:
| ◾ | Company directors and Company “officers” (under Exchange Act Rule 16a-1(f)) are prohibited from engaging in short-term opposite-way trading within a six-month period; and |
| ◾ | Covered Persons are prohibited from engaging in short sales, trading in market-based put and call options or other non-compensatory derivative securities, or engaging in specific hedging and monetization transactions, such as prepaid variable forward contracts, equity swaps, collars and exchange funds. |
In addition, under the Insider Trading Practice, certain “Designated Insiders” (Company directors, Company “Executive Officers” under Exchange Act Rule 3b-7, Company “officers” under Exchange Act Rule 16a-1(f), members of the Company’s executive council, members of its disclosure committee and certain other employees with regular access to financial information or otherwise as identified from time to time by the Company) are prohibited from holding Company Securities in a margin account, pledging Company Securities as collateral for a loan, or placing standing or limit orders on Company Securities that remain effective after the day on which they are placed (apart from Company-authorized Rule 10b5-1 trading plans). Other Covered Persons may place standing or limit orders on Company Securities that remain effective after the day on which they are placed, but only for short durations and in a manner that complies with Company restrictions and procedures set forth in the Insider Trading Practice (such as pre-clearance procedures).
Clawback Policy
Your Company has a clawback policy (its “Recoupment Policy”) that covers all current or former executive officers, Section 16 officers and other selected executives. In 2019, the Compensation Committee approved enhancements to the Recoupment Policy to continue the previously existing clawback provisions in the event of a financial restatement of the Company, and to include clawback provisions in the event of certain other detrimental activity, as defined in the Recoupment Policy, resulting in significant operational, financial or reputational harm to the Company as determined in good faith by the Compensation Committee. In the event that the Company is required to file a financial restatement due to material noncompliance with financial reporting requirements under U.S. securities laws, regardless of misconduct or contribution to the restatement requirement, the clawback policy allows for recoupment of incentive-based compensation granted, vested or accrued after January 1, 2014, and during the three-year period preceding the filing of the accounting restatement, to the extent such compensation received exceeded what would have been received based on the corrected data relating to the restatement. In the event of significant or material operational, financial or reputational harm resulting from an executive’s detrimental activity, the Compensation Committee may direct the Company to recoup from such executive incentive-based compensation granted, vested or accrued in an amount as reasonably determined by the Compensation Committee in good faith. Your Company expects in 2023 to review and revise the Recoupment Policy in connection with final rules regarding recovery of erroneously awarded compensation as promulgated by the SEC and the NYSE in 2022 and 2023, respectively.
Risk Assessment of Compensation Programs
At the request of the Compensation Committee, management annually assesses the risks associated with our compensation policies, practices, and programs for employees. In its analysis, management specifically paid particular attention to those programs that allow for variable payouts where an employee may potentially be able to influence payout factors in those programs. The Compensation Committee reviewed management’s assessment and concurred with its conclusions. Based on this
| 2023 PROXY STATEMENT | 80 |
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assessment, the Compensation Committee concluded that the risks associated with our compensation policies and practices are not reasonably likely to have a material adverse effect on your Company.
The Compensation Committee and management designed our compensation programs to align our executives’ interests with the long-term interests of our shareholders without encouraging excessive risk taking. In this regard, our compensation structure contains various features intended to mitigate excessive risk taking. These features include, among others:
| ◾ | The compensation structure is designed to link an appropriate portion of compensation to the Company’s long-term performance; |
| ◾ | The periodic benchmarking of the compensation programs and overall compensation structure are used to evaluate the Company’s policies as compared to market practices; |
| ◾ | Annual incentive compensation is based on multiple, diversified, Company-based performance metrics, which are consistent with our long-term strategy; |
| ◾ | Internal controls and standards of ethics and business conduct mitigate risk and support our compensation goals. We employ various auditing processes on a regular basis in an effort to assure compliance with these controls and standards; and |
| ◾ | The Compensation Committee, comprised entirely of independent directors, oversees your Company’s compensation policies and practices and is responsible for reviewing and recommending Board approval for executive compensation, annual incentive compensation programs applicable to senior management employees, and other compensation plans as appropriate. |
Additionally, our Director, Enterprise Risk Management participated in the discussion with senior management regarding the establishment of goals and their weightings and measurements for our short- and long-term incentive compensation programs and the 2022 performance results and provided her view to the Compensation Committee that:
| ◾ | The measurement of 2022 performance results were conducted in accordance with prescribed methodologies and precluded any beneficiary from controlling the calculation; |
| ◾ | Proposed goals would not create inappropriate incentives or inadvertently encourage willingness to embrace risk exposures other than those we encounter in the normal course of our business; |
| ◾ | By avoiding individually based goals or goals applicable only to a small group of employees, the risk of encouraging inappropriate behavior is greatly mitigated; and |
| ◾ | There are adequate controls in place so that the beneficiary of any incentive payout cannot unilaterally control the measurement methodology. |
For additional information regarding your Company’s risk management process and your Board’s role in risk oversight, see the related discussion in the “Corporate Governance and Board of Directors Information” section of this Proxy Statement.
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CD&A Glossary of Terms
Average Capital Effectiveness: Measures the financial effectiveness of investment in operational assets over time. Creates a direct line of sight for executives to balance the value of our investments with the earnings they produce and create value for shareholders. It is a ratio of Operating Earnings over Net Plant in Service (“NPIS”) plus Construction Work in Progress (“CWIP”). Operating Earnings are an important measure of profitability. The NPIS plus CWIP is the value of the assets being used to generate revenues and profits. A high ratio indicates the business generates larger returns on its investment in operational assets and vice versa.
Cash from Operations less Investment Activity: Cash from Operations less Investment Activity is calculated using aggregate operating earnings (a non-GAAP measure reported externally to the investment community), adjusted for non-cash items, changes in working capital and all capital-like investments. Cash from Operations less Investment Activity explains the sources and uses of cash from ongoing regular business activities and investments.
Corporate/Other: The Corporate/Other business segment.
CWIP: Construction Work in Progress.
DART Rate: OSHA-recordable incidents that involve days away from work, days of restricted work activity, and/or days of job transfer in the period per 100 employees. DART cases are work-related injuries or illnesses that result in at least one day of lost time, transfer or restriction excluding the day of injury.
Detrimental Activity: Refers to an executive officer’s: (i) use for profit or disclosure to unauthorized persons of confidential information or trade secrets of the Company or any of its subsidiaries; (ii) breach of any contract with or violation of any fiduciary obligation to the Company or any of its subsidiaries, that results in (or was reasonably likely to result in) significant operational, financial or reputational harm (generally meaning behaviors resulting in financial harm or reputational damage to the Company or any of its subsidiaries) to the Company or any of its subsidiaries, such breach or violation may include, but is not limited to, engagement in any unethical conduct, fraud, dishonesty, violations of Company policy or the law, recklessness, gross negligence, failure to act, or other misconduct including but not limited to sexual harassment or misconduct, data security violations, or criminal activities; or (iii) engagement in conduct described in (ii) above that, even absent a breach of contract or violation of any fiduciary duty, is (or was reasonably likely to be) materially detrimental to the Company or any of its subsidiaries; in each case as determined by the Compensation Committee reasonably and in good faith.
Diversity, Equity and Inclusion (DEI) Index: Measures diverse succession planning, diverse hiring, and percentage of “Agree” and “Strongly Agree” responses on the FirstEnergy Employee Engagement Survey inclusion index items. Measures earn points based on the level of performance; all components within the index are weighted equally. For the purposes of this KPI, “diverse” is defined as female, historically under-represented racial and ethnic demographic groups (Black or African American, Native American or Alaska Native, Asian, Native Hawaiian or Pacific Islander, people of two or more races; Hispanic or Latino ethnicity), LGBTQ+ (lesbian, gay, bisexual, transgender, queer/questioning+), individuals with military service and/or disabled.
Engaged Customer Relationship (ECR) Score: External surveys conducted to capture the voice of customer for a compilation of metrics, which represent a balanced scorecard approach to measuring the full customer experience.
Environmental Excursions and Notices of Violation (NOVs): Measures issues related to air emissions, water discharges or other unauthorized releases from facilities, that exceed the allowable limitations, conditions or deadlines established in the facilities’ environmental permits and applicable NOVs issued by a federal, state or local regulatory agency for the violation of an environmental law or regulation.
Ethics and Compliance Modifier: Negative modifier at the individual level, with downward adjustments only, ranging from 0% to 100%. Applies to regular non-bargaining, non-physical employees only.
KPI (Key Performance Indicators): Financial or operational metrics used to measure Company performance and aligned to our key business objectives. KPIs are used in setting threshold, target and stretch performance goals for our incentive compensation programs.
LCEs: Life Changing Events include life-threatening work-related injuries or illnesses that required immediate life-preserving rescue action, and if not applied immediately would likely have resulted in the death of that person; life-altering work-related injuries or illnesses that resulted in a permanent and significant loss of a major body part or organ, or function thereof, that permanently changes or disables that person’s normal life activity; and work-related fatalities.
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NPIS: Net Plant in Service.
O&M: Operations and Maintenance
Operating Earnings: Operating Earnings (non-GAAP) is calculated using the aggregate GAAP earnings adjusted for special items that are consistent with the Company’s external operating earnings (non-GAAP) reporting. Results for 2022 will include the following adjustments: the impacts of unforeseen accounting, legislative or regulatory changes will be included as adjustments. Other strategic decisions may also apply if they are approved in advance by the Finance and Compensation Committees, including but not limited to accelerated O&M spending.
Operating EPS: Measured on the performance of the business units’ contribution to operating earnings (non-GAAP) growth over the course of 2022-2024, including RD, RT, and Corporate/Other segments. Results for 2022 will exclude the following: (i) the impacts of unforeseen accounting, legislative or regulatory changes will be included as adjustments. Other strategic decisions may also apply if they are approved in advance by the Finance and Compensation Committees, including but not limited to accelerated O&M spending., and (ii) share dilution that exceeds external guidance of $1,000 million in 2021, inclusive of approximately $100 million in annual stock investment and employment benefit plans. External segment reporting is consistent with the internal financial reports to regularly assess performance of the business and allocate resources.
Operations Index: Metric made up of the following five components, weighted equally (refer to each component for a separate definition):
| 1. | SAIDI; |
| 2. | TOF; |
| 3. | ECR Score; |
| 4. | Environmental Excursions and NOVs; and |
| 5. | Reg Gen EFOR. |
Reg Gen EFOR: The percentage of generation that was not available versus the amount of time a unit was requested to be online.
Regulated Distribution or RD: The Regulated Distribution business segment. Refers collectively to The Cleveland Electric Illuminating Company, Ohio Edison Company, The Toledo Edison Company, Metropolitan Edison Company, Pennsylvania Power Company, Pennsylvania Electric Company, and the distribution assets of Jersey Central Power & Light, Monongahela Power Company, The Potomac Edison Company, and West Penn Power Company.
RSUs (Restricted Stock Units): An equity vehicle commonly used in long-term incentive programs to reward employees and promote ownership within the Company. RSUs represent the right to receive future delivery of actual stock or cash subject to vesting restrictions (service-based and/or performance-based).
Regulated Transmission or RT: The Regulated Transmission business segment. Refers collectively to the transmission assets of Jersey Central Power & Light Company, Monongahela Power Company, The Potomac Edison Company, and West Penn Power Company; FirstEnergy Transmission, LLC, and its subsidiaries, American Transmission Systems, Incorporated, Potomac-Appalachian Transmission Highline, LLC, Trans-Allegheny Interstate Line Company, and Mid-Atlantic Interstate Transmission.
Relative TSR (Relative Total Shareholder Return): The total return of a stock to a shareholder for our Company measured against the total return of stock for other companies within a selected peer group. The calculation is based on a set period (e.g., three years) and assumes that dividends are reinvested over this period. Relative TSR is a common performance measure used within long-term incentive plans and helps to align executive payouts to shareholder value creation.
SAIDI: Distribution System Average Interruption Duration Index is the average total duration of outage minutes in a year for each customer served adjusted for major storms.
TOF: Transmission Outage Frequency measures the transmission line frequency of outages (total number of transmission circuit outages divided by average number of circuits) on 100kV to 500kV circuits after adjustment for major events (Six Sigma). Transmission circuit outages are defined as any loss of flow, momentary or sustained, that is a result of an automatic switching operation. Scheduled outages, emergency forced outages, and operational outages are excluded from the calculation.
TSR (Total Shareholder Return): A measure of stock price appreciation and dividend payments over a period of time.
| 83 | FIRSTENERGY CORP. |
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Compensation Tables
2022 Summary Compensation Table
The following table summarizes the total compensation paid to or earned by each of our NEOs for the fiscal years ended December 31, 2022, 2021, and 2020, as applicable:
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) | All Other Compensation ($)(5) | Total ($) | SEC Total Without Change In Pension Value and Nonqualified Deferred Compensation Earnings ($)(6) | ||||||||||||||||||||||||||||||||||||
John W. Somerhalder II(1) Interim President & CEO |
|
2022 |
|
$ |
636,676 |
|
$ |
— |
|
$ |
2,188,623 |
|
$ |
672,080 |
|
$ |
124,505 |
|
$ |
41,924 |
|
$ |
3,663,808 |
|
$ |
3,539,303 |
| ||||||||||||||||||
|
2021 |
|
$ |
632,555 |
|
$ |
— |
|
$ |
2,717,970 |
|
$ |
1,006,534 |
|
$ |
42,404 |
|
$ |
17,205 |
|
$ |
4,416,668 |
|
$ |
4,374,264 |
| |||||||||||||||||||
K. Jon Taylor SVP, CFO & Strategy |
|
2022 |
|
$ |
790,223 |
|
$ |
— |
|
$ |
1,974,021 |
|
$ |
661,438 |
|
$ |
9,412 |
|
$ |
32,131 |
|
$ |
3,467,225 |
|
$ |
3,457,813 |
| ||||||||||||||||||
|
2021 |
|
$ |
686,209 |
|
$ |
750,000 |
|
$ |
1,962,017 |
|
$ |
915,874 |
|
$ |
216,628 |
|
$ |
12,115 |
|
$ |
4,542,843 |
|
$ |
4,326,215 |
| |||||||||||||||||||
|
2020 |
|
$ |
521,807 |
|
$ |
— |
|
$ |
692,019 |
|
$ |
414,591 |
|
$ |
329,051 |
|
$ |
24,759 |
|
$ |
1,982,227 |
|
$ |
1,653,176 |
| |||||||||||||||||||
Samuel L. Belcher SVP, Operations |
|
2022 |
|
$ |
742,116 |
|
$ |
— |
|
$ |
1,886,010 |
|
$ |
506,954 |
|
$ |
3,126 |
|
$ |
27,756 |
|
$ |
3,165,962 |
|
$ |
3,162,836 |
| ||||||||||||||||||
|
2021 |
|
$ |
694,148 |
|
$ |
— |
|
$ |
2,034,701 |
|
$ |
780,258 |
|
$ |
255,317 |
|
$ |
11,842 |
|
$ |
3,776,266 |
|
$ |
3,520,949 |
| |||||||||||||||||||
|
2020 |
|
$ |
647,132 |
|
$ |
— |
|
$ |
1,491,410 |
|
$ |
487,501 |
|
$ |
671,168 |
|
$ |
12,228 |
|
$ |
3,309,439 |
|
$ |
2,638,271 |
| |||||||||||||||||||
Hyun Park SVP & Chief Legal Officer |
|
2022 |
|
$ |
691,978 |
|
$ |
— |
|
$ |
1,584,261 |
|
$ |
473,156 |
|
$ |
98,743 |
|
$ |
134,077 |
|
$ |
2,982,215 |
|
$ |
2,883,472 |
| ||||||||||||||||||
|
2021 |
|
$ |
635,714 |
|
$ |
— |
|
$ |
2,459,075 |
|
$ |
704,676 |
|
$ |
42,875 |
|
$ |
895,969 |
|
$ |
4,738,309 |
|
$ |
4,695,434 |
| |||||||||||||||||||
Christine L. Walker SVP, Chief Human Resources Officer & Corporate Services |
|
2022 |
|
$ |
465,324 |
|
$ |
— |
|
$ |
638,241 |
|
$ |
275,332 |
|
$ |
7,827 |
|
$ |
22,828 |
|
$ |
1,409,552 |
|
$ |
1,401,725 |
| ||||||||||||||||||
|
2021 |
|
$ |
436,544 |
|
$ |
— |
|
$ |
665,078 |
|
$ |
392,359 |
|
$ |
428,896 |
|
$ |
18,386 |
|
$ |
1,941,263 |
|
$ |
1,512,367 |
| |||||||||||||||||||
|
2020 |
|
$ |
407,423 |
|
$ |
— |
|
$ |
520,405 |
|
$ |
246,000 |
|
$ |
1,226,402 |
|
$ |
11,865 |
|
$ |
2,412,095 |
|
$ |
1,185,693 |
| |||||||||||||||||||
Steven E. Strah(1) Former President & CEO |
|
2022 |
|
$ |
863,984 |
|
$ |
— |
|
$ |
6,601,055 |
|
$ |
995,388 |
|
$ |
715,074 |
|
$ |
92,870 |
|
$ |
9,268,371 |
|
$ |
8,553,297 |
| ||||||||||||||||||
|
2021 |
|
$ |
1,076,236 |
|
$ |
— |
|
$ |
5,755,252 |
|
$ |
1,977,256 |
|
$ |
1,876,204 |
|
$ |
29,114 |
|
$ |
10,714,062 |
|
$ |
8,837,858 |
| |||||||||||||||||||
|
2020 |
|
$ |
776,058 |
|
$ |
— |
|
$ |
1,614,667 |
|
$ |
852,146 |
|
$ |
2,527,603 |
|
$ |
21,758 |
|
$ |
5,792,232 |
|
$ |
3,264,629 |
| |||||||||||||||||||
(1) Mr. Somerhalder was appointed to the position of Interim President and CEO, effective as of September 16, 2022. Mr. Strah retired as President and CEO, effective as of September 16, 2022.
(2) The amounts set forth in the “Stock Awards” column for 2022 represent grants provided under the 2020 Incentive Compensation Plan at the aggregate grant date fair value calculated in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 “Stock Compensation” and are based on target payout. The assumptions used in determining values for the 2022 fiscal year are reflected in Note 6 to the Notes to the Consolidated Financial Statements of the Company’s Annual Report on Form 10-K filed with the SEC on February 13, 2023. The grant date fair value at the maximum payout level for each of the NEOs for the 2022-2024 LTIP cycle is as follows: Somerhalder: $360,376; Taylor: $3,948,041; Belcher: $3,772,020; Park: $3,168,523; Walker: $1,276,482; and Strah: $13,202,109. The amount for Mr. Somerhalder includes the value of performance-based RSUs for his service as an executive from March 1, 2022 to May 20, 2022, which covers the performance period of 2022-2024 and were granted at the recommendation of the Compensation Committee and approved by the independent members of the Board on May 17, 2022, and the value of time-based restricted stock units granted on October 28, 2022, upon his appointment as Interim President and CEO (which units were based on $600,000 for each month of his interim executive service in 2022 (prorated for partial months of service), were earned (plus an additional 57 shares and dividend equivalents) in early January 2023 and will be subject to a one-year holding requirement following his interim executive service). These awards are not payable to the executive until the vesting date or other qualifying event shown in the Outstanding Equity Awards at Fiscal Year-End 2022 table or the 2022 Post-Termination Compensation and Benefits table described later in this Proxy Statement.
(3) The amounts set forth in the “Non-Equity Incentive Plan Compensation” column for 2022 were earned under the STIP for 2022 and were paid in the first quarter of 2023.
(4) The amounts set forth in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column for 2022 reflect the aggregate increase in actuarial value to the NEOs of all defined benefit and actuarial plans (including supplemental plans) accrued during the year and above-market earnings on nonqualified deferred compensation. The disclosure assumes 5.23% (qualified pension), 5.20% (nonqualified supplemental pension) and 5.05% (nonqualified cash balance restoration plan) are the discount rates for the present value obligation calculations. The change in values for the pension plans for 2022 are as follows: Somerhalder: $115,970; Taylor: $0; Belcher: $0; Park: $98,743; Walker: $0; and Strah: $691,253. The change in pension value is heavily dependent on the discount rate and mortality assumptions and does not represent the actual value of the change in pension benefit accrued by the NEO during the year. The formula used to determine the above market earnings equals 2022 total interest multiplied by the difference between 120% of the AFR and the plan rate and divided by the plan rate. The above market earnings on nonqualified deferred compensation for 2022 are as follows: Somerhalder: $8,535; Taylor: $9,412; Belcher: $3,126; Park: $0; Walker: $7,827; and Strah: $23,821.
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(5) The following table sets forth detail about the amounts for 2022 in the “All Other Compensation” column and includes compensation not required to be included in any other column:
Name | 401(k) Employer Contributions ($)(a) | Health Care Employer Contributions ($)(b) | Wellness Program ($)(c) | Charitable Matching ($)(d) | Group Personal Excess Liability ($)(e) | Life Insurance ($)(f) | Personal Aircraft Usage ($)(g) | Relocation ($)(h) | Payments ($)(i) | Total ($) | ||||||||||||||||||||||||||||||||||||||||
John W. Somerhalder II | $ | 9,150 | $ | — | $ | — | $ | — | $ | 1,365 | $ | 1,160 | $ | 30,249 | $ | — | $ | — | $ | 41,924 | ||||||||||||||||||||||||||||||
K. Jon Taylor | $ | 9,150 | $ | 1,000 | $ | — | $ | 525 | $ | 1,365 | $ | 1,214 | $ | 18,877 | $ | — | $ | — | $ | 32,131 | ||||||||||||||||||||||||||||||
Samuel L. Belcher | $ | 9,150 | $ | 1,000 | $ | — | $ | 2,040 | $ | 1,365 | $ | 1,071 | $ | 13,130 | $ | — | $ | — | $ | 27,756 | ||||||||||||||||||||||||||||||
Hyun Park | $ | 9,150 | $ | 1,000 | $ | — | $ | 1,000 | $ | 1,365 | $ | 1,000 | $ | — | $ | 120,562 | $ | — | $ | 134,077 | ||||||||||||||||||||||||||||||
Christine L. Walker | $ | 9,150 | $ | 1,000 | $ | 410 | $ | 1,250 | $ | 1,365 | $ | 671 | $ | 8,982 | $ | — | $ | — | $ | 22,828 | ||||||||||||||||||||||||||||||
Steven E. Strah | $ | 9,150 | $ | 1,000 | $ | — | $ | — | $ | 1,365 | $ | 1,785 | $ | 53,133 | $ | — | $ | 26,437 | $ | 92,870 | ||||||||||||||||||||||||||||||
a) The value of matching Company contributions under the FirstEnergy Corp. Savings Plan, which were subject to a maximum of $9,150.
b) The value of Company contributions to the NEOs’ Health Savings Accounts or FirstEnergy Corp. Savings Plan or cash.
c) The value of Company credits under the broad-based wellness program, which are subject to a maximum of $600 annually.
d) The value of charitable matching contributions for 2022. The Company provides a dollar-for-dollar match, up to $5,000 annually, of employee contributions to qualified nonprofit organizations and educational institutions.
e) Premiums for all NEOs covered under the group personal excess liability insurance policy in 2022.
f) Employer cost for basic life insurance premiums in 2022. Coverage for Mr. Strah was prorated for a partial year of coverage due to his retirement during 2022.
g) The value of the personal use of corporate aircraft is calculated based on the actual invoiced costs or the aggregate variable operating costs to the Company, including fuel costs, trip-related maintenance, universal weather-monitoring costs, on-board catering, landing/ramp fees, and other miscellaneous variable costs. Fixed costs which do not change based on usage, such as pilots’ salaries, the amortized costs of the aircraft, and the cost of maintenance not related to trips are excluded. NEOs’ spouses and immediate family members may accompany NEOs on Company aircraft using unoccupied space on flights that were already scheduled, and the Company incurs no aggregate incremental cost in connection with such use.
h) The value of benefits provided for Mr. Park under the Executive Relocation Package. FirstEnergy’s executive relocation program provides reimbursement or payment for certain relocation-related expenses including, but not limited to travel, temporary living expenses, new home closing costs, home sale assistance, and tax gross-ups on certain relocation expenses. The tax gross-ups totaled $54,674 for Mr. Park and are included in the totals above.
i) Upon his retirement and per Company policy for all employees, Mr. Strah received $26,437 for 236 hours of banked and frozen vacation earned prior to 2008 and based on the effective pay rate as of December 31, 2008, when FirstEnergy’s vacation policies were revised, and employees and executives could no longer accumulate banked vacation.
(6) The amounts set forth in the “SEC Total Without Change In Pension Value and Nonqualified Deferred Compensation Earnings” column differ substantially from, and are not a substitute for, the amounts required to be reported in the Total column pursuant to SEC regulations. We are presenting this supplemental column to illustrate how the Compensation Committee views the annual compensation elements for the NEOs. The column adjusts the amount reported in the Total column, as determined under applicable SEC rules, by subtracting the value reported in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column to show how year-over-year changes in these values impact total compensation. The change in pension value amount reported in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column does not reflect current compensation and represents the present value of an estimated stream of payments to be made following retirement. The methodology used to report the change in pension value under applicable accounting rules is sensitive to external variables such as assumptions about life expectancy and changes in the discount rate determined at each year end, which are functions of economic factors and actuarial calculations that do not relate to the Company’s performance and are outside of the control of the Compensation Committee.
| 85 | FIRSTENERGY CORP. |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
Grants of Plan-Based Awards in Fiscal Year 2022
The following table summarizes the stock awards granted to our NEOs during 2022 as well as threshold, target, and maximum amounts payable under the STIP and LTIP programs.
Name | Grant/Payout Type | Grant Date(1) | Board Action Date(2) |
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(3) |
Estimated Future Payouts Under Equity Incentive Plan Awards(4) | All Other Stock Awards: Number of Shares of Stock or Units | Grant Date Fair Value of Stock and Option Awards(5) | |||||||||||||||||||||||||||||||||||
| Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||||||||||||||||||||||||||||||||
| ($) | ($) | ($) | (#) | (#) | (#) | (#) | ($) | |||||||||||||||||||||||||||||||||||
| STIP | — | — | $ | 372,860 | $ | 745,720 | $ | 1,491,439 | — | — | — | — | — | ||||||||||||||||||||||||||||
John W. Somerhalder II | 2022 Performance- Based RSUs – Stock- Based | 3/1/22 | 5/17/22 | — | — | — | 1,099 | 4,395 | 8,790 | — | $ | 180,188 | ||||||||||||||||||||||||||||||
| 2022 Time- Based RSUs – Stock- Based | 10/28/22 | 10/28/22 | — | — | — | — | — | — | 53,260 | $ | 2,008,435 | |||||||||||||||||||||||||||||||
| STIP | — | — | $ | 366,956 | $ | 733,912 | $ | 1,467,823 | — | — | — | — | — | ||||||||||||||||||||||||||||
K. Jon Taylor | 2022 Performance- Adjusted RSUs – | 3/1/22 | 2/4/22 | — | — | — | 3,918 | 15,674 | 31,347 | — | $ | 655,374 | ||||||||||||||||||||||||||||||
| 2022 Performance- Adjusted RSUs – | 3/1/22 | 2/4/22 | — | — | — | 7,884 | 31,536 | 63,072 | — | $ | 1,318,646 | |||||||||||||||||||||||||||||||
| STIP | — | — | $ | 281,252 | $ | 562,501 | $ | 1,125,000 | — | — | — | — | — | ||||||||||||||||||||||||||||
Samuel L. Belcher | 2022 Performance- Adjusted RSUs – | 3/1/22 | 2/4/22 | — | — | — | 3,744 | 14,975 | 29,949 | — | $ | 626,154 | ||||||||||||||||||||||||||||||
| 2022 Performance- Adjusted RSUs – | 3/1/22 | 2/4/22 | — | — | — | 7,533 | 30,130 | 60,260 | — | $ | 1,259,856 | |||||||||||||||||||||||||||||||
| STIP | — | — | $ | 262,501 | $ | 525,000 | $ | 1,050,000 | — | — | — | — | — | ||||||||||||||||||||||||||||
Hyun Park | 2022 Performance- Adjusted RSUs – | 3/1/22 | 2/4/22 | — | — | — | 3,157 | 12,629 | 25,259 | — | $ | 528,082 | ||||||||||||||||||||||||||||||
| 2022 Performance- Adjusted RSUs – | 3/1/22 | 2/4/22 | — | — | — | 6,315 | 25,259 | 50,518 | — | $ | 1,056,180 | |||||||||||||||||||||||||||||||
| 2023 PROXY STATEMENT | 86 |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
Name | Grant/Payout Type | Grant Date(1) | Board Action Date(2) |
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(3) |
Estimated Future Payouts Under Equity Incentive Plan Awards(4) | All Other Stock Awards: Number of Shares of Stock or Units | Grant Date Fair Value of Stock and Option Awards(5) | |||||||||||||||||||||||||||||||||||
| Threshold | Target | Maximum | Threshold | Target | Maximum | |||||||||||||||||||||||||||||||||||||
| ($) | ($) | ($) | (#) | (#) | (#) | (#) | ($) | |||||||||||||||||||||||||||||||||||
| STIP | — | — | $ | 152,751 | $ | 305,501 | $ | 611,000 | — | — | — | — | — | ||||||||||||||||||||||||||||
Christine L. Walker | 2022 Performance- Adjusted RSUs – | 3/1/22 | 2/4/22 | — | — | — | 1,272 | 5,088 | 10,176 | — | $ | 212,742 | ||||||||||||||||||||||||||||||
| 2022 Performance- Adjusted RSUs – | 3/1/22 | 2/4/22 | — | — | — | 2,544 | 10,176 | 20,352 | — | $ | 425,499 | |||||||||||||||||||||||||||||||
| STIP | — | — | $ | 552,227 | $ | 1,104,452 | $ | 2,208,905 | — | — | — | — | — | ||||||||||||||||||||||||||||
Steven E. Strah | 2022 Performance- Adjusted RSUs – | 3/1/22 | 2/4/22 | — | — | — | 13,156 | 52,622 | 105,244 | — | $ | 2,200,340 | ||||||||||||||||||||||||||||||
| 2022 Performance- Adjusted RSUs – | 3/1/22 | 2/4/22 | — | — | — | 26,311 | 105,245 | 210,490 | — | $ | 4,400,714 | |||||||||||||||||||||||||||||||
(1) Except as noted in this footnote, the effective grant date for the 2022 Performance-Adjusted RSUs is March 1, 2022, due to the accounting rules under FASB ASC Topic 718. The effective grant date for the 2022 Performance-Adjusted RSUs (stock-based) granted to Mr. Somerhalder is May 17, 2022. The effective grant date for the time-based restricted stock units granted to Mr. Somerhalder is October 28, 2022.
(2) The dates set forth in the “Board Action Date” column for these awards represent the date your Board took action to grant the awards.
(3) The amounts set forth in the “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards” columns reflect the potential payouts for each NEO under the STIP based upon the achievement of KPIs described in the CD&A. If the threshold level of performance was not achieved, no payout would have been made. The amounts reported in this column were calculated using annualized STIP target opportunity levels as a percent of base salary, prorated for Mr. Somerhalder during his role as Vice Chair and Executive Director or Interim President and CEO, as applicable, and Mr. Strah’s retirement on September 16, 2022.
(4) The amounts set forth in the “Estimated Future Payouts Under Equity Incentive Plan Awards” columns reflect the threshold, target, and maximum payouts for each NEO, based upon the achievement of the performance measures described in the CD&A and reported in the Stock Awards column of the SCT. The Performance-Adjusted RSUs-Cash-Based amounts have been rounded in this table. If the threshold level of performance is not achieved, no payout will be made.
(5) The grant date fair value was computed in accordance with FASB ASC Topic 718 and is also reported in the “Stock Awards” column of the SCT. The Performance-Adjusted RSUs components are valued based on a Monte-Carlo simulation of $40.331 for the Operating EPS portion of the 2022 Performance-Adjusted RSUs (other than Mr. Somerhalder); $44.567 for the Relative TSR portion of the 2022 Performance-Adjusted RSUs (other than Mr. Somerhalder); $40.639 for the Operating EPS portion of the 2022 Performance-Adjusted RSUs (for Mr. Somerhalder); and $41.667 for the Relative TSR portion of the 2022 Performance-Adjusted RSUs (for Mr. Somerhalder). The time-based restricted stock units (for Mr. Somerhalder) are valued at $37.710 based on the average high and low stock price on the grant date.
| 87 | FIRSTENERGY CORP. |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
Performance-Adjusted RSUs
The following chart summarizes the details of the LTIP grants for the 2022-2024 cycle:
Weighting | 2/3rd stock-based and 1/3rd cash-based (solely stock-based for Mr. Somerhalder) | |
Granted | Annually (one-time grant for Mr. Somerhalder) | |
Grant Date | In March (in May for Mr. Somerhalder) | |
Grant Price | Average high and low stock price on the grant date (to convert the target LTIP opportunity for each eligible NEO into units); Monte Carlo simulation is used to determine the grant date fair value under FASB ASC Topic 718 | |
Performance Period | 3 years, cliff vest on March 1 | |
Performance Measures | Cumulative Operating EPS and Relative TSR | |
Threshold Opportunity Payout | 25% | |
Target Opportunity Payout | 100% (capped at a target level of payout if the Company’s absolute TSR is negative for the three-year performance period) | |
Maximum Opportunity Payout | 200% | |
Settled | Stock or cash, as applicable | |
Dividend Equivalent Units | Reinvested based on the average high and low stock price on the payable date, subject to same restrictions as initial grant | |
Payout | Based on the average high and low stock price on the vesting date | |
Performance-adjusted RSUs are described in the CD&A and are a component of our LTIP. On March 1, 2023, the performance-adjusted RSUs granted in 2020 became vested. As previously stated, the two performance measures in the LTIP 2020-2022 cycle, along with the 25% reduction based on performance of the relative TSR modifier and the absolute TSR being negative, resulted in a payout capped at 100% of target opportunity for this grant. The vesting period for performance-adjusted RSUs granted in 2021 and 2022 will end on March 1, 2024, and March 1, 2025, respectively, although performance is measured through December 31 of the year prior to vesting. Performance-adjusted RSUs settled in stock are treated as a fixed expense and performance adjusted RSUs settled in cash are treated as a mark-to-market expense for accounting purposes and are valued in accordance with FASB ASC Topic 718.
For more information regarding performance-adjusted RSUs and time-based restricted stock units awarded to Mr. Somerhalder in 2022, see the “Performance-based and Time-Based Equity Awards for Mr. Somerhalder” section of the CD&A.
Other Information
For more information regarding certain compensation arrangements with our NEOs, please refer to the “Potential Post-Employment Payments” section. For more information regarding the amount of various compensation elements in proportion to total compensation, see the NEO pay mix charts in the “Compensation Mix” section.
| 2023 PROXY STATEMENT | 88 |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
Outstanding Equity Awards at Fiscal Year-End 2022
The following table summarizes the outstanding equity award holdings of our NEOs as of December 31, 2022:
| Stock Awards | ||||||||||||||||||||
Name | Grant Type(1) | Number of Shares or Units of Stock That Have Not Vested (#)(3)(4) | Market Value of Shares or Units of Stock That Have Not Vested ($)(5) | Grant Type(1) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(3)(4) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(5) | ||||||||||||||
John W. Somerhalder II | 2022 Time-Based RSUs – Stock-Based | 53,760 | $ | 2,254,694 | 2021 Performance-Adjusted RSUs – Stock-Based | 70,354 | $ | 2,950,647 | ||||||||||||
| 2022 Performance-Adjusted RSUs – Stock-Based | 8,960 | $ | 375,782 | |||||||||||||||||
K. Jon Taylor | 2020 Performance-Adjusted RSUs – Stock-Based | 11,993 | $ | 502,986 | 2021 Performance-Adjusted RSUs – Stock-Based | 67,760 | $ | 2,841,854 | ||||||||||||
| 2020 Performance-Adjusted RSUs – Cash-Based | 5,945 | $ | 249,333 | 2021 Performance-Adjusted RSUs – Cash-Based | 33,677 | $ | 1,412,413 | |||||||||||||
| 2022 Performance-Adjusted RSUs – Stock-Based | 64,874 | $ | 2,720,816 | |||||||||||||||||
| 2022 Performance-Adjusted RSUs – Cash-Based | 32,243 | $ | 1,352,271 | |||||||||||||||||
Samuel L. Belcher | RS(2) | 13,792 | $ | 578,436 | 2021 Performance-Adjusted RSUs – Stock-Based | 70,270 | $ | 2,947,124 | ||||||||||||
| 2020 Performance- Adjusted RSUs – Stock- | 25,827 | $ | 1,083,184 | 2021 Performance-Adjusted RSUs – Cash-Based | 34,924 | $ | 1,464,713 | |||||||||||||
| 2020 Performance-Adjusted RSUs – Cash-Based | 12,831 | $ | 538,132 | 2022 Performance-Adjusted RSUs – Stock-Based | 61,982 | $ | 2,599,525 | |||||||||||||
| 2022 Performance-Adjusted RSUs – Cash-Based | 30,806 | $ | 1,292,004 | |||||||||||||||||
Hyun Park | 2020 Performance-Adjusted RSUs – Stock-Based | 23,300 | $ | 977,202 | 2021 Performance-Adjusted RSUs – Stock-Based | 58,608 | $ | 2,458,020 | ||||||||||||
| 2021 Performance-Adjusted RSUs – Cash-Based | 29,304 | $ | 1,229,010 | |||||||||||||||||
| 2022 Performance-Adjusted RSUs – Stock-Based | 51,962 | $ | 2,179,286 | |||||||||||||||||
| 2022 Performance-Adjusted RSUs – Cash-Based | 25,981 | $ | 1,089,643 | |||||||||||||||||
Christine L. Walker | 2020 Performance-Adjusted RSUs – Stock-Based | 9,028 | $ | 378,634 | 2021 Performance-Adjusted RSUs – Stock-Based | 23,012 | $ | 965,123 | ||||||||||||
| 2020 Performance-Adjusted RSUs – Cash-Based | 4,462 | $ | 187,136 | 2021 Performance-Adjusted RSUs – Cash-Based | 11,373 | $ | 476,984 | |||||||||||||
| 2022 Performance-Adjusted RSUs – Stock-Based | 20,934 | $ | 877,972 | |||||||||||||||||
| 2022 Performance-Adjusted RSUs – Cash-Based | 10,467 | $ | 438,986 | |||||||||||||||||
| 89 | FIRSTENERGY CORP. |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
| Stock Awards | ||||||||||||||||||||
Name | Grant Type(1) | Number of Shares or Units of Stock That Have Not Vested (#)(3)(4) | Market Value of Shares or Units of Stock That Have Not Vested ($)(5) | Grant Type(1) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(3)(4) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(5) | ||||||||||||||
Steven E. Strah(6) | 2020 Performance-Adjusted RSUs – Stock-Based | 23,204 | $ | 973,176 | 2021 Performance-Adjusted RSUs – Stock-Based | 99,182 | $ | 4,159,693 | ||||||||||||
| 2020 Performance-Adjusted RSUs – Cash-Based | 11,673 | $ | 489,566 | 2021 Performance-Adjusted RSUs – Cash-Based | 49,591 | $ | 2,079,847 | |||||||||||||
| 2022 Performance-Adjusted RSUs – Stock-Based | 36,084 | $ | 1,513,363 | |||||||||||||||||
| 2022 Performance-Adjusted RSUs – Cash-Based | 18,042 | $ | 756,681 | |||||||||||||||||
(1) The awards set forth in the “Grant Type” column are described in the CD&A and Grants of Plan-Based Awards narrative section of this Proxy Statement. The vesting dates are as follows: 2020 performance-adjusted RSU – stock-based (March 1, 2023); 2020 performance-adjusted RSU – cash-based (March 1, 2023); 2021 performance-adjusted RSU – stock-based (March 1, 2024); 2021 performance-adjusted RSU – cash-based (March 1, 2024); 2022 performance-adjusted RSU – stock-based (March 1, 2025); 2022 performance-adjusted RSU – cash-based (March 1, 2025); and Mr. Somerhalder’s time-based RSU – stock-based is based on a value of $600,000 for each month of his interim executive service (prorated for partial months of service) based on FirstEnergy’s average of the highest and lowest closing stock price during each such month or partial month of service, plus dividend equivalents. In January of 2023, Mr. Somerhalder received a Share Payment for the months during 2022 in which he provided interim executive service, and in general in January 2024, Mr. Somerhalder is expected to receive a second Share Payment for the months during 2023 in which he provides interim executive service through June 30, 2023, conditioned on Mr. Somerhalder remaining in his current role as of such date. Mr. Somerhalder’s second Share Payment will vest the earlier of July 5, 2023, or on a prorated basis upon the transition to the new CEO. The Share Payments for Mr. Somerhalder are paid in fully vested shares of FirstEnergy common stock (net of taxes) and are subject to a one-year holding period following his interim executive service.
(2) Mr. Belcher’s restricted stock award vested 50% on March 8, 2020, and the remaining 50% will vest on March 8, 2025, based on continued service.
(3) The number of shares set forth in both the “Number of Shares or Units of Stock That Have Not Vested” and the “Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested” columns include all dividends or dividend equivalents earned and reinvested through December 31, 2022. The Performance-Adjusted RSUs have been rounded up to the nearest whole unit in this table.
(4) The number of shares or units set forth in the “Number of Shares or Units of Stock That Have Not Vested” column is based on target performance of 100% for the 2020 performance-adjusted RSUs. This payout result is capped at 100% as the absolute TSR for the 2020-2022 LTIP cycle is negative and the absolute TSR cap applies. For the 2021-2023 and 2022-2024 LTIP cycles, maximum performance (200%) is assumed.
(5) The values set forth in both the “Market Value of Shares or Units of Stock That Have Not Vested” and the “Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested” columns are determined by multiplying the number of shares or units by our common stock closing price of $41.94 on December 30, 2022.
(6) The number of shares or units and dollar values have been prorated in the table to reflect Mr. Strah’s retirement effective September 16, 2022. For more information about prorated awards and payouts for 2022, refer to the “Realized Compensation” section in the CD&A.
| 2023 PROXY STATEMENT | 90 |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
Option Exercises and Stock Vested in 2022
The following table summarizes the vesting of stock awards held by our NEOs during 2022.
| Stock Awards | ||||||||||||
Name | Award Type | Number of Shares Acquired on Vesting (#)(1)(2) | Value Vesting | |||||||||
John W. Somerhalder II | 2021 Restricted Stock Award | 37,139 | $ | 1,563,552 | ||||||||
| 2021 Restricted Stock Award – Cash Dividend | — | $ | 72,421 | |||||||||
K. Jon Taylor | 2019 Performance-Adjusted RSUs (stock-based) | 10,659 | $ | 443,095 | ||||||||
| 2019 Performance-Adjusted RSUs (cash-based) | — | $ | 221,517 | |||||||||
Samuel L. Belcher | 2019 Performance-Adjusted RSUs (stock-based) | 30,744 | $ | 1,278,028 | ||||||||
| 2019 Performance-Adjusted RSUs (cash-based) | — | $ | 643,453 | |||||||||
Hyun Park | 2019 Performance-Adjusted RSUs (stock-based) | 14,385 | $ | 597,984 | ||||||||
| — | — | |||||||||||
Christine L. Walker | 2019 Performance-Adjusted RSUs (stock-based) | 9,391 | $ | 390,384 | ||||||||
| 2019 Performance-Adjusted RSUs (cash-based) | — | $ | 197,856 | |||||||||
| 2015 Restricted Stock Award | 13,373 | $ | 546,455 | |||||||||
Steven E. Strah | 2019 Performance-Adjusted RSUs (stock-based) | 35,967 | $ | 1,495,148 | ||||||||
| 2019 Performance-Adjusted RSUs (cash-based) | — | $ | 742,784 | |||||||||
(1) For all NEOs other than Mr. Somerhalder, the number of shares set forth in the “Number of Shares Acquired on Vesting” column reflect the number of 2019 performance-adjusted RSUs (settled in stock), which vested on March 1, 2022. For Mr. Somerhalder, this column reflects the number of shares of restricted stock (rounded) that vested 100% on May 20, 2022 upon the completion of his initial executive service to FirstEnergy. For Ms. Walker, this column also reflects the number of shares of restricted stock (rounded) that vested on September 15, 2022. The number of shares includes dividend equivalent units earned and reinvested through the vesting date unless otherwise noted.
(2) The number of units from the 2019 performance-adjusted RSUs (settled in cash), which vested on March 1, 2022 are as follows: Mr. Taylor: 5,328.763; Mr. Belcher: 15,478.785; Ms. Walker: 4,759.587; and Mr. Strah: 17,868.270. The number of units includes dividend equivalent units earned and reinvested through the vesting date.
(3) The amounts set forth in the “Value Realized on Vesting” column are based on the average high/low stock price on the vesting date, which was $41.57 for the 2019 performance-adjusted RSUs, $42.10 for Mr. Somerhalder’s 2021 Restricted Stock Award and $40.86 for Ms. Walker’s 2015 Restricted Stock Award. The performance-adjusted RSUs for all NEOs, other than Mr. Somerhalder, were paid at 127% of target. The amounts include certain stock-based 2019 performance-adjusted RSUs that were deferred under the EDCP according to the NEOs’ election in the following amounts: $416,116 for Mr. Taylor; and $1,197,258 for Mr. Belcher. Based on the terms of Mr. Somerhalder’s 2021 Restricted Stock award agreement, the dividends earned were paid in cash upon vesting of the award.
| 91 | FIRSTENERGY CORP. |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
Post-Employment Compensation
Pension Benefits as of December 31, 2022
The following table provides information regarding the pension benefits of our NEOs as of December 31, 2022:
Name | Plan Name | Number of Years Credited Service (#)(1) | Present Value of Accumulated Benefit ($)(2) | Payments During Fiscal ($) | ||||||||
John W. Somerhalder II (3) | Qualified Plan |
| 1 |
| $42,172 |
| — |
| ||||
Nonqualified (Supplemental) Plan | N/A |
| — |
| ||||||||
Nonqualified (Cash Balance Restoration Plan) |
| 1 |
| $116,202 |
| — |
| |||||
Total | $158,374 |
| — |
| ||||||||
K. Jon Taylor | Qualified Plan |
| 13 |
| $317,838 |
| — |
| ||||
Nonqualified (Supplemental) Plan |
| 13 |
| $875,427 |
| — |
| |||||
Nonqualified (Cash Balance Restoration Plan) | N/A |
| — |
| ||||||||
Total | $1,193,265 |
| — |
| ||||||||
Samuel L. Belcher | Qualified Plan |
| 10 |
| $306,281 |
| — |
| ||||
Nonqualified (Supplemental) Plan |
| 15 |
| $1,746,819 |
| — |
| |||||
Nonqualified (Cash Balance Restoration Plan) | N/A |
| — |
| ||||||||
Total | $2,053,100 |
| — |
| ||||||||
Hyun Park (3) | Qualified Plan |
| 1 |
| $42,172 |
| — |
| ||||
Nonqualified (Supplemental) Plan | N/A |
| — |
| ||||||||
Nonqualified (Cash Balance Restoration Plan) |
| 1 |
| $99,446 |
| — |
| |||||
Total | $141,618 |
| — |
| ||||||||
Christine L. Walker | Qualified Plan |
| 37 |
| $1,927,245 |
| — |
| ||||
Nonqualified (Supplemental) Plan |
| 37 |
| $3,017,516 |
| — |
| |||||
Nonqualified (Cash Balance Restoration Plan) | N/A |
| — |
| ||||||||
Total | $4,944,761 |
| — |
| ||||||||
Steven E. Strah (4) | Qualified Plan |
| 38 |
| $1,922,541 | $ | 30,659 |
| ||||
Nonqualified (Supplemental) Plan |
| 38 |
| $12,487,530 | $ | 2,919 |
| |||||
Nonqualified (Cash Balance Restoration Plan) | N/A |
| — |
| ||||||||
Total | $14,410,071 | $ | 33,578 |
| ||||||||
(1) Pursuant to a historical arrangement, Mr. Belcher is eligible to receive five additional years of credited service for purposes of the nonqualified (supplemental) pension calculation, resulting in 15 years of credited service. As a result of this arrangement, the amounts in the Present Value of Accumulated Benefit column for Mr. Belcher has an increased value of $689,060.
(2) The amounts set forth in the “Present Value of Accumulated Benefit” column are determined as of December 31, 2022, using the following assumptions: December 31, 2022 discount rates of 5.23% (qualified plan), 5.20% (nonqualified supplemental plan) and 5.05% (nonqualified cash balance restoration plan) and the Pri-2012 mortality table projected generationally using scale MP-2020 (base year 2012) for the qualified plan and Pri-2012 mortality table with white collar adjustment projected generationally using scale MP-2020 (base year 2012) for the nonqualified plans at the earliest unreduced age.
(3) As of December 31, 2022, Mr. Somerhalder and Mr. Park are not vested in their pension benefits. In recognition of Mr. Park’s extensive legal and energy sector expertise and in order to incentivize Mr. Park to join the Company as well as encourage retention, Mr. Park will be provided an additional credit of $275,000 into the Cash Balance Restoration Plan after five years of continuous employment.
(4) Mr. Strah retired effective September 16, 2022.
