UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement
Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Soliciting Material Pursuant to §240.14a-12 |
Duke Energy Corporation |
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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526 South Church Street
Charlotte, NC 28202-1802
April 5, 2007
Dear Shareholder:
I am pleased to invite you to our annual meeting to be held on May 10, 2007, in the O. J. Miller Auditorium located in our Charlotte headquarters building.
As explained in the enclosed proxy statement, at this years meeting you will be asked to vote for the election of directors, to ratify the selection of the independent public accountant and consider any other business that may properly come before the meeting.
It is important that all Duke Energy shareholders, regardless of the number of shares owned, participate in the affairs of the Company. At Duke Energys last annual meeting, in October 2006, over 87 percent of Duke Energys shares were represented in person or by proxy.
Even if you plan to attend this years meeting, it is a good idea to vote your shares now before the meeting, in the event your plans change. You may mark, date and sign the proxy card and return it using the enclosed, postage-paid envelope. Alternatively, you may also vote by telephone or the Internet. Please follow the voting instructions that are printed on your enclosed proxy card.
Whether you choose to vote by telephone, Internet or mail, your response is greatly appreciated.
We hope you will find it possible to attend this years meeting, and thank you for your continued interest in Duke Energy.
Sincerely, |
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James E. Rogers |
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Chairman, President and |
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Chief Executive Officer |
Duke
Energy Corporation
526 South Church Street
Charlotte, NC 28202-1802
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
MAY 10, 2007
April 5, 2007
We will convene the annual meeting of shareholders of Duke Energy Corporation on Thursday, May 10, 2007, at 10:00 a.m. in the O. J. Miller Auditorium in the Energy Center located at 526 South Church Street in Charlotte, North Carolina.
The purpose of the annual meeting is to consider and take action on the following:
1. Election of directors;
2. Ratification of Deloitte & Touche LLP as Duke Energys independent public accountant for 2007; and
3. Transact any other business that may properly come before the meeting (or any adjournment or postponement of the meeting).
Shareholders of record as of the close of business on March 26, 2007, are entitled to vote at the annual meeting. It is important that your shares be represented at this meeting.
Whether or not you expect to be present at the annual meeting, please vote by marking, dating and signing the enclosed proxy card and return it using the enclosed, postage-paid envelope. You may also vote by telephone or Internet. Please follow the voting instructions that are printed on your enclosed proxy card. Regardless of the manner in which you vote, we urge and greatly appreciate your prompt response.
By order of the Board of Directors. |
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Julia S. Janson |
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Senior Vice President, Ethics and Compliance and |
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Corporate Secretary |
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Commonly Asked Questions and Answers about the Annual Meeting |
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COMMONLY ASKED QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
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On what am I voting? |
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· Election of directors; and |
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· Ratification of Deloitte & Touche LLP as Duke Energy Corporations (Duke Energy) independent public accountant for 2007. |
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Who can vote? |
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Holders of Duke Energys common stock as of the close of business on the record date, March 26, 2007, are entitled to vote at the annual meeting, either in person or by proxy. Each share of Duke Energy common stock has one vote. |
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How do I vote? |
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By Proxy Before the annual meeting, you can give a proxy to vote your shares of Duke Energy common stock in one of the following ways: |
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· by telephone; |
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· by Internet; or |
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· by completing and signing your proxy card and mailing it in time to be received prior to the annual meeting. |
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The telephone and Internet voting procedures are designed to confirm your identity, to allow you to give your voting instructions and to verify that your instructions have been properly recorded. If you wish to vote by telephone or Internet, please follow the instructions that are printed on your enclosed proxy card. |
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If you mail us your properly completed and signed proxy card, or vote by telephone or Internet, your shares of Duke Energy common stock will be voted according to the choices that you specify. If you sign and mail your proxy card without marking any choices, your proxy will be voted: |
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· FOR the election of all nominees for director; and |
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· FOR the ratification of the selection of Deloitte & Touche LLP as Duke Energys independent public accountant for 2007. |
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We do not expect that any other matters will be brought before the annual meeting. However, by giving your proxy, you appoint the persons named as proxies as your representatives at the annual meeting. If an issue should arise for vote at the annual meeting that is not included in the proxy material, the proxy holders will vote your shares in accordance with their best judgment. |
In Person You may come to the annual meeting and cast your vote there. If your shares are held in the name of your broker, bank or other nominee and you wish to vote at the annual meeting, you must bring an account statement or letter from the nominee indicating that you were the owner of the shares on March 26, 2007. |
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May I change or revoke my vote? |
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You may change your vote or revoke your proxy at any time by: |
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· notifying Duke Energys Corporate Secretary in writing that you are revoking your proxy; |
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· providing another signed proxy that is dated after the proxy you wish to revoke; |
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· using the telephone or Internet voting procedures; or |
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· attending the annual meeting and voting in person. |
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Will my shares be voted if I do not provide my proxy? |
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It depends on whether you hold your shares in your own name or in the name of a brokerage firm. If you hold your shares directly in your own name, they will not be voted unless you provide a proxy or vote in person at the meeting. Brokerage firms generally have the authority to vote customers unvoted shares on certain routine matters. If your shares are held in the name of a brokerage firm, the brokerage firm can vote your shares for the election of directors and for ratification of Deloitte & Touche as Duke Energys independent public accountant for 2007 if you do not timely provide your proxy because these matters are considered routine under the applicable rules. |
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As a participant in the Duke Energy Retirement Savings Plan, how do I vote shares held in my plan account? |
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If you are a participant in the Duke Energy Retirement Savings Plan, you have the right to provide voting directions to the plan trustee, by submitting your proxy card, for those shares of Duke Energy common stock that are held by the plan and allocated to your account. Plan participant proxies are treated confidentially. |
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If you elect not to provide voting directions to the plan trustee, the plan trustee will vote the Duke Energy shares allocated to your plan account in the same proportion as those shares held by the plan for which the plan trustee has received voting directions from other plan participants. The plan trustee will follow participants voting directions and the plan procedure for voting in the absence of voting directions, unless it determines that to do so would be contrary to the Employee Retirement Income Security Act of 1974. Because the plan trustee must process voting instructions from participants before the date of the annual meeting, you are urged to deliver your instructions well in advance of the annual meeting so that the instructions are received no later than Friday, May 4, 2007. |
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As a participant in the legacy Cinergy 401(k) plans, how do I vote shares held in my plan account? |
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Cinergy Corp. (Cinergy) sponsors three 401(k) plans that hold shares of Duke Energy common stock: the Cinergy Corp. Non-Union Employees 401(k) Plan; the Cinergy Corp. Union Employees 401(k) Plan; and the Cinergy Corp. Union Employees Savings Incentive Plan. These plans are collectively referred to herein as the Cinergy 401(k) Plan. If you are a participant in the Cinergy 401(k) Plan, you have the right to provide voting directions to the plan trustee, by submitting your proxy card, for those shares of Duke Energy common stock that are held by the Cinergy 401(k) Plan and allocated to your plan account. Plan participant voting directions are treated confidentially. If you elect not to provide voting directions, the plan trustee will vote the Duke Energy shares allocated to your plan account as it determines in its discretion. The plan trustee will follow participants voting directions unless it determines that to do so would be contrary to the Employee Retirement Income Security Act of 1974. Because the plan trustee must process voting instructions from participants before the date of the annual meeting, you are urged to deliver your instructions well in advance of the annual meeting so that the instructions are received no later than Friday, May 4, 2007. |
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What constitutes a quorum? |
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As of the record date 1,258,507,528 shares of Duke Energy common stock were issued and outstanding and entitled to vote at the annual meeting. In order to conduct the annual meeting, a majority of the shares entitled to vote must be present in person or by proxy. This is referred to as a quorum. If you submit a properly executed proxy card or vote by telephone or on the Internet, you will be considered part of the quorum. Abstentions and broker non-votes will be counted as present and entitled to vote for purposes of determining a quorum. A broker non-vote occurs when a broker or other nominee who holds shares for another person has not received voting instructions from the owner of the shares and, under New York Stock Exchange listing standards, does not have discretionary authority to vote on a proposal. |
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What vote is needed for these proposals to be adopted? |
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Directors are elected by a plurality of the votes cast at the meeting. Plurality means that the nominees receiving the largest number of votes cast are elected as directors up to the maximum number of directors to be chosen at the meeting. The affirmative vote of a majority of the shares present and entitled to vote at the annual meeting is required to approve the ratification of Deloitte & Touche as Duke Energys independent public accountant. In tabulating the vote on any matter other than the election of directors, abstentions will have the same effect as votes against the matter and shares that are the subject of a broker non-vote will be deemed absent and will have no effect on the outcome of the vote. |
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Who conducts the proxy solicitation and how much will it cost? |
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Duke Energy is requesting your proxy for the annual meeting and will pay all the costs of requesting shareholder proxies. We have hired Georgeson Shareholder Communications, Inc. to help us send out the proxy materials and request proxies. Georgesons fee for these services is $20,000, plus out-of-pocket expenses. We can request proxies through the mail or personally by telephone, telegram, fax or other means. We can use directors, officers and other employees of Duke Energy to request proxies. These people do not receive additional compensation for these services. We will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding solicitation material to the beneficial owners of Duke Energy common stock. |
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PROPOSAL 1: ELECTION OF DIRECTORS
The Board of Directors of Duke Energy currently consists of 10 members. We have a declassified Board of Directors, which means all of the directors are voted on every year at the annual meeting. As of December 31, 2006, we had 15 members on our Board of Directors. However, effective January 2, 2007, in connection with the creation of Spectra Energy Corp (Spectra Energy) and the spin-off of our gas businesses, 5 directors resigned to become directors of Spectra Energy. The 5 directors are Roger Agnelli, Paul M. Anderson, William T. Esrey, Dennis R. Hendrix and Michael E.J. Phelps.
The Corporate Governance Committee, comprised of only independent directors has recommended the following candidates as nominees for directors and the Board of Directors has approved their nomination for election:
William Barnet, III, G. Alex Bernhardt, Sr., Michael G. Browning, Phillip R. Cox, Ann Maynard Gray, James H. Hance, Jr., James T. Rhodes, James E. Rogers, Mary L. Schapiro and Dudley S. Taft.
If any director is unable to stand for election, the Board of Directors may reduce the number of directors or designate a substitute. In that case, shares represented by proxies may be voted for a substitute director. We do not expect that any nominee will be unavailable or unable to serve.
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William
Barnet, III Mr. Barnet has served as Chairman, President and CEO of the Barnet Company Inc. since 2001 and Barnet Development Corporation since 1990. Both companies are real estate and investment firms. He is the mayor of Spartanburg, S.C. He is also a member of the board of directors of Bank of America. |
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Alex Bernhardt, Sr. Mr. Bernhardt has been associated with Bernhardt Furniture Company, a furniture manufacturer, since 1965. He was named President and a director in 1976 and became Chairman and CEO in 1996. |
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Michael
G. Browning Mr. Browning has been Chairman and President of Browning Investments, Inc., a real estate development firm, since 1981. He also serves as owner, general partner or managing member of various real estate entities. |
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Phillip
R. Cox Mr. Cox has served as President and CEO of Cox Financial Corporation, a provider of financial and estate planning services, for over 30 years. He is Chairman of the Board of Cincinnati Bell, Inc. and a director of The Timken Company and Diebold, Incorporated. |
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Ann
Maynard Gray Ms. Gray was President, Diversified Publishing Group of ABC, Inc., a television, radio and publishing company, from 1991 until 1997, and was a Corporate Vice President of ABC, Inc. and its predecessors from 1979 to 1998. Since 1998 (and for a number of years prior), Ms. Gray served as a director for various public companies, including Duke Energy Corporation. She is a director of Elan Corporation, plc and The Phoenix Companies, Inc. |
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James
H. Hance, Jr. Mr. Hance was Vice Chairman of Bank of America from 1994 until his retirement in 2005 and served as Chief Financial Officer from 1988 to 2004. Since retiring in 2005, Mr. Hance has served as a director for various public companies, including Duke Energy Corporation. Mr. Hance is a certified public accountant and spent 17 years with Price Waterhouse (now PricewaterhouseCoopers LLP). He is a director of Sprint Nextel Corporation, Cousins Properties Incorporated and Rayonier Inc. |
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James
T. Rhodes, Ph.D. Dr. Rhodes was Chairman and CEO of the Institute of Nuclear Power Operations, a nonprofit corporation promoting safety, reliability and excellence in nuclear plant operation, from 1998 to 1999 and Chairman, President and CEO from 1999 until his retirement in 2001. He served as President and CEO of Virginia Electric & Power Company, a subsidiary of Dominion Resources, Inc., from 1989 until 1997. Dr. Rhodes is a member of the Advisory Council for the Electric Power Research Institute. |
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James
E. Rogers Mr. Rogers was Chairman and CEO of Cinergy Corp. from 1994 until its merger with Duke Energy in 2006. He was formerly Chairman, President and CEO of PSI Energy, Inc. from 1988 until 1994. Mr. Rogers is a director of Fifth Third Bancorp and CIGNA Corporation. |
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Mary
L. Schapiro Ms. Schapiro became Chairman and CEO of NASD, the worlds largest private sector securities regulator, on September 1, 2006. She is also a member of the NASD board of governors. She previously served as Vice Chairman of NASD since 2002 and President of the Regulatory Policy and Oversight Division since 1996. She has served as Chairman of the Commodity Futures Trading Commission, participated in the Presidents Working Group on Financial Markets and served as a commissioner of the Securities and Exchange Commission. Ms. Schapiro is a director of Kraft Foods Inc. |
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Dudley
S. Taft Mr. Taft has served as President and CEO of Taft Broadcasting Company, which holds investments in media-related activities, since 1987. He is a director of Fifth Third Bancorp and Tribune Co. |
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE.
