Definitive Proxy Statement
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment
No. )
Filed by the Registrant x
Filed by a Party other than the
Registrant ¨
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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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Definitive Additional Materials |
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Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 |
SEMPRA ENERGY
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
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Title of each class of securities to which transaction applies: |
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Aggregate number of securities to which transaction applies: |
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was
determined): |
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Proposed maximum aggregate value of transaction: |
¨ Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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Amount Previously Paid: |
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Form, Schedule or Registration Statement No.: |
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
2009
Annual
Meeting
Notice of 2009 Annual Meeting of Shareholders
and Proxy
Statement
April 30, 2009
Newport Beach,
California
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
TABLE OF CONTENTS
SEMPRA ENERGY
101 Ash Street
San Diego, California 92101-3017
(877) 736-7721
NOTICE OF ANNUAL
MEETING OF SHAREHOLDERS
Time and Date |
10:00 a.m., local time, on Thursday, April 30, 2009. |
Place |
The Fairmont Hotel, 4500 MacArthur Blvd., Newport Beach, California. |
Items of Business |
(1) |
Elect directors for a one-year term. The director nominees, all of whom are currently directors, are: James G. Brocksmith Jr., Richard A.
Collato, Donald E. Felsinger, Wilford D. Godbold Jr., William D. Jones, Richard G. Newman, William G. Ouchi, Carlos Ruiz, William C. Rusnack, William P. Rutledge, Lynn Schenk and Neal E. Schmale.
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(2) |
Ratify independent registered public accounting firm. |
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(3) |
Vote on two shareholder proposals, if properly presented at the meeting. |
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(4) |
Consider other matters that may properly come before the meeting. |
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Adjournments and Postponements |
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The items of business to be considered at the Annual Meeting may be considered at the meeting or at any adjournment or postponement. |
Record Date |
You are entitled to vote only if you were a Sempra Energy shareholder at the close of business on March 2, 2009. |
Meeting Admission |
You are entitled to attend the Annual Meeting only if you were a Sempra Energy shareholder at the close of business on March 2, 2009 or you hold a valid proxy to vote at the meeting. You should be
prepared to present photo identification to be admitted to the meeting. |
If you are a shareholder of record or hold shares
through our Direct Registration Plan or Employee Savings Plans, an admission ticket is included as part of your notice of Internet availability of proxy materials or proxy card. If you plan to attend the meeting, please bring the admission ticket
with you. If you do not bring the admission ticket, your name must be verified against our list of registered shareholders and plan participants.
If your shares are not registered in your name but are held in street name through a broker, trustee or other nominee, you must provide proof of beneficial ownership at the record date such as your most recent account statement
prior to March 2, 2009, a copy of the voting instruction card provided by your broker, trustee or nominee, or other similar evidence of share ownership.
The meeting will begin promptly at 10:00 a.m., local time. Check-in will begin at 9:00 a.m. and you should allow ample time for check-in procedures.
Voting |
Your vote is important. Whether or not you plan to attend the Annual Meeting, we encourage you to read this proxy statement and promptly vote your shares. You may vote by completing, signing and dating
the enclosed proxy card or voting instruction card and returning it in the enclosed envelope or, in most cases, by telephone or the Internet. For specific instructions on how to vote your shares, please refer to the section entitled
Questions and Answers - How You Can Vote beginning on page 4 of this proxy statement and to the instructions on your proxy card or voting instruction card. |
This Notice of Annual Meeting and Proxy Statement, the accompanying form of proxy or voting instruction card and our annual report to shareholders are being provided
to shareholders beginning March 17, 2009. These documents are also available on the Internet at www.amstock.com/ProxyServices/ViewMaterials.asp.
Randall L. Clark
Corporate Secretary
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QUESTIONS AND ANSWERS
Proxy Materials
1. |
Why am I receiving these materials? |
Sempra Energys
Board of Directors is making these materials available to you over the Internet or delivering paper copies to you by mail in connection with Sempra Energys Annual Meeting of Shareholders to be held on Thursday, April 30, 2009. As a
shareholder, you are invited to attend the Annual Meeting and are entitled and requested to vote on the items of business described in this proxy statement. This proxy statement includes information that we are required to provide you under rules of
the Securities and Exchange Commission and designed to assist you in voting your shares.
2. |
What is included in the proxy materials? |
The proxy
materials include:
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Our proxy statement for the Annual Meeting of Shareholders; and |
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Our 2008 Annual Report to Shareholders. |
If you
received a paper copy of these materials by mail, the proxy materials also include a proxy card or voting instruction card for the Annual Meeting.
3. |
What information is contained in this proxy statement? |
The
information in this proxy statement relates to the proposals to be voted on at the Annual Meeting, the voting process, our Board of Directors and board committees, the compensation of our directors and certain executive officers and other required
information.
4. |
Why did I receive a notice in the mail regarding the Internet availability of the proxy materials instead of a paper copy of the materials? |
The Securities and Exchange Commission has adopted a rule that allows companies to furnish their proxy materials over the Internet. As a result, we are mailing to
many of our shareholders a notice about the Internet availability of the proxy materials instead of a paper copy of the materials. All shareholders receiving the notice will have the ability to access the proxy materials over the Internet and to
request a paper copy of the proxy materials by mail or an electronic copy by e-mail. Instructions on how to do so are contained in the notice. In addition, the notice contains instructions on how you may request proxy materials by mail or e-mail on
an ongoing basis.
5. |
Why didnt I receive a notice in the mail about the Internet availability of the proxy materials? |
We are providing some of our shareholders, including those who have previously requested paper copies, with a paper copy of the proxy materials instead of a notice about
the Internet availability of the proxy materials.
In addition, we are providing notice of the availability of the proxy materials by e-mail to our
shareholders who have previously elected electronic delivery. Those shareholders should have received an e-mail containing a link to the website where the materials are available and a link to the proxy voting website.
6. |
How can I access the proxy materials over the Internet? |
Your notice about the Internet availability of the proxy materials, proxy card or voting instruction card will contain instructions on how to view our proxy materials on the Internet.
7. |
How may I obtain a paper copy of the proxy materials? |
Shareholders receiving a notice about the Internet availability of the proxy materials will find instructions about how to obtain a paper copy of the proxy materials. Shareholders receiving notice of the availability of the proxy materials
by e-mail will find instructions about how to obtain a paper copy of the proxy materials as part of that e-mail. All shareholders who do not receive a notice or an e-mail will receive a paper copy of the proxy materials by mail.
To request that you receive paper copies of future proxy materials, please access www.voteproxy.com on the Internet. Click on Request Paper Copies of Materials,
then click on Sempra Energy. You will see an option to elect to receive paper copies each year. You may also request to receive paper copies of future proxy materials by calling (888) 776-9962 from the United States and Canada or
(718) 921-8562 from other countries, or by e-mailing info@amstock.com.
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8. |
I share an address with another shareholder, and we received only one paper copy of the proxy materials. How may I obtain an additional copy? |
If you share an address with another shareholder, you may receive only one set of proxy materials unless you have provided contrary instructions. If you
wish to receive a separate set of proxy materials now, please request the additional copy by contacting our proxy solicitor, Morrow & Co., at:
(800) 607-0088 (U.S. and Canada)
(203) 658-9400 (International)
sempra.info@morrowco.com
A separate set of proxy
materials will be sent promptly following receipt of your request.
If you are a shareholder of record and wish to receive a separate set of proxy
materials in the future, please call our transfer agent, American Stock Transfer & Trust Company, at:
(877) 773-6772 (U.S. and
Canada)
(718) 921-8356 (International)
If you
are the beneficial owner of shares held through a broker, trustee or other nominee and you wish to receive a separate set of proxy materials in the future, please call Broadridge Financial Solutions at:
(800) 542-1061
All shareholders also may write to us
at the address below to request a separate copy of these materials:
Sempra Energy
Attn: Shareholder Services
101 Ash Street
San Diego, CA 92101-3017
investor@sempra.com
9. |
How may I request an electronic copy of the proxy materials? |
If you are a shareholder of record and wish to request electronic delivery of proxy materials in the future, please access www.amstock.com on the Internet. Click on Shareholder Account Access and enroll. Please
enter your account number and tax identification number to log in, then select Receive Company Mailings via E-Mail and provide your e-mail address.
Choosing to access your future proxy materials electronically will help us conserve natural resources and reduce the costs of printing and distributing our proxy
materials. If you choose to access future proxy materials electronically, you will receive an e-mail with instructions containing a link to the website where
those materials are available and a link to the proxy voting website. Your election to access proxy materials electronically will remain in effect until you terminate it.
10. |
Who pays the cost of soliciting votes for the Annual Meeting? |
Sempra Energy is making this solicitation and will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials and of soliciting votes.
Our directors, officers and employees also may solicit votes in person, by telephone or by electronic communication. They will not receive any additional compensation
for these activities.
We also have hired Morrow & Co. to assist us in distributing proxy materials and soliciting votes. We will pay a base fee
of $13,000 plus customary costs and expenses for these services.
We will reimburse brokerage houses and other custodians, nominees and fiduciaries for
forwarding proxy materials to beneficial shareholders.
Proposals To Be Voted On
11. |
What items of business will be voted on at the Annual Meeting? |
The items of business expected to be voted on at the Annual Meeting are:
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Election of directors for a term of one year. |
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Ratification of Deloitte & Touche as our independent registered public accounting firm for 2009. |
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Two shareholder proposals, if properly presented at the meeting. |
12. |
What are my voting choices? |
You may vote FOR
or AGAINST or you may ABSTAIN from voting on any or all nominees for election as directors or on any other matter to be voted on at the Annual Meeting.
Your shares will be voted as you specifically instruct. If you sign your proxy card or voting instruction card without giving specific instructions, your shares will be voted in accordance with the recommendations of
our Board of Directors and in the discretion of the proxy holders on any other matters that properly come before the meeting. If voting instructions for shares that you hold in our Employee Savings Plans are not timely received, the shares
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will be voted in the same manner and proportion as shares for which instructions are received from other plan participants.
13. |
How does the Board of Directors recommend that I vote? |
Our
Board of Directors recommends that you vote your shares FOR each of its nominees for election to the board; FOR the ratification of our independent registered public accounting firm; and AGAINST each shareholder
proposal.
14. |
What vote is required to approve each item? |
To conduct
business at the Annual Meeting, a quorum consisting of a majority of our shares must be present in person or represented by proxy.
To be elected as a
director, a nominee must receive the approval of shareholders. This means that the nominee must receive more FOR than AGAINST votes, and the FOR votes must also represent more than 25% of our
outstanding shares.
Ratification of our independent registered public accounting firm and approval of the shareholder proposals also require the approval
of shareholders.
If your shares are held in the name of a broker and you do not provide instructions as to how your shares are to be voted, your broker
may have authority to vote them in its discretion on some of the items of business to be voted on at the Annual Meeting. Your broker may be prohibited from voting your shares on other proposals, and these broker non-votes will be counted
only for the purpose of determining whether a quorum is present and not as votes cast.
15. |
What happens if additional items are presented at the Annual Meeting? |
We are not aware of any item that may be voted on at the Annual Meeting that is not described in this proxy statement. However, the holders of the proxies that we are soliciting will have the discretion to vote them
in accordance with their best judgment on any additional matters that may be voted on, including matters incidental to the conduct of the meeting.
16. |
Is my vote confidential? |
Our Employee Savings Plans
automatically provide confidential voting. Other shareholders may elect that their identity and individual vote be held confidential by marking the appropriate box on their proxy card or ballot. Confidentiality elections will not apply to the extent
that voting disclosure is required by law or is appropriate to
assert or defend any claim relating to voting. They also will not apply with respect to any matter for which votes are solicited in opposition to the
director nominees or voting recommendations of our Board of Directors, unless the persons engaging in the opposing solicitation provide shareholders with voting confidentiality comparable to that which we provide.
17. |
Where can I find the results of the voting? |
We expect to
announce preliminary voting results at the Annual Meeting and to publish final results in our Quarterly Report on Form 10-Q for the first quarter of 2009 that we will file with the Securities and Exchange Commission. The report will be
available on our website at www.shareholder.com/sre/edgar2.cfm.
How You Can Vote
18. |
What shares can I vote? |
You are entitled to one vote for
each share of our common stock that you owned at the close of business on March 2, 2009, the record date for the Annual Meeting. You may vote all shares owned by you on the record date, including (a) shares held directly in
your name as the shareholder of record, and (b) shares held for you as the beneficial owner through a broker, trustee or other nominee. On the record date, 244,602,535 shares of our common stock were outstanding.
19. |
What is the difference between holding shares as a shareholder of record and as a beneficial owner? |
Most of our shareholders hold their shares through a broker, trustee or other nominee rather than having the shares registered directly in their own name. There are some
distinctions between shares held of record and those owned beneficially that are summarized below.
Shareholder of Record
If your shares are registered directly in your name with our transfer agent, you are the shareholder of record of the shares. As the shareholder of record,
you have the right to grant a proxy to vote your shares to the company or another person, or to vote your shares in person at the Annual Meeting. We have provided a proxy card for you to use in voting your shares.
Beneficial Owner
If your shares are held through a broker, trustee
or other nominee, it is likely that they are registered in the name of the nominee and you are the beneficial owner of shares held in street name. As the beneficial owner of shares held for your account, you have the right to direct
the registered holder to vote your shares as you instruct, and you also are
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invited to attend the Annual Meeting. Your broker, trustee or other nominee has provided a voting instruction card for you to use in directing how your
shares are to be voted. However, since a beneficial owner is not the shareholder of record, you may not vote your shares in person at the meeting unless you obtain a legal proxy from the registered holder of the shares giving
you the right to do so.
20. |
How can I vote in person at the Annual Meeting? |
You may
vote in person at the Annual Meeting those shares that you hold in your name as the shareholder of record. You may vote in person shares for which you are the beneficial owner only by obtaining a legal proxy giving you the right to vote the shares
from the broker, trustee or other nominee that is the registered holder of your shares.
Even if you plan to attend the Annual Meeting, we recommend
that you also submit your proxy or voting instructions as described below so that your vote will be counted if you later decide not to attend.
21. |
How can I vote without attending the Annual Meeting? |
Whether you hold your shares as a shareholder of record or as a beneficial owner, you may direct how your shares are to be voted without attending the Annual Meeting. If you are a shareholder of record, you may vote by submitting a proxy
card. If you hold shares as a beneficial owner, you may vote by submitting voting instructions to your broker, trustee or other nominee.
For directions on
how to vote, please refer to the following instructions and those included on your proxy card or voting instruction card.
Voting by Internet
Shareholders who have received a notice of the availability of our proxy materials by mail or e-mail may vote over the Internet by following the instructions in the notice or e-mail. Those who have received a paper copy of the proxy card or
voting instruction card by mail may vote over the Internet by following the instructions on the card.
Voting by Telephone
Shareholders of record who live in the United States or Canada may vote by telephone by calling (800) 776-9437 and following the instructions. When voting by telephone, shareholders must have available the control number included on their proxy
card, notice of availability of proxy materials or e-mail.
Most shareholders who are beneficial owners of their shares living in the United States or
Canada and who have received a voting instruction card by mail may vote by phone by calling the number specified on the voting instruction card provided by their broker, trustee or nominee. Those shareholders should check the voting instruction card
for telephone voting availability.
Voting by Mail Shareholders who have received a paper copy of these proxy materials may vote by mail by signing, dating and returning their proxy
card or voting instruction card.
22. |
What is the deadline to vote? |
If you hold shares as the
shareholder of record, your vote by proxy must be received before the polls close at the Annual Meeting.
If you hold shares in our Employee Savings Plans,
your voting instructions must be received by 9:00 a.m. Eastern time on Monday, April 27, 2009 for the plan trustee to vote your shares.
If you hold
shares as the beneficial owner, please follow the voting instructions provided by your broker, trustee or other nominee.
23. |
May I change my vote? |
Yes. You may change your vote at any
time prior to the vote at the Annual Meeting, except that any change to your voting instructions for shares held in our Employee Savings Plans must be received by 9:00 a.m. Eastern time on Monday, April 27, 2009.
If you are a shareholder of record, you may change your vote by granting a new proxy bearing a later date (which automatically revokes the earlier proxy), by providing a
written notice of revocation to our Corporate Secretary at the address below in Question 26 prior to your shares being voted, or by attending the Annual Meeting and voting in person. Attendance at the meeting will not cause your previously
granted proxy to be revoked unless you specifically so request.