Pension Benefits
Qualified and Nonqualified Plans
We offer qualified and nonqualified pension plans to provide retirement benefits to our NEOs. We pay the entire cost of these plans. Retirement benefits from the qualified plan provided under the FirstEnergy Corp. Master Pension Plan (“Master Pension
| 2023 PROXY STATEMENT | 92 |
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Plan”) for employees hired prior to January 1, 2014, are calculated using pensionable earnings up to the applicable federal and plan limits. The Master Pension Plan was amended to provide a cash-balance formula for all employees hired or rehired on or after January 1, 2014. In conjunction with the new cash-balance formula, the Company adopted a new nonqualified supplemental plan (“Cash Balance Restoration Plan”), which provides a benefit, based upon the cash-balance formula, to eligible executives hired or rehired on or after January 1, 2014, but without the restriction of federal limits that apply under the qualified pension plan. Messrs. Strah, Taylor and Belcher and Ms. Walker were hired prior to January 1, 2014, and are subject to the traditional pension formulas discussed below. Messrs. Park and Somerhalder were hired after January 1, 2014, and are subject to the cash-balance formula discussed below.
Traditional Supplemental Pension Plan: The traditional supplemental plan provided under the EDCP provides a benefit based upon the formula used in the qualified plan for pre-2014 hires but is calculated using all pensionable earnings without the restrictions of federal and certain plan limits. Based on the applicable formula of the plan under which the NEO is a participant, the retirement benefit from the qualified and nonqualified plans for pre-2014 hires will be the benefit determined using one or more of the following three formulas:
| 1. | Career Earnings Benefit Formula: A fixed (2.125%) factor is applied to the executive’s total career earnings to determine the accrued (age 65) career earnings benefit. Pensionable earnings under the career earnings formula generally include base salary, annual incentive awards, and other similar compensation. |
| 2. | Adjusted Highest Average Monthly Base Earnings Benefit Formula: The benefit is equal to the sum of A and B where A is the highest average monthly base earnings (“HAMBE”) times the sum of: |
| ◾ | 1.58% times the first 20 years of benefit service; |
| ◾ | 1.18% times the next 10 years of benefit service; |
| ◾ | 0.78% times the next 5 years of benefit service; |
| ◾ | 1.10% times each year of benefit service in excess of 35 years; |
and B is an amount equal to 0.32% times number of years of service (up to 35 years) times the difference between the HAMBE and the lesser of 150% of covered compensation or the Social Security Wage Base, except that B cannot be less than zero. |
The HAMBE for the qualified plan are the highest 48 consecutive months of base earnings the executive had in the 120 months immediately preceding retirement or other termination of employment. Pensionable earnings under the qualified plan HAMBE formula generally include base salary and deferred compensation of base salary after 2004. The pensionable earnings under the nonqualified plan HAMBE formula are the same as the qualified plan described above except that deferred compensation of base salary excluded under the qualified plan and annual incentive awards that are paid or deferred are included. Covered compensation represents the average (without indexing) Social Security Taxable Wage Base in effect for each calendar year during the 35-year period that ends when the executive reaches the Social Security normal retirement age. |
| 3. | Final Average Total Pay (“FATP”) Formula: The pension benefit under FATP is calculated by determining the HAMBE, multiplying this amount by a fixed factor (1.2%) and then multiplying it by the number of years of Benefit Service at the time of separation or retirement. This amount is then divided by 12 to determine the accrued and vested monthly pension benefit amount. |
Under the Master Pension Plan provisions for pre-2014 hires, normal retirement is at age 65 and the completion of five years of eligibility service. The earliest retirement is at age 55 if the employee has at least 10 years of eligibility service. Mr. Strah retired, and his reduced pension benefit is based on the Early Retirement Reduction Table below. Messrs. Taylor and Belcher will become eligible when they turn 55 in 2028 and 2023, respectively, and subject to the FATP early retirement reduction table. The earliest retirement age without reduction for the qualified plan is age 60 with the exception of those covered under the FATP plan. The earliest retirement age without reduction for FATP is age 62.
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Early Retirement Reduction Table
If payment begins at age | The benefit is multiplied by | |
60 and up | 100% | |
59 | 88% | |
58 | 84% | |
57 | 80% | |
56 | 75% | |
55 | 70% |
FATP Early Retirement Reduction Table
If payment begins at age | The benefit is multiplied by | |
62 and up | 100% | |
61 | 96% | |
60 | 92% | |
59 | 88% | |
58 | 84% | |
57 | 80% | |
56 | 76% | |
55 | 72% |
Under the Master Pension Plan provisions for pre-2014 hires, the accrued benefits vest upon the completion of five years of service. The benefits generally are payable in the case of a married employee in the form of a qualified spouse 50% joint and survivor annuity or in the case of an unmarried employee in the form of a single life annuity. Unmarried employees can designate a non-spouse beneficiary to receive up to a 100% joint and survivor annuity depending upon the non-spousal beneficiary’s age. For the married employee, there also is an option to receive the benefit as a joint and survivor annuity with or without a pop-up provision or a period certain annuity. The annuity provides a reduced monthly benefit, payable to the employee until death. If a joint and survivor annuity is chosen, the employee’s named beneficiary will receive 25%, 50%, 75%, or 100% of the employee’s benefit based on the employee’s and the beneficiary’s ages and the elected percentage to be continued after the employee’s death. Under the pop-up provisions, the monthly payment to the employee “pops-up” to the single life annuity amount if the beneficiary predeceases the employee. The period certain annuity provides a reduced benefit for the life of the employee and continues the benefit to the named beneficiary for a guaranteed period if the employee’s death occurs before the end of the 5, 10 or 15-year period, as elected. No further payments are made if the employee’s death occurs after the end of the elected period.
As noted in the CD&A, pursuant to a historical arrangement, Mr. Belcher is eligible to be credited with five years of additional service for purposes of calculating the supplemental pension benefit. For more information, refer to the “Pension Benefits as of December 31, 2022” table on page 92.
Cash Balance Formula and Cash Balance Restoration Plan: The Cash Balance Restoration Plan is a non-qualified plan providing certain key employees hired or rehired on or after January 1, 2014, with a benefit that is generally equal to the benefit that the participant would have been eligible to receive under the cash-balance formula of the qualified Master Pension Plan but for certain federal limitations.
Participants in the cash-balance portion of the Master Pension Plan receive a benefit amount based on a hypothetical account balance that is credited with Pay Credits and Interest Credits. A Pay Credit is credited annually and is equal to a percentage of the participant’s eligible compensation. Pensionable earnings include base salary, plus the following amounts paid within any specified period commencing on or after January 1, 2014: overtime pay; bonuses paid pursuant to a formal bonus program; annual incentives or cash sales incentive awards paid prior to termination of service; annual incentives that are earned after December 31, 2013, but deferred under a non-qualified plan; sales commissions; and lump sum merit awards. On December 31st of each year,
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the participant’s age (years and months) plus years of service (years and months) are added together to determine “points”. The participant’s points are used to determine the applicable Pay Credit percentage for the participant for that year, as shown in the chart below.
| Points (age + service) | Pay Credit | |
Less than 40 points | 4% | |
40 - 49 points | 5% | |
50 - 59 points | 6% | |
60 - 69 points | 7% | |
70 - 79 points | 8% | |
80+ points | 9% |
An Interest Credit is applied annually to a participant’s prior year account balance and is based on the 30-Year Treasury rate from November of the prior year.
A cash-balance participant will vest in their Master Pension Plan benefit after three years of eligible service. Regardless of the vested participant’s age at separation from service, the participant will have the option to defer or immediately commence their pension benefit at separation from service. Available forms of payment for the cash-balance portion of the Master Pension Plan include: Single Life Annuity, 50% Joint & Survivor Annuity, 75% Joint & Survivor Annuity, 100% Joint & Survivor Annuity and lump sum distribution. The Cash Balance Restoration Plan benefit is paid as a lump sum benefit as of the date of termination. Early reduction factors do not apply.
If the vested participant elects to defer the payment of the cash-balance benefit under the Master Pension Plan, annual Interest Credits will continue to apply until the participant elects to commence. If a vested participant dies before commencing benefits, a death benefit is generally payable to the participant’s surviving spouse or other beneficiary.
Effective as of their hires in 2021, Mr. Somerhalder and Mr. Park are participants in the cash-balance formula of the Master Pension Plan and in the Cash Balance Restoration Plan. As of December 31, 2022, Mr. Somerhalder and Mr. Park are not eligible for a pension benefit until the completion of three years of eligibility service.
Nonqualified Deferred Compensation as of December 31, 2022
The following table summarizes nonqualified deferred compensation earned or contributed by or on behalf of our NEOs during 2022.
Name | Executive Contributions in Last FY ($)(1) | Registrant Contributions in Last FY ($) | Aggregate Earnings in Last FY ($)(2) | Aggregate Withdrawals/ Distributions ($)(3) | Aggregate Balance at ($)(4) | |||||||||||||||
John W. Somerhalder II | $ | — | $ | — | $ | 26,806 | $ | 882,360 | $ | — | ||||||||||
K. Jon Taylor | $ | 399,332 | $ | — | $ | 193,926 | $ | — | $ | 4,572,973 | ||||||||||
Samuel L. Belcher | $ | — | $ | — | $ | 125,485 | $ | — | $ | 3,066,779 | ||||||||||
Hyun Park | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Christine L. Walker | $ | 161,866 | $ | — | $ | 89,750 | $ | — | $ | 1,912,030 | ||||||||||
Steven E. Strah | $ | 68,045 | $ | — | $ | 125,324 | $ | 335,359 | $ | 5,893,893 | ||||||||||
(1) The amount set forth in the “Executive Contributions in Last FY” column for Mr. Taylor includes the deferral of: (a) 2022 base salary in the amount of $78,342; (b) STIP earned in 2022 and deferred in 2023 in the amount of $132,288; and (c) 2020-2022 stock-based RSUs deferred in the amount of $188,702. The amount for Ms. Walker includes the deferral of: (a) 2022 base salary in the amount of $45,556; (b) STIP earned in 2022 and deferred in 2023 in the amount of $27,533; and (c) 2020-2022 stock-based RSUs deferred in the amount of $88,777. The amount for Mr. Strah includes the deferral of 2022 base salary in the amount of $68,045. The base salary amounts are also included in the Salary column of the current year Summary Compensation Table, and the 2022 STIP amounts are also included in the “Non-Equity Incentive Plan Compensation” column of the current year Summary Compensation Table.
(2) The compounded annual rate of return was 6.02% on pre-2013 retirement accounts, and 4.02% on the retirement accounts in 2013 and thereafter. The compounded annual rate of return on stock accounts was 4.82%, which includes dividends. The amounts set forth in the Aggregate Earnings in Last FY column include above-market earnings which have been reported in the Summary Compensation Table for 2022 as follows: Mr. Somerhalder: $8,535; Mr. Taylor: $9,412; Mr. Belcher: $3,126; Ms. Walker: $7,827; and Mr. Strah: $23,821.
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(3) The amounts set forth in the Aggregate Withdrawals/Distributions column include amounts distributed to Mr. Somerhalder and Mr. Strah in accordance with their specified distribution elections.
(4) The amounts set forth in the “Aggregate Balance at Last FYE” column include amounts reported in the Summary Compensation Tables in prior years as follows: Mr. Taylor: $404,683; Mr. Belcher: $2,239,395; Ms. Walker: $256,575; and Mr. Strah: $879,173. Mr. Somerhalder and Mr. Park did not have any outstanding balance at December 31, 2022.
EDCP
The EDCP is a nonqualified deferred compensation plan which provides for the voluntary deferral of compensation. Our NEOs (other than Mr. Somerhalder) may defer up to 50% of base salary, up to 85% of STIP awards and up to 85% of LTIP awards. In his role as Vice Chair and Executive Director through May 20, 2022, Mr. Somerhalder was eligible to defer up to 50% of base salary and up to 85% of STIP awards. Upon his appointment to Interim President and CEO effective September 16, 2022, Mr. Somerhalder was not eligible to participate as the EDCP requires that a former participant who becomes eligible again must wait 24 months from his most recent date of eligibility.
Two investment options are available under the EDCP. NEOs may direct deferrals of base salary and STIP awards to an annual cash retirement account, which accrues interest. The interest rate changes annually and is based upon the Moody’s Corporate Long-Term Bond Yield Index rate (later referred to as Moody’s). In 2022, the interest rate was based on the Moody’s rate plus one percentage point (4.02%) for amounts credited to accounts in 2013 or later and Moody’s plus three percentage points (6.02%) for amounts credited to accounts prior to 2013. NEOs may direct deferrals of STIP awards and performance-adjusted RSU LTIP awards to an annual stock account. The stock accounts are tracked in stock units and accrue additional stock units based upon the payment of dividends. The stock accounts are valued at the fair market value of our common stock. Payments made with respect to any dividend equivalent units that accrue after May 17, 2014, are paid in cash.
Effective for deferral elections made on or after November 1, 2015:
| ◾ | Participants may elect to defer RSUs only to the stock account, rather than to a separate RSU account; and |
| ◾ | Participants may no longer elect to receive a distribution after three years (or any later date specified by the participant, in the case of RSUs), as all amounts deferred to the stock account, including deferred RSUs, will be held in that account until separation from service, death, or disability, at which point it will be transferred to a participant’s retirement account and paid only in cash based on their distribution elections for the retirement account. |
NEOs may elect to receive distributions from the cash retirement accounts in any combination of lump sum payment and/or monthly installment payments for up to 25 years. Differing distribution elections may be made for retirement, disability, and pre-retirement death. In the event of involuntary separation prior to retirement eligibility, the accounts accrued and vested as of December 31, 2004, may be paid in a single lump sum payment or in three annual installments. In the event of a participant’s separation from service for reasons other than retirement, death or disability, accounts accrued on or after January 1, 2005, are paid in a single lump sum payment. Payments may not commence until separation from service. Amounts that were vested as of December 31, 2004, are available for an in-service withdrawal of the full account, subject to a 10% penalty. There is no in-service withdrawal option for retirement accounts accrued on or after January 1, 2005, other than as permitted for hardships under the EDCP.
For deferrals to the stock account prior to November 1, 2015, generally, stock account distributions were made in a lump sum payment in the form of our common stock at the end of the three-year period following the initial deferral, unless further deferred. If further deferred until termination or retirement (or for future deferrals, if termination occurred prior to the end of the initial three-year period, regardless of age at termination), the account was converted to cash, based upon the fair market value of the account at termination, and the balance was rolled over to the corresponding annual retirement account for distribution in lump sum or monthly installments as elected under the retirement account.
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Potential Post-Employment Payments
2022 Post-Termination Compensation and Benefits
The following table summarizes the compensation and benefits that would be payable to our continuing NEOs in the event of a termination or following a CIC absent a termination as of December 30, 2022, which is the last business day of the year.
| Retirement(1) | Involuntary Separation (Without Cause) | Termination Without Cause Following a CIC | Voluntary Termination (Pre-retirement Eligible)(1) | Involuntary Termination (For Cause)(1) | Death(1) | Disability(1) | ||||||||
Base Salary | Accrued through date of retirement | Accrued through date of termination | Accrued through date of change in control termination | Accrued through date of termination | Accrued through date of termination | Accrued through date of qualifying event | Accrued through date of qualifying event | |||||||
Severance Pay(2) | N/A | 3 weeks of pay for every full year of service (minimum of 52 weeks and capped at a maximum of 104 weeks), including the current year, calculated using base salary at the time of severance | 2 times the sum of base salary plus target annual STIP of which a portion is payable in consideration for the non- competition clause | N/A | N/A | N/A | N/A | |||||||
Banked Vacation | Paid in a lump sum and valued based on 12/31/2008 base salary | Paid in a lump sum and valued based on 12/31/2008 base salary | Paid in a lump sum and valued based on 12/31/2008 base salary | Paid in a lump sum and valued based on 12/31/2008 base salary | Paid in a lump sum and valued based on 12/31/2008 base salary | Paid in a lump sum and valued based on 12/31/2008 base salary | Paid in a lump sum and valued based on 12/31/2008 base salary | |||||||
Health and Wellness Benefits | May continue unsubsidized coverage | Provided at active employee rates for severance period(3) | Based on the terms of the CIC Plan(4) | Forfeited | Forfeited | Survivor health and wellness provided as eligible | Health and wellness provided as eligible | |||||||
STIP Award | Issued a prorated award based on elapsed days of service and actual performance | Issued a prorated award based on elapsed days of service and actual performance | Issued a prorated award at target based on elapsed days of service | Forfeited | Forfeited | Issued a prorated award based on elapsed days of service and actual performance | Issued a prorated award based on elapsed days of service and actual performance | |||||||
Performance- | Issued a prorated award based on full months of service and actual performance | Issued a prorated award based on full months of service and actual performance | Issued prorated award based on full months of service at target value | Forfeited | Forfeited | Issued a prorated award based on full months of service at target value | Issued a prorated award based on full months of service and actual performance | |||||||
Restricted Stock | Forfeited | Prorated or issued 100% of shares and all dividends accrued(5) | Issued 100% of shares and all dividends accrued | Forfeited | Forfeited | Issued 100% of shares and all dividends accrued | Issued 100% of shares and all dividends accrued | |||||||
EDCP (Elective | Payable as elected | Payable as elected if retirement eligible; otherwise payable in a lump sum upon termination | Payable as elected if retirement eligible; otherwise payable in a lump sum upon termination | Payable in a lump sum upon termination | Payable as elected upon termination if retirement eligible; otherwise payable in a lump sum upon termination | Payable to survivor as elected | Payable as elected | |||||||
Excise Tax Gross Up under Section 280G | No | No | No | No | No | No | No | |||||||
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(1) Benefits provided in these scenarios are provided to all employees on the same terms, if applicable.
(2) Mr. Taylor, Mr. Belcher, Mr. Park, and Ms. Walker are eligible to receive severance pay benefits and a prorated STIP award in the event of an involuntary separation (without cause) based on the formula set forth in the chart. Mr. Somerhalder is not a participant in the Severance Plan as the CEO’s severance is determined by the Board. Mr. Somerhalder ceased to be a participant in the CIC Plan upon being named Chair of the Board in May 2022. Under the CIC Plan, each of the other continuing NEOs is eligible to receive severance pay benefits in the event of a termination without cause following a change in control based on the formula set forth in the chart.
(3) Active employee health and wellness benefits are provided under the Severance Plan for the severance period, which is equal to three weeks for every year of service, including the current year (52 week minimum and 104 week maximum).
(4) Ms. Walker is the only continuing NEO eligible for retirement and would receive retiree health and wellness benefits irrespective of a CIC.
(5) Restricted stock award for Mr. Belcher is paid at target in the event of an involuntary separation (without cause), provided that Mr. Belcher executes a release agreement.
The potential post-employment payments discussed in each termination section below disclose the estimated payments and benefits payable to the continuing NEOs upon certain triggering events representing the enhanced or accelerated value of payments and benefits and do not include previously earned and vested amounts payable to such continuing NEOs regardless of the applicable triggering event that have been accrued but not yet paid. The post-termination benefit calculations are based on the following assumptions:
| ◾ | The amounts disclosed are estimates of the amounts which would be paid out to the continuing NEOs based on the triggering event. The actual amounts can be determined only at the time of payment. |
| ◾ | The amounts disclosed do not include benefits provided under the qualified plan, nonqualified supplemental plan and nonqualified cash balance restoration plan as described in the Pension Benefits section and shown in the Pension Benefits table (at the earliest commencement date without reduction) earlier in this Proxy Statement, unless expressly noted. |
| ◾ | The amounts disclosed do not include compensation previously earned and deferred into the EDCP. The year-end account balances of the continuing NEOs in the EDCP are set forth in the Nonqualified Deferred Compensation table earlier in this Proxy Statement. These amounts are payable to the continuing NEO based on the distribution elections made by the continuing NEO at the time the deferral was elected. |
| ◾ | December 30, 2022, is the last day of employment. |
| ◾ | All employees, including the NEOs, are eligible for a full year payout based on actual performance under the STIP if they are employed on December 30, 2022. The 2022 STIP amounts are provided in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table. |
| ◾ | The LTIP and Other Award Payments Under Termination table below includes performance-adjusted RSUs and restricted stock. |
| ◾ | The closing common stock price on December 30, 2022, the last trading day of the year ($41.94), is applied to value performance-adjusted RSUs and restricted stock. |
| ◾ | Actual performance is utilized for the 2020-2022 performance-adjusted RSUs. Target payout is assumed for the 2021-2023 and 2022-2024 performance-adjusted RSUs. |
| ◾ | Health care amounts are not provided in most cases since they are available to all employees under the same circumstances. |
Although not included in the chart above, Mr. Somerhalder’s time-based restricted stock units granted on October 28, 2022, and outstanding as of December 30, 2022, will be forfeited in the event of a voluntary termination or involuntary termination (for cause). In the event of death, disability or termination without cause following a CIC, the award will be issued 100% of shares and all dividends accrued. The award will be paid at target in the event of an involuntary separation (without cause), provided that Mr. Somerhalder executes a release agreement. Mr. Somerhalder’s outstanding performance-based restricted stock units follows the same treatment as the Performance-Adjusted RSUs outlined in the table above.
Retirement/Voluntary Termination
In the event of a continuing NEO’s retirement, the continuing NEO’s outstanding equity awards would be prorated and vest based on actual performance as described in the 2022 Post-Termination Compensation and Benefits table above and quantified in the LTIP and Other Award Payments Under Termination table below. Messrs. Somerhalder, Taylor, Belcher, and Park are not yet retirement eligible as of December 31, 2022, and their outstanding equity awards would be forfeited in the event of a voluntary termination.
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The present value of the qualified plan, nonqualified supplemental plan, and the Cash Balance Restoration Plan benefits as shown in the Pension Benefits table reflects commencement of retirement benefits at the continuing NEOs’ earliest age necessary to receive pension benefits without reduction. Ms. Walker is currently eligible to commence pension benefits in a reduced amount, as described in the “Pension Benefits” section of the CD&A. Messrs. Taylor and Belcher are entitled to accrued and vested qualified plan and nonqualified supplemental plan benefits as shown in the Pension Benefits table, which cannot be commenced until they meet the age requirement. Messrs. Park and Somerhalder were not yet vested in the qualified plan and Cash Balance Restoration Plan as of December 30, 2022.
Involuntary Separation
In the event of an involuntary separation, the CEO’s severance benefits, if any, would be determined by the Compensation Committee and approved by the independent members of your Board. The other continuing NEOs are covered under the Severance Plan. Under the Severance Plan, executives are offered severance benefits if involuntarily separated when business conditions require the closing or sale of a facility, corporate restructuring, merger, acquisition, a reduction in workforce, or job elimination. Severance is also offered if an executive turns down a job assignment that: would result in a reduction of at least 15% in current base salary; contains a requirement that the executive must relocate from his or her current residence for reasons related to the new job; or would result in the distance from the executive’s current residence to his or her new reporting location being at least 50 miles farther than his or her current residence to his or her previous reporting location. The Severance Plan provides three weeks of base pay for each full year of service with a minimum of 52 weeks and a maximum severance benefit of 104 weeks of base pay. In the event of a December 30, 2022, involuntary separation, lump sum severance pay would be provided as follows: Mr. Somerhalder – $1,250,000 (assuming the independent members of the Board approves the same level of benefits as the other continuing NEOs would receive); Mr. Taylor – $850,000; Mr. Belcher – $750,000; Mr. Park – $700,000; and Ms. Walker – $940,000. Each of the continuing NEOs would also be provided prorated vesting for certain outstanding equity as described in the 2022 Post-Termination Compensation and Benefits table and quantified in the LTIP and Other Award Payments Under Termination table.
On February 9, 2023, upon the recommendation of the Compensation Committee of the Board, the Board approved a new policy effective immediately that cash severance payable under the Severance Plan or pursuant to any individual contract with an executive officer will not exceed 2.99 times the sum of the executive officer’s base salary plus target annual incentive opportunity under the Short-Term Incentive Program, unless the Company seeks shareholder approval.
Termination Following a CIC
As described above, the continuing NEOs were participants in the CIC Plan through December 30, 2022, except for Mr. Somerhalder who ceased to be a participant upon becoming Chair of the Board in May 2022. Under the CIC Plan, certain enhanced benefits would be provided in the event of a termination without cause or for good reason within two years following a CIC. Under the Incentive Compensation Plans, it is our customary practice to require a qualifying termination of employment for acceleration of the vesting of equity awards in the event of a change in control rather than providing for accelerated vesting solely upon a change in control. In the event a continuing NEO accepts benefits under the CIC Plan, the continuing NEO would be prohibited for two years from working for or with competing entities after receiving severance benefits pursuant to the CIC Plan, and would be prohibited from disclosing trade secrets or other confidential information indefinitely.
Generally, pursuant to the CIC Plan and the Incentive Compensation Plans, a CIC is deemed to occur:
| (1) | If any person acquires 25% or more of our voting securities (excluding acquisitions (a) directly from us, (b) by us, (c) by certain employee benefit plans, or (d) pursuant to a transaction meeting the requirements of item (3) (a) – (c) below); or |
| (2) | If a majority of our directors as of the date of the agreement are replaced (other than in specified circumstances); or |
| (3) | Upon the consummation of a major corporate event (defined to include reorganizations and certain asset sales) unless, following such transaction: |
| (a) | The same person or persons who owned our voting securities prior to the transaction own more than 60% of our voting securities after the transaction; |
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| (b) | No person or entity (with certain exceptions) owns 25% or more of our voting securities; and |
| (c) | At least a majority of the directors resulting from the transaction were directors at the time of the execution of the agreement providing for such transaction; or |
| (4) | If our shareholders approve a complete liquidation or dissolution. |
For a complete CIC definition explanation, see the CIC Plan, and the Incentive Compensation Plans. The CIC severance benefits are triggered only if the continuing NEO is terminated without cause or resigns for good reason within two years following a CIC. Good reason is generally defined as a material change, following a CIC, inconsistent with the individual’s previous job duties or compensation. The Incentive Compensation Plans only provide a termination without cause provision and do not have a good reason definition for the accelerated vesting of the equity awards. We do not gross up equity or cash awards to cover the tax obligations for executives.
In the event of a December 30, 2022, qualifying termination following a CIC, compensation in an amount equal to two times the sum of the amount of annual base salary plus the target annual STIP amount as applicable, in the year during which the date of termination occurs, whether or not fully paid, will be provided as follows: Mr. Taylor – $3,323,000; Mr. Belcher – $2,625,001; Mr. Park – $2,450,000; and Ms. Walker – $1,551,000. As Mr. Somerhalder was no longer a participant in the CIC Plan as of December 30, 2022, he would not receive severance benefits under the CIC Plan in this scenario. Mr. Somerhalder and any continuing NEO having an outstanding restricted stock award would be issued 100% of shares and all dividends accrued upon a change in control. The value of the restricted stock award as well as any performance-adjusted RSUs is quantified in the LTIP and Other Award Payments Under Termination table below. Excise tax and gross-up provisions are not provided under the CIC Plan. Continuing NEOs would be entitled to participate in the group health insurance plan for two years following the participant’s termination date except for Mr. Somerhalder who is not eligible to participate in the CIC Plan under the terms of his employment as Interim President and CEO. Finally, outplacement services are also offered to continuing NEOs, other than Mr. Somerhalder, for a one–year period, capped at $30,000.
Death & Disability
In the event of a continuing NEO’s death or Disability (as defined in the applicable plan documents) as of December 30, 2022, each of the NEOs would also be provided additional accelerated vesting for certain outstanding equity as described in the 2022 Post-Termination Compensation and Benefits table above and quantified in the LTIP and Other Award Payments Under Termination table below.
LTIP and Other Award Payments Under Termination
In the event of a continuing NEO’s retirement as of December 30, 2022, the continuing NEOs would be provided vested outstanding equity or cash awards as quantified in the Retirement/Voluntary Termination column of the LTIP and Other Award Payments Under Termination table below. In the event of involuntary separation, termination without cause following a CIC, death, or Disability, the continuing NEOs would be provided additional accelerated vesting for certain outstanding equity or cash awards based specifically on the triggering event as quantified in the respective columns of the LTIP and Other Award Payments Under Termination table below. Since 2010, awards of performance-adjusted RSUs require a termination without cause following a CIC for accelerated vesting. For purposes of the calculations in the table below, we have assumed the equity awards would be replaced by the successor prior to a termination without cause.
Retirement/ Voluntary Termination(1) | Involuntary Separation(2) | Death(3) | Disability(4) | Termination Without Cause Following a CIC(5) | ||||||||||||||||
John W. Somerhalder II |
| N/A |
| $ | 3,920,289 |
| $ | 3,920,289 |
| $ | 3,920,289 |
| $ | 3,920,289 |
| |||||
K. Jon Taylor |
| N/A |
| $ | 2,576,089 |
| $ | 2,576,089 |
| $ | 2,576,089 |
| $ | 2,576,089 |
| |||||
Samuel L. Belcher |
| N/A |
| $ | 3,998,183 |
| $ | 3,998,183 |
| $ | 3,998,183 |
| $ | 3,998,183 |
| |||||
Hyun Park |
| N/A |
| $ | 2,503,476 |
| $ | 2,503,476 |
| $ | 2,503,476 |
| $ | 2,503,476 |
| |||||
Christine L. Walker | $ | 1,157,831 |
| $ | 1,157,831 |
| $ | 1,157,831 |
| $ | 1,157,831 |
| $ | 1,157,831 |
| |||||
| 2023 PROXY STATEMENT | 100 |
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(1) The amounts set forth in the “Retirement/Voluntary Termination” column represent the estimated amounts based on a target opportunity payout for all outstanding LTIP cycles that would be payable to the continuing NEO as a result of retirement/voluntary termination on December 30, 2022. LTIP awards are prorated based on full months of service. At the time of payment, the LTIP awards will be adjusted for actual performance. If we applied the actual performance results for the 2020-2022 cycle, the values would be the same as above since the 2020-2022 cycle paid at 100% of target. Unvested restricted stock is forfeited. Messrs. Taylor and Belcher were not eligible to retire as of December 30, 2022, since they were only 49 and 54 years old, respectively. Messrs. Park and Somerhalder do not meet the retirement eligibility requirements under the LTIP as of December 30, 2022, since they do not have 10 years of service.
(2) The amounts set forth in the “Involuntary Separation” column represent the estimated amounts that would be payable to the continuing NEO as a result of a December 30, 2022, involuntary severance without cause. LTIP awards are prorated based on full months of service. At the time of payment, the LTIP awards will be adjusted for actual performance. If we applied the actual performance results for the 2020-2022 cycle, the values would be the same as above since the 2020-2022 cycle paid at 100% of target. The restricted stock award for Mr. Belcher is paid at target for an involuntary separation, provided that Mr. Belcher executes a release agreement.
(3) The amounts set forth in the “Death” column represent the estimated amounts that would be payable to the continuing NEO as a result of a death on December 30, 2022. In the event of a death, the LTIP awards are prorated and payable at target based on the fair market value on the date of death. All restricted stock awards fully vest, including the restricted stock awards for Mr. Belcher. LTIP amounts represented in the table are prorated based on full months of service at target.
(4) The amounts set forth in the “Disability” column represent the estimated amounts that would be payable to the continuing NEO as a result of termination due to Disability on December 30, 2022. LTIP awards are prorated and payable at the end of the performance period and based on actual performance. If we applied the actual performance results for the 2020-2022 cycle, the values would be the same as above since the 2020-2022 cycle paid at 100% of target. All restricted stock awards fully vest, including the restricted stock awards for Mr. Belcher. LTIP amounts represented in the table are prorated based on full months of service at target.
(5) The amounts set forth in the “Termination Without Cause following a CIC” column represent the estimated amounts that would be payable to the continuing NEO as a result of the double trigger vesting of awards effective as of December 30, 2022. Unvested restricted stock would fully vest at target in the event of a termination without cause following a CIC. LTIP awards are prorated at target in the event of a termination without cause following a CIC.
Departed NEO
The effective date of Mr. Strah’s retirement was September 16, 2022. Mr. Strah received $26,437 for 236 hours of banked and frozen vacation earned prior to 2008 and based on the effective pay rate as of December 31, 2008, when FirstEnergy’s vacation policies were revised, and employees and executives could no longer accumulate banked vacation. His outstanding incentive awards were prorated. Because Mr. Strah retired, he did not receive severance benefits or accelerated vesting of any incentive awards, or any enhanced compensation. For more information, refer to the “Key Executive Officer Transitions and Appointments” section on page 56 above.
CEO Pay Ratio
We believe our executive compensation program must be consistent and internally equitable to motivate our employees to perform in ways that enhance shareholder value. We are committed to internal pay equity, and our Compensation Committee annually reviews the internal pay ratio between our CEO’s total compensation and that for other NEOs and all non-executive employees. We had multiple CEOs in 2022 as a result of Mr. Strah’s retirement effective September 16, 2022. For purposes of this pay ratio disclosure, we have calculated the CEO annual total compensation based on the compensation of both Mr. Strah, who served as President and CEO for the majority of 2022, and Mr. Somerhalder who was serving as Interim President and CEO on the anniversary of the date used to identify the median employee in 2021. For 2022, the Compensation Committee elected to use the same median employee that was originally identified in 2021 to calculate our 2022 pay ratio calculation, as there has been no change to our employee population or employee compensation arrangements in the last fiscal year that we believe would have a significant impact on our pay ratio disclosure.
The process that we used to determine our “median employee” in 2021 is summarized below:
For 2021, we identified the median employee by analyzing the compensation of approximately 12,300 full-time, part-time, seasonal and temporary employees who were employed by us on December 31, 2021, and who had Form W-2 reportable earnings for 2021, other than Mr. Strah. As permitted by SEC rules, to determine the median employee, we calculated and ranked the taxable W-2 wages (Box 5) for 2021. Using this methodology, plus the consistently applied compensation measure, we identified our median employee for 2021.
We calculated the median employee’s annual total compensation for 2022 using the same calculation method as in the Summary Compensation Table, which resulted in median employee annual compensation of $130,212. As shown on the Summary Compensation Table, in 2022, Mr. Strah’s CEO Compensation was $9,268,371 and Mr. Somerhalder’s compensation was $3,663,808 based on both his roles as Vice Chair and Executive Director through May 2022 and Interim President and CEO from September 2022 through December 2022. When annualized to assume base salary earned for the full 2022 fiscal year, as well as the full year STIP at actual performance, the total CEO compensation for Mr. Strah is $10,028,647 and for Mr. Somerhalder is
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$10,024,632. As a result, we estimate that the ratio of CEO annualized total compensation to median employee annual total compensation for 2022 is approximately 77:1 when using either Mr. Strah’s or Mr. Somerhalder’s annualized compensation. We note that, due to our permitted use of reasonable estimates and assumptions in preparing this pay ratio disclosure, the disclosure may involve a degree of imprecision, and thus this pay ratio disclosure is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K using the data and assumptions described above. Given the different methodologies that various public companies will use to determine an estimate of their pay ratio, the estimated ratio reported above should not be used as a basis for comparison between companies.
| 2023 PROXY STATEMENT | 102 |
Proxy Summary | Corporate Governance & Board of Directors | Items to Be Voted On | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
| ◾ | The information in columns (b) and (d) of the PVP Table comes directly from this year’s Summary Compensation Table (or prior years’ Summary Compensation Tables), without adjustment; |
| ◾ | As required by the SEC’s PVP rules, we describe the information in columns (c) and (e) of the PVP Table as “compensation actually paid” (or “CAP”) to the applicable PVP NEOs. However, these CAP amounts may not necessarily reflect the final compensation that our NEOs actually earned or walked away with for their service in the Covered Years, respectively. As a result, we urge investors to use caution when evaluating CAP amounts; and |
| ◾ | As required by the SEC’s PVP rules, we provide information in the PVP Table below about our cumulative absolute total shareholder return (“TSR”) results, cumulative TSR results for a peer group of companies identified in the PVP Table (“EEI TSR”), and our U.S. GAAP net income results (the “External Measures”) during the Covered Years. The peer group used for purposes of this PVP Table disclosure is substantially different than the comparator companies against which we evaluate relative TSR performance for our named executive officers for purposes of our performance-adjusted RSU awards, as described above in our Compensation Discussion and Analysis. As a result, we did not necessarily design our NEO compensation to move in tandem with improving, declining or steady achievement in these External Measures. |
Pay Versus Performance Table (1) | ||||||||||||||||||||||||||||||||||||||||||||||||
Year (a) | Summary Compensation Table (SCT) Total for PEO Jones (b) | SCT Total for PEO Strah (b) | SCT Total for PEO Somerhalder (b) | Compensation Actually Paid to PEO Jones (c) (2) | Compensation Actually Paid to PEO Strah (c) (2) | Compensation Actually Paid to PEO Somerhalder (c) (2) | Average Summary Compensation Table Total for Non-PEO Named Executive Officers (d) | Average Compensation Actually Paid to Non-PEO Named Executive Officers (e) (2) | Value of Initial Fixed $100 Investment Based On: | Net Income (GAAP) (h) | Operating Earnings (i) (5)(6)(7) | |||||||||||||||||||||||||||||||||||||
FE TSR | EEI TSR | |||||||||||||||||||||||||||||||||||||||||||||||
(f) (3) | (g) (4) | |||||||||||||||||||||||||||||||||||||||||||||||
2022 | N/A | $9,268,371 | $3,663,808 | N/A | $4,461,489 | $3,931,015 | $3,195,262 | $3,846,919 | $97.88 | $117.09 | $439 | $1,376 | ||||||||||||||||||||||||||||||||||||
2021 | N/A | $10,714,062 | N/A | N/A | $11,432,150 | N/A | $4,368,522 | $5,296,905 | $93.42 | $115.76 | $1,283 | $1,438 | ||||||||||||||||||||||||||||||||||||
2020 | $10,066,956 | $5,792,232 | N/A | ($23,907,697) | ($1,673,575) | N/A | $2,407,686 | ($614,173) | $65.94 | $98.84 | $1,079 | $1,381 | ||||||||||||||||||||||||||||||||||||
PEO 2020-2022 | ||||
Name | Position Start Date | Position End Date | ||
John W. Somerhalder II | September 16, 2022 | Current | ||
Steven E. Strah | October 29, 2020 | September 16, 2022 | ||
Charles E. Jones | January 1, 2015 | October 29, 2020 | ||
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Non-PEO Named Executive Officers 2020-2022 | ||||||||||||
Name | 2020 | 2021 | 2022 | |||||||||
John W. Somerhalder II | ✓ | |||||||||||
K. Jon Taylor | ✓ | ✓ | ✓ | |||||||||
Samuel L. Belcher | ✓ | ✓ | ✓ | |||||||||
Hyun Park | ✓ | ✓ | ||||||||||
Christine L. Walker | ✓ | ✓ | ||||||||||
Gary D. Benz | ✓ | |||||||||||
Robert P. Reffner | ✓ | ✓ | ||||||||||
Item and Value Added (Deducted) | 2022 | 2021 | 2020 | |||||||||
SCT Total for Mr. Jones | N/A | N/A | $10,066,956 | |||||||||
- change in actuarial present value of pension benefits | ($2,983,653 | ) | ||||||||||
+ service cost of pension benefits | $447,581 | |||||||||||
+ prior service cost of pension benefits | N/A | |||||||||||
- SCT Stock Awards column value | ($6,028,833 | ) | ||||||||||
- SCT Option Awards column value | N/A | |||||||||||
+ year-end fair value of outstanding equity awards granted in covered year | $0 | |||||||||||
+/- change in fair value of outstanding equity awards granted in prior years | $0 | |||||||||||
+ vesting date fair value of equity awards granted and vested in covered year | N/A | |||||||||||
+/- change in fair value of prior-year equity awards vested in covered year | ($6,068,010 | ) | ||||||||||
- prior year-end fair value of prior year equity awards forfeited in covered year | ($19,341,739 | ) | ||||||||||
+ includable dividends/earnings on equity awards during covered year | N/A | |||||||||||
Compensation Actually Paid for Mr. Jones | N/A | N/A | ($23,907,697 | ) | ||||||||
Item and Value Added (Deducted) | 2022 | 2021 | 2020 | |||||||||
SCT Total for Mr. Strah | $9,268,371 | $10,714,062 | $5,792,232 | |||||||||
- change in actuarial present value of pension benefits | ($691,253 | ) | ($1,869,542 | ) | ($2,512,170 | ) | ||||||
+ service cost of pension benefits | $348,485 | $255,941 | $244,302 | |||||||||
+ prior service cost of pension benefits | N/A | N/A | N/A | |||||||||
- SCT Stock Awards column value | ($6,601,055 | ) | ($5,755,252 | ) | ($1,614,667 | ) | ||||||
- SCT Option Awards column value | N/A | N/A | N/A | |||||||||
+ year-end fair value of outstanding equity awards granted in covered year | $1,158,750 | $6,567,574 | $953,881 | |||||||||
+/- change in fair value of outstanding equity awards granted in prior years | $511,316 | $940,309 | ($3,464,040 | ) | ||||||||
+ vesting date fair value of equity awards granted and vested in covered year | N/A | N/A | N/A | |||||||||
+/- change in fair value of prior-year equity awards vested in covered year | $466,876 | $579,058 | ($1,073,113 | ) | ||||||||
- prior year-end fair value of prior year equity awards forfeited in covered year | N/A | N/A | N/A | |||||||||
+ includable dividends/earnings on equity awards during covered year | N/A | N/A | N/A | |||||||||
Compensation Actually Paid for Mr. Strah | $4,461,489 | $11,432,150 | ($1,673,575 | ) | ||||||||
2023 | 104 |
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Item and Value Added (Deducted) | 2022 | 2021 | 2020 | |||||||||
SCT Total for Mr. Somerhalder | $ | 3,663,808 | N/A | N/A | ||||||||
- change in actuarial present value of pension benefits | ($ | 115,970 | ) | |||||||||
+ service cost of pension benefits | $ | 98,356 | ||||||||||
+ prior service cost of pension benefits | N/A | |||||||||||
- SCT Stock Awards column value | ($ | 2,188,623 | ) | |||||||||
- SCT Option Awards column value | N/A | |||||||||||
+ year-end fair value of outstanding equity awards granted in covered year | $ | 2,442,000 | ||||||||||
+/- change in fair value of outstanding equity awards granted in prior years | ($ | 59,917 | ) | |||||||||
+ vesting date fair value of equity awards granted and vested in covered year | N/A | |||||||||||
+/- change in fair value of prior-year equity awards vested in covered year | $ | 18,941 | ||||||||||
- prior year-end fair value of prior year equity awards forfeited in covered year | N/A | |||||||||||
+ includable dividends/earnings on equity awards during covered year | $ | 72,421 | ||||||||||
Compensation Actually Paid for Mr. Somerhalder | $ | 3,931,015 | N/A | N/A | ||||||||
Item and Value Added (Deducted) | 2022 | 2021 | 2020 | |||||||||
Average SCT Total for Non-PEO Named Executive Officers | $3,195,262 | $4,368,522 | $2,407,686 | |||||||||
- change in actuarial present value of pension benefits | ($24,686 | ) | ($136,884 | ) | ($817,630 | ) | ||||||
+ service cost of pension benefits | $146,164 | $75,895 | $119,874 | |||||||||
+ prior service cost of pension benefits | N/A | N/A | N/A | |||||||||
- SCT Stock Awards column value | ($1,515,633 | ) | ($2,293,441 | ) | ($899,385 | ) | ||||||
- SCT Option Awards column value | N/A | N/A | N/A | |||||||||
+ year-end fair value of outstanding equity awards granted in covered year | $1,601,589 | $2,791,195 | $531,321 | |||||||||
+/- change in fair value of outstanding equity awards granted in prior years | $244,735 | $334,706 | ($1,561,408 | ) | ||||||||
+ vesting date fair value of equity awards granted and vested in covered year | N/A | N/A | N/A | |||||||||
+/- change in fair value of prior-year equity awards vested in covered year | $199,488 | $156,913 | ($394,631 | ) | ||||||||
- prior year-end fair value of prior year equity awards forfeited in covered year | N/A | N/A | N/A | |||||||||
+ includable dividends/earnings on equity awards during covered year | N/A | N/A | N/A | |||||||||
Compensation Actually Paid for non-PEO Named Executive Officers | $3,846,919 | $5,296,905 | ($614,173 | ) | ||||||||
| 105 | FIRSTENERGY CORP. |
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2023 | 106 |
Proxy Summary | Corporate Governance & Board of Directors | Items to Be Voted On | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
| Operating Earnings |
| FE Cash Flow |
| Cumulative Operating EPS Growth |
| Relative Total Shareholder Return |
| 107 | FIRSTENERGY CORP. |
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Director Compensation in Fiscal Year 2022
Name(1) | Fees Earned or Paid in Cash | Stock ($)(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) | All Other Compensation | Total ($) | |||||||||||||||
Michael J. Anderson(7) | $ | 47,390 | $ | 56,829 | $ | — | $ | 5,000 | $ | 109,219 | ||||||||||
Jana T. Croom(6) | $ | 69,588 | $ | 95,581 | $ | — | $ | — | $ | 165,169 | ||||||||||
Steven J. Demetriou | $ | 122,500 | $ | 152,449 | $ | — | $ | 9,634 | $ | 284,583 | ||||||||||
Lisa Winston Hicks | $ | 199,327 | $ | 152,449 | $ | — | $ | — | $ | 351,776 | ||||||||||
Julia L. Johnson(7) | $ | 43,599 | $ | 56,829 | $ | — | $ | — | $ | 100,428 | ||||||||||
Paul Kaleta | $ | 192,500 | $ | 152,449 | $ | — | $ | — | $ | 344,949 | ||||||||||
Sean T. Klimczak(6) | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
Jesse A. Lynn | $ | 177,500 | $ | 152,449 | $ | — | $ | — | $ | 329,949 | ||||||||||
Donald T. Misheff(7) | $ | 94,780 | $ | 56,829 | $ | — | $ | 16,574 | $ | 168,183 | ||||||||||
Thomas N. Mitchell(7) | $ | — | $ | 100,380 | $ | — | $ | — | $ | 100,380 | ||||||||||
James F. O’Neil III | $ | 20,000 | $ | 259,870 | $ | — | $ | — | $ | 279,870 | ||||||||||
Christopher D. Pappas(7) | $ | 37,912 | $ | 56,829 | $ | — | $ | — | $ | 94,741 | ||||||||||
Luis A. Reyes(7) | $ | 37,912 | $ | 56,829 | $ | — | $ | — | $ | 94,741 | ||||||||||
John W. Somerhalder II | $ | 83,608 | $ | $82,394 | $ | — | $ | — | $ | 166,002 | ||||||||||
Andrew Teno | $ | 107,500 | $ | 152,449 | $ | — | $ | — | $ | 259,949 | ||||||||||
Leslie M. Turner | $ | 125,000 | $ | 152,449 | $ | — | $ | — | $ | 277,449 | ||||||||||
Melvin D. Williams | $ | 185,000 | $ | 152,449 | $ | — | $ | — | $ | 337,449 | ||||||||||
(1) Steven E. Strah, former President and CEO, is excluded from this table. Compensation received by Mr. Strah for 2022 is shown in the “2022 Summary Compensation Table” above. For John W. Somerhalder II, this table reflects compensation for service as Board Chair from May 21, 2022 to September 15, 2022. Refer to the “2022 Summary Compensation Table” above for details about compensation for Mr. Somerhalder in his interim roles as Vice Chair and Executive Director prior to May 21, 2022 and as Interim President and CEO beginning September 16, 2022.
(2) The amounts set forth in the Fees Earned or Paid in Cash column consist of fees earned in cash whether paid in cash, deferred into the FirstEnergy Corp. Deferred Compensation Plan for Outside Directors (“DDCP”) or elected to be received in stock in lieu of cash.
(3) The amounts set forth in the Stock Awards column represent the equity retainer received under the FirstEnergy Corp. 2020 Incentive Compensation Plan (“2020 Incentive Plan”) in the form of shares of common stock. Each amount constitutes the aggregate grant date fair value of stock awards for fiscal 2022 calculated in accordance with FASB ASC Topic 718. The equity retainer is typically paid in quarterly installments. The fair value per share on the grant dates for each director listed in the table was: $46.12 on April 1, 2022; $38.90 on July 1, 2022; $37.64 on October 1, 2022; and $41.76 on January 3, 2023. Share amounts are rounded down to the nearest whole share. There were no option awards or stock awards outstanding as of December 31, 2022.
(4) The amounts set forth in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column reflect only the above-market earnings on nonqualified deferred compensation. There are no pension values for non-employee directors. The formula used to determine the above market earnings equals 2022 total interest multiplied by the difference between 120 percent of the Applicable Federal Rate for long-term rates (AFR) and the plan rate and divided by the plan rate.
(5) The amounts set forth in the “All Other Compensation” column include compensation not required to be included in any other column. Charitable matching contributions made on behalf of our directors were $5,000 for Mr. Anderson. The FirstEnergy Foundation supports the charitable matching contributions under its Matching Gifts Program. Amounts attributable to personal use of corporate aircraft was $9,634 for Mr. Demetriou and $16,574 for Mr. Misheff. The value of the personal use of corporate aircraft is calculated based on the actual invoiced costs or the aggregate variable operating costs to the Company, including fuel costs, trip-related maintenance, universal weather monitoring costs, on-board catering, landing/ramp fees, and other miscellaneous variable costs. Fixed costs which do not change based on usage, such as pilots’ salaries, the amortized costs of the aircraft, and the cost of maintenance not related to trips are excluded. Directors’ spouses and immediate family members may accompany Directors on Company aircraft using unoccupied space on flights that were already scheduled, and the Company incurs no aggregate incremental cost in connection with such use.
(6) Ms. Croom and Mr. Klimczak were elected to your Board effective May 17, 2022. Mr. Klimczak does not receive compensation for his service on the Board pursuant to arrangements with Mr. Klimczak and Blackstone. The amounts paid to Ms. Croom were prorated based on her election date.