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INFORMATION ON THE BOARD OF DIRECTORS
The Board of Directors of the Company met 8 times during 2006. No director attended less than 75% of the total of the Board meetings and the meetings of the committees upon which he or she served. Ann Maynard Gray was appointed as lead director on April 3, 2006. The lead director is responsible for presiding at Board meetings when the Chairman is not present, presiding at executive sessions of the nonmanagement directors, assisting in developing the Board agenda in collaboration with the Chairman, calling special meetings of the Board of Directors, and serving as a liaison between the independent directors and the Chairman and the Chief Executive Officer. Directors are encouraged to attend the annual meeting of shareholders. Fourteen of 15 directors attended Duke Energys last annual meeting of shareholders on October 24, 2006.
The Board of Directors may determine a director to be independent if the Board has affirmatively determined that the director has no material relationship with Duke Energy or its subsidiaries (references in this proxy statement to Duke Energys subsidiaries shall mean its consolidated subsidiaries), either directly or as a shareholder, director, officer or employee of an organization that has a relationship with Duke Energy or its subsidiaries. Independence determinations will be made on an annual basis at the time the Board of Directors approves director nominees for inclusion in the annual proxy statement and, if a director joins the Board between annual meetings, at such time.
The Board of Directors has determined that none of the directors, other than Mr. Rogers, has a material relationship with Duke Energy or its subsidiaries, and are, therefore, independent under the listing standards of the New York Stock Exchange. In reaching this conclusion, the Board of Directors considered all transactions and relationships between each director or any member of his or her immediate family and Duke Energy and its subsidiaries.
To assist in this determination, the Board of Directors adopted the following categorical standards for relationships that are deemed not to impair a directors independence:
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Personal Relationships |
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The director or immediate family member resides within a service area of, and is provided with utility service by, Duke Energy or its subsidiaries. |
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· Utility services must be provided in the ordinary course of the providers business and at rates or charges fixed in conformity with law or governmental authority, or if the service is unregulated, on arms-length terms. |
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The director or immediate family member holds securities issued publicly by Duke Energy or its subsidiaries. |
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· The director or immediate family member can receive no extra benefit not shared on a pro rata basis. |
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The director or immediate family member receives pension or other forms of deferred compensation for prior service, or other compensation unrelated to director or meeting fees, from Duke Energy or its subsidiaries. |
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· The compensation cannot be contingent in any way on continued service, and · The director has not been employed by Duke Energy or any company that was a subsidiary of Duke Energy at the time of such employment for at least three years, or the immediate family member has not been an executive officer of Duke Energy for at least three years and any such compensation that is not pension or other forms of deferred compensation for prior service cannot exceed $10,000 per year. |
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Payments for property or services are made between Duke Energy or its subsidiaries and a company associated* with the director or immediate family member who is an executive officer of the associated company. |
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· Payment amounts must not exceed the greater of $1,000,000 or 2% of the associated companys revenues in any of its last three fiscal years, and · Relationship must be in the ordinary course of Duke Energys or its subsidiarys business and on arms-length terms. |
Indebtedness is outstanding between Duke Energy or its subsidiaries and a company associated* with the director or immediate family member. |
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· Indebtedness amounts must not exceed 5% of the associated companys assets in any of its last three fiscal years, and · Relationship must be in the ordinary course of Duke Energys or its subsidiarys business and on arms-length terms. |
The director or immediate family member is a nonmanagement director of a company that does business with Duke Energy or its subsidiaries or in which Duke Energy or its subsidiaries have an equity interest. |
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· The business must be done in the ordinary course of Duke Energys or its subsidiarys business and on arms-length terms. |
An immediate family member is an employee (other than an executive officer) of a company that does business with Duke Energy or its subsidiaries or in which Duke Energy or its subsidiaries have an equity interest. |
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· If the immediate family member lives in the directors home, the business must be done in the ordinary course of Duke Energys or its subsidiarys business and on arms-length terms. |
The director and his or her immediate family members together own 5% or less of a company that does business with Duke Energy or its subsidiaries or in which Duke Energy or its subsidiaries have an equity interest. |
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· None |
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Charitable donations or pledges are made by Duke Energy or its subsidiaries to a charity associated* with the director or immediate family member. |
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· Donations and pledges must not result in payments exceeding the greater of $100,000 and 2% of the charitys revenues in any of its last three fiscal years. |
A charity associated* with the director or immediate family member is located within a service area of, and is provided with utility service by, Duke Energy or its subsidiaries. |
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· Utility service must be provided in the ordinary course of the providers business and at rates or charges fixed in conformity with law or governmental authority, or if the service is unregulated, on arms-length terms. |
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Payments for property or services are made between Duke Energy or its subsidiaries and a charity associated* with the director or immediate family member. |
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· Relationships must be in the ordinary course of Duke Energys or its subsidiarys business and on arms-length terms or subject to competitive bidding. |
* An associated company or charity is one (a) for which the director or immediate family member is an officer, director, advisory board member, trustee, general partner, principal or employee, or (b) of which the director and immediate family members together own more than 5%.
For purposes of these standards, immediate family members include a directors spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers-and sisters-in-law, and anyone (other than domestic employees) who shares the directors home. For purposes of the contribution relationship described under Charitable Relationships above, payments exclude amounts contributed or pledged to match employee contributions or pledges.
The Board of Directors has the five standing committees described below:
· The Audit Committee selects and retains a firm of independent public accountants to conduct audits of the accounts of Duke Energy and its subsidiaries. It also reviews with the independent public accountants the scope and results of their audits, as well as the accounting procedures, internal controls, and accounting and financial reporting policies and practices of Duke Energy and its subsidiaries, and makes reports and recommendations to the Board as it deems appropriate. The Audit Committee is responsible for approving all audit and permissible non-audit services provided to Duke Energy by its independent public accountants. Pursuant to this responsibility, the Audit Committee adopted the policy on Engaging External Auditor for Services which provides that the Committee will annually establish detailed services and related fee levels that may be provided by the independent public accountants. See Independent Public Accountants on page 16 for additional information on the Audit Committees pre-approval policy.
The Board has determined that Ms. Mary L. Schapiro and Mr. James T. Rhodes are audit committee financial experts as such term is defined in Item 401(h) of Regulation S-K. See above for a description of their business experience.
This Committee met 14 times in 2006. Following the merger of Duke Energy and Cinergy, during 2006, the Audit Committee members were Messrs. Phillip R. Cox (Chair), William Barnet, III, G. Alex Bernhardt, Sr., William T. Esrey and James T. Rhodes and Ms. Mary L. Schapiro. Each of these members has been determined to be independent within the meaning of Sections 303A.02, 303A.06 and 303A.07 of the NYSEs listing standards and Rule 10A-3 of the Securities Exchange Act of 1934 and the companys categorical standards for independence. In addition, each of these members meet the expertise requirements for audit committee membership under the NYSEs rules and the rules and regulations of the SEC.
· The Compensation Committee establishes and reviews the overall compensation philosophy, reviews and approves the salaries and other compensation of certain employees, including all executive officers of Duke Energy, reviews and approves compensatory agreements with executive officers, approves equity grants and reviews the effectiveness of, and approves changes to, the compensation program. This Committee also makes recommendations to the Board of Directors on compensation for outside directors.
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This Committee met 8 times in 2006. Following the merger of Duke Energy and Cinergy, during 2006, the Compensation Committee members were Messrs. James H. Hance, Jr. (Chair), Roger Agnelli, Dennis R. Hendrix and Dudley S. Taft and Ms. Ann Maynard Gray. Each of these members has been determined to be a non-employee director within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 and independent within the meaning of Section 303A.02 of the NYSEs listing standards and the companys categorical standards for independence.
· The Corporate Governance Committee considers matters related to corporate governance and formulates and periodically revises governance principles. It recommends the size and composition of the Board of Directors and its committees and recommends potential successors to the Chief Executive Officer. This committee also recommends to the Board the slate of nominees, including any nominees recommended by shareholders, for director for each years annual meeting and, when vacancies occur, names of individuals who would make suitable directors of Duke Energy. This committee may engage an external search firm or third party to identify or evaluate or to assist in identifying or evaluating a potential nominee. The Committee also performs an annual evaluation of the performance of the Chief Executive Officer with input from the full Board of Directors.
This Committee met 5 times in 2006. Following the merger of Duke Energy and Cinergy, during 2006, the Corporate Governance Committee members were Ms. Ann Maynard Gray (Chair) and Messrs. Michael G. Browning, William T. Esrey, Dennis R. Hendrix and Michael E.J. Phelps and Ms. Mary L. Schapiro. Each of these members has been determined to be independent within the meaning of Section 303A.02 of the NYSEs listing standards and the companys categorical standards for independence.
· The Finance and Risk Management Committee reviews Duke Energys financial and fiscal affairs and makes recommendations to the Board of Directors regarding dividends, financing and fiscal policies. It reviews the financial exposure of Duke Energy, as well as mitigating strategies, reviews Duke Energys risk exposure as related to overall company portfolio and impact on earnings and reviews the financial impacts of major transactions as related to mergers, acquisitions, reorganizations and divestitures.
This Committee met 7 times in 2006. Following the merger of Duke Energy and Cinergy, during 2006, the Finance and Risk Management Committee members were Messrs. Michael E.J. Phelps (Chair), Roger Agnelli, James H. Hance, Jr. and Dennis R. Hendrix and Ms. Ann Maynard Gray.
· The Nuclear Oversight Committee provides oversight of the nuclear safety, operational and financial performance, and long-term plans and strategies of Duke Energys nuclear power program. The oversight role is one of review, observation and comment and in no way alters management authority, responsibility or accountability.
This Committee met 5 times in 2006. Following the merger of Duke Energy and Cinergy, during 2006, the Nuclear Oversight Committee members were Dr. James T. Rhodes (Chair) and Messrs. William Barnet, III, G. Alex Bernhardt, Sr., Michael G. Browning and Dudley S. Taft.
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Each committee operates under a written charter adopted by the Board of Directors. The charters are posted on our website at www.duke-energy.com/investors/corporate and are available in print to any shareholder upon request.
Board Committee Membership Roster (as of March 14, 2007)
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W. Barnet, III |
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G.A. Bernhardt, Sr. |
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M.G. Browning |
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P.R. Cox |
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J.H. Hance, Jr. |
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J.T. Rhodes |
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· |
|
|
J.E. Rogers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M.L. Schapiro |
|
|
X |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
D.S. Taft |
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
X |
|
|
Committee Chair
Annual Retainer and Fees. Effective as of the April 3, 2006 consummation of the merger with Cinergy, the retainer and meeting fees paid to our outside directors consisted of:
|
|
|
|
Meeting Fees |
|
||||||||||||||||
Type of Fee |
|
Fee (Other |
|
In-Person |
|
In-Person |
|
Telephonic |
|
||||||||||||
Annual Board Retainer (Cash) |
|
|
$ |
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Annual Board Retainer (Stock) |
|
|
$ |
75,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Board Meeting Fees |
|
|
|
|
|
|
$ |
2,000 |
|
|
|
$ |
2,500 |
|
|
|
$ |
2,000 |
|
|
|
Annual Lead Director Retainer |
|
|
$ |
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Annual Audit Committee Chair Retainer |
|
|
$ |
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Annual Chair Retainer (Other Committees) |
|
|
$ |
8,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Audit Committee Meeting Fees |
|
|
|
|
|
|
$ |
3,000 |
|
|
|
$ |
2,500 |
|
|
|
$ |
2,000 |
|
|
|
Nuclear Oversight Committee Meeting Fees |
|
|
|
|
|
|
$ |
4,000 |
|
|
|
$ |
2,500 |
|
|
|
$ |
2,000 |
|
|
|
Other Committee Meeting Fees |
|
|
|
|
|
|
$ |
2,000 |
|
|
|
$ |
2,500 |
|
|
|
$ |
2,000 |
|
|
Annual Stock Retainer for 2006. In 2006, each director received the portion of his or her annual retainer that was payable in stock in the form of 2,600 phantom shares. The phantom shares were granted under the Duke Energy Corporation 1998 Long-Term Incentive Plan (for individuals who were on the board of Duke Energy prior to the merger with Cinergy) or the Cinergy Corp. 1996 Long-
12
Term Incentive Compensation Plan (for individuals who were on the board of Cinergy prior to the merger of Duke Energy and Cinergy), and vest on the first anniversary of the merger of Duke Energy and Cinergy.
Deferral Plans and Stock Purchases. Generally, directors may elect to receive all or a portion of their annual compensation, consisting of retainers and attendance fees, on a current basis, or defer such compensation under the Duke Energy Corporation Directors Savings Plan. Up to 50% of annual cash compensation may also be received on a current basis in the form of Duke Energy common stock. Deferred amounts are credited to an unfunded account for the directors benefit, the balance of which is adjusted for the performance of phantom investment options, including the Duke Energy common stock fund, as elected by the director. Each outside director will receive deferred amounts credited to his or her account generally following termination of his or her service from the Board of Directors, in accordance with his or her distribution elections.