For shares you hold as a beneficial owner, you may change your vote by timely submitting
new voting instructions to your broker, trustee or other nominee, or, if you have obtained a legal proxy from the nominee giving you the right to vote your shares, by attending the Annual Meeting and voting in person.
24. |
Who will serve as inspector of elections? |
The inspector of
elections will be a representative of American Stock Transfer & Trust Company.
Attending the Annual Meeting
25. |
Who can attend the Annual Meeting? |
You may attend the
Annual Meeting only if you were a Sempra Energy shareholder at the close of business on March 2, 2009 or you hold a valid proxy to vote at the meeting. You should be prepared to present photo identification to be admitted to the meeting.
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If you are a shareholder of record or hold shares through our Direct Stock Purchase Plan or Employee Savings Plans, an admission ticket has been included as
part of your notice of Internet availability of proxy materials or your proxy card. If you plan to attend the meeting, please bring the admission ticket with you. If you do not bring your admission ticket, your name must be verified against our list
of shareholders of record and plan participants.
If you are not a shareholder of record but are the beneficial owner of shares held in street name through
a broker, trustee or other nominee, you must provide proof of beneficial ownership on the record date, such as your most recent account statement prior to March 2, 2009, a copy of the voting instruction card provided by your broker, trustee or
nominee, or other similar evidence of share ownership.
The meeting will begin promptly at 10:00 a.m., local time. Check-in will begin at 9:00 a.m., and
you should allow ample time for check-in procedures.
Shareholder Proposals and Director Nominations
26. |
What is the deadline to submit shareholder proposals to be included in the proxy materials for next years Annual Meeting of Shareholders?
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Shareholder proposals that are intended to be included in our proxy materials for next years Annual Meeting must be received by our
Corporate Secretary no later than 5:30 p.m. Pacific time on November 17, 2009 and must be submitted to the following address:
Corporate Secretary
Sempra Energy
101 Ash Street
San Diego, CA 92101-3017
Fax: (619) 696-4508
Proposals that are not timely submitted or are submitted to some other
address or other than to the attention of our Corporate Secretary may be excluded from our proxy materials.
Shareholder proponents must meet the
eligibility requirements of the Securities and Exchange Commissions Shareholder Proposal Rule (Rule 14a-8), and their proposals must comply with the requirements of the rule to be included in our proxy materials.
27. |
How may I nominate director candidates or present other business for consideration at an Annual Meeting? |
Shareholders who wish to nominate director candidates or to present other items of business to be voted on at an Annual Meeting must give written notice of their
intention
to do so to our Corporate Secretary at the address set forth in Question 26. We must receive the notice at least 90 days but not more than 120 days before
the date corresponding to the date of the last annual meeting. The notice also must include the information required by our bylaws, which may be obtained as provided in Question 29.
The time for us to receive nominations and proposals for the 2009 Annual Meeting has expired. The period for the receipt from shareholders of director nominations and other proposals for the 2010 Annual
Meeting will begin on December 31, 2009 and end on January 30, 2010.
These notice requirements do not apply to shareholder proposals intended
for inclusion in our proxy materials under the Securities and Exchange Commissions Shareholder Proposal Rule. The deadline for receiving those proposals is set forth in Question 26. The notice requirements also do not apply to questions that a
shareholder may wish to ask at the Annual Meeting.
28. |
How may I recommend candidates to serve as directors? |
Shareholders may recommend director candidates for consideration by the Corporate Governance Committee of our Board of Directors by writing to our Corporate Secretary at the address set forth in Question 26. A recommendation must be
accompanied by a statement from the candidate that he or she would give favorable consideration to serving on the board and should include sufficient biographical and other information concerning the candidate and his or her qualifications to permit
the committee to make an informed decision as to whether further consideration of the candidate would be warranted.
Obtaining
Additional Information
29. |
How may I obtain financial and other information about Sempra Energy? |
Our consolidated financial statements are included in our Annual Report to Shareholders that is being provided to you together with this proxy statement.
Additional information regarding the company is included in our Annual Report on Form 10-K, which we file with the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. Our Form 10-K
and other information that we file with the Securities and Exchange Commission are available on our website at www.shareholder.com/sre/edgar2.cfm. We will also furnish a copy of our 2008 Form 10-K (excluding exhibits, except those that are
specifically requested) without charge to any shareholder who so requests by writing to us at our address set forth in Question 8.
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By writing to us, shareholders also may obtain, without charge, a copy of our bylaws, corporate governance guidelines, codes of conduct and charters of our board committees. You can also view these materials on the Internet by accessing our
website at www.sempra.com and clicking on the Investor tab, then clicking on the Governance tab.
30. |
What if I have questions for Sempra Energys transfer agent? |
If you have questions concerning share certificates, dividend checks, transfer of ownership or other matters relating to your share account, please contact our transfer agent at the following address or phone numbers:
American Stock Transfer & Trust Company
Operations Center
Attn: Sempra Energy
6201 15th Avenue
Brooklyn, NY 11219
(877) 773-6772 (U.S. and Canada)
(718) 921-8356 (International)
We have a dividend reinvestment and direct stock purchase program under which you may have all or a portion of your dividends automatically reinvested to purchase our shares. You also may elect to purchase additional
shares through optional cash payments. For information about this program, please contact American Stock Transfer & Trust Company at the address or the phone number listed above.
31. |
Who can help answer any additional questions? |
If you have
any additional questions about the Annual Meeting or how to vote or revoke your vote, you should contact our proxy solicitor:
Morrow & Co.
470 West Avenue
Stamford, CT 06902
Shareholders Call:
(800) 607-0088 (U.S. and Canada)
(203) 658-9400 (International)
Banks and Brokers Call Collect:
(203)
658-9400
If you need additional copies of this proxy statement or voting materials, please contact Morrow & Co. as described above or send an
e-mail to sempra.info@morrowco.com.
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CORPORATE GOVERNANCE
Our business and affairs are managed and all corporate powers are exercised under the direction of our Board of Directors. The board establishes fundamental corporate policies and oversees the performance of the
company and our chief executive officer and the other officers to whom the board has delegated day-to-day business operations.
The board has adopted
Corporate Governance Guidelines that set forth expectations for directors, director independence standards, board committee structure and functions, and other policies for the governance of the company. It has also adopted a Code of Business Conduct
and Ethics for Directors and Officers, and officers are also subject to Business Conduct Guidelines that apply to all employees.
Several standing
committees assist the board in carrying out its responsibilities. Each operates under a written charter adopted by the board.
Our governance guidelines,
committee charters and codes of conduct are posted on our website at www.sempra.com. Paper copies may be obtained upon request by writing to: Corporate Secretary, Sempra Energy, 101 Ash Street, San Diego, California 92101-3017.
Board of Directors
Functions
In addition to its oversight role, our Board of Directors performs a number of specific functions, including:
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Selecting our chief executive officer and overseeing his or her performance and that of other senior management in the operation of the company.
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Reviewing and monitoring strategic, financial and operating plans and budgets and their development and implementation by management. |
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Assessing and monitoring risks and risk-management strategies. |
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Reviewing and approving significant corporate actions. |
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Reviewing and monitoring processes designed to maintain the integrity of the company, including financial reporting, compliance with legal and ethical obligations,
and relationships with shareholders, employees, customers, suppliers and others. |
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Planning for management succession. |
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Selecting director nominees, appointing board committee members and overseeing effective corporate governance. |
Director Independence
The Board of Directors determines the independence of our directors by applying the
independence principles and standards established by the New York Stock Exchange. These provide that a director is independent only if the board affirmatively determines that the director has no direct or indirect material relationship
with the company. They also specify various relationships that preclude a determination of director independence. Material relationships may include commercial, industrial, consulting, legal, accounting, charitable, family and other business,
professional and personal relationships.
Applying these standards, the board annually reviews the independence of the companys directors. In its
most recent review, the board considered, among other things, the absence of any employment relationships between the company and its directors (other than Donald E. Felsinger and Neal E. Schmale who are also executive officers of the
company) and their families; the absence of any affiliation of the companys directors and their families with the companys independent registered public accounting firm, compensation consultants, legal counsel and other consultants and
advisors; and the absence of any transactions with directors and members of their families that would require disclosure in this proxy statement under Securities and Exchange Commission rules regarding related party transactions.
The board reviewed the insubstantial amount of goods and services that we purchase in the ordinary course of our business from a company of which
Mr. Newman is an executive officer and companies of which Messrs. Collato, Jones, Newman, Rusnack and Rutledge and Dr. Ouchi are directors. It also reviewed the small amount of our discretionary contributions to the
YMCA of San Diego County of which Mr. Collato is the President and Chief Executive Officer and to other charitable, educational and other non-profit organizations of which Messrs. Collato, Godbold, Jones, Newman and Rutledge,
Ms. Schenk and Dr. Ouchi or members of their families serve as trustees, directors or in similar capacities. The board concluded that these relationships do not constitute material relationships and do not affect the directors
independence.
Based upon this review, the board has affirmatively determined that each of the companys non-officer directors is independent. The
independent directors are:
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James G. Brocksmith Jr. |
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Richard A. Collato |
Wilford D. Godbold Jr. |
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William D. Jones |
Richard G. Newman |
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William G. Ouchi |
Carlos Ruiz |
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William C. Rusnack |
William P. Rutledge |
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Lynn Schenk |
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Director Share Ownership Guidelines
The board has
established share ownership guidelines for directors and officers to strengthen further the link between company performance and compensation. For non-employee directors, the guideline is ownership of a number of our shares having a value of four
times the directors annual base retainer and is expected to be attained within five years of becoming a director. For these purposes, share ownership includes phantom shares into which compensation has been deferred and the vested portion of
certain in-the-money stock options as well as shares owned directly. All of our non-employee directors who have served as directors for five or more years meet or exceed the guideline. For information regarding executive officer share ownership
guidelines, please see Executive Compensation Compensation Discussion and Analysis Share Ownership Guidelines.
Board and
Committee Meetings; Executive Sessions; Annual Meetings of Shareholders
At regularly scheduled board and committee meetings, directors review and
discuss management reports regarding the companys performance, prospects and plans, as well as immediate issues facing the company. At least once a year, the board also reviews managements long-term strategic and financial plans.
The Chairman of the Board establishes the agenda for each board meeting. Committee agendas are set by or in consultation with the committee chair.
Directors are encouraged to suggest agenda items, and any director also may raise at any meeting subjects that are not on the agenda.
Information and
other materials important to understanding the business to be conducted at board and committee meetings are distributed in writing to the directors in advance of the meeting. Additional information may be presented at the meeting.
An executive session of non-management board members is held at each regularly scheduled board meeting, and any director may call for an executive session at any special
meeting. Executive sessions are presided over by the Chair of the Compensation Committee. During 2008, the board held six executive sessions.
During 2008,
the board held six regular and three special meetings and committees of the board held 19 meetings. Directors, on an aggregate basis, attended over 99% of the combined number of these meetings. Each director attended at least 93% of the combined
number of meetings of the board and each committee of which the director was a member.
The board encourages attendance at the Annual Meeting of
Shareholders by all nominees for election as directors. Last
year, all of the nominees and directors attended the meeting except Mr. Ruiz.
Evaluation of Board and Director Performance
The Corporate Governance Committee annually reviews and evaluates the
performance of the Board of Directors. The committee assesses the boards contribution as a whole and identifies areas in which the board or senior management believes a better contribution may be made. The purpose of the review is to increase
the effectiveness of the board, and the results are reviewed with the board and its committees.
Our board annually reviews the individual performance and
qualifications of each director who may wish to be considered for nomination to an additional term. The evaluations are reviewed by the Corporate Governance Committee, which makes recommendations to the board regarding nominees for election as
directors.
Succession Planning and Management Development
Our Compensation Committee annually reports to the Board of Directors on succession planning, including policies and principles for executive officer selection.
Review of Related Party Transactions
Securities and Exchange Commission rules require disclosure of certain
transactions involving more than $120,000 in which the company is a participant and any of its directors, nominees as directors or executive officers, or any member of their immediate families, has or will have a direct or indirect material
interest. The charter of our Corporate Governance Committee requires the committee to review any such related party transaction before the company enters into the transaction. There have been no transactions or proposed transactions
requiring such review during 2008 or 2009.
Director Orientation and Education Programs
Every new director participates in an orientation program and receives materials and briefings to acquaint him or her with our business, industry, management and
corporate governance policies and practices. Continuing education is provided for all directors through board materials and presentations, discussions with management, visits to corporate facilities and other sources.
Board Access to Senior Management, Independent Accountants and Counsel
Directors have complete access to our independent registered public accounting firm, and to senior management and other employees. They also have complete access to counsel, advisors and experts of their choice with respect to any issues
relating to the boards discharge of its duties.
9
Board Committees
Audit Committee
James G. Brocksmith Jr., Chair
Wilford D. Godbold Jr.
William D. Jones
Richard G. Newman
Carlos Ruiz
Lynn Schenk
Compensation Committee
William C. Rusnack, Chair
Richard A. Collato
William G. Ouchi
William P. Rutledge
Corporate Governance Committee
William G. Ouchi, Chair
James G.
Brocksmith Jr.
Richard A. Collato
Richard G. Newman
William C. Rusnack
Environmental and Technology Committee
William P. Rutledge, Chair
Wilford D. Godbold Jr.
William D. Jones
Carlos Ruiz
Lynn Schenk
Executive Committee
Donald E. Felsinger, Chair
James G. Brocksmith Jr.
William G. Ouchi
William C. Rusnack
William P. Rutledge
Audit Committee
Our Audit Committee is composed entirely of independent directors. It is directly responsible and has sole authority for selecting, appointing, retaining and overseeing
the work and approving the compensation of our independent registered public accounting firm, which reports directly to the committee. The committee pre-approves all services provided by the accounting firm and prepares the report reprinted under
the caption Audit Committee Report. It also assists the Board of Directors in fulfilling oversight responsibilities regarding:
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The integrity of our financial statements. |
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Our compliance with legal and regulatory requirements. |
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Our internal audit function. |
The board has
determined that each member of the Audit Committee is financially literate. It has also determined that Mr. Brocksmith, who chairs the committee, is an audit
committee financial expert as defined by the rules of the Securities and Exchange Commission.
During 2008, the Audit Committee held seven meetings.
Compensation Committee
Our Compensation Committee is composed entirely of independent directors. It assists the Board of Directors in the evaluation and compensation of executives. It
establishes our compensation principles and policies and oversees our executive compensation program. The committee has direct responsibility for:
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Reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer. |
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Evaluating our Chief Executive Officers performance in light of those goals and objectives and approving (subject to ratification by the board acting solely
through the independent directors) his or her compensation based on the committees performance evaluation. |
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Recommending to the board the compensation program for other executive officers, incentive compensation plans and equity-based plans. |
During 2008, the Compensation Committee held four meetings.
For
additional information regarding the Compensation Committees principles, policies and practices please see the discussion under Executive Compensation Compensation Discussion and Analysis.
Corporate Governance Committee
Our Corporate Governance Committee
is composed entirely of independent directors. The committees responsibilities include:
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Identifying individuals qualified to become directors. |
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Recommending nominees for election as directors and candidates to fill board vacancies. |
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Recommending directors for appointment as members of board committees. |
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Developing and recommending corporate governance principles. |
The committee reviews with the board the skills and characteristics required of directors in the context of current board membership, and develops and maintains a pool of qualified director candidates. It solicits the names of candidates
from various sources, including board members and search firms, and considers candidates submitted by shareholders.
10
The committee reviews biographical data and other relevant information regarding potential board candidates, may request additional information from the
candidates or other sources and, if the committee deems it appropriate, may interview candidates and consult references and others who may assist in candidate evaluation.
The committee evaluates all candidates in the same manner whether identified by shareholders or through other sources.
In considering potential director candidates, the committee evaluates each candidates integrity, independence, judgment, knowledge, experience and other relevant factors to develop an informed opinion of his or her qualifications and
ability and commitment to meet the boards expectations for directors set forth in our Corporate Governance Guidelines.
The committees
deliberations reflect the boards requirement that substantially all director nominees (other than current or former company officers) should be independent and that all directors must be financially literate or must become financially literate
within a reasonable time after appointment or election to the board. They also reflect the boards view regarding the appropriate number of directors and the composition of the board, including its belief that the membership of the board should
reflect diversity.
During 2008, the Corporate Governance Committee held five meetings.
Executive Committee
Our Executive Committee meets on call by the Chairman of the Board during the intervals between
meetings of the Board of Directors when scheduling or other requirements make it difficult to convene the full board. The committee did not meet during 2008.