(7) Ms. Johnson and Messrs. Anderson, Misheff, Mitchell, Pappas, and Reyes concluded service on your Board effective May 17, 2022.
| 2023 PROXY STATEMENT | 108 |
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Compensation of Directors
We use a combination of cash and equity-based incentive compensation in order to attract and retain qualified candidates to serve on your Board. Equity compensation provides incentives to directors linking their personal interests to our long-term financial success and to increases in shareholder value. In setting director compensation, we take into consideration the significant amount of time that directors spend in fulfilling their duties to us as well as the skill level required of members of your Board. A review is performed every other year to help ensure the competitiveness of non-employee director compensation. Only non-employee directors receive the compensation described below for their service on your Board. Since M. Strah was an employee, he was not eligible to receive additional compensation for his service on your Board in 2022. Further, pursuant to arrangements with Mr. Klimczak and Blackstone, Mr. Klimczak does not receive compensation for his service on the Board and is not required to participate in share ownership guidelines.
Fee Structure
Under the fee structure in effect for the first two quarters of 2022, each non-employee director received an annual cash retainer of $100,000 and an annual equity retainer valued at approximately $150,000 and paid in the form of our common stock. Effective July 1, 2022, the annual rate for the cash and equity retainers were increased to $115,000 and $160,000, respectively. The Chairs of the Corporate Governance, Corporate Responsibility and Political Oversight, Finance, and Operations and Safety Oversight Committees each received an additional $15,000 cash retainer in 2022 for serving as a committee chairperson. The Chair of the Audit Committee received an additional $25,000 cash retainer in 2022, and the Chair of the Compensation Committee received an additional $20,000 in 2022. The amounts paid to directors for 2022 were prorated accordingly, if applicable, based on the duration of their service. Mr. Misheff, the former non-executive Chair of the Board, received an additional $150,000 cash retainer in 2022, prorated based on the duration of service. Ms. Hicks is entitled to an additional $35,000 cash retainer for her role as Lead Independent Director, effective May 17, 2022. Ms. Turner currently directs the Company to pay her cash retainers to her wholly owned limited liability company, therefore, her cash retainers are not eligible for deferral as described below. The total annual compensation of each non-employee director shall not exceed the value of $750,000 in the aggregate of all cash compensation and the value of the applicable equity retainer.
Equity and cash retainers and chairperson retainers were paid in quarterly installments. Any equity compensation and any compensation deferred into equity was granted under the 2020 Incentive Plan. Directors are responsible for paying all taxes associated with cash and equity retainers. We do not gross up equity grants to directors to cover tax obligations.
Temporary Fee Structures
Beginning July 2021, the Special Litigation Committee approved an additional cash fee of $3,750 per quarter for Mr. Kaleta in his expanded role as chair of the Special Litigation Committee, and additional cash fees of $17,500 per quarter for members of the Special Litigation Committee for their expanded roles.
Following Mr. Somerhalder’s appointment as non-independent Board Chair, the Board approved compensation of an additional $250,000 retainer ($150,000 in cash and $100,000 in equity) for Mr. Somerhalder’s service as Board Chair, effective May 21, 2022. Effective September 16, 2022, Mr. Somerhalder was no longer entitled to compensation for the role of non-independent Board Chair for the period he serves as Interim President and CEO. See the Compensation Discussion and Analysis and Summary Compensation Table above for further discussion of Mr. Somerhalder’s 2022 executive compensation in his roles as Vice Chair and Executive Director prior to May 21, 2022 and as Interim President and CEO beginning September 16, 2022.
Share Ownership Guidelines
We believe it is critical that the interests of directors and shareholders be clearly aligned. As such, similar to the NEOs identified in the CD&A, directors are also subject to share ownership guidelines. Within 90 days of their election to your Board, a director must beneficially own a minimum of 100 shares of our common stock. Within five years of joining your Board, each director is required to own shares of our common stock with an aggregate value of at least six times the annual cash retainer (currently $690,000 in
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common stock). Each director has either attained the required share ownership guideline or is expected to attain the required share ownership guideline within the allotted amount of time, except for Mr. Klimczak who does not receive compensation for his service on the Board and is not required to participate in share ownership guidelines. The share ownership guidelines are reviewed by the Compensation Committee for competitiveness on an annual basis and were last reviewed at the Compensation Committee’s July 2022 meeting.
For 2022, the following directly and indirectly held shares were included in determining whether a non-employee director met his/her ownership guidelines:
| ◾ | Shares directly or jointly owned in certificate form or in a stock investment plan; |
| ◾ | Shares held individually or jointly by a broker, or, in certain circumstances, held in trust, or in an individual retirement account (“IRA”), shares held by a spouse, or other beneficially owned shares, to the extent known by the Company; and |
| ◾ | All units held in the DDCP, discussed below, which units are payable in shares. |
Deferred Compensation Plan for Outside Directors
The DDCP is a nonqualified deferred compensation plan that provides directors the opportunity to defer compensation. Directors may defer up to 100 percent of their cash retainer into cash or stock accounts. Deferrals into the cash account can be invested in one of nine funds, similar to the investment funds available to all of our employees through the FirstEnergy Corp. Savings Plan, or in a Company-paid annually adjusted fixed income account. The Company paid interest at an annual rate of 4.02% on funds deferred into cash accounts beginning in 2013 and 6.02% on funds deferred into cash accounts prior to 2013. The interest rate received by the directors is the same rate received by all participants under the EDCP, as discussed further in the CD&A above.
For stock accounts, dividend equivalent units are accrued quarterly and applied to the directors’ accounts on each dividend payment date using the closing price of our common stock on that date. Payments made with respect to any dividend equivalent units that accrue after January 21, 2014, will be paid in cash.
Other Payments or Benefits Received by Directors
The corporate aircraft is available, when appropriate, for transportation to and from Board and committee meetings and training seminars. Mr. Misheff had the use of an office and administrative support with respect to carrying out his duties as non-executive Chair of the Board during his time serving in such role in 2022. The company pays all fees associated with director and officer insurance and business travel insurance for our directors. In 2022, our directors were eligible to receive perquisites including limited personal use of corporate aircraft and matching charitable contributions, the collective value of which was less than $10,000 for each director, other than Mr. Misheff. Directors are responsible for paying all taxes associated with perquisites and personal benefits.
All directors have entered into written indemnification agreements, which are intended to secure the protection for our directors contemplated by our Second Amended and Restated Code of Regulations and Ohio law. Each indemnification agreement provides, among other things, that we will, subject to the agreement terms, indemnify a director if by reason of their corporate status as a director, the person incurs losses, liabilities, judgments, fines, penalties, or amounts paid in settlement in connection with any threatened, pending, or completed proceeding, whether of a civil, criminal, administrative, or investigative nature. In addition, each indemnification agreement provides for the advancement of expenses incurred by a director, subject to certain exceptions, in connection with proceedings covered by the indemnification agreement. As directors and officers, the agreements for Messrs. Somerhalder and Strah address indemnity in both roles.
| 2023 PROXY STATEMENT | 110 |
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Security Ownership of Management
The following table shows shares of common stock beneficially owned (as beneficial ownership is defined in Rule 13d-3 under the Exchange Act) as of March 17, 2023, by each director, director nominee, the NEOs, and all directors, director nominees and executive officers as a group.
Name | Class of Stock | Shares Beneficially Owned(1)(2) | Percent of Class(3) | |||||||||
Samuel L. Belcher | Common | [xxx | ] | * | ||||||||
Jana T. Croom | Common | [xxx | ] | * | ||||||||
Steven J. Demetriou | Common | [xxx | ] | * | ||||||||
Lisa Winston Hicks | Common | [xxx | ] | * | ||||||||
Paul Kaleta | Common | [xxx | ] | * | ||||||||
Sean T. Klimczak | Common | [xxx | ] | * | ||||||||
Jesse A. Lynn | Common | [xxx | ] | * | ||||||||
James F. O’Neil III | Common | [xxx | ] | * | ||||||||
Hyun Park | Common | [xxx | ] | * | ||||||||
John W. Somerhalder II | Common | [xxx | ] | * | ||||||||
Steven E. Strah | Common | [xxx | ] | * | ||||||||
K. Jon Taylor | Common | [xxx | ] | * | ||||||||
Andrew Teno | Common | [xxx | ] | * | ||||||||
Leslie M. Turner | Common | [xxx | ] | * | ||||||||
Melvin D. Williams | Common | [xxx | ] | * | ||||||||
Christine L. Walker | Common | [xxx | ] | * | ||||||||
All Directors and Executive Officers as a Group (17 people) | Common | [xxx | ] | * | (3) | |||||||
(1) The amounts set forth in this column include any shares with respect to which the executive officer, NEO or director may directly or indirectly have sole or shared voting or investment power. Unless otherwise noted below, each individual or member of the group has sole voting and investment power with respect to the shares beneficially owned.
(2) Deferred shares and other amounts payable in stock under the DDCP are held as stock units and are not beneficially owned (as defined in Rule 13d-3 under the Exchange Act) and are therefore not included in the table above. However, such stock units are counted for purposes of non-employee director share ownership guidelines. The stock unit holdings of the directors under the DDCP are as follows.
| 111 | FIRSTENERGY CORP. |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
Name | Director Deferred Stock Units Payable in Stock | |||
Steven J. Demetriou | [xxx] | |||
Lisa Winston Hicks | [xxx] | |||
Paul Kaleta | [xxx] | |||
Jesse A. Lynn | [xxx] | |||
James F. O’Neil III | [xxx] | |||
Andrew Teno | [xxx] | |||
Leslie M. Turner | [xxx] | |||
Melvin D. Williams | [xxx] | |||
(3) The percentage of shares beneficially owned by each director or executive officer, or by all directors and executive officers as a group, does not exceed one percent of the class.
| 2023 PROXY STATEMENT | 112 |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
Security Ownership of Certain Beneficial Owners
The following table shows all persons who are known by the Company to be the beneficial owner (as beneficial ownership is defined in Rule 13d-3 under the Exchange Act) of more than five percent of the outstanding shares of common stock of the Company as of March 17, 2023.
Name and Address of Beneficial Owner | Shares Beneficially Owned | Percent of Common Shares Outstanding(6) | Voting Power Number of Shares | Dispositive Power Number of Shares | ||||||||||||||||||||
| Sole | Shared | Sole | Shared | |||||||||||||||||||||
The Vanguard Group(1) 100 Vanguard Blvd. Malvern, PA 19355 | 66,818,032 | 11.69 | % | — | 1,001,853 | 64,300,898 | 2,517,134 | |||||||||||||||||
BlackRock, Inc.(2) 55 East 52nd Street New York, NY 10055 | 44,735,109 | 7.8 | % | 41,742,237 | — | 44,735,109 | — | |||||||||||||||||
Entities affiliated with State Street Corporation(3) One Lincoln Street Boston, MA 02111 | 44,093,784 | 7.71 | % | — | 37,498,778 | — | 44,091,025 | |||||||||||||||||
Blackstone Inc.(4) 345 Park Avenue New York, NY 10154 | 28,832,099 | 5.3 | 28,832,099 | — | 28,832,099 | — | ||||||||||||||||||
GIC Private Limited(5) 168 Robinson Road #37-01 Capital Tower Singapore 068912 | 29,625,590 | 5.18 | % | 29,309,685 | 315,905 | 29,309,685 | 315,905 | |||||||||||||||||
(1) Based solely on the most recently available Schedule 13G/A filed with the SEC on February 9, 2023.
(2) Based solely on the most recently available Schedule 13G/A filed with the SEC on January 25, 2023.
(3) Based solely on the most recently available Schedule 13G/A filed with the SEC on February 6, 2023.
(4) Based solely on the most recently available Schedule 13D filed with the SEC on December 23, 2021.
(5) Based solely on the most recently available Schedule 13G filed with the SEC on January 19, 2023.
(6) Percentages of shares beneficially owned are as reported on the applicable Schedule 13D, 13G or 13G/A.
Compensation Committee Interlocks and Insider Participation
Effective May 17, 2022, the members of the Compensation Committee were James F. O’Neil III, Steven J. Demetriou, Paul Kaleta, Sean T. Klimczak, and Lisa Winston Hicks. Julia L. Johnson and Leslie M. Turner also served on the Compensation Committee from January 1 through May 16, 2022. No member of the Compensation Committee during 2022 met the criteria to be considered to have an interlock or insider participation relationship.
| 113 | FIRSTENERGY CORP. |
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Certain Relationships and Related Person Transactions
Based on our size and varied business operations, we may engage in transactions with companies and other organizations in which a member of your Board, executive officer, or such person’s immediate family member also may be a board member, executive officer, or significant investor. In some of these cases, such person may have a direct or indirect material interest in the transaction with the Company. We recognize that related person transactions have the potential to create perceived or actual conflicts of interest and could create the appearance that decisions are based on considerations other than the best interests of the Company and its shareholders. Accordingly, as a general matter, it is our preference to avoid related person transactions. However, there are situations where related person transactions may be in, or may not be inconsistent with, the best interests of the Company and its shareholders. Your Board has determined that it is appropriate and necessary to have a process in place to identify and provide proper review of any related person transactions.
Based on the foregoing, your Board established a written Related Person Transactions Policy (the “Policy”) that has been implemented by the Corporate Governance, Corporate Responsibility and Political Oversight Committee in order to effectuate the review, approval, and ratification process surrounding related person transactions. This Policy supplements the Company’s other conflict-of-interest policies set forth in the FirstEnergy Conflicts-of-Interest Policy and Code of Business Conduct. Related person transactions may be entered into or continued only if a majority of the disinterested members of the Corporate Governance, Corporate Responsibility and Political Oversight Committee or your Board approves or ratifies the transaction in accordance with the Policy. The Chair of the Corporate Governance, Corporate Responsibility and Political Oversight Committee also has the delegated authority between meetings to review and determine whether a transaction should be approved or ratified in accordance with the Policy. In making its decisions, the Corporate Governance, Corporate Responsibility and Political Oversight Committee, Chair of the Corporate Governance, Corporate Responsibility and Political Oversight Committee or your Board will review current and proposed transactions by taking into consideration the Policy, which includes the definitions and terms set forth in Item 404 of Regulation S-K.
As part of the Policy, our management established review procedures for any transaction, proposed transaction or any known material amendment to a transaction, in which we are currently, or in which we may be, a participant in which the amount exceeds $120,000, and in which the related person, as defined in Item 404 of Regulation S-K, had or will have a direct or indirect material interest. In early 2023 our directors, current executive officers and certain former directors completed a questionnaire to assist your Company in identifying and assessing any potential related person transactions. Your Company facilitates the review by examining its financial records based on responses to the questionnaires. Any known related entities of the related persons are identified as such in the applicable computer system so that necessary business units are made aware of a potential related person transaction or proposed transaction involving the Company and a related entity. As applicable, management brings transactions to the attention of the Corporate Governance, Corporate Responsibility and Political Oversight Committee, Chair of the Corporate Governance, Corporate Responsibility and Political Oversight Committee or your Board for its review, approval or ratification.
When reviewing a transaction, the Corporate Governance, Corporate Responsibility and Political Oversight Committee, led by its Chair, or your Board reviews the material facts of the related person’s relationship to the Company, and his or her interest in the transaction, as well as the aggregate value of such transaction to the Company. Since January 1, 2022, we participated in the transactions described below, in which the amount involved exceeded $120,000 and in which any Board member, Board member nominee, executive officer, beneficial owner of more than five percent of our common stock, or a member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. Pursuant to the terms of the Policy, your Board’s Corporate Governance, Corporate Responsibility and Political Oversight Committee and/or the Chair of the Corporate Governance, Corporate Responsibility and Political Oversight Committee ratified and approved the transactions described below.
Mr. Kenneth A. Strah currently serves the Company as a Vice President, Customer Operations and has been employed by the Company since 1980. Mr. Kenneth A. Strah is the brother of Mr. Steven E. Strah who is the Company’s former President and CEO, and former Director. From January 1, 2022 through March 17, 2023, Mr. Kenneth A. Strah received compensation in the aggregate
| 2023 PROXY STATEMENT | 114 |
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amount of approximately $[XX], which consisted of base salary, the STIP paid in 2023 for 2022 performance and the grant date value of performance-adjusted RSUs granted in 2022 under the LTIP. Mr. Kenneth A. Strah’s compensation is consistent with the terms of the Company’s compensation programs. No direct reporting relationship existed between Mr. Kenneth A. Strah and Mr. Steven E. Strah.
During 2022, State Street Corporation (“State Street”) provided asset management and trustee services relating to a trust associated with a Company employee benefit plan and was also beneficial owner of at least 5% of your Company’s common stock. State Street’s fees were approximately $[163,200] from January 1, 2022 through March 17, 2023 for such services. Their fees are unrelated to their common stock ownership, resulted from arm’s-length negotiations, and are reasonable in amount and reflect market terms and conditions. The Company does not believe State Street has any direct or indirect material interest in the transactions as a result of such services.
Related Person Transactions involving the Icahn Group
On March 16, 2021, the Company entered into the Director Nomination Agreement with the Icahn Group. Pursuant to the Agreement, the Board agreed to, effective as of March 18, 2021: (i) increase the size of the Board from 12 to 14 directors, resulting in a total of two vacancies; and (ii) appoint the Icahn Designees to serve as directors of the Company to fill such vacancies, each with a term expiring at the 2021 Annual Meeting. The Company also agreed to nominate each of the Icahn Designees for election as directors of the Company at the 2021 Annual Meeting, and to use its reasonable best efforts (including the solicitation of proxies) to obtain the election of each of the Icahn Designees at the 2021 Annual Meeting.
Messrs. Lynn and Teno remain non-voting directors of the Board, but are awaiting resolution of certain proceedings before the Maryland Public Service Commission that remain ongoing as of March [27], 2023. The Company remains committed to continue all reasonable efforts to favorably resolve the Maryland proceedings. The Icahn Designees will receive the same compensation as the Company’s other non-employee directors. The Company has also entered into a Director and Officer Indemnification Agreement with each of Mr. Teno and Mr. Lynn.
In the event the Icahn Designees are unable or otherwise cease to serve on the Board, the Director Nomination Agreement provides a mechanism for the Icahn group to designate a substitute director acceptable to the Board to be appointed to the Board for the remainder of the term of such Icahn Designee.
If at any time the Icahn Group ceases to hold a “net long” position (as defined in the Director Nomination Agreement) in at least: (i) three percent (3%) of the total outstanding common shares of the Company, the Icahn Group will cause one Icahn Designee to promptly resign from the Board and any committee of the Board on which he or she then sits; and (ii) one and one-half percent (1.5%) of the total outstanding common shares of the Company, the Icahn Group will cause each Icahn Designee to promptly resign from the Board and any committee of the Board on which he or she then sits.
Further, during the applicable term of the Director Nomination Agreement, the Company has generally agreed (i) not to create a separate executive committee of the Board or any other committee with functions similar to those customarily granted to an executive committee, (ii) not to form any new committee without offering at least one Icahn Designee the opportunity to be a member of such committee, and (iii) that, with respect to any Board consideration of appointment and employment of named executive officers, specified transactions, and certain other matters such voting with respect thereto shall take place only at the full Board level or in committees of which one of the Icahn Designees is a member.
From the date of the Director Nomination Agreement until the later of (i) 30 days before the last day of the nomination deadline for shareholders to nominate candidates for the annual meeting following the Annual Meeting and (ii) 30 days after such date as no Icahn Designee is on the Board and the Icahn Group has no right to designate a replacement designee (such period, the “Standstill Period”), the Icahn Group has agreed to vote all common shares of the Company that it or its affiliates have the right to vote in favor of the election of directors nominated and recommended by the Board for election and otherwise in accordance with the recommendations of the Board, subject to certain exceptions and early termination upon certain specified events. The Icahn Group has also agreed to certain customary standstill and mutual non-disparagement restrictions during the Standstill Period, subject to certain exceptions and early termination upon certain specified events. In addition, as long as the Icahn Group has a “net long” position, as defined in the Director Nomination Agreement, in at least one and one-half percent (1.5%) of the total outstanding common shares of the Company, the Company will not adopt a rights plan designed to increase the cost to a potential acquirer
| 115 | FIRSTENERGY CORP. |
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which includes a triggering threshold below 10.0% of the then-outstanding common stock through the issuance of new rights, common stock or preferred shares, unless such rights plan exempts the Icahn Group up to a beneficial ownership of 9.99%. The Director Nomination Agreement will terminate and be of no further force or effect at such time, if any, following the 2021 Annual Meeting that (i) no Icahn Designee serves on the Board and (ii) the Icahn Group is no longer entitled to designate a replacement designee for any Icahn Designee; except that the customary standstill and mutual non-disparagement restrictions will terminate at the end of the Standstill Period.
Pursuant to the Director Nomination Agreement, the Company and the Icahn Group also entered into a confidentiality agreement and agreed to negotiate in good faith and enter into a customary registration rights agreement by no later than July 1, 2021, with respect to the common shares of the Company beneficially owned by the Icahn Group. To date, the parties have not entered into a registration rights agreement.
Related Person Transactions involving the Blackstone Group L.P.
On November 6, 2021, the Company entered into Common Stock Purchase Agreement (the “Blackstone PSA”) with BIP Securities II-B L.P., an affiliate of Blackstone Infrastructure Partners L.P. (“Blackstone”), for the private placement of 25,588,535 shares of the Company’s common stock at a price of $39.08 per share (the “Private Placement”). Pursuant to the Blackstone PSA, and for so long as Blackstone beneficially owns at least 75% of the shares of common stock acquired by it at the closing of the Private Placement (such period, the “Nomination Period”), Blackstone will have the right to nominate one natural person for election to the Board (the “Blackstone Nominee”) and the Company will: (i) upon the occurrence of a vacancy on the Board during the Nomination Period, if the Blackstone Nominee is not then serving as a member of the Board, cause the Blackstone Nominee to be appointed to the Board; and (ii) in connection with each annual meeting of the stockholders of the Company at which directors are generally elected during the Nomination Period, (A) include the Blackstone Nominee as a nominee for election to the Board; (B) include the Blackstone Nominee in the Company’s notice of annual meeting (or any supplement thereto); (C) not nominate more nominees than the number of persons to be elected to the Board at such meeting (which amount shall include the Blackstone Nominee); and (D) use reasonable best efforts to cause the election of the Blackstone Nominee so nominated by the Company (including by (x) recommending that the Company’s stockholders vote in favor of the election of the Investor Nominee and (y) otherwise support the Investor Nominee for election in a manner no less rigorous and favorable than the manner in which the Company supports its other nominees in the aggregate). Pursuant to the Blackstone PSA and Blackstone’s recommendation, the Board agreed to nominate Mr. Sean Klimczak for election as a director of the Company at the 2022 Annual Meeting.
In addition, the Company and Blackstone each agreed to use reasonable best efforts (including the exhaustion of all available appeals processes) to, as promptly as practicable, among other matters, obtain all Regulatory Approvals (as defined in the Blackstone PSA) necessary to permit Mr. Klimczak to remain a director of the Company (or to rejoin the Board, as applicable), to vote at meetings of the Board or any Board committee and to take the other actions contemplated by the Blackstone PSA. On April 21, 2022, FERC authorized the transaction with Blackstone and, effective as of his election at the 2022 Annual Meeting, Mr. Klimzcak received full rights as a director of the Company.
The Company also entered into a Director and Officer Indemnification Agreement with Mr. Klimczak.
In the event Mr. Klimczak becomes unable or otherwise ceases to serve on the Board, the Blackstone PSA provides a mechanism for Blackstone to designate a substitute director acceptable to the Board to be appointed to the Board for the remainder of term of the Blackstone Nominee.
In the event that Blackstone ceases to beneficially own at least 75% of the shares of Common Stock acquired by it at the closing of the Private Placement, if requested by the Board, Blackstone shall cause Mr. Klimczak or its then nominee to immediately resign from the Board.
| 2023 PROXY STATEMENT | 116 |
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Audit Committee Report
The Audit Committee of your Board is charged with assisting your full Board in fulfilling its oversight responsibility with respect to the quality and integrity of the accounting, auditing, and financial reporting practices of the Company. The Audit Committee acts under a written charter that is reviewed annually, revised as necessary, and is approved by your Board. The charter specifies that the Audit Committee is directly responsible for the appointment, compensation and retention of, and the oversight of the work andpre-approval of all services provided by the Company’s independent registered public accounting firm, which was PricewaterhouseCoopers LLP during 2019.2022. In connection with the Audit Committee’s approval of anynon-audit services, the Audit Committee considers whether the independent registered public accounting firm’s performance of anynon-audit services is compatible with the independent auditor’s independence.
As part of the Audit Committee’s annual auditor engagement process, the Audit Committee considers whether to rotate the independent registered public accounting firm. The Audit Committee also participates in the selection of and ensures the regular rotation of the lead audit partner and concurring partner of the Company’s independent registered public accounting firm every five years. PricewaterhouseCoopers LLP has been the Company’s independent auditor since 2002. The Audit Committee currently believes that there are benefits to having an independent auditor with an extensive history with the Company. In connection with its auditor engagement process, the Audit Committee considers the continued independence of PricewaterhouseCoopers LLP and considers the benefits including: quality audit work and accounting advice due to PricewaterhouseCoopers LLP’s institutional knowledge of our business and operations, accounting policies and financial systems, and internal control framework; knowledge of the utility industry; and operational efficiencies and a resulting lower fee structure because of PricewaterhouseCoopers LLP’s history and familiarity with our business. Using a framework developed by management, the Audit Committee also assesses the appropriateness and reasonableness of PricewaterhouseCoopers LLP’s fees relative to the Company’s business needs and as compared to fees incurred by peer companies of comparable financial statement risk, size and complexity of business and related internal control environment.
In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited financial statements included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2019.2022. In performing its review, the Audit Committee discussed the propriety of the application of accounting principles by the Company, the reasonableness of significant judgments and estimates used in the preparation of the financial statements, and the clarity of disclosures in the financial statements.
The Audit Committee reviewed and discussed with the Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, their opinion on the conformity of the audited financial statements with accounting principles generally accepted in the United States. This discussion covered the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC.
The Audit Committee received the written disclosures and the letter from the independent registered public accounting firm regarding their independence from the Company as required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence and discussed with the independent registered public accounting firm such firm’s independence.
The Audit Committee discussed with the Company’s internal auditors and independent registered public accounting firm the overall scope, plans, and results of their respective audits. The Audit Committee met with the internal auditors and independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting process.
Based on the above reviews and discussions, the Audit Committee recommended to your Board that the audited financial statements be included in the Company’s Annual Report onForm 10-K for the year ended December 31, 2019,2022, for filing with the SEC.
Audit Committee Members: Michael J. AndersonLeslie M. Turner (chair), DonaldJames F. O’Neil III, Andrew Teno and Jana T. Misheff, Sandra Pianalto and Leslie M. Turner.Croom.
| 117 | FIRSTENERGY CORP. |
10 | FirstEnergy Corp.2020 Proxy Statement
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
Matters Relating to the Independent Registered Public Accounting Firm
Audit Fees
The following is a summary of the fees paid by the Company to its independent registered public accounting firm, PricewaterhouseCoopers LLP, for services provided to the Company and its reporting subsidiaries during the years 20192021 and 2018.2022.
PricewaterhouseCoopers LLP billed the Company an aggregate of $6,958,580$8,653,000 in 20192022 and $7,634,500$8,189,000 in 20182021 in fees for professional services rendered for the audit of the Company’s annual financial statements and the review of the financial statements included in each of the Company’s Quarterly Reports onForm 10-Q, services that are normally provided in connection with statutory and regulatory filings or engagements, audit-related services andnon-audit-related services as noted below.
| Fees for Audit Year 2019 | Fees for Audit Year 2018 | |||||||||||||
| Fees for Audit Year 2022 | Fees for Audit Year 2021 | |||||||||||||
Audit Fees(1) | $6,951,855 | $7,345,000 | $ | 7,523,000 | $ | 7,902,000 | ||||||||
Audit Related Fees(2) | $0 | $163,200 | $ | 190,000 | $ | 70,000 | ||||||||
Tax Fees(3) | $0 | $120,000 | $ | 220,000 | $ | — | ||||||||
All Other Fees(4) | $6,725 | $6,300 | $ | 720,000 | $ | 217,000 | ||||||||
Total | $6,958,580 | $7,634,500 | $ | 8,653,000 | $ | 8,189,000 | ||||||||
(1) Professional services rendered for the audits of FirstEnergy’s annual financial statements and reviews of unaudited financial statements included in FirstEnergy’s Quarterly Reports on Form 10-Q and for services in connection with statutory and regulatory filings or engagements, including comfort letters, agreed upon procedures and consents for financings and filings made with the SEC.
(2) Audit-related fees in 2022 and 2021 were related to services rendered for assessments for Employee, Environmental, Social and Corporate Governance reporting. (3) Tax-related fees in 2022 were primarily related to the performance of tax services in conjunction with the Purchase and Sale Agreement entered into on November 6, 2021, by and between FE, FET, Brookfield and Brookfield Guarantors. (4) All other fees in 2022 primarily reflect certain costs incurred as a result of system implementation quality assurance services, the ongoing SEC investigation and software subscription fees. All other fees in 2021 primarily reflect the ongoing SEC investigation, software subscription fees and accounting research license costs. |
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The Audit Committee has considered whether anynon-audit services rendered by the independent registered public accounting firm are compatible with maintaining its independence. The Audit Committee, in accordance with its charter and in compliance with all applicable legal and regulatory requirements promulgated from time to time by the NYSE and SEC, has a policy under which the independent registered public accounting firm cannot be engaged to performnon-audit services that are prohibited by these requirements. The charter further states that any engagement of the independent registered public accounting firm to perform other audit-related or anynon-audit services must have approval in advance by the Chair of the Audit Committee upon the recommendation of the Vice President, Controller and Chief Accounting Officer. Such approved engagement is then presented to the Audit Committee at its next regularly scheduled meeting. All audit andnon-audit services provided by PricewaterhouseCoopers LLP in 20192022 and 20182021 werepre-approved.
11 | FirstEnergy Corp.2020 Proxy Statement
Director Compensationin Fiscal Year 2019
| Name(1) | Fees Earned or Paid in Cash ($)(2) | Stock Awards ($)(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) | All Other Compensation ($)(5) | Total ($) | ||||||||||||||||||||
Paul T. Addison(6) | $44,863 | $58,476 | $4,233 | $0 | $107,572 | ||||||||||||||||||||
Michael J. Anderson | $121,099 | $149,898 | $2,732 | $0 | $273,729 | ||||||||||||||||||||
Steven J. Demetriou | $100,000 | $149,898 | $0 | $0 | $249,898 | ||||||||||||||||||||
Julia L. Johnson | $109,148 | $149,898 | $0 | $0 | $259,046 | ||||||||||||||||||||
Donald T. Misheff | $250,000 | $149,898 | $0 | $0 | $399,898 | ||||||||||||||||||||
Thomas N. Mitchell | $114,773 | $149,898 | $743 | $0 | $265,414 | ||||||||||||||||||||
James F. O’Neil III | $121,705 | $149,898 | $0 | $0 | $271,603 | ||||||||||||||||||||
Christopher D. Pappas | $116,951 | $149,898 | $0 | $3,000 | $269,849 | ||||||||||||||||||||
Sandra Pianalto | $100,000 | $149,898 | $0 | $5,000 | $254,898 | ||||||||||||||||||||
Luis A. Reyes | $100,000 | $149,898 | $0 | $0 | $249,898 | ||||||||||||||||||||
Dr. Jerry Sue Thornton(6) | $38,943 | $58,476 | $0 | $5,000 | $102,419 | ||||||||||||||||||||
Leslie M. Turner | $100,000 | $149,898 | $0 | $0 | $249,898 | ||||||||||||||||||||
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Compensation of Directors
We use a combination of cash and equity-based incentive compensation in order to attract and retain qualified candidates to serve on your Board. Equity compensation provides incentives to directors linking their personal interests to our long-term financial success and to increases in shareholder value. In setting director compensation, we take into consideration the significant amount of time that directors spend in fulfilling their duties to us as well as the skill level required of members of your Board. A review is performed every other year to ensure competitiveness ofnon-employee director compensation. Onlynon-employee directors receive the compensation described below for their service on your Board. Since Mr. Jones was an employee, he was not eligible to receive additional compensation for his service on your Board in 2019.
Fee Structure
For 2019, eachnon-employee director received a cash retainer of $100,000 and an equity retainer valued at approximately $150,000 and paid in the form of our common stock. The Chairs of the Corporate
12 | FirstEnergy Corp.2020 Proxy Statement
Governance and Corporate Responsibility, Finance, and Operations, Safety and Nuclear Oversight Committees each received an additional $15,000 cash retainer in 2019 for serving as a committee chairperson. The Chair of the Audit Committee received an additional $25,000 cash retainer in 2019, and the Chair of the Compensation Committee received an additional $20,000. The amounts paid to directors for 2019 were prorated accordingly based on the duration of their service. Mr. Misheff, thenon-executive Chairman of the Board, received an additional $150,000 cash retainer in 2019 for serving in that capacity. Ms. Turner currently directs the Company to pay her cash retainer to her wholly owned limited liability company, therefore, her cash retainer is not eligible for deferral as described below. The total annual compensation of eachnon-employee director shall not exceed the value of $750,000 in the aggregate of all cash compensation and the value of the applicable equity retainer.
Equity and cash retainers and chairperson retainers were paid in quarterly installments. Any equity compensation and any compensation deferred into equity was granted under the 2015 Incentive Plan. Directors are responsible for paying all taxes associated with cash and equity retainers. We do not gross up equity grants to directors to cover tax obligations.
We believe it is critical that the interests of directors and shareholders be clearly aligned. As such, similar to the NEOs identified in the CD&A, directors are also subject to share ownership guidelines. Within 90 days of their election to your Board, a director must beneficially own a minimum of 100 shares of our common stock. Within five years of joining your Board, each director is required to own shares of our common stock with an aggregate value of at least six times the annual cash retainer (currently $600,000 in common stock). Each director has either attained the required share ownership guideline or is expected to attain the required share ownership guideline within the allotted amount of time. The share ownership guidelines are reviewed by the Compensation Committee for competitiveness on an annual basis and were last reviewed at the Compensation Committee’s July 2019 meeting.
For 2019, the following directly and indirectly held shares were included in determining whether anon-employee director met his/her ownership guidelines:
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Deferred Compensation Plan for Outside Directors
The DDCP is a nonqualified deferred compensation plan that provides directors the opportunity to defer compensation. Directors may defer up to 100 percent of their cash retainer into cash or stock accounts. Deferrals into the cash account can be invested in one of nine funds, similar to the investment funds available to all of our employees through the FirstEnergy Corp. Savings Plan, or in a Company-paid annually adjusted fixed income account. The Company paid interest at an annual rate of 5.20% on funds deferred into cash accounts beginning in 2013 and 7.20% on funds deferred into cash accounts prior to 2013. The interest rate received by the directors is the same rate received by all participants under the FirstEnergy Corp. Amended and Restated Executive Deferred Compensation Plan (“EDCP”), as discussed further in the CD&A below.
For stock accounts, dividend equivalent units are accrued quarterly and applied to the directors’ accounts on each dividend payment date using the closing price of our common stock on that date. Payments made with respect to any dividend equivalent units that accrue after January 21, 2014, will be paid in cash.
Other Payments or Benefits Received by Directors
The corporate aircraft is available, when appropriate, for transportation to and from Board and committee meetings and training seminars. Mr. Misheff had the use of an office and administrative support with respect to carrying out his duties asnon-executive Chairman of the Board during his time serving in such role in 2019. We pay all fees associated with director and officer insurance and business travel insurance for our
13 | FirstEnergy Corp.2020 Proxy Statement
directors. In 2019, our directors were eligible to receive perquisites including limited personal use of the corporate aircraft, matching charitable contributions and gifts, the collective value of which was less than $10,000 for each director. Directors are responsible for paying all taxes associated with perquisites and personal benefits.
All directors have entered into written indemnification agreements, which are intended to secure the protection for our directors contemplated by our Amended and Restated Code of Regulations and Ohio law. Each indemnification agreement provides, among other things, that we will, subject to the agreement terms, indemnify a director if by reason of their corporate status as a director, the person incurs losses, liabilities, judgments, fines, penalties, or amounts paid in settlement in connection with any threatened, pending, or completed proceeding, whether of a civil, criminal, administrative, or investigative nature. In addition, each indemnification agreement provides for the advancement of expenses incurred by a director, subject to certain exceptions, in connection with proceedings covered by the indemnification agreement. As a director and officer, the agreement for Mr. Jones addresses indemnity in both roles.
14 | FirstEnergy Corp.2020 Proxy Statement
The Corporate Governance and Corporate Responsibility Committee recommends Board candidates by identifying qualified individuals in a manner that is consistent with criteria approved by your Board. In consultation with the CEO, the Chairman of the Board and the full Board, the Corporate Governance and Corporate Responsibility Committee searches for, recruits, screens, interviews and recommends prospective directors to provide an appropriate balance of knowledge, experience, diversity attributes and capability on your Board. Suggestions for potential Board candidates come to the Corporate Governance and Corporate Responsibility Committee from a number of sources, including incumbent directors, officers and others. The Corporate Governance and Corporate Responsibility Committee has sole authority to retain and engage a third-party search firm to identify a candidate or candidates.
The Committee has actively engaged in director succession planning and regularly evaluates the addition of a director or directors with particular attributes with an appropriate mix of long-, medium-, and short-term tenured directors in its succession planning. Your Board has been able to attract high quality diverse candidates and has not used a third-party to assist with the identification of potential nominees but would consider using a third-party in the future, if needed or desired.
The Corporate Governance and Corporate Responsibility Committee considers suggestions for candidates for membership on your Board, including candidates recommended by shareholders for your Board. Provided that shareholders suggesting director candidates have complied with the procedural requirements set forth in the Corporate Governance and Corporate Responsibility Committee Charter and Amended and Restated Code of Regulations, the Corporate Governance and Corporate Responsibility Committee applies the same criteria and employs substantially similar procedures for evaluating candidates suggested by shareholders for your Board as it would for evaluating any other Board candidate. The Corporate Governance and Corporate Responsibility Committee will give due consideration to all recommended candidates that are submitted in writing to the Corporate Governance and Corporate Responsibility Committee, in care of the Corporate Secretary, FirstEnergy Corp., 76 South Main Street, Akron, Ohio 44308-1890, received at least 120 days before the publication of the Company’s annual proxy statement from a shareholder or group of shareholders owning one half of one percent (0.5 percent) or more of the Company’s voting stock for at least one year, and accompanied by a description of the proposed nominee’s qualifications and other relevant biographical information, together with the written consent of the proposed nominee to be named in the proxy statement and to serve on your Board.
Also refer to the “Proposals and Business by Shareholders” section of the “Questions and Answers about the Annual Meeting” below for information regarding nominations under the Company’s Amended and Restated Code of Regulations.
Attributes, Experience, Qualifications and Skills of your Board
In recruiting and selecting Board candidates, the Corporate Governance and Corporate Responsibility Committee takes into account the size of your Board and considers a “skills matrix” to determine whether those skills and/or other attributes qualify candidates for service on your Board. The attributes, experiences, qualifications and skills considered in accordance with Corporate Governance Policies and the Corporate Governance and Corporate Responsibility Committee charter for each director nominee led your Board to conclude that the nominee is qualified to serve on your Board.
The high-level overview below depicts some of the attributes, experiences, qualifications and skills of our director nominees the committee takes into account. It is not intended to be an exhaustive list of each director nominee’s skills or contributions to your Board. Also, additional biographical information and qualifications for each nominee is provided in the “Biographical Information and Qualifications of Nomineesfor Election as Directors” sectionbelow and contains information regarding the person’s service as a director, principal occupation, business experience along with key attributes, experience and skills. Each of the nominees brings a strong and unique background and skill set to your Board, giving your Board, as a whole, competence and experience in a wide variety of areas necessary to oversee the operations of the Company.
15 | FirstEnergy Corp.2020 Proxy Statement
The Company is committed to a policy of inclusiveness and believes that well assembled boards consist of a diverse group of individuals who possess a variety of complementary skills and experiences. The Corporate Governance and Corporate Responsibility Committee regularly assesses the size and composition of your Board in light of the current operating requirements of the Company and the current needs of your Board, and is also committed to actively seeking out highly qualified women and minority candidates, as well as candidates with diverse backgrounds, skills and experience, to include in the pool from which Board nominees are chosen. Accordingly, your Board has set a goal that it will maintain at least 30% diverse members (by race, ethnicity and gender combined) for the foreseeable future. The Corporate Governance and Corporate Responsibility Committee also considers differences in point of view, professional experience, education, and other individual skills, qualities, and attributes that contribute to the optimal functioning of your Board as a whole. Also, our Corporate Governance Policies provide that your Board will not nominate for election anon-employee director following his or her 72nd birthday.
Director Independence
Your Board annually reviews the independence of each of its members to make the affirmative determination of independence that is called for by our Corporate Governance Policies and required by the SEC and NYSE listing standards, including certain independence requirements of Board members serving on the Audit Committee, the Compensation Committee and the Corporate Governance and Corporate Responsibility Committee.
Your Board adheres to the definition of an “independent” director as established by the NYSE and the SEC. The definition used by your Board to determine independence is included in our Corporate Governance Policies and can be viewed by visiting our website atwww.firstenergycorp.com/charters. Allnon-employee directors who served during any part of 2019 were independent under applicable standards, including Mr. Paul Addison and Dr. Jerry Sue Thornton, who are no longer members of your Board and who are not standing for election.
Each year, our directors complete a questionnaire to assist your Board in assessing whether each director meets the applicable independence standards and the related provisions in the Company’s Corporate Governance Policies. The Company facilitates this review by examining its financial records to determine if amounts paid to or received from entities in which eachnon-employee director or immediate family member has a relationship based on responses to the questionnaires. Subject to the categorical standards approved by your Board and described below, a list of the relevant entities and the amounts the Company paid to or received from those entities is provided to your Board. Utilizing this information, the Corporate Governance and Corporate Responsibility Committee presents to your Board (i) an evaluation, with regard to each
16 | FirstEnergy Corp.2020 Proxy Statement
director, whether the director has any material relationship with the Company or any of its subsidiaries; (ii) a recommendation of whether the amount of any payments between the Company and relevant entities could interfere with a director’s ability to exercise independent judgment; and (iii) a review of any other relevant facts and circumstances regarding the nature of these relationships, to determine whether other factors, regardless of the categorical standards your Board has adopted or under the NYSE’s independence standards, might impede a director’s independence. Based on a review of information concerning each of itsnon-employee directors and the recommendation of the Corporate Governance and Corporate Responsibility Committee, your Board will affirmatively determine whether a director may be considered “independent.”
Your Board recognizes that in the ordinary course of business, relationships and transactions may occur between the Company and its subsidiaries and entities with which some of our directors are or have been affiliated. Our Corporate Governance Policies provide categorical standards to assist your Board in determining what does not constitute a material relationship for purposes of determining a director’s independence. Accordingly, the following commercial and charitable relationships will not be considered to be a material relationship that would impair a director’s independence: (i) if the director, an immediate family member or a person or organization with which the director has an affiliation purchases electricity or related products or services from the Company or its subsidiaries in the ordinary course of business and the rates or charges involved in the transaction are fixed in conformity with law or governmental authority or otherwise meet the requirements of RegulationS-K Item 404(a) Instruction 7, (ii) the aggregate charitable contributions made by the Company to an organization with which a director, an immediate family member or a person or organization with which the director has an affiliation were less than $100,000 in each of the last three fiscal years, or (iii) the aggregate of other payments made by the Company to another entity or organization with which the director, an immediate family member or a person with which the director has an affiliation, or received by the Company from that other entity or organization, were less than the greater of $1 million or 2% of the affiliated company’s revenues in each of the last three fiscal years. Your Board does not typically consider such immaterial relationships in making independence determinations. Notwithstanding the foregoing, your Board will not treat a director’s relationship with the Company as categorically immaterial if the relationship otherwise conflicts with the NYSE corporate governance listing standards or is required to be disclosed by the Company pursuant to Item 404 of RegulationS-K.
Based on the March 2020 independence review, your Board affirmatively determined that allnon-employee director nominees – Michael J. Anderson, Steven J. Demetriou, Julia L. Johnson, Donald T. Misheff, Thomas N. Mitchell, James F. O’Neil III, Christopher D. Pappas, Sandra Pianalto, Luis A. Reyes and Leslie M. Turner – are independent pursuant to our Corporate Governance Polices, the rules and regulations of the SEC and the listing standards of the NYSE. In all cases, your Board determined that the nature of the business conducted and any interest of the applicable director in that business were immaterial both to the Company and to the director. Outside of their service as a Company director, none of the Company’s independent directors currently provide professional or other services to the Company, its affiliates or any officer of the Company and none of the Company’s directors are related to any executive officer of the Company. Additionally, Mr. Jones is not considered an independent director because of his employment with the Company.
The Corporate Governance and Corporate Responsibility Committee also determined that none of the relationships described above constituted a related person transaction requiring disclosure under the heading “Certain Relationships and Related Person Transactions” in this proxy statement. Also, in each case where the director is a current executive officer of another company, any transactions constituted less than one percent of the Company’s and the other company’s consolidated gross revenues in each of the last three completed fiscal years.
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Qualifications of Nomineesfor Election as Directors
The following provides information about each director nominee as of the date of this proxy statement. The information presented below includes each nominee’s specific experiences, qualifications, attributes, and skills that contributed to the conclusion by the Corporate Governance and Corporate Responsibility Committee and your Board that he/she should serve as a director of the Company.
| 2023 PROXY STATEMENT | 118 |
| Corporate | Items to Be | Commitments
| Executive & Director Compensation | Other Important Matters / Q&A |
Transparency in Corporate Contributions
Pursuant to FirstEnergy’s obligations in Section 5(D) (“Transparency in Corporate Contributions”) of the Deferred Prosecution Agreement filed on July 22, 2021, in United States v. FirstEnergy Corp., Case No. 1:21cr00086 (SDOH), as well as its obligations pursuant to the settlement resolving all of the shareholder derivative lawsuits (discussed above, on page 13) below are lists of payments made by FirstEnergy to entities incorporated under 26 U.S.C. § 501(c)(4), and to entities known by FirstEnergy to be operating for the benefit of a public official, either directly or indirectly for time periods beginning January 1, 2022 through December 31, 2022. The Company’s Political and Lobbying Action Plan was approved by the Board in 2022. In the future, reports on third-party audits of the Political and Lobbying Action Plan will be included here, where applicable.
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| Date Paid | Organization Name | Organization Address | Amount | Purpose | ||||
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| PO Box 14715 Cleveland, OH 44114 | $30.00 | Membership dues | ||||
18 | FirstEnergy Corp.2020 Proxy Statement
| Midcontinent Independent System Operator, Inc. | 720 City Center Dr, Carmel, IN 46032 | $1,073,770.59 | Payments for legacy MISO Transmission Expansion Plan (MTEP) project costs that were allocated to a FirstEnergy subsidiary, as mandated by FERC | ||||
1/31/2022 | The National Board of Boiler & Pressure Vessel Inspectors | 1055 Crupper Avenue Columbus, OH 43299 | $26.00 | Payment to receive manufacture data for certain equipment | ||||
| Midwest Renewable Energy Tracking System Inc. | Lockbox 446023 PO Box 64079 Saint Paul MN 55164-0703 | $2,200.00 | Subscription for services | ||||
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4/8/2022 |
| 1 Cheat St. Point Marion, PA 15474 | $2,750.00 | Payment for fire department services | ||||
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Midcontinent Independent System Operator, Inc. | 720 City Center Dr, Carmel, IN 46032 | $1,048,519.56 | Payments for legacy MISO Transmission Expansion Plan (MTEP) project costs that were allocated to a FirstEnergy
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20 | FirstEnergy Corp.2020 Proxy Statement
4/29/2022 |
| PO Box 14715 Cleveland, OH 44114 | $70.00 | Training | ||||
21 | FirstEnergy Corp.2020 Proxy Statement
| National Association of Regulatory Utility Commissioners (NARUC) | 1101 Vermont Avenue, NW, Suite 200, Washington, DC 20005 | $3,669.00 | NARUC Summer Summit registration for employee attendance | ||||
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7/15/2022-9/15/2022 |
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23 | FirstEnergy Corp.2020 Proxy Statement
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You are being asked to vote for the following 11 nominees to serve on your Board for a term expiring at the annual meeting of shareholders in 2021 and until their successors shall have been elected: Michael J. Anderson, Steven J. Demetriou, Julia L. Johnson, Charles E. Jones, Donald T. Misheff, Thomas N. Mitchell, James F. O’Neil III, Christopher D. Pappas, Sandra Pianalto, Luis A. Reyes and Leslie M. Turner.
The “Biographical Information and Qualifications of Nominees for Election as Directors” section of this proxy statement provides information for all nominees for election at the Meeting. The “Director Qualifications” section of this proxy statement provides information relating to your Board’s and Corporate Governance and Corporate Responsibility Committee’s review of nominees. Your Board has no reason to believe that the persons nominated will not be available to serve after being elected. If any of these nominees would not be available to serve for any reason, shares represented by the appointed proxies will be voted either for a lesser number of directors or for another person selected by your Board. However, if the inability to serve is believed to be temporary in nature, the shares represented by the appointed proxies will be voted for that person who, if elected, will serve when able to do so.