Charitable Giving Program. Duke Energy maintains a Directors Charitable Giving Program under which certain of our current directors remain eligible. Eligibility for this program has been frozen and no director who is not currently eligible may become eligible in the future. Under this program, the Duke Energy Foundation will make, upon the directors death, donations of up to $1,000,000 to charitable organizations selected by the director. A director may request that donations be made under this program during the directors lifetime, in which case the maximum donation will be reduced on an actuarially-determined net present value basis. In 2006, a donation of $422,900 was made by Duke Energy to a charitable organization at the request of Mr. G. Alex Bernhardt, Sr. Duke Energy maintains life insurance policies upon eligible directors to fund donations under the program. Eligible directors include only those who were members of the Board of Directors of Duke Energy on February 18, 1998, and certain former directors who previously qualified for this benefit. In addition, Duke Energy maintains The Duke Energy Foundation Matching Gifts Program under which directors (and employees) are eligible for matching contributions of up to $5,000 per director per calendar year to qualifying institutions.
Expense Reimbursement and Insurance. Duke Energy provides travel insurance to directors and reimburses directors for expenses reasonably incurred in connection with attendance and participation at Board and Committee meetings and special functions.
Gifts. Duke Energy presented a holiday gift in 2006 to each director on the Board as of December 31, 2006, including Messrs. Anderson and Rogers. The aggregate cost of all the gifts was approximately $5,177.
Stock Ownership Guidelines. Outside directors are subject to stock ownership guidelines which establish a target level of ownership of Duke Energy common stock (or common stock equivalents) of 4,000 shares. At the end of 2006, the targeted ownership level had been met by all but one director who, having joined the Board of Directors in 2004 has until 2009 to meet the target level. As of the date of this proxy statement, all individuals who are currently on the Board of Directors have met the targeted ownership level.
13
The following table describes the compensation earned during 2006 by each individual who served as an outside director during 2006.
Name(1) |
|
Fees |
|
Stock |
|
Option |
|
Change |
|
All Other |
|
Total |
|
||||||
Roger Agnelli |
|
84,750 |
|
71,730 |
|
|
0 |
|
|
|
0 |
|
|
|
529 |
|
|
157,009 |
|
William Barnet, III |
|
118,750 |
|
52,654 |
|
|
0 |
|
|
|
0 |
|
|
|
5,529 |
|
|
176,933 |
|
G. Alex Bernhardt, Sr. |
|
113,250 |
|
106,431 |
|
|
1,678 |
|
|
|
7,680 |
|
|
|
424,429 |
|
|
653,468 |
|
Michael G. Browning |
|
71,500 |
|
52,654 |
|
|
0 |
|
|
|
0 |
|
|
|
483 |
|
|
124,637 |
|
Phillip R. Cox |
|
98,500 |
|
52,654 |
|
|
0 |
|
|
|
0 |
|
|
|
483 |
|
|
151,637 |
|
William T. Esrey |
|
105,205 |
|
106,431 |
|
|
1,678 |
|
|
|
0 |
|
|
|
5,529 |
|
|
218,843 |
|
Ann Maynard Gray |
|
140,500 |
|
85,505 |
|
|
1,678 |
|
|
|
0 |
|
|
|
1,329 |
|
|
229,012 |
|
James H. Hance, Jr. |
|
99,125 |
|
52,654 |
|
|
0 |
|
|
|
0 |
|
|
|
5,529 |
|
|
157,308 |
|
Dennis R. Hendrix |
|
99,250 |
|
92,657 |
|
|
0 |
|
|
|
0 |
|
|
|
529 |
|
|
192,436 |
|
Dr. Max Lennon |
|
19,750 |
|
57,873 |
|
|
2,578 |
|
|
|
10,654 |
|
|
|
46 |
|
|
90,901 |
|
James G. Martin |
|
21,125 |
|
57,873 |
|
|
2,578 |
|
|
|
2,267 |
|
|
|
2,546 |
|
|
86,389 |
|
Michael E.J. Phelps |
|
105,500 |
|
85,505 |
|
|
1,678 |
|
|
|
0 |
|
|
|
529 |
|
|
193,212 |
|
James T. Rhodes |
|
125,500 |
|
85,505 |
|
|
1,678 |
|
|
|
0 |
|
|
|
4,179 |
|
|
216,862 |
|
Mary L. Schapiro |
|
78,500 |
|
52,654 |
|
|
0 |
|
|
|
0 |
|
|
|
483 |
|
|
131,637 |
|
Dudley S. Taft |
|
75,500 |
|
73,580 |
|
|
0 |
|
|
|
0 |
|
|
|
483 |
|
|
149,563 |
|
(1) Max Lennon and James G. Martin retired from the Board of Directors of Duke Energy on March 31, 2006. Effective April 3, 2006, the following individuals were appointed to the Board of Directors of Duke Energy in connection with the merger with Cinergy: Michael G. Browning, Phillip R. Cox, James E. Rogers, Mary L. Schapiro and Dudley S. Taft. In connection with the spin-off of Spectra Energy, Roger Agnelli, Paul M. Anderson, William T. Esrey, Dennis R. Hendrix and Michael E.J. Phelps resigned from the Board of Directors effective January 2, 2007 to become directors of Spectra Energy. Paul M. Anderson and James E. Rogers were employed by Duke Energy during 2006 and therefore did not receive compensation for serving as members of the Duke Energy Board of Directors.
(2) These columns reflect the aggregate dollar amount recognized for financial statement reporting purposes for 2006 with respect to outstanding phantom share awards and option awards, and include amounts attributable to awards granted in prior years. The aggregate dollar amount was determined in accordance with the provision of Statement of Financial Accounting Standards (SFAS) No. 123R, Share-Based Payments (FAS 123R), but without regard to any estimate of forfeitures related to a service-based vesting condition. See Note 20 of the consolidated financial statements in Duke Energys Form 10-K as filed with the SEC for the year ended December 31, 2006 regarding assumptions underlying valuation of equity awards. The full grant date fair value of the phantom shares granted to each director during 2006, computed in accordance with FAS 123R, is $28.30. As of December 31, 2006, the aggregate number of option awards outstanding for each director was as follows: Mr. Agnelli: 0; Mr. Barnet: 0; Mr. Bernhardt: 19,600; Mr. Browning: 0; Mr. Cox: 0; Mr. Esrey: 19,600; Ms. Gray: 19,600; Mr. Hance: 0; Mr. Hendrix: 8,000; Dr. Lennon: 19,600; Mr. Martin: 13,000; Mr. Phelps: 4,000; Dr. Rhodes: 8,000; Ms. Schapiro: 35,100; and Mr. Taft: 15,600. As of December 31, 2006, the aggregate number of unvested phantom share awards outstanding for each director was as
14
follows: Mr. Agnelli: 4,488; Mr. Barnet: 2,600; Mr. Bernhardt: 5,928; Mr. Browning: 2,600; Mr. Cox: 2,600; Mr. Esrey: 5,928; Ms. Gray: 5,928; Mr. Hance: 2,600; Mr. Hendrix: 4,488; Dr. Lennon: 0; Mr. Martin: 0; Mr. Phelps: 5,928; Dr. Rhodes: 5,928; Ms. Schapiro: 2,600; and Mr. Taft: 2,600.
(3) Includes above-market interest earned on a grandfathered investment fund previously provided under a predecessor plan to the Duke Energy Corporation Directors Savings Plan. Participants can no longer defer compensation into the grandfathered investment fund, but continue to be credited with interest at the fixed rate on amounts previously deferred to such fund.
(4) As described in the following table, All Other Compensation for 2006 includes matching gift contributions made by the Duke Energy Foundation in the directors name to a charitable organization, charitable contributions made in the directors name pursuant to the legacy Duke Energy Corporation Charitable Giving Program, a business travel accident insurance premium of $2,296 that was prorated among the directors based on their actual service on the Duke Energy Board of Directors during 2006 and a holiday gift.
Name(1) |
|
Business |
|
Matching |
|
Charitable |
|
|
|
Total |
|
||||||||
Roger Agnelli |
|
|
184 |
|
|
|
0 |
|
|
|
0 |
|
|
|
345 |
|
|
529 |
|
William Barnet, III |
|
|
184 |
|
|
|
5,000 |
|
|
|
0 |
|
|
|
345 |
|
|
5,529 |
|
G. Alex Bernhardt, Sr. |
|
|
184 |
|
|
|
1,000 |
|
|
|
422,900 |
|
|
|
345 |
|
|
424,429 |
|
Michael G. Browning |
|
|
138 |
|
|
|
0 |
|
|
|
0 |
|
|
|
345 |
|
|
483 |
|
Phillip R. Cox |
|
|
138 |
|
|
|
0 |
|
|
|
0 |
|
|
|
345 |
|
|
483 |
|
William T. Esrey |
|
|
184 |
|
|
|
5,000 |
|
|
|
0 |
|
|
|
345 |
|
|
5,529 |
|
Ann Maynard Gray |
|
|
184 |
|
|
|
800 |
|
|
|
0 |
|
|
|
345 |
|
|
1,329 |
|
James H. Hance, Jr. |
|
|
184 |
|
|
|
5,000 |
|
|
|
0 |
|
|
|
345 |
|
|
5,529 |
|
Dennis R. Hendrix |
|
|
184 |
|
|
|
0 |
|
|
|
0 |
|
|
|
345 |
|
|
529 |
|
Dr. Max Lennon |
|
|
46 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
46 |
|
James G. Martin |
|
|
46 |
|
|
|
2,500 |
|
|
|
0 |
|
|
|
0 |
|
|
2,546 |
|
Michael E.J. Phelps |
|
|
184 |
|
|
|
0 |
|
|
|
0 |
|
|
|
345 |
|
|
529 |
|
James T. Rhodes |
|
|
184 |
|
|
|
3,650 |
|
|
|
0 |
|
|
|
345 |
|
|
4,179 |
|
Mary L. Schapiro |
|
|
138 |
|
|
|
0 |
|
|
|
0 |
|
|
|
345 |
|
|
483 |
|
Dudley S. Taft |
|
|
138 |
|
|
|
0 |
|
|
|
0 |
|
|
|
345 |
|
|
483 |
|
15
PROPOSAL 2: RATIFICATION OF DELOITTE &
TOUCHE LLP
AS DUKE ENERGYS INDEPENDENT PUBLIC ACCOUNTANT
FOR 2007
Independent Public Accountants
Representatives of Deloitte are expected to be present at the annual meeting. They will have an opportunity to make a statement, if they desire to do so, and will be available to respond to appropriate questions. Information on Deloittes fees for services rendered in 2005 and 2006 follows.
Type of Fees |
|
FY 2005 |
|
FY 2006 |
|
||||||
|
|
(In millions) |
|
||||||||
Total Audit Fees(a) |
|
|
$ |
19.4 |
|
|
|
$ |
16.0 |
|
|
Audit-Related Fees(b) |
|
|
4.2 |
|
|
|
4.7 |
|
|
||
Tax Fees(c) |
|
|
8.9 |
|
|
|
1.5 |
|
|
||
All Other Fees(d) |
|
|
0.3 |
|
|
|
0.1 |
|
|
||
Total Fees: |
|
|
$ |
32.8 |
|
|
|
$ |
22.3 |
|
|
(a) Audit Fees are fees billed or expected to be billed by Deloitte for professional services for the audit of Duke Energys consolidated financial statements included in Duke Energys annual report on Form 10-K and review of financial statements included in Duke Energys quarterly reports on Form 10-Q, services that are normally provided by Deloitte in connection with statutory, regulatory or other filings or engagements or any other service performed by Deloitte to comply with generally accepted auditing standards and include comfort and consent letters in connection with SEC filings and financing transactions.
(b) Audit-Related Fees are fees billed by Deloitte for assurance and related services that are reasonably related to the performance of an audit or review of Duke Energys financial statements, including assistance with acquisitions and divestitures, internal control reviews, employee benefit plan audits and general assistance with the implementation of the SEC rules pursuant to the Sarbanes-Oxley Act.
(c) Tax Fees are fees billed by Deloitte for tax return assistance and preparation, tax examination assistance, and professional services related to tax planning and tax strategy.
(d) All Other Fees are fees billed by Deloitte for any services not included in the first three categories, primarily translation of audited financials into foreign languages, accounting training and conferences.
To safeguard the continued independence of the independent public accountant, the Audit Committee adopted a policy that provides that the independent public accountants are only permitted to provide services to Duke Energy and its subsidiaries that have been pre-approved by the Audit Committee. Pursuant to the policy, detailed audit services, audit-related services, tax services and certain other services have been specifically pre-approved up to certain fee limits. In the event that the
16
cost of any of these services may exceed the pre-approved limits, the Audit Committee must pre-approve the service. All other services that are not prohibited pursuant to the SECs or other applicable regulatory bodies rules or regulations must be specifically pre-approved by the Audit Committee. All services performed in 2006 by the independent public accountant were approved by the Audit Committee pursuant to its pre-approval policy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF DELOITTE & TOUCHE LLP AS DUKE ENERGYS INDEPENDENT PUBLIC ACCOUNTANT FOR 2007.
17
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table indicates the amount of Duke Energy common stock beneficially owned by the directors, the executive officers listed in the Summary Compensation Table under Executive Compensation below (referred to as the Named Executive Officers), and by all directors and executive officers as a group as of March 14, 2007.
Name or Identity of Group |
|
Total Shares |
|
Percent of |
|
||||
P.M. Anderson |
|
|
2,054,054 |
|
|
|
|
|
|
W. Barnet, III |
|
|
5,719 |
|
|
|
* |
|
|
G.A. Bernhardt, Sr. |
|
|
73,943 |
|
|
|
* |
|
|
M.G. Browning |
|
|
135,644 |
|
|
|
* |
|
|
P.R. Cox |
|
|
10,441 |
|
|
|
* |
|
|
F.J. Fowler |
|
|
1,338,260 |
|
|
|
* |
|
|
A.M. Gray |
|
|
69,771 |
|
|
|
* |
|
|
J.H. Hance, Jr. |
|
|
22,630 |
|
|
|
* |
|
|
D.L. Hauser |
|
|
370,688 |
|
|
|
* |
|
|
T.C. OConnor |
|
|
138,417 |
|
|
|
* |
|
|
J.T. Rhodes |
|
|
24,485 |
|
|
|
* |
|
|
J.E. Rogers |
|
|
1,534,850 |
|
|
|
* |
|
|
M.L. Schapiro |
|
|
45,058 |
|
|
|
* |
|
|
R.G. Shaw |
|
|
720,572 |
|
|
|
* |
|
|
D.S. Taft |
|
|
95,179 |
|
|
|
* |
|
|
Directors and executive officers as a group (23) |
|
|
7,801,818 |
|
|
|
* |
|
|
* Represents less than 1%.