Environmental and Technology Committee
Our Environmental and Technology Committee is responsible for:
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Reviewing environmental laws, regulations and developments at the global, national and regional level, and evaluating ways to address them as part of the
companys business strategy and operations. |
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Reviewing and evaluating technology developments and related issues that advance the companys overall business strategy. |
During 2008, the Environmental and Technology Committee held three meetings.
Shareholder Communications with the Board
Shareholders who wish to communicate with the board, non-management
directors as a group, a committee of the
board or a specific director may do so by letters addressed to the attention of our Corporate Secretary. All shareholder communications regarding executive
compensation will be relayed on to the Chair of the Compensation Committee, William C. Rusnack, for appropriate evaluation and consideration.
All
other shareholder communications are reviewed by the Corporate Secretary and provided to the addressees consistent with a screening policy providing that unsolicited items, sales materials, and other routine items and items unrelated to the duties
and responsibilities of the board not be relayed on to directors. Any communication that is not relayed is recorded in a log and made available to the directors.
The address for these communications is:
Corporate Secretary
Sempra Energy
101 Ash Street
San Diego, CA 92101-3017
Director Compensation
Directors who are not employees of Sempra Energy receive an annual base retainer of $50,000. The Chair of the Audit Committee receives an additional $20,000 and the
chairs of other board committees receive an additional $10,000. Non-employee directors also receive meeting fees of $1,000 for each board meeting they attend and each meeting they attend of the board committees ($1,500 in the case of the Audit
Committee) of which they are members.
Each quarter, non-employee directors also are credited with a number of phantom shares of our common stock having a
market value of $12,500. Upon the directors retirement as a director, the then market value of the shares credited to the directors account (together with reinvested dividend equivalents) is paid to the director in cash. Directors may
also elect to receive their other fees in shares of our common stock or to defer them into an interest-bearing account, phantom investment funds or phantom shares of our common stock.
Upon becoming a director, each non-employee director is granted a ten-year option to purchase 15,000 shares of our common stock. At each annual meeting (other than the annual meeting that coincides with or first
follows the directors election to the board), each non-employee director who continues to serve as a director is granted an additional ten-year option for 5,000 shares. Each option is granted with an exercise price at the closing price of our
common stock on the date the option is granted and becomes fully exercisable commencing with the first annual meeting following that date or upon the directors earlier death, disability, retirement or involuntary termination of board service
other than for cause.
11
We summarize the 2008 compensation of our non-employee directors below.
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2008 Director Compensation |
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Fees Earned or Paid in Cash |
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Stock Awards (A) |
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Option Awards (B)(C) |
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Change in Pension Value and Nonqualified Deferred Compensation Earnings
(D) |
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All Other Compensation (E) |
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Total |
James G. Brocksmith Jr.
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$ |
97,500 |
|
$ |
50,000 |
|
$ |
66,400 |
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$ |
213,900 |
Richard A. Collato |
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$ |
68,000 |
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$ |
50,000 |
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$ |
66,400 |
|
$ |
94,496 |
|
$ |
20,000 |
|
$ |
298,896 |
Wilford D. Godbold Jr. |
|
$ |
74,000 |
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$ |
50,000 |
|
$ |
66,400 |
|
$ |
92,286 |
|
$ |
7,000 |
|
$ |
289,686 |
William D. Jones |
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$ |
75,500 |
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$ |
50,000 |
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$ |
66,400 |
|
$ |
53,389 |
|
$ |
6,500 |
|
$ |
251,789 |
Richard G. Newman |
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$ |
74,500 |
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$ |
50,000 |
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$ |
66,400 |
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$ |
20,000 |
|
$ |
210,900 |
William G. Ouchi |
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$ |
79,000 |
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$ |
50,000 |
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$ |
66,400 |
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$ |
85,842 |
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$ |
20,000 |
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$ |
301,242 |
Carlos Ruiz |
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$ |
73,000 |
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$ |
50,000 |
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$ |
81,313 |
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|
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$ |
204,313 |
William C. Rusnack |
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$ |
85,500 |
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$ |
50,000 |
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$ |
66,400 |
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$ |
6,892 |
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$ |
20,000 |
|
$ |
228,792 |
William P. Rutledge |
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$ |
82,000 |
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$ |
50,000 |
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$ |
66,400 |
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$ |
198,400 |
Lynn Schenk (F) |
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$ |
53,667 |
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$ |
41,667 |
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$ |
126,706 |
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$ |
20,000 |
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$ |
242,040 |
(A) |
Phantom shares of our common stock that are valued at the fair market value of our shares at the quarterly crediting date without reduction for phantom share non-transferability.
The number of our phantom shares credited to each director (including shares credited in prior years and additional phantom shares credited as reinvested dividends) at December 31, 2008 was 8,401 shares for each director other than
Mr. Newman, Mr. Ruiz and Ms. Schenk, for whom the number of phantom shares was 8,203 shares, 1,602 shares and 881 shares, respectively. Upon retirement as a director, the then market value of the shares credited to the directors
account is paid to the director in cash. |
(B) |
Amount recognized as compensation expense for stock options granted in 2007 and 2008 calculated in accordance with generally accepted accounting principles for financial reporting
purposes and based on the grant date fair value assumptions described in Note 10 of Notes to Consolidated Financial Statements included in our Annual Report to Shareholders, but disregarding service-based vesting conditions. The grant date fair
value for 2008 option awards was $69,600 for each director other than Ms. Schenk for whom the grant date fair value was $160,050. |
(C) |
The number of our shares subject to non-employee director stock options that were outstanding at December 31, 2008 is 45,000 shares for Mr. Brocksmith; 50,000 shares for
Mr. Collato; 50,000 shares for Mr. Godbold; 25,000 shares for Mr. Jones; 15,000 shares for Mr. Newman; 50,000 shares for Dr. Ouchi; 15,000 shares for Mr. Ruiz; 45,000 shares for Mr. Rusnack; 45,000 shares for
Mr. Rutledge; and 15,000 shares for Ms. Schenk. |
(D) |
Consists of (i) above-market interest (interest in excess of 120% of the federal long term rate) on deferred compensation and (ii) the aggregate change in the actuarial
value of accumulated benefits under defined benefit pension plans. The respective amounts are $11,169 and $83,327 for Mr. Collato; $18,780 and $73,506 for Mr. Godbold; $267 and $53,122 for Mr. Jones; $0 and $85,842 for Dr. Ouchi;
and $6,892 and $0 for Mr. Rusnack. Only Messrs. Collato, Godbold and Jones and Dr. Ouchi are entitled to receive pension benefits and all have attained maximum years of service credit. The annual benefit is an amount equal to the sum
of the annual director retainer and ten times the board meeting fee at the date the benefit is paid. It commences upon the later of the conclusion of board service or attaining age 65 and continues for a period not to exceed the directors
years of service as a director of predecessor companies and up to ten years of service as a director of the company. The actuarial equivalent of the total retirement benefit is paid to the retiring director in a single lump sum upon the conclusion
of board service unless the director has elected to receive the annual benefit. |
(E) |
Consists of our contributions to charitable, educational and other non-profit organizations to match those of directors on a dollar-for-dollar basis up to an annual maximum match of
$20,000 for each director. |
(F) |
Ms. Schenk became a director on March 12, 2008. |
Directors who
are also employees of the company (Donald E. Felsinger, Chairman and Chief Executive Officer, and Neal E. Schmale, President and Chief Operating Officer) are not additionally compensated for their services as directors. Their compensation
is summarized in the Summary Compensation Table appearing under Executive Compensation.
12
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is
composed of the six directors named below, all of whom have been determined by the board to be independent directors. The board also has determined that all members of the committee are financially literate and the chair of the committee is an audit
committee financial expert as defined by the rules of the Securities and Exchange Commission. The committees charter, adopted by the board, is posted on the companys website at www.sempra.com/aboutUs/gov_charterAudit.htm.
The committees responsibilities include appointing the companys independent registered public accounting firm, pre-approving both audit and
non-audit services to be provided by the firm, and assisting the board in providing oversight to the companys financial reporting process. In fulfilling its oversight responsibilities, the committee meets with the companys independent
registered public accounting firm, internal auditors and management to review accounting, auditing, internal controls and financial reporting matters.
It
is not the committees responsibility to plan or conduct audits or to determine that the companys financial statements and disclosures are complete, accurate and in accordance with accounting principles generally accepted in the United
States and applicable laws, rules and regulations. Management is responsible for the companys financial statements, including the estimates and judgments on which they are based, as well as the companys financial reporting process,
accounting policies, internal audit function, internal accounting controls, and disclosure controls and procedures. The companys independent registered public accounting firm, Deloitte & Touche LLP, is responsible for performing an
audit of the companys annual financial statements, expressing an opinion as to the conformity of the annual financial statements with accounting principles generally accepted in the United States, expressing an opinion as to the effectiveness
of the companys internal control over financial reporting, and reviewing the companys quarterly financial statements.
The committee has
discussed with Deloitte & Touche the matters required to be discussed by Statement of Auditing Standards No. 61 (Communications with Audit Committees), as amended and adopted by the Public Company Accounting Oversight Board, which
requires the independent registered public accounting firm to provide the committee with information regarding the scope and results of its audit of the companys financial statements, including information with respect to the firms
responsibilities under auditing standards generally accepted in the United States, significant accounting policies, management judgments and estimates, any significant audit
adjustments, any disagreements with management and any difficulties encountered in performing the audit.
The committee also has received from Deloitte & Touche a letter providing the disclosures required by the applicable requirements of the Public Accounting
Oversight Board regarding the independent accountants communications with the Audit Committee concerning independence. Deloitte & Touche has also discussed its independence with the committee and confirmed in the letter that, in its
professional judgment, it is independent of the company within the meaning of the federal securities laws. The committee also considered whether Deloitte & Touches provision of non-audit services to the company and its affiliates is
compatible with its independence.
The committee also has reviewed and discussed with the companys senior management the audited financial statements
included in the companys Annual Report on Form 10-K for the year ended December 31, 2008 and managements reports on the financial statements and internal controls. Management has confirmed to the committee that the financial
statements have been prepared with integrity and objectivity and that management has maintained an effective system of internal controls. Deloitte & Touche has expressed its professional opinions that the financial statements conform with
accounting principles generally accepted in the United States and that management has maintained an effective system of internal controls. In addition, the companys Chief Executive Officer and Chief Financial Officer have reviewed with the
committee the certifications that each will file with the Securities and Exchange Commission pursuant to the requirements of the Sarbanes-Oxley Act of 2002 and the policies and procedures management has adopted to support the certifications.
Based on these considerations, the Audit Committee has recommended to the Board of Directors that the companys audited financial statements be
included in the Annual Report on Form 10-K for the year ended December 31, 2008.
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Audit Committee |
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James G. Brocksmith Jr., Chair Wilford D. Godbold Jr. William D. Jones Richard G. Newman
Carlos Ruiz Lynn
Schenk February 19, 2009 |
13
SHARE OWNERSHIP
The following
table shows the number of shares of our common stock beneficially owned at March 2, 2009 by each of our directors, by each of our executive officers named in the executive compensation tables in this proxy statement (other than Mr. Guiles
who retired on March 1, 2009), and by all of our directors and executive officers as a group. These shares, upon giving effect to the exercise of exercisable options, total approximately 1.5% of our outstanding shares.
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Share Ownership |
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Current Beneficial Holdings (A) |
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Shares Subject to Exercisable Options (B) |
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Phantom Shares (C) |
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Total |
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James G. Brocksmith Jr. |
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235 |
|
45,000 |
|
12,571 |
|
57,806 |
Javade Chaudhri |
|
97,204 |
|
56,825 |
|
2,147 |
|
156,176 |
Richard A. Collato |
|
6,966 |
|
50,000 |
|
8,759 |
|
65,725 |
Donald E. Felsinger |
|
463,008 |
|
1,118,950 |
|
92,889 |
|
1,674,847 |
Wilford D. Godbold Jr. |
|
3,006 |
|
50,000 |
|
13,961 |
|
66,967 |
William D. Jones |
|
3,553 |
|
25,000 |
|
9,542 |
|
38,095 |
Richard G. Newman |
|
36,009 |
|
15,000 |
|
8,560 |
|
59,569 |
William G. Ouchi |
|
15,756 |
|
45,000 |
|
9,244 |
|
70,000 |
Carlos Ruiz |
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|
|
20,000 |
|
1,904 |
|
21,904 |
William C. Rusnack |
|
4,480 |
|
45,000 |
|
9,146 |
|
58,626 |
William P. Rutledge |
|
2,732 |
|
45,000 |
|
9,327 |
|
57,059 |
Lynn Schenk |
|
2,000 |
|
15,000 |
|
1,177 |
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18,177 |
Neal E. Schmale |
|
300,079 |
|
468,850 |
|
29,502 |
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798,431 |
Mark A. Snell |
|
131,142 |
|
122,975 |
|
3,393 |
|
257,510 |
Directors and Executive Officers as a group (18
persons) |
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1,227,960 |
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2,520,969 |
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228,217 |
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3,977,146 |
(A) |
Includes unvested shares of restricted stock that may be voted but are not transferable until they are vested and transfer restrictions terminate. These shares total 52,072 shares
for Mr. Chaudhri; 232,364 shares for Mr. Felsinger; 174,463 shares for Mr. Schmale; 86,520 shares for Mr. Snell; and 645,679 shares for all directors and executive officers as a group. |
(B) |
Shares which may be acquired through the exercise of stock options that are currently exercisable or will become exercisable within 60 days. |
(C) |
Represents deferred compensation deemed invested in phantom shares of our common stock. The phantom shares cannot be voted or transferred but track the performance of our shares.
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Sempra Energy has approximately 256,000 shareholders.
No person is known to
us to own beneficially more than 5% of our outstanding shares.
Our employee savings and stock ownership plans held 17,669,929 shares of our common stock
(approximately 7.2% of the outstanding shares) for the benefit of employees at March 2, 2009.
Our directors and executive officers are required to
file reports with the Securities and Exchange Commission
regarding their ownership of our shares. Based solely on a review of copies of the reports that have been furnished to us and written representations from
directors and officers that no other reports were required, we believe that all filing requirements were timely met during 2008.
For information regarding
share ownership guidelines applicable to our directors and officers, please see Corporate Governance Board of Directors Director Share Ownership Guidelines and Executive Compensation Compensation Discussion and
Analysis Share Ownership Guidelines.
14
PROPOSALS TO BE VOTED ON
Proposal 1: Election of Directors
Our Board of Directors currently consists of
twelve directors who are elected at each annual meeting for terms expiring at the next annual meeting.
The board has determined that each of its
non-officer nominees for election as a director is an independent director. Information concerning the boards independence standards is contained under the caption Corporate Governance Board of Directors Director
Independence.
The Corporate Governance Committee has recommended and the Board of Directors has nominated the following twelve individuals, all of
whom currently are directors, for election as directors:
James G. Brocksmith Jr.
Richard A. Collato
Donald E. Felsinger
Wilford D. Godbold Jr.
William D. Jones
Richard G. Newman
William G. Ouchi
Carlos Ruiz
William C. Rusnack
William P. Rutledge
Lynn Schenk
Neal E.
Schmale
The proxies and voting instructions solicited by the board will be voted for these twelve nominees unless other instructions are specified. If any nominee should become
unavailable to serve, the proxies may be voted for a substitute nominee designated by the board or the board may reduce the authorized number of directors.
We have not received notice of any additional candidates to be nominated for election as directors at the 2009 Annual Meeting and the deadline for notice of additional candidates has passed. Consequently, the election of directors will be
an uncontested election and our bylaw providing for majority voting in uncontested elections will apply. Under majority voting, a nominee must receive more votes FOR than AGAINST election to be elected as a director. In
addition, the FOR votes must represent more than 25% of our outstanding shares. If a nominee who currently is serving as a director does not receive sufficient FOR votes to be re-elected, the director will cease to be a
director not later than 90 days following the certification of the election results, and the resulting vacancy in the board may be filled by the remaining directors.
Information regarding each director nominee is set forth below. The year shown as election as a director is the year that the director was first elected as a director of Sempra Energy or a predecessor corporation.
Unless otherwise indicated, each director has held his or her principal occupation or other positions with the same or predecessor organizations for at least the last five years.
.