Pursuant to the Company’s Amended and Restated Code of Regulations, at any election of directors, a nominee shall be elected to your Board only if the vote “For” the candidate exceed the votes “Against” the nominee; abstentions and brokernon-votes will have no effect. Our Corporate Governance Policies also provide that in an uncontested election of directors (i.e., an election where the only nominees are those recommended by your Board), any nominee for director who receives a greater number of votes “Against” his or her election than votes “For” his or her election will promptly tender his or her resignation to the Corporate Governance and Corporate Responsibility Committee following certification of the shareholder vote. The Corporate Governance and Corporate Responsibility Committee will promptly consider the tendered resignation and will recommend to your Board whether to accept or reject the tendered resignation no later than 60 days following the date of the shareholders’ meeting at which the election occurred. In considering whether to recommend acceptance or rejection of the tendered resignation, the Corporate Governance and Corporate Responsibility Committee will consider factors deemed relevant by the committee members, including the director’s length of service, the director’s particular qualifications and contributions to the Company, the reasons underlying the majority withheld vote, if known, and whether these reasons can be cured, and compliance with stock exchange listing standards and the Corporate Governance Policies. In considering the Corporate Governance and Corporate Responsibility Committee’s recommendation, your Board will consider the factors considered by the Corporate Governance and Corporate Responsibility Committee and any such additional information and factors your Board believes to be relevant. Your Board will act on the Corporate Governance and Corporate Responsibility Committee’s recommendation no later than at its next regularly scheduled Board meeting.
24 | FirstEnergy Corp.2020 Proxy Statement
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You are being asked to ratify the Audit Committee’s appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm to examine the books and accounts of the Company for the fiscal year ending December 31, 2020. While our Amended and Restated Code of Regulations does not require shareholders to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm, we are submitting the proposal for ratification as a matter of good corporate governance. However, if shareholders do not ratify the appointment, the Audit Committee will reconsider retaining PricewaterhouseCoopers LLP. Even if the appointment is ratified, the Audit Committee, at its discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders. A representative of PricewaterhouseCoopers LLP is expected to attend the Annual Meeting and will be available to respond to appropriate questions and have an opportunity to make a statement if he or she wishes to do so. We refer you to the “Matters Relating to the Independent Registered Public Accounting Firm” section of this proxy statement for information regarding services performed by, and fees paid to, PricewaterhouseCoopers LLP during the years 2018 and 2019. Item 2 requires the affirmative vote of a majority of the votes cast and abstentions will have no effect. There can be no brokernon-votes on Item 2 as it is considered a “routine” matter under applicable NYSE rules.
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The following proposal provides shareholders the opportunity to cast an advisory,non-binding vote to approve the compensation of the NEOs (a“Say-on-Pay” vote) as further described in the CD&A and the related compensation tables and narrative disclosure. This resolution is required pursuant to Section 14A of the Securities Exchange Act of 1934. Currently, the advisory vote is held annually. The next advisory vote on NEO compensation is scheduled to occur at the Company’s 2021 Annual Meeting of Shareholders. Your Board strongly supports the Company’s executive pay practices and asks shareholders to support its executive compensation program by adopting the following resolution:
“RESOLVED, that the shareholders approve, on an advisory basis, the compensation of the FirstEnergy Corp. Named Executive Officers, as such compensation is disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables, and the other related narrative executive compensation disclosure contained in the proxy statement.”
The primary objectives of the Company’s executive compensation program are to attract, motivate, retain, and reward the talented executives, including the NEOs, who we believe can provide the performance and leadership to achieve success in the highly complex energy industry. Our executive compensation program is centered on apay-for-performance philosophy. After robust benchmarking and shareholder outreach, the Compensation Committee and your Board approved a number of key changes effective in 2018, and maintained the executive compensation program for 2019, to better align executive pay with shareholder interests.
In deciding how to vote on this proposal, we encourage you to read the CD&A for a more detailed discussion of our executive compensation programs and practices applicable to the NEOs, beginning on page 43.
Your Board strongly believes that our compensation philosophy, in conjunction with continued shareholder outreach, is in the best interests of shareholders. We will continue to annually review and evaluate all compensation plans and programs with the goal of aligning such plans and programs with market practice and the best interests of our shareholders. Item 3 is an advisory proposal that requires the affirmative vote of a majority of the votes cast; abstentions and brokernon-votes will have no effect.
Although this advisory vote isnon-binding, your Board and the Compensation Committee value the views of our shareholders and expect to consider the voting results when considering future executive compensation practices for the NEOs.
26 | FirstEnergy Corp.2020 Proxy Statement
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Subject to shareholder approval, your Board has adopted the FirstEnergy Corp. 2020 Incentive Compensation Plan (later referred to as the Plan). The purpose of the Plan is to promote the success of your Company and its subsidiaries by providing incentives to certain employees and directors that are expected to help link their personal interests to the long-term financial success of your Company and its subsidiaries and to help increase shareholder value. By adopting the Plan, your Board believes your Company will continue to be able to attract, motivate and retain the employees and directors whose judgment, interest, efforts, and special skills will help enable your Company to succeed. The Plan provides for equity, equity-based and cash-based awards the Company intends to grant under its Short-Term Incentive Program or Long-Term Incentive Program. The Plan will be effective when it receives approval by the shareholders of your Company and will terminate on the 10th anniversary of the effective date (unless terminated earlier pursuant to its terms).
Purpose of the Proposal
You are being asked to approve the proposed Plan, including the authority to issue shares (as described below) for awards under the Plan. Based on the number of shares available under the current FirstEnergy Corp. 2015 Incentive Compensation Plan, including as amended, (referred to as the Predecessor Plan), and the Company’s historical grant practices, approval of the Plan is necessary in order to have sufficient shares available in the future for your Company’s customary annual incentive awards and other awards to attract, retain and motivate certain employees in specific situations. The affirmative vote of a majority of the votes cast is required to approve the Plan. Under NYSE requirements for the approval of equity plans, abstentions will be counted and have the same effect as “against” votes, and brokernon-votes will have no effect. A summary of the principal features of the Plan is provided below, but is qualified in its entirety by reference to the full text of the Plan that is attached as Appendix A to this proxy.
Why We Believe You Should Vote for this Item
The Plan authorizes the Committee to provide stock options, stock appreciation rights (referred to below as SARs), restricted stock, restricted stock units (referred to below as RSUs), performance shares, other stock-based awards, cash-based awards and dividends and dividend equivalents for the purposes described above. Some of the key features of the Plan that reflect your Company’s commitment to effective management of equity and incentive compensation are set forth below.
Your Company believes its future success depends in part on its ability to attract, motivate, and retain high quality employees and directors and that the ability to provide equity-based and incentive-based awards under the Plan is critical to achieving this success. Your Company would be at a severe competitive disadvantage if it could not use share-based awards to recruit and compensate its employees and directors. The use of common stock as part of your Company’s compensation program is also important because equity-based awards are an essential component of its compensation program for certain employees, as they help link compensation with long-term shareholder value creation and reward participants based on service and/or performance.
As of March 9, 2020, 2,784,972 shares of common stock remained available for issuance under the Predecessor Plan. If the Plan is not approved, your Company may be compelled to increase significantly the cash component of its employee and director compensation, which approach may not necessarily align employee and director compensation interests with the investment interests of your Company’s shareholders. Replacing equity awards with cash also would increase cash compensation expense and use cash that might be better utilized.
The following includes aggregated information regarding your Company’s view of the overhang and dilution associated with the Predecessor Plan and the potential dilution associated with the Plan. This information is as of March 9, 2020. As of that date, there were approximately 541,730,312 shares of common stock outstanding:
Outstanding full-value awards (restricted stock, RSUs and performance shares, based on maximum performance): 4,073,306 shares (approximately 0.75% of the outstanding common stock);
27 | FirstEnergy Corp.2020 Proxy Statement
Outstanding stock options: 80,257 shares (approximately 0.01% of the outstanding common stock) (outstanding stock options have a weighted average exercise price of $37.75 and a weighted average remaining term of less than 1 year);
In summary, total common stock subject to outstanding awards, as described above (full-value awards and stock options): 4,153,563 shares (approximately 0.77% of the outstanding common stock);
Total common stock available for future awards under the Predecessor Plan: 2,784,972 shares (approximately 0.51% of the outstanding common stock) (however, as noted above, no further grants will be made under the Predecessor Plan upon the effective date of the Plan so your Company views these shares, which exclude anticipated dividend equivalents that are paid under the Predecessor Plan, as “rolling into” the new Plan based on the design of the new Plan);
In summary, the total number of shares of common stock subject to outstanding awards (4,153,563 shares, including the anticipated dividend equivalents under the Predecessor Plan of 250,000 shares), plus the total number of shares of common stock available for future awards under the Predecessor Plan (2,784,972 shares), represents a current overhang percentage of 1.28% (in other words, the potential dilution of your Company’s shareholders represented by the Predecessor Plan);
Proposed common stock available for awards under the Plan: 10,000,000 shares, assuming none of the 2,784,972 shares remaining available under the Predecessor Plan are granted prior to effectiveness of the Plan (approximately 2.36% of the outstanding common stock – this percentage reflects the simple dilution of your Company’s shareholders that would occur if the Plan is approved); and
The total common stock subject to outstanding awards as of March 9, 2020 (4,153,563 shares, including the anticipated dividend equivalents under the Predecessor Plan of 250,000 shares), plus the proposed common stock available for future awards under the Plan (12,784,972 shares), represent a total overhang of 16,938,535 shares (3.13%) under the Plan.
Based on the closing price on the NYSE for your Company’s common stock on March 9, 2020 of $42.93 per share, the aggregate market value as of March 9, 2020 of the 10,000,000 new shares of common stock requested under the Plan was $429,300,000.
In fiscal years 2017, 2018, and 2019, your Company granted awards under the Predecessor Plan covering approximately 862,187 shares, 887,063 shares, and 650,249 shares, respectively. Based on your Company’s basic weighted average common stock outstanding for those three fiscal years of 444,058,676, 491,828,691, and 535,069,588, respectively, for the three-fiscal-year period 2017-2019, the average burn rate, not taking into account forfeitures, was 0.17% (the individual years’ burn rates were 0.19% for fiscal 2017, 0.18% for fiscal 2018, and 0.12% for fiscal 2019).
In determining the number of shares to request for approval under the Plan, your Company’s management team worked with the Committee to evaluate a number of factors, including your Company’s recent share usage and criteria expected to be utilized by institutional proxy advisory firms in evaluating this proposal for the Plan.
If the Plan is approved, your Company intends to utilize the shares authorized under the Plan to continue its practice of incentivizing key individuals through equity grants. Your Company currently anticipates that the shares requested in connection with the approval of the Plan will last for about 5 years, based on your Company’s historic grant rates and the approximate current share price, but could last for a different period of time if actual practice does not match recent rates or the share price changes materially. As noted below, the Committee generally retains full discretion under the Plan to determine the number and amount of awards to be granted under the Plan, subject to the terms of the Plan, and future benefits that may be received by participants under the Plan may not be determinable at this time.
Your Company believes that it has demonstrated a commitment to sound equity compensation practices in recent years. Your Company recognizes that equity compensation awards dilute shareholders’ equity, so it has carefully managed its equity incentive compensation. Your Company’s equity compensation practices are intended to be competitive and consistent with market practices, and it believes its historical share usage has been responsible and mindful of shareholder interests, as described above.
In evaluating this proposal, you should consider all of the information in this proposal.
28 | FirstEnergy Corp.2020 Proxy Statement
Material Features of the Plan
Plan Administration. Generally, the Plan will be administered by the Compensation Committee of your Board (later referred to in this Item 4 as the Committee). However, the Plan is administered by the full Board or the Committee with respect to awards granted tonon-employee directors. With respect to awards granted to employees, the Committee has the discretionary power to, among other things, determine the nature and terms of awards and interpret the terms of the Plan, any award agreement and any other agreement or document related to the Plan. In addition, the Committee is authorized to take any action it determines in its sole discretion to be appropriate subject only to the express limitations contained in the Plan, and no authorization in any Plan section or other provision of the Plan is intended or may be deemed to constitute a limitation on the authority of the Committee. With respect to awards granted tonon-employee directors, your Board has the discretionary power to, among other things, interpret the terms of the Plan, any award agreement and any other agreement or document related to the Plan. The Committee also may adopt such rules, regulations, forms, instruments, and guidelines for administering the Plan as it deems necessary or proper. The Committee may under certain conditions delegate to an officer of your Company the authority to grant a certain number of awards to employees or directors who are not deemed to be insiders for purposes of Section 16 of the Exchange Act. Actions taken and interpretations and determinations made by the Committee will be final and binding upon participants, your Company and all other individuals.
Eligibility. All employees of your Company and its subsidiaries, plus allnon-employee directors of your Company, are eligible to participate in the Plan. The Plan authorizes the Committee to designate any employee of your Company and its subsidiaries as a participant in the Plan. Your Board may designate anynon-employee director of your Company as a participant in the Plan. As of March 9, 2020, there were zero employees of your Company, approximately 12,316 employees of your Company’s subsidiaries and10 non-employee directors of your Company eligible to participate in the Plan. The basis for participation in the Plan by eligible persons is the selection of such persons by the Committee or your Board (or their proper delegate) in its discretion. Our current expectation is that, in general, all regular employees (approximately 12,316 as of the date of this proxy statement) of your Company and its subsidiaries may receive cash-based awards granted under the Plan under your Company’s short-term incentive programs and all executives of the organization (approximately 414 as of the date of this proxy statement) may receive equity or equity-based awards granted under the Plan under your Company’s long-term incentive program.
Shares Available Under the Plan. Subject to adjustment as described in the Plan and the share counting rules set forth in the Plan, the maximum number of shares of your Company’s common stock, par value $0.10 per share, available for awards granted under the Plan (including dividends or dividend equivalents paid in shares) is:
10,000,000 shares, plus
the total number of shares remaining available for grant under the Predecessor Plan as of the effective date of the Plan, plus
the total number of shares that are subject to awards currently outstanding under the FirstEnergy Corp. 2015 Incentive Compensation Plan, including as amended, that are not used due to the forfeiture, cancellation or expiration of such awards.
Assuming target level payouts, as of March 9, 2020, there are approximately 4,599,092 shares remaining available under the Predecessor Plan and approximately 2,339,443 shares underlying outstanding awards granted under the Predecessor Plan (or the prior plan); assuming maximum level payouts, these amounts would be 2,784,972 shares and 4,153,563 shares, respectively. Actual results will not be determined until the end of each applicable performance period and may be adjusted upward or downward subject to the achievement of performance targets. In connection with the approval of the Plan, no further awards will be granted under the Predecessor Plan. Awards previously issued under the Predecessor Plan will continue to be governed in accordance with the terms of such plan. As of March 9, 2020, the closing price of a common share of your Company was $42.93. Shares available for issuance under the Plan may be authorized and unissued shares, treasury shares or shares obtained on the open market.
If an award granted under the Plan (in whole or in part) is cancelled or forfeited, expires, is settled for cash, or is unearned, the shares subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, again be available under the aggregate share limit. If, after the effective date, any shares subject to an award granted under the Predecessor Plan are forfeited, or an award granted under the Predecessor Plan (in whole or in part) is cancelled or forfeited, expires, is settled
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for cash, or is unearned, the shares subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, be available for awards under the Plan. The maximum number of shares that may be issued under an award will be counted against the aggregate share limit at the time of grant and reserved for issuance, unless the award agreement provides that the award will be paid in cash. Any award that is to be paid in cash pursuant to the applicable award agreement, whether or not the award is denominated in shares, will not result in any shares being counted against the aggregate share limit and reserved for issuance. Any shares underlying dividend equivalents that are payable in shares shall be counted against the aggregate share limit when issued or credited, but shares underlying dividend equivalents that are forfeited or cancelled, expire, are paid in cash or are unearned, shall be available again under the Plan. Any dividends or dividend equivalents that are payable in cash under the applicable award agreement, whether or not such dividends or dividend equivalents are denominated in shares, shall not result in any shares being counted against the aggregate share limit.
Adjustments. In the event of any corporate event or transaction (including a change in the shares of your Company or the capitalization of your Company) such as a merger, consolidation, reorganization, recapitalization, separation, partial or complete liquidation, stock dividend, stock split, reverse stock split, split up or split off, spinoff or spinout, other distribution of stock or property of your Company, combination of shares, exchange of shares, dividendin-kind or other like change in capital structure, number of outstanding shares or distribution (other than normal cash dividends) to shareholders of your Company, issuance of rights or warrants, or any similar corporate event or transaction, the Committee, in order to prevent dilution or enlargement of the participants’ rights under the Plan, will substitute or adjust, as applicable, the number and kind of shares that may be issued under the Plan or under particular forms of awards, the number and kind of shares subject to outstanding awards, the exercise price applicable to outstanding awards, other award terms, and other value determinations applicable to outstanding awards. Further, the Committee, in its sole discretion, may make appropriate adjustments in the terms of any awards under the Plan to reflect, or related to, the changes or distributions described above and to modify any other terms of outstanding awards, including modifications of performance goals and changes in the length of performance periods.
Subject to certain conditions as described in the Plan, the Committee may make adjustments in the terms and conditions of, and the criteria included in, awards, including in recognition of unusual or nonrecurring events affecting one or more participants, your Company or the financial statements of your Company or of changes in applicable laws, regulations or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.
Allowances for Conversion Awards and Assumed Plans. Shares issued or transferred under awards granted under the Plan in substitution for or conversion of, or in connection with an assumption of, stock options, SARs, restricted stock, RSUs, or other stock or stock-based awards held by awardees of an entity engaging in a corporate acquisition or merger transaction with your Company or any of its subsidiaries will not count against (or be added to) the aggregate share limit or other Plan limits. Additionally, shares available under certain plans that we or our subsidiaries may assume in connection with certain corporate transactions from another entity may be available for certain awards under the Plan, under circumstances further described in the Plan, but will not count against (or be added to) the aggregate share limit or other Plan limits.
No Liberal Share Counting Provisions. The Plan prohibits “liberal share counting” by requiring that no shares tendered or otherwise used in payment of a stock option’s exercise price may be added back into the aggregate share limit. The Plan also provides that no shares withheld or otherwise used in satisfaction of tax withholding obligations may be added back into the aggregate share limit. The full number of shares covered by a SAR, to the extent that it is settled in shares, and whether or not all shares are actually issued to a participant upon exercise of the SAR, will be considered used and therefore may not be added back to the aggregate share limit. If your Company repurchases shares with stock option exercise proceeds, those shares will not be added to the aggregate plan limit.Lastly, if a participant has elected to give up the right to receive compensation in exchange for shares based on fair market value, such shares will not count against the aggregate plan limit.
Non-Employee Director Compensation Limit. Nonon-employee director will be granted, in any one calendar year, compensation for such service having an aggregate maximum value (measured at the date of grant as applicable and calculating the value of any awards based on the grant date fair value for financial reporting purposes) in excess of $750,000.
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Prohibition on Repricing of Options or SARs. Subject to the adjustment provisions described above in the subsection titled “Adjustments”, in no event will the Committee or your Board, without first obtaining the approval of your Company’s shareholders, have the right to:
cancel outstanding stock options or SARs for the purpose of replacing or regranting such stock options or SARs with an exercise price that is less than the original exercise price of the stock option or SAR;
change the exercise price of a stock option or SAR to an exercise price that is less than the original exercise price; or
cancel an outstanding stock option or SAR with an exercise price that is more than the fair market value of a share on the date of cancellation in exchange for cash or another award.
Performance Measures. Awards under the Plan may be conditioned upon the attainment of performance measures. Performance measures are the measurable performance objective or objectives established pursuant to the Plan for participants who have received performance-based awards. Any performance measure(s) may be used to measure the performance of your Company or any subsidiary as a whole or any business unit or segment of your Company or a subsidiary. Any performance measures may also be used as a comparison of the performance of your Company, a subsidiary or a division to the performance of a group of comparator companies, or a published or special index. The Committee may select a share price performance measure as compared to various stock market indices. The Committee also has the authority to provide for accelerated vesting of any award based on the achievement of performance goals pursuant to the performance measures. In establishing performance measures, the Committee may provide that any financial factor that in whole or in part comprises any performance measure will be determined in accordance with U.S. generally accepted accounting principles (later referred to as GAAP) or that any such financial factor may benon-GAAP (i.e., that such financial factor may be adjusted to exclude from its calculation one or more GAAP ornon-GAAP items). If the Committee determines that a change in the business, operations, corporate structure or capital structure of your Company, or the manner in which it conducts its business, or other events or circumstances render the performance measures unsuitable, the Committee may in its discretion modify such performance measures or the goals or actual levels of achievement regarding the performance measures, in whole or in part, as the Committee deems appropriate and equitable.
Performance goals and performance measures under the Plan may be selected by the Committee in its sole discretion. Anon-exhaustive list of performance measures that could be used for performance-based awards under the Plan includes the following: net earnings or net income (before or after taxes); income; retained earnings; earnings per share; net sales or revenue growth; net operating profit or income; operating earnings; return measures (including return on assets, capital, invested capital, equity, sales or revenue); cash flow (including operating cash flow, free cash flow, cash flow return on equity and cash flow return on investment); earnings before taxes, interest, depreciation and/or amortization (later referred to as EBITDA); adjusted EBITDA; gross or operating margins; productivity ratios; share price (including growth measures and total shareholder return); costs or cost control; margins; operating efficiency; operating and maintenance cost management; demand-side management (including conservation and load management); market share; service reliability; energy production availability performance; results of customer satisfaction or employee satisfaction surveys; aggregate product price and other product price measures; working capital; economic value added (later referred to as EVA®), which is net operating profit after tax minus the sum of capital multiplied by the cost of capital; management development; succession planning; shaping legislative and regulatory initiatives and outcomes; taxes; safety record; depreciation and amortization; total shareholder return; workforce hiring plan measures; air quality control project management; environmental; risk management; technology upgrade measures; financial contribution to earnings from special projects or initiatives; capital expenditures; generation output; power supply sourcing adequacy; results of asset acquisitions; results of asset divestitures; capitalization; credit metrics; credit ratings; compound growth rates (earnings, revenue, income from continuing operations, cash generation, etc.); generation outage duration; transmission outage duration; distribution outage duration; value creation; effective tax rate; financing flexibility; financing capability; and value returned to shareholders.
Types of Awards. The Plan permits awards in the form of stock options, SARs, restricted stock, RSUs, performance shares, other stock-based awards, cash-based awards and dividends and dividend equivalents. Each award is evidenced by an agreement by which the Committee establishes its specific terms and conditions. An agreement, certificate, resolution or other type or form of writing or other evidence
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approved by the Committee or your Board (as applicable) that sets forth the terms and conditions of an award granted under the Plan will be considered the award agreement for such award. An award agreement may be in an electronic medium, may be limited to notation on the books and records of your Company and, unless otherwise determined by the Committee your Board (as applicable), need not be signed by a representative of the Company or a participant. In addition,non-employee Directors are eligible to receive any type of award, which may or may not be subject to vesting requirements.
Stock Options.Awards under the Plan may take the form of stock options that may betax-favored incentive stock options ornon-qualified stock options. If an award under the Plan is made in the form of stock options, in general, the exercise price of the option may not be less than the fair market value of the underlying shares on the date of grant (except with respect to stock options issued in substitution for, in conversion of, or in connection with certain corporate transactions as described above). The term of any stock option cannot exceed ten years. The Committee is entitled to set all terms in connection with a participant’s right to exercise an award and may impose such conditions as it determines. No participant may be awarded incentive stock options that are first exercisable during any calendar year which involve shares having a fair market value, determined at the time of grant, in excess of $100,000 (the stock options in excess of this amount will be treated asnon-qualified stock options). The maximum number of shares that may be issued with respect to incentive stock options is 10 million shares. Options can be settled in shares or in cash, as determined by the Committee and provided in the applicable award agreement. Stock options (in whole or in part) may become exercisable upon certain events, including a participant’s death, disability, or termination of employment under certain circumstances, as determined by the Committee.
Stock Appreciation Rights.Awards under the Plan may take the form of a SAR, with terms as determined by the Committee. Each SAR allows the holder to realize the value of the difference between the exercise price set by the Committee and the market value of a share when the SAR is exercised. Except with respect to SARs issued in substitution for, in conversion of, or in connection with certain corporate transactions as described above, the exercise price set by the Committee may not be less than the fair market value of the underlying shares as of the date of grant. The term of a SAR cannot exceed ten years. If the value of the stock has not increased during its term, the SAR will have no value. SARs may be settled in cash, shares, or a combination of cash and shares, as determined by the Committee and provided in the applicable award agreement. SARs (in whole or in part) may become exercisable upon certain events, including a participant’s death, disability, or termination of employment under certain circumstances, as determined by the Committee.
Restricted Stock.Awards under the Plan may take the form of shares of restricted stock, with terms as determined by the Committee. Restricted stock involves the issuance to participants of shares subject to restrictions on transferability and any other conditions or restrictions the Committee may impose. The restrictions lapse if either the holder remains employed by your Company or its subsidiaries for a period of time established by the Committee under the applicable award agreement or satisfies other conditions or restrictions, including performance-based restrictions, during the period of time established by the Committee. Participants holding shares of restricted stock granted under the Plan may be granted the right to exercise full voting rights with respect to those shares prior to the lapse of the restrictions on the shares. Restricted stock (in whole or in part) may become nonforfeitable or vest upon certain events, including a participant’s death, disability, or termination of employment under certain circumstances, as determined by the Committee.
Restricted Stock Units. Awards under the Plan may take the form of RSUs, with terms as determined by the Committee. An RSU is the right of the participant to receive one share of common stock, or its cash equivalent (or a combination of cash and shares), upon the satisfaction of restrictions or requirements set forth in the applicable award agreement. Requirements may consist of remaining in the employ of your Company or a subsidiary for a certain period of time or the achievement of performance goals. The participant will have no rights of ownership in the shares subject to the RSUs and shall have no right to vote such shares until the shares, if any, are issued to the participant upon satisfaction of the award’s underlying requirements. RSUs (in whole or in part) may become nonforfeitable or vest upon certain events, including a participant’s death, disability, or termination of employment under certain circumstances, as determined by the Committee.
Performance Shares.Awards under the Plan may take the form of performance shares, with terms as determined by the Committee. The period of time during which performance goals are measured will be of such duration as the Committee shall determine. Performance shares are denominated in shares of common stock and may be settled in cash, shares, or a combination of cash and shares, as determined by
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the Committee. Performance shares (in whole or in part) may vest upon certain events, including a participant’s death, disability, or termination of employment under certain circumstances, as determined by the Committee.
Other Stock-Based Awards and Cash-Based Awards.Other stock-based awards are awards of stock-based compensation (including unrestricted shares) that do not fit within the scope of the other specifically enumerated types of awards but are denominated in shares or based on the price of your Company’s common stock. Terms of these awards will be determined by the Committee. The Committee may make cash-based awards with a range of payment levels. Cash-based awards are denominated in dollar amounts. Other stock-based awards and cash-based awards may be based upon the achievement of performance goals. Other stock-based awards and cash-based awards may be settled in cash, shares, or a combination of cash and shares, as determined by the Committee. Cash-based awards or other stock-based awards (in whole or in part) may become nonforfeitable or vest upon certain events, including a participant’s death, disability, or termination of employment under certain circumstances, as determined by the Committee.
Awards toNon-Employee Directors. Your Board or the Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting of any type of an award tonon-employee directors of your Company. Each grant of an award to anon-employee director will be upon such terms and conditions as approved by your Board or the Committee and will be evidenced by an award agreement in such form as will be approved by your Board or the Committee. Each award agreement will specify in the case of a stock option and free-standing SAR, an exercise price per share, which (except with respect to stock options or SARs issued in substitution for, in conversion of, or in connection with certain corporate transactions as described above) will not be less than the fair market value per share on the date of grant. Each stock option and SAR granted under the Plan to anon-employee director will expire not more than 10 years from the date of grant. If anon-employee director subsequently becomes an employee of your Company or a subsidiary while remaining a member of your Board, any award held by such individual at the time of such commencement of employment will not be affected by such employment.Non-employee directors may be granted, or may be permitted to elect to receive, pursuant to procedures established by your Board or the Committee, all or any portion of their annual retainers, meeting fees or other fees in shares or restricted shares (or other awards) in lieu of cash.
Transferability of Awards. Except as otherwise provided in an applicable award agreement or as determined by the Committee, no award granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution, and in no event may an award be transferred for value.
Dividends and Dividend Equivalents. Awards of restricted stock, RSUs, performance shares, cash-based awards and other stock-based awards may provide for the issuance of dividends, dividend equivalents and/or other distributions with respect to the shares subject to the awards. Awards of stock options or SARs may not provide for the issuance of dividends, dividend equivalents or other distributions on either a current or deferred basis. With respect to any award of restricted stock, RSUs, performance shares, cash-based awards or other stock-based awards, any dividends, dividend equivalents and/or other distributions on such awards will be deferred until and paid contingent upon the vesting of such awards (including, if applicable, the achievement of the relevant performance goals).
Change in Control of the Company – Double Trigger Vesting Provision. The following description of the treatment of awards in the event of a change in control of your Company shall apply unless otherwise determined by the Committee regarding an award (as reflected in the applicable award agreement). Upon a change in control of your Company, if a participant retains or is granted a “replacement award” (as described in the Plan) by the successor or acquiring entity, then such replacement award will remain subject to its vesting and/or conditions of exercise after the change in control. If, however, a participant’s employment (or service) is terminated by your Company (or successor entity) for any reason other than cause (generally, as described in the Plan or in the applicable award agreement) in connection with or during the two years after the change in control, then such replacement awards will become fully vested and/or exercisable and all stock options or SARs held by the participant as of the date of the change in control or that constitute replacement awards will remain exercisable until the earlier of one year following the termination of employment or service (unless the agreement provides for a longer term of exercisability after termination of employment or service) or the original termination date of the stock option or SAR. A “replacement award” under the Plan is an award related to publicly traded stock granted by the successor or acquiring entity that is of at least equal value and with no less favorable terms and conditions as the awards held by the participant as of the date of the change in control.
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Upon a change in control, except to the extent a replacement award is retained by or provided to the participant to replace or continue an award, a stock option or SAR will immediately become fully vested and exercisable, and a then-outstanding award whose lapse of restrictions depends solely on service will vest in full and be free of restrictions. The treatment of any other award type will be as determined by the Committee and reflected in the applicable award agreement. However, if, upon a change in control, a participant does not retain or is not granted a replacement award by the successor or acquiring entity, the Committee may:
determine that any or all outstanding awards granted under the Plan, whether or not exercisable, will be canceled and terminated and that in connection with such cancellation and termination the holder of such award may receive for each share of common stock subject to such awards a cash payment (or the delivery of shares of stock, other securities or a combination of cash, stock and securities equivalent to such cash payment) equal to the difference, if any, between the consideration received by shareholders of your Company in respect of a share of common stock in connection with such transaction and the purchase price per share, if any, under the award multiplied by the number of shares of common stock subject to such award (or if the exercise price of an award is greater than the value of the consideration received by shareholders, cancel such award without payment); or
provide that the period to exercise stock options or SARs granted under the Plan shall be extended (but not beyond the expiration of such stock options or SARs).
In general terms, subject to some additional considerations described in the Plan document, and except as may be otherwise set forth in an applicable award agreement, a “change in control” consists of: (1) the acquisition of twenty-five percent (25%) or more of the outstanding common stock or voting power of your Company; (2) the incumbent members of your Board cease to hold a majority, unless a majority of such incumbent members vote to approve the new members; (3) consummation of a reorganization, sale or other disposition of all or substantially all of the assets of your Company, where your Company’s shareholders hold less than 60% of the combined voting power of the surviving company or certain other control thresholds or requirements are not met; or (4) the approval by the shareholders of your Company of a complete liquidation or dissolution of your Company. A “change of control” is defined by reference to your Company (and not its subsidiaries and affiliates).
Withholding Taxes. With respect to withholding required upon the lapse of restrictions, settlement or any other taxable event arising as a result of an award that is payable through the issuance and delivery of shares, unless the Committee determines otherwise, each participant will satisfy his or her withholding requirement by having the Company withhold a number of shares having a fair market value on the date the withholding amount is to be determined in an amount not to exceed the maximum rate for the participant in the applicable jurisdiction.
Recoupment. The Plan and awards granted under the Plan will be subject to your Company’s Executive Compensation Recoupment Policy, as in effect from time to time.
Plan Amendment and Termination; Fractional Shares. Subject to certain limitations, the Committee may, at any time and from time to time, alter, amend, modify, suspend or terminate the Plan and any award agreement in whole or in part. However, expect for certain changes permitted under the Plan, no termination, amendment, suspension or modification of the Plan or an award agreement will materially and adversely affect any award previously granted under the Plan without the written consent of the participant who received such award (except as permitted pursuant to the Plan’s adjustment provisions described above or in connection with amendments deemed advisable to conform the Plan or any award agreement to applicable laws, regulations and requirements or stock exchange rules). No fractional shares will be issued or delivered under the Plan, and the Committee will decide whether cash, awards or other property will be issued or paid in lieu of fractional shares (or whether fractional shares will be forfeited or otherwise eliminated for no consideration).
Tax Effects
The following is a brief summary of certain of the Federal income tax consequences of certain transactions under the Plan based on Federal income tax laws in effect. This summary, which is presented for the information of shareholders considering how to vote on this proposal and not for Plan participants, is not intended to be complete and does not describe Federal taxes other than income taxes (such as Medicare and Social Security taxes), or state, local or foreign tax consequences.
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Tax Consequences to Participants.
Restricted Stock. The recipient of restricted stock generally will be subject to tax at ordinary income rates on the fair market value of the restricted stock (reduced by any amount paid by the recipient for such restricted stock) at such time as the restricted stock is no longer subject to forfeiture or restrictions on transfer for purposes of Section 83 of the Code (“Restrictions”). However, a recipient who so elects under Section 83(b) of the Code within 30 days of the date of transfer of the shares will have taxable ordinary income on the date of transfer of the shares equal to the excess of the fair market value of such shares (determined without regard to the Restrictions) over the purchase price, if any, of such restricted stock. If a Section 83(b) election has not been made, any dividends received with respect to restricted stock that are subject to the Restrictions generally will be treated as compensation that is taxable as ordinary income to the recipient.
Performance Shares, Cash-Based Awards and Other Stock-Based Awards. No income generally will be recognized upon the grant of performance shares, cash-based awards or other stock-based awards. Upon payment in respect of theearn-out of performance shares, cash-based awards and other stock-based awards, the recipient generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and the fair market value of any unrestricted common stock received.
Nonqualified Stock Options. In general:
no income will be recognized by an optionee at the time anon-qualified stock option is granted;
at the time of exercise of anon-qualified stock option, ordinary income will be recognized by the optionee in an amount equal to the difference between the option price paid for the shares and the fair market value of the shares, if unrestricted, on the date of exercise; and
at the time of sale of shares acquired pursuant to the exercise of anon-qualified stock option, appreciation (or depreciation) in value of the shares after the date of exercise will be treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held.
Incentive Stock Options. No income generally will be recognized by an optionee upon the grant or exercise of an “incentive stock option” as defined in Section 422 of the Code. If common stock is issued to the optionee pursuant to the exercise of an incentive stock option, and if no disqualifying disposition of such shares is made by such optionee within two years after the date of grant or within one year after the transfer of such shares to the optionee, then upon sale of such shares, any amount realized in excess of the option price will be taxed to the optionee as a long-term capital gain and any loss sustained will be a long-term capital loss.
If common stock acquired upon the exercise of an incentive stock option is disposed of prior to the expiration of either holding period described above, the optionee generally will recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at the time of exercise (or, if less, the amount realized on the disposition of such shares if a sale or exchange) over the exercise price paid for such shares. Any further gain (or loss) realized by the participant generally will be taxed as short-term or long-term capital gain (or loss) depending on the holding period.
SARs. No income will be recognized by a participant in connection with the grant of a SAR. When the SAR is exercised, the participant normally will be required to include as taxable ordinary income in the year of exercise an amount equal to the amount of cash received and the fair market value of any unrestricted common stock received on the exercise.
RSUs. No income generally will be recognized upon the award of RSUs. The recipient of an RSU award generally will be subject to tax at ordinary income rates on the fair market value of unrestricted common stock on the date that such shares are transferred to the participant under the award (reduced by any amount paid by the participant for such RSUs), and the capital gains/loss holding period for such shares will also commence on such date.
Tax Consequences to Your Company or its Subsidiaries. To the extent that a participant recognizes ordinary income in the circumstances described above, your Company or the subsidiary for which the participant performs services will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not
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an “excess parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended from time to time (the “Code”) and is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Code.
Registration with the SEC
Your Company intends to file a Registration Statementon Form S-8 relating to the issuance of common stock under the Plan with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, as soon as practicable after approval of the Plan by your Company’s shareholders.
New Plan Benefits
In general, it is not possible to determine the specific amounts and types of awards that may be awarded in the future under the Plan because the grant and actual settlement of awards under the Plan will be subject to the discretion of the plan administrator. However, our 2020 compensation program for ournon-employee directors contemplates thatnon-employee directors will be awarded stock grants on a quarterly basis (referred to later in this proxy statement as thenon-employee directors’ equity retainer) with a value of approximately $37,500 per director per quarter ($150,000 annually in the aggregate), of which one installment of approximately $37,500 per director ($375,000 in the aggregate) will have been granted under the Predecessor Plan. If the Plan is approved, we intend for the remainingnon-employee director stock grants for 2020 to be paid under the Plan. The following table sets forth what each of thenon-employee directors are expected to receive under the Plan for the remainder of 2020 (note, the information for this table for each of the NEOs, for all of your Company’s current executive officers as a group, and for all of your Company’s employees (including all current officers who are not executive officers), as a group, respectively, is zero, due to the discretionary nature of new grants under the Plan):
New Plan Benefits
FirstEnergy Corp. 2020 Incentive Compensation Plan
Name and Position | Dollar Value($) | Number of Shares of Common Stock(2) | ||||||
Non-Executive Director Group(1) | $ | 112,500 | 2,621 | |||||
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Equity Compensation Plan Information
The following table contains information as of December 31, 2019, regarding compensation plans for which shares of FE common stock may be issued.
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||
| (a) | (b) | (c) | ||||
| Equity compensation plans approved by security holders | 4,316,337(1) | 37.75(2) | 3,947,410(3) | |||
| Equity compensation plans not approved by security holders(4) | 0 | 0 | 0 | |||
Total | 4,316,337 | 37.75 | 3,947,410 |
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Effectiveness and Vote Required
Approval of this proposal requires the affirmative vote of a majority of the votes cast. Under NYSE requirements for the approval of equity plans, abstentions will be counted and have the same effect as an “Against” vote, and brokernon-votes will have no effect.
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Your Board has determined it is in the best interests of the Company and its shareholders to seek shareholder approval of an amendment to the Company’s Amended and Restated Code of Regulations (the “Regulations”) to grant your Board authority to make certain future amendments to the Regulations.Even if this proposal is approved, our shareholders would continue to retain the power to adopt, amend, and repeal the Regulations without action by your Board. Also, without shareholder approval, the Ohio Revised Code and the Regulations would still prohibit any amendments to the Company’s Regulations to effect changes in certain areas deemed by the Ohio legislature to be important substantive rights reserved to the shareholders as further described below.
Background and Governance Considerations
Many jurisdictions, such as Delaware, allow the board of directors of a corporation to amend its bylaws (which are the Delaware law counterpart to the Ohio code of regulations) without shareholder approval. In 2006, the Ohio Revised Code was amended to allow boards of directors of Ohio corporations to make certain amendments to their regulations without shareholder approval, if such authority is provided in or permitted by the articles or regulations, so long as such amendments do not divest or limit the shareholders’ power to adopt, amend, or repeal the regulations of the corporation. The amendment to the Ohio Revised Code was intended to provide Ohio corporations with the same flexibility afforded to companies in many other jurisdictions, permitting the board of directors to amend certain bylaw provisions without shareholder approval, and many publicly held Ohio corporations subsequently have revised their regulations to grant this authority to their boards of directors. The Company’s Regulations currently require that all amendments be approved and adopted by our shareholders.
Proposed Amendment
The Ohio Revised Code imposes limitations that prohibit directors from amending corporate regulations to modify certain substantive rights of shareholders. Your Board does not seek to change any of these substantive rights of shareholders. Accordingly, even if shareholders approve this proposal, your Board may not amend the Company’s Regulations to do any of the following:
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If this proposal is approved, our Regulations will be amended to allow your Board to amend the Regulations to the extent permitted by the Ohio Law. The proposed amendment will also allow your Board to more
38 | FirstEnergy Corp.2020 Proxy Statement
efficiently address evolving governing norms similarly to other publicly held companies. Accordingly, your Board would be able to make ministerial and other changes to the Regulations without the time-consuming and expensive process of seeking shareholder approval, which would continue to be required if this proposal is not approved. Even if shareholders approve this proposal, shareholders will continue to retain the power to adopt, amend, and repeal the Regulations without action by your Board, and will therefore have the ability to override any amendments made by your Board should they determine that course to be appropriate.
We will be required to promptly notify our shareholders of any amendment that your Board makes to the Regulations by filing a current report on Form8-K with the SEC.
The full proposed amendments to the Regulations is set forth in Appendix B, with additions indicated by underlining. The summary above is qualified in its entirety by reference to the full text of the proposed amendments in Appendix B.
Effectiveness and Vote Required
Your Board has adopted resolutions approving and recommending that shareholders approve the amendment to the Regulations reflected in Appendix B, which is subject to the approval of the amendment by shareholders at the Annual Meeting, and authorizing the preparation and filing of any document necessary or advisable to implement such amendment. The amendment, if approved by the shareholders at the Annual Meeting, would become effective immediately. Approval of this proposal requires the affirmative vote of at least a majority of the voting power of the Company. Abstentions and brokernon-votes will be counted and have the same effect as a vote “against” this item.
39 | FirstEnergy Corp.2020 Proxy Statement
Shareholder Proposal
One shareholder proposal has been submitted for consideration and action by our shareholders.
The shareholder resolution and proposal, for which the Company and your Board disclaim responsibility, are set forth below and are reproduced verbatim in accordance with the applicable rules and regulations. The shareholder resolution and proposal may contain assertions that we believe are factually incorrect. We have not attempted to refute any and all inaccuracies.After careful consideration, your Board recommends that you vote “AGAINST” the shareholder proposal in Item 6 for the reasons noted in the Company’s response following the shareholder proposal.
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John Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, California 90278, plans to introduce the following resolution at the Annual Meeting. We have been notified that Mr. Chevedden is the beneficial owner of no less than 50 shares of your Company’s common stock.
Proposal 6 — Make Shareholder Proxy Access More Accessible
Shareholders request that our board of directors take the steps necessary to enable as many shareholders as may be needed to aggregate their shares to equal 3% of our stock owned continuously for3-years in order to enable shareholder proxy access.
Proxy access for shareholders enables shareholders to put their own director candidates on the company ballot to see if they can be elected. A competitive election is good for everyone. This proposal can help ensure that our management will nominate directors with outstanding qualifications in order to avoid giving shareholders a reason to exercise their right to use proxy access.
As a practical matter any group attempting proxy access at FirstEnergy should plan on the participation of 6% in stock to be prepared for FirstEnergy challenging stock ownership by exploiting technical rules in regard to proof of stock ownership.
Under this proposal it is likely that the number of shareholders who participate in the aggregation process would still be a modest number due to the administrative burden on shareholders to qualify as one of the aggregation participants. Plus it is easy for management to reject potential aggregating shareholders. The administrative burden on shareholders leads to a number of potential technical errors by shareholders that management can easily detect.
Shareholders should be able to select the ownership structure of a group requesting proxy access. Shareholders are in the best position to know whether it will be more practical to have a few big shareholders or a greater number of smaller shareholders and should not be saddled with inflexible rules. The directors of many companies promote “one sizes does not fit all” in their proxies and this principle should apply here.
Please vote yes:
Make Shareholder Proxy Access More Accessible — Proposal 6
40 | FirstEnergy Corp.2020 Proxy Statement
Company’s Response — Item 6
In 2019, after receiving overwhelming shareholder approval of a proposal to amend our Amended and Restated Code of Regulations, we implemented a proxy access provision for our shareholders that is aligned with current best practices. Proxy access, as further described below, allows eligible shareholders to include their own nominee or nominees for election to your Board in our proxy materials, along with your Board-nominated candidates. The proxy access provision included in our Amended and Restated Code of Regulations provides shareholders with meaningful and appropriate proxy access rights, while taking into account the need to balance the rights of certain shareholders with protecting the interests of all our shareholders. The shareholder proposal seeks the adoption of provisions that would unnecessarily disrupt that balance and are inconsistent with current market practice.
Your Board has carefully considered this proposal and believes that it is not in the best interests of our shareholders. For the following reasons, your Board recommends that you vote AGAINST Item 6.
Our shareholders already have meaningful and appropriate proxy access rights that were overwhelmingly approved by our shareholders at the 2019 Annual Meeting.
As a general matter, proxy access provisions permit certain shareholders to include a specified number of director nominees in our proxy materials for our annual meeting of shareholders. Prior to adopting the current proxy access provision in our Amended and Restated Code of Regulations, we engaged in extensive dialogue with many shareholders (as part of our ongoing Outreach and Engagement Program) regarding proxy access. In addition to asking our shareholders for their views on proxy access generally, we discussed certain specific terms and conditions of the then-proposed proxy access right. These discussions focused both on the potential benefits and risks of proxy access. We also conducted a detailed review of the SEC’s prior proposed regulations in this area, which have since been vacated, and benchmarked our proposed proxy access provisions against proxy access provisions at other public companies. In 2019, our shareholders overwhelmingly approved at the 2019 Annual Meeting, and your Board adopted, the proxy access shareholder right currently included in our Amended and Restated Code of Regulations.
The proxy access right that was approved by shareholders in 2019 and that we adopted, among other matters, allows groups of up to twenty shareholders holding an aggregate of 3% of the Company’s stock for at least 3 years to nominate individuals representing up to 20% of the Board (but not less than two shareholder nominated candidates) and to have their candidate(s) included in our proxy statement. Nominations are subject to the eligibility, procedural, and disclosure requirements set forth in our Amended and Restated Code of Regulations.
We believe the current provisions balance the rights of shareholders while also protecting their interests and are aligned with current best practices and the views of many of our shareholders. For instance, benchmarking shows that of the companies that have adopted proxy access, over 90% have implemented a twenty-shareholder or less aggregation limit. Abandoning this common and common sense limit would impose unpredictable and possibly onerous burdens on the Company.
Allowing an unlimited number of shareholders to aggregate their shares for proxy access purposes would enable small shareholders with narrow, special interests to exercise disproportionate influence over the director nomination process, and expose the Company to costly administrative burdens.
The existing twenty-shareholder aggregation limit protects shareholders in two ways. First, it ensures that proxy access is available to shareholders who have a significant economic stake in the Company and is not driven by some who might have narrow, special interests rather than the long-term interests in the Company. Second, it relieves the Company of the significant administrative burden of having to review and verify eligibility information for an unlimited number of shareholders. After extensive consultation with our shareholders prior to adopting proxy access, we concluded that our existing aggregation limit protects us adequately from these risks, while at the same time ensuring broad access to the proxy access right.
Our commitment to governance best practices, including the existing proxy access right, already ensures Board accountability without unnecessary risk.
We meet with our shareholders throughout the year to share perspectives on long-term strategy, key industry developments, corporate governance and executive compensation. In addition, we maintain a
41 | FirstEnergy Corp.2020 Proxy Statement
portfolio of governance practices designed to hold your Board accountable and maximize long-term shareholder value. These practices, which are described in further detail above in this proxy statement, include annual director elections, a majority voting standard in uncontested elections, the right for shareholders to call special meetings, and an independent Board Chairman, along with our existing proxy access right. We believe that these practices preserve the Board’s accountability without the expense and risk associated with eliminating the proxy access aggregation limit of twenty shareholders.
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42 | FirstEnergy Corp.2020 Proxy Statement
The Compensation Committee reviewed and discussed the CD&A with management and, based on such review and discussions, the Compensation Committee recommended to your Board that the CD&A be included (or incorporated by reference, as applicable) in the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 2019, and 2020 Proxy Statement.
Compensation Committee: James F. O’Neil III (Chair), Christopher D. Pappas, Sandra Pianalto, and Leslie M. Turner.
Compensation Discussion and Analysis
Introduction
This CD&A provides an overview of the Company’s strategy and performance, shareholder engagement process, and 2019 executive compensation programs and decisions, and plans for the 2020 compensation programs. This CD&A focuses on the compensation of our NEOs for fiscal year 2019 who were as follows:
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During 2018, Mr. Belcher became Senior Vice President and President, FirstEnergy Utilities and was appointed as an executive officer of the Company. As a former employee and President and Chief Nuclear Officer (“CNO”) of FirstEnergy Nuclear Operating Co (“FENOC”) and due to the strategic review to exit competitive generation, Mr. Belcher did not participate in all of the same compensation programs as the other NEOs. We have outlined where there are differences to the compensation programs for Mr. Belcher in this proxy statement. Unless otherwise noted, however, all information contained in the CD&A applies to Mr. Belcher.