(1) Includes the following number of shares with respect to which directors and executive officers have the right to acquire beneficial ownership within sixty days of March 14 2007: P.M. Anderson 1,100,000; W. Barnet, III 37; G.A. Bernhardt, Sr. 18,800; M.G. Browning 5,449; P.R. Cox 5,449; F.J. Fowler 1,065,715; A.M. Gray 48,165; J.H. Hance, Jr. 0; D.L. Hauser 197,215; T.C. OConnor 86,400; J.T. Rhodes 8,547; J.E. Rogers 216,216; M.L. Schapiro 35,560; R.G. Shaw 618,100; D.S. Taft 15,600; and all directors and executive officers as a group 4,116,259.
18
The following table lists the beneficial owners of 5% or more of Duke Energys outstanding shares of common stock as of December 31, 2006. This information is based on the most recently available reports filed with the SEC and provided to us by the companies listed.
|
|
Shares of common stock |
|
||||
Name and Address of Beneficial Owner |
|
Beneficially |
|
Percentage |
|
||
State Street Bank and Trust Company |
|
92,403,901(1) |
|
|
7.4 |
% |
|
(1) According to the Schedule 13G filed by State Street Bank and Trust Company, these shares are beneficially owned by its clients, and State Street Bank and Trust Company has sole voting power with respect to 39,789,779 shares, shared voting power with respect to 52,614,122 shares, and sole dispositive power with respect to all of these shares.
19
The following is the report of the Audit Committee with respect to Duke Energys audited financial statements for the fiscal year ended December 31, 2006.
The purpose of the Audit Committee is to assist the Board in its general oversight of Duke Energys financial reporting, internal controls and audit functions. The Audit Committee Charter describes in greater detail the full responsibilities of the Committee and is available on our website at www.duke-energy.com/investors/governance.
The Audit Committee has reviewed and discussed the consolidated financial statements with management and Deloitte & Touche LLP (Deloitte), the Companys independent public accountants. Management is responsible for the preparation, presentation and integrity of Duke Energys financial statements; accounting and financial reporting principles; establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)); establishing and maintaining internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)); evaluating the effectiveness of disclosure controls and procedures; evaluating the effectiveness of internal control over financial reporting; and, evaluating any change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. Deloitte is responsible for performing an independent audit of the consolidated financial statements and expressing an opinion on the conformity of those financial statements with accounting principles generally accepted in the United States, as well as expressing an opinion on (i) managements assessment of the effectiveness of internal control over financial reporting and (ii) the effectiveness of internal control over financial reporting.
We reviewed the Companys audited financial statements with management and Deloitte, and met separately with both management and Deloitte to discuss and review those financial statements and reports prior to issuance. These discussions also addressed the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. Management has represented, and Deloitte has confirmed, that the financial statements were prepared in accordance with generally accepted accounting principles.
In addition, management completed the documentation, testing and evaluation of Duke Energys system of internal control over financial reporting in response to the requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and related regulations. The Audit Committee was kept apprised of the progress of the evaluation and provided oversight and advice to management during the process. In connection with this oversight, the Audit Committee received periodic updates provided by management and Deloitte at each regularly scheduled Committee meeting. At the conclusion of the process, management provided the Audit Committee with, and the Audit Committee reviewed, a report on the effectiveness of the Companys internal control over financial reporting. The Audit Committee also reviewed the report of management contained in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (Form 10-K) filed with the SEC, as well as Deloittes Report of Independent Registered Public Accounting Firm included in the Companys Form 10-K related to its audit of (i) the consolidated financial statements and financial statement schedule, (ii) managements assessment of the effectiveness of internal control over financial
20
reporting, and (iii) the effectiveness of internal control over financial reporting. The Audit Committee continues to oversee the Companys efforts related to its internal control over financial reporting and managements preparations for the evaluation in fiscal 2007.
The Audit Committee has discussed with Deloitte the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, Communication with Audit Committees and PCAOB Auditing Standard No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction with an Audit of Financial Statements. In addition, Deloitte has provided the Audit Committee with the written disclosures and the letter required by the Independence Standards Board Standard No. 1, as amended, Independence Discussions with Audit Committees, that relates to Deloittes independence from Duke Energy and its subsidiaries and the Audit Committee has discussed with Deloitte the firms independence.
Based on its review of the consolidated financial statements and discussions with and representations from management and Deloitte referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in Duke Energys Form 10-K, for filing with the SEC.
Audit Committee |
|
|
Phillip R. Cox (Chair) |
|
William Barnet, III |
|
G. Alex Bernhardt, Sr. |
|
James T. Rhodes |
|
Mary L. Schapiro |
21
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of Duke Energy has reviewed and discussed the Compensation Discussion and Analysis with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Duke Energy 2006 Form 10-K and this Proxy Statement.
Compensation Committee |
|
|
James H. Hance, Jr. (Chair) |
|
Michael G. Browning (effective February 27, 2007) |
|
Ann Maynard Gray |
|
Dudley S. Taft |
22
COMPENSATION DISCUSSION AND ANALYSIS
The purpose of this Compensation Discussion and Analysis is to provide information about Duke Energys compensation objectives and policies for the named executive officers and give context for the numbers and narrative descriptions that follow. As the Compensation Committee of the Board of Directors of Duke Energy (the Committee) is responsible for making the compensation decisions for Duke Energys executive officers, including the named executive officers, the discussion begins with a brief overview of the Committee and its processes, and then proceeds to outline the objectives and details of Duke Energys compensation program.
The Committee is comprised entirely of non-employee directors, each of whom is considered to be independent under the currently applicable listing standards of the New York Stock Exchange, to be a non-employee director within the meaning of Rule 16b-3 under the Securities and Exchange Act of 1934, as amended, and to be an outside director within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. Currently, the Committee members are Ms. Ann Maynard Gray and Messrs. James H. Hance, Jr. (Chair), Michael G. Browning and Dudley S. Taft.
The Committee operates under a written charter adopted by the full Board, which is available at www.duke-energy.com/investors/governance. The fundamental responsibilities of the Committee are to: (1) establish and review the overall compensation philosophy of Duke Energy; (2) review and approve the annual salary, short-term incentive opportunities, long-term incentive opportunities, and other benefits of the Chief Executive Officer and other executive officers; (3) review and approve any employment or severance agreement entered into with an executive officer; (4) approve equity grants under Duke Energys long-term incentive plan; (5) review the effectiveness of Duke Energys compensation program in obtaining desired results and approve any changes thereto; and (6) review and recommend to the full Board the compensation of non-employee directors.
The Committee meets as often as is necessary to perform its duties and responsibilities. The Committees Chair collaborates with management to establish the meeting agenda. The Committee receives and reviews materials in advance of each meeting. These materials include information that management believes will be helpful to the Committee as well as materials the Committee has specifically requested. Depending on the agenda for a particular meeting, these materials may include such things as information relating to: (1) the competitiveness of executive and/or director compensation programs based on market data; (2) the total compensation provided to executives; (3) trends in compensation and/or benefits; (4) executive and director stock ownership levels; and (5) corporate and individual performance compared to predetermined objectives.
In 2006, the Committee met 8 times, and the Committee has met 4 times so far during fiscal 2007.
23
The Compensation Committee Charter grants the Committee authority to engage advisors and compensation consultants. In this regard, the Committee has engaged Frederic W. Cook & Company, Inc. to report directly to the Committee as its independent consultant. Frederic W. Cook & Company, Inc. provides various services in this capacity, including, but not limited to, providing advice on best practices and analysis of meeting materials prepared by management. A representative of Frederic W. Cook & Company, Inc. generally attends each Committee meeting.
As required in its charter, the Committee reviews its performance annually. Based on the results of this self-evaluation, the Committee modifies its procedures to improve its effectiveness.
Managements Role in the Compensation-Setting Process
The most significant aspects of managements role in the compensation-setting process are (1) recommending compensation programs, compensation policies, compensation levels and incentive opportunities that are consistent with Duke Energys business strategies; (2) compiling, preparing and distributing materials for Committee meetings, including market data; (3) recommending performance targets and objectives; and (4) assisting in the evaluation of employee performance. Each year, management reviews the performance of each executive within the purview of the Committee (other than the Chief Executive Officer and the Executive Chairman whose performance is reviewed by the Corporate Governance Committee). The conclusions reached and recommendations based on these reviews, including with respect to any salary adjustments and annual award amounts, are presented to the Committee. The Committee exercises its discretion in modifying recommended adjustments and awards for executives.
Objectives of the Compensation Program
The guiding principle of Duke Energys compensation philosophy is that pay should be linked to performance with significant upside and downside potential depending upon actual results as compared to predetermined measures of success. It follows that, as discussed in more detail below, historically, more than half of the compensation opportunity of the executives within the purview of the Committee has been provided in the form of short-term and long-term incentives. These incentives yield varying levels of compensation and associated costs, including zero in the event of poor performance, depending upon the extent to which predetermined corporate, business unit and individual goals are achieved. The Committee also believes that Duke Energys overall compensation levels should be sufficiently competitive to attract talented leaders and motivate those leaders to achieve superior results, while at the same time be set at responsible levels. Consistent with these principles, the Committee has approved compensation programs intended to:
· Attract and retain talented executive officers and key employees by providing total compensation competitive with that of other executives and key employees employed by companies of similar size, complexity and lines of business;
24
· Motivate executives and key employees to achieve strong financial and operational performance;
· Emphasize performance-based compensation, which balances rewards for short-term and long-term results;
· Reward individual performance;
· Link the interests of executives with shareholders by providing a significant portion of total pay in the form of stock-based incentives and requiring target levels of stock ownership; and
· Encourage long-term commitment to Duke Energy.
Setting Executive Compensation Consistent with Duke Energys Compensation Philosophy
In December of each year, the Committee generally reviews each component of compensation, including base pay, short-term incentive opportunities and long-term incentive opportunities, of each executive under its purview, using the appropriate external and internal data (as described below) with any resulting adjustments being effective on the first day of the following year. As part of its decision making process, the Committee reviews data from market surveys and proxy statements, when available, to assess competitiveness and ensure that its compensation actions are appropriate and reasonable and consistent with its philosophy, in light of the various markets in which Duke Energy competes for talent. The Committee also focuses on internal pay equity and considers skills, experience and other factors, such as developmental and rotational assignments, that may affect the competiveness of compensation for a given year.
In December 2005, the Committee met to establish compensation levels for 2006. This was prior to the merger between Duke Energy and Cinergy. Consistent with its compensation philosophy, the Committee established base salaries at a level that approximated the median salaries of individuals in comparable positions and markets and established short-term incentive opportunities intended to provide total cash compensation (i.e., base salary and short-term incentive opportunity) at the market median for individuals in comparable positions and markets in the event of the achievement of target performance and above market median in the event of outstanding financial, operational and individual results. Additionally, in furtherance of the Committees objective of aligning executives and shareholders interests and to provide a retention incentive, the Committee focused on ensuring that equity-based compensation (i.e., long-term incentive compensation) constituted a significant component of the compensation for the executives within its purview. In June 2006, additional adjustments were made to compensation levels for the management team of the merged company. The Committee reviewed market surveys comparing each element of total compensation against comparable companies. To determine the most appropriate benchmark, specific attributes of the executive positions were considered, including relevant industry talent pool, revenue scope, roles and responsibilities, internal pay equity and data availability. Depending on the specific position benchmarked, market data was sourced from one of the following two Towers Perrin compensation surveys: (i) the 2006 CDB Energy Services Industry Executive Compensation Database, which consists of 96 companies from the energy services industry; and (ii) the 2006 CDB General Industry Executive Compensation Database, which consists of 363 companies from a variety of industries.
Due to change in the scope and scale of Duke Energy as a result of recent corporate transactions, including, but not limited to (i) the spin-off of Spectra Energy; (ii) the sale of the
25
marketing and trading business; and (iii) the sale of a portion of Crescent Resources, the competitive positioning at target performance has moved above median for some executives. The Committee has developed an approach that, over time, will re-align the competitive positioning consistent with the compensation philosophy of targeting total cash compenstion at market median for target performance. The long-term incentive opportunity of certain executives, however, may be above the market median when target performance is achieved.
The Committee designed the Duke Energy 2007 long-term incentive program to provide long-term incentive opportunities that are above the market median for individuals in comparable positions and markets if target performance is achieved and significant upside opportunity if outstanding results are achieved.
Elements of Duke Energys Compensation Program and Why Each Element Was Chosen (How It Relates to Objectives)
As discussed in more detail below, during 2006 the principal components of compensation for the named executive officers were:
· base salary;
· short-term incentive compensation;
· long-term equity incentive compensation;
· retention awards;
· retirement and other benefits; and
· severance.
Base Salary. Base salaries for named executives are determined based upon job responsibilities, level of experience, individual performance, comparisons to the salaries of executives in similar positions obtained from market surveys and internal comparisons. The Committee approves all salary adjustments for executive officers (other than Messrs. Anderson and Rogers, who do not receive base salaries).