15
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR EACH
OF ITS NOMINEES FOR ELECTION TO THE BOARD
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James G. Brocksmith Jr., 68, has been a director since 2001. He is an independent financial consultant and the former Deputy Chairman and Chief Operating Officer for
the U.S. operations of KPMG Peat Marwick LLP. He is a director of AAR Corp and Alberto- |
Culver Co. He is a former director of Nationwide Financial Services. |
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Richard A. Collato, 65, has been a director since 1993. He is President and Chief Executive Officer of the YMCA of San Diego County. He is currently a trustee of the YMCA Retirement Fund,
and a director of the Corporate Directors Forum, Pepperball Technologies, Inc., |
Project Design Consultants and WD-40 Company. |
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Donald E. Felsinger, 61, has been a director since 2004. He is the Chairman of the Board and Chief Executive Officer of the company. From 1998 through 2004, he was Group President and
Chief Executive Officer of Sempra Global. Prior to the merger that formed Sempra |
Energy, he served as President and Chief Operating Officer of Enova Corporation, the parent company of San Diego Gas & Electric (SDG&E). Prior positions included President
and Chief Executive Officer of SDG&E, Executive Vice President of Enova Corporation and Executive Vice President of SDG&E. He is also a director of Northrop Grumman Corporation. He is a member of the Conference Board, the Committee
Encouraging Corporate Philanthropy and the USA/Mexico Chamber of Commerce. |
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Wilford D. Godbold Jr., 70, has been a director since 1990. He is the retired President and Chief Executive Officer of ZERO Corporation, an international manufacturer primarily of
enclosures and thermal management equipment for the electronics market. He is a director |
emeritus of The Wellness Community, a past President of the Board of Trustees of Marlborough School and a past Chairman of the Board of Directors of the California Chamber of
Commerce and The Employers Group. |
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William D. Jones, 53, has been a director since 1994. He is the President and Chief Executive Officer and a director of CityLink Investment Corporation and City Scene Management Company.
From 1989 to 1993, he served as General Manager/ |
Senior Asset Manager and Investment Manager with certain real estate subsidiaries of The Prudential. Prior to joining The Prudential, he served as a San Diego City Council member
from 1982 to 1987. Mr. Jones is a director of the Federal Reserve Bank of San Francisco, Southwest Water Company, certain funds under management by Capital Research and Management Company and the San Diego Padres baseball club. He is
also a trustee of the Francis Parker School. He is a former director of The Price Real Estate Investment Trust and former Chairman of the Board of the Los Angeles Branch of the Federal Reserve Bank of San Francisco. |
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|
|
|
Richard G. Newman, 74, has been a director since 2002. He is the Chairman of AECOM Technology Corporation. Mr. Newman is a director of Southwest Water Company and of 14 mutual funds
under Capital Research and Management Company. He serves on the boards of |
directors of the YMCA of Metropolitan Los Angeles and Boy Scouts of America/Western Council and on the Board of Visitors for Pepperdine Universitys George L. Graziado
School of Business & Management. |
|
|
|
|
William G. Ouchi, Ph.D., 65 has been a director since 1998. He is the Sanford and Betty Sigoloff Distinguished Professor in Corporate Renewal in the Anderson Graduate School of Management
at UCLA. Dr. Ouchi is a director of AECOM Technology |
Corporation and FirstFed Financial Corp. He is a director of The Alliance for College Ready Public Schools, the California Heart Center Foundation, the Japanese American National
Museum and the Conrad N. Hilton Foundation. |
16
|
|
|
|
|
Carlos Ruiz, 59, became a director in 2007. He is a partner of Proyectos Estrategicos Integrales, a Mexican developing and financing company that provides comprehensive financial advisory
and investment banking services to the private and public sectors, |
mainly in energy, infrastructure, transportation and communications. He is also a director of Southern Copper Corporation (an integrated copper producer in Peru and Mexico), ASARCO
LLC (an integrated copper producer in the United States) and Constructora y Perforadora Latina (a Mexican geothermal exploration and drilling company). |
|
|
|
|
William C. Rusnack, 64, has been a director since 2001. He was the President and Chief Executive Officer and a director of Premcor, Inc. from 1998 to 2002. Prior to 1998, he was an
executive of Atlantic Richfield Company. He is also a director of |
Flowserve and Peabody Energy. He is a member of the Deans Advisory Council of the Graduate School of Business at the University of Chicago and the National Council of the Olin
School of Business at the Washington University in St. Louis. |
|
|
|
|
William P. Rutledge, 67, has been a director since 2001. He is the Chief Executive Officer of AquaNano Technologies, LLC. He was Chairman of Communications and Power Industries from 1999
to 2004. Prior to 1998, he was President and Chief Executive Officer of |
Allegheny Teledyne. He is also a director of AECOM Technology Corporation, Communications and Power Industries, and FirstFed Financial Corp. He is a Trustee emeritus of Lafayette
College and a Trustee of St. Johns Hospital and Health Center Foundation, John Wayne Career Institute and the World Affairs Council of Los Angeles. |
|
|
|
|
|
Lynn Schenk, 64, became a director in 2008. She is an attorney in private practice. She served as Chief of Staff to the Governor of California from 1999 to 2003. She served as a member of
the U.S. House of Representatives representing Californias 49th District |
from 1993 to 1995 and as the California Secretary of Business, Transportation and Housing from 1980 to 1983. She is also a director of Biogen Idec, a trustee of The Scripps Research
Institute, a director of the California High Speed Rail Authority and a member of the University of San Diego School of Law, Board of Visitors. |
|
|
|
|
Neal E. Schmale, 62, has been a director since 2004. He is the President and Chief Operating Officer of the company. He is also a director of Murphy Oil Corporation and WD-40 Company.
|
17
Proposal 2: Ratification of Independent Registered Public Accounting Firm
The Audit Committee of the Board of Directors has selected Deloitte & Touche LLP as the independent registered public accounting firm to audit our financial
statements and the effectiveness of our internal control over financial reporting for 2009. Representatives of Deloitte & Touche are expected to attend the Annual Meeting and will have the opportunity to make a statement if they desire to
do so and to respond to appropriate questions from shareholders.
The following table shows the fees that we paid Deloitte & Touche for 2008 and
2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
Fees |
|
% of Total |
|
|
Fees |
|
% of Total |
|
Audit Fees |
|
|
|
|
|
|
|
|
|
|
|
|
Sempra Energy Consolidated Financial Statements and Internal Control Audits,
Subsidiary and Statutory Audits |
|
$ |
6,653,000 |
|
|
|
|
$ |
8,910,000 |
|
|
|
SEC Filing and Related Services |
|
|
228,000 |
|
|
|
|
|
59,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Audit Fees |
|
|
6,881,000 |
|
85 |
% |
|
|
8,969,000 |
|
83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit-Related Fees |
|
|
|
|
|
|
|
|
|
|
|
|
Employee Benefit Plan Audits |
|
|
417,000 |
|
|
|
|
|
400,000 |
|
|
|
Accounting Consultation |
|
|
298,000 |
|
|
|
|
|
1,130,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Audit-Related Fees |
|
|
715,000 |
|
9 |
% |
|
|
1,530,000 |
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Fees |
|
|
|
|
|
|
|
|
|
|
|
|
Tax Planning and Compliance |
|
|
154,000 |
|
|
|
|
|
260,000 |
|
|
|
Other Tax Services |
|
|
302,000 |
|
|
|
|
|
90,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Tax Fees |
|
|
456,000 |
|
5 |
% |
|
|
350,000 |
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Fees |
|
|
54,000 |
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees |
|
$ |
8,106,000 |
|
|
|
|
$ |
10,849,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Audit Committee is directly responsible and has sole authority for selecting, appointing, retaining and overseeing the work and approving the compensation of our
independent registered public accounting firm. The committee also pre-approves all audit and permissible non-audit services provided by Deloitte & Touche. The committees pre-approval policies and procedures provide for the general
pre-approval of specific types of services, give detailed guidance to management as to the specific services that are eligible for general pre-approval and provide specific cost limits for each service on an annual basis. They require specific
pre-approval of all other permitted services. For both types of pre-approval, the committee considers whether the services to be provided are consistent with maintaining the firms independence.
The policies and procedures also delegate authority to the chair of the committee to address any requests for pre-approval of services between committee meetings, with any pre-approval decisions to be reported to the
committee at its next scheduled meeting.
We are asking our shareholders to ratify the appointment of Deloitte & Touche as our independent
registered public accounting firm for 2009. Ratification would be advisory only, but the Audit Committee would reconsider the appointment if it were not ratified. Ratification requires the favorable vote of a majority of the votes cast, and the
approving majority also must represent more than 25% of our outstanding shares.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
PROPOSAL 2
18
Proposal 3: Shareholder Proposal for an Advisory Vote on Executive Compensation
The following proposal has been submitted by a shareholder and is included in this proxy statement in accordance with the Securities and Exchange Commissions Shareholder Proposal Rule. It is presented as
submitted by the shareholder proponent, whose name and address will be provided promptly to any shareholder who orally or in writing requests that information from our Corporate Secretary.
This proposal will be voted upon at the Annual Meeting only if it is properly presented by the shareholder proponent or the proponents qualified representative. To
be approved by shareholders, the proposal must receive the favorable vote of a majority of the votes cast on the proposal, and the approving majority must also represent more than 25% of our outstanding shares.
FOR THE REASONS STATED BELOW, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THIS SHAREHOLDER PROPOSAL
The Shareholder Proposal
3 - Shareholder Say on
Executive Pay
RESOLVED, that shareholders request our board of directors to adopt a policy that provides shareholders the opportunity at each annual
shareholder meeting to vote on an advisory resolution, proposed by management, to ratify the compensation of the named executive officers set forth in the proxy statements Summary Compensation Table and the accompanying narrative disclosure of
material factors provided to understand the Summary Compensation Table (but not the Compensation Discussion and Analysis). The proposal submitted to shareholders should make clear that the vote is non-binding and would not affect any compensation
paid or awarded to any named executive officers.
Statement of Chris Rossi
Investors are increasingly concerned about mushrooming executive pay especially when it is insufficiently linked to performance. Shareholders filed close to 100
Say on Pay resolutions in 2008. Votes averaged 43% in favor, with ten votes over 50%, demonstrating strong shareholder support.
To date eight
companies agreed to an Advisory Vote, including Verizon, MBIA, H&R Block, Blockbuster, and Tech Data. TIAA-CREF, the countrys largest pension fund, has successfully utilized the Advisory Vote twice.
This proposal is particularly relevant to Sempra because Donald Felsinger, our CEO participated in three pension plans that totaled $16 million. Additionally
Mr. Felsingers
severance provisions provided for $47 million in the event of a change in control regardless of whether he keeps his job or not.
Source: The Corporate Library www.thecorporatelibrary.com, an independent research firm.
A Los Angeles Times article was titled,
Sempra CEOs pay in fine print: The firms disclosures on compensation lack clarity despite new rules to boost transparency, March 16, 2007.
The Council of Institutional Investors endorsed Advisory Votes and a bill to allow annual Advisory Votes passed the House of Representatives by a 2-to-1 margin. As presidential candidates, Senators Obama and McCain
supported the Advisory Vote.
The merits of this Shareholder Say on Executive Pay proposal should also be considered in the context of the need for
improvements in our companys corporate governance and in individual director performance. In 2008 the following governance and performance issues were identified:
|
|
Our directors had 13 seats on boards rated D by The Corporate Library: |
|
|
|
William Ouchi |
|
AECOM Technology (ACM) |
William Rutledge |
|
AECOM Technology (ACM) |
Richard Newman |
|
AECOM Technology (ACM) |
William Ouchi |
|
FirstFed Financial (FED) |
William Rutledge |
|
FirstFed Financial (FED) |
William Jones |
|
Southwest Water (SWWC) |
Richard Newman |
|
Southwest Water (SWWC) |
James Brocksmith |
|
AAR (AIR) |
Carlos Sacristan |
|
Southern Copper (PCU) |
William Rutledge |
|
CPI International (CPII) |
William Rusnack |
|
Flowserve (FLS) |
William Rusnack |
|
Peabody Energy (BTU) |
Donald Felsinger |
|
Northrop Grumman (NOC) |
|
|
Our company is probably in the worst 10% of Fortune 500 companies for having the highest number of directors on D-rated boards. |
|
|
We had no shareholder right to: |
An
independent Board Chairman.
An independent Lead Director.
Cumulative voting.
To act by written consent.
The above concerns shows there is need for improvement. I urge our board to respond positively to this proposal:
Shareholder Say on Executive Pay
Yes on 3
19
The Board of Directors Position
The Board of Directors and its Compensation Committee appreciate the underlying goal of this proposal to
provide shareholders with a mechanism to convey their views regarding executive compensation and related processes and disclosures. But they also believe that the advisory vote contemplated by the proposal would be a confusing vehicle for
shareholders to express their views and that shareholders already have a number of more effective ways to communicate their views to the board, the committee and the companys management. Accordingly, the board and the committee believe that
the advisory vote contemplated by the proposal is unnecessary and could create confusion rather than clarity around compensation issues.
As summarized in
the Compensation Discussion and Analysis appearing under Executive Compensation in this proxy statement, the board and its compensation committee have a sound and disciplined compensation review process. We seek to assure that our
compensation and benefit programs are cost-effective and competitive, administered in accordance with good corporate governance practices and aligned with the best interests of shareholders.
We also have a responsibility to explain clearly our compensation process. Securities and Exchange Commission rules adopted in 2006 underscore that responsibility and
significantly expanded proxy statement disclosures regarding executive compensation. We believe the greater transparency that these disclosures provide are a proper means of providing more specific information regarding executive compensation
practices. We want our shareholders to understand our compensation process and to have confidence that it is designed and applied in a manner consistent with shareholder interests.
The proposal would not provide a mechanism for shareholders to express their specific views on compensation processes and policies. Instead it is limited to a simple yes or no advisory vote on
named executive officer compensation and related disclosures. A negative vote would not provide clear guidance on the specific components of our executive compensation program or on the specific compensation decisions that were made.
Moreover, even with extensive executive compensation disclosures, shareholders are unlikely to be in a position to cast an informed vote on executive compensation. By their very nature, sound compensation decisions
require a knowledge of executive performance, expertise regarding competitive conditions and compensation practices, and a familiarity with sensitive personnel and other confidential information unavailable to shareholders. Accordingly, the board
and the committee do not believe it would be appropriate to place shareholders in a position to vote on executive compensation.
In addition, shareholders
already have multiple mechanisms by which they can provide input regarding executive compensation and our compensation process. Direct communications are an effective means of expressing specific observations on compensation matters. Shareholders
may express their views and have them considered through writing to the board, to the compensation committee, to individual directors or committee members, or to company management. For information regarding these communications and the address to
which they should be sent, please see the discussion under Corporate Governance Shareholder Communications with the Board.
Shareholders
may also express their views at annual meetings of shareholders that are attended not only by management but also by directors. They also have the opportunity to vote on the approval of equity compensation plans and may express their views in
electing directors who, in uncontested elections, must receive a majority of the votes cast to be elected.
The board and the compensation committee
believe these existing mechanisms provide more appropriate and effective opportunities for communication both from and to shareholders than an advisory vote mechanism. These existing mechanisms permit shareholders to express their individual and
collective views in a comprehensive and thoughtful manner that permits an appropriate company response.
Accordingly, in light of our continuing commitment
to corporate governance, executive compensation transparency and direct communications with shareholders, the board and the compensation committee believe that the adoption of the shareholder proposal would not be in the best interests of
shareholders.
THE BOARD OF DIRECTORS
RECOMMENDS THAT YOU
VOTE AGAINST PROPOSAL 3
20
Proposal 4: Shareholder Proposal for North Dakota Reincorporation
The following proposal has also been submitted by a shareholder and is included in this proxy statement in accordance with the Securities and Exchange Commissions Shareholder Proposal Rule. It is presented as
submitted by the shareholder proponent, whose name and address will be provided promptly to any shareholder who orally or in writing requests that information from our Corporate Secretary.
This proposal will be voted upon at the Annual Meeting only if it is properly presented by the shareholder proponent or the proponents qualified representative. To
be approved by shareholders, the proposal must receive the favorable vote of a majority of the votes cast on the proposal, and the approving majority must also represent more than 25% of our outstanding shares.
FOR THE REASONS STATED BELOW, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THIS SHAREHOLDER PROPOSAL
The Shareholder Proposal
4 -Reincorporate in a
Shareowner-Friendly State
Resolved: That shareowners hereby request that our board of directors take the necessary steps to reincorporate the Company
in North Dakota with articles of incorporation that provide that the Company is subject to the North Dakota Publicly Traded Corporations Act.