Through FirstEnergy’s “FE Tomorrow” initiative in 2018, the Company implemented a cost cutting initiative to define the corporate services FirstEnergy would need to support its regulated businesses. Through the initiative, FirstEnergy sought to ensure the Company has the talent, organizational and cost structure to efficiently service customers and achieve its earnings growth targets. In support of the FE Tomorrow initiative, more than 80% of eligible employees, totaling nearly 500 people in the shared services, utility services and sustainability organizations accepted a Voluntary Enhanced Retirement Package (“VERP”) that included severance compensation and a temporary pension enhancement. In July 2018, the Compensation Committee recommended, and the Board approved the Executive Voluntary Enhanced Retirement Program(“E-VERP”) for executive officers other than the CEO, including certain NEOs. Of the eligible executives, Ms. Vespoli and Mr. Pearson elected to participate in theE-VERP and each retired effective as of April 1, 2019. TheE-VERP contained substantially the same terms as the VERP and is discussed further in the CD&A. Refer toE-VERP Benefits on pages 54 and 93 for more information.
This CD&A refers to certain capitalized terms, which are defined in the Glossary of Terms, beginning on page 71. In addition, certain of the performance incentive metrics discussed and utilized in measuringpay-for-performance are based onnon-GAAP figures, and each defined term explains its calculation methodology to the closest GAAP measure. The Compensation Committee believes that using suchnon-GAAP metrics best aligns NEO incentive opportunity with Company performance, which directly supports long-term shareholder value. Use of suchnon-GAAP metrics are helpful to understand and evaluate performance trends when assessingpay-for-performance, and are aligned with key aspects of the Company’s financial performance disclosures.
43 | FirstEnergy Corp.2020 Proxy Statement
CD&A Quick Reference Guide
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44 | FirstEnergy Corp.2020 Proxy Statement
Fulfilling our Commitments
In 2019, FirstEnergy successfully executed its growth strategies and met its commitments to stakeholders as it continued its transformation into a premier, customer-focused, pure-play regulated utility. Key achievements during the year include:
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FirstEnergy’s regulated growth strategy is focused on strengthening and modernizing its distribution and transmission systems to enhance reliability and improve operational efficiency. With annual capital investments in the range of $2.8 billion to $3 billion for the foreseeable future, FirstEnergy intends to build on the scale and scope of its regulated operations to achieve long-term, sustainable, customer-focused growth.
Regulated Transmission
In its Regulated Transmission business, FirstEnergy continues to upgrade and update the power grid to ensure customers benefit from a stronger, smarter and more secure transmission system for years to come. In areas where FirstEnergy has already made significant investments through itsEnergizing the Futureprogram, the Company has recognized a nearly 58% reduction in the duration of customer interruptions caused by transmission outages, and a 64% reduction in the number of customers affected by such outages. In 2019, FERC accepted FirstEnergy’s application to move its New Jersey transmission assets onto a forward-looking formula rate structure effective January 1, 2020, subject to refund. Moving to this rate structure supports the continued expansion of the Company’sEnergizing the Future investments.
Regulated Distribution
In its Regulated Distribution business, the Company is working to ensure continued service reliability and evaluating new technologies such as energy storage and microgrids, to prepare the distribution grid of the future. Recently approved infrastructure investment initiatives, including the Ohio Grid Modernization Program, Pennsylvania Long-Term Infrastructure Improvement Plans and JCP&L Reliability Plus Infrastructure Investment Program, provide a framework for the utility growth plan and modernization efforts.
FirstEnergy has established a strong track record of meeting its commitments to investors and the larger financial community. Based on publicly available guidelines on Institutional Shareholder Services methodology, FirstEnergy generated a Total Shareholder Return (“TSR”), or stock price change plus the value of reinvested dividends, over the last three years of 20.7% and over the last year of 31.3%. The Compensation Committee and Board continue to have strong confidence in the executive team and are proud of the strategic and operational results in 2019. Through the continued successful execution of its regulated growth strategies, FirstEnergy is returning value to investors through its dividend, including a 3% increase for the quarterly payment to shareholders of record as of February 7, 2020.
Looking to the Future
Strategic Plan
The Company has also advanced initiatives designed to help meet the future energy needs of customers, drive shareholder value, and build a more innovative, diverse and sustainable corporate culture. These efforts are guided by the Company’s mission to be a forward-thinking electric utility powered by a diverse team of employees committed to making customers’ lives brighter, the environment better and our communities stronger.
45 | FirstEnergy Corp.2020 Proxy Statement
To offer additional clarity into the Company’s future opportunities and its strategies in a rapidly changing industry, FirstEnergy published its first Strategic Plan in November 2019. Building on the Company’s Core Values, the five-year plan describes how FirstEnergy will:
Address the needs and preferences of its diverse customer base, including providing customers with products and services beyond electricity to help them save money and make their lives easier, brighter and more secure;
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Further reduce its environmental impact;
Continue to build a diverse and inclusive workforce; and
Empower and support our communities.
ESG Transparency and Commitments
In November 2019, the Company published a comprehensive Corporate Responsibility Report to inform and engage stakeholders on its robust environmental, social and governance (“ESG”) efforts. The Company plans to update this report annually and intends to use it as a mechanism to set and track corporate goals, and provide transparency on its progress on ESG initiatives.
The Corporate Responsibility Report complements FirstEnergy’s Climate Report, published in April 2019. That report examined how the Company’s strategies as a fully regulated utility are aligned with the emerging technology trends that support a lower-carbon future and assessed the business risks associated with a carbon-constrained economy.
To date, FirstEnergy has achieved an 80% reduction of carbon dioxide (CO2) emissions as a result of its transformation to a high-performance, pure-play regulated utility. This reduction achievement positions FirstEnergy ahead of schedule to meet its aggressive goal of reducing such emissions by at least 90% below 2005 levels by 2045. The company continues to evaluate its goals for its regulated generation portfolio and assess the opportunities to further reduce CO2 emissions and achieve this reduction goal.
Shareholder Engagement andSay-on-Pay Results
Our Board and management are committed to engaging our shareholders and soliciting their perspectives on key performance, compensation and governance issues. Consistent with prior years, select board members and management representatives conducted extensive outreach during 2019, focused on the top 100 shareholders, who accounted for approximately 68% of the outstanding shares at that time. Our 2019Say-On-Pay vote successfully passed with 98% support, an increase over the 2018Say-On-Pay vote of 95%, which we believe was a direct result of the substantial changes that we made to our compensation plans and programs for 2018. Accordingly, in 2019, we continued with the design of those plans and programs and did not make further changes following the 2019Say-On-Pay voting results.
We continue to engage with shareholders and gather feedback on our compensation programs to use in our annual review of our incentive programs. Our outreach efforts includedin-person discussions and phone calls with many of our top 25 shareholders (holding about 58% of our outstanding shares). Although not all shareholders accept our invitation, we held meetings with shareholders representing more than 22% of our outstanding shares. Many of our top 25 shareholders did not request additional meetings after the 2019 Proxy Statement was issued but, overall, our investors acknowledged our proactive outreach and the positive changes we have made to our programs.
In an effort to align our compensation programs with the interests of shareholders, improve the relationship between pay and performance, better tie our executive compensation programs to our business strategies, and drive the right executive behaviors, the following summary of incentive design changes were proactively made to FirstEnergy’s incentive programs beginning with awards granted in 2018 and continuing for awards in 2019.
46 | FirstEnergy Corp.2020 Proxy Statement
Our Responses to Shareholder Feedback
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Governance of our Executive Compensation Programs
Compensation Philosophy
The primary objectives of our executive compensation programs are to:
Attract, retain, focus and reward talented executives who drive our success in the highly complex utility industry by offering competitive total compensation for our executives overall;
Promote the long-term financial health of the business, and the creation of value for the sustained benefit of shareholders, by emphasizing long-term incentives in the pay mix;
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Tie executive awards to corporate results as well as to overall business unit performance to hold executives accountable for their areas of responsibility;
Recognize individual contributions, including individual performance, experience, and future potential in determining actual pay levels to ensure that the Company retains our most critical talent; and
Conduct ourselves in a way that comports with standards of good governance, consistent with creating long-term value for shareholders.
48 | FirstEnergy Corp.2020 Proxy Statement
What We Do and Don’t Do
We continually strive to make improvements to our executive compensation plans and programs. Below is a summary of what we do and don’t do with respect to executive compensation, the totality of which we believe aligns with the long-term interests of our shareholders and with commonly viewed best practices in the market:
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Role of our Compensation Committee, Management and Compensation Consultant
The Compensation Committee is responsible for overseeing executive compensation and making recommendations to the Board for establishing appropriate salary and incentive compensation for our NEOs, in accordance with our compensation philosophy, while also aligning our executives’ interests with Company and business unit performance, business strategies and corporate objectives, including ESG-related goals, and drivers for growth in shareholder value. The Compensation Committee is further responsible for administering our compensation plans in a manner consistent with these objectives. In this process, the Compensation Committee evaluates information provided by its independent compensation consultant and our CEO, as discussed below. Since December 2017, the Compensation Committee has engaged the services of Farient Advisors (“Farient”) as the Compensation Committee’s independent compensation consultant. The Compensation Committee reviews the mix and level of compensation by each component individually and in the aggregate. The Compensation Committee, using tally sheets and accumulated wealth summaries, also reviews current and previously awarded but unvested compensation.
49 | FirstEnergy Corp.2020 Proxy Statement
Management identifies high-potential executive successors, including a focus to identify high-performing, diverse leaders. The Company’s talent philosophy is that all leaders, regardless of level, must demonstrate the ability to motivate future performance, be accountable for their behaviors and results, and enable employees to do their best every day. Executive succession is reviewed periodically by the CEO, the Senior Vice President and Chief Human Resources Officer, and the Compensation Committee. Executive succession plans are previewed by the Compensation Committee, as applicable, and with the full Board at its annual strategy retreat. Consistent with the D&I initiative, the Compensation Committee has emphasized social responsibility at the Company, introducing goals and KPI metrics related to diversity and inclusion beginning in 2018.
With respect to our CEO’s compensation, the Compensation Committee also annually:
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The Compensation Committee and Board are responsible for establishing the compensation of the NEOs. Neither the CEO nor any other NEO makes recommendations for setting his or her own compensation. The recommendation of the CEO’s compensation is determined in Compensation Committee meetings during an executive session and is presented to the independent members of your Board for review and approval. Annually, the Compensation Committee also reviews the goals and targets of the incentive compensation programs with a focus on setting challenging, but realistic, targets to drive performance and to improve shareholder value over the long term.
The CEO, with guidance from Human Resources, typically makes recommendations to the Compensation Committee with respect to the compensation of the other NEOs. The CEO possesses insight regarding individual performance, experience, future promotion potential, and intentions in retaining particular senior executives. The CEO presents his recommendations to the Compensation Committee for review. However, the Compensation Committee may modify or disregard the CEO’s recommendations. Farient, as discussed below, regularly provides market-level commentary and observations regarding compensation adjustments to the Compensation Committee.
The Compensation Committee also engaged Farient to provide independent advice with respect to executive and director compensation and corporate governance matters related to executive compensation. The Compensation Committee relied on Farient’s expertise in benchmarking and familiarity with competitive compensation practices in the utility and general industry sectors. In addition, the Compensation Committee regularly requested advice from Farient concerning the design, communication, and implementation of our incentive compensation plans and other programs. In 2019, the Compensation Committee elected to meet with Farient without management (including the CEO) present, in an executive session after most of the regularly scheduled Compensation Committee meetings.
The services provided by Farient to the Compensation Committee in 2019 included:
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50 | FirstEnergy Corp.2020 Proxy Statement
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The Compensation Committee considered representations from Farient that they were an independent consultant and that there were no conflicts of interest. The Compensation Committee assessed the independence of Farient, as required by SEC and NYSE rules and requirements. The Compensation Committee also considered and assessed relevant factors that could give rise to a potential conflict of interest with respect to Farient and their work. Based on this review, the Compensation Committee is not aware of any conflict of interest that has been raised by the work performed Farient.
Benchmarking
The Compensation Committee uses competitive benchmarking data to evaluate compensation practices and develop compensation recommendations for each of the NEOs, excluding Ms. Vespoli and Mr. Pearson due to their retirements effective April 1, 2019. The Company uses a combination of a utility peer group and a general industry peer group to determine an overall competitive total rewards package. Employee and executive compensation, executive benefits and perquisites, broad-based benefits (retirement benefits, death benefits, long-term disability and health care) and director compensation are all benchmarked against the same peer groups. The Compensation Committee uses competitive “blended” market data (in other words, the average of the revenue-regressed 50th percentile of our utility peer group and general industry peer group, referred to as the “Blended Median”) to set compensation levels, to determine any adjustment and to assess the competitiveness of the base salary, short- and long-term target incentive opportunities and total target compensation. The Compensation Committee considers a range of 80% to 120% of the Blended Median for each component of pay to be competitive.
In 2017, a comprehensive peer group review was performed in which the peer groups were selected. The peer groups were comprised of a utility peer group of 22 companies and a general industry peer group of 44 companies. With the exception of periodic merger and acquisition activity, our utility peer group has remained consistent and generally unchanged over the last 10 years. Due to merger and acquisition activity, EMC Corporation was removed from the general industry peer group in 2018. The 2019 peer groups were based on the following criteria:
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51 | FirstEnergy Corp.2020 Proxy Statement
As a result, the peer groups for 2019 included the following 22 utility peer companies and 44 general industry peer companies:
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In February 2019, at the Compensation Committee’s request, Farient accumulated benchmark compensation data for our peer companies based on Willis Towers Watson executive surveys and AonHewitt’s Total Compensation Measurement database, and determined that our executives’ total direct compensation, in the aggregate, continues to be positioned at approximately the 50th percentile of the market. The total compensation for our NEOs, excluding Ms. Vespoli and Mr. Pearson, in the aggregate, is 92% of the Blended Median, which is within the competitive range of 80% to 120%.
52 | FirstEnergy Corp.2020 Proxy Statement
Components of Total Direct Compensation Programs
Key Elements of 2019 Executive Compensation
The key elements of our executive compensation program to attract, retain and motivate key executive leaders are described below:
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E-VERP Benefits
As mentioned above, Ms. Vespoli and Mr. Pearson elected to participate in theE-VERP. The effective date of Ms. Vespoli’s and Mr. Pearson’s retirement was April 1, 2019. Active executive officers, other than the CEO, who were age 58 or older with at least 10 years of service as of December 31, 2018, were eligible to participate. TheE-VERP included the following benefits:
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Additionally, as is the case for executive officers who retire, Mr. Pearson and Ms. Vespoli were also eligible to receive retirement benefits including benefits under the Master Pension Plan, EDCP, prorated awards under the FE STIP and FE LTIP based on their participation until their retirement date, and, with respect to Ms. Vespoli, the SERP. For more information on the Master Pension Plan, EDCP and SERP, refer to page 84. For more information on payouts as a result of theE-VERP, refer to page 93.
Compensation Mix
We review our compensation philosophy, pay mix and pay vehicles for our NEOs annually to ensure that they support our strategy and align with shareholder interests. The Compensation Committee sets NEO overall compensation levels consistent with the Blended Median but provides a greater portion of target pay in the form of performance-based FE LTIP awards compared to our peer groups. Under our compensation design, the percentage of pay that is based on performance increases as a NEO’s responsibilities increase. As shown in the charts below, of base salary, FE STIP and FE LTIP, approximately 87% of the CEO’s total target pay and 74% of our other NEOs’ average target pay was performance-based, and approximately 72% of the CEO’s total target pay and 54% of our other NEOs’ average target pay was predicated on long-term performance in 2019.
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Determination of Compensation for 2019
2019 Target Compensation (Base Salary + Incentive Compensation)
In January 2019, the Compensation Committee reviewed a competitive benchmarking analysis prepared by Farient. This report assessed each NEO’s compensation levels and mix against the Blended Median. In February 2019, the Committee decided, with input from management, to approve increases for certain NEOs to continue to align with the Blended Median, in the aggregate (within the 85% to 120% competitive range). These increases follow two consecutive years in 2017 and 2018 in which there were no increases in base salary or target short-term and long-term incentive opportunities as a percent of salary for NEOs (excluding promotions).
54 | FirstEnergy Corp.2020 Proxy Statement
For 2019, target opportunities continued to be set at or near the Blended Median of our peer groups. 2019 target compensation levels for the NEOs were as follows:
| Executive | 2019 Base Salary | 2019 Target Opportunity FE STIP (% of Salary) | 2019 Target Opportunity FE LTIP Awards (% of Salary)(3) | 2019 Target Total Compensation | ||||||||||||||||
Charles E. Jones | $1,133,000 | 115% | 545% | $8,610,800 | ||||||||||||||||
Steven E. Strah(1) | $650,000 | 80% | 235% | $2,697,500 | ||||||||||||||||
Samuel L. Belcher(1) | $610,000 | 75% | 215% | $2,379,000 | ||||||||||||||||
Robert P. Reffner(2) | $550,000 | 70% | 175% | $1,897,500 | ||||||||||||||||
Bennett L. Gaines(1) | $465,000 | 65% | 125% | $1,348,500 | ||||||||||||||||
Leila L. Vespoli | $759,200 | 85% | 255% | $3,340,480 | ||||||||||||||||
James F. Pearson | $660,400 | 90% | 320% | $3,368,040 | ||||||||||||||||
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The maximum payout under the FE STIP is 150% of an individual’s target opportunity, and the maximum payout under the FE LTIP is 200% of an individual’s target opportunity. However, unlike market practices, the FE LTIP is 100% performance-based. The NEOs may earn nothing or may receive payments that are below their target opportunities, if the Company falls short of itspre-established goals and may earn above their target opportunities if the Company performs above itspre-established goals. Except in limited circumstances as described in the plan documents, the Compensation Committee may use negative discretion to make downward adjustments to awards based on a formula or discretionary basis but may not make upward adjustments.
2019 Incentive Compensation Programs
Shareholders previously approved the 2007 Incentive Compensation Plan and 2015 Incentive Plan (the “Incentive Compensation Plans”). The purpose of the Incentive Compensation Plans is to promote the success of FirstEnergy by providing incentives to certain employees and directors that link their personal interests to both short-term performance on key metrics and long-term financial success of the Company to increase shareholder value, providing for various types of awards including equity and equity-based awards and cash-based awards.
The Compensation Committee, with support from Farient, conducted its annual goal rigor analysis to establish the goal ranges for the 2019 FE STIP and FE LTIP awards. In setting the goals, the Compensation Committee considers prior year results, company performance, and strategic accomplishments for the year and over the long-term, on both a relative and absolute basis. The Compensation Committee expects goals that are realistic but challenging and that drive differentiating performance year-over-year.
2019 FE STIP
The FE STIP provides annual cash awards to executives whose contributions support the achievement of the Company’s identified financial and operational KPI goals, which are linked to the Company’s business strategy and corporate objectives, includingESG-related goals. The Compensation Committee annually reviews the goals and targets with a focus on setting challenging but realistic targets that are intended to align with shareholder value.
55 | FirstEnergy Corp.2020 Proxy Statement
The Compensation Committee annually establishes the KPIs under the FE STIP that must be satisfied for a NEO to receive an award for such performance period and recommends that the Board approve the relative weightings for each KPI with respect to each participating NEO.
The Compensation Committee recommended, and the Board approved, the following design elements for the 2019 FE STIP:
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FE STIP payouts are driven by financial, operating, safety, and D&I metrics, with 70% of the CEO’s opportunity and50-60% of the other NEOs’ opportunities tied to corporate and business unit financial performance and the remaining opportunities tied to operating, safety and D&I metrics. For 2019, the Operating Earnings threshold of $1,188 million, including the cost of the STIP payments, must be achieved before a payout is made.
Based on the 2019 Operating Earnings result of $1,362 million, the total FE STIP payout was $118.0 million. Because the threshold of Operating Earnings was achieved, the 2019 FE STIP payout was paid as earned in accordance with the financial performance, and operational, safety, and D&I performance against KPIs.
56 | FirstEnergy Corp.2020 Proxy Statement
2019 KPIs and Weightings for FE STIP
The Compensation Committee reviewed, and the Board approved, the FE STIP performance metrics and weightings for each of the NEOs at a January 2019 meeting. For 2019, the NEOs had the following metrics and weightings.
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7/26/2022 | PA 18801 | $25.32 | Payment for a meal | |||||||
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| 2131 Stokes Blvd., Cleveland, OH 44106 | $2,000.00 + 3 hours volunteer time | Support for Annual Human Rights Banquet and | ||||||
9/2/2022-9/21/2022 | PO Box 14715 Cleveland, OH 44114 | $90.00 | Training expenses | |||||||
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9/14/2022 |
| 101 Lough St. Elkins WV 26241 | $2,000.00 | Support for | ||||||
9/26/2022 | 21 Water St., Milford, NJ 08848 | 8 hours volunteer time | Fire safety presentation at a local school | |||||||
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Date Paid | Organization Address | Amount | Purpose | |||||||
10/3/2022 | Mountain State Forest Festival Association | 101 Lough St. Elkins WV 26241 | $2,000.00 | Support for Lumberjack Competition Event | ||||||
10/14/2022-12/14/2022 | Midcontinent Independent System Operator, Inc. | 720 City Center Dr, Carmel, IN 46032 | $1,044,216.30 | Payments for legacy MISO Transmission Expansion Plan (MTEP) project costs that were allocated to a FirstEnergy subsidiary, as mandated by FERC | ||||||
10/17/2022 | Milford NJ Fire Company | 21 Water St., Milford, NJ 08848 | $500 plus 8 hours volunteer time | Support for Annual Community Day Pig Roast and fire safety presentation at a local school | ||||||
10/28/2022-12/9/2022 | Northern Tier Regional Planning and Development | 312 Main St. Towanda, PA 18848 | 3 hours | Employee time contributed to organization’s board service | ||||||
11/8/2022 | Association of Certified Fraud Examiners Northeast Ohio Chapter | PO Box 14715 Cleveland, OH 44114 | $10.00 | Membership dues | ||||||
11/13/2022 | National Association of Regulatory Utility Commissioners (NARUC) | 1101 Vermont Avenue, NW, Suite 200, Washington, DC 20005 | $1,500.00 | Registration fee to attend 2022 NARUC Annual Meeting and Educational Conference | ||||||
11/30/2022 | Lumberport Volunteer Fire Department | PO Box 33, Lumberport, WV 26386 | $7,500.00 | Donation to a local fire department | ||||||
11/30/2022 | Shinnston Fire Department | 37 Bridge Street Shinnston, WV 26431 | $2,500.00 | Donation to a local fire department | ||||||
12/6/2022 | Tri County ATV Recreation & Rescue Association | 632 Tower Hill Road Heilwood, PA 15745 | $17,000.00 | Real estate related payments | ||||||
12/23/2022 | American Disabled Veterans | 2044 Youngstown Road SE Warren, OH 44484 | $3,000.00 | Support for Annual Homeless Veterans and holiday events | ||||||
57 | FirstEnergy Corp.2020 Proxy Statement
Threshold, Target, and Stretch levels are established for the KPIs based on Operating Earnings and achieving continuous improvement in safety and operational performance. In 2019, the Threshold, Target, Stretch and actual KPI results under the FE STIP for the NEOs were (dollars in millions):
| 2019 FE STIP Goal Ranges(1) | ||||||||||||||||
| 2019 KPI Measures | Threshold | Target | Stretch | Actual Result | Payout Result | |||||||||||
Financial | ||||||||||||||||
Operating Earnings | $1,188 | $1,269 | $1,394 | $1,362 | Meets Target | |||||||||||
Operational | ||||||||||||||||
Systemwide O&M (Belcher only) | $1,453 | $1,439 | $1,410 | $1,431 | Meets Target | |||||||||||
Operations Index | 2.50 | 5.00 | 7.50 | 5.13 | Meets Target | |||||||||||
Safety | ||||||||||||||||
Systemwide OSHA Recordable Incidents | 1.22 | 0.82 | 0.55 | 0.98 | Meets Threshold | |||||||||||
Systemwide LCE | 2 | 1 | 0 | 0 | Meets Stretch | |||||||||||
Systemwide DART Rate | 0.67 | 0.39 | 0.25 | 0.64 | Meets Threshold | |||||||||||
Diversity and Inclusion | ||||||||||||||||
Diversity & Inclusion Index | 1.50 | 3.00 | 4.50 | 2.73 | Meets Threshold | |||||||||||
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2019 FE LTIP
The 2019 FE LTIP design was maintained to include financial goals focused on the regulated businesses, a cumulative three-year performance period for measuring goals, and maintaining a relative shareholder performance measure. See the chart below on page 59, which identifies the KPI measures under the 2019 FE LTIP for more information.
The FE LTIP is comprised entirely of performance-adjusted RSUs with 2/3 of the earned award payable in Company stock and 1/3 of the earned award payable in cash. Both the stock-settled and cash-settled portions of the performance-adjusted RSU awards have a minimum payout of 0% and a maximum payout of 200% based on a formulaic structure where actual performance results are evaluated against the threshold, target and stretch performance goals over a three-year performance period. Performance results are interpolated on a straight-line basis between the minimum payout and maximum payout. The RTSR modifier is applied to the formulaic result for the payout percentage to determine the final payout amount.
The Compensation Committee and Board approved the FE LTIP grants at their regularly scheduled meeting in February 2019. For 2019, the grant date for performance-adjusted RSUs for both the stock-settled and cash-settled portions of the awards was March 1, 2019. We use the target FE LTIP award by individual divided by the average of the high and low prices of our common stock as of the date of grant to determine the number of units comprising each NEO’s award of performance-adjusted RSUs. Any equity grants awarded or vesting in proximity to an earnings announcement or other market event are coincidental.
The “Grants of Plan-Based Awards in Fiscal Year 2019” table provides the target number of performance-adjusted RSUs granted to each NEO in 2019 based on the percentage of base salary as described earlier in the CD&A. Additional details regarding the 2019-2021 LTIP grants are provided in the narrative following the “Grants of Plan-Based Awards in Fiscal Year 2019” table.
The 2019 FE LTIP uses two performance measures, weighted equally: Cumulative Operating EPS and Average Capital Effectiveness. These performance measures support continued financial improvement and increase focus on earnings across the Company’s Regulated Distribution and Regulated Transmission businesses. This creates a direct line of sight for executives to balance the value of our investments with the earnings they produce and drives shareholder value. In addition, Average Capital Effectiveness measures the financial effectiveness of investment in operational assets over the performance period. A high ratio
58 | FirstEnergy Corp.2020 Proxy Statement
indicates the business generates larger returns on its investment in operational assets and vice versa. The KPIs used for performance-adjusted RSUs under the FE LTIP in 2019 were based on:
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The performance goals for the 2019-2021 performance period are based on:
| 2019 FE LTIP Goal Ranges | ||||||
| 2019 Financial KPIs | Threshold | Target | Stretch | |||
Cumulative Operating EPS | $6.88 | $7.44 | $8.10 | |||
Average Capital Effectiveness | 3.83% | 4.15% | 4.52% | |||
The RTSR modifier is calculated over the three-year performance period as compared against the S&P 500 Utility Index. The modifier operates as follows:
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If the Company’s absolute TSR is negative for the three-year cumulative performance period of 2019-2021, the LTIP awards will be capped at a target opportunity level of payout (100%).
Incentive Compensation Payouts for 2019
FE STIP Payout
In February 2020, based on actual 2019 KPI results, the Compensation Committee recommended, and the independent members of the Board approved or ratified, the following 2019 short-term incentive award payouts for our NEOs:
| Executive | 2019 Base Salary | 2019 Actual STIP Award Payout ($) | Payout as a % of Base Salary | |||||||||
Charles E. Jones | $1,133,000 | $1,615,111 | 143% | |||||||||
Steven E. Strah | $650,000 | $626,590 | 96% | |||||||||
Samuel L. Belcher | $610,000 | $540,575 | 89% | |||||||||
Robert P. Reffner | $550,000 | $463,918 | 84% | |||||||||
Bennett L. Gaines | $465,000 | $364,205 | 78% | |||||||||
Leila L. Vespoli(1) | $759,200 | $191,737 | 25% | |||||||||
James F. Pearson(1) | $660,400 | $176,596 | 27% | |||||||||
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59 | FirstEnergy Corp.2020 Proxy Statement
FE LTIP Payouts in 2019 (for NEOs other than Mr. Belcher)
The FE LTIP for the 2017-2019 cycle used a former design compared to the 2018-2020 and 2019-2021 cycles (see “Outstanding Award Cycles (2018-2020 and 2019-2021)” below). At the beginning of each year in the award cycle, the KPI goals were set for that year and were scored by points awarded for attaining a specified level of performance for each of the three components. Threshold, Target, and Stretch performance goals were established each year for each KPI. Each component was scored annually against that year’s established goals for a total of nine independent values over the three-year period. Points were accumulated for each annual period in the cycle, with a range from 0 to 4.50 points possible per year. “Target performance” across all three KPIs was set at 3.00 points for the year or 9.00 points in the aggregate for the three-year cycle. Threshold opportunity payout was earned at 5.40 points for the three-year performance period; Target opportunity payout was earned at 6.75 points; 150% of Target opportunity payout was earned at 8.10 points; and maximum opportunity payout (200% of Target) was earned at 12.15 points or above.
RSU Index Performance Measures
The RSU Index in our 2017-2019 FE LTIP was comprised of the following three performance measures, weighted in equal thirds: Capital Effectiveness Index, FFO to Adjusted Debt Index and Safety Index.
The details on the KPIs, metrics and results for the 2017 – 2019 cycle of the FE LTIP are illustrated on page 70. Below is a summary of the RSU Index Score for the 2017-2019 performance period:
| 2017-2019 RSU Index Score (FE LTIP) | ||||||||||
| KPI Measures | Annual Target | 2017 | 2018 | 2019 | Total Points | |||||
Capital Effectiveness Index | 1.00 | 1.09 | 1.50 | 1.40 | 3.99 | |||||
FFO to Adjusted Debt Index | 1.00 | 1.28 | 1.50 | 1.50 | 4.28 | |||||
Safety Index | 1.00 | 0.84 | 1.04 | 0.80 | 2.68 | |||||
Totals | 3.00 | 3.21 | 4.04 | 3.70 | 10.95 | |||||
Given that the points were cumulative over each three-year cycle, the performance-adjusted RSUs for the 2017-2019 cycle earned a total of 10.95 points. Based on the total points, the payout was 185% of target payout opportunity. In March 2020, the performance-adjusted RSUs granted in 2017 were paid in shares of our common stock and cash respectively as follows: Mr. Jones: 272,892 shares and $5,975,174; Mr. Strah: 48,040 shares and $1,066,472; Mr. Reffner: 18,694 shares and $408,799; Mr. Gaines: 24,147 shares and $542,474; Ms. Vespoli: 59,146 shares and $1,312,988; and Mr. Pearson: 64,462 shares and $1,437,727. For Ms. Vespoli and Mr. Pearson, the performance-adjusted RSUs for the 2017-2019 cycle were prorated due to their retirements effective April 1, 2019, as discussed further on page 93. Any fractional shares for the stock-based performance-adjusted RSUs were paid in cash.
Performance-Adjusted Restricted Stock Unit Award Payout (Transition Award) for Mr. Belcher
A 2018-2019 Transition Award was approved by the Compensation Committee and the Board at the February 2018 meeting and was provided to certain executives, including Mr. Belcher, who were previously participants in the FES/FENOC 2017 FES Replacement Long-Term Incentive Plan (“FESR-LTIP”) and were appointed to positions within FE Service Company effective March 5, 2018. The previous FES 2017R-LTIP was an annual cash-based program in effect for fiscal 2017 with a target opportunity percentage equal toone-third (1/3) of what otherwise would have been granted under the FE LTIP for 2017-2019 cycle. The 2018-2019 Transition Award was provided to replace the value of the 2018-2019 portion of the FE LTIP and make the participants whole on the FE LTIP grant opportunity for the 2017-2019 cycle.
The KPIs and results for the Transition Award were based on the 2018-2019 performance under KPIs used for the 2017-2019 FE LTIP grant. As the FESR-LTIP was provided as a cash payment in 2017, the Transition Award was settled entirely in stock to more closely align with the FE LTIP grant for the 2017-2019 cycle, in which awards are settledtwo-thirds in stock andone-third in cash. The grant date used for the Transition Award was March 5, 2018 with the grant value equalingtwo-thirds of the target opportunity percentage and base salary in effect as of March 1, 2017.
60 | FirstEnergy Corp.2020 Proxy Statement
Threshold, Target, and Stretch performance goals were established both years for each KPI. Each component was scored annually against that year’s established goals for a total of six independent values over thetwo-year period. Points were accumulated for each annual period in the cycle, with a range from 0 to 4.50 points possible per year. “Target performance” across all three KPIs was set at 3.00 points for the year or 6.00 points in the aggregate for thetwo-year cycle. Threshold opportunity payout was earned at 3.60 points for thetwo-year performance period; Target opportunity payout was earned at 4.50 points; 150% of Target opportunity payout was earned at 5.40 points; and maximum opportunity payout (200% of Target) was earned at 8.10 points or above.
The results for the Transition Award were as follows:
| 2018-2019 RSU Index Score (Belcher) | ||||||||
| KPI Measures | Annual Target | 2018 | 2019 | Total Points | ||||
Capital Effectiveness Index | 1.00 | 1.50 | 1.40 | 2.90 | ||||
FFO to Adjusted Debt Index | 1.00 | 1.50 | 1.50 | 3.00 | ||||
Systemwide OSHA | 1.00 | 1.04 | 0.80 | 1.84 | ||||
Totals | 3.00 | 4.04 | 3.70 | 7.74 | ||||
Given that the points were cumulative over thetwo-year cycle, the performance-adjusted RSUs of the 2018-2019 cycle meets target performance, earning a total of 7.74 points. Based on the total points, the payout of the Transition Award was at 193% of target payout opportunity. In March 2020, the performance-adjusted RSUs granted under the Transition Award were paid in shares of our common stock. As a result, Mr. Belcher received a payment of 22,235 shares.
Potential Negative Discretion for the 2017-2019 FE LTIP Cycle and the Transition Award
To further align pay and the performance of the 2017-2019 FE LTIP cycle and the Transition Award for Mr. Belcher with long-term shareholder value, in February 2018 the Compensation Committee recommended, and the Board approved, the addition of an absolute TSR cap for Mr. Jones, Mr. Strah, Mr. Belcher, Mr. Pearson, and Ms. Vespoli. The absolute TSR cap was intended to limit the FE LTIP maximum possible payouts to 100% if the absolute TSR was negative over the respective three-year performance period, based on a continuous function for absolute TSR growth between 0% and 10% for the 2017-2019 cycle, and was set be paid as earned (up to the max of 200%) with the absolute TSR growth greater than 10%.
The calculation used the average stock price for the month of December (in other words, December 2016 and December 2019 for the 2017-2019 cycle) and assumed dividends were reinvested. Based on the average of FirstEnergy stock prices for December 2019, the average stock price of $48.23 was greater than the goal of $36.49 needed to pay the FE 2017-2019 LTIP cycle as earned (capped at 200%). Thus, the 2017-2019 FE LTIP cycle was paid as earned.
The Compensation Committee believes this formulaic approach demonstrated the Company’s commitment to our shareholders. The Compensation Committee retains the right to apply negative discretion based on future conditions or unexpected conditions. However, the addition of the absolute TSR cap to the 2017-2019 FE LTIP cycle helped to align our legacy long-term incentive program design for these executive officers to the incentive compensation design that was approved in 2018 and maintained for 2019.
61 | FirstEnergy Corp.2020 Proxy Statement
Outstanding Award Cycles (2018-2020 and 2019-2021)
The NEOs were granted the following number of target RSUs (rounded) in 2018 and 2019 for each three-year FE LTIP cycle, respectively. Although dividend equivalents accrue and are reinvested throughout the performance period, subject to the same restrictions and performance conditions of the underlying awards, they are excluded in the tables below.
At Target
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| Executive | Number of Cash-Settled RSUs granted for the 2018-2020 Cycle | Number of Stock-Settled RSUs granted for the 2018-2020 Cycle | Total RSUs granted for the 2018-2020 Cycle | Number of Cash-Settled RSUs granted for the 2019-2021 Cycle | Number of Stock-Based RSUs granted for the 2019-2021 Cycle | Total RSUs granted for the 2019-2021 Cycle | ||||||
Charles E. Jones | 62,906 | 127,559 | 190,465 | 50,071 | 101,534 | 151,605 | ||||||
Steven E. Strah | 14,436 | 29,057 | 43,493 | 12,448 | 25,056 | 37,504 | ||||||
Samuel L. Belcher | 10,457 | 20,914 | 31,371 | 10,783 | 21,417 | 32,200 | ||||||
Robert P. Reffner | 4,304 | 8,738 | 13,042 | 7,832 | 15,800 | 23,632 | ||||||
Bennett L. Gaines | 5,711 | 11,287 | 16,998 | 4,795 | 9,476 | 14,271 | ||||||
Leila L. Vespoli(1) | 19,905 | 39,810 | 59,715 | 15,844 | 31,688 | 47,532 | ||||||
James F. Pearson(1) | 21,796 | 43,389 | 65,185 | 17,349 | 34,537 | 51,886 | ||||||
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The values shown for Mr. Pearson and Ms. Vespoli are based on the original number of RSUs granted for each FE LTIP cycle prior to their retirements effective April 1, 2019. As a result of their retirements, the RSUs for both the 2018-2020 and 2019-2021 cycles will be prorated and vest based on actual performance. For more information, refer to the following section. Given that the 2018-2020 and 2019-2021 cycles of performance-adjusted RSUs are based on three-year cumulative metrics, the performance is unknown at this time.
Realized Compensation
We provide this alternative view of compensation paid to the NEOs as a supplement to, not as a substitute for, the Summary Compensation Table (“SCT”) because this realized compensation table below illustrates the way our Compensation Committee views the actual compensation earned or received by our NEOs in 2019 under the FE STIP, and the 2017-2019 cycle of the FE LTIP (and, in the case of Mr. Belcher, the 2018-2019 Transition Award).
Based on the KPIs and weightings in 2019, Mr. Jones was paid at 124.0% of target opportunity under the FE STIP while our remaining NEOs (other than Mr. Belcher) were paid at 120.5%. All NEOs (other than Mr. Belcher) were paid at 185% of target opportunity for the 2017-2019 cycle of the FE LTIP. Mr. Belcher was paid at 118.2% of target opportunity under the FE STIP and at 193% of target opportunity for the 2018-2019 Transition Award. For more information, refer to the 2019 KPIs and Weightings for FE STIP section on page 57.
62 | FirstEnergy Corp.2020 Proxy Statement
The table below summarizes realized compensation in 2019 for our NEOs:
| Executive | 2019 Earned Salary | 2019 FE (Paid in 2020) | Performance- Adjusted RSUs (Earned in three- year period ended in 2019, Paid in 2020) | Performance- Adjusted RSUs (Earned in two- year period ended in 2019, Paid in 2020) | Other Compensation(2) | Total 2019 Realized Compensation | ||||||||||||||||||||||||
Charles E. Jones | $1,136,113 | $1,615,111 | $18,091,568 | N/A | N/A | $20,842,792 | ||||||||||||||||||||||||
Steven E. Strah | $643,599 | $626,590 | $3,199,450 | N/A | N/A | $4,469,639 | ||||||||||||||||||||||||
Samuel L. Belcher | $604,308 | $540,575 | N/A | $987,237 | N/A | $2,132,120 | ||||||||||||||||||||||||
Robert P. Reffner | $537,594 | $463,918 | $1,238,823 | N/A | N/A | $2,240,335 | ||||||||||||||||||||||||
Bennett L. Gaines | $462,322 | $364,205 | $1,614,607 | N/A | N/A | $2,441,134 | ||||||||||||||||||||||||
Leila L. Vespoli(1) | $185,629 | $191,737 | $3,939,075 | N/A | $1,728,633 | $6,045,074 | ||||||||||||||||||||||||
James F. Pearson(1) | $161,471 | $176,596 | $4,299,829 | N/A | $1,570,179 | $6,208,075 | ||||||||||||||||||||||||
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2020 Incentive Plan Design and NEO Compensation
Following substantial changes to our short-term and long-term incentive compensation programs in 2018, and strongSay-on-Pay voting results in 2018 and 2019, the Company maintained the same general structure and design for both of our incentive compensation programs for 2020, for the NEOs listed below. Consistency and stability are important aspects of programs that are designed appropriately. As such, the 2020 design and goals of our incentive compensation programs have minimal changes. In December 2019, the Committee approved increasing the stretch (maximum) payout opportunity level from 150% to 200% of target in the 2020 FE STIP. Management believes the timing of this change aligns well with the Company’s transition to a fully regulated company and coincides with the final vesting of the FE LTIP cycle under the former design based upon annual goals. As a result, the Company will need to have additional earnings to cover the cost of paying the FE STIP at 200%. This change is also consistent with market practices and will further align our incentive program with that of our peers.
| Executive | 2020 Base Salary | 2020 STIP (as a % of Base Salary) | 2020 LTIP (as a % of Base Salary) | ||||||||||||
Charles E. Jones | $1,133,000 | 115% | 545% | ||||||||||||
Steven E. Strah | $675,000 | 85% | 245% | ||||||||||||
Samuel L. Belcher | $650,000 | 75% | 235% | ||||||||||||
Robert P. Reffner | $580,000 | 70% | 200% | ||||||||||||
Bennett L. Gaines | $475,000 | 65% | 125% | ||||||||||||
In February 2020, the Committee decided, with input from management, to approve increases in compensation for certain NEOs and other executive officers given the Company’s continued progress toward becoming a fully regulated utility, the successful achievement of several strategic initiatives in 2019, and changes in market data provided by our independent consultant. The Committee, at Mr. Jones’ request, also recommended to the Board, and the Board approved, that there be no changes to Mr. Jones’ salary and target incentive compensation levels. The Board agreed with this determination, despite Mr. Jones’ exceptional performance and leadership during a pivotal period of transition giving Mr. Jones’ pay positioning and recentSay-on-Pay feedback. The Board is supportive of pay increases for Messrs. Strah, Belcher and Reffner, given that they continue to perform well in their respective positions, and such increases will continue to move them within the competitive range and with respect to the Blended Median.
63 | FirstEnergy Corp.2020 Proxy Statement
Other Compensation Policies and Practices
Retirement Benefits
We offer retirement benefits to all of our NEOs through our qualified and nonqualified supplemental plans under the FirstEnergy Corp. Pension Plan and the Executive Deferred Compensation Plan (“EDCP”), respectively. The qualified plan benefit historically has been based on earnings, length of service, and age at retirement and is considered a defined benefit plan under the IRC. The qualified plan benefit is subject to applicable federal and plan limits. The EDCP is designed to provide a benefit to executives that is competitive and comparable to that for our general employee population.
Additionally, Mr. Jones participates in the Supplemental Executive Retirement Plan (“SERP”). Ms. Vespoli was a participant in the SERP prior to her retirement in April 2019. Messrs. Strah, Belcher, Reffner, Gaines and Pearson are not participants in the SERP. In 2014, the SERP was formally closed to new entrants to better align our executive retirement benefits with current market practices. Historically, participation in the SERP was provided to certain key executives as part of the integrated compensation program intended to attract, focus, motivate, and retain top executives who are in positions to make significant contributions to our business. Pursuant to a historical arrangement, Mr. Reffner and Mr. Gaines are eligible to be credited with five years of additional service for purposes of calculating the nonqualified supplemental pension benefit. For more information, refer to the “Pension Benefits as of December 31, 2019” table on page 83. Retirement benefits for the NEOs are further discussed in the narrative section following the Pension Benefits table later in this proxy statement.
EDCP (Elective Deferrals)
NEOs may elect to defer a portion of their compensation into the EDCP. They may defer from 1% to 50% of base salary to a cash retirement account; from 1% to 100% of FE STIP awards to either a cash or stock account; and from 1% to 100% of FE LTIP awards to a stock account. In 2019, the EDCP was amended for deferrals beginning in 2020, to reduce the maximum deferral for FE STIP and FE LTIP from 100% to 85% to account for the local and FICA taxation required to be withheld upon deferral and to simplify the communications for participants as well as the plan administration. The EDCP offers executives the opportunity to accumulate assets denominated both in cash and in Company common stock, on atax-favored basis. Beginning in 2017, any deferral elections to a cash or stock account made by a participant will ultimately be paid only in cash based upon his/her distribution elections.
Earnings on deferrals in the EDCP stock accounts of NEOs track FirstEnergy shares. Earnings on deferrals into the cash retirement accounts of NEOs were credited at the Moody’s Corporate Long-term Bond Yield Index rate plus 3% for funds deferred prior to 2013 and the Moody’s Corporate Long-term Bond Yield Index rate plus 1% for funds deferred in 2013 and later. Any above-market interest earnings are included in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column of the SCT.
Personal Benefits and Perquisites
The Company does not provide excessive perquisites to our NEOs.
In 2019, our NEOs could use the corporate aircraft for limited personal use. Mr. Jones is authorized to use either a commercial carrier or our corporate aircraft for any business or personal travel at his discretion. With CEO approval, other executives, including the NEOs, may from time to time use our corporate aircraft for personal travel, which may include family travel. We have a written policy that sets forth guidelines regarding the personal use of the corporate aircraft by executive officers and other employees in accordance with the IRS regulations and customary compensation practices.
The Compensation Committee believes the foregoing perquisite is reasonable, competitive, and consistent with our overall compensation philosophy.
Severance Benefits upon an Involuntary Separation
In the event of an involuntary separation, the CEO’s severance benefits, if any, would be determined by the Compensation Committee, in its discretion, and approved by the Board. The other NEOs are covered in the event of an involuntary separation under the FirstEnergy Corp. Amended and Restated Executive Severance Benefits Plan (the “Severance Plan”).
64 | FirstEnergy Corp.2020 Proxy Statement
The Severance Plan provides severance benefits to executives who are involuntarily separated due to the sale or closing of a facility, merger, acquisition, corporate restructuring, reduction in the workforce or job elimination. Benefits under the Severance Plan are also offered if an executive rejects a job assignment that would result in the occurrence of any one or more of the following events: (1) a 15% or greater reduction in the executives’ then current base salary; (2) a requirement that the executive make a 50 mile or greater relocation from his or her current residence for reasons related to the new job; or (3) a requirement that the executive to make a 50 mile or greater change in his or her daily commute from their residence to a new reporting location.
The Severance Plan provides for three weeks of base pay for each full year of service with a minimum benefit of 52 weeks of base salary and a maximum benefit of 104 weeks of base salary. Additionally, executives who elect continuation of health care for the severance period will be provided this benefit at active employee rates. Executives must pay taxes on any continuation of health care value in excess of what employees with the same level of service would receive under the FirstEnergy Employee Severance Benefits Plan.
CIC Plan
The Compensation Committee believes that the CIC Plan is aligned with the market practices of our peer groups and it is available to all NEOs. Of the NEOs, the CIC Executives (as defined below) participated in the CIC Plan in 2019. The initial term of the CIC Plan commenced on January 1, 2017. Annually, the Committee determines if any changes need to be recommended to the Board for approval. If no changes are needed, then the CIC Plan will automatically renew for an additional year. In September 2019, the Compensation Committee determined that no changes were needed and the term of the CIC Plan automatically extended to December 31, 2021 by its terms. All CIC Executives, as well as allnon-participating NEOs, are eligible for the same level of benefits, which include:
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There are no excise tax“gross-up” provisions. Payments are “cut back” in the event that an excise tax would otherwise apply to the safe harbor amount minus one dollar, unless the participant would receive greaterafter-tax proceeds absent such cutback. In such a case, the CIC Executive will receive payment of all CIC benefits and will be responsible for paying any excise tax imposed on the payment.
Share Ownership Guidelines
We believe it is critical that the interests of executives, directors and shareholders are clearly aligned. Therefore, the Compensation Committee has continued to refine share ownership guidelines to promote meaningful stock ownership by our executives, including our NEOs and directors. The Company not only wants executives to meet their required share ownership levels in a timely manner, but also to build an ownership mentality and demonstrate commitment to aligning their interests with shareholders.
These guidelines specify the value of Company shares that our executives must accumulate within five years of becoming an executive officer. Additionally, executives who are not on track to meet their required share ownership levels or have failed to achieve required share ownership levels within the five-year compliance period may be subject to the following consequences imposed at the discretion of the Compensation Committee, subject to approval by the Board:
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65 | FirstEnergy Corp.2020 Proxy Statement
Each executive is required to retain all Company shares earned under equity grants or purchased or accumulated until the executive meets his or her share ownership guidelines. Additionally, executives are prohibited from selling shares held in excess of the share ownership guidelines without permission from the CEO. The specific share ownership guidelines are based on a multiple of an executive officer’s base salary, with the higher multiples applicable to the executives having the highest levels of responsibility.
The share ownership multiples for the continuing NEOs in 2019 were as follows:
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To be consistent with an entirely performance-based long-term incentive plan design, unvested performance-adjusted RSUs are not counted as eligible shares for executives to meet their share ownership requirements. The following types of holdings will count toward the share ownership guidelines:
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All continuing NEOs have met their share ownership requirements. Ms. Vespoli and Mr. Pearson are no longer executive officers of the Company and are no longer subject to the stock ownership guidelines. Although the Compensation Committee established share ownership guidelines for executives, such equity ownership typically does not impact the establishment of compensation levels. The Compensation Committee does review previously granted awards, both vested and unvested, that are still outstanding on a regular basis.
Hedging Policies
As described more in this section, we prohibit our employees (including officers) and directors from engaging in hedging or monetizing transactions that would allow them to own Company securities without the full risks and rewards of ownership, including economic exposure to potential decreases in the market value of Company securities.