Short-Term Incentives. Short-term incentive opportunities are provided to the named executive officers (other than Messrs. Anderson and Rogers, who do not participate in the short-term incentive program) under the Duke Energy Corporation Executive Short-Term Incentive Plan (STI Plan) to promote the achievement of annual performance objectives. Each year the Committee establishes the threshold, target and maximum incentive opportunities for each participating named executive officer, which is based on a percentage of his or her base salary, along with the individual, corporate and/or business unit goals that must be achieved to receive those incentive opportunities.
During 2006, eighty percent (80%) of this opportunity was based on achievement of corporate and/or business unit financial goals, and the remaining twenty percent (20%) was based on achievement of individual goals. The primary 2006 corporate goal consisted of a pre-established on-going earnings per share (EPS) goal. Mr. OConnor and Dr. Shaw also were subject to a business
26
unit goal based upon the 2006 earnings before interest and taxes (EBIT) of the U.S. Franchised Electric and Gas business unit.
The Committee included a safety penalty in the 2006 short-term incentive program in order to encourage a continued focus on safety. In particular, in the event of a fatality of any Duke Energy employee, contractor or sub-contractor during 2006, the short-term incentive opportunity of each executive who participated in Duke Energys long-term incentive program during 2006 would be reduced by 5%. The incentive opportunities and related individual, corporate and/or business unit goals for 2006 are described in more detail on pages 39-40.
As discussed in more detail on page 39, pursuant to the guidelines adopted at the time the 2006 program was established in February 2006, the Committee reduced the threshold, target and maximum performance levels for the 2006 on-going EPS goal from $1.75, $1.90 and $2.10 to $1.69, $1.84 and $2.04, respectively, in order to reflect the earnings impact of the partial divestiture of Crescent Resources and the divestiture of Duke Energys energy marketing and trading business. Duke Energy achieved a result between the target and maximum performance levels with respect the adjusted corporate EPS goal.
Also, as discussed above, a U.S. Franchised Electric and Gas business unit EBIT goal applied with respect to the 2006 short-term incentive opportunities of Mr. OConnor and Dr. Shaw. Although actual performance was less than the threshold level of performance by approximately 3.5%, in light of the extraordinary effort in connection with the completion of the merger and integration of the regulated segment of the business, the Committee exercised discretion and approved a payout level corresponding to threshold achievement with respect to this U.S. Franchised Electric and Gas business unit EBIT goal. More detail regarding the U.S. Franchised Electric and Gas business unit EBIT goal is set forth on page 40.
For 2006, Mr. Hauser and Dr. Shaw achieved maximum performance with respect to individual goals, which corresponds to a payout of 150% of target, and Messrs. Fowlers and OConnors achievements with respect to individual goals corresponded to a payout equal to 117.50% and 143.75% of target, respectively. The corporate, business unit and individual performance discussed above as well as the application of the 5% safety reduction resulted in 2006 STI Plan payouts equal to $543,396, $797,747, $410,427, and $390,652 for Messrs. Hauser, Fowler and OConnor and Dr. Shaw, respectively.
For 2007, each executive officer, except Mr. Rogers, will again participate in the STI Plan. Each named executive officers incentive will be based on a corporate financial objective, which again will be based on Duke Energys ongoing EPS for 2007 and will be weighted 80%, and operational or individual objectives, which will be weighted 20% in the aggregate. Similar to 2006, each executive officer will be subject to up to a 5% reduction in their STI Plan payout in the event a predetermined safety goal is not achieved; additionally, the 2007 short-term incentive awards of the entire non-union employee population (except for Mr. Rogers, who does not participate in the short-term incentive program), will be increased by 5% if there are no employee, contractor or subcontractor fatalities in 2007.
Long-Term Incentives. Long-term incentive opportunities are provided to the named executive officers (other than Messrs. Anderson and Rogers, who do not participate in the long-term incentive program) to align executive and shareholder interests in an effort to maximize shareholder value. In this regard, each year the Committee reconsiders the design and amount of the long-term incentives
27
and generally grants equity awards at the Committees first regularly-scheduled meeting each year. Duke Energys executives do not have a role in selecting the date on which long-term incentives are granted.
In 2006, due to the April 3, 2006 merger of Duke Energy and Cinergy, long-term incentives were granted at the first meeting of the Committee that occurred following consummation of the merger, and the 2006 long-term incentive opportunities of certain executive officers, including Mr. OConnor, were later increased due to increases in responsibilities. Except for Messrs. Anderson and Rogers, who did not participate in the long-term incentive program in 2006, one-half of each named executive officers 2006 long-term incentive opportunity was provided in the form of phantom shares and the remaining half was provided in the form of performance shares, as follows:
Name |
|
Grant |
|
Performance Shares |
|
Phantom Shares |
|
||||
David L. Hauser |
|
4/4/2006 |
|
|
23,810 |
|
|
|
23,810 |
|
|
Fred J. Fowler |
|
4/4/2006 |
|
|
36,640 |
|
|
|
36,640 |
|
|
Thomas C. OConnor |
|
4/4/2006 |
|
|
15,540 |
|
|
|
15,540 |
|
|
Thomas C. OConnor |
|
7/1/2006 |
|
|
3,500 |
|
|
|
3,500 |
|
|
Ruth G. Shaw |
|
4/4/2006 |
|
|
19,870 |
|
|
|
19,870 |
|
|
The 2006 phantom shares generally vest in equal portions on each of the first five anniversaries of April 4, 2006, provided the recipient continues to be employed by Duke Energy or his or her employment terminates by reason of retirement. The 2006 performance shares generally vest only to the extent that certain total shareholder return (TSR) targets for the three-year period from January 1, 2006 to December 31, 2008 are met as compared with the TSR of a peer group of companies. As discussed in more detail on pages 34-35, the terms of the 2006 phantom share and performance share awards were modified upon the spin-off of Duke Energys gas businesses to form Spectra Energy.
More details regarding the 2006 long-term incentive program, including the opportunity levels of the named executive officers and the detailed terms of the applicable performance share and phantom share award agreements are set forth on pages 40-42.
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The 2004 performance share cycle commenced on January 1, 2004 and ended on December 31, 2006. In order to align the interests of executives and shareholders, the award agreements for the performance shares granted under this 2004 cycle generally provided that the shares would vest only to the extent that Duke Energys TSR targets for the three-year period from January 1, 2004 to December 31, 2006 were met as compared with the TSR of a peer group of companies. The following table illustrates how the performance share payouts directly align participants pay to Duke Energys performance:
Relative TSR |
|
Percent Payout of Target |
|
||
80th Percentile or Higher |
|
|
125 |
% |
|
70th Percentile (Target) |
|
|
100 |
% |
|
55th Percentile |
|
|
50 |
% |
|
40th Percentile or below |
|
|
0 |
% |
|
Performance shares earned are interpolated for TSR performance between these percentiles. For this purpose, (1) TSR refers to the change in fair market value over a specified period of time, expressed as a percentage of an initial investment in common stock, with dividends reinvested, and (2) the applicable peer group consists of the companies in the S&P 500. In August 2006, in order to prevent possible distortion resulting from a one day fluctuation in stock price, the Committee approved an amendment to the terms of the 2004 performance shares modifying the awards to provide that the average TSR for the final 30 business days of the period would be considered the TSR at the end of the period.
As was the case for the 2006 grants, phantom share grants (including those in the 2004 cycle) have historically vested in equal portions on each of the first five anniversaries of the grant date. The 2004 phantom share awards provided for accelerated vesting of any remaining unvested phantom shares (or a prorated portion thereof for retired participants) in the event Duke Energys TSR for the 2004-2006 period as compared with the TSR of the S&P 500 was at or above the 70th percentile.
Duke Energy achieved a relative TSR percentile ranking of 75.6 for the 2004-2006 period, which corresponded to (i) a payout of 114.0% of the target level of performance shares, and (ii) accelerated vesting of the phantom shares granted as part of the 2004 cycle. As discussed in more detail on pages 34-35, the terms of all outstanding phantom share and performance share awards were modified upon the spin-off of Spectra Energy by splitting the outstanding equity awards into Duke Energy and Spectra Energy equity awards. The following table lists the performance shares and phantom shares (granted under the 2004 cycle) in which the named executive officers (other than Messrs. Anderson and Rogers) became vested in 2006:
|
|
Performance |
|
Phantom |
|
||||||||
Name |
|
Duke |
|
Spectra |
|
Duke |
|
Spectra |
|
||||
David L. Hauser |
|
24,013 |
|
|
12,006 |
|
|
12,636 |
|
|
6,318 |
|
|
Fred J. Fowler |
|
64,250 |
|
|
32,125 |
|
|
33,816 |
|
|
16,908 |
|
|
Thomas C. OConnor |
|
18,204 |
|
|
9,102 |
|
|
9,582 |
|
|
4,791 |
|
|
Ruth G. Shaw |
|
33,343 |
|
|
16,671 |
|
|
17,550 |
|
|
8,775 |
|
|
With respect to the 2007 long-term incentive compensation program, the Committee has maintained the equal mix between phantom shares and performance shares. However, the 2007 phantom share awards are subject to a three-year vesting schedule rather than the five-year schedule
29
used for previous cycles. The 2007 performance share grants generally will vest only to the extent two predetermined measures are achieved. The vesting of fifty percent of the performance shares will be based on Duke Energys TSR performance as compared to the Philadelphia Utilities Index for the three-year period commencing on January 1, 2007 and ending on December 31, 2009, as follows:
Relative TSR |
|
Percent Payout of Target |
|
||
70th Percentile or Higher |
|
|
150 |
% |
|
50th Percentile (Target) |
|
|
100 |
% |
|
30th Percentile |
|
|
50 |
% |
|
Lower than 30th Percentile |
|
|
0 |
% |
|
The vesting of the remaining performance shares will be based on Duke Energys actual 3-year compounded annual growth rate in ongoing EPS (CAGR), as follows:
Achieved CAGR |
|
Percent Payout of Target |
|
||
6% or higher |
|
|
150 |
% |
|
5% (Target) |
|
|
100 |
% |
|
4% |
|
|
50 |
% |
|
Lower than 4% |
|
|
0 |
% |
|
In addition to the annual grants under the long-term incentive program, from time to time, the Committee may grant additional long-term incentives to recognize increased responsibilities or special contributions, to attract new hires, to retain executives, or to recognize other special circumstances. Stock options are among the equity-based compensation vehicles that may be granted to individual executives in appropriate circumstances. For example, as described in more detail below, the Committee granted a stock option to Mr. Rogers immediately following the merger with Cinergy. However, the Committee has not granted stock options as a regular component of the long-term incentive program since 2003. Duke Energys long-term incentive plan, the Duke Energy Corporation 2006 Long-Term Incentive Plan, prohibits the repricing of stock options and the granting of in the money options (i.e., options with an exercise price below the grant date fair market value of a share of Duke Energy common stock).
As described in more detail below, Duke Energy has established a stock ownership policy to complement its long-term incentive program. The ownership policy applies to the Chief Executive Officer, all executives who participate in the long-term incentive program and all members of the Duke Energy Corporation Board of Directors.
Retention Awards. The Committee may grant retention awards from time to time to retain executives or to recognize other special circumstances. In 2006, immediately following the merger with Cinergy, Duke Energy granted retention awards to several of its executive officers, including Messrs. Hauser and OConnor and Dr. Shaw. As described in more detail on page 58, Dr. Shaws award was cancelled on October 23, 2006 and the awards to Messrs. Hauser and OConnor generally vest, subject to continued employment, on the second anniversary of the date of the merger with Cinergy, at which time the recipient will receive a fixed cash payment.
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Retirement and Other Benefits. These benefits are comparable to the benefits provided by peers of Duke Energy, as determined based on market surveys, and provide an important tool for the attraction and retention of employees. Duke Energy provides employee benefits to the named executive officers under several different plans. Messrs. Anderson and Rogers do not participate in any of these employee benefit plans on a going forward basis except with respect to the receipt of health and welfare benefits; however, they maintain balances under certain of these plans reflecting previously accrued benefits.
The Duke Energy Retirement Savings Plan, a 401(k) plan, is generally available to all Duke Energy employees in the United States. The plan is a tax-qualified retirement plan that provides a means for employees to save for retirement on a tax-deferred basis and to receive an employer matching contribution. Earnings on amounts credited to the Duke Energy Retirement Savings Plan are determined by reference to investment options (including a Duke Energy Common Stock Fund) selected by each participant.
The Duke Energy Executive Savings Plan is offered to a select group of management, including the named executive officers. The plan enables these employees to defer compensation, and receive employer matching contributions, in excess of the limits of the Internal Revenue Code of 1986, as amended, that apply to qualified retirement plans such as the Duke Energy Retirement Savings Plan. Earnings on amounts credited to the Duke Energy Executive Savings Plan are determined by reference to investment options similar to those offered under the Duke Energy Retirement Savings Plan.
The Duke Energy Retirement Cash Balance Plan is generally available to all Duke Energy employees in the United States. It provides a defined benefit for retirement, the amount of which is based on a participants cash balance account balance, which grows with monthly pay and interest credits.
The Duke Energy Executive Cash Balance Plan is offered to a select group of management, including the named executive officers. The plan provides these employees with the retirement benefits to which they would be entitled under the Duke Energy Retirement Cash Balance Plan but for certain limits contained in the Internal Revenue Code of 1986, as amended. Additionally, supplemental credits have been made to this plan on behalf of certain executives when determined to be reasonable and appropriate (e.g., to reflect conversions of amounts previously accrued under nonqualified final average pay retirement plans).