Statement of Ray T. Chevedden
This proposal requests that the board initiate the process to reincorporate the Company in North Dakota
under the new North Dakota Publicly Traded Corporations Act. If Sempra were subject to the North Dakota act there would be additional benefits:
|
|
There would be a right of proxy access for shareowners who owned 5% of our Companys shares for at least two years. |
|
|
Shareowners would be reimbursed for their expenses in proxy contests to the extent they are successful. |
|
|
The board of directors could not be classified. |
|
|
The ability of the board to adopt a poison pill would be limited. |
|
|
Shareowners would vote each year on executive pay practices. |
These provisions, together with others in the North Dakota act, would give us as shareowners more rights than are available under any other state corporation law. By reincorporating in North Dakota, our company would instantly have the best
governance system available.
The SEC recently refused to change its rules to give shareowners a right of access to managements proxy statement. And the Delaware courts recently invalidated a
bylaw requiring reimbursement of proxy expenses. Each of those rights is part of the North Dakota act. As a result, reincorporation in North Dakota is now the best alternative for achieving the rights of proxy access and reimbursement of proxy
expenses. And at the same time those rights would become available to us as shareowners in a North Dakota corporation, our Company would also shift to cumulative voting, say on pay, and other best practices in governance.
This proposal is consistent with the 2008 Sempra shareholder vote of 80% to eliminate all super-majority voting requirements in our charter and bylaws which was
subsequently adopted.
Our Company needs to further improve its governance:
|
|
Our directors had 13 seats on boards rated D by the Corporate Library: |
|
|
Our company is probably in the worst 10% of Fortune 500 companies for having the highest number of directors on D-rated boards. |
|
|
Our directors still had a retirement plan Independence concern. |
|
|
Audit committee members Wilford Godbold, James Brocksmith and Lynn Schenk were designated Accelerated Vesting directors by the Corporate Library due to
accelerating stock option vesting to avoid recognizing the related cost. |
|
|
We had no shareholder right to an independent Board Chairman, an independent Lead Director, Cumulative Voting or to Act by Written Consent.
|
Reincorporation in North Dakota provides a way to switch to a vastly improved system of governance in a single step. And reincorporation
in North Dakota does not require a vast infusion of capital or layoffs to improve financial performance.
I urge your support for Reincorporating in a
Shareowner-Friendly State.
The Board of Directors Position
Sempra Energy, together with its predecessor companies, have been headquartered and incorporated in California for over a century. The proponent seeks to have us incur the substantial expense and risks of reincorporating in
North Dakota under a recently adopted and untested corporate law mandating a structure of corporate
21
governance. We have already adopted a number of the governance principles that would be mandatory by
reincorporation in North Dakota. And those that we have not adopted continue to remain available to us as a California corporation if it is concluded that they are in the
best interests of shareholders. Accordingly, the Board of Directors and its Corporate Governance Committee believe that reincorporation is both unnecessary and unwise.
The corporate governance structure required by the North Dakota Publicly Traded Corporations Act is an inflexible structure that makes mandatory all of the governance principles that it embodies. Shareholders of
corporations governed by the act do not have the ability to select those governance principles they believe to be in their best interests and reject others that are not. And there is no consensus among corporate governance experts that these
principles are appropriate for all corporations. Indeed, the Board of Directors and its Corporate Governance Committee believe that some of them are not in the best interests of the companys shareholders.
Moreover, reincorporation is not necessary to adopt those corporate governance principles that are in the best interests of shareholders. All of the principles of the
North Dakota Publicly Traded Corporations Act noted by the proponent and many others that he does not note are available to us as a California corporation. Indeed, we have already adopted those that we and our shareholders have determined to be
beneficial. For example:
|
|
We do not have a classified board all of our directors are elected each year. |
|
|
We elect our directors by majority voting in uncontested elections. |
|
|
We do not have supermajority voting for actions requiring shareholder approval. |
|
|
We do not have a poison pill. |
|
|
Shareholders owning 10% or more of our shares can call special meetings of shareholders. |
|
|
Our executive compensation program is strongly performance-based. |
In addition to mandating an inflexible one size fits all structure for corporate governance, the North Dakota Publicly Traded Corporations Act has only been in effect since 2007 and there are very few
publicly traded corporations that are incorporated in North Dakota. The absence of a sensible, coherent and substantial body of interpretation of North Dakota corporate law over a long period of time would significantly increase the risks associated
with reincorporation.
Reincorporating in North Dakota would also require us to obtain approvals and consents not only from shareholders but also from
governmental and regulatory agencies, lenders and other third parties having contracts with us. We believe the related costs and fees of obtaining these consents would be substantial.
Consequently, the Board of Directors and its Corporate Governance Committee have concluded that all of the perceived benefits that could be obtained from North Dakota reincorporation can also be obtained, without
the costs and risks associated with reincorporation, by the company remaining a California corporation. They have also concluded that the inflexible corporate governance structure mandated by the North Dakota Publicly Traded Corporations Act would
not be in the best interests of our shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE AGAINST PROPOSAL 4
22
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Executive Summary
What information is provided in this section?
In this
Compensation Discussion and Analysis, we discuss our compensation philosophy and how the Compensation Committee of the Sempra Energy Board of Directors determines executive pay. We describe each element of executive pay, including base salaries,
short- and long-term incentives and executive benefits.
What is our Compensation Philosophy?
The Compensation Committee of our Board of Directors sets the companys executive pay philosophy. It emphasizes:
|
|
Performance-based incentives aligned with shareholders |
|
|
Balance between short- and long-term incentives |
|
|
More pay at risk at higher levels of responsibility |
Our programs align pay with short- and long-term company performance. Given the uncertainty of todays markets, we believe this is the best way to attract, motivate and retain key executive talent. Program goals include:
|
|
Attracting and retaining executives of outstanding ability and proven experience who demonstrate high standards of integrity and ethics
|
|
|
Aligning compensation with company performance and the interests of shareholders |
|
|
Motivating executives to achieve superior performance |
|
|
Strongly linking executive compensation to both annual and long- term corporate, business unit and individual performance |
What this means is that our companys performance is the key indicator of whether our programs are effective. We use net income as the primary measure of company
performance in our annual incentive plans. In contrast, stock price appreciation and total return to shareholders are the key measures for long-term performance.
How has the company
performed compared to general industry and our peers?
Despite the market downturn, Sempras 2008 performance measured by net income was
strong.
* |
Represents $325 million in net income related to one-time asset sales. |
Over the long-term, Total Shareholder Return continues to outpace the market. In spite of the current economic turmoil, our one-year performance exceeds the S&P 500.
|
|
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|
|
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|
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|
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|
|
|
|
|
|
Total Shareholder Return * |
|
Sempra Energy |
|
|
S&P 500 Utilities |
|
|
S&P 500 |
|
|
|
Ten-Year Total Return |
|
145 |
% |
|
31 |
% |
|
(13 |
)% |
|
|
Five-Year Total Return |
|
61 |
% |
|
49 |
% |
|
(10 |
)% |
|
|
One-Year Total Return |
|
(29 |
)% |
|
(29 |
)% |
|
(37 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
* |
Total shareholder return is the percentage change in the market value of an investment at the end of the relevant investment period (assuming reinvestment of dividends) from its
market value at the beginning of the period. |
As shown in Figure 1, net income results have been consistently outstanding. And Table
1 shows the companys total return to shareholders has equaled or exceeded the returns of both the S&P Utilities Index and the S&P 500 Index. Compensation for our executive officers reflects the companys superior performance
through performance-based incentive awards.
Compensation Committee Roles and Responsibilities
Overview
The Compensation Committees primary role is to
determine all aspects of compensation for our executive officers. The committee has reviewed all components of pay for the Chief Executive Officer and other executive officers.
23
The committee holds four regularly scheduled meetings each year, with additional meetings scheduled when required. The committees chair approves the agenda prior to each meeting. Four directors currently sit on the committee. Each
director is:
|
|
An independent director under independence standards established by the New York Stock Exchange |
|
|
An outside director under Section 162(m) of the Internal Revenue Code |
|
|
A non-employee director under Rule 16b-3 of the Securities Exchange Act of 1934 |
The committee:
|
|
Sets its meeting dates and agenda items annually |
|
|
Considers standing agenda items and other topics at each meeting |
|
|
Holds an executive session at each meeting without management |
|
|
Recommends changes to its charter for approval by the board as needed |
The most recent charter review was held in June 2008, at which time the committee made no changes. The charter is on our website at
www.sempra.com/aboutUs/gov_charterCompensation.htm.
Responsibilities of the Compensation Committee
The Compensation Committees major responsibilities include:
|
|
Analyzing executive compensation market data, including base salaries, annual bonuses, long-term incentives and pay, as well as executive compensation principles,
strategies, trends, regulatory requirements and current programs |
|
|
Making recommendations to the board on annual incentive plans, equity-based plans, severance plans, deferred compensation arrangements, retirement benefits and
other programs and benefits that primarily cover executive officers |
|
|
Reviewing and approving corporate goals and objectives relevant to the compensation of the companys Chief Executive Officer and other executive officers
|
|
|
Leading the evaluation of CEO performance in light of these goals and objectives and, based on individual and company performance, competitive compensation
information and other considerations, recommending CEO compensation for approval by the board |
|
|
Tracking and understanding the total compensation of each executive officer and reviewing, at least once a year, tally sheets that summarize the major elements of
compensation |
|
|
Reviewing and recommending to the board new or amended broad-based, qualified benefit plans and programs |
|
|
Reporting annually on succession planning to the board |
|
|
Reviewing and approving the Compensation Discussion and Analysis included in the annual proxy statement |
|
|
Analyzing long-term incentive plan overall dilution and current annual dilution rates |
Key 2008 Deliberations
In addition to performing the
responsibilities described above, in 2008 the Compensation Committee spent considerable time reviewing and amending compensation plans to ensure compliance with Internal Revenue Code Section 409A.
Tally Sheets for Committee and Board
The Compensation Committee
uses tally sheets, along with information prepared annually for the proxy statement, to provide:
|
|
Information for analyzing and understanding the design, operation and effectiveness of our executive compensation programs |
|
|
The total dollar value of executives accumulated compensation and benefits, including holdings of our common stock and realized and unrealized gains under
equity-based compensation awards |
|
|
Estimated pension benefits, life insurance benefits, and deferred compensation balances |
|
|
Information on change-in-control scenarios |
Tally
sheets provide the committee with an understanding of the companys total executive compensation and benefit program. However, the committee does not rely on tally sheets to establish specific pay levels, which are instead based primarily on
external market data, and other considerations described elsewhere in this discussion.
In addition, board members began receiving a Compensation Program
Summary in 2008. The summary provides an overview of the Companys executive compensation philosophy, information on each executive compensation plan, and officer and employee demographic data.
The Compensation Committees Advisors
The Compensation
Committee retains advisors to assist it on matters affecting executive compensation. It has the sole authority to select, compensate and terminate its external advisors.
Hewitt Associates, an internationally recognized compensation and benefits consulting firm, has served as the committees primary compensation consultant since
24
2001. A Hewitt representative attends all committee meetings. He met in executive session with the committee members several times during 2008.
Hewitt Associates supports the committee by:
|
|
Providing competitive data on compensation and relative performance of peer group companies |
|
|
Recommending pay programs and salary increase budgets |
|
|
Making presentations on regulatory and legislative matters affecting executive compensation |
|
|
Providing opinions on the reasonableness of compensation |
|
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Consulting on other related matters as needed |
The
committee must pre-approve any work done by Hewitt for the company.
Our Chief Executive Officer attends the non-executive session of each committee
meeting, as does our Senior Vice President of Human Resources. Our Human Resources Department assists the committee by preparing tally sheets and other compensation information and analyses for consideration by the committee. Both the committee and
the Hewitt consultants receive all presentation materials well in advance of committee meetings.
Our Accounting, Finance and Law Departments also support
the committee with respect to compensation-related matters, including issues related to broad-based benefit plans and regulatory reporting and compliance.
Managements Role
Our Chief Executive Officer does not determine or approve any element or component of his own pay. Our other
executive officers also do not determine or approve their own pay. This includes base salary, annual bonus, long-term incentives, or other aspects of compensation. Our CEO does not meet separately with the committees compensation consultants.
The Compensation Committee does seek our CEOs views on the performance of our other executive officers and he makes pay recommendations for these
officers. In addition, the committee frequently requests input from the CEO on what programs and goals he believes might be most appropriate given the strategic direction of the company.
Benchmarking
The Compensation Committee uses benchmarks as an element in determining 1) the compensation for
various positions, and 2) the percentage of each component of total
compensation. Benchmarking also helps the committee align pay levels, in total and by component, with the market.
During this benchmarking compensation process, the committee:
|
|
Reviews the labor market for our most senior executives using a broad cross-section of companies in various industries with data provided by Hewitt Associates. The
data cover the 163 non-financial companies in the Fortune 500 that participate in Hewitts Total Compensation Database. |
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Reviews summary statistics and statistics adjusted for company size with the goal of managing total target pay opportunities to the median of this data. Actual pay
levels will rise above or fall below these standards as a result of actual company and individual performance. |
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Reviews pay and performance data in proxy statements and other public filings of a selected group of energy and utility companies (see Table 2) to provide an
additional basis for assessing executive compensation and corporate performance. |
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Uses internal equity to determine the compensation for positions that are unique or difficult to benchmark against market data. Internal equity is also considered
in establishing compensation for positions considered to be equivalent in responsibilities and importance. |
This review gives us a better
understanding of the effectiveness of our emphasis on pay for performance in relation to the performance of our peer group.
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Companies Included in 2008 Review |
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AES Corporation |
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Centerpoint Energy |
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CMS Energy |
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Consolidated Edison |
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Dominion Resources |
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DTE Energy |
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Duke Energy |
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Edison International |
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Energy Future Holdings Corp. |
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Exelon |
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FPL Group |
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Nicor |
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NiSource |
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PG&E |
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Public Service Enterprises Group |
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Southern Company |
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Williams Companies |
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Table 2.
25
Compensation Components
The primary components of our compensation program are:
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Performance-based annual bonuses |
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Long term equity-based incentive awards |
Additional
benefits include health and welfare programs, retirement and savings plans, personal benefits and severance pay.
All of our executive officers participate
in the same compensation programs. However, market compensation levels vary substantially based upon the roles and responsibilities of individual officers. Thus, appropriately, the pay of our Chief Executive Officer is substantially higher than that
of our other executive officers.
Pay Mix
How much
weight we put on each of the primary components of our compensation program determines our Pay Mix.
Table 3 shows the percent of total pay at
company target performance that comes from each major pay component. Our pay mix aligns with the interests of shareholders by providing a much greater portion of pay through performance-based annual and long-term incentives than base salary. This
means that most pay is at risk and will go up or down with company performance.
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Pay Components of Total Compensation |
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Base Salary |
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Annual Bonus at Target |
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Long-Term Incentives at Target |
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Donald E. Felsinger |
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15.1 |
% |
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16.7 |
% |
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68.2 |
% |
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Neal E. Schmale |
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20.8 |
% |
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16.7 |
% |
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62.5 |
% |
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Edwin A. Guiles |
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22.2 |
% |
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15.6 |
% |
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62.2 |
% |
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Mark A. Snell |
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22.2 |
% |
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15.6 |
% |
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62.2 |
% |
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Javade Chaudhri |
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26.7 |
% |
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16.0 |
% |
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57.3 |
% |
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Table 3.
Actual pay
mix may vary substantially from that shown in the table. This may occur as a result of corporate performance which greatly affects annual bonuses and the value of long-term incentives.
1. Base Salaries
Our executive compensation programs emphasize performance-based pay. This
includes annual bonuses and equity-based long-term incentive awards. However, base salaries remain a necessary and typical part of compensation for attracting and retaining outstanding employees at all levels.
We set salaries for our executive officers at the median of those for the Fortune 500 companies. Using national general industry comparisons helps us attract and retain top-quality executive talent from a broad
range of backgrounds.
The Compensation Committee annually reviews base salaries for executive officers, and considers the following:
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Approximate mid-range of Fortune 500
salary data Individual contribution and performance Labor market conditions Reporting relationships Company performance Retention needs |
|
Experience Complexity and importance of roles and responsibilities Market characteristics Succession planning Internal equity |
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Base Salary Adjustments for 2008
In November 2007, Hewitt Associates presented its most current executive pay benchmarking data. Based on the Compensation Committees consideration of market data, and other factors described above, base salary
adjustments were made on January 1, 2008.
The committee determined that our CEOs salary remained below median market rates for chief executive
officers. They believed that this did not properly reflect his performance. Consequently, the Board approved a base salary increase of 15%from $1,000,000 to $1,150,000. Increases for the other executive officers named in the Summary
Compensation Table ranged from 3.0% to 8.5%.