The Company has adopted formal policies as part of its Insider Trading Policy regarding hedging practices. The following categories of “Covered Persons” are covered by our Insider Trading Policy:
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In addition to the Insider Trading Policy applying to Covered Persons, the following are also covered by Insider Trading Policy;
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For these purposes, we consider “Related Persons” of a Covered Person to be her family members and others who reside with her, and any family members who does not live with her but whose transactions in Company Securities are directed, influenced or controlled by her. In addition, “Company Securities” broadly includes all securities of the Company and of its direct and indirect subsidiaries, including but not limited to common stock, options, preferred stock, convertible debentures or other debt securities, and warrants (as well as derivative securities not issued by the Company or its subsidiaries, such as exchange-traded put or call options or swaps relating to any of the foregoing securities).
The Insider Trading Policy generally prohibits a Covered Person from engaging in certain transactions regarding Company Securities owned by her or that she beneficially owns, but the Insider Trading Policy does not apply to transactions in Company Securities where such transactions are not initiated by the Covered Person or approved by her, or are not subject to her influence or control (such as mutual fund transactions in Company Securities). More specifically, the prohibition on pledging, hedging or other monetization transactions for Covered Persons explicitly covers a number of possible transactions:
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In addition, under the Insider Trading Policy, certain “Designated Insiders” (Company directors, Company “Executive Officers” under Exchange Act Rule3b-7, Company “officers” under Exchange Act Rule16a-1(f)), members of the Company’s executive council, members of its disclosure committee and certain other employees with regular access to financial information or otherwise as identified from time to time by the Company), are prohibited from holding Company Securities in a margin account, pledging Company Securities as collateral for a loan, or placing standing or limit orders on Company Securities that remain effective after the day on which they are placed (apart from Company-authorized Rule10b5-1 trading plans). Other Covered Persons may place standing or limit orders on Company Securities that remain effective after the day on which they are placed, but only for short durations and in a manner that complies with Company restrictions and procedures set forth in the Insider Trading Policy (such aspre-clearance procedures).
Clawback Policy
The Company has a clawback policy (its “Recoupment Policy”) that covers all current or former Executive Officers, Section 16 Officers and other selected executives. In 2019, the Compensation Committee approved enhancements to the Recoupment Policy to continue the previously existing clawback provisions in the event of a financial restatement of the Company, and expanded to include clawback provisions in the event of certain other Detrimental Activity, as defined in the Recoupment Policy, resulting in significant operational, financial or reputational harm to the Company as determined in good faith by the Compensation Committee. In the event that the Company is required to file a financial restatement due to material noncompliance with financial reporting requirements under U.S. securities laws, regardless of misconduct or contribution to the restatement requirement, the clawback policy allows for recoupment of incentive-based compensation granted, vested or accrued after January 1, 2014 and during the three-year period preceding the filing of the accounting restatement, to the extent such compensation received exceeded what would have been received based on the corrected data relating to the restatement. In the event of significant or material operational, financial or reputational harm resulting from Detrimental Activity, the Compensation Committee may direct the Company to recoup from such executive incentive-based compensation granted, vested or accrued in an amount as reasonably determined by the Compensation Committee in good faith.
67 | FirstEnergy Corp.2020 Proxy Statement
Risk Assessment of Compensation Programs
At the request of the Compensation Committee, completed on an annual basis, management assessed the risks associated with our compensation policies, practices, and programs for employees. In addition, management paid particular attention to those programs that allow for variable payouts where an employee may potentially be able to influence payout factors in those programs. The Compensation Committee reviewed management’s assessment and concurred with its conclusions. Based on this assessment, the Compensation Committee concluded that the risks associated with our compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.
The Compensation Committee and management designed our compensation programs to align our executives’ interests with the long-term interests of our shareholders without encouraging excessive risk taking. In this regard, our compensation structure contains various features intended to mitigate excessive risk taking. These features include, among others:
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Additionally, our Chief Risk Officer participated in the discussion with senior management regarding the establishment of goals and their weightings and measurements for our short- and long-term incentive compensation programs and the 2019 performance results. The Chief Risk Officer provided his view to the Compensation Committee that:
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For additional information regarding the Company’s risk management process and your Board’s role in risk oversight, see the related discussion in the “Corporate Governance and Board of Directors Information” section of this proxy statement.
Impact of Tax Requirements on Compensation
Section 162(m) of the IRC generally limits the tax deduction to $1 million for certain compensation paid to certain of our executive officers (and, beginning in 2018, certain former executive officers). Historically, compensation that qualified as “performance-based compensation” could be excluded from this $1 million limit. This exception was repealed, effective for taxable years beginning after December 31, 2017, except for certain compensation arrangements in place as of November 2, 2017 for which transition relief is available. The Compensation Committee and your Board sought from time to time to potentially qualify executive compensation as tax deductible under Section 162(m) as in effect prior to 2018, where we believed it was in
68 | FirstEnergy Corp.2020 Proxy Statement
our best interest and in the best interest of our shareholders. However, we have not permitted this tax provision to distort the effective development and execution of our compensation program in the past, nor will we in the future.
We continue to evaluate the impact of the revisions to Section 162(m) of the IRC for their potential impact on the Company. Regardless of that impact, however, we will continue to design and maintain executive compensation arrangements that we believe will attract, retain, focus, and reward the executive talent that we need to compete successfully, even if in certain cases such compensation is not deductible for federal income tax purposes. In addition, because of the continued development of the application and interpretation of Section 162(m) and the regulations issued thereunder, there can be no assurance that compensation intended to satisfy the requirements for deductibility under Section 162(m), as in effect prior to 2018, will in fact be deductible.
69 | FirstEnergy Corp.2020 Proxy Statement
KPI Results and RSU Index Scores
2017 – 2019 Cycle FE LTIP Details
| 2017 (except Mr. Belcher) | 2018 | 2019 | Totals | |||||||||||||||||||||||||||||||||||||||||||||||||
| Threshold | Target | Stretch | Result | Threshold | Target | Stretch | Result | Threshold | Target | Stretch | Result | |||||||||||||||||||||||||||||||||||||||||
Capital Effectiveness Index(1) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
FE Consolidated | 14.55% | 14.94% | 15.47% | 15.05% | 3.64% | 3.91% | 4.29% | 4.29% | 3.75% | 4.01% | 4.40% | 4.32% | ||||||||||||||||||||||||||||||||||||||||
Regulated Distribution | 16.85% | 17.14% | 17.60% | 17.25% | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||
Regulated Transmission | 11.28% | 11.51% | 11.87% | 11.54% | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||
Total Points | 3.26 | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||
RSU Index Score (A) | 1.09 | 1.50 | 1.40 | 3.99 | ||||||||||||||||||||||||||||||||||||||||||||||||
| FFO/Adjusted Debt Index | ||||||||||||||||||||||||||||||||||||||||||||||||||||
FE Consolidated | 18.37% | 19.09% | 20.11% | 19.21% | 16.08% | 16.83% | 17.91% | 18.83% | 12.25% | 12.90% | 13.82% | 14.50% | ||||||||||||||||||||||||||||||||||||||||
Regulated Distribution | 34.74% | 35.71% | 37.27% | 38.02% | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||
Regulated Transmission | 20.00% | 20.66% | 21.70% | 21.26% | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||||||||||||||||||
Total Points | 3.85 | n/a | n/a | |||||||||||||||||||||||||||||||||||||||||||||||||
RSU Index Score (B) | 1.28 | 1.50 | 1.50 | 4.28 | ||||||||||||||||||||||||||||||||||||||||||||||||
Safety Total Points | 1.21 | 0.89 | 0.45 | 0.99 | 1.22 | 0.82 | 0.55 | 0.80 | 1.22 | 0.82 | 0.55 | 0.98 | ||||||||||||||||||||||||||||||||||||||||
RSU Index Score (C) | 0.84 | 1.04 | 0.80 | 2.68 | ||||||||||||||||||||||||||||||||||||||||||||||||
Total RSU Index Score (A+B+C) | 3.21 | 4.04 | 3.70 | 10.95 | ||||||||||||||||||||||||||||||||||||||||||||||||
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2018 – 2019 Transition Award Details
For Mr. Belcher, the 2018 and 2019 KPIs under the 2017-2019 FE LTIP and results are as shown in the tables above, with total points of 4.04 for 2018 and 3.70 for 2019, with the total projected points in the 2018-2019 cycle at 7.74 points.
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Average Capital Effectiveness: Measures the financial effectiveness of investment in operational assets over the 2019-2021 cycle. Creates a direct line of sight for executives to balance the value of our investments with the earnings they produce and create value for shareholders. It is a ratio of Operating Earnings over Net Plan in Service (“NPIS”) plus Construction Work in Progress (“CWIP”). Operating Earnings are an important measure of profitability. The NPIS plus CWIP is the value of the assets being used to generate revenues and profits. A high ratio indicates the business generates larger returns on its investment in operational assets and vice versa.
Capital Effectiveness Index:Measures the financial effectiveness of the Company’s investment in operational assets. The Capital Effectiveness Index is anon-GAAP financial measure representing a ratio for 2017: Adjusted EBITDA over NPIS less nuclear fuel plus CWIP; and for 2018 and 2019: Operating Earnings over NPIS plus CWIP. The index is based on the ratios for FE Consolidated and the RegulatedDistribution/Regulated Transmissionbusiness segments. Adjusted EBITDA is also anon-GAAP financial measure and consists of Operating Earnings before interest, investment income, taxes, depreciation and amortization. NPIS less nuclear fuel plus CWIP is the value of the assets the Company is using to generate revenues and profits.
For purposes of calculating the Capital Effectiveness Index (1) anyyear-end adjustments to capital from pension/other postemployment benefitsmark-to-market, any reclassification of items from Property, Plant & Equipment as well as retirement studies, consolidation or deconsolidation of entities, and (2) excluded from KPI Operating Earnings is the summation of all major storm costs in operations and maintenance (“O&M”) above budget. In addition, for 2017: impairments of assets that impact NPIS or CWIP not assumed in the original assumptions or storm costs to capital above budget are excluded from NPIS. For 2018: (i) the impact of all Special Items that are excluded from Operating Earnings shall be excluded from FFO and Adjusted Debt, (ii) the impact of the Ohio Distribution Modernization Rider, (iii) the impact of refunds provided to customers associated with tax reform, (iv) preferred dividends, (v) the impact of strategic decisions (e.g. divestitures, acquisitions) including associated tax impacts, and (vi) any impacts from asset retirement obligation studies or plans. For 2019: (i) the impact of refunds provided to customers associated with tax reform, (ii) the impacts of legal reserves or related expenses, (iii) the impacts of preferred stock and related dividends, (iv) all costs associated with the early redemption, repurchase, or remarketing of debt, (v) contributions to the pension plan, (vi) impact of tax payments and receipts under the intercompany tax sharing arrangement, and (vii) the impacts of current taxes.
CIC Executives: Mr. Strah, Mr. Belcher, Mr. Reffner, Mr. Gaines, Ms. Vespoli and Mr. Pearson.
Corporate/Other:The Corporate/Other business segment.
CWIP:Construction Work in Progress.
DART Rate:OSHA-Recordable Incidents that involve days away from work, days of restricted work activity, and/or days of job transfer in the period per 100 employees.
Detrimental Activity: Refers to an Executive Officer’s: (i) use for profit or disclosure to unauthorized persons of confidential information or trade secrets of the Company or any of its subsidiaries; (ii) breach of any contract with or violation of any fiduciary obligation to the Company or any of its subsidiaries, that results in (or was reasonably likely to result in) significant operational, financial or reputational harm (generally meaning behaviors resulting in financial harm or reputational damage to the Company or any of its subsidiaries) to the Company or any of its subsidiaries, such breach or violation may include, but is not limited to, engagement in any unethical conduct, fraud, dishonesty, violations of Company policy or the law, recklessness, gross negligence, failure to act, or other misconduct including but not limited to sexual harassment or misconduct, data security violations, or criminal activities; or (iii) engagement in conduct described in (ii) above that, even absent a breach of contract or violation of any fiduciary duty, is (or was reasonably likely to be) materially detrimental to the Company or any of its subsidiaries; in each case as determined by the Compensation Committee reasonably and in good faith.
Diversity and Inclusion Index: Measures diverse succession planning, diverse hiring, and improvement on inclusion survey scoring. Measures earn points based on the level of performance; all components within the index are weighted equally. For the purposes of this KPI, “diverse” is defined as female, historically under-represented racial and ethnic demographic groups (Black and African American, Alaskan Native,
71 | FirstEnergy Corp.2020 Proxy Statement
Asian American, Native Hawaiian and other Pacific Islander, people of two or more races; Hispanic and Latino ethnicity), LGBTQIA (Lesbian, Gay, Bisexual, Transgender, Queer/Questioning, Intersex, and Asexual), and/or Disabled.
EBITDA: Earnings before interest, taxes, depreciation and amortization.
Environmental Excursions and Notices of Violation (‘NOVs’):Measures issues related to air emissions, water discharges or other unauthorized releases from facilities, that exceed the allowable limitations, conditions or deadlines established in the facilities’ environmental permitsand applicable NOVs issued by a Federal, State or Local Regulatory Agency for the violation of an environmental law or regulation.
FE Consolidated:Refers collectively to Regulated Distribution, Regulated Transmission and Corporate/Other.
FFO/Adjusted Debt Index:Measures annual cash flow generated by the business in comparison to its outstanding debt and is used by credit rating agencies to evaluate the creditworthiness of the Company. Focuses on improving cash position and balance sheet, since cash flows and current debt levels have been an area of focus by our investors.
The index is anon-GAAP financial measure and is based on the ratios for FE Consolidated and the Regulated Distribution/Regulated Transmission business segments. FFO is also anon-GAAP financial measure and consists of net income adjusted for depreciation and amortization, investment impairment, pension and OPEBmark-to-market adjustment, deferred taxes, asset removal costs charged to income, and certain othernon-cash items. Adjusted Debt is also anon-GAAP financial measure and consists of short-term borrowings (net of pension contribution), long-term debt (excluding securitized debt), and operating lease obligations.
The FFO/Adjusted Debt Index excludes the following in 2019: (i) the impact of all Special Items that are excluded fromnon-GAAP Operating Earnings shall be excluded from FFO and Adjusted Debt, (ii) the impacts associated with restructuring the business or other strategic decisions including the associated tax impacts, (iii) the impact of the Ohio Distribution Modernization Rider, (iv) the impact of refunds provided to customers associated with tax reform, (v) major storm costs that are above budgeted amounts of $141.2 million for 2019 ($67.4 million from Capital and $73.8 million from O&M), (vi) the impacts of legal reserves or related expenses, (vii) the impacts of preferred stock and related dividends, (viii) all costs associated with the early redemption, repurchase, or remarketing of debt, (ix) contributions to the pension plan, (x) unfunded pension/OPEB liability and securitized debt, (xi) impact of tax payments and receipts under the intercompany tax sharing arrangement, and (xii) the impacts of current taxes.
First Call Resolution:Transactional voice of customer survey that measures the percent of customer issues resolved on a single interaction with a contact center representative.
KPI (Key Performance Indicators): Financial or operational metrics used to measure Company performance and aligned to our key business objectives. KPIs are used in setting threshold, target and stretch performance goals for our incentive compensation programs.
LCEs:Life Changing Events include life-threatening work-related injuries or illnesses that required immediate life-preserving rescue action, and if not applied immediately would likely have resulted in the death of that person; life-altering work-related injuries or illnesses that resulted in a permanent and significant loss of a major body part or organ function, or function thereof, that permanently changes or disables that person’s normal life activity; and work-related fatalities.
NPIS:Net Plant in Service.
Ohio Distribution Modernization Rider: A rider with the Public Utilities Commission of Ohio which provided for funds through certain retail customer charges to be used directly or indirectly in support of distribution grid modernization in Ohio.
Operating Earnings: Operating Earnings(non-GAAP) is based on the 2019 Budget. It is calculated using the aggregate GAAP earnings adjusted for special items that are consistent with the Company’s external operating earnings(non-GAAP) reporting. Results for 2019 will exclude the following: (i) the impacts associated with restructuring the business or other strategic decisions including the associated tax impacts, (ii) the impact of the Ohio Distribution Modernization Rider, (iii) the impact of refunds provided to customers
72 | FirstEnergy Corp.2020 Proxy Statement
associated with tax reform that exceeded budgeted amounts,(iv) non-deferred major storm O&M expenses above or below the budgeted amount of $25 million, (v) the impacts of legal reserves or related expenses, (vi) the impacts of legal reserves or related expenses, (vii) the impacts of preferred stock and related dividends, and (viii) all costs associated with the early redemption, repurchase, or remarketing of debt. External segment reporting is consistent with the internal financial reports to regularly assess performance of the business and allocate resources.
Operating EPS: Measured on the performance of the business units’ contribution to operating earnings growth over the course of 2019-2021, including RD, RT, and Corporate/Other segments (including the remaining competitive business that previously comprised the Competitive Energy Services segment). Results for 2019 will exclude the following: (i) the impact of all Special Items that are excluded fromnon-GAAP Operating Earnings, (ii) the impacts associated with restructuring the business or other strategic decisions including the associated tax impacts, (iii) the impact of the Ohio Distribution Modernization Rider, (iv) the impact of refunds provided to customers associated with tax reform that exceed budgeted amounts,(v) non-deferred major storm O&M expenses above or below the budgeted amount of $25 million (for 2019), $26 million (for 2020 and 2021), (vi) the impacts of legal reserves or related expenses, (vii) the impacts of legal reserves or related expenses, (viii) the impacts of preferred stock and related dividends, (ix) all costs associated with the early redemption, repurchase, or remarketing of debt, and (x) any deviation from weighted average shares used in establishing the Operation EPS calculation, which was based on the expected schedule of conversion and issuances of 540 million (for 2019), $43 million (for 2020) and $46 million (for 2021). External segment reporting is consistent with the internal financial reports to regularly assess performance of the business and allocate resources.
Operations Index:Metric made up of the follow six components, weighted equally (refer to each component for a separate definition):
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OSHA Recordable Incidents:Measures the OSHA-recordable incidents in the period per 100 employees. OSHA-recordable incidents are work-related injuries or illnesses that result in a fatality, medical treatment, or at least one day of lost time, job transfer or restricted duty excluding the day of injury. Includes all incidents that were resolved and reported on the 2019 OSHA log by January 2, 2020. The calculation is defined as:
= (# of incidents x 200,000 Hours) ÷ Number of Actual Productive Hours Worked
The 200,000 hours is a constant that represents the equivalent of 100 employees working 40 hours per week, 50 weeks per year, and provides the standard base for the incidence rates, as per the Bureau of Labor Statistics. Target is based ontop-quartile, Stretch is based ontop-decile, and Threshold is based on the industry average OSHA rates for all EEI Companies participating in the survey (relevant to each business unit) as reported in the 2017 EEI Health and Safety Survey.
Reg Gen EFOR: The percentage of generation that was not available versus the amount of time a unit was requested to be online.
Regulated Distribution or RD:The Regulated Distribution business segment. Refers collectively to The Cleveland Electric Illuminating Company, Jersey Central Power & Light Company, Metropolitan Edison Company, Monongahela Power Company, Ohio Edison Company, The Potomac Edison Company, Pennsylvania Power Company, Pennsylvania Electric Company, The Toledo Edison Company, and West Penn Power Company.
RSUs (Restricted Stock Units): An equity vehicle commonly used in long-term incentive programs to reward employees and promote ownership within the company. RSUs represent the right to receive future delivery of actual stock or cash subject to vesting restrictions (service-based and/or performance-based).
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Regulated Transmission or RT:The Regulated Transmission business segment. Refers collectively to FirstEnergy Transmission, LLC, and its subsidiaries, American Transmission Systems, Incorporated, Potomac-Appalachian Transmission Highline, LLC, Trans-Allegheny Interstate Line Company, andMid-Atlantic Interstate Transmission.
RTSR (Relative Total Shareholder Return): The total return of a stock to a shareholder for our Company measured against the total return of stock for other companies within a selected peer group. The calculation is based on a set period (e.g., three years) and assumes that dividends are reinvested over this period. RTSR is a common performance measure used within long-term incentive plans and helps to align executive payouts to shareholder value creation.
SAIDI:Distribution System Average Interruption Duration Index is the average total duration of outage minutes in a year for each customer served adjusted for major storms.
Systemwide O&M: Measures RD, RT, and Corporate/Othernon-deferred labor and other-than-labor costs based on the 2019 Budget.
TOF:Transmission Outage Frequency measures the transmission line frequency of outages (total number of transmission circuit outages divided by average number of circuits) on 100kV to 500kV circuits after adjustment for major events (Six Sigma). Transmission circuit outages are defined as any loss of flow, momentary or sustained, that is a result of an automatic switching operation. Scheduled outages, emergency forced outages, and operational outages are excluded from the calculation.
TSR (Total Shareholder Return): A measure of stock price appreciation and dividend payments over a period of time.
74 | FirstEnergy Corp.2020 Proxy Statement
2019 Summary Compensation Table
The following table summarizes the total compensation paid to or earned by each of our NEOs for the fiscal years ended December 31, 2019, 2018, and 2017, as applicable:
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) | All Other Compensation ($)(5) | Total ($) | SEC Total Without Change In Pension Value and Nonqualified Deferred Compensation Earnings ($)(6) | |||||||||||||||||||||||||||||
Charles E. Jones President & CEO | 2019 | $ | 1,136,113 | $ | 0 | $ | 6,247,802 | $ | 1,615,111 | $ | 5,611,583 | $ | 74,050 | $ | 14,684,659 | $ | 9,073,076 | |||||||||||||||||||||
| 2018 | $ | 1,136,113 | $ | 0 | $ | 7,018,621 | $ | 1,662,674 | $ | 1,265,019 | $ | 40,701 | $ | 11,123,128 | $ | 9,858,109 | ||||||||||||||||||||||
| 2017 | $ | 1,136,113 | $ | 0 | $ | 6,208,144 | $ | 1,383,655 | $ | 6,530,282 | $ | 23,691 | $ | 15,281,885 | $ | 8,751,603 | ||||||||||||||||||||||
Steven E. Strah SVP & CFO | 2019 | $ | 643,599 | $ | 0 | $ | 1,545,570 | $ | 626,590 | $ | 3,189,722 | $ | 28,647 | $ | 6,034,128 | $ | 2,844,406 | |||||||||||||||||||||
| 2018 | $ | 594,835 | $ | 0 | $ | 1,602,699 | $ | 574,240 | $ | 696,989 | $ | 26,749 | $ | 3,495,512 | $ | 2,798,523 | ||||||||||||||||||||||
| 2017 | $ | 561,539 | $ | 0 | $ | 1,097,892 | $ | 425,641 | $ | 1,875,015 | $ | 16,888 | $ | 3,976,975 | $ | 2,101,960 | ||||||||||||||||||||||
Samuel L. Belcher | 2019 | $ | 604,308 | $ | 0 | $ | 1,327,003 | $ | 540,575 | $ | 418,704 | $ | 13,650 | $ | 2,904,240 | $ | 2,485,536 | |||||||||||||||||||||
SVP & President, FE | 2018 | $ | 548,060 | $ | 434,700 | $ | 1,503,221 | $ | 506,951 | $ | 101,296 | $ | 11,087 | $ | 3,105,315 | $ | 3,004,019 | |||||||||||||||||||||
Utilities | ||||||||||||||||||||||||||||||||||||||
Robert P. Reffner | 2019 | $ | 537,594 | $ | 0 | $ | 973,901 | $ | 463,918 | $ | 479,043 | $ | 13,435 | $ | 2,467,891 | $ | 1,988,848 | |||||||||||||||||||||
SVP & General Counsel | ||||||||||||||||||||||||||||||||||||||
Bennett L. Gaines | 2019 | $ | 462,322 | $ | 0 | $ | 588,121 | $ | 364,205 | $ | 558,635 | $ | 3,800 | $ | 1,977,083 | $ | 1,418,448 | |||||||||||||||||||||
SVP, Corporate Services & Chief | 2018 | $ | 442,051 | $ | 0 | $ | 626,379 | $ | 365,657 | $ | 0 | $ | 8,062 | $ | 1,442,149 | $ | 1,442,149 | |||||||||||||||||||||
Information Officer | ||||||||||||||||||||||||||||||||||||||
Leila L. Vespoli(1) | 2019 | $ | 185,629 | $ | 0 | $ | 1,958,835 | $ | 191,737 | $ | 2,941,983 | $ | 1,744,328 | $ | 7,022,512 | $ | 4,080,529 | |||||||||||||||||||||
EVP, Corporate Strategy, | 2018 | $ | 761,286 | $ | 0 | $ | 2,200,498 | $ | 823,483 | $ | 322,011 | $ | 16,372 | $ | 4,123,650 | $ | 3,801,639 | |||||||||||||||||||||
Regulatory Affairs & Chief Legal Officer | 2017 | $ | 761,286 | $ | 0 | $ | 1,946,403 | $ | 719,783 | $ | 1,681,039 | $ | 9,100 | $ | 5,117,611 | $ | 3,436,572 | |||||||||||||||||||||
James F. Pearson(1) | 2019 | $ | 161,471 | $ | 0 | $ | 2,138,277 | $ | 176,596 | $ | 3,200,025 | $ | 1,582,583 | $ | 7,258,952 | $ | 4,058,927 | |||||||||||||||||||||
EVP, Finance | 2018 | $ | 662,214 | $ | 0 | $ | 2,402,070 | $ | 758,454 | $ | 55,023 | $ | 17,838 | $ | 3,895,599 | $ | 3,840,576 | |||||||||||||||||||||
| 2017 | $ | 662,214 | $ | 0 | $ | 2,124,671 | $ | 662,943 | $ | 2,512,687 | $ | 15,451 | $ | 5,977,966 | $ | 3,465,279 | ||||||||||||||||||||||
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| Name | 401(k) Employer Contributions ($) (a) | Health Care Employer Contributions ($) (b) | Wellness Program ($) (c) | Charitable Matching ($) (d) | Group Personal Excess Liability ($) (e) | Life Insurance ($) (f) | Personal Aircraft Usage ($) (g) | Payments Upon Retirement ($) (h) | Total ($) | |||||||||||||||||||||||||||
Charles E. Jones | $ | 8,400 | $ | 1,000 | $ | 100 | $ | 2,600 | $ | 1,024 | $ | 1,618 | $ | 59,308 | - | $ | 74,050 | |||||||||||||||||||
Steven E. Strah | $ | 8,400 | $ | 1,000 | - | $ | 2,500 | $ | 1,024 | $ | 928 | $ | 14,795 | - | $ | 28,647 | ||||||||||||||||||||
Samuel L. Belcher | $ | 8,165 | $ | 1,000 | - | $ | 2,590 | $ | 1,024 | $ | 871 | - | - | $ | 13,650 | |||||||||||||||||||||
Robert P. Reffner | $ | 8,400 | $ | 1,000 | - | $ | 2,500 | $ | 1,024 | $ | 511 | - | - | $ | 13,435 | |||||||||||||||||||||
Bennett L. Gaines | $ | 1,019 | $ | 1,000 | $ | 325 | - | $ | 1,024 | $ | 432 | - | - | $ | 3,800 | |||||||||||||||||||||
Leila L. Vespoli | $ | 8,400 | $ | 1,000 | - | $ | 5,000 | $ | 1,024 | $ | 271 | - | $ | 1,728,633 | $ | 1,744,328 | ||||||||||||||||||||
James F. Pearson | $ | 8,400 | $ | 1,000 | $ | 600 | - | $ | 1,024 | $ | 236 | $ | 1,144 | $ | 1,570,179 | $ | 1,582,583 | |||||||||||||||||||
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76 | FirstEnergy Corp.2020 Proxy Statement
Grants of Plan-Based Awards in Fiscal Year 2019
The following table summarizes the stock awards granted to our NEOs during 2019 as well as threshold, target, and maximum amounts payable under the applicable short-term and long-term compensation plans.
| Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(3) | Estimated Future Payouts Under Equity Incentive Plan Awards(4) | All Other Stock Awards: Number of Shares of Stock or Units (#) | Grant Date Fair Value of Stock and Option Awards ($)(5) | |||||||||||||||||||||||||||||||||||||
| Name | Grant/Payout Type | Grant Date(1) | Board Date(2) | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||||
Charles E. Jones | FE STIP | - | - | $ | 651,475 | $ | 1,302,951 | $ | 1,954,424 | - | - | - | - | - | ||||||||||||||||||||||||||
| Performance-Adjusted RSUs – Stock-Based | 3/1/2019 | 2/19/2019 | - | - | - | 50,767 | 101,534 | 203,068 | - | $ | 4,184,318 | |||||||||||||||||||||||||||||
| Performance-Adjusted RSUs – Cash-Based | 3/1/2019 | 2/19/2019 | - | - | - | 25,036 | 50,071 | 100,142 | - | $ | 2,063,484 | |||||||||||||||||||||||||||||
Steven E. Strah | FE STIP | - | - | $ | 260,000 | $ | 520,000 | $ | 780,000 | - | - | - | - | - | ||||||||||||||||||||||||||
| Performance-Adjusted RSUs – Stock-Based | 3/1/2019 | 2/19/2019 | - | - | - | 12,528 | 25,056 | 50,112 | - | $ | 1,032,583 | |||||||||||||||||||||||||||||
| Performance-Adjusted RSUs – Cash-Based | 3/1/2019 | 2/19/2019 | - | - | - | 6,224 | 12,448 | 24,896 | - | $ | 512,987 | |||||||||||||||||||||||||||||
Samuel L. Belcher | FE STIP | - | - | $ | 228,752 | $ | 457,500 | $ | 686,252 | - | - | - | - | - | ||||||||||||||||||||||||||
| Performance-Adjusted RSUs – Stock-Based | 3/1/2019 | 2/19/2019 | - | - | - | 10,709 | 21,417 | 42,834 | - | $ | 882,616 | |||||||||||||||||||||||||||||
| Performance-Adjusted RSUs – Cash-Based | 3/1/2019 | 2/19/2019 | - | - | - | 5,392 | 10,783 | 21,566 | - | $ | 444,387 | |||||||||||||||||||||||||||||
Robert P. Reffner | FE STIP | - | - | $ | 192,500 | $ | 385,000 | $ | 577,500 | - | - | - | - | - | ||||||||||||||||||||||||||
| Performance-Adjusted RSUs – Stock-Based | 3/1/2019 | 2/19/2019 | - | - | - | 7,900 | 15,800 | 31,600 | - | $ | 651,134 | |||||||||||||||||||||||||||||
| Performance-Adjusted RSUs – Cash-Based | 3/1/2019 | 2/19/2019 | - | - | - | 3,916 | 7,832 | 15,664 | - | $ | 322,767 | |||||||||||||||||||||||||||||
Bennett L. Gaines | FE STIP | - | - | $ | 151,125 | $ | 302,252 | $ | 453,376 | - | - | - | - | - | ||||||||||||||||||||||||||
| Performance-Adjusted RSUs – Stock-Based | 3/1/2019 | 2/19/2019 | - | - | - | 4,738 | 9,476 | 18,952 | - | $ | 390,515 | |||||||||||||||||||||||||||||
| Performance-Adjusted RSUs – Cash-Based | 3/1/2019 | 2/19/2019 | - | - | - | 2,397 | 4,795 | 9,590 | - | $ | 197,606 | |||||||||||||||||||||||||||||
Leila L. Vespoli | FE STIP | - | - | $ | 79,560 | $ | 159,120 | $ | 238,680 | - | - | - | - | - | ||||||||||||||||||||||||||
| Performance-Adjusted RSUs – Stock-Based | 3/1/2019 | 2/19/2019 | - | - | - | 15,844 | 31,688 | 63,376 | - | $ | 1,305,894 | |||||||||||||||||||||||||||||
| Performance-Adjusted RSUs – Cash-Based | 3/1/2019 | 2/19/2019 | - | - | - | 7,922 | 15,844 | 31,688 | - | $ | 652,941 | |||||||||||||||||||||||||||||
James F. Pearson | FE STIP | - | - | $ | 73,278 | $ | 146,555 | $ | 219,833 | - | - | - | - | - | ||||||||||||||||||||||||||
| Performance-Adjusted RSUs – Stock-Based | 3/1/2019 | 2/19/2019 | - | - | - | 17,269 | 34,537 | 69,074 | - | $ | 1,423,304 | |||||||||||||||||||||||||||||
| Performance-Adjusted RSUs – Cash-Based | 3/1/2019 | 2/19/2019 | - | - | - | 8,675 | 17,349 | 34,698 | - | $ | 714,973 | |||||||||||||||||||||||||||||
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77 | FirstEnergy Corp.2020 Proxy Statement
The following chart summarizes the details of the FE LTIP grants for the 2019-2021 cycle:
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Performance-Adjusted RSUs
Performance-adjusted RSUs are described in the CD&A and are a component of our FE LTIP. On March 1, 2020, the performance-adjusted RSUs granted in 2017 became vested. As previously stated, the total points earned in the FE LTIP 2017-2019 cycle were 10.95 points, resulting in a payout at 185% of target opportunity for this grant. On March 1, 2020, the performance-adjusted RSUs for Mr. Belcher’s 2018-2019 Transition Award became vested. As previously stated, the total points earned in the 2018-2019 Transition Award were 7.74, resulting in a payout at 193% of target opportunity. The vesting period for performance-adjusted RSUs granted in 2018 and 2019 will end on March 1, 2021, and March 1, 2022, respectively, although performance is measured through December 31 of the year prior to vesting. Performance-adjusted RSUs settled in stock are treated as a fixed expense and performance adjusted RSUs settled in cash are treated as amark-to-market expense for accounting purposes and are valued in accordance with FASB ASC Topic 718.
Other Information
For more information regarding certain compensation arrangements with our NEOs, please refer to the “Potential Post-Employment Payments” section on page 89. For more information regarding the amount of various compensation elements in proportion to total compensation, see the NEO pay mix charts in the “Compensation Mix” section on page 54.
78 | FirstEnergy Corp.2020 Proxy Statement
Outstanding Equity Awards at FiscalYear-End 2019
The following table summarizes the outstanding equity award holdings of our NEOs as of December 31, 2019:
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Yet Vested (#)(1) | Grant Type | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Number of Unearned Shares, Units or Other That Have Not Yet Vested (#)(1)(4) | Grant Type(5) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Yet Vested ($)(3) | ||||||||||||||||||||||||||||
Charles E. Jones | 80,257 | $ | 37.75 | 2/25/2021 | 270,515 | 2017 Performance- Adjusted RSUs – Stock-Based | $ | 13,147,029 | ||||||||||||||||||||||||||||||
| 133,405 | 2017 Performance- Adjusted RSUs – Cash-Based | $ | 6,483,483 | |||||||||||||||||||||||||||||||||||
| 272,033 | 2018 Performance- Adjusted RSUs – Stock-Based | $ | 13,220,804 | |||||||||||||||||||||||||||||||||||
| 134,153 | 2018 Performance- Adjusted RSUs – Cash-Based | $ | 6,519,836 | |||||||||||||||||||||||||||||||||||
| 208,276 | 2019 Performance- Adjusted RSUs – Stock-Based | $ | 10,122,214 | |||||||||||||||||||||||||||||||||||
| 102,711 | 2019 Performance- Adjusted RSUs – Cash-Based | $ | 4,991,755 | |||||||||||||||||||||||||||||||||||
Steven E. Strah | 47,622 | 2017 Performance- Adjusted RSUs – Stock-Based | $ | 2,314,429 | ||||||||||||||||||||||||||||||||||
| 23,811 | 2017 Performance- Adjusted RSUs – Cash-Based | $ | 1,157,215 | |||||||||||||||||||||||||||||||||||
| 61,967 | 2018 Performance- Adjusted RSUs – Stock-Based | $ | 3,011,596 | |||||||||||||||||||||||||||||||||||
| 30,786 | 2018 Performance- Adjusted RSUs – Cash-Based | $ | 1,496,200 | |||||||||||||||||||||||||||||||||||
| 51,398 | 2019 Performance- Adjusted RSUs – Stock-Based | $ | 2,497,943 | |||||||||||||||||||||||||||||||||||
| 25,535 | 2019 Performance- Adjusted RSUs – Cash-Based | $ | 1,241,001 | |||||||||||||||||||||||||||||||||||
Samuel L. Belcher | 24,346 | RS | (2) | $ | 1,183,216 | 22,041 | 2018 Transition Award RSUs– Stock-Based | $ | 1,071,193 | |||||||||||||||||||||||||||||
| 44,602 | 2018 Performance- Adjusted RSUs – Stock-Based | $ | 2,167,657 | |||||||||||||||||||||||||||||||||||
| 22,300 | 2018 Performance- Adjusted RSUs – Cash-Based | $ | 1,083,780 | |||||||||||||||||||||||||||||||||||
| 43,933 | 2019 Performance- Adjusted RSUs – Stock-Based | $ | 2,135,144 | |||||||||||||||||||||||||||||||||||
| 22,120 | 2019 Performance- Adjusted RSUs – Cash-Based | $ | 1,075,032 | |||||||||||||||||||||||||||||||||||
79 | FirstEnergy Corp.2020 Proxy Statement
Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||
| Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Yet Vested (#)(1) | Grant Type | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | Equity Incentive Plan Number of Unearned Shares, Units or Other That Have Not Yet Vested (#)(1)(4) | Grant Type(5) | Equity Incentive Plan Awards: Market or Payout Value Shares, Units or Other Rights That Have Not Yet Vested ($)(3) | ||||||||||||||||||||||||||||
Robert P. Reffner | 18,532 | 2017 Performance- Adjusted RSUs – Stock-Based | $ | 900,655 | ||||||||||||||||||||||||||||||||||
| 9,128 | 2017 Performance- Adjusted RSUs – Cash-Based | $ | 443,621 | |||||||||||||||||||||||||||||||||||
| 18,635 | 2018 Performance- Adjusted RSUs – Stock-Based | $ | 905,661 | |||||||||||||||||||||||||||||||||||
| 9,179 | 2018 Performance- Adjusted RSUs – Cash-Based | $ | 446,099 | |||||||||||||||||||||||||||||||||||
| 32,411 | 2019 Performance- Adjusted RSUs – Stock-Based | $ | 1,575,175 | |||||||||||||||||||||||||||||||||||
| 16,066 | 2019 Performance- Adjusted RSUs – Cash-Based | $ | 780,808 | |||||||||||||||||||||||||||||||||||
Bennett L. Gaines | 23,937 | 2017 Performance- Adjusted RSUs – Stock-Based | $ | 1,163,338 | ||||||||||||||||||||||||||||||||||
| 12,112 | 2017 Performance- Adjusted RSUs – Cash-Based | $ | 588,643 | |||||||||||||||||||||||||||||||||||
| 24,071 | 2018 Performance- Adjusted RSUs – Stock-Based | $ | 1,169,851 | |||||||||||||||||||||||||||||||||||
| 12,180 | 2018 Performance- Adjusted RSUs – Cash-Based | $ | 591,948 | |||||||||||||||||||||||||||||||||||
| 19,439 | 2019 Performance- Adjusted RSUs – Stock-Based | $ | 944,735 | |||||||||||||||||||||||||||||||||||
| 9,836 | 2019 Performance- Adjusted RSUs – Cash-Based | $ | 478,030 | |||||||||||||||||||||||||||||||||||
Leila L. Vespoli(6) | 83,781 | 2017 Performance- Adjusted RSUs – Stock-Based | $ | 4,071,757 | ||||||||||||||||||||||||||||||||||
| 41,891 | 2017 Performance- Adjusted RSUs – Cash-Based | $ | 2,035,903 | |||||||||||||||||||||||||||||||||||
| 83,543 | 2018 Performance- Adjusted RSUs – Stock-Based | $ | 4,060,190 | |||||||||||||||||||||||||||||||||||
| 41,772 | 2018 Performance- Adjusted RSUs – Cash-Based | $ | 2,030,119 | |||||||||||||||||||||||||||||||||||
| 63,422 | 2019 Performance- Adjusted RSUs – Stock-Based | $ | 3,082,309 | |||||||||||||||||||||||||||||||||||
| 31,711 | 2019 Performance- Adjusted RSUs – Cash-Based | $ | 1,541,155 | |||||||||||||||||||||||||||||||||||
James F. Pearson(6) | 91,312 | 2017 Performance- Adjusted RSUs – Stock-Based | $ | 4,437,763 | ||||||||||||||||||||||||||||||||||
| 45,870 | 2017 Performance- Adjusted RSUs – Cash-Based | $ | 2,229,282 | |||||||||||||||||||||||||||||||||||
| 91,054 | 2018 Performance- Adjusted RSUs – Stock-Based | $ | 4,425,224 | |||||||||||||||||||||||||||||||||||
| 45,740 | 2018 Performance- Adjusted RSUs – Cash-Based | $ | 2,222,964 | |||||||||||||||||||||||||||||||||||
| 69,124 | 2019 Performance- Adjusted RSUs – Stock-Based | $ | 3,359,426 | |||||||||||||||||||||||||||||||||||
| 34,723 | 2019 Performance- Adjusted RSUs – Cash-Based | $ | 1,687,538 | |||||||||||||||||||||||||||||||||||
80 | FirstEnergy Corp.2020 Proxy Statement
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81 | FirstEnergy Corp.2020 Proxy Statement
Option Exercises and Stock Vested in 2019
The following table summarizes the vesting of stock awards held by our NEOs during 2019.
| Name | Award Type | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($)(1) | Number of Shares Acquired on Vesting (#)(2)(3) | Value Realized on Vesting ($)(4) | |||||||
Charles E. Jones | 2016 Performance-Adjusted RSUs (stock-based) | - | - | 296,605 | $ | 12,080,725 | ||||||
2016 Performance-Adjusted RSUs (cash-based) | - | - | - | $ | 6,040,333 | |||||||
Steven E. Strah | 2016 Performance-Adjusted RSUs (stock-based) | - | - | 47,646 | $ | 1,940,631 | ||||||
2016 Performance-Adjusted RSUs (cash-based) | - | - | - | $ | 970,292 | |||||||
Samuel L. Belcher(5) | 2016 Performance-Adjusted RSUs (stock-based converted to cash) | - | - | - | $ | 888,601 | ||||||
2016 Performance-Adjusted RSUs (cash-based) | - | - | - | $ | 432,281 | |||||||
Robert P. Reffner | 2016 Performance-Adjusted RSUs (stock-based) | - | - | 18,541 | $ | 755,181 | ||||||
2016 Performance-Adjusted RSUs (cash-based) | - | - | - | $ | 371,931 | |||||||
Bennett L. Gaines | 2016 Performance-Adjusted RSUs (stock-based) | - | - | 23,948 | $ | 975,433 | ||||||
2016 Performance-Adjusted RSUs (cash-based) | - | - | - | $ | 493,551 | |||||||
Leila L. Vespoli | Stock Options | 120,386 | $ 753,192 | - | - | |||||||
2016 Performance-Adjusted RSUs (stock-based) | - | - | 84,470 | $ | 3,440,482 | |||||||
2016 Performance-Adjusted RSUs (cash-based) | - | - | - | $ | 1,720,189 | |||||||
James F. Pearson | 2016 Performance-Adjusted RSUs (stock-based) | - | - | 92,063 | $ | 3,749,742 | ||||||
2016 Performance-Adjusted RSUs (cash-based) | - | - | - | $ | 1,883,613 | |||||||
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82 | FirstEnergy Corp.2020 Proxy Statement
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Post-Employment Compensation
Pension Benefits as of December 31, 2019
The following table provides information regarding the pension benefits of our NEOs as of December 31, 2019:
| Name | Plan Name | Number of Years Credited Service (#)(1) | Present Value of Accumulated Benefit ($)(2) | Payments ($) | ||||||||
Charles E. Jones | Qualified Plan | 41 | $ | 2,375,856 | - | |||||||
Nonqualified (Supplemental) Plan | $ | 26,024,795 | - | |||||||||
Supplemental Executive Retirement Plan | $ | 0 | - | |||||||||
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Total | $ 28,400,651 | - | ||||||||||
Steven E. Strah | Qualified Plan | 35 | $ | 2,070,630 | - | |||||||
Nonqualified (Supplemental) Plan | $ | 7,266,476 | - | |||||||||
Supplemental Executive Retirement Plan | N/A | - | ||||||||||
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Total | $ | 9,337,106 | - | |||||||||
Samuel L. Belcher | Qualified Plan | 7 | $ | 252,179 | - | |||||||
Nonqualified (Supplemental) Plan | $ | 634,554 | - | |||||||||
Supplemental Executive Retirement Plan | N/A | - | ||||||||||
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Total | $ | 886,733 | - | |||||||||
| Robert P. Reffner | Qualified Plan | 12 | $ | 518,873 | - | |||||||
Nonqualified (Supplemental) Plan | 17 | $ | 1,609,290 | - | ||||||||
Supplemental Executive Retirement Plan | N/A | - | ||||||||||
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Total | $ | 2,128,163 | - | |||||||||
Bennett L. Gaines | Qualified Plan | 13 | $ | 631,042 | - | |||||||
Nonqualified (Supplemental) Plan | 18 | $ | 2,070,229 | - | ||||||||
Supplemental Executive Retirement Plan | N/A | - | ||||||||||
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Total | $ | 2,701,271 | - | |||||||||
Leila L. Vespoli(3) | Qualified Plan | 34 | $ | 2,469,765 | $ | 68,546 | ||||||
Nonqualified (Supplemental) Plan | $ | 12,361,015 | $ | 473,719 | ||||||||
Supplemental Executive Retirement Plan | $ | 1,367,128 | $ | 53,090 | ||||||||
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Total | $ | 16,197,908 | $ | 595,355 | ||||||||
James F. Pearson(3) | Qualified Plan | 42 | $ | 2,505,375 | $ | 117,474 | ||||||
Nonqualified (Supplemental) Plan | $ | 11,983,521 | $ | 490,171 | ||||||||
Supplemental Executive Retirement Plan | N/A | N/A | ||||||||||
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Total | $ | 14,488,896 | $ | 607,645 | ||||||||
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83 | FirstEnergy Corp.2020 Proxy Statement
Pension Benefits
Qualified and Nonqualified Plans
We offer a qualified and nonqualified (supplemental) plan to provide retirement benefits to all of our NEOs. We pay the entire cost of these plans. Retirement benefits from the qualified plan provided under the FirstEnergy Corp. Master Pension Plan (“Master Pension Plan”) are calculated using pensionable earnings up to the applicable federal and plan limits. As described in the CD&A, the Master Pension Plan was amended to provide a cash-balance formula for all employees hired or rehired on or after January 1, 2014. In conjunction with the new cash-balance formula, the Company adopted a new nonqualified supplemental plan, which will provide a benefit, based upon the cash-balance formula, to eligible executives hired or rehired on or after January 1, 2014, but without the restriction of federal limits that apply under the qualified pension plan. All of the NEOs were hired prior to January 1, 2014 and are subject to the formulas discussed below.
The supplemental plan provided under the EDCP provides a benefit based upon the formula used in the qualified plan but is calculated using all pensionable earnings without the restrictions of federal and certain plan limits. Based on the applicable formula of the plan under which the NEO is a participant, the retirement benefit from the qualified and nonqualified plans will be the benefit determined using one or more of the following three formulas:
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1.58% times the first 20 years of benefit service;
1.18% times the next 10 years of benefit service;
0.78% times the next 5 years of benefit service; and
1.10% times each year of benefit service in excess of 35 years.
and B is an amount equal to 0.32% times number of years of service (up to 35 years) times the difference between the HAMBE and the lesser of 150% of covered compensation or the Social Security Wage Base, except that B cannot be less than zero.
The HAMBE for the qualified plan are the highest 48 consecutive months of base earnings the executive had in the 120 months immediately preceding retirement or other termination of employment. Pensionable earnings under the qualified plan HAMBE formula generally include base salary and deferred compensation of base salary after 2004. The pensionable earnings under the nonqualified plan HAMBE formula are the same as the qualified plan described above except that deferred compensation of base salary excluded under the qualified plan and annual incentive awards that are paid or deferred are included. Covered compensation represents the average (without indexing) Social Security Taxable Wage Base in effect for each calendar year during the35-year period that ends when the executive reaches the Social Security normal retirement age.
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Under the Master Pension Plan, normal retirement is at age 65 and the completion of five years of eligibility service. The earliest retirement is at age 55 if the employee has at least 10 years of eligibility service. Messrs. Jones, Reffner and Gaines are currently eligible for an unreduced pension benefit, as was Mr. Pearson at the time of his retirement date (April 1, 2019). Mr. Strah is currently eligible for a reduced pension benefit based on the Early Retirement Reduction Table below, as was Ms. Vespoli at the time of her retirement date (April 1, 2019) and Mr. Belcher will become eligible when he turns 55 in 2023. The earliest retirement age without reduction for the qualified plan is age 60 with the exception of those covered under the FATP plan. The earliest retirement age without reduction for FATP is age 62.
84 | FirstEnergy Corp.2020 Proxy Statement
Early Retirement Reduction Table
| If payment begins at age | The benefit is multiplied by | |
| 60 and up | 100% | |
| 59 | 88% | |
| 58 | 84% | |
| 57 | 80% | |
| 56 | 75% | |
| 55 | 70% |
FATP Early Retirement Reduction Table
| If payment begins at age | The benefit is multiplied by | |
| 62 and up | 100% | |
| 61 | 96% | |
| 60 | 92% | |
| 59 | 88% | |
| 58 | 84% | |
| 57 | 80% | |
| 56 | 76% | |
| 55 | 72% |
The accrued benefits vest upon the completion of five years of service. The benefits generally are payable in the case of a married employee in the form of a qualified spouse 50% joint and survivor annuity or in the case of an unmarried employee in the form of a single life annuity. Unmarried employees can designate anon-spouse beneficiary to receive up to a 100% joint and survivor annuity depending upon thenon-spousal beneficiary’s age. For the married employee, there also is an option to receive the benefit as a joint and survivor annuity with or without apop-up provision or a period certain annuity. The annuity provides a reduced monthly benefit, payable to the employee until death. If a joint and survivor annuity is chosen, the employee’s named beneficiary will receive 25%, 50%, 75%, or 100% of the employee’s benefit based on the employee’s and the beneficiary’s ages and the elected percentage to be continued after the employee’s death. Under thepop-up provisions, the monthly payment to the employee“pops-up” to the single life annuity amount if the beneficiary predeceases the employee. The period certain annuity provides a reduced benefit for the life of the employee and continues the benefit to the named beneficiary for a guaranteed period if the employee’s death occurs before the end of the 5, 10 or15-year period, as elected. No further payments are made if the employee’s death occurs after the end of the elected period.