With the exception of certain grandfathered life insurance benefits provided to Mr. Hauser and Dr. Shaw, Duke Energy provides the named executive officers with the same health and welfare benefits as it provides to all other similarly-situated employees, at the same cost charged to all other eligible employees. The named executive officers are also entitled to the same post-retirement health and welfare benefits as those provided to similarly-situated retirees. Additionally in 2006, Duke Energy provided the named executive officers with certain other perquisites, which are disclosed in footnote 5 to the Summary Compensation Table on page 38.
Compensation of the Chief Executive Officer
As stated above, the Committee is responsible for establishing the compensation of the Chief Executive Officer. The Committees objective in this regard is to motivate and retain a Chief Executive
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Officer who is committed to delivering sustained superior performance for all of Duke Energys stakeholders. In order to ensure a thorough consideration of prior year results, the Committee reviews and approves the compensation of the Chief Executive Officer based upon input from the Corporate Governance Committee regarding the Chief Executive Officers performance and informs the Board of any adjustments or actions.
Paul M. Anderson
Mr. Anderson served as the President, Chief Executive Officer and Chairman of the Board of Directors of Duke Energy until its merger with Cinergy on April 3, 2006, at which time Mr. Rogers became the President and Chief Executive Officer and Mr. Anderson assumed the role of Executive Chairman of the Board of Directors. On January 2, 2007, Mr. Anderson retired from Duke Energy in connection with Duke Energys spin-off of Spectra Energy.
As described in more detail on page 55, the employment agreement between Duke Energy and Mr. Anderson compensated Mr. Anderson substantially in the form of stock-based compensation in lieu of base salary, annual cash incentives and certain employee benefits. During 2006, effective with Duke Energys merger with Cinergy, Duke Energy and Mr. Anderson mutually agreed that, in light of the change in Mr. Andersons role and responsibilities, his maximum performance share award for 2006 would be reduced from the 120,000 shares originally contemplated in his employment agreement to 70,000 shares.
The vesting of 30,000 of these performance shares continued to be based 80% on Duke Energys on-going EPS and 20% on previously-established objectives, which consisted of strategic goals relating to such things as completion of the merger with Cinergy; building a high performance culture focused on safety, diversity and inclusion, employee development, leadership and results; positioning Duke Energy for growth in 2007 and beyond; completion of the divestiture of the energy marketing and trading segment; and, building credibility through leadership on key policy issues, transparent communications and excellent customer service. The vesting of the remaining 40,000 performance shares was based on the extent to which Mr. Anderson attained certain strategic objectives established shortly following the merger, which were based on his success in resolving the issues of desirability of separating the gas and electric businesses, achieving a successful integration of Cinergy, resolving other strategic issues, and enhancing shareholder value by being an external voice for Duke Energy to the investment community.
Based on the actual level of achievement of the objectives related to Mr. Andersons performance shares for 2006, Mr. Anderson earned 66,500 of his 70,000 performance shares for 2006, after application of the same 5% safety penalty that was otherwise applicable under the 2006 short-term incentive program. Because he remained employed with Duke Energy during the entire term of his employment agreement, Mr. Anderson also became fully vested in the stock options and phantom shares granted pursuant to his employment agreement, and the stock options became exercisable.
Following Mr. Andersons retirement, pursuant to the terms of the employment agreement and the documents memorializing the spin-off of Spectra Energy, he received the payment of earned and vested phantom shares and performance shares in the form of Duke Energy common stock and Spectra Energy common stock. The options were also adjusted upon the spin-off of Spectra Energy such that they were split between options issued by Duke Energy and Spectra Energy. More information regarding the treatment of outstanding equity awards upon the spin-off of Spectra Energy is set forth on pages 34-35.
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James E. Rogers
Effective upon Duke Energys merger with Cinergy, Duke Energy entered into a three-year employment agreement with Mr. Rogers to provide for his employment as President and Chief Executive Officer. The agreement, which is described in more detail on pages 55-56, is similar to Mr. Andersons agreement in that it compensates Mr. Rogers substantially in the form of equity-based compensation in order to directly align Mr. Rogers interests with those of the shareholders by making his compensation directly contingent upon stock price, performance and dividend yield. Under the agreement, Mr. Rogers will not receive a base salary and will not be eligible to participate in cash bonus programs. Instead, he will be compensated substantially through the following equity awards.
First, Mr. Rogers received an option to purchase 1,877,646 shares of Duke Energy common stock at a per share exercise price equal to the fair market value of a Duke Energy share on the date of grant. The option vests ratably in annual installments over three years. Mr. Rogers generally will be prohibited from selling stock acquired pursuant to the option until April 3, 2009 (or, if earlier, upon termination of employment). Second, Mr. Rogers received 258,180 phantom shares, one-twelfth of which were vested upon grant and one-twelfth of which vest each quarter thereafter. Finally, Mr. Rogers received 322,800 performance shares. The performance share award will vest in three equal tranches dependent upon the satisfaction of performance criteria established by the Committee for each of 2006, 2007 and 2008. For 2006, the performance criteria were weighted 80% on Duke Energys on-going EPS and 20% on individual strategic and operational goals based on such things as achieving merger synergy targets, improving organizational performance, divesting of the energy marketing and trading business, completing the spin-off of the gas businesses, completing the partial divestiture of Crescent Resources, and nurturing community and customer relationships. The vested phantom shares and performance shares will not be paid until April 3, 2009 (or, if earlier, upon the termination of employment), and will earn fully vested and currently payable cash dividend equivalents while they remain outstanding but unpaid.
Based on the actual level of achievement of the objectives related to Mr. Rogers performance shares for 2006, Mr. Rogers earned 102,220 of his 107,600 performance share opportunity for 2006, after application of the same 5% safety penalty that was otherwise applicable under the 2006 short-term incentive program. As was the case for Mr. Anderson, Mr. Rogers equity grants were adjusted in connection with the spin-off of Spectra Energy such that, post-spin, they consist of both Duke Energy and Spectra Energy shares as discussed in more detail on pages 34-35.
Mr. Rogers employment agreement provides him a 2007 performance share opportunity consisting of 107,600 performance shares that will vest to the extent certain performance criteria are met. For 2007, the performance criteria are weighted 80% on Duke Energys on-going EPS and 20% on individual strategic and operational goals that are based on such things as achieving certain growth targets; effectively executing strategies relating to succession and workforce planning, employee engagement, diversity and inclusion programs; completion of scalable platform initiatives; effectively executing strategies relating to key safety performance indicators and operational performance; and, leading on key policy issues.
33
Stock Ownership Policy: Duke Energy has adopted a stock ownership policy for executive officers and other key employees who receive long-term incentives. To reinforce the importance of stock ownership, an employee who is subject to the policy and who does not achieve his or her ownership target by the applicable date will become ineligible for future long-term incentives unless he or she elects to apply all short-term incentive payments to the purchase of Duke Energy common stock until his or her target ownership level is achieved. As of December 31, 2006, the stock ownership guidelines were as follows:
Position |
|
Number of Shares |
|
||
Chairman and Chief Executive Officer |
|
|
100,000 |
|
|
Group Executive and Head of a Major Business Unit |
|
|
28,000 |
|
|
All Other Executives Subject to Guidelines |
|
|
2,000-14,000 |
|
|
Non-Employee Directors |
|
|
4,000 |
|
|
Each employee is required to satisfy the ownership target within five years after becoming subject to the policy. All executive officers whose stock ownership guideline target date was on or before December 31, 2006 have met the ownership target.
Limit on Severance Agreements: As discussed in more detail on pages 54-60, certain severance protections are offered to the named executive officers. The Committee believes that the protection provided through these severance arrangements is appropriate as it diminishes the potential distraction of the executives by virtue of the personal uncertainties and risks associated with their roles, especially in the context of a potential change in control. During 2006, Duke Energy approved a policy pursuant to which it will seek shareholder approval for any future agreement with certain individuals (e.g., a named executive officer) that provides certain severance benefits in excess of 2.99 times the sum of the executives base salary and annual bonus, plus the value of continued participation in welfare, retirement and equity compensation plans determined as if the executive remained employed for 2.99 additional years. Under the policy, Duke Energy also will seek shareholder approval of any such agreement that provides for the payment of any tax gross-ups by reason of the executives termination of employment, including reimbursement of golden parachute excise taxes.
Recently, Duke Energy accomplished two significant transactions that have impacted its executive compensation programs. The first was its April 3, 2006 merger with Cinergy. As a result of this merger, Duke Energy is faced with the challenge of integrating the Duke Energy executive compensation structure and the legacy Cinergy structure. Presently, the combined entity is continuing its efforts to move the legacy Cinergy executive population to the Duke Energy executive compensation model. In this regard, the final average pay retirement benefit previously provided under the Cinergy Corp. Supplemental Executive Retirement Plan is being phased out, as is Cinergys perquisite policy.
The second such transaction was the spin-off of Duke Energys gas businesses to form Spectra Energy, effective January 2, 2007. Effective with the spin-off, equitable adjustments were made with
34
respect to stock options and outstanding equity awards (together, awards) relating to Duke Energy common stock. All such awards were adjusted into two separate awards, one relating to Duke Energy common stock and one relating to Spectra Energy common stock. This adjustment was made such that the number of shares relating to the award covering Spectra Energy common stock was equal to the number of shares of Spectra Energy common stock that the award holder would have received in the distribution had the Duke Energy award represented outstanding shares of Duke Energy common stock (i.e., a ratio of 0.5 shares of Spectra Energy common stock for every one share of Duke Energy common stock). With respect to stock options, the per share option exercise price of the original Duke Energy stock option was proportionally allocated between the two types of stock options taking into account the distribution ratio and the relative per share trading prices immediately following the distribution. The resulting Duke Energy and Spectra Energy awards continue to be subject to the vesting schedule under the original Duke Energy award agreement. For purposes of vesting and the post-termination exercise periods applicable to the options, continued employment with Duke Energy or Spectra Energy is considered to be continued employment with the issuer. In the case of performance units, TSR is determined for periods following December 31, 2006, based on an equally-weighted average of the TSR of Duke Energy and the TSR of Spectra Energy. The adjustments preserved, but did not increase, the value of the equity awards.
Tax and Accounting Implications
Deductibility of Executive Compensation: The Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code, which provides that Duke Energy generally may not deduct for federal income tax purposes annual compensation in excess of $1 million paid to certain employees. Performance-based compensation paid pursuant to shareholder-approved plans is not subject to the deduction limit as long as such compensation is approved by outside directors within the meaning of Section 162(m) of the Internal Revenue Code. During 2006, a Subcommittee for Performance-Based Compensation, which was comprised of those Committee members who qualified as outside directors within the meaning of Section 162(m) of the Internal Revenue Code, approved compensation that was intended to satisfy the performance-based compensation exception.
While the Committee generally intends to structure and administer executive compensation plans and arrangements so that they will not be subject to the deduction limit of Section 162(m) of the Internal Revenue Code, the Committee may from time to time approve payments that cannot be deducted in order to maintain flexibility in structuring appropriate compensation programs in the interests of shareholders. For example, phantom share awards received by certain employees may not be deductible for federal income tax purposes, depending on the amount and other types of compensation received by such employees.
Accounting for Stock-Based Compensation: Beginning on January 1, 2006, Duke Energy began accounting for stock-based payments in accordance with the requirements of FAS 123R. Under this accounting pronouncement, Duke Energy is required to value unvested stock options granted prior to our adoption of FAS 123R under the fair value method and expense those amounts in the income statement over the stock options remaining vesting period.
Non-GAAP Financial Measures: As described previously in this Compensation Discussion and Analysis and on pages 39-40, Duke Energy uses various financial measures, including EPS and EBIT, in connection with short-term and long-term incentives. SEC rules require that Duke Energy disclose how these financial measures are calculated based on Duke Energy's audited financial statements. In
35
particular, where Duke Energy uses EPS with respect to short-term and long-term incentives, the most directly comparable generally accepted accounting principles (GAAP) financial measure is diluted EPS from continuing operations as reported in Duke Energys audited financial statements, with the exception that the Compensation Committee may adjust reported EPS, in accordance with predetermined criteria, by excluding certain special items, which represent charges or credits that the Compensation Committee believes are of an unusual nature. For 2006, these exclusions included such things as the earnings impact of losses from discontinued operations, costs to achieve the merger with Cinergy and the spin-off of the gas businesses, certain asset impairments, certain settlement accruals, purchase accounting adjustments, gains on sales of assets, tax-related adjustments, the gain realized on the settlement of a contract dispute, and the gain on the partial divestiture of Crescent Resources. Where Duke Energy uses EBIT with respect to short-term incentives, the most directly comparable GAAP financial measure is appropriate segment EBIT as reported in Duke Energys audited financial statements, with the exception that the Compensation Committee may adjust reported segment EBIT in a manner similar to that described above with respect to EPS.