2. Performance-Based Annual Bonuses
Incentive Compensation Pool
Executive officers may receive annual
performance-based bonuses under our shareholder-approved Executive Incentive Plan. Under the terms of the plan, a compensation pool based on operating earnings is established for each year. The plan is designed to preserve the deductibility of the
bonuses under Section 162(m) of the Internal Revenue Code while providing flexibility to the Compensation Committee in administering the plan.
Please
see Executive Compensation Compensation Tables Grants of Plan-Based Awards for additional details regarding the plan.
Performance Guidelines and Bonus Payments
Each year the Compensation Committee establishes performance guidelines for bonus payments.
These
26
guidelines anticipate that the committee will apply downward negative discretion to reduce bonuses from maximum amounts permitted by the plan to
the lower amounts contemplated by the guidelines.
Consistent with our pay-for-performance philosophy, the guidelines do not provide for any bonus payment
unless the company attains a threshold (minimum) performance level for the year. Bonus opportunities increase for performance above the threshold level. Performance at target is intended to result in bonuses at the mid-point of those for executives
with comparable levels of responsibility at Fortune 500 companies.
Potential bonuses at threshold, target and maximum company performance are expressed as
a percentage of each executive officers base salary. Table 4 illustrates how these percentages vary with the individual officers position and attainment of goals.
In 2008, bonus opportunities were as follows:
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Bonus Potential as a Percent of Base Salary |
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Threshold |
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Target |
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Maximum |
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|
Donald E. Felsinger |
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|
|
0 |
% |
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|
110 |
% |
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|
220 |
% |
|
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|
Neal E. Schmale |
|
|
|
0 |
% |
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|
80 |
% |
|
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|
160 |
% |
|
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|
Edwin A. Guiles |
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|
0 |
% |
|
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|
70 |
% |
|
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|
140 |
% |
|
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|
Mark A. Snell |
|
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0 |
% |
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|
70 |
% |
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|
140 |
% |
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Javade Chaudhri |
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0 |
% |
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60 |
% |
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|
120 |
% |
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Table 4.
These target bonus potentials and percentages are consistent with the leverage typically found in bonus plans at
Fortune 500 companies. Bonus payouts at our maximums approximate the 75th percentile of bonus payouts among peer companies.
Extraordinary corporate or individual performance may result in the payment of bonuses above the guidelines but not to exceed plan maximums.
Performance Goals for Annual Bonuses
For 2008, the committee
selected net income for the measurement of annual corporate performance. It believes this measure provides an accurate and comprehensive picture of annual company performance that plan participants, shareholders, analysts and other parties clearly
understand. Table 5 shows the net income criteria for 2008 bonuses:
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2008 Net Income for Bonus Purposes (dollars in millions) |
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Threshold |
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Target |
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Maximum |
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$ |
585 |
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$ |
650 |
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$ |
715 |
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Table 5.
The committee set 2008 bonus guidelines, with the target of $650
million, based on anticipated business unit earnings. The 2008 net income guidelines exclude earnings from Sempra Commodities and the RBS Sempra Commodities joint venture. This was due to the uncertainty in predicting the closing date of the sale of
our commodities trading business to a joint venture with The Royal Bank of Scotland and the difficulty in predicting the companys share of the joint ventures 2008 earnings.
Consistent with the approach taken in prior years, the committee also determined that any one-time extraordinary gains or losses related to the 2001-2002 California energy crisis would be excluded. In setting the
target at the beginning of the year, the committee did not anticipate any gains or losses for the potential sale or write-down of assets. It concluded that only 10% of the value of any such actual gains or losses would be included in the calculation
of net income for bonus purposes. This is because the committee believes that the impact of asset sales or write-downs should largely be measured through stock price. Most of the impact would, then, be reflected in the long-term incentive plan.
The guidelines also exclude the positive or negative impact of major changes in accounting rules that were unknown or unanticipated at the beginning of
the plan year.
2008 Performance-Based Annual Bonus Payments
Earnings for 2008 bonus purposes were $741 million, exceeding the amount required for maximum bonuses under the committees guidelines. Based on this performance and its consideration of the contributions of each executive officer, the
Compensation Committee approved the payment of the annual bonuses shown in Table 6:
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Bonuses Paid for 2008 Performance |
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|
Base Salary at Year-End 2008 |
|
x |
|
Bonus Percentage |
|
|
= |
|
Bonus* |
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|
Donald E. Felsinger |
|
|
|
$ |
1,150,000 |
|
|
|
220 |
% |
|
|
|
$ |
2,530,000 |
|
|
|
|
Neal E. Schmale |
|
|
|
$ |
809,800 |
|
|
|
160 |
% |
|
|
|
$ |
1,295,700 |
|
|
|
|
Edwin A. Guiles |
|
|
|
$ |
645,200 |
|
|
|
140 |
% |
|
|
|
$ |
903,300 |
|
|
|
|
Mark A. Snell |
|
|
|
$ |
575,400 |
|
|
|
140 |
% |
|
|
|
$ |
805,600 |
|
|
|
|
Javade Chaudhri |
|
|
|
$ |
502,400 |
|
|
|
120 |
% |
|
|
|
$ |
602,900 |
|
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Table 6.
* |
Amounts rounded up to nearest $100. |
3. Long-Term Equity-Based Incentives
Long-term equity-based incentives are the largest single component of each
executive officers compensation package. (See Table 3 for these percentages.)
27
What type of equity is granted?
In 2008, the grant date
fair value of long-term incentive plan awards was 80% in performance-based restricted stock units (performance-based RSUs) and 20% in non-qualified stock options.
Why is this mix of equity used?
The Compensation Committee approved this mix after considering many variables. These included alignment
with shareholder interests, plan expense, share usage and market trends.
The committee believes that the combination of stock options and
performance-based restricted stock units appropriately rewards both absolute stock price growth and stock price growth relative to the companys industry peers. This creates a strong link between executive pay and shareholder returns over a
multi-year performance period.
What is the grant date fair value of equity?
The estimated grant date fair values of our awards have generally been between the median and the 75th percentile of market data. However, the actual amounts realized by equity award recipients will depend on future stock price performance. These amounts will
not necessarily track with the grant date value targets.
Table 7 illustrates the estimated grant date fair value of 2008 awards as a percentage of base
salary. These percentages are unchanged from last year except for an increase to Mr. Felsingers percentage. Based on his performance and data showing that his compensation was below market, the Compensation Committee recommended and the
Board approved raising his percentage from 370% to 450%.
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|
Estimated Grant Date Values for 2008 as
a % of Base
Salary |
|
|
|
Percent of Value
in |
|
Total 100% |
|
|
|
|
|
|
|
Performance- Based RSUs 80% |
|
|
+ |
|
Stock Options 20% |
|
|
= |
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald E. Felsinger |
|
|
|
360 |
% |
|
|
|
90 |
% |
|
|
|
450 |
% |
|
|
|
|
Neal E. Schmale |
|
|
|
240 |
% |
|
|
|
60 |
% |
|
|
|
300 |
% |
|
|
|
|
Edwin A. Guiles |
|
|
|
224 |
% |
|
|
|
56 |
% |
|
|
|
280 |
% |
|
|
|
|
Mark A. Snell |
|
|
|
224 |
% |
|
|
|
56 |
% |
|
|
|
280 |
% |
|
|
|
|
Javade Chaudhri |
|
|
|
172 |
% |
|
|
|
43 |
% |
|
|
|
215 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Table 7.
Why
Performance-Based Restricted Stock Units?
Stock options are an important component of shareholder-aligned executive compensation; however, the
Compensation Committee sought a more direct link to performance in comparison to indexes and peers. To
achieve this result, the committee uses performance-based restricted stock units as the major component of our equity grants. An additional advantage of
performance-based restricted stock units is that, in comparison to stock options, fewer shares are required to deliver the same economic value. This results in lower dilution.
Performance Goals for Restricted Stock Units
Each performance-based restricted stock unit represents the right to
receive between zero and 1.5 shares of Sempra Energy common stock based on the companys four-year cumulative total shareholder return compared to the S&P 500 Utilities Index as shown in Table 8. The plan pays out performance-based dividend
equivalents at the end of the performance period based on the number of shares earned.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
Four-Year Cumulative Total Shareholder Return Ranking versus
S&P 500 Utilities Index * |
|
|
|
Number of Sempra Energy Common Shares Received for Each Restricted Stock
Unit |
|
|
|
|
|
|
|
|
|
|
|
|
|
75th Percentile or Above |
|
|
|
1.5 |
|
|
|
|
50th Percentile |
|
|
|
1.0 |
|
|
|
|
35th Percentile or Below |
|
|
|
0.0 |
|
|
|
|
|
|
|
|
|
|
|
Table 8.
* |
If the company ranks at or above the 50th percentile compared to the S&P 500 Index, participants will
receive a minimum of 1.0 shares. |
Results for Four-Year Performance Period Ending December 31, 2008
Our relative total shareholder return from 2005 to 2008 met the 66th percentile of the S&P 500 Utilities Index. As a result, 100% of the performance-based restricted
stock for the 2005-2008 Long-Term Incentive Plan cycle was released to plan participants after the committee certified performance results.
Why Stock
Options?
While playing a lesser role in our current pay program, stock options remain an appropriate and highly motivating vehicle for delivering
long-term incentives. Our stock options become exercisable in equal annual installments over a four-year period.
Options provide a direct link with
shareholder interests, as they have no compensation value unless our stock price increases above the grant date price.
Equity Award Practices
The following equity award practices have been in place for many years:
|
|
Awards are granted under a shareholder-approved plan |
|
|
All grants of stock options are made at 100% of fair market value |
28
|
|
Fair market value is defined as the closing price of our common stock on the date of grant |
|
|
We do not backdate grants of awards |
|
|
We do not coordinate the grant of awards with the release of material information to result in favorable pricing |
|
|
Grants are not repriced |
|
|
The Compensation Committee authorizes the grant of equity-based incentive awards on the first trading day of the upcoming new year |
In making the grants, the committee:
|
|
Specifies a dollar value (based on a percentage of base salary) and other terms for each executive officers award |
|
|
Allocates the dollar value between restricted stock units and stock options |
|
|
Bases the number of shares underlying the awards granted each year on a dollar value, as opposed to a fixed number of shares |
This approach allows maintenance of the pay mix described previously.
On
the January grant date:
|
|
We calculate the precise number of shares to be granted to each executive officer for each type of award |
|
|
We apply Black-Scholes and Monte Carlo valuation models previously authorized by the committee and using the closing price for shares of our common stock on that
date |
|
|
The closing price on that date establishes the exercise price for stock options |
Equity awards also may be granted upon the hiring or promotion of executive officers with the approval of the committee.
Benefit Plans
Our executive officers also participate in other benefit programs including: 1) Health, Life Insurance and Disability Plans;
2) Retirement Plans; 3) Savings and Deferred Compensation Plans; and 4) Other Benefit Programs.
1. Health, Life Insurance and
Disability Plans
Our executive officers participate in life, disability, medical and dental insurance group plans that are available to virtually all
employees. These are common benefits essential to attracting a high-quality workforce.
In addition to the basic group plans, our executive officers
participate in the following:
|
|
A Medical Insurance Plan that provides up to $20,000 (the annual aggregate maximum) in additional coverage for medically necessary care for the officer or covered
dependents |
|
|
A Life Insurance Plan providing additional life insurance death benefits (two times base salary and bonus for active employees and one times base salary and bonus
for retired employees) |
|
|
A Long-Term Disability Plan providing additional protection upon disability (60% of base salary and average bonus) and restoring benefits otherwise capped under the
companys basic Long-Term Disability Plan |
2. Retirement Plans
Our executive officers participate in our Cash Balance and Cash Balance Restoration Pension Plans and a Supplemental Executive Retirement Plan.
The Cash Balance Plan is a tax-qualified pension plan available to most company employees. Our executive officers also participate with numerous other employees in a
Cash Balance Restoration Plan. This plan restores the benefits that would have been payable under the Cash Balance Plan but for Internal Revenue Code limitations on tax-qualified plans.
Our Supplemental Executive Retirement Plan provides executive officers with retirement benefits based on the executives final average pay,1 years of service, and age at retirement. SERP benefits are reduced by benefits payable under the broad-based Cash Balance Plan and Cash Balance Restoration Plan. Benefits under these plans use the same interest rates
for calculating lump sums as used in the broad-based employee plans.
Each plan uses only base salary and annual incentive bonuses in calculating benefits.
The value of long-term incentive awards is not included.
We believe that retirement, savings and deferred compensation plans, in general, and the SERP in
particular, are important elements of an overall compensation package. This package is designed to recruit and retain executive talent, especially mid-career executives, and to retain longer-term executive participants.
3. Savings and Deferred Compensation Plans
Our executive officers, together with most other company employees, also participate in a broad-based, tax-qualified 401(k) Savings Plan.
1 |
Final average pay is the average of the two highest years of base salary and average of the three highest annual bonuses prior to
retirement. |
29
Employees may contribute a portion of their pay to the plan for investment on a tax-deferred basis. The company matches one-half of the first 6% of the
employees contributions. We then make an additional company contribution of up to 1% of base pay if we meet or exceed annual earnings targets. The Internal Revenue Code limits the amount of compensation eligible for deferral under
tax-qualified plans. We restore these benefits through a deferred compensation plan. All employee contributions, matching company contributions, and investment earnings in these plans vest immediately.
Our executive officers also may defer up to 100% of their base salary and bonus under a Deferred Compensation Plan. Executives can direct these deferrals into:
|
|
Funds that mirror the investments available under our 401(k) Savings Plan, including a Sempra Energy phantom stock account, and |
|
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A fund providing interest at the greater of 110% of the Moodys Corporate Bond Yield or Moodys plus 1%. |
4. Other Benefit Programs
We provide certain
other typical benefits to our executive officers. The Compensation Committee reviews the level and types of these benefits each year. The committee believes that these benefits are reasonable and important in attracting and retaining executive
talent.
These benefits include financial planning services and excess personal liability insurance. Our Chief Executive Officer has an executive security
specialist for personal and business driving in the context of an overall security plan.
Severance Pay and Change in Control Arrangements
Why does the company provide severance agreements?
Our executive officers have severance pay agreements that include change in control features. The agreements were updated in 2008 to ensure compliance with Section 409A of the Internal Revenue Code.
Severance arrangements are a prevalent market practice. The Compensation Committee believes that they are effective in attracting executives who are leaving an existing
employer, mitigating legal issues upon a separation of employment and retaining talent during uncertain times. By mitigating the effects of potential job loss, our severance agreements reinforce management continuity, objectivity and focus on
shareholder value, particularly in actual or potential change in control situations.
What benefits do severance agreements provide?
The severance agreements provide for cash payments and the continuation of certain other benefits for a limited
period when the company terminates an executives employment other than for cause, death or disability or when the executive terminates for good
reason. A termination for good reason may occur if there is an adverse change in scope of duties or in compensation and benefit opportunities or, following a change in control, changes in employment location.
These provisions provide safeguards against arbitrary actions that effectively force an executive to resign. In order to receive some of the benefits in the agreement,
the executive must comply with contractual confidentiality, non-solicitation and non-disparagement obligations.
To the extent that our executive officers
would incur excise taxes in connection with severance payments, their severance agreements provide that they will be made whole for these taxes. These are taxes above and beyond regular income taxes.
Under our shareholder-approved long-term incentive plan, upon a change in control of the company, all stock options vest and become immediately exercisable. All
performance and time restrictions lift for outstanding restricted stock and restricted stock unit grants.
Acceleration of equity awards is the predominant
industry practice for existing equity plans. This approach creates a clean slate for the emerging organization and allows for alignment with metrics that are forward looking and appropriate to a newly created company and management team.
Evaluating and Compensating the CEO
The Compensation Committee
annually reviews and approves corporate goals and objectives relevant to the compensation of our Chief Executive Officer. These goals and objectives are based primarily upon objective criteria, including business performance;
accomplishment of strategic and financial objectives; development of management; and other matters relevant to the short-term and long-term success of the company and the creation of shareholder value.
How does the board evaluate the CEOs performance?
All
independent directors provide input for the CEOs performance evaluation. The committee leads the process and reports the consolidated results back to the independent directors. The chair of the committee discusses the boards evaluation
with the CEO. Based upon this evaluation and subject to ratification by the board acting solely through the independent directors, the committee determines the CEOs compensation level. This includes base salary and awards under annual and
long-term incentive plans.