As noted in the CD&A, pursuant to a historical arrangement, Mr. Reffner and Mr. Gaines are eligible to be credited with five years of additional service for purposes of calculating the supplemental pension benefit. For more information, refer to the “Pension Benefits as of December 31, 2019” table on page 83.
Supplemental Executive Retirement Plan (“SERP”)
In addition to the qualified and nonqualified plans, certain NEOs may receive additional nonqualified benefits from the SERP. Currently, only two active employees are eligible for a SERP benefit upon retirement, and no new participants have been provided eligibility since 2001. In 2014, the Committee formally closed the SERP to new entrants.
Of the NEOs, only Mr. Jones is a continuing participant in the SERP. Ms. Vespoli was also eligible for a SERP benefit upon her retirement effective April 1, 2019. The NEOs who are participants in the SERP, or the NEO’s surviving spouse, are eligible to receive a supplemental benefit after termination of employment
85 | FirstEnergy Corp.2020 Proxy Statement
due to retirement, death, disability, or involuntary separation. Whether or not a supplemental benefit under the SERP will be paid is determined in accordance with, and shall benon-forfeitable, upon the date the NEO terminates employment under the conditions described in the following sections:
Retirement Benefit
An eligible NEO who retires on or after age 55 and who has completed 10 years of service will be entitled to receive, commencing at retirement, a monthly supplemental retirement benefit under the SERP equal to (a) 65% of the average of the highest 12 consecutive full months of base salary earnings paid to the NEO in the 120 consecutive full months prior to termination of employment, including any salary deferred into the EDCP or the FirstEnergy Corp. Savings Plan, but excluding any incentive payments, or (b) 55% of the average of the highest 36 consecutive full months of base salary earnings and annual incentive awards paid to the NEO in the 120 consecutive full months prior to termination of employment, including any salary deferred into the EDCP and FirstEnergy Corp. Savings Plan, whichever is greater, multiplied by the number of months of service the executive has completed after having completed 10 years of service, up to a maximum of 60 months, divided by 60, less:
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In the case of a married NEO in the form of a 50% joint and survivor annuity.
In the case of an unmarried NEO, in the form of a single life annuity.
For an NEO who retires prior to attaining age 65, the net dollar amount above shall be reduced further byone-fourth of 1% for each month the commencement of benefits under the SERP precedes the month the executive attains age 65.
Death Benefit
If a married NEO that participates in the SERP dies, 50% of the NEO’s SERP benefit actuarially adjusted for the NEO’s and spouse’s ages will be paid to the NEO’s surviving spouse. In general, payment will begin the first of the month following the later of the date the NEO would have attained age 55 or death and continue for the remainder of the surviving spouse’s life. If the NEO had at least 10 years of eligibility service before January 1, 2009, the payment will begin on the first day of the month following the NEO’s death. For an NEO who dies prior to attaining age 65, the benefit shall be reduced further byone-fourth of 1% for each month the commencement precedes the NEO’s attainment of age 65, with a maximum reduction of 30%.
Disability Benefit
If an NEO participant in the SERP terminates employment due to a disability, he/she may be entitled to receive a monthly supplemental retirement benefit under the SERP. If applicable, SERP payments will commence on the first of the month following the NEO’s attaining age 60 if the disability termination occurs before age 55. If the disability termination occurs on or after the NEO attains age 55, applicable SERP payments will begin the first of the month following termination. The retirement benefit will equal the greater of 65% of the NEO’s base salary earnings as set forth in (a) of the Retirement Benefit section above, or 55% of the NEO’s base salary earnings plus their annual incentive awards as set forth in (b) of theRetirement Benefit section above. That amount will be reduced by disability benefits the NEO is projected to receive from Social Security, the Master Pension Plan and the FirstEnergy Corp. Long Term Disability Plan. The disability benefit continues until the NEO attains age 65, is no longer disabled or dies, whichever occurs first. Upon attaining age 65, benefits are calculated as described in the Retirement Benefit section above. In the event of death, benefits are calculated as described in the Death Benefit section above.
In 2018, the Compensation Committee approved a second amendment to the SERP in order to comply with Department of Labor regulations under the Employee Retirement Income Security Act of 1974, which amendment modified the claims procedures for disability benefits.
86 | FirstEnergy Corp.2020 Proxy Statement
Nonqualified Deferred Compensation as of December 31, 2019
The following table summarizes nonqualified deferred compensation earned or contributed by or on behalf of our NEOs during 2019.
Name
| Executive Contributions in Last FY ($)(1)
| Registrant Contributions in Last FY ($)
| Aggregate Earnings in Last FY ($)(2)
| Aggregate Withdrawals/ Distributions ($)(3)
| Aggregate Balance at FYE ($)(4)
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Charles E. Jones | $ | 0 | $ | 0 | $ | 190,914 | $ | 0 | $ | 1,223,619 | ||||||||||
Steven E. Strah | $ | 2,106,401 | $ | 0 | $ | 233,207 | $ | 0 | $ | 1,767,679 | ||||||||||
Samuel L. Belcher | $ | 939,356 | $ | 0 | $ | 140,789 | $ | 110,124 | $ | 809,544 | ||||||||||
Robert P. Reffner | $ | 55,505 | $ | 0 | $ | 27,210 | $ | 0 | $ | 284,279 | ||||||||||
Bennett L. Gaines | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
Leila L. Vespoli | $ | 0 | $ | 0 | $ | 488,038 | $ | 2,742,064 | $ | 3,716,958 | ||||||||||
James F. Pearson | $ | 170,872 | $ | 0 | $ | 326,386 | $ | 359,854 | $ | 4,733,964 | ||||||||||
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EDCP
The EDCP is a nonqualified deferred compensation plan which provides for the voluntary deferral of compensation. Our NEOs may defer up to 50% of base salary, up to 100% of STIP awards and up to 100% of LTIP awards.
Two investment options are available under the EDCP. NEOs may direct deferrals of base salary and STIP awards to an annual cash retirement account, which accrues interest. The interest rate changes annually and is based upon the Moody’s Corporate Long-Term Bond Yield Index rate (later referred to as Moody’s). In 2019, the interest rate was based on the Moody’s rate plus one percentage point (5.20%) for amounts credited to accounts in 2013 or later and Moody’s plus three percentage points (7.20%) for amounts credited to accounts prior to 2013. NEOs may direct deferrals of STIP awards and performance-adjusted RSU LTIP awards to an annual stock account. The stock accounts are tracked in stock units and accrue additional stock units based upon the payment of dividends. The stock accounts are valued at the fair market value of our common stock. Payments made with respect to any dividend equivalent units that accrue after May 17, 2014 will be paid in cash.
Payments made with respect to performance shares that are deferred into a participant’s stock account on or after February 23, 2015 will be paid in cash instead of shares of common stock. In addition, with respect to future deferrals, if a participant has elected to receive a distribution of his or her stock account following a three-year deferral period and the participant terminates employment prior to the end of the three-year period, then the stock account distribution will be paid in cash in accordance with the payment terms of the participant’s retirement account.
87 | FirstEnergy Corp.2020 Proxy Statement
Effective for deferral elections made on or after November 1, 2015:
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In 2018, the Compensation Committee approved an amendment to the EDCP in order to comply with Department of Labor regulations under the Employee Retirement Income Security Act of 1974, which amendment modified the claims procedures for disability benefits.
In 2019, the Compensation Committee approved an amendment to the EDCP for deferrals beginning in 2020, to reduce the maximum deferral for STIP and LTIP awards from 100% to 85% to account for the local and FICA taxation required to be withheld upon deferral and to simplify the communications for participants as well as the plan administration.
NEOs may elect to receive distributions from the cash retirement accounts in any combination of lump sum payment and/or monthly installment payments for up to 25 years. Differing distribution elections may be made for retirement, disability, andpre-retirement death. In the event of involuntary separation prior to retirement eligibility, the accounts accrued and vested as of December 31, 2004, may be paid in a single lump sum payment or in three annual installments. In the event of a participant’s separation from service for reasons for reasons other than retirement, death or disability, accounts accrued after January 1, 2005, are paid in a single lump sum payment. Payments may not commence until separation from service. Amounts that were vested as of December 31, 2004, are available for anin-service withdrawal of the full account, subject to a 10% penalty. There is noin-service withdrawal option for retirement accounts accrued after January 1, 2005, other than as permitted for hardships under the EDCP.
For deferrals to the stock account prior to November 1, 2015, generally, stock account distributions were made in a lump sum payment in the form of our common stock at the end of the three-year period following the initial deferral, unless further deferred. If further deferred until termination or retirement (or for future deferrals, if termination occurred prior to the end of the initial three-year period, regardless of age at termination), the account was converted to cash, based upon the fair market value of the account at termination, and the balance was rolled over to the corresponding annual retirement account for distribution in lump sum or monthly installments as elected under the retirement account.
88 | FirstEnergy Corp.2020 Proxy Statement
Potential Post-Employment Payments
2019 Post-Termination Compensation and Benefits
The following table summarizes the compensation and benefits that would be payable to our continuing NEOs in the event of a termination or following a CIC absent a termination as of December 31, 2019, which is the last business day of the year:
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89 | FirstEnergy Corp.2020 Proxy Statement
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The potential post-employment payments discussed below disclose the estimated payments and benefits payable to the continuing NEOs upon certain triggering events representing the enhanced or accelerated value of payments and benefits and do not include previously-earned and vested amounts payable to such continuing NEOs regardless of the applicable triggering event that have been accrued but not yet paid. The post-termination benefit calculations are based on the following assumptions:
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90 | FirstEnergy Corp.2020 Proxy Statement
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Retirement/Voluntary Termination
In the event of a continuing NEO’s retirement or voluntary termination, other than Mr. Belcher who is not yet retirement eligible, as of December 31, 2019, the continuing NEOs outstanding equity awards would be prorated and vest based on actual performance as described in the 2019 Post-Termination Compensation and Benefits table above and quantified in the LTIP and Other Equity Awards table below.
The present value of the Qualified Plan, Nonqualified Supplemental Plan, and SERP benefits as shown in the Pension Benefits table reflects commencement of retirement benefits at the NEOs’ earliest age necessary to receive pension benefits without reduction. Messrs. Jones, Reffner, and Gaines have reached the age and service requirements needed to receive pension benefits without reduction. If Mr. Jones commenced his pension benefits immediately, then his SERP would be reduced as described on page 85. Messrs. Strah and Belcher do not meet the age requirement needed to receive Qualified Plan and Nonqualified Supplemental Plan pension benefits without reduction; however, they are entitled to accrued and vested Qualified Plan and Nonqualified Supplemental Plan benefits as shown in the Pension Benefits table. Mr. Belcher was not yet retirement eligible as of December 31, 2019.
Involuntary Separation
In the event of an involuntary separation, the CEO’s severance benefits, if any, would be determined by the Compensation Committee and approved by your Board. The other continuing NEOs are covered under the Severance Plan. Under the Severance Plan, executives are offered severance benefits if involuntarily separated when business conditions require the closing or sale of a facility, corporate restructuring, merger, acquisition, a reduction in workforce, or job elimination. Severance is also offered if an executive turns down a job assignment that would result in a reduction of at least 15% in current base salary; contains a requirement that the executive must relocate from his or her current residence for reasons related to the new job; or would result in the distance from the executive’s current residence to his or her new reporting location being at least 50 miles farther than his or her current residence to his or her previous reporting location. The Severance Plan provides three weeks of base pay for each full year of service with a minimum of 52 weeks and a maximum severance benefit of 104 weeks of base pay. In the event of a December 31, 2019 involuntary separation, severance pay would be provided as follows: Mr. Jones — $2,266,000 (assuming the Board approves the same level of benefits as the other continuing NEOs); Mr. Strah – $1,300,000; Mr. Belcher — $610,000; Mr. Reffner – $550,000; and Mr. Gaines – $465,000. Each of the continuing NEOs would also be provided prorated vesting for certain outstanding equity as described in the 2019 Post-Termination Compensation and Benefits table and quantified in the LTIP and Other Equity Awards table.
91 | FirstEnergy Corp.2020 Proxy Statement
Termination Following a CIC
As described above, the CIC Executives were participants in the CIC Plan in 2019. Under the CIC Plan, certain enhanced benefits would be provided in the event of a termination without cause or for good reason within two years following a CIC. Under the Incentive Compensation Plans, it is our customary practice to require a qualifying termination of employment for acceleration of the vesting of equity awards in the event of a change of control rather than providing for accelerated vesting solely upon a change of control. In the event a continuing CIC Executive accepts benefits under the CIC Plan (and with respect to Mr. Jones, pursuant to hisNon-Competition andNon-Disparagement Agreement, dated September 15, 2015), the continuing NEO would be prohibited for two years from working for or with competing entities after receiving severance benefits pursuant to the CIC Plan, and would be prohibited from disclosing trade secrets or other confidential information indefinitely. Mr. Jones entered into a separateNon-Competition andNon-Disparagement Agreement, dated September 15, 2015, providing comparable benefits to the Company.
Generally, pursuant to the CIC Plan and the Incentive Compensation Plans, a CIC is deemed to occur:
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For a complete CIC definition explanation, see the CIC Plan, the Incentive Compensation Plans, and Mr. Jones’Non-Competition andNon-Disparagement Agreement. The CIC severance benefits are triggered only if the CIC Executive is terminated without cause or resigns for good reason within two years following a CIC. Good reason is generally defined as a material change, following a CIC, inconsistent with the individual’s previous job duties or compensation. The Incentive Compensation Plans only provide a termination without cause provision and do not have a good reason definition for the accelerated vesting of the equity awards. We do not gross up equity or cash awards to cover the tax obligations for executives.
In the event of a December 31, 2019 qualifying termination following a CIC, compensation in an amount equal to two times the sum of the amount of annual base salary plus the target annual FE STIP amount as applicable, in the year during which the date of termination occurs, whether or not fully paid, will be provided as follows: Mr. Strah – $2,340,000; Mr. Belcher — $2,135,000; Mr. Reffner — $1,870,000; Mr. Gaines — $1,534,500; and Mr. Jones — none. Since Ms. Vespoli and Mr. Pearson retired effective April 1, 2019, they have been excluded. Each of the continuing NEOs would also be provided additional accelerated vesting following a termination for certain outstanding equity as described in the 2019 Post-Termination Compensation and Benefits table above and quantified in the LTIP and Other Equity Awards table below. Excise tax andgross-up provisions are not provided under the CIC Plan. Finally, outplacement services are also offered for a one–year period, capped at $30,000.
Death & Disability
In the event of a continuing NEO’s death or Disability (as defined in the applicable plan documents) as of December 31, 2019, each of the NEOs would also be provided additional accelerated vesting for certain outstanding equity as described in the 2019 Post-Termination Compensation and Benefits table above and quantified in the LTIP and Other Equity Awards table below.
92 | FirstEnergy Corp.2020 Proxy Statement
LTIP and Other Awards
In the event of a continuing NEO’s retirement or voluntary termination as of December 31, 2019, the continuing NEOs would be provided vested outstanding equity or performance cash awards as quantified in the Retirement/Voluntary Termination column of the LTIP and Other Awards table below. In the event of involuntary separation, termination without cause following a CIC, death, or Disability, the continuing NEOs would be provided additional accelerated vesting for certain outstanding equity or performance cash awards based specifically on the triggering event as quantified in the respective columns of the LTIP and Other Awards table below. Since 2010, awards of performance-adjusted RSUs and performance shares require a termination without cause following a CIC for accelerated vesting. For purposes of the calculations in the table below, we have assumed the equity awards would be replaced by the successor prior to a termination without cause.
LTIP and Other Awards
| Additional Payments Due to the Termination Scenario | ||||||||||||||||
Retirement/ Voluntary Termination(1) | Involuntary Separation (Additive to the Retirement/ Voluntary Termination Column)(2) | Death & Disability (Additive to the Retirement/ Voluntary Termination Column)(3) | Termination Without Cause Following a CIC (Additive to the Retirement/Voluntary Termination Column)(4) | |||||||||||||
Charles E. Jones | $ | 18,152,546 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Steven E. Strah | $ | 3,668,917 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Samuel L. Belcher(5) | N/A | $ | 3,146,695 | $ | 3,146,695 | $ | 3,146,695 | |||||||||
Robert P. Reffner | $ | 1,426,452 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Bennett L. Gaines | $ | 1,630,299 | $ | 0 | $ | 0 | $ | 0 | ||||||||
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E-VERP Benefits
The effective date of Ms. Vespoli’s retirement was April 1, 2019. Under theE-VERP, Ms. Vespoli received the following separation pay and benefits:
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93 | FirstEnergy Corp.2020 Proxy Statement
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The effective date of Mr. Pearson’s retirement was April 1, 2019. Under theE-VERP, Mr. Pearson, received the following separation pay and benefits:
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Additionally, as is the case for executive officers who retire, Ms. Vespoli and Mr. Pearson were also eligible to receive retirement benefits described above, including benefits under the Master Pension Plan, EDCP, prorated awards under the FE STIP and FE LTIP (payable, if at all, upon the final determination of performance results thereunder), and, with respect to Ms. Vespoli, the SERP.
CEO Pay Ratio
We believe our executive compensation program must be consistent and internally equitable to motivate our employees to perform in ways that enhance shareholder value. We are committed to internal pay equity and our Compensation Committee annually reviews the internal pay ratio between Mr. Jones’ total compensation and that for other NEOs and allnon-executive employees. For 2019, the Compensation Committee elected to use the same “median employee” that was identified in 2018 to calculate our 2019 pay ratio calculation, as there has been no change to our employee population or employee compensation arrangements in the last fiscal year that we believe would have a significant impact on our pay ratio disclosure. The process that we used to determine our “median employee” in 2018 is summarized below:
For 2018, the Compensation Committee compared Mr. Jones’ annual total compensation (the “CEO Compensation”) to the median of the annual total compensation of all employees (excluding Mr. Jones) (the “Median Annual Compensation”). We identified the “median employee” by calculating the annual compensation of approximately 12,500 full-time, part-time, seasonal and temporary employees employed by us on October 1, 2018, other than Mr. Jones. As a result of the deconsolidation of FES, all of its subsidiaries, and FENOC in 2018, the identification and analysis of our median employee excluded all employees within CES as of October 1, 2018.
As permitted by SEC rules, to determine the “annual compensation” of our employees, we did not use the same compensation definition as required for purposes of determining total compensation in the 2018 Summary Compensation Table. Instead, we used, for the period from January 1, 2018 to September 30, 2018 the sum of:
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Using the above methodology, we identified a small group of employees who had the identical amount of estimated annual compensation; we determined this group represented our “median employee” annual compensation. We selected an employee from that group and identified this person as our median employee.
94 | FirstEnergy Corp.2020 Proxy Statement
We calculated the median employee’s Median Annual Compensation for 2019 using the same calculation method as in the Summary Compensation Table, which was $149,550. As shown on the Summary Compensation Table on page 75, in 2019, Mr. Jones’ CEO Compensation was $14,684,659. As a result, we estimate that the ratio of CEO Compensation to Median Annual Compensation for 2019 is approximately 98:1. We note that, due to our permitted use of reasonable estimates and assumptions in preparing this pay ratio disclosure, the disclosure may involve a degree of imprecision, and thus this pay ratio disclosure is a reasonable estimate calculated in a manner consistent with Item 402(u) of RegulationS-K using the data and assumptions described above. Given the different methodologies that various public companies will use to determine an estimate of their pay ratio, the estimated ratio reported above should not be used as a basis for comparison between companies.
95 | FirstEnergy Corp.2020 Proxy Statement
Security Ownership of Management
The following table shows shares of common stock beneficially owned (as beneficial ownership is defined in Rule13d-3 under the Exchange Act) as of March 6, 2020, by each director, the NEOs, and all directors and executive officers as a group.
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96 | FirstEnergy Corp.2020 Proxy Statement
Security Ownershipof Certain Beneficial Owners
The following table shows all persons who are known by the Company to be the beneficial owner (as beneficial ownership is defined in Rule13d-3 under the Exchange Act) of more than five percent of the outstanding shares of common stock of the Company as of March 6, 2020.
Voting Power Number of Shares | Dispositive Power Number of Shares | |||||||||||
Name and Address of Beneficial Owner | Shares Beneficially Owned | Percent of Common Shares Outstanding(5) | Sole | Shared | Sole | Shared | ||||||
The Vanguard Group (1) 100 Vanguard Blvd. Malvern, PA 19355 | 67,456,264 | 12.5% | 947,747 | 270,557 | 66,438,661 | 1,017,603 | ||||||
BlackRock Inc.(2) 55 East 52nd Street, New York, NY 10055 | 55,963,156 | 10.4% | 51,673,618 | 0 | 55,963,156 | 0 | ||||||
Entities affiliated with State Street Corporation (3) One Lincoln Street Boston, MA 02111 | 39,714,073 | 7.4% | 0 | 35,372,209 | 0 | 39,640,082 | ||||||
Massachusetts Financial Services Company(4) 111 Huntington Avenue, Boston, MA 02199 | 30,704,534 | 5.7% | 29,609,120 | 0 | 30,704,534 | 0 | ||||||
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97 | FirstEnergy Corp.2020 Proxy Statement
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during 2019 were James F. O’Neil III, Christopher D. Pappas, Sandra Pianalto, and Leslie M. Turner. No members of the Compensation Committee during 2019 meet the criteria to be considered to have an interlock or insider participation relationship.
Certain Relationshipsand Related Person Transactions
Based on our size and varied business operations, we may engage in transactions with companies and other organizations in which a member of your Board, executive officer, or such person’s immediate family member also may be a board member, executive officer, or significant investor. In some of these cases, such person may have a direct or indirect material interest in the transaction with the Company. We recognize that related person transactions have the potential to create perceived or actual conflicts of interest and could create the appearance that decisions are based on considerations other than the best interests of the Company and its shareholders. Accordingly, as a general matter, it is our preference to avoid related person transactions. However, there are situations where related person transactions may be in, or may not be inconsistent with, the best interests of the Company and its shareholders. Your Board has determined that it is appropriate and necessary to have a process in place to identify and provide proper review of any related person transactions.
Based on the foregoing, your Board established a written Related Person Transactions Policy (the “Policy”) that has been implemented by the Corporate Governance and Corporate Responsibility Committee in order to effectuate the review, approval, and ratification process surrounding related person transactions. This Policy supplements the Company’s otherconflict-of-interest policies set forth in the FirstEnergyConflicts-of-Interest Policy, Code of Business Conduct, and the Board of Directors Code of Ethics and Business Conduct. Related person transactions may be entered into or continued only if a majority of the disinterested members of the Corporate Governance and Corporate Responsibility Committee or your Board approves or ratifies the transaction in accordance with the Policy. The Chair of the Corporate Governance and Corporate Responsibility Committee also has the delegated authority between meetings to review and determine whether a transaction should be approved or ratified in accordance with the Policy. In making its decisions, the Corporate Governance and Corporate Responsibility Committee, Chair of the Corporate Governance and Corporate Responsibility Committee or your Board will review current and proposed transactions by taking into consideration the Policy, which includes the definitions and terms set forth in Item 404 ofRegulation S-K.
As part of the Policy, our management established review procedures for any transaction, proposed transaction or any material amendment to a transaction, in which we are currently, or in which we may be, a participant in which the amount exceeds $120,000, and in which the related person, as defined in Item 404 ofRegulation S-K, had or will have a direct or indirect material interest. We also established procedures to allow us to identify such related person transactions. Any known related entities of the related persons are identified as such in the applicable computer system so that necessary business units are made aware of a potential related person transaction or proposed transaction involving the Company and a related entity. As applicable, management brings transactions to the attention of the Corporate Governance and Corporate Responsibility Committee, Chair of the Corporate Governance and Corporate Responsibility Committee or your Board for its review, approval or ratification.
When reviewing a transaction, the Corporate Governance and Corporate Responsibility Committee, Chair of the Corporate Governance and Corporate Responsibility Committee or your Board reviews the material facts of the related person’s relationship to the Company, and his or her interest in the transaction, as well as the aggregate value of such transaction to the Company. Since January 1, 2019, we participated in the transactions described below, in which the amount involved exceeded $120,000 and in which any Board member, Board member nominee, executive officer, beneficial owner of more than five percent of our common stock, or a member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. Pursuant to the terms of the Policy, your Board’s Corporate Governance and Corporate Responsibility Committee and/or the Chair of the Corporate Governance and Corporate Responsibility Committee ratified and approved the transactions described below.
98 | FirstEnergy Corp.2020 Proxy Statement
Mr. Gary A. Chack serves the Company as a Staff Environmental Coordinator. Mr. Gary A. Chack has been employed by the Company since 2005. Mr. Gary A. Chack is the brother of Mr.ok, Dennis M. Chack who was an executive officer of the Company through July 16, 2019. From January 1, 2019 through March 6, 2020, Mr. Gary A. Chack was paid compensation in the aggregate amount of approximately $145,400, which consisted of base salary and the FE STIP paid in 2020 for 2019 performance. Mr. Gary A. Chack’s compensation is consistent with the terms of the Company’s compensation programs. No direct reporting relationship exists between Mr. Gary A. Chack and Mr. Dennis M. Chack.
Mr. James A. Jones serves the Company as a Distribution Technician. Mr. James A. Jones has been employed by the Company since 2005. Mr. James A. Jones is the brother of Mr. Charles E. Jones who is the Company’s CEO. From January 1, 2019 through March 6, 2020, Mr. James A. Jones was paid compensation in the aggregate amount of approximately $133,500, which consisted of base salary, overtime and the FE STIP paid in 2020 for 2019 performance. Mr. James A. Jones’ compensation is consistent with the terms of the Company’s compensation programs. No direct reporting relationship exists between Mr. James A. Jones and Mr. Charles E. Jones.
Ms. Carly M. Lange serves the Company as a Supervisor of Workforce Development Process and Systems Training. Ms. Carly M. Lange has been employed by the Company since 2014. Ms. Carly M. Lange is the daughter of Mr. Charles E. Jones who is the Company’s CEO. From January 1, 2019 through March 6, 2020, Ms. Carly M. Lange was paid compensation in the aggregate amount of approximately $139,600, which consisted of base salary, overtime and the FE STIP paid in 2020 for 2019 performance. Ms. Carly M. Lange’s compensation is consistent with the terms of the Company’s compensation programs. No direct reporting relationship exists between Ms. Carly M. Lange and Mr. Charles E. Jones.
Mr. Kenneth A. Strah serves the Company as a Director of Customer Contact Centers. Mr. Kenneth A. Strah has been employed by the Company since 1980. Mr. Kenneth A. Strah is the brother of Mr. Steven E. Strah is an executive officer of the Company. From January 1, 2019 through March 6, 2020, Mr. Kenneth A. Strah received compensation in the aggregate amount of approximately $316,600, which consisted of base salary, the FE STIP paid in 2020 for 2019 performance and the grant date value of performance-adjusted RSUs granted in 2018 under the FE LTIP. Mr. Kenneth A. Strah’s compensation is consistent with the terms of the Company’s compensation programs. No direct reporting relationship exists between Mr. Kenneth A. Strah and Mr. Steven E. Strah.
During 2019, two providers of services to the Company were also beneficial owners of at least 5% of our common stock: BlackRock, Inc. (“BlackRock”) and State Street Corporation (“State Street”). Their fees are unrelated to their common stock ownership, resulted fromarm’s-length negotiations, and are reasonable in amount and reflect market terms and conditions. The Company does not believe BlackRock or State Street have any direct or indirect material interest in the transactions as a result of such services. The nature and value of services provided by these 5% shareholders and their affiliates are described below.
Affiliates of BlackRock provided asset management services for certain assets under our FirstEnergy Corp. Pension Plan and a trust associated with certain Company employee benefit plans and received approximately $812,000 in fees from the Company from January 1, 2019 through March 6, 2020 for such services.
Affiliates of State Street provided asset management and trustee services relating to the FirstEnergy Corp. Amended and Restated Executive Deferred Compensation Plan and a trust associated with certain Company employee benefit plans and received approximately $129,500 in fees from January 1, 2019 through March 6, 2020 for such services.
99 | FirstEnergy Corp.2020 Proxy Statement
Questions and Answersabout the Annual Meeting
1
| Q: | Why did I receive these proxy materials? | ||
| A: | You received these proxy materials because you were a shareholder of record or beneficial owner (as defined below) of shares of common stock of FirstEnergy Corp. as of the close of business on March
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2
| Q: | What is the difference between holding shares as a “shareholder of record” and holding shares in “street name” or as a “beneficial owner”? | ||
A: | Shareholder of | |||
Beneficial | ||||
As a beneficial owner of shares, you have the right to direct the registered holder to vote your shares, and you may attend the Annual Meeting (please see the “Attending the Virtual Annual Meeting” section of the “Questions and Answers about the Annual Meeting” below for instructions on how to register in advance). Your bank, broker or other institution has provided a voting instruction form for you to use in directing how your shares are to be voted. However, since a beneficial owner is not the shareholder of record, you may not vote your shares
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| Q: | Can I view future FirstEnergy proxy materials and annual reports on the Internet instead of receiving paper copies? | ||
A: | Yes. If you received paper copies of this | |||
If you previously elected to access your proxy materials over the Internet, you will not receive the Notice of Internet Availability of Proxy Materials (“Notice of Internet Availability”) or paper copies of proxy materials in the mail unless required by law. Instead, you will receive a paper copy of the proxy card along with instructions on how to access the proxy statement and annual report using the Internet. | ||||
| 121 | FIRSTENERGY CORP. |
100 | FirstEnergy Corp.2020 Proxy Statement
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
| If you received a Notice of Internet Availability, you may not receive printed copies of proxy statements and annual reports in the future unless required by law. However, you may elect to be mailed a paper proxy card with instructions on how to access proxy statements and annual reports using the Internet for future meetings by following the instructions when voting. The Notice of Internet Availability also contains instructions on how you may request delivery of proxy materials in printed form for the Annual Meeting or on an ongoing basis, if desired. | ||||
If you are a beneficial owner, refer to the information provided by your broker, bank or other nominee for instructions on how to elect to view future FirstEnergy proxy statements and annual reports on the Internet instead of receiving paper copies.
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4
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| Why did I receive aone-page notice in the mail regarding the Internet availability of proxy materials instead of receiving a full set of printed proxy materials? | ||
A: | To reduce the environmental impact and related costs of the Annual Meeting, we are pleased to again furnish the proxy materials over the Internet. As a result, we are sending a number of our shareholders a Notice of Internet Availability instead of a printed copy of the proxy materials. All shareholders receiving the Notice of Internet Availability will have the ability to access the proxy materials and vote via the Internet and to request a printed copy of the proxy materials by mail, if desired. Instructions on how to access the proxy materials over the Internet, to vote online, and to request a printed copy may be found in the Notice of Internet Availability. The Notice of Internet Availability identifies the items to be voted on at the Annual Meeting, but shares cannot be voted by marking, writing on and/or returning the Notice of Internet Availability. Any Notice of Internet Availability that is returned will not be counted as votes. In addition, the Notice of Internet Availability contains instructions on how you may request delivery of proxy materials in printed form for this Meeting or on an ongoing basis, if desired.
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| 5 | Q: | Why did we receive just one copy of the | ||
A: | Where possible, we follow the SEC rule that permits us to send one copy each of this
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| Who is soliciting my vote, how are proxy cards being solicited, and what is the cost? | ||
A: | Your Board is soliciting your vote. We have arranged for the services of Morrow Sodali LLC to solicit votes personally or by telephone, mail, or other electronic means for a fee not expected to exceed $19,250, plus reimbursement of reasonable expenses. Votes also may be solicited in a similar manner by officers and employees of the Company and members of your Board on an uncompensated basis. The Company will pay all reasonable solicitation costs and will reimburse banks, brokers or other nominees for postage and expenses incurred by them for sending proxy materials to beneficial owners. | |||
| 2023 PROXY STATEMENT | 122 |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
101 | FirstEnergy Corp.2020 Proxy Statement
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Q : | What items of business will be voted on at the Annual Meeting and how does the Board recommend that I vote? | ||
A: |
| Item | Brief Description |
Board’s | ||
1 |
Elect the 11 nominees named in this |
✓ “FOR” each director | ||
2 | Ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for | ✓ “FOR” | ||
3 | Approve, on an advisory basis, named executive officer compensation | ✓ “FOR” | ||
4 | Approve, on an advisory basis, the | ✓ | ||
5 | Approve | ✓ “FOR” | ||
6 | Shareholder Proposal Requesting | X “AGAINST” | ||
7 | Shareholder Proposal Requesting a New Board Committee on Decarbonization Risk | X “AGAINST” | ||
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| What is a quorum and what other voting information should I be aware of? | ||
A: |
As of the Record Date, | |||
A brokernon-vote occurs when an entity holding shares in street name, such as a bank or broker, submits a proxy for your shares but does not indicate a vote for a particular“non-routine” proposal
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An item to be voted on may require a percentage of votes cast, rather than a percentage of shares outstanding, to determine passage or failure. | ||||
102 | FirstEnergy Corp.2020 Proxy Statement
If you properly sign and return your proxy card but your proxy card is not completed properly, such as marking more than one box for an item, your vote for that particular item will be treated as an abstention. | ||||
| 123 | FIRSTENERGY CORP. |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
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| What is the vote required for each item to be voted on at the Annual Meeting? | ||
A: | ||||
| Item | Brief Description | Vote Required | Treatment of Abstentions and Broker Non-Votes | |||
1 | Elect the 11 nominees named in this | Nominees receiving more “For” votes than “Against” votes (among votes properly cast
As further described in Item 1 above, any nominee for director who receives a greater number of votes “Against” than votes “For” his or her election must promptly tender his or her resignation to the Corporate Governance, | No effect. | |||
2 | Ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for | Requires the affirmative vote of a majority of votes cast. | Abstentions – No effect.
BrokerNon-votes – Not applicable. | |||
3 | Approve, on an advisory basis, named executive officer compensation | This advisory proposal requires the affirmative vote of a majority of the votes cast. | No effect. | |||
4 | Approve, on an advisory basis, the | |||||
5 | Approve | Requires the affirmative vote of a majority of the voting power of the Company (i.e., outstanding common shares). | Have the same effect as an “Against” vote. | |||
6 | Shareholder Proposal Requesting | Thenon-binding shareholder proposal requires the affirmative vote of a majority of votes cast. Notwithstanding the results of the shareholder vote, the ultimate adoption of any measures called for by the shareholder proposal is at the discretion of your Board. | No effect. | |||
7 | Shareholder Proposal Requesting a New Board Committee on Decarbonization Risk | The non-binding shareholder proposal requires the affirmative vote of a majority of votes cast.
Notwithstanding the results of the shareholder vote, the ultimate adoption of any measures called for by the shareholder proposal is at the discretion of your Board. | No effect. | |||
| 2023 PROXY STATEMENT | 124 |
103 | FirstEnergy Corp.2020 Proxy Statement
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
10
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| Will any other matters be voted on other than those described in this | ||
A: |
We do not know of any business that will be considered at the Annual Meeting other than the matters described in this
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| Where can I find the voting results of the Annual Meeting? | ||
A: |
We will announce preliminary voting results at the Annual Meeting. Final voting results will be reported in a Current Report onForm 8-K, which is required to be filed with the SEC within four business days after the date of the Annual Meeting and will be posted on our website athttps://investors.firstenergycorp.com/then by selecting “SEC Filings & Reports.” You may also automatically receive the Company’s SEC filings (which include alerts for the filing ofForm 8-Ks by the Company with the SEC) viae-mail by visiting our website athttps://investors.firstenergycorp.com/EmailNotification and selecting
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12 | Q: | Who is entitled to vote at the Annual Meeting? | ||
A: |
Shareholders of record of FirstEnergy common stock as of the Record Date are entitled to receive notice of the Annual Meeting and vote their shares. If you plan to attend the Annual Meeting, please see the “Attending the Virtual Annual Meeting” section below of these “Questions and Answers about the Annual Meeting” for instructions on how to register in advance.
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13 | Q: | How do I vote? | ||
A: |
As further described below, if you are voting by Internet, telephone or mail, your vote must be received by 6:00 a.m.,
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Do you hold shares directly with FirstEnergy or in the FirstEnergy Corp. Savings Plan? | ||||||||||||||||
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| Call toll-free at 1-888-693-8683 | This year’s meeting will be virtual. For details on voting your | |||||||||||||||
(1) If your pre-addressed envelope is misplaced, send your proxy card to Corporate Election Services, Inc., the Company’s independent proxy tabulator and Inspector of Election. The address is FirstEnergy Corp., c/o Corporate Election Services, P.O. Box 1150, Pittsburgh, PA 15230. | ||||||||||||||||
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| 125 | FIRSTENERGY CORP. |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
| Do you hold shares through a bank, broker or other institution (beneficial ownership)? (2) | ||||
Use the internet at | Call toll-free at | Mail by returning your proxy | ||
(2) Not all beneficial owners may be able | ||||
If you received a Notice of Internet Availability and would like to vote by telephone or mail, please follow the instructions on your notice to request a paper copy of the proxy materials and proxy card.
104 |If you are a participant in the FirstEnergy Corp.2020 Proxy Statement
Beneficial owners (other than participants in the FirstEnergy Corp. Savings Plan) will receive instructions from the holder of record (the bank, broker, institution or other nominee that holds your shares) that you must follow for your shares to be voted. Also, please note that if you wish to vote virtually at the Annual Meeting, you must request a legal proxy from your bank, broker, or other nominee that holds your shares and present that legal proxy identifying you as the beneficial owner of your shares of FirstEnergy common stock and authorizing you to vote those shares at the Meeting.
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| How may I revoke my proxy? | ||
A: | You may revoke your appointment of a proxy or change your related voting instructions one or more times by timely: | |||
◾ Mailing a proxy card that revises your previous appointment and voting instructions; | ||||
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The proxy tabulator will treat the last instructions it receives from you as final. For example, if a proxy card is received by the proxy tabulator after the date that a telephone or Internet appointment is made, the tabulator will treat the proxy card as your final instruction. For that reason, it is important to allow sufficient time for your voting instructions on a mailed proxy card to reach the proxy tabulator before changing them by telephone or Internet. Please note that unless you are voting | ||||
| If you are a beneficial owner of shares, you must follow the directions you receive from your bank, broker, or other institution to change your vote. | ||||
105 | FirstEnergy Corp.2020 Proxy Statement
Attending the Virtual Annual Meeting
15
| Q:
| Do I need to register in advance to attend the virtual Annual Meeting? | ||
A: | Yes. This year’s Annual Meeting will be held in a virtual format through a live webcast atwww.cesonlineservices.com/fe23_vm. In accordance with our security procedures, if you plan to attend the virtual Annual Meeting, you will need to register in advance by following the Advance Registration Instructions below. Shareholders as of the close of business on March 27, 2023, the record date, or those that hold a valid proxy for the Annual Meeting, and pre-register are entitled to participate in and ask questions at the Annual Meeting. All shareholders wishing to attend the virtual Annual Meeting must pre-register no later than 9:00 a.m. on May 23, 2023. | |||
| 2023 PROXY STATEMENT | 126 |
Proxy |
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Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A | ||||||
Advance Registration Instructions
If you are a shareholder of record, participant in the FirstEnergy Corp. Savings Plan or an employee who holds unvested restricted stock and you are voting by Internet, telephone or by mail: To You may register to attend the virtual Annual Meeting please indicate that you will attendby visiting the Meeting when voting by Internet or telephone, or check the appropriate registration box onwebsitewww.cesonlineservices.com/fe23_vm. Please have your proxy card if voting by mail.or Notice of Internet Availability containing your 11-digit control number available and follow the instructions to complete your registration request. After registering, shareholders will receive a confirmation email with a link and instructions for accessing the virtual Annual Meeting.
All other shareholders: To Shareholders whose shares are held through a bank, broker or other institution as of the record date may register to attend the Meeting in person and, as applicable, have an admission card mailed to you, please send a request containing all of the following information by mail to: FirstEnergy Corp.virtual Annual Meeting RegistrationA-GO-15, 76 South Main Street, Akron, OH 44308-1890;by visiting the websitewww.cesonlineservices.com/fe23_vm. Please have your voting instruction form, Notice of Internet Availability, or byother communication containing your control number available and follow the instructions to complete your registration request, including uploading a copy of one of these documents. After registering, shareholders will receive a confirmation email to: Registration@FirstEnergyCorp.com or by fax:330-777-6519:
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Admission Card
If you plan to attendwith a link and instructions for accessing the Meeting, you must bring your admission card with you to thevirtual Annual Meeting. If you are a beneficial shareholder and you wish to vote your shares online during the virtual Annual Meeting rather than submitting your voting instructions before the Annual Meeting, you will need to contact your bank, broker or other institution to obtain a legal proxy form that you must submit electronically with your ballot during the online virtual Annual Meeting using a PDF, JPEG, GIF or PNG file format.
Other Related Matters
We encourage you to access the virtual Annual Meeting at least 15 to 30 minutes before it begins. Online check-in will start at approximately 7:30 a.m. EDT on May 24, 2023. We ask that participants follow the meeting Rules of record, participantConduct, which will be available on the event website.
The virtual meeting platform is fully supported across browsers (Edge, Firefox, Chrome, and Safari) and devices (desktops, laptops, tablets, and cell phones) running the most updated version of applicable software and plugins. Participants should ensure that they have a strong Wi-Fi connection wherever they intend to participate in the FirstEnergy Corp. Savings Plan or an employee who holds unvested restricted stock,Meeting. Participants should also give themselves plenty of time to log in and ensure that they can hear streaming audio prior to the admission card portionstart of your proxy card orone-page Notice of Internet Availability that was included with your proxy material mailing will serve as your admission card. All other shareholders must follow the advance registration instructions above to receive an admission card.
Other Related Matters
Meeting. If you desire to have one representative attendencounter technical difficulties accessing the Meeting on your behalf or one representative designated to present a shareholder proposal properly brought before theAnnual Meeting, please follow the process under “Advance Registration Instructions – All other shareholders” above and include the name, mailing address and telephone number of that representative.
For the Meeting, cameras, recording equipment, computers, large bags and items such as briefcases, backpacks and packages will not be permittedinstructions contained in the Meeting facilities and mayreminder email you will receive the evening before the meeting. Technical support will be subject to inspection. No individual may use communication devices, take photographs, or use audio or video recording equipment inavailable during the Meeting facilities without the express written permission of the Company. No unauthorized firearms or weapons are allowed in the Meeting facilities. Signage and other inappropriate items are likewise prohibited. The Company may implement additional security or related procedures to ensure the safety of the meeting attendees.
106 | FirstEnergy Corp.2020 Proxy Statement
We are monitoring novel coronavirus (COVID-19) developments and we believe that alternative Annual Meeting arrangements may be advisable or required, such as utilizing a virtual meeting or a change to the date, time or location. If we take these steps, we will announce our decision in advance via a press release, post additional information atwww.FirstEnergyCorp.com/AnnualMeeting, and will also make a public filing with the Securities and Exchange Commission. As always, we encourage you to vote your shares prior to our Annual Meeting.
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Questions pertinent to the | |||
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Proposals and Business by Shareholders
17
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| When are shareholder proposals and nominations due for the | ||
A: | Shareholder Proposals under the Rules of the SEC
Under the rules of the SEC, a shareholder who wishes to offer a proposal for inclusion in the Company’s proxy statement and proxy card for the | |||
| 127 | FIRSTENERGY CORP. |
107 | FirstEnergy Corp.2020 Proxy Statement
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
Shareholder Proposals and Nominations under the Company’s Second Amended and Restated Code of Regulations
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Under our Second Amended and Restated Code of Regulations, a shareholder who wishes to properly introduce an item of business before an annual meeting of shareholders must follow the applicable requirements and procedures as set forth in our Second Amended and Restated Code of Regulations.
The Second Amended and Restated Code of Regulations provide that we must receive the notice of intention to introduce an item of business, including nominations of director candidates for election to your Board, at an annual meeting not less than 30 nor more than 60 calendar days prior to the annual meeting. In the event public announcement of the date of the annual meeting is not made at least 70 calendar days prior to the date of the meeting, notice must be received not later than the close of business on the 10th calendar day following the day on which the public announcement is first made. Accordingly, if a public announcement of the date of the
In addition, we have adopted a proxy access right to permit, under certain circumstances, a shareholder or a group of shareholders to include in our annual meeting proxy statement director candidates whom they have nominated. These proxy access provisions in our Second Amended and Restated Code of Regulations provide, among other things, that a shareholder or group of up to 20 shareholders seeking to include director candidates in our annual meeting proxy statement must own, in the aggregate, 3% or more of the Company’s issued and outstanding Common Stock continuously for at least three years. The number of shareholder-nominated candidates appearing in any annual meeting proxy statement cannot exceed 20% of the number of directors in office as of the last day on which the applicable notice may be delivered or received or, if such amount is not a whole number, the closest whole number below 20%, and in any event, not less than two shareholder-nominated candidates. Such nomination must conform to the applicable requirements in our Second Amended and Restated Code of Regulations and must be received by our Corporate Secretary no earlier than
Please refer to our Second Amended and Restated Code of Regulations for the complete requirements and procedures. Our Second Amended and Restated Code of Regulations is available on the SEC website and upon written request to the Corporate Secretary, FirstEnergy Corp., 76 South Main Street, Akron, OH 44308-1890. In addition to satisfying the requirements under our Second Amended and Restated Code of Regulations, to comply with the universal proxy rules, shareholders who intend to solicit proxies in support of director nominees for election at the 2024 annual meeting of shareholders other than the Company’s nominees must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act. Such notice must be postmarked or transmitted electronically to the Corporate Secretary, FirstEnergy Corp., 76 South Main Street, Akron, OH 44308-1890, no later than 60 calendar days prior to the anniversary date of the 2023 annual meeting of shareholders (for the 2024 annual meeting of shareholders, no later than March 25, 2024), assuming the 2024 annual meeting of shareholders is not advanced more than 30 calendar days of the date of the anniversary of the 2023 annual meeting of shareholders. |
| 2023 PROXY STATEMENT | 128 |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
108 | FirstEnergy Corp.2020 Proxy Statement
Obtaining Additional Information
18 | Q: | Where can I find additional information? | ||
A: | If you received a paper copy of this | |||
| A copy of our latest Annual Report on Form10-K for the year ended December 31, | ||||
| 129 | FIRSTENERGY CORP. |
Proxy | Corporate | Items to Be | Commitments to EESG | Executive & Director Compensation | Other Important Matters / Q&A |
109 | FirstEnergy Corp.2020 Proxy Statement
Appendix AThe full text of the proposed amendment to Paragraph 3 of our Second Amended and Restated Code of Regulations reducing the percentage required to call a special meeting of shareholders from 25% to 20%, is indicated below (proposed additions are underlined, and proposed deletions are stricken through):
SECOND AMENDED AND RESTATED CODE OF REGULATIONS
FirstEnergy Corp. 2020 Incentive Compensation Plan
FIRSTENERGY CORP.
2020 INCENTIVE COMPENSATION PLAN
Article 1. Establishment, Purpose, and Duration
1.1 Establishment. FirstEnergy Corp., an Ohio corporation (the “Company”), hereby establishes the FirstEnergy Corp. 2020 Incentive Compensation Plan (the “Plan”), as set forth in this document. The Plan was adopted3. Special Meetings. Special meetings of shareholders may be called by the Company’s Board on February 7, 2020, contingent on shareholder approval. This Plan permitsChair or the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Cash-Based Awards and Other Stock-Based Awards.
1.2 Purpose of This Plan. The purposePresident or by a majority of the Plan isBoard of Directors acting with or without a meeting or by any person or persons who hold not less than 20%25% of all the shares outstanding and entitled to promote the successbe voted on any proposal to be submitted at said meeting. Special meetings of the Company and its Subsidiaries by providing incentives to certain employees and Directorsholders of shares that are expectedentitled to help link their personal interests tocall a special meeting by virtue of any Preferred Stock Designation may call such meetings in the long-term financial success ofmanner and for the Company and its Subsidiaries, and to help increase shareholder value. The Plan is designed to provide flexibility topurposes provided in the Company and its Subsidiaries in their ability to attract, motivate and retain the services of employees and Directors whose judgment, interest, efforts and special skills will help enable the Company to succeed.
1.3Duration of This Plan. This Plan shall become effective upon the date it receives shareholder approval (the “Effective Date”) and terminate on the tenth (10th) anniversary of the Effective Date, unless terminated earlier pursuant toArticle 17 of the Plan. After this Plan is terminated, no Awards may be granted but Awards previously granted shall remain outstanding subject to this Plan’s terms and conditions.
Article 2. Definitions
As used in this Plan, the following capitalized terms shall have the following meanings:
2.1 “Aggregate Share Limit” shall have the meaning set forth inSection 4.1.
2.2 “Award” means, individually or collectively, a grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Cash-Based Awards, Other Stock-Based Awards and any dividends or dividend equivalents credited thereto, in each case, under and subject to theapplicable terms of such Preferred Stock Designation. For purposes of this Plan.