36
Name and Principal |
|
Year |
|
Salary |
|
Bonus |
|
Stock |
|
Option |
|
Non-Equity |
|
Change in |
|
All Other |
|
Total |
|
||||||
Paul
M. Anderson(6) |
|
2006 |
|
0 |
|
0 |
|
2,131,143 |
|
533,595 |
|
|
0 |
|
|
|
59,048 |
|
|
|
791,798 |
|
|
3,515,584 |
|
James E. Rogers(6)(7) |
|
2006 |
|
0 |
|
0 |
|
7,874,953 |
|
4,690,203 |
|
|
0 |
|
|
|
171,056 |
|
|
|
165,390 |
|
|
12,901,602 |
|
David L. Hauser |
|
2006 |
|
549,996 |
|
0 |
|
1,633,315 |
|
10,775 |
|
|
543,396 |
|
|
|
192,388 |
|
|
|
106,519 |
|
|
3,036,389 |
|
Fred J. Fowler |
|
2006 |
|
755,496 |
|
0 |
|
3,094,314 |
|
63,326 |
|
|
797,747 |
|
|
|
324,035 |
|
|
|
148,601 |
|
|
5,183,519 |
|
Thomas C. OConnor |
|
2006 |
|
527,502 |
|
160,598 |
(8) |
868,644 |
|
13,232 |
|
|
349,829 |
|
|
|
115,703 |
|
|
|
179,734 |
|
|
2,215,242 |
|
Ruth
G. Shaw |
|
2006 |
|
510,000 |
|
54,506 |
(8) |
1,628,907 |
|
34,656 |
|
|
336,146 |
|
|
|
213,694 |
|
|
|
2,183,954 |
|
|
4,961,863 |
|
(1) This column reflects the aggregate dollar amount recognized for financial statement reporting purposes for 2006 with respect to outstanding performance share and phantom share awards, and includes amounts attributable to performance share and phantom share awards granted in prior years. The aggregate dollar amount was determined in accordance with the provisions of FAS 123R, but without regard to any estimate of forfeitures related to service-based vesting conditions. See Note 20 of the consolidated financial statements in Duke Energys Form 10-K as filed with the SEC for the year ended December 31, 2006 regarding assumptions underlying the valuation of equity awards. As previously described in the Compensation Discussion and Analysis, with respect to 2006, Mr. Anderson forfeited 3,500 performance shares and Mr. Rogers forfeited 5,380 performance shares.
(2) This column reflects the aggregate dollar amount recognized for financial statement reporting purposes for 2006 with respect to outstanding stock options, and includes amounts attributable to stock options granted in prior years. The aggregate dollar amount was determined in accordance with the provisions of FAS 123R, but without regard to any estimate of forfeitures related to service-based vesting conditions. See Note 20 of the consolidated financial statements in Duke Energys Form 10-K as filed with the SEC for the year ended December 31, 2006 regarding assumptions underlying the valuation of equity awards.
(3) Non-Equity Incentive Plan Compensation column includes amounts payable under the Duke Energy Corporation Executive Short-Term Incentive Plan with respect to the 2006 performance period. Unless deferred, these amounts were paid in March 2007.
37
(4) Change in Pension Value and Nonqualified Deferred Compensation Earnings column includes the amounts listed below. With respect to pension plans, these amounts relate to the one-year period ending on September 30, 3006, which is the applicable pension plan measurement date. With respect to above-market interest on deferred compensation arrangements, these amounts relate to the one-year period ending on December 31, 2006.
|
|
Paul M. |
|
James E. |
|
David L. |
|
Fred J. |
|
Thomas C. |
|
Ruth G. |
|
||||||||
Change in Actuarial Present Value of Accumulated Benefit Under the Duke Energy Retirement Cash Balance Plan for the One-Year Period Ending on September 30, 2006 |
|
|
0 |
|
|
|
0 |
|
|
|
48,754 |
|
|
51,691 |
|
|
1,812 |
|
|
41,084 |
|
Change in Actuarial Present Value of Accumulated Benefit Under the Duke Energy Executive Cash Balance Plan for the One-Year Period Ending on September 30, 2006 |
|
|
0 |
|
|
|
0 |
|
|
|
141,640 |
|
|
272,344 |
|
|
113,891 |
|
|
172,044 |
|
Change in Actuarial Present Value of Accumulated Benefit Under the Cinergy Corp. Non-Union Employees Pension Plan for the One-Year Period Ending on September 30, 2006 |
|
|
0 |
|
|
|
13,625 |
|
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
Above-Market Interest Earned on Account Balances in the Duke Energy Corporation Executive Savings Plan Supplemental Account |
|
|
0 |
|
|
|
0 |
|
|
|
1,994 |
|
|
0 |
|
|
0 |
|
|
566 |
|
Above-Market Interest Earned on Amounts Deferred Under the Deferred Compensation Agreement |
|
|
0 |
|
|
|
157,431 |
|
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
Above-Market Interest Earned on Amount Deferred under the Texas Eastern Corporation Deferred Income Program |
|
|
59,048 |
|
|
|
0 |
|
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
Total |
|
|
59,048 |
|
|
|
171,056 |
|
|
|
192,388 |
|
|
324,035 |
|
|
115,703 |
|
|
213,694 |
|
(5) All Other Compensation column includes the following for 2006:
|
|
Paul M. |
|
James E. |
|
David L. |
|
Fred J. |
|
Thomas C. |
|
Ruth G. |
|
||||||||
Personal Use of Airplane |
|
|
190,564 |
|
|
|
8,178 |
|
|
|
8,783 |
|
|
11,305 |
|
|
5,787 |
|
|
21,547 |
|
Premiums for Life Insurance Coverage Provided Under Life Insurance Plans |
|
|
0 |
|
|
|
7,735 |
|
|
|
8,633 |
|
|
7,524 |
|
|
2,582 |
|
|
8,486 |
|
Matching Contributions Under the Duke Energy Retirement Savings Plan |
|
|
0 |
|
|
|
0 |
|
|
|
13,200 |
|
|
13,200 |
|
|
13,200 |
|
|
13,200 |
|
Make-Whole Matching Contribution Credits Under the Duke Energy Corporation Executive Savings Plan |
|
|
0 |
|
|
|
0 |
|
|
|
63,945 |
|
|
99,903 |
|
|
31,650 |
|
|
57,435 |
|
Reimbursement of Relocation Expenses |
|
|
324,971 |
|
|
|
20,688 |
|
|
|
0 |
|
|
0 |
|
|
76,480 |
|
|
0 |
|
Tax Gross-Up on Reimbursement of Relocation Expenses |
|
|
270,918 |
|
|
|
15,519 |
|
|
|
0 |
|
|
0 |
|
|
44,493 |
|
|
0 |
|
Club Dues |
|
|
0 |
|
|
|
0 |
|
|
|
4,805 |
|
|
10,495 |
|
|
300 |
|
|
1,697 |
|
Tax Gross-Up on Club Dues |
|
|
0 |
|
|
|
0 |
|
|
|
3,886 |
|
|
6,174 |
|
|
242 |
|
|
1,372 |
|
Charitable Contributions Made in the Name of the Executive |
|
|
5,000 |
|
|
|
0 |
|
|
|
2,500 |
|
|
0 |
|
|
5,000 |
|
|
5,000 |
|
Executive Physical Exam Program |
|
|
0 |
|
|
|
3,532 |
|
|
|
767 |
|
|
0 |
|
|
0 |
|
|
0 |
|
Accrued Severance Benefits |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
0 |
|
|
0 |
|
|
2,075,217 |
|
Holiday Gift |
|
|
345 |
|
|
|
345 |
|
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
Legal and Consulting Fees |
|
|
0 |
|
|
|
108,480 |
|
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
Tax Gross-Up on Legal and Consulting Fees |
|
|
0 |
|
|
|
913 |
|
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
Total |
|
|
791,798 |
|
|
|
165,390 |
|
|
|
106,519 |
|
|
148,601 |
|
|
179,734 |
|
|
2,183,954 |
|
The amounts shown in the Personal Use of Airplane row reflect the personal use of Duke Energys aircraft by the named executive officers. In general, other than Messrs. Anderson and Rogers, officers are not allowed to initiate personal trips on corporate aircraft. However, officers are permitted occasionally to invite their spouse or other guests to accompany them on business trips when space is available. When the spouses or guests travel does not meet the IRS standard for business use, the flight is imputed as income to the
38
officer even though such travel may not have resulted in incremental cost to Duke Energy. The methodology used to compute the incremental cost of this benefit was based on the hourly variable cost for the use of the aircraft, plus any tax deduction disallowance.
(6) Messrs. Anderson and Rogers did not receive salary or bonus from Duke Energy during 2006 because, as previously described, each entered into an employment agreement with Duke Energy that provides compensation primarily through stock-based awards.
(7) Mr. Rogers became President and Chief Executive Officer on April 3, 2006, and was not compensated by Duke Energy prior to that date. Compensation earned by Mr. Rogers prior to April 3, 2006 is not included herein.
(8) Mr. OConnor received a discretionary bonus equal to $100,000 in connection with his efforts relating to the merger of Duke Energy and Cinergy. Mr. OConnor and Dr. Shaw received discretionary bonuses in the amounts of $60,598 and $54,506, respectively, with respect to the U.S. Franchised Electric and Gas business unit EBIT goal under the 2006 STI Plan.
Short-Term Incentives for 2006
As previously described, short-term incentive opportunities are provided to the named executive officers (other than Messrs. Anderson and Rogers, who do not receive short-term incentives). Depending on actual performance, participants are eligible to receive up to 190% of the amount of their short-term incentive target. The named executive officers were provided with the following target incentive opportunities for 2006:
Name |
|
Target Incentive Opportunity |
|
Paul M. Anderson |
|
Did not participate |
|
James E. Rogers |
|
Did not participate |
|
David L. Hauser |
|
80% |
|
Fred J. Fowler |
|
90% |
|
Thomas C. OConnor |
|
80% (increased from 75% on July 1, 2006) |
|
Ruth G. Shaw |
|
75% |
|
In 2006, the performance goals for each named executive officer were weighted as follows:
|
|
Messrs. Hauser |
|
Mr. OConnor |
|
Dr. Shaw |
|
||||||||||
Incentive Goals |
|
12 months |
|
3 months |
|
9 months |
|
12 months |
|
||||||||
Corporate Goal |
|
|
80 |
% |
|
|
80 |
% |
|
|
40 |
% |
|
|
50 |
% |
|
Business Unit Goal(s) |
|
|
0 |
% |
|
|
0 |
% |
|
|
40 |
% |
|
|
30 |
% |
|
Individual Objectives |
|
|
20 |
% |
|
|
20 |
% |
|
|
20 |
% |
|
|
20 |
% |
|
The 2006 corporate goal consisted of ongoing basic EPS, with $1.75, $1.90 and $2.10 constituting the threshold, target and maximum performance levels, respectively. Following the completion of the 2006 performance period, the Committee reduced the threshold, target and maximum EPS performance levels for the 2006 ongoing EPS goal to $1.69, $1.84 and $2.04, respectively, to reflect the divesture of Duke Energys marketing and trading business as well as the partial divestiture of Crescent Resources. After adjusting for certain items that were not part of the 2006 business plan, as contemplated in the pre-established 2006 short-term incentive program guidelines, Duke Energy achieved ongoing EPS of $1.89, resulting in a payout of 125% with respect to the corporate goal.
Prior to Duke Energys merger with Cinergy and the resulting reorganization, Dr. Shaw was subject to business unit goals based on (1) Duke Powers EBIT, with $1.432 billion constituting the
39
target performance and (2) Duke Powers return on capital employed (ROCE), with 13.6% constituting target performance. Following the merger with Cinergy, these business unit goals were replaced by a single business unit goal based on the EBIT of the U.S. Franchised Electric and Gas business unit, with $1.951 billion constituting target performance. This goal was applicable to Mr. OConnor and Dr. Shaw. Although actual performance with respect to the U.S. Franchised Electric and Gas business unit goal was less than the threshold by approximately 3.5%, in light of the extraordinary effort in connection with the completion of the merger and integration of the regulated segment of the business, the Compensation Committee exercised discretion and approved a payout level corresponding to threshold achievement with respect to this goal. For the three years preceeding 2006, the average achievement level for business unit goals under the STI plan relating to the franchised electric and gas business was above target but below maximum.
During 2006, the individual goals of the executive officers consisted of a combination of strategic and operational objectives. Mr. Fowlers individual goals were based on continuing to build a high performance culture focused on safety, diversity and inclusion, employee development, leadership; completing the divestiture of the energy marketing and trading assets; completing the assessment and spin-off of the gas businesses; and, developing a strategic plan supporting corporate objectives. Mr. Hausers individual goals were based on obtaining significant merger-related savings; establishing the proper financial structure for the merged entity; and, improving the financial closing and consolidation process. Mr. OConnors individual goals were based on completing the merger integration process and achieving target synergies, as well as advancing Duke Energys coal generation strategy. Dr. Shaws individual objectives were based on advancing Duke Energys public policy, sustainability, community relations and nuclear-related efforts, as well as enhancing Duke Energys governance and decision-making processes. Over the last five years, the average achievement level of executive officers has exceeded target, but has been less than maximum performance with respect to individual goals under the STI Plan.
Based on an evaluation of performance during 2006, the Committee approved payments to Messrs. Hauser, Fowler and OConnor and Dr. Shaw, representing 123.50%, 117.33%, 100.10% and 102.13% of their respective target awards. The actual payments to each of the named executive officers were reduced by five percent as a result of not achieving the safety goal of no Duke Energy employee, contractor or subcontractor fatalities during 2006.
Long-Term Incentive Awards Granted in 2006 (Other than for Messrs. Anderson and Rogers)
The target 2006 long-term incentive opportunities, expressed as a percentage of base salary, for Messrs. Hauser, Fowler and OConnor and Dr. Shaw were 250%, 280%, 200% (increased from 185% on July 1, 2006) and 225%, respectively. Fifty percent (50%) of the value of the 2006 target long-term incentive opportunity of each named executive officer (other than Messrs. Anderson and Rogers, who did not participate in this program in 2006) was awarded under the Duke Energy 1998 Long-Term Incentive Plan in the form of performance shares and 50% was awarded in the form of phantom shares.