30
In determining the long-term component of our CEOs compensation, the committee considers the companys performance and relative shareholder return, the value of incentive awards to chief executive officers at comparable
companies, and the awards granted in past years.
What were the CEOs 2008 goals?
Our CEO, Donald E. Felsinger, met or exceeded his 2008 objectives, which included:
|
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Meeting or exceeding the 2008 earnings target approved by the board |
|
|
Advancing the strategic direction of the business |
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Closing the joint venture of our commodities business and repurchasing $1 billion of our common stock |
|
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Developing talent for top level succession |
Impact of Regulatory Requirements
Tax Deductibility of Pay
Section 162(m) of the Internal Revenue Code places a limit of $1,000,000 on the annual amount of compensation (other than compensation that qualifies as qualified performance-based compensation) that
publicly held companies may deduct for federal income tax purposes for each of certain executive officers.
The Compensation Committee believes that tax
deductibility is one important factor in evaluating a compensation program. Consequently, we generally design and administer our performance-based incentive plans to maintain tax deductibility. This includes obtaining shareholder approval of the
plans. However, providing salary levels and other compensation that is not fully tax deductible may be required by competitive or other circumstances and in the best interests of our shareholders. Accordingly, the committee may continue to exercise
discretion to provide compensation that may not be fully tax deductible by the company.
Other Tax, Accounting and Regulatory Considerations
Many other Internal Revenue Code provisions, Securities and Exchange Commission regulations and accounting rules affect the delivery of executive pay.
They are taken into consideration to create and maintain plans that are efficient and in full compliance with these requirements.
Share Ownership
Guidelines
Our Board of Directors has established share ownership guidelines for officers to further strengthen the link between company executive and
shareholder interests.
The guidelines set minimum levels of share ownership that our officers are encouraged to achieve and maintain. For officers, the guidelines are:
|
|
|
|
|
Executive Level
|
|
Share Ownership Guidelines |
Chief Executive Officer |
|
4x base salary |
President |
|
3x base salary |
Executive Vice Presidents |
|
3x base salary |
Senior Vice
Presidents |
|
2x base salary |
Other Vice Presidents
|
|
1x base salary |
Table 9.
For
purposes of the guidelines, we include shares owned directly or through benefit plans. We also count deferred compensation that executives invest in phantom shares of our common stock and the vested portion of certain in-the-money stock options.
We expect officers to meet these guidelines within five years of hire or any officer level promotion. All officers are in compliance with the guidelines.
The company also prohibits employees and directors from trading in puts, calls, options or other future rights to purchase or sell shares of the company.
Conclusion
We have structured our executive
compensation programs to provide competitive pay opportunities (levels found in the marketplace), and to reward outstanding individual and corporate performance.
For 2008, our executive officers total direct compensation (base salaries, bonuses paid and the grant-date
value of long-term incentives) generally fell within the third quartile (between the 50th percentile and the 75th percentile) of the Fortune 500 market data with the exception of Mr. Felsinger, whose pay was below the median of his peers. As a result of 2008 pay adjustments, which occurred
in January of 2008, we expect Mr. Felsingers pay to more closely approximate the median of the market.
Our salaries are competitive and our
performance-based compensation is strongly aligned with the interests of our shareholders. We will continue to monitor our pay programs for alignment with performance, shareholder interests and competitive labor markets. We will continue to offer
the programs necessary to attract, retain, and motivate top executive talent.
31
COMPENSATION COMMITTEE REPORT
The Compensation Committee of Sempra Energys Board of Directors has reviewed and discussed with management of the company the Compensation Discussion and Analysis
included in this proxy statement and, based upon that review and discussion, recommended to the board that it be so included.
Compensation Committee
William C. Rusnack, Chair
Richard A. Collato
William G. Ouchi
William P. Rutledge
February 19, 2009
32
COMPENSATION TABLES
Summary Compensation Table
In the table below, we summarize for the
last three years the compensation of our executive officers for whom compensation information is required to be provided in this proxy statement.
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Summary Compensation Table |
|
Year |
|
Salary |
|
Stock Awards (A) |
|
Option Awards (A) |
|
Non-Equity Incentive Plan Compensation |
|
Change in Pension Value and Non-Qualified Deferred Compensation Earnings (B) |
|
All Other Compen- sation (C) |
|
Total |
|
|
|
|
|
Amount expensed for restricted stock
and restricted stock units |
|
Amount expensed for stock options |
|
Performance- based annual cash bonus |
|
Pension accruals and above-market interest
on non-qualified deferred compensation |
|
|
|
|
Donald E. Felsinger |
|
2008 |
|
$ |
1,143,957 |
|
$ |
5,046,167 |
|
$ |
1,240,118 |
|
$ |
2,530,000 |
|
$ |
1,851,184 |
|
$ |
167,760 |
|
$ |
11,979,186 |
Chairman and |
|
2007 |
|
$ |
1,001,652 |
|
$ |
4,701,629 |
|
$ |
1,487,186 |
|
$ |
2,014,300 |
|
$ |
4,641,243 |
|
$ |
306,170 |
|
$ |
14,152,180 |
Chief Executive Officer |
|
2006 |
|
$ |
943,320 |
|
$ |
5,890,427 |
|
$ |
1,137,034 |
|
$ |
1,900,000 |
|
$ |
1,900,859 |
|
$ |
405,540 |
|
$ |
12,177,180 |
Neal E. Schmale |
|
2008 |
|
$ |
808,812 |
|
$ |
3,056,486 |
|
$ |
547,523 |
|
$ |
1,295,700 |
|
$ |
1,385,636 |
|
$ |
111,330 |
|
$ |
7,205,487 |
President and |
|
2007 |
|
$ |
781,376 |
|
$ |
4,783,519 |
|
$ |
671,589 |
|
$ |
1,258,400 |
|
$ |
2,765,418 |
|
$ |
119,096 |
|
$ |
10,379,398 |
Chief Operating Officer |
|
2006 |
|
$ |
745,039 |
|
$ |
5,169,640 |
|
$ |
681,902 |
|
$ |
1,200,000 |
|
$ |
1,634,609 |
|
$ |
342,631 |
|
$ |
9,773,821 |
Edwin A. Guiles (D) |
|
2008 |
|
$ |
644,413 |
|
$ |
1,952,400 |
|
$ |
410,959 |
|
$ |
903,300 |
|
$ |
1,487,437 |
|
$ |
107,047 |
|
$ |
5,505,556 |
Executive Vice President |
|
2007 |
|
$ |
621,534 |
|
$ |
2,453,679 |
|
$ |
517,845 |
|
$ |
877,300 |
|
$ |
611,507 |
|
$ |
131,617 |
|
$ |
5,213,482 |
Corporate Development |
|
2006 |
|
$ |
594,669 |
|
$ |
2,953,751 |
|
$ |
564,115 |
|
$ |
833,700 |
|
$ |
1,414 |
|
$ |
235,354 |
|
$ |
5,183,003 |
Mark A. Snell |
|
2008 |
|
$ |
573,519 |
|
$ |
1,263,486 |
|
$ |
274,163 |
|
$ |
805,600 |
|
$ |
761,219 |
|
$ |
82,461 |
|
$ |
3,760,448 |
Executive Vice President and |
|
2007 |
|
$ |
524,879 |
|
$ |
1,138,630 |
|
$ |
215,821 |
|
$ |
743,300 |
|
$ |
553,749 |
|
$ |
86,486 |
|
$ |
3,262,865 |
Chief Financial Officer |
|
2006 |
|
$ |
473,815 |
|
$ |
964,669 |
|
$ |
176,028 |
|
$ |
665,000 |
|
$ |
388,748 |
|
$ |
123,040 |
|
$ |
2,791,300 |
Javade Chaudhri |
|
2008 |
|
$ |
501,787 |
|
$ |
2,167,520 |
|
$ |
561,865 |
|
$ |
602,900 |
|
$ |
609,468 |
|
$ |
79,697 |
|
$ |
4,523,237 |
Executive Vice President |
|
2007 |
|
$ |
482,954 |
|
$ |
1,024,840 |
|
$ |
171,269 |
|
$ |
585,600 |
|
$ |
613,646 |
|
$ |
123,657 |
|
$ |
3,001,966 |
and General Counsel |
|
2006 |
|
$ |
460,259 |
|
$ |
783,204 |
|
$ |
148,879 |
|
$ |
703,100 |
|
$ |
413,540 |
|
$ |
172,819 |
|
$ |
2,681,801 |
(A) |
Amounts recognized as compensation expense for the year in respect of outstanding awards, including those granted in prior years, calculated in accordance with generally accepted
accounting principles for financial reporting purposes as described in Note 10 of Notes to Consolidated Financial Statements included in our Annual Report to Shareholders but disregarding estimates of forfeitures related to service-based vesting
conditions. |
A Monte Carlo pricing model is used to calculate the fair value of performance-based restricted stock and
restricted stock units and a modified Black-Scholes pricing model is used to calculate the fair value of service-based stock options. The principle assumptions used in determining fair values are described in Note 10 of Notes to Consolidated
Financial Statements in our Annual Report to Shareholders. For awards granted after 2005, fair value is recognized as compensation expense over the shorter of the four-year vesting period or the period to the executives retirement eligibility
date, with awards made to retirement eligible executives fully expensed in the year in which they are granted. Fair value for awards granted before 2006 is calculated as of January 1, 2006 and compensation expense is recognized over the vesting
period. Fair value for the sole service-based restricted stock award (a 2004 award to Mr. Schmale) is recognized over the vesting period.
33
The following tables set forth our 2008 compensation expense for restricted stock, restricted stock units and stock
options granted in 2008 and prior years.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Restricted Stock and Restricted Stock Unit Expense |
|
Year of Award |
|
|
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
Total |
Donald E. Felsinger |
|
$ |
4,144,905 |
|
$ |
|
|
$ |
|
|
$ |
901,262 |
|
$ |
|
|
$ |
5,046,167 |
Neal E. Schmale |
|
$ |
1,945,568 |
|
$ |
|
|
$ |
|
|
$ |
545,396 |
|
$ |
565,522 |
|
$ |
3,056,486 |
Edwin A. Guiles |
|
$ |
1,448,602 |
|
$ |
|
|
$ |
|
|
$ |
503,798 |
|
$ |
|
|
$ |
1,952,400 |
Mark A. Snell |
|
$ |
322,499 |
|
$ |
287,808 |
|
$ |
263,083 |
|
$ |
390,096 |
|
$ |
|
|
$ |
1,263,486 |
Javade
Chaudhri |
|
$ |
867,047 |
|
$ |
608,197 |
|
$ |
392,771 |
|
$ |
299,505 |
|
$ |
|
|
$ |
2,167,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Stock Option Expense |
|
Year of Award |
|
|
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
Total |
Donald E. Felsinger |
|
$ |
1,120,353 |
|
$ |
|
|
$ |
|
|
$ |
115,291 |
|
$ |
4,474 |
|
$ |
1,240,118 |
Neal E. Schmale |
|
$ |
525,829 |
|
$ |
|
|
$ |
|
|
$ |
21,694 |
|
$ |
|
|
$ |
547,523 |
Edwin A. Guiles |
|
$ |
390,937 |
|
$ |
|
|
$ |
|
|
$ |
20,022 |
|
$ |
|
|
$ |
410,959 |
Mark A. Snell |
|
$ |
87,118 |
|
$ |
94,458 |
|
$ |
77,077 |
|
$ |
15,510 |
|
$ |
|
|
$ |
274,163 |
Javade
Chaudhri |
|
$ |
234,812 |
|
$ |
200,334 |
|
$ |
114,807 |
|
$ |
11,912 |
|
$ |
|
|
$ |
561,865 |
For additional information regarding stock awards and option awards, please see the discussions under
Grants of Plan-Based Awards and Outstanding Equity Awards at Year-End.
(B) |
Represents (i) the aggregate change in the actuarial present value of accumulated benefits under defined benefit and other pension plans at year-end over the prior year-end and
(ii) above-market interest (interest in excess of 120% of the federal long-term rate) on compensation deferred on a basis that is not tax-qualified. The 2008 amounts are: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Change in Pension Value and Above-Market Interest |
|
Change in Accumulated Benefits |
|
Above- Market Interest |
|
Total |
Donald E. Felsinger |
|
$ |
1,717,862 |
|
$ |
133,322 |
|
$ |
1,851,184 |
Neal E. Schmale |
|
$ |
1,254,958 |
|
$ |
130,678 |
|
$ |
1,385,636 |
Edwin A. Guiles |
|
$ |
1,459,832 |
|
$ |
27,605 |
|
$ |
1,487,437 |
Mark A. Snell |
|
$ |
757,939 |
|
$ |
3,280 |
|
$ |
761,219 |
Javade
Chaudhri |
|
$ |
604,612 |
|
$ |
4,856 |
|
$ |
609,468 |
For additional information regarding pension benefits and deferred compensation, please see the discussions under
Pension Benefits and Non-Qualified Deferred Compensation.
(C) All Other Compensation amounts for 2008 are:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 All Other Compensation |
|
Company 401(k) and Related Plan Contributions |
|
Insurance Premiums |
|
Other |
|
Total |
Donald E. Felsinger |
|
$ |
104,764 |
|
$ |
43,293 |
|
$ |
19,703 |
|
$ |
167,760 |
Neal E. Schmale |
|
$ |
69,830 |
|
$ |
11,500 |
|
$ |
30,000 |
|
$ |
111,330 |
Edwin A. Guiles |
|
$ |
51,867 |
|
$ |
45,180 |
|
$ |
10,000 |
|
$ |
107,047 |
Mark A. Snell |
|
$ |
44,754 |
|
$ |
17,707 |
|
$ |
20,000 |
|
$ |
82,461 |
Javade
Chaudhri |
|
$ |
37,451 |
|
$ |
18,496 |
|
$ |
23,750 |
|
$ |
79,697 |
34
Amounts shown in the Other column consist of our contributions to charitable, educational and other
non-profit organizations to match the personal contributions of executive officers on a dollar-for-dollar basis; financial and estate planning services; the incremental cost to us (mileage at Internal Revenue Service reimbursement rates and the
hourly rate of drivers) of commuting and other personal use of company cars and drivers. They do not include parking at company offices and the occasional personal use by executive officers of company property or services (including club memberships
and tickets for sporting and entertainment events which at the time of personal use would not otherwise be used for the business purposes for which they were obtained) for which we incur no more than nominal incremental cost or for which we are
reimbursed by the executive for the incremental cost of personal use.
(D) |
Mr. Guiles retired on March 1, 2009. |
35
Grants of Plan-Based Awards
Our executive officers participate in shareholder-approved incentive compensation plans that are designed to encourage high levels of performance on both a short-term and a long-term basis. Shorter-term incentives, typically annual
performance-based cash bonuses, are provided under our Executive Incentive Plan. Longer-term incentives, typically performance-based restricted stock and restricted stock units and service-based stock options, are provided under our Long Term
Incentive Plan.
We summarize below our 2008 grants of plan-based awards for our executive officers named in the Summary Compensation Table.