2.3 “Award Agreement” means an agreement, certificate, resolution or other type or formCode of writing or other evidence approved by the Committee or Board (as applicable) that sets forth the terms and conditions of the Awards granted under this Plan. An Award Agreement may be in an electronic medium, may be limited to notation on the books and records of the Company and, unless otherwise determined by the Committee or Board (as applicable), need not be signed by a representative of the Company or a Participant.
2.4 “Beneficial Owner” or “Beneficial Ownership” shall haveRegulations, “Preferred Stock Designation” has the meaning ascribed to such term inRule 13d-3 the Articles of Incorporation of the General Rules and Regulations under the Exchange Act.
2.5 “Board” or “Board of Directors” means the Board of Directors of the Company.
2.6 “Cash-Based Award” means an Award, denominated in cash, granted to a Participant as described inArticle 11.
2.7 “Cause” means, except as may be otherwise prescribed by the Committee or Board (as applicable) in an Award Agreement established under this Plan, with respect to a Participant, the occurrence of any of the following:
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Notwithstanding the foregoing, following a Change in Control, “Cause” will mean, except as may be otherwise prescribed by the Committee or Board (as applicable) in an Award Agreement established under this Plan, with respect to any Participant who is also a participant in the Severance Plan as of the date of the Change in Control, the definition of “Cause” provided in the Severance Plan.
2.8 “Change in Control” shall mean, except as may be otherwise prescribed by the Committee or Board (as applicable) in an Award Agreement established under this Plan:
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However, in no event will a Change in Control be deemed to have occurred, with respect to a Participant, if the Participant is part of a purchasing group which consummates the Change in Control transaction. The Participant shall be deemed ‘part of a purchasing group’ for purposes of the preceding sentence if the Participant is an equity participant or has agreed to become an equity participant in the purchasing company or group (excluding passive ownership of less than five percent (5%) of the voting securities of the purchasing company or ownership of equity participation in the purchasing company or group which is otherwise not deemed to be significant, as determined prior to the Change in Control by a majority of the nonemployee continuing members of the Board of Directors).
2.9 “Code” means the Internal Revenue Code of 1986, as amended from time to time. References to Code Sections shall be deemed to include references to any applicable regulations thereunder and any successor provision with the same or similar purpose.
2.10 “Committee” means the Compensation Committee of the Board or a subcommittee thereof, or any other committee designated by the Board to administer this Plan.
2.11 “Company” means FirstEnergy Corp., an Ohio corporation, and any successor thereto as provided inArticle 19.
2.12 “Director” means a member of the Board.
2.13 “Disability” means, except as may be otherwise prescribed by the Committee or Board (as applicable) in an Award Agreement established under this Plan, as of any date, a Participant’s qualification for, and receipt of, benefits under the Company’s then-existing long-term disability plan or program.
2.14 “Effective Date” has the meaning set forth inSection 1.3.
2.15 “Employee” means any individual performing services for the Company, or a Subsidiary and designated as an employee of the Company, or its Subsidiaries on the payroll records thereof. Without limiting the foregoing, an Employee shall not include any individual during any period he or she is classified or treated by the Company or Subsidiary as an independent contractor, a consultant or an employee of an employment, consulting, or temporary agency or any entity other than the Company or a Subsidiary, without regard to whether such individual is subsequently determined to have been, or is subsequently retroactively reclassified as, a common law employee of the Company or Subsidiary during such period by a court, agency or otherwise.
2.16 “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor thereto.
2.17 “Exercise Price” means the price at which a Share may be purchased by a Participant pursuant to an Option or the price established at the time of grant of an SAR pursuant toArticle 7 which is used to determine the amount of any payment due upon exercise of the Option or SAR, as the case may be.
2.18 “Fair Market Value” or “FMV” means an amount, unless the Committee determines otherwise, with respect to publicly traded Shares equal to the average of the high and low sales prices of the common stock as reported on the composite tape of the NYSE for the date in which the determination of the fair market value is made or, if there are no sales of common stock on that date, then on the preceding date on which there were sales of common stock. If Shares are not publicly traded, Fair Market Value shall be determined by the Committee in such manner as it deems appropriate. The Committee may determine Fair Market Value on other reasonable bases including a price based on the opening, closing, actual, high, low or average selling prices of a Share reported on the NYSE or other established stock exchange (or exchanges) on the applicable date, the preceding trading day, the next succeeding trading day or an average of trading days, as determined by the Committee in its sole discretion. Such definition(s) of FMV shall be specified in the applicable Award Agreement and may differ depending on whether FMV is in reference to the grant, exercise, vesting, settlement or payout of an Award. Notwithstanding anything in this Plan to the contrary, “Fair Market Value” shall be determined in a manner consistent with exemption from, and avoidance of adverse tax consequences under, Code Section 409A and, with respect to ISOs, also in a manner consistent with Code Section 422.
2.19 “Grant Date” means the date an Award is granted to a Participant pursuant to the Plan.
2.20 “Incentive Stock Option” or “ISO” means an Option to purchase Shares granted underArticle 6 to an Employee that is designated as an Incentive Stock Option and that is intended to meet the requirements of Code Section 422.
2.21 “NYSE” means New York Stock Exchange.
2.22 “Nonemployee Director” means a Director who is not an Employee.
2.23 “Nonqualified Stock Option” or “NSO” means an Option that is not intended to meet the requirements of Code Section 422, or that otherwise does not meet such requirements.
2.24 “Option” means an Incentive Stock Option or a Nonqualified Stock Option, as described inArticle 6.
2.25 “Other Stock-Based Award” means an equity-based or equity-related Award not otherwise described in this Plan, granted pursuant toArticle 11.
2.26 “Participant” means any eligible individual as set forth inArticle 5 to whom an Award is granted.
2.27 “Performance Measures” means the measurable performance objective or objectives established pursuant to this Plan for Participants who have received grants of Performance Shares or Cash-Based Awards or, when so determined by the Committee, Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, dividends or dividend equivalents or Other Stock-Based Awards pursuant to this Plan. If the Committee determines that a change in the business, operations, corporate structure or capital structure of the Company, or the manner in which it conducts its business, or other events or circumstances render the Performance Measures unsuitable, the Committee may in its discretion modify such Performance Measures or the goals or actual levels of achievement regarding the Performance Measures, in whole or in part, as the Committee deems appropriate and equitable.
2.28 “Performance Period” means the period of time during which the performance goals must be met in order to determine the degree of payout and/or vesting with respect to an Award.
2.29 “Performance Share” means an Award underArticle 10 and subject to the terms of this Plan, denominated in Shares, the value of which at the time it is payable is a function of the extent to which, or whether, corresponding performance criteria have been achieved.
2.30 “Period of Restriction” means the period when Restricted Stock or Restricted Stock Units are subject to a substantial risk of forfeiture (based upon the passage of time or the achievement of performance goals), as provided inArticles 8 and9.
2.31 “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof, including a “group” as defined in Section 13(d) thereof.
2.32 “Plan” means this FirstEnergy Corp. 2020 Incentive Compensation Plan, as it may be amended or amended and restated from time to time.
2.33 “Plan Year” means the calendar year.
2.34 “Restricted Stock” means an Award granted to a Participant pursuant toArticle 8, which is not a Restricted Stock Unit.
2.35 “Restricted Stock Unit” means an Award granted to a Participant pursuant toArticle 9 and represents the right of the Participant to receive one Share per Restricted Stock Unit (or its cash equivalent) after the end of its applicable Period of Restriction or Performance Period.
2.36 “Severance Plan” means the FirstEnergy Corp. Change in Control Severance Plan,Corporation, as may be amended from time to time, or its successor plan(s) or arrangement(s).
2.37 “Share” means a share of common stock of the Company, $.10 par value per share, or any security into which such common stock may be changed by reason of any transaction or event of the type referred to inSection 4.5 of this Plan.
2.38 “Stock Appreciation Right” or “SAR” means an Award designated as a stock appreciation right, granted pursuant toArticle 7.
2.39 “Subsidiary” means any corporation or other entity in which the Company has or obtains, directly or indirectly, a proprietary interest of more than fifty percent (50%) by reason of stock ownership or otherwise.
Article 3. Administration
3.1General. The Committee is responsible for administering this Plan, subject to this Article and the other provisions of this Plan. The Committee may employ attorneys, consultants, accountants, agents, and other individuals, any of whom may be an Employee, and the Committee, the Company, and its officers, administrators and Directors shall be entitled to rely upon the advice, opinions or valuations of any such individuals. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Participants, the Company and all other individuals.
3.2 Authority of the Committee and the Board. With respect to Awards granted to Employees and application of the Plan to such Awards, the Committee has full and exclusive discretionary power to interpret the terms of this Plan and any Award Agreement or other agreement or document ancillary or related to this Plan, to determine eligibility for Awards and to adopt such rules, regulations, forms, instruments and guidelines for administering this Plan as the Committee may deem necessary or proper. Such authority, with respect to Awards granted to Employees and the application of the Plan to such Awards, shall include selecting Award recipients, establishing all Award terms and conditions, including the terms and conditions set forth in Award Agreements, resolving or reconciling any ambiguity or inconsistency of or among provisions of the Plan, any Award Agreement or related documents, correcting any defect (including scrivener’s errors), supplying any omission and, subject toArticle 17, adopting modifications and amendments to this Plan or any Award Agreement. In addition, the Committee is authorized to take any action it determines in its sole discretion to be appropriate subject only to the express limitations contained in this Plan, and no authorization in any Plan section or other provision of this Plan is intended or may be deemed to constitute a limitation on the authority of the Committee. Notwithstanding anything herein to the contrary, with respect to Awards granted to Nonemployee Directors and the application of the Plan to such Awards, the full Board or the Committee shall have the authoritative powers set forth in thisSection 3.2.
Subject toSection 4.5, in no event shall the Committee or the Board, without first obtaining the approval of the Company’s shareholders, have the right to: (i) cancel outstanding Options or SARs for the purpose of replacing or regranting such Options or SARs with an Exercise Price that is less than the original Exercise Price of the Option or SAR, or (ii) change the Exercise Price of an Option or SAR to an Exercise Price that is less than the original Option or SAR Exercise Price, or (iii) cancel outstanding Options or SARs with an Exercise Price that is more than the Fair Market Value of a Share on the date of cancellation in exchange for cash or another Award. Also notwithstanding the foregoing, no action of the Committee or the Board (other than pursuant toSection 4.5) may be taken with respect to an outstanding Award except in accordance withSection 17.3.
3.3Delegation. To the extent permitted under applicable laws, regulations or NYSE listing standards, the Committee may delegate to one or more of its members or to one or more officers or employees of the Company and its Subsidiaries or to one or more agents or advisors, such administrative duties or powers as it may deem advisable, and the Committee or any individuals to whom it has delegated duties or powers as aforesaid may employ one or more individuals to render advice with respect to any responsibility the Committee or such individuals may have under this Plan. The Committee may authorize one or more officers of the Company to do one or both of the following on the same basis as can the Committee: (a) designate Employees to be recipients of Awards; and (b) determine the size of any such Awards;provided,however, (i) the Committee shall not delegate such responsibilities to any such officer for Awards granted to an Employee or a Nonemployee Director who is considered an insider (as determined by the Board applying Section 16 of the Exchange Act and related guidance); (ii) the Committee action providing such authorization sets forth the total number of Shares that may be issued with respect to Awards granted by such officer; and (iii) the officer(s) shall report periodically to the Committee regarding the nature and scope of the Awards granted pursuant to the authority delegated.
Article 4. Shares Available Under This Plan
4.1 Number of Shares Available for Awards.time.
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4.2 Share Usage. The Committee shall determine the appropriate method for determining the number of Shares available for issuance under the Plan, subject to the following:
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4.3 Certain Limitations on Share Usage. Notwithstanding anything herein to the contrary:76 South Main Street
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4.4Nonemployee Director Compensation Limit. Notwithstanding anything to the contrary contained in this Plan, in no event will any Nonemployee Director in any one calendar year be granted compensation for such service having an aggregate maximum value (measured at the date of grant as applicable, and calculating the value of any Awards based on the grant date fair value for financial reporting purposes) in excess of $750,000.
4.5Adjustments in Authorized Shares. In the event of any corporate event or transaction (including a change in the Shares of the Company or the capitalization of the Company) such as a merger, consolidation, reorganization, recapitalization, separation, partial or complete liquidation, stock dividend, stock split, reverse stock split, split up or split off, spinoff or spinout, or other distribution of stock or property of the Company, combination of Shares, exchange of Shares, dividendin-kind, or other like change in capital structure, number of outstanding Shares or distribution (other than normal cash dividends) to shareholders of the Company, issuance of rights or warrants, or any similar corporate event or transaction, the Committee, in order to prevent dilution or enlargement of Participants’ rights under this Plan, shall substitute or adjust, as applicable, the number and kind of Shares that may be issued under this Plan or under particular forms of Awards, the number and kind of Shares subject to outstanding Awards, the Exercise Price applicable to outstanding Awards, other Award terms, and other value determinations applicable to outstanding Awards.
The Committee, in its sole discretion, may also make appropriate adjustments in the terms of any Awards under this Plan to reflect, or related to, such changes or distributions and to modify any other terms of outstanding Awards, including modifications of performance goals and changes in the length of Performance Periods.
Notwithstanding anything in this Plan to the contrary:
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The determination of the Committee as to the adjustments and substitutions described above, if any, shall be conclusive and binding on Participants and beneficiaries under this Plan. The adjustments and substitutions described in this Section shall be made in compliance with: (i) Code Sections 422 and 424 with respect to ISOs; (ii) Treasury Department RegulationSection 1.424-1 (and any successor) with respect to NSOs, applied as if the NSOs were ISOs; and (iii) Code Section 409A, to the extent necessary for exemption therefrom, and to avoid adverse tax consequences thereunder.
Article 5. Eligibility and Participation
5.1Eligibility. Individuals eligible to participate in this Plan include all Employees and Directors.
5.2Actual Participation. Subject to the provisions of this Plan, the Committee may, from time to time, select from all eligible individuals, those individuals (or classes or categories of individuals) to whom Awards shall be granted and shall determine, in its sole discretion, the nature and terms of each Award.
Article 6. Stock Options
6.1Grant of Options. Subject to the terms of this Plan, Options may be granted to Participants in such number, and upon such terms, and at any time and from time to time, as shall be determined by the Committee, in its sole discretion;provided,however, that ISOs may be granted only to eligible Employees of the Company or any Subsidiary (as permitted under Code Sections 422 and 424) and only prior to the tenth anniversary of the Effective Date. An Employee who is employed by a Subsidiary may only be granted Options to the extent the Subsidiary is part of: (a) the Company’s controlled group of corporations, or (b) a trade or business under common control; as of the Date of Grant, each as determined under the rules of Code Section 414, but substituting for this purpose ownership of at least fifty percent (50%) of the Subsidiary to determine the members of the controlled group of corporations and the entities under common control. No Award of an Option may entitle a Participant to dividends or dividend equivalents with respect to the Shares covered by the Option.
6.2Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Exercise Price, the maximum duration of the Option, the number of Shares to which the Option pertains, the conditions upon which the Option shall become vested and exercisable, and such other provisions as the Committee shall determine which are not inconsistent with the terms of this Plan. The Award Agreement shall also specify whether the Option is intended to be an ISO or an NSO.
6.3Exercise Price. The Exercise Price for each grant of an Option under this Plan shall be determined by the Committee in its sole discretion and shall be specified in the Award Agreement;provided,however, except with respect to Awards granted underSection 4.5(a) or(b) of this Plan, the Exercise Price must be at least equal to one hundred percent (100%) of the FMV of the underlying Shares on the Grant Date. With respect to a Participant who owns, directly or indirectly, more than ten percent (10%) of the total
combined voting power of all classes of the stock of the Company, any Subsidiary or any Affiliate, the Exercise Price of Shares subject to an ISO shall be at least equal to one hundred ten percent (110%) of the FMV of such Shares on the Grant Date.
6.4Term of Options. Each Option granted to a Participant shall expire at such time as the Committee shall determine at the time of grant;provided,however, no Option shall be exercisable on or after the tenth (10th) anniversary of its Date of Grant.
6.5Exercise of Options. Options shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which terms and restrictions need not be the same for each grant or for each Participant. Options, or a portion thereof, may become exercisable upon certain events, such as the Participant’s death, disability, or termination of employment under certain circumstances. The aggregate FMV of Shares with respect to which ISOs are exercisable for the first time by a grantee during any calendar year (under this Plan or any other plan adopted by the Company or its parent or subsidiary) shall not exceed one hundred thousand dollars ($100,000). If such aggregate FMV (determined with respect to each ISO at the time of grant) exceeds such amount, such number of ISOs as have an aggregate FMV equal to the amount in excess of such amount shall be treated as NSOs.
6.6Payment. Options shall be exercised by the delivery of a written notice of exercise to the Company or an agent designated by the Company in a form specified or accepted by the Committee, or by complying with any alternative procedures which may be authorized by the Committee, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares.
Payment of the Exercise Price is a condition precedent to the issuance of the Shares as to which an Option is exercised. The Exercise Price shall be payable to the Company in full by, to the extent permitted by law: (a) paying cash or its equivalent; (b) tendering (either by actual delivery or attestation) previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the Exercise Price; (c) cashless (broker-assisted or otherwise) exercise; (d) any combination of (a), (b), and (c); or (e) any other method or methods approved or accepted by the Committee in its sole discretion.
Subject to any governing rules or regulations, as soon as practicable after receipt of written notification of exercise and full payment (including, without limitation, satisfaction of any applicable tax withholding), the Company shall deliver to the Participant evidence of book entry Shares or, if requested by the Participant, certificated Shares in an appropriate amount based upon the number of Shares purchased under the Option(s). Alternatively, if the relevant Award Agreement requires payment of cash or its equivalent at that time, the Company shall pay to the Participant the appropriate amount of cash or its equivalent.
6.7Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Article as it may deem advisable including minimum holding period requirements and restrictions under applicable federal securities laws or regulations, the rules of any stock exchange or market upon which such Shares are then listed or traded or any blue sky or state securities laws applicable to such Shares.
6.8Prohibition on Repricing. Subject toSection 4.5, in no event shall the Committee or the Board, without first obtaining the approval of the Company’s shareholders, have the right to: (i) cancel outstanding Options for the purpose of replacing or regranting such Options with an Exercise Price that is less than the original Exercise Price of the Option, or (ii) change the Exercise Price of an Option to an Exercise Price that is less than the original Option Exercise Price, or (iii) cancel outstanding Options with an Exercise Price that is more than the Fair Market Value of a Share on the date of cancellation in exchange for cash or another Award.
Article 7. Stock Appreciation Rights
(a) Grant of SARs. Subject to the terms of this Plan, SARs may be granted to Participants at any time, and from time to time, as shall be determined by the Committee in its sole discretion. However, an Employee of a Subsidiary may only be granted SARs to the extent the Subsidiary is: (a) part of the
Company’s controlled group of corporations, or (b) a trade or business under common control with the Company, as of the date of grant, each determined under the rules of Code Section 414, but substituting for this purpose ownership of at least fifty percent (50%) of the Subsidiary to determine the members of the controlled group of corporations and the entities under common control.
Subject to the terms of this Plan, the Committee shall have complete discretion in determining the number of SARs granted to each Participant and the terms and conditions pertaining to such SARs.
The Exercise Price for each SAR shall be determined by the Committee and shall be specified in the Award Agreement;provided,however, except with respect to Awards granted underSection 4.5(a) or(b) of this Plan, that the Exercise Price must be at least equal to one hundred percent (100%) of the FMV of the underlying Shares on the Grant Date.
No Award of an SAR may entitle a Participant to dividends or dividend equivalents with respect to the Shares covered by the SAR.
7.2 SARs Agreement. Each SAR Award shall be evidenced by an Award Agreement that shall specify the Exercise Price, the term of the SAR and such other provisions as the Committee shall determine.
7.3Term of SARs. The term of an SAR granted under this Plan shall be determined by the Committee, in its sole discretion, and except as determined otherwise by the Committee and specified in the SAR Award Agreement, no SAR shall be exercisable on or after the tenth (10th) anniversary of its grant.
7.4Exercise of SARs. SARs may be exercised upon the terms and conditions imposed by the Committee in its sole discretion. SARs, or a portion thereof, may become exercisable upon certain events, such as the Participant’s death, disability, or termination of employment under certain circumstances.
7.5Settlement of SARs. Upon the exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:
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At the discretion of the Committee, payment upon the exercise of an SAR may be in cash, Shares or a combination thereof, or in any other manner approved by the Committee. The Committee’s determination regarding the form of SAR payout shall be set forth in the Award Agreement pertaining to the grant of the SAR.
7.6Other Restrictions. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of a SAR granted under this Article as it may deem advisable including minimum holding period requirements and restrictions under applicable federal securities laws or regulations, the rules of any stock exchange or market upon which such Shares are then listed or traded or any blue sky or state securities laws applicable to such Shares.
7.7Prohibition on Repricing. Subject toSection 4.5, in no event shall the Committee or the Board, without first obtaining the approval of the Company’s shareholders, have the right to: (i) cancel outstanding SARs for the purpose of replacing or regranting such SARs with an Exercise Price that is less than the original Exercise Price of the SAR, or (ii) change the Exercise Price of a SAR to an Exercise Price that is less than the original SAR Exercise Price, or (iii) cancel outstanding SARs with an Exercise Price that is more than the Fair Market Value of a Share on the date of cancellation in exchange for cash or another Award.
Article 8. Restricted Stock
(a) Grant of Restricted Stock. Subject to the terms of this Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to Participants in such amounts as the Committee shall determine.
8.2Restricted Stock Agreement. Each Award of Restricted Stock shall be evidenced by an Award Agreement that shall specify the Period of Restriction or Performance Period, the number of Shares of Restricted Stock issued and such other provisions as the Committee shall determine.
8.3Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any Shares of Restricted Stock as it may deem advisable including requirements that Participants pay stipulated purchase prices for each Share of Restricted Stock, restrictions based upon the achievement of specific performance goals, time-based restrictions on vesting following the attainment of the performance goals, time-based restrictions and/or restrictions under applicable laws or under the requirements of any stock exchange or market upon which such Shares are listed or traded, or holding requirements or sale restrictions placed on the Shares by the Company upon vesting of such Restricted Stock. Restricted Stock, or a portion thereof, may become nonforfeitable or vest upon certain events, such as the Participant’s death, disability, or termination of employment under certain circumstances.
Except as otherwise provided in this Article, Shares of Restricted Stock covered by each Restricted Stock Award shall become freely transferable by the Participant after all conditions and restrictions applicable to such Shares have been satisfied or lapse (including satisfaction of any applicable tax withholding obligations).
If share certificates are required by law to be issued and to the extent deemed appropriate by the Committee, the Company may retain any certificates representing Shares of Restricted Stock in the Company’s possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied or lapse.
8.4Voting Rights. Unless otherwise determined by the Committee and set forth in a Participant’s Award Agreement, to the extent permitted or required by law, as determined by the Committee, Participants holding Shares of Restricted Stock granted hereunder may be granted the right to exercise full voting rights with respect to those Shares during the Period of Restriction.
8.5Dividends. Any Award of Restricted Stock may require that any or all dividends or other distributions paid thereon during the applicable Period of Restriction be paid in cash or in additional Shares of Restricted Stock on a current, deferred or contingent basis subject to the same restrictions as the underlying Award;provided,however, that dividends or other distributions on Restricted Stock will be deferred until, and paid contingent upon, the vesting of such Restricted Stock.
Article 9. Restricted Stock Units
9.1Grant of Restricted Stock Units. Subject to the terms of this Plan, the Committee, at any time and from time to time, may grant Awards of Restricted Stock Units to Participants in such amounts as the Committee shall determine.
9.2Restricted Stock Unit Agreement. Each Award of Restricted Stock Units shall be evidenced by an Award Agreement that shall specify the Period of Restriction or Performance Period, the number Restricted Stock Units granted and such other provisions as the Committee shall determine.
9.3Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any Restricted Stock Units as it may deem advisable including requirements that Participants pay stipulated purchase prices for each Share subject to a Restricted Stock Unit, restrictions based upon the achievement of specific performance goals, time-based restrictions on vesting following the attainment of the performance goals, time-based restrictions and/or restrictions under applicable laws or under the requirements of any stock exchange or market upon which the Shares are listed or traded, or holding requirements or sale restrictions placed by the Company on the Shares delivered to a Participant upon the
vesting of the Restricted Stock Units. Restricted Stock Units, or a portion thereof, may become nonforfeitable or vest upon certain events, such as the Participant’s death, disability, or termination of employment under certain circumstances.
Restricted Stock Units shall be settled in cash, Shares or a combination of cash and Shares as the Committee, in its sole discretion, shall determine.
9.4Ownership. During the Period of Restriction or Performance Period, the Participant will have no rights of ownership in the Shares subject to the Restricted Stock Units and shall have no right to vote such Shares.
9.5 Dividends Equivalents. The Committee may provide for the payment of dividend equivalents to the Participant either in cash or in additional Restricted Stock Units on a current, deferred or contingent basis;provided,however, that dividend equivalents or other distributions on Restricted Stock Units will be deferred until, and paid contingent upon, the vesting of such Restricted Stock Units.
Article 10. Performance Shares
10.1Grant of Performance Shares. Subject to the terms of this Plan, the Committee, at any time and from time to time, may grant Awards of Performance Shares to Participants in such amounts and upon such terms as the Committee shall determine.
10.2 Value of Performance Shares. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the Grant Date. The Committee shall set performance goals in its sole discretion which, depending on the extent to which they are met, will determine the value and number of Performance Shares upon which payout will be based.
10.3Earning of Performance Shares. Subject to the terms of this Plan, including after the applicable Performance Period has ended, the holder of Performance Shares shall be entitled to receive payout based upon the value and number of Performance Shares earned by the Participant over the Performance Period determined as a function of the extent to which, or whether, the corresponding performance goals have been achieved. Performance Shares, or a portion thereof, may vest upon certain events, such as the Participant’s death, disability, or termination of employment under certain circumstances.
10.4Payment of Performance Shares. Payment of earned Performance Shares shall be in such form and at such time as determined by the Committee and as evidenced in the Award Agreement. Subject to the terms of this Plan, the Committee, in its sole discretion, may pay earned Performance Shares in the form of cash or Shares (or in a combination thereof) equal to the value of the earned Performance Shares. Any Shares delivered to a Participant upon the vesting and settlement of Performance Shares may be subject to any restrictions deemed appropriate by the Committee.
10.5Dividends Equivalents. The Committee may provide for the payment of dividend equivalents to the Participant either in cash or in additional Performance Shares on a deferred or contingent basis;provided,however, that dividend equivalents or other distributions on Performance Shares will be deferred until, and paid contingent upon, the achievement of the applicable performance goals.
Article 11. Cash-Based Awards and Other Stock-Based Awards
11.1Grant of Cash-Based Awards. Subject to the terms of the Plan, the Committee may, at any time and from time to time, grant Cash-Based Awards to Participants in such amounts and upon such terms as the Committee may determine.
11.2Other Stock-Based Awards. The Committee may grant other types of equity-based or equity-related Awards not otherwise described in this Plan (including the grant or offer for sale of unrestricted Shares) in such amounts and subject to such terms and conditions as the Committee shall determine. Such Awards may involve the transfer of actual Shares to Participants, or payment in cash or otherwise of amounts based on the value of Shares.
11.3Value of Cash-Based and Other Stock-Based Awards. Each Cash-Based Award shall specify a payment amount or payment range as determined by the Committee. Each Other Stock-Based Award shall be expressed in terms of Shares or units denominated in Shares, as determined by the Committee. The Committee may establish performance goals in its sole discretion. If the Committee exercises its discretion to establish performance goals, the number and/or value of Cash-Based Awards or Other Stock-Based Awards that will be paid out to the Participant will depend on the extent to which, or whether, the performance goals are met.
11.4Payment of Cash-Based Awards and Other Stock-Based Awards. Any payment with respect to a Cash-Based Award or an Other Stock-Based Award shall be made in accordance with the terms of the Award, in cash or Shares, as the Committee determines. Cash-Based Awards or Other Stock-Based Awards may become nonforfeitable or vest upon certain events, such as the Participant’s death, disability, or termination of employment under certain circumstances.
Article 12. Transferability of Awards
Except as otherwise provided in a Participant’s Award Agreement or otherwise determined at any time by the Committee, no Award granted under this Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. In no event may an Award be transferred for value. Further, except as otherwise provided in a Participant’s Award Agreement or otherwise determined at any time by the Committee, all Awards granted to a Participant under this Plan shall be exercisable during his or her lifetime only by the Participant.
Article 13. Performance Measures
13.1Performance Measures. Anon-exhaustive list of Performance Measures that could be used for performance-based Awards under this Plan includes the following: (a) Net earnings or net income (before or after taxes); (b) Income; (c) Retained earnings; (d) Earnings per share; (e) Net sales or revenue growth; (f) Net operating profit or income; (g) Operating earnings; (h) Return measures (including return on assets, capital, invested capital, equity, sales or revenue); (i) Cash flow (including operating cash flow, free cash flow, cash flow return on equity and cash flow return on investment); (j) Earnings before taxes, interest, depreciation and/or amortization (“EBITDA”); (k) Adjusted EBITDA; (l) Gross or operating margins; (m) Productivity ratios; (n) Share price (including growth measures and total shareholder return); (o) Costs or cost control; (p) Margins; (q) Operating efficiency; (r) Operating and maintenance cost management; (s) Demand-side management (including conservation and load management); (t) Market share; (u) Service reliability; (v) Energy production availability performance; (w) Results of customer satisfaction or employee satisfaction surveys; (x) Aggregate product price and other product price measures; (y) Working capital; (z) Economic value added or EVA® (net operating profit after tax minus the sum of capital multiplied by the cost of capital); (aa) Management development; (bb) Succession planning; (cc) Shaping legislative and regulatory initiatives and outcomes; (dd) Taxes; (ee) Safety record; (ff) Depreciation and amortization; (gg) Total shareholder return; (hh) Workforce hiring plan measures; (ii) Air quality control project management; (jj) Environmental; (kk) Risk management; (ll) Technology upgrade measures; (mm) Financial contribution to earnings from special projects or initiatives; (nn) Capital expenditures; (oo) Generation output; (pp) Power supply sourcing adequacy; (qq) Results of asset acquisitions; (rr) Results of asset divestitures; (ss) Capitalization; (tt) Credit metrics; (uu) Credit ratings; (vv) Compound growth rates (earnings, revenue, income from continuing operations, cash generation, etc.); (ww) Generation outage duration; (xx) Transmission outage duration; (yy) Distribution outage duration; (zz) Value creation; (aaa) Effective tax rate; (bbb) Financing flexibility; (ccc) Financing capability; and (ddd) Value returned to shareholders.
Any Performance Measure(s) may be used to measure the performance of the Company, Subsidiary or Subsidiaries as a whole or any business unit or business or reporting segment of the Company and/or a Subsidiary or Subsidiaries or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Measures as compared to the performance of a group of peer companies, or published or special index that the Committee, in its sole discretion, deems appropriate, or the Company may select a share price performance measure as compared to various stock market indices. The Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of performance goals pursuant to the Performance Measures specified in this Article. In establishing Performance Measures, the Committee may provide that any financial factor that in whole or in part
comprises any Performance Measure will be determined in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) or that any such financial factor may benon-GAAP or that such financial factor may be adjusted to exclude any or all GAAP ornon-GAAP items.
Article 14. Nonemployee Director Awards
The Board or the Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting of any type of Award to Nonemployee Directors. Each grant of an award to a Nonemployee Director will be upon such terms and conditions as approved by the Board or the Committee and will be evidenced by an Award Agreement in such form as will be approved by the Board or the Committee. Each Award Agreement will specify in the case of an Option and free-standing SAR, an Exercise Price per Share, which, except with respect to Awards granted underSection 4.5(a) or(b) of this Plan, will not be less than the Fair Market Value per Share on the Grant Date. Each Option and SAR granted under the Plan to a Nonemployee Director will expire not more than 10 years from the Grant Date and may be subject to earlier termination as may be provided in the Award Agreement. If a Nonemployee Director subsequently becomes an employee of the Company or a Subsidiary while remaining a member of the Board, any Award held under this Plan by such individual at the time of such commencement of employment will not be affected thereby. Nonemployee Directors, pursuant to thisArticle 14, may be granted, or may be permitted to elect to receive, pursuant to procedures established by the Board, all or any portion of their annual retainers, meeting fees or other fees in Shares or Restricted Shares (or other Awards) in lieu of cash.
Article 15. Rights of Participants
15.1 Employment. Nothing in this Plan or an Award Agreement shall interfere with or limit in any way the right of the Company and its Subsidiaries to terminate any Participant’s employment or service, at any time or for any reason, nor confer upon any Participant any right to continue employment or service as a Director for any specified period of time.
Neither an Award nor any benefits arising under this Plan shall constitute an employment contract with the Company or its Subsidiaries and, accordingly, subject toArticles 3 and17, this Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Committee without giving rise to any liability on the part of the Company and its Subsidiaries.
15.2 Participation. No individual shall have the right to be selected to receive an Award under this Plan or, having been so selected, to be selected to receive a future Award.
15.3 Rights as a Shareholder. Except as otherwise provided herein, a Participant shall have none of the rights of a shareholder (or beneficial owner, as the case may be) with respect to Shares covered by any Award until the Participant becomes the record holder (or beneficial owner) of such Shares.
Article 16. Change in Control
16.1Change in Control of the Company. Notwithstanding any other provision of this Plan to the contrary, the provisions of this Article shall apply in the event of a Change in Control unless otherwise determined by the Committee regarding an Award as reflected in the applicable Award Agreement.
Upon a Change in Control, except to the extent that an Award meeting the requirements ofSection 16.2 (a “Replacement Award”) is retained by or provided to the Participant to replace or continue such Award (the “Replaced Award”), all then-outstanding Stock Options and Stock Appreciation Rights shall immediately become fully vested and exercisable, and each otherthen-outstanding Award whose lapse of restrictions depends solely on the satisfaction of a service obligation by a Participant to the Company or Subsidiary shall vest in full and be free of restrictions related to the vesting of such Awards. The treatment of any other Awards shall be as determined by the Committee, as reflected in the applicable Award Agreement.
Except to the extent that a Replacement Award is retained by or provided to the Participant, the Committee may, in its sole discretion: (a) determine that any or all outstanding Awards granted under the Plan, whether or not exercisable, will be canceled and terminated and that in connection with such cancellation and termination the holder of such Award may receive for each Share of Common Stock subject to such Awards
a cash payment (or the delivery of shares of stock, other securities or a combination of cash, stock and securities equivalent to such cash payment) equal to the difference, if any, between the consideration received by shareholders of the Company in respect of a Share of Common Stock in connection with such transaction and the purchase price per share, if any, under the Award multiplied by the number of Shares of Common Stock subject to such Award;provided that if such product is zero or less, or to the extent that the Award is not then exercisable, the Awards will be canceled and terminated without payment therefor, or (b) provide that the period to exercise Options or Stock Appreciation Rights granted under the Plan shall be extended (but not beyond the expiration of such Options or Stock Appreciation Rights).
16.2Replacement Awards. An Award shall meet the conditions of this Section (and hence qualify as a Replacement Award) if: (a) it has a value at least equal to the value of the Replaced Award as determined by the Committee in its sole discretion; (b) it relates to publicly traded equity securities of the Company or its successor in the Change in Control or another entity that is affiliated with the Company or its successor following the Change in Control; and (c) its other terms and conditions are not less favorable to the Participant than the terms and conditions of the Replaced Award (including the provisions that would apply in the event of a subsequent Change in Control). Without limiting the generality of the foregoing, the Replacement Award may take the form of a continuation of the Replaced Award if the requirements of the preceding sentence are satisfied. The determination of whether the conditions of this Section are satisfied shall be made by the Committee, as constituted immediately before the Change in Control, in its sole discretion.
16.3Replacement Awards and Termination of Employment. Upon a termination of employment or termination of directorship of a Participant by the Company other than for Cause occurring in connection with or during the period of two (2) years after a Change in Control: (a) all Replacement Awards held by the Participant shall become fully vested and (if applicable) exercisable and free of restrictions, and (b) all Stock Options and Stock Appreciation Rights held by the Participant immediately before the termination of employment or termination of directorship that the Participant held as of the date of the Change in Control or that constitute Replacement Awards shall remain exercisable until the earlier of one (1) year following such termination and expiration of the stated term of such Stock Option or SAR;provided that if the applicable Award Agreement provides for a longer period of exercisability, that provision shall control.
16.4Awards Subject to Code Section 409A. Notwithstanding anything to the contrary in this Plan, if the payment or settlement with respect to an Award constitutes a deferral of compensation under Code Section 409A, then to the extent necessary to comply with Code Section 409A, payment or delivery with respect to such Award following a Change in Control shall be made on the date for which payment or delivery was originally scheduled in the Award Agreement.
Article 17. Amendment, Modification, Suspension and Termination
17.1Amendment, Modification, Suspension and Termination. Subject toSection 17.3, the Committee may, at any time and from time to time, alter, amend, modify, suspend or terminate this Plan and any Award Agreement in whole or in part;provided,however, that, without the prior approval of the Company’s shareholders and except as provided inSection 4.5, Options or SARs issued under this Plan will not be repriced, replaced (with any other Awards), regranted through cancellation or regranted by lowering the Exercise Price of a previously granted Option or SAR, nor will any outstanding underwater Options or SARs under this Plan be purchased for cash.
17.2Adjustment of Awards. If permitted by Section 409A of the Code, the Committee may make adjustments in the terms and conditions of, and the criteria included in, Awards, including in recognition of unusual or nonrecurring events (including the events described inSection 4.5) affecting one or more Participants, the Company or the financial statements of the Company or of changes in applicable laws, regulations or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under this Plan.
17.3Awards Previously Granted. Notwithstanding any other provision of this Plan to the contrary (other thanSection 17.4), no termination, amendment, suspension or modification of this Plan or an Award Agreement (except as may be permitted or contemplated under the definition of “Performance Measures” or as permitted or contemplated bySection 17.2 with respect to the modification of Performance Measures) shall materially and adversely affect any Award previously granted under this Plan without the written consent of the Participant who received such Award.
17.4Amendment to Conform to Law. Notwithstanding any other provision of this Plan to the contrary, the Board of Directors may amend the Plan or an Award Agreement (and, with respect to Awards to Participants, the Committee may amend an Award Agreement) prospectively or retroactively as it deems advisable to conform the Plan or such Award Agreement to any present or future law relating to plans of this or similar nature, to the administrative regulations and rulings promulgated thereunder or to Internal Revenue Service or Securities and Exchange Commission rules or requirements or NYSE listing standards.
By accepting an Award under this Plan, a Participant agrees to any amendment made pursuant to this Section to any Award granted under the Plan without further consideration or action.
Article 18. Withholding
18.1 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount necessary to satisfy federal, state, local or other taxes required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan or Awards hereunder.
18.2 Share Withholding. With respect to withholding required upon the lapse of restrictions, settlement or any other taxable event arising as a result of an Award that is payable through the issuance and delivery of Shares to the Participant, unless the Committee determines otherwise, each Participant shall satisfy his or her withholding requirement by having the Company withhold a number of Shares having a Fair Market Value on the date the withholding amount is to be determined in an amount not to exceed the maximum rate for the Participant in the applicable jurisdiction.
Article 19. Successors
All obligations of the Company under this Plan with respect to Awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business and/or assets of the Company.
Article 20. Recoupment
This Plan and any Award granted thereunder will be subject to and administered in compliance with Section 10D of the Exchange Act, any applicable rules or regulations promulgated by the Securities and Exchange Commission or any national securities exchange or national securities association on which the Shares may be traded, and the Company’s Executive Compensation Recoupment Policy, as amended from time to time, or its successor(s). This Plan and any Award Agreement may be amended to further such purpose without the consent of the Participant.
Article 21. Insider Trading Policy
This Plan, any Award and any Shares issued pursuant to the exercise or settlement of any Award shall be subject to the Company’s Insider Trading Policy, as amended from time to time, or its successor(s).
Article 22. Duration of the Plan and Shareholder Approval
The Plan shall become effective on the Effective Date and shall terminate automatically ten years thereafter, unless terminated pursuant to its terms before that time. Notwithstanding the preceding sentence, termination of the Plan shall not affect any Award granted before the date of termination, unless expressly provided in the applicable Award Agreement.
Article 23. General Provisions
23.1 Legend. The certificates for Shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer of such Shares.
23.2 Interpretation. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular and the singular shall include the plural. The word “including” or any variation thereof, means “including, without limitation,” and shall not be construed to limit any general statement that it follows to the specific or similar items or matters immediately following it.
23.3 Severability. In the event any provision of this Plan shall be found illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
23.4 Requirements of Law. The granting of Awards and the issuance of Shares under this Plan shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
23.5 Delivery of Title. The Company shall have no obligation to issue or deliver evidence of title for Shares issued under this Plan prior to:
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23.6 Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such authority is not obtained.
23.7 Investment Representations. The Committee may require any individual receiving Shares pursuant to an Award under this Plan to represent and warrant in writing that the individual is acquiring the Shares for investment purposes and without any intention to sell or distribute the Shares.
23.8 Uncertificated Shares. The issuance or transfer of Shares to Participants may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the rules of any stock exchange.
23.9 Unfunded Plan. Participants shall have no right, title or interest whatsoever in or to any investments that the Company and its Subsidiaries may make to aid it in meeting its obligations under this Plan. Nothing contained in this Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind or a fiduciary relationship between the Company and any Participant, beneficiary, legal representative or any other individual. To the extent that any individual acquires a right to receive payments from the Company or its Subsidiaries under this Plan, such right shall be no greater than the right of an unsecured general creditor of the Company or Subsidiary, as the case may be. All payments to be made hereunder shall be paid from the general funds of the Company or a Subsidiary, as the case may be, and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in this Plan.
23.10No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to this Plan or any Award. The Committee shall determine whether cash, Awards or other property shall be issued or paid in lieu of fractional Shares or whether such fractional Shares or any rights thereto shall be forfeited or otherwise eliminated.
23.11Nonexclusivity of this Plan. The adoption of this Plan shall not be construed as creating any limitations on the power of the Board or Committee to adopt such other compensation arrangements as it may deem desirable for any Participant.
23.12No Constraint on Corporate Action. Nothing in this Plan shall be construed to: (a) limit, impair, or otherwise affect the Company’s or a Subsidiary’s right or power to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell or transfer all or any part of its business or assets; or (b) limit the right or power of the Company or a Subsidiary to take any action which such entity deems to be necessary or appropriate.
23.13Governing Law and Venue. The Plan and each Award Agreement shall be governed by the laws of the State ofAkron, Ohio excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Plan to the substantive law of another jurisdiction. Unless otherwise provided in the Award Agreement, recipients of an Award and their beneficiaries, estates, successors and assignees are deemed to submit to the exclusive jurisdiction and venue of the U.S. District Court for the Northern District of Ohio or the Summit County (Ohio) Court of Common Pleas, to resolve any and all issues that may arise out of or relate to this Plan or any related Award Agreement.
23.14Action Required. If a Participant or beneficiary is required to take any action under this Plan within a certain number of days, and the final day of such period ends on Saturday, Sunday or a federal holiday, the Participant or beneficiary must take such action no later than the last business day preceding such day.
23.15Compliance with Code Section 409A.
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Appendix B44308
Proposed Amendments to the AmendedMary M. Swann
Corporate Secretary and Restated Code of Regulations to Authorize the Board of Directors to Make Certain Future Amendments to the Company’s Amended and Restated Code of Regulations
Proposed Amendments to the Amended and Restated Code of Regulations
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36. Amendments. Except as otherwise provided by law or by the Articles of Incorporation or this Code of Regulations, these Regulations or any of them may be amended (i) in any respect or repealed at any time at any meeting of shareholders or otherwise by the affirmative vote of the holders of shares entitling them to exercise a majority of the voting power of the Corporation voting together as a single class, provided that any amendment or supplement proposed to be acted upon at any such meeting has been described or referred to in the notice of such meetingor (ii) to the extent permitted by Chapter 1701 of the Ohio Revised Code, by the Board of Directors. Notwithstanding the foregoing provisions of this Regulation 36, no amendment to Regulations 31, 32, or 33 will be effective to eliminate or diminish the rights of persons specified in those Regulations existing at the time immediately preceding such amendment.
76 South Main Street
Akron, Ohio 44308
Ebony L. Yeboah-Amankwah
Vice President, DeputyAssociate General Counsel Corporate Secretary & Chief Ethics Officer
April 1, 2020March [28], 2023
Dear Shareholder:
You are cordially invited to attend the 2020virtual 2023 FirstEnergy Corp. Annual Meeting of Shareholders on Tuesday,Wednesday, May 19, 2020,24, 2023, at 8:00 a.m. EST at the John S. Knight Center, 77 E. Mill Street, Akron, Ohio*.EDT. If you plan to attend this virtual meeting, you must register in advance. For information on how to register, see “Attending the Virtual Annual Meeting” section of the “Questions and Answers about the Annual Meeting” of the proxy statement.
As you may recall, you previously consented to accessing FirstEnergy’s annual reports and proxy statements on the Internet instead of receiving paper copies.The annual report, proxy statement and all other proxy material related to the 20202023 FirstEnergy Corp. Annual Meeting of Shareholders may be accessed and viewed atwww.FirstEnergyCorp.com/AnnualMeeting.
The Notice of Annual Meeting of Shareholders is printed on the back of this letter. The notice and proxy statement contain important information about proxy voting and the business to be conducted at the meeting.Annual Meeting. We encourage you to read it carefully before voting.Your Board of Directors recommends that you vote “FOR” the election of all of the nominees in Item 1,1; “FOR” Items 2, through 53 and 5; for a frequency of “Every Year” under Item 4; and “AGAINST” the shareholder proposal, which is Item 6.Items 6 and 7.
Enclosed is your proxy card, which provides instructions to appoint your proxy and vote your shares. We encourage you to take advantage of the Internet or telephone voting options. Instructions regarding Internet and telephone voting are provided on the enclosed proxy card and are available atwww.FirstEnergyCorp.com/AnnualMeeting. Please note that since you already have consented to accessing FirstEnergy’s annual reports and proxy statements on the Internet, it is not necessary when voting your shares to again provide consent.consent again.
If you wish to receive a paper copy of the annual report and proxy statement with your proxy card in the future, or if you would like a paper copy of this year’s materials, please call Shareholder Services at (800)736-3402, or call Corporate Election Services at (800)516-1564 or access the websitewww.SendMaterial.com and follow the instructions provided, or send an email to papercopy@SendMaterial.com with your11-digit control number in the email’s subject line.
This notice isNotice and the Proxy Statement are being mailed or made available to shareholders on or about April 1, 2020.March [28], 2023.
Your vote and support are important to us.Thank you in advance for voting promptly.
Sincerely,
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Notice of Annual Meeting of Shareholders |
* We are monitoring novel coronavirus (COVID-19) developments and we believe that alternative Annual Meeting arrangements may be advisable or required, such as utilizing a virtual meeting or a change to the date, time or location. If we take these steps, we will announce our decision in advance via a press release, post additional information atwww.FirstEnergyCorp.com/AnnualMeeting, and will also make a public filing with the Securities and Exchange Commission. As always, we encourage you to vote your shares prior to our Annual Meeting.
Notice of Annual Meeting of Shareholders
Please carefully review this Notice, the Company’s Annual Report to Shareholders for the year ended December 31, 20192022 (the “2019“2022 Annual Report”), and the proxy statementProxy Statement and vote your shares by following the instructions on your proxy card/voting instruction form or Notice of Internet Availability of Proxy Materials to ensure your representationvote is cast at the 2023 Annual Meeting.Meeting of Shareholders (the “Annual Meeting”).
Wednesday, May 24, 2023 8:00 a.m. EDT RECORD DATE March 27, 2023 |
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Shareholders must register in
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” Only shareholders of record as of the close of business on March | |
AGENDA
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On behalf of the Board of Directors,
This Notice and Proxy Statement are being mailed or made available to shareholders on or about
Your vote is important! Even if you plan to attend our virtual annual meeting,
If you vote by Internet or telephone, please do not return your proxy card/voting instruction form.
ê Please sign and date the proxy card/voting instruction form below and fold and detach at the perforation before mailing. ê When properly executed, your proxy card/voting instruction form will be voted in the manner you direct. If you do not specify your choices, your shares will be voted FOR all the nominees listed in Item 1, FOR Items 2, Your Board of Directors recommends a vote FOR all the nominees listed in Item 1.
Your Board of Directors recommends a vote FOR Items 2,
Sign above as name(s) appear on this proxy card/voting instruction If signing for a corporation or partnership or as an agent, attorney or fiduciary,
FirstEnergy Corp. Notice of Annual Meeting of Shareholders Wednesday, May 24, 2023, at 8:00 a.m. EDT www.cesonlineservices.com/fe23_vm The Annual Meeting will be
YOUR VOTE IS IMPORTANT Regardless of whether you plan to attend the Annual Meeting of Shareholders, please ensure your shares are represented at the meeting by promptly voting by telephone or Internet or by returning your proxy card/voting instruction form in the enclosed Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on May ê Please sign and date the proxy card/voting instruction form below and fold and detach at the perforation before
This proxy card/voting instruction form is solicited by the Board of Directors for the Annual Meeting of Shareholders on May The undersigned appoints If applicable, as a participant and “named fiduciary” in the FirstEnergy Please date, sign and | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