One-fifth of the 2006 phantom share award vests on each of the first five anniversaries of the grant date provided the recipient continues to be employed by Duke Energy or his or her employment terminates by reason of retirement. If the recipients employment terminates as a result of death, disability, or by Duke Energy without cause or as a result of a divestiture, units in the award are prorated to reflect actual service during the installment vesting period and are immediately vested, and any remaining unvested units are forfeited. In the event employment is terminated by Duke
40
Energy without cause within two years following a change in control of Duke Energy, all outstanding unvested units will vest. Vesting ceases if, at the time the recipients Duke Energy employment terminates, he or she is retirement eligible and subsequently becomes employed by, or otherwise provides service to, a Duke Energy competitor to the detriment of Duke Energy. Dividend equivalents are paid on phantom shares that have not yet vested or been forfeited.
The performance shares generally will vest only to the extent that Duke Energys total shareholder return (TSR) targets for the three-year period from January 1, 2006 to December 31, 2008 are met as compared with the TSR of a peer group of companies. TSR refers to the change in fair market value over a specified period of time, expressed as a percentage of an initial investment in common stock, with dividends reinvested and with the average TSR for the final 30 business days of the period considered the TSR at the end of the period. For this purpose, Duke Energys peer group consists of the companies in the S&P 500. The following table illustrates how the performance share payouts directly align participants pay to Duke Energys performance:
Relative TSR |
|
Percent Payout of Target |
|
||
75th Percentile or above |
|
|
150 |
% |
|
58.33 Percentile (Target) |
|
|
100 |
% |
|
40th Percentile |
|
|
50 |
% |
|
Below 40th Percentile |
|
|
0 |
% |
|
Notwithstanding Duke Energys relative TSR as compared to the companies in the S&P 500, the performance shares that were granted in 2006 provide that if Duke Energys relative TSR ranking among the S&P 500 Utility Index companies is less than the 60th percentile, the Compensation Committee is authorized to exercise discretion to reduce or eliminate any vesting of performance shares that would otherwise occur.
Earned performance shares will be paid following the determination in early 2009 of the extent to which the performance goal has been achieved, unless an election (to the extent permitted by applicable law) is made by the executive to defer payment of the performance shares until termination of employment. Any shares not earned are forfeited. In addition, following a determination that the performance goal has been achieved, participants will receive a cash payment equal to the amount of cash dividends paid on one share of Duke Energy common stock during the performance period multiplied by the number of performance shares earned, unless an election is made by the executive to defer payment of the performance shares and tandem dividend equivalents until termination of employment. If the recipients employment terminates during the performance period as a result of retirement, death, disability, or by Duke Energy without cause or as a result of a divestiture, following determination that the TSR goal has been achieved, the number of shares earned will be adjusted to reflect actual service during the performance period. If the recipients employment terminates during the performance period for any other reason, all shares covered by the award are forfeited. In the event of a change in control prior to December 31, 2008, achievement of target TSR performance is assumed and the number of shares earned is adjusted to reflect actual service during the performance period prior to the change in control. Vesting ceases if, at the time the recipients Duke Energy employment terminates, he or she is retirement eligible and subsequent to such termination of employment becomes employed by, or otherwise provides service to, a Duke Energy competitor to the detriment of Duke Energy.
41
Long-Term Incentive Awards for Mr. Anderson
The employment agreement between Duke Energy and Mr. Anderson established that Mr. Andersons compensation would be provided primarily in the form of stock-based compensation in lieu of base salary, annual cash incentives and certain employee benefits. The purpose of the structure of this compensation package was to directly align Mr. Andersons compensation with shareholders by making his compensation contingent upon stock price, Duke Energy performance and dividend yield. In accordance with his employment agreement, upon commencement of his employment in November 2003, Mr. Anderson received a nonqualified stock option award with respect to 1,100,000 shares, a performance share award for 360,000 shares and a phantom share award for 285,000 units.
On April 4, 2006, Mr. Andersons employment agreement was amended to reflect the changes to Mr. Andersons employment status upon closing of the merger with Cinergy and certain other matters. Prior to its amendment, Mr. Andersons employment agreement provided him a performance share award covering up to 120,000 shares of common stock for 2006. Mr. Anderson agreed that, in light of the change in his role and responsibilities, his maximum performance share award for 2006 would be reduced to 70,000 shares. The vesting of 30,000 of these performance shares continued to be based on the same factors established in February of 2006, such that 80% was based on the same EPS goal applicable under the STI plan for 2006 with the remaining 20% being based on previously-established strategic objectives (which consisted of strategic goals relating to such things as completion of the merger with Cinergy; building a high performance culture focused on safety, diversity and inclusion, employee development, leadership and results; positioning Duke Energy for growth in 2007 and beyond; completion of the divestiture of the energy marketing and trading segment; and, building credibility through leadership on key policy issues, transparent communications and excellent customer service). The vesting of the remaining 40,000 performance shares was based on the extent Mr. Anderson was determined to have attained strategic objectives established shortly following the merger with Cinergy based on his success in resolving the issue of desirability of separating the gas and electric businesses, achieving a successful integration of Cinergy, resolving other strategic issues, and enhancing shareholder value by being an external voice for Duke Energy to the investment community. The performance shares could be earned in full if target performance were achieved on an aggregate basis, such that Mr. Anderson could have earned a full payout of his performance shares if performance was above target with respect to one performance objective and below target on the other. Mr. Anderson could not have received more than 70,000 performance shares for 2006 even if aggregate performance exceeded target.
In order to assume his role as Chairman of the Board of Directors of Spectra Energy, Mr. Andersons employment relationship with Duke Energy terminated on January 2, 2007, at which time he became eligible to receive payment of his vested performance shares and phantom shares. Mr. Andersons vested stock options became exercisable in accordance with their terms on January 1, 2007.
Long-Term Incentive Awards for Mr. Rogers
The employment agreement for Mr. Rogers, like the employment agreement for Mr. Anderson, provides that Mr. Rogers would be compensated primarily in the form of stock-based compensation in lieu of base salary, annual cash incentives and certain employee benefits. The purpose of the structure of this compensation package was to directly align Mr. Rogers compensation with
42
shareholders by making his compensation contingent upon stock price, Duke Energy performance and dividend yield.
Under the agreement, Mr. Rogers is compensated substantially through the following equity awards. First, Mr. Rogers received an option to purchase 1,877,646 shares of Duke Energys common stock. The option vests ratably in annual installments over three years. Mr. Rogers generally will be prohibited from selling stock acquired pursuant to the option until April 3, 2009 (or, if earlier, until his termination of employment). Second, Mr. Rogers received a phantom share award covering 258,180 shares of Duke Energy common stock, one-twelfth of which vested upon grant and one-twelfth of which will vest each quarter thereafter. Finally, Mr. Rogers received a performance share award covering up to 322,800 shares of Duke Energys common stock. The award will vest in three equal tranches dependent upon performance criteria established for each of 2006, 2007 and 2008. The performance shares can be earned in full if target performance is achieved on an aggregate basis, such that Mr. Rogers can earn a full payout of his performance shares if performance is above target with respect to one performance objective and below target on the other. Mr. Rogers could not have received more than 107,600 performance shares for 2006 even if aggregate performance exceeded target. Any performance shares that do not vest will be forfeited. The vested phantom shares and performance shares will not be paid until April 3, 2009 (or, if earlier, upon termination of employment), and will earn fully vested and currently payable cash dividend equivalents while they remain outstanding but unpaid.
For 2006, the performance criteria applicable to Mr. Rogers 2006 performance share opportunity were weighted 80% on the same EPS goal established under the STI Plan and 20% on strategic and operational goals based on such things as achieving merger synergy targets, improving organizational performance, divesting of the energy marketing and trading business, completing the spin-off of the gas businesses, completing the partial divestiture of Crescent Resources, and nurturing community and customer relationships.
43
|
|
|
|
Committee |
|
Estimated Possible Payouts |
|
Estimated Future Payouts Under |
|
All Other |
|
All Other |
|
Exercise |
|
Grant Date |
|
||||||||||||||||||
Name |
|
Grant |
|
Approval |
|
Threshold |
|
Target |
|
Maximum |
|
Threshold |
|
Target |
|
Maximum |
|
or Units |
|
Options |
|
Awards |
|
Awards |
|
||||||||||
James E. Rogers |
|
4/4/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,877,646 |
|
|
$ |
29.14 |
(6) |
|
|
$ |
10,233,171 |
|
|
||
James E. Rogers |
|
4/4/2006 |
|
|
|
|
|
|
|
|
|
161,400 |
|
322,800 |
|
|
322,800 |
(5) |
|
|
|
|
|
|
|
|
|
|
$ |
9,406,392 |
|
|
|||
James E. Rogers |
|
4/4/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
258,180 |
|
|
|
|
|
|
|
|
$ |
7,523,365 |
|
|
|||
David L. Hauser |
|
|
|
|
|
$ 219,998 |
|
$ |
439,997 |
|
$ |
835,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
David L. Hauser |
|
4/4/2006 |
|
|
|
|
|
|
|
|
|
11,905 |
|
23,810 |
|
|
35,720 |
|
|
|
|
|
|
|
|
|
|
|
$ |
421,675 |
|
|
|||
David L. Hauser |
|
4/4/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,810 |
|
|
|
|
|
|
|
|
$ |
693,823 |
|
|
|||
Fred J. Fowler |
|
|
|
|
|
$ 339,973 |
|
$ |
679,946 |
|
$ |
1,291,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Fred J. Fowler |
|
4/4/2006 |
|
|
|
|
|
|
|
|
|
18,320 |
|
36,640 |
|
|
54,960 |
|
|
|
|
|
|
|
|
|
|
|
$ |
648,894 |
|
|
|||
Fred J. Fowler |
|
4/4/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,640 |
|
|
|
|
|
|
|
|
$ |
1,067,690 |
|
|
|||
Thomas C. OConnor |
|
|
|
|
|
$ 204,938 |
|
$ |
409,877 |
|
$ |
778,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Thomas C. OConnor |
|
4/4/2006 |
|
|
|
|
|
|
|
|
|
7,770 |
|
15,540 |
|
|
23,310 |
|
|
|
|
|
|
|
|
|
|
|
$ |
275,213 |
|
|
|||
Thomas C. OConnor |
|
4/4/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,540 |
|
|
|
|
|
|
|
|
$ |
452,836 |
|
|
|||
Thomas C. OConnor |
|
7/1/2006 |
(4) |
6/26/2006 |
|
|
|
|
|
|
|
1,750 |
|
3,500 |
|
|
5,250 |
|
|
|
|
|
|
|
|
|
|
|
$ |
61,740 |
|
|
|||
Thomas C. OConnor |
|
7/1/2006 |
(4) |
6/26/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500 |
|
|
|
|
|
|
|
|
$ |
102,795 |
|
|
|||
Ruth G. Shaw |
|
|
|
|
|
$ 191,250 |
|
$ |
382,500 |
|
$ |
726,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Ruth G. Shaw |
|
4/4/2006 |
|
|
|
|
|
|
|
|
|
9,935 |
|
19,870 |
|
|
29,810 |
|
|
|
|
|
|
|
|
|
|
|
$ |
351,898 |
|
|
|||
Ruth G. Shaw |
|
4/4/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,870 |
|
|
|
|
|
|
|
|
$ |
579,012 |
|
|
|
|
(1) |
The awards reflected in the Estimated Possible Payouts Under Non-Equity Incentive Plan Awards column were granted for the 2006 performance period under the terms of the Duke Energy Corporation Executive Short-Term Incentive Plan. The actual amounts earned by each executive under the terms of such plan are disclosed in the Summary Compensation Table on page 37. |
(2) |
All awards reflected in these columns were granted under the terms of the Duke Energy Corporation 1998 Long-Term Incentive Plan, except that the awards granted to Mr. Rogers were not granted under the terms of any plan. |
(3) |
The full grant date fair values of the phantom shares and performance shares granted on April 4, 2006, computed in accordance with FASB 123(R), are $29.14 and $17.71, respectively. The full grant date fair values of the phantom shares and performance shares granted on July 1, 2006 are $29.37 and $17.64, respectively. |
(4) |
The Compensation Committee, at its meeting on June 26, 2006, provided Mr. OConnor with an incremental grant of phantom shares and performance shares to reflect an increase in his responsibilities. For purposes of determining the grant date fair value of these awards, the grant date is treated as being on July 1, 2006, which is the first day of the following calendar quarter. For purposes of determining the vesting of these awards, the grant date is treated as being on April 4, 2006, which is the same grant date as other awards under the 2006 long-term incentive program. |
(5) |
Mr. Rogers performance shares are earned in full if target performance is achieved on an aggregate basis, such that Mr. Rogers can earn a full payout of his performance shares if performance is above target with respect to one performance objective and below target on the other. Mr. Rogers could not earn more than 107,600 performance shares for 2006 even if aggregate performance exceeded target. |
(6) |
On January 2, 2007, Duke Energy spun off its natural gas businesses. In connection with the spin-off, as described in more detail on pages 34-35, all stock options were adjusted to reflect the change in the price of Duke Energy common stock that occurred as a result of the spin-off. The adjustment preserved, but did not increase, the value of the stock options. The exercise price of Mr. Rogers stock option, granted on April 4, 2006, was adjusted to be $16.60 on January 2, 2007. |
44
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
|
|
Option Awards |
|
Stock Awards |
|
|||||||||||||||||||||||||||||
Name |
|
Number of |
|
Number of |
|
Option |
|
Option |
|
Number |
|
Market Value |
|
Equity |
|
Equity |
|
|||||||||||||||||
Paul M. Anderson |
|
|
|
|
|
|
1,100,000 |
|
|
|
$ |
17.45 |
|
|
11/17/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Paul M. Anderson |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
$ |
664,200 |
|
|
|
|
|
|
|
|
|
|
||
James E. Rogers |
|
|
|
|