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|
|
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|
|
|
|
|
|
2008 Grants of Plan-Based Awards |
|
Grant Date (A) |
|
Authorization Date (A) |
|
Estimated Payouts Under Non-Equity Incentive Plan Awards (Performance-Based Annual Bonus) (B) |
|
Estimated Future Payouts Under Equity Incentive Plan Awards (Number of Shares) (C) |
|
Option Awards (Service-Based Stock Options) (D) |
|
Grant Date Fair Value of Stock and Option Awards (E) |
|
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|
|
|
Number of Shares |
|
Exercise Price Per Share |
|
|
|
|
Threshold |
|
Target |
|
Maximum |
|
Threshold |
|
Target |
|
Maximum |
|
|
|
Donald E. Felsinger |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
1/02/08 |
|
12/03/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,700 |
|
$ |
61.41 |
|
$ |
1,120,353 |
Restricted Stock Units |
|
1/02/08 |
|
12/03/07 |
|
|
|
|
|
|
|
|
|
|
|
|
78,400 |
|
117,600 |
|
|
|
|
|
|
$ |
4,144,905 |
Annual Bonus |
|
|
|
|
|
$ |
|
|
$ |
1,265,000 |
|
$ |
2,530,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neal E. Schmale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
1/02/08 |
|
12/03/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,100 |
|
$ |
61.41 |
|
$ |
525,829 |
Restricted Stock Units |
|
1/02/08 |
|
12/03/07 |
|
|
|
|
|
|
|
|
|
|
|
|
36,800 |
|
55,200 |
|
|
|
|
|
|
$ |
1,945,568 |
Annual Bonus |
|
|
|
|
|
$ |
|
|
$ |
647,900 |
|
$ |
1,295,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edwin A. Guiles |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
1/02/08 |
|
12/03/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,300 |
|
$ |
61.41 |
|
$ |
390,937 |
Restricted Stock Units |
|
1/02/08 |
|
12/03/07 |
|
|
|
|
|
|
|
|
|
|
|
|
27,400 |
|
41,100 |
|
|
|
|
|
|
$ |
1,488,602 |
Annual Bonus |
|
|
|
|
|
$ |
|
|
$ |
451,700 |
|
$ |
903,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark A. Snell |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
1/02/08 |
|
12/03/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,900 |
|
$ |
61.41 |
|
$ |
348,472 |
Restricted Stock Units |
|
1/02/08 |
|
12/03/07 |
|
|
|
|
|
|
|
|
|
|
|
|
24,400 |
|
36,600 |
|
|
|
|
|
|
$ |
1,289,996 |
Annual Bonus |
|
|
|
|
|
$ |
|
|
$ |
402,800 |
|
$ |
805,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Javade Chaudhri |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
1/02/08 |
|
12/03/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,800 |
|
$ |
61.41 |
|
$ |
234,812 |
Restricted Stock Units |
|
1/02/08 |
|
12/03/07 |
|
|
|
|
|
|
|
|
|
|
|
|
16,400 |
|
24,600 |
|
|
|
|
|
|
$ |
867,047 |
Annual Bonus |
|
|
|
|
|
$ |
|
|
$ |
301,500 |
|
$ |
602,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
Grant and authorization dates applicable to equity incentive and option awards, which consist of performance-based restricted stock units and service-based stock options. The
Compensation Committee authorizes these awards as part of annual compensation planning that is typically completed in December with salary adjustments becoming effective on January 1 and awards granted on the first trading day of January. The
committee specifies a dollar value and other terms for the awards to be granted to each executive officer and the percentage of that value to be allocated between performance-based restricted stock units and service-based stock options. On the
January grant date, the precise number of shares to be granted to each executive officer is calculated by applying valuation models previously authorized by the committee and the closing price for shares of our common stock on that date. The closing
price on the grant date also establishes the exercise price for the stock options. Awards also may be granted upon the hiring or promotion of executive officers. |
(B) |
Non-equity incentive plan awards consist of annual bonuses payable under our Executive Incentive Plan from a performance pool equal to 1.5% of operating income for the year with
maximum bonuses not to exceed 30% of the performance pool for the Chief Executive Officer and 17.5% of the performance pool for each other plan participant. Amounts reported in the table represent estimates at the beginning of 2008 of bonuses
expected to be paid under earnings performance guidelines established by the Compensation Committee. These guidelines anticipate that the committee will apply downward discretion as permitted by the plan to reduce bonuses paid from plan maximums to
the lower amounts contemplated by the guidelines. Extraordinary corporate or individual performance may result in the payment of bonuses that exceed those contemplated by the guidelines to the extent the amounts paid are consistent with performance
pool limitations. |
36
Bonus guidelines for 2008 were based on earnings excluding (i) any one-time extraordinary gains or
losses related to the California energy crisis, (ii) 90% of gains or losses related to asset sales and impairments and (iii) earnings from RBS Sempra Commodities, with no bonuses payable for earnings of less than $585 million and maximum
bonuses payable for earnings of $715 million. Bonuses for targeted earnings performance of $650 million were set at levels ranging from 110% of base salary for the Chairman and Chief Executive Officer to 60% of base salary for the Executive Vice
President and General Counsel, with maximum bonuses ranging from 220% to 120% of base salary, respectively. Earnings for the year for bonus purposes were $741 million. Accordingly, in February 2009, the Compensation Committee authorized the payment
of bonuses to the executive officers at the maximum amounts estimated at the beginning of 2008. These bonuses are reported in the Summary Compensation Table as non-equity incentive plan compensation earned in 2008.
(C) |
Equity incentive plan awards consist of performance-based restricted stock units the right to receive shares of our common stock subject to the satisfaction of long-term
performance criteria. During the performance period, dividends that would have been paid on the shares covered by the award are deemed reinvested to purchase additional shares, at then fair market value, which become subject to the same forfeiture
and performance vesting conditions as the shares to which the dividends relate. If the performance criteria are not satisfied or the executives employment is terminated during the performance period other than by death or retirement after
attaining age 55, the award is forfeited subject to earlier vesting upon a change in control of the company or various events specified in the executives severance pay agreement. We typically permit each holder of restricted stock units the
opportunity to sell to us (at the market price of our shares at the end of the performance period) a sufficient number of vesting shares to pay the minimum amount of withholding taxes that becomes payable upon satisfaction of the performance
conditions. |
Shares subject to restricted stock units granted in 2008
will vest or be forfeited at the beginning of 2012 based upon our total return to shareholders. The target number of shares will vest if we have achieved a cumulative total return to shareholders for a four-year performance period that places us
among the top 50% of the companies in the S&P 500 Utilities Index or the S&P 500 Index with additional shares vesting ratably for performance above the 50th percentile of the S&P 500 Utilities Index to the maximum number (150% of the target number) for performance at or above the 75th percentile of that index. If our performance does not place us among the top 50% of the companies in the S&P 500 Utilities Index or the S&P 500 Index, shares will vest for performance above the 35th percentile of the S&P 500 Utilities Index declining from the target number of shares at the 50th
percentile to zero at the 35th percentile.
(D) |
All stock options are service-based options to purchase shares of our common stock granted under our Long Term Incentive Plan. They were granted at an exercise price equal to the
closing market price of our common stock on the date of the grant and for a ten-year term subject to earlier expiration following termination of employment. They become exercisable in cumulative installments of one-fourth of the shares initially
subject to the option on each of the first four anniversaries of the grant date, with immediate exercisability upon a change in control of the company or various events specified in the executives severance pay agreement.
|
(E) |
Grant date fair values are calculated in accordance with generally accepted accounting principles for financial reporting purposes based on the assumptions described in Note 10 of
Notes to Consolidated Financial Statements in our Annual Report to Shareholders, but disregarding estimates of forfeitures related to service-based vesting conditions. They do not necessarily correspond to the expense amounts shown in the Summary
Compensation Table, which reflect for each year that portion of grant date fair value recognized as compensation expense for awards granted in that year and in prior years. |
37
Outstanding Equity Awards at Year-End
We summarize below our grants of equity awards that were outstanding at December 31, 2008 for our executive officers named in the Summary Compensation Table. These grants consist solely of stock options,
restricted stock and restricted stock units.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Equity Awards at Year-End |
|
|
|
Stock
Awards |
|
|
|
Option Awards (Service-Based Stock Options) (A) |
|
Service-Based Restricted
Stock |
|
Performance-Based Restricted Stock and Restricted Stock Units (B) |
|
|
|
Number of
Shares Underlying Unexercised Options |
|
|
|
|
|
|
Number of Unvested Shares (C) |
|
|
Market Value of Unvested Shares |
|
Number of Unearned/ Unvested Shares (C) |
|
Market Value of Unearned/ Unvested Shares |
|
Grant Date |
|
Exercisable |
|
Unexer- cisable |
|
Exercise Price |
|
|
Expiration Date |
|
|
|
|
Donald E. Felsinger |
|
01/02/08 |
|
|
|
89,700 |
|
$ |
61.41 |
|
|
01/01/18 |
|
|
|
|
|
|
|
80,724 |
|
$ |
3,441,269 |
|
|
01/03/07 |
|
17,275 |
|
51,825 |
|
$ |
56.77 |
|
|
01/02/17 |
|
|
|
|
|
|
|
84,377 |
|
|
3,597,004 |
|
|
01/03/06 |
|
37,750 |
|
37,750 |
|
$ |
46.14 |
|
|
01/02/16 |
|
|
|
|
|
|
|
123,720 |
|
|
5,274,173 |
|
|
12/06/05 |
|
45,750 |
|
15,250 |
|
$ |
44.64 |
|
|
12/05/15 |
|
|
|
|
|
|
|
24,267 |
|
|
1,034,519 |
|
|
01/03/05 |
|
42,975 |
|
14,325 |
|
$ |
36.30 |
|
|
01/02/15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
06/08/04 |
|
22,400 |
|
|
|
$ |
33.89 |
|
|
06/07/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01/02/04 |
|
75,800 |
|
|
|
$ |
30.20 |
|
|
01/01/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01/02/03 |
|
101,800 |
|
|
|
$ |
24.37 |
|
|
01/01/13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01/02/02 |
|
344,400 |
|
|
|
$ |
24.77 |
|
|
01/01/12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
03/06/01 |
|
80,000 |
|
|
|
$ |
22.65 |
|
|
03/05/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01/02/01 |
|
277,900 |
|
|
|
$ |
22.50 |
|
|
01/01/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,046,050 |
|
208,850 |
|
$ |
31.75 |
(D) |
|
|
|
|
|
|
|
|
|
313,088 |
|
$ |
13,346,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neal E. Schmale |
|
01/02/08 |
|
|
|
42,100 |
|
$ |
61.41 |
|
|
01/01/18 |
|
|
|
|
|
|
|
37,891 |
|
$ |
1,615,289 |
|
|
01/03/07 |
|
10,900 |
|
32,700 |
|
$ |
56.77 |
|
|
01/02/17 |
|
|
|
|
|
|
|
53,274 |
|
|
2,271,085 |
|
|
01/03/06 |
|
24,150 |
|
24,150 |
|
$ |
46.14 |
|
|
01/02/16 |
|
|
|
|
|
|
|
64,713 |
|
|
2,758,728 |
|
|
01/03/05 |
|
32,100 |
|
10,700 |
|
$ |
36.30 |
|
|
01/02/15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
06/08/04 |
|
|
|
|
|
|
|
|
|
|
|
56,475 |
(E) |
|
$ |
2,407,529 |
|
|
|
|
|
|
|
01/02/04 |
|
46,600 |
|
|
|
$ |
30.20 |
|
|
01/01/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01/02/03 |
|
62,000 |
|
|
|
$ |
24.37 |
|
|
01/01/13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01/02/02 |
|
205,900 |
|
|
|
$ |
24.77 |
|
|
01/01/12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01/02/01 |
|
43,000 |
|
|
|
$ |
22.50 |
|
|
01/01/11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
424,650 |
|
109,650 |
|
$ |
33.37 |
(D) |
|
|
|
56,475 |
(E) |
|
$ |
2,407,529 |
|
155,878 |
|
$ |
6,645,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edwin A. Guiles |
|
01/02/08 |
|
|
|
31,300 |
|
$ |
61.41 |
|
|
01/01/18 |
|
|
|
|
|
|
|
28,212 |
|
$ |
1,202,688 |
|
|
01/03/07 |
|
8,075 |
|
24,225 |
|
$ |
56.77 |
|
|
01/02/17 |
|
|
|
|
|
|
|
39,509 |
|
|
1,684,276 |
|
|
01/03/06 |
|
17,900 |
|
17,900 |
|
$ |
46.14 |
|
|
01/02/16 |
|
|
|
|
|
|
|
47,916 |
|
|
2,042,652 |
|
|
01/03/05 |
|
29,625 |
|
9,875 |
|
$ |
36.30 |
|
|
01/02/15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01/02/04 |
|
64,000 |
|
|
|
$ |
30.20 |
|
|
01/01/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01/02/03 |
|
86,000 |
|
|
|
$ |
24.37 |
|
|
01/01/13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01/02/02 |
|
290,800 |
|
|
|
$ |
24.77 |
|
|
01/01/12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
496,400 |
|
83,300 |
|
$ |
31.18 |
(D) |
|
|
|
|
|
|
|
|
|
115,637 |
|
$ |
4,929,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark A. Snell |
|
01/02/08 |
|
|
|
27,900 |
|
$ |
61.41 |
|
|
01/01/18 |
|
|
|
|
|
|
|
25,123 |
|
$ |
1,071,007 |
|
|
01/03/07 |
|
6,825 |
|
20,475 |
|
$ |
56.77 |
|
|
01/02/17 |
|
|
|
|
|
|
|
33,415 |
|
|
1,424,467 |
|
|
01/03/06 |
|
14,300 |
|
14,300 |
|
$ |
46.14 |
|
|
01/02/16 |
|
|
|
|
|
|
|
38,225 |
|
|
1,629,531 |
|
|
01/03/05 |
|
22,950 |
|
7,650 |
|
$ |
36.30 |
|
|
01/02/15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01/02/04 |
|
21,500 |
|
|
|
$ |
30.20 |
|
|
01/01/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01/02/03 |
|
28,800 |
|
|
|
$ |
24.37 |
|
|
01/01/13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
94,375 |
|
70,325 |
|
$ |
42.77 |
(D) |
|
|
|
|
|
|
|
|
|
96,763 |
|
$ |
4,125,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Javade Chaudhri |
|
01/02/08 |
|
|
|
18,800 |
|
$ |
61.41 |
|
|
01/01/18 |
|
|
|
|
|
|
|
16,886 |
|
$ |
719,857 |
|
|
01/03/07 |
|
4,825 |
|
14,475 |
|
$ |
56.77 |
|
|
01/02/17 |
|
|
|
|
|
|
|
23,537 |
|
|
1,003,398 |
|
|
01/03/06 |
|
10,650 |
|
10,650 |
|
$ |
46.14 |
|
|
01/02/16 |
|
|
|
|
|
|
|
28,534 |
|
|
1,216,411 |
|
|
01/03/05 |
|
11,750 |
|
5,875 |
|
$ |
36.30 |
|
|
01/02/15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
01/02/04 |
|
8,875 |
|
|
|
$ |
30.20 |
|
|
01/01/14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,100 |
|
49,800 |
|
$ |
48.20 |
(D) |
|
|
|
|
|
|
|
|
|
68,957 |
|
$ |
2,939,666 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
Stock options become exercisable as to one-quarter of the shares originally subject to the option grant on each of the first four anniversaries of the grant date,
with immediate exercisability upon a change in control of the company or various events specified in the executives severance pay agreement. They remain exercisable until they expire ten years from the date of grant subject to earlier
expiration following termination of employment. If an executives employment is terminated after the executive has attained age 55 and completed five years of continuous service, the executives stock options expire three years (five years
if the executive has attained age 62) after the termination of employment. If
|
38
|
an executives employment is terminated by death or disability prior to attaining age 55, the executives stock options expire twelve months after
the termination of employment and are exercisable only as to the number of shares for which they were exercisable at the date of employment termination. If an executives employment is otherwise terminated, the executives stock options
expire 90 days after the termination of employment and are exercisable only as to the number of shares for which they were exercisable at the date of employment termination. |
(B) |
Performance-based restricted stock and restricted stock units (rights to receive shares of our common stock) that will vest or will be forfeited in whole or in part at the end of a
four-year performance period, based upon our total return to shareholders compared to market and peer group indexes and subject to earlier vesting upon a change in control of the company or various events specified in the executives severance
pay agreement. If an executives employment is terminated after the executive has attained age 55 and completed five years of service and the termination occurs after one year of the applicable performance period has been completed, the
executives award is not forfeited as a result of the termination of employment but continues to be subject to forfeiture based upon the extent to which the related performance goals have been satisfied at the end of the applicable four-year
performance period. If an executives employment is otherwise terminated before the end of the applicable performance period, the executives award is forfeited to the company. |
We have reported the number of shares subject to the awards that would vest and their market value at December 31, 2008 based upon performance during
the portion of the applicable performance period ended at that date. The number of shares that ultimately vest will depend upon the satisfaction of performance measures and may be fewer or greater than the number reported in the table.
(C) |
Includes shares purchased and deemed purchased with reinvested dividends and dividend equivalents that become subject to the same forfeiture conditions as the shares to which the
dividends relate. |
(D) |
Weighted average exercise price of all exercisable and unexercisable option shares. The weighted average exercise prices of exercisable option shares and unexercisable option shares
are, respectively, $27.20 and $54.55 for Mr. Felsinger; $27.99 and $54.21 for Mr. Schmale; $27.38 and $53.80 for Mr. Guiles; $34.24 and $54.22 for Mr. Snell; and $40.44 and $53.83 for Mr. Chaudhri. |
(E) |
These shares (together with reinvested dividends) will vest in 2010 subject only to Mr. Schmales continued employment at the vesting date and to earlier vesting upon a
change in control of the company or various other events specified in the grant or Mr. Schmales severance pay agreement. |
Option Exercises and Stock Vested
We summarize below the stock options that were exercised and restricted stock that vested during 2008
for our executive officers named in the Summary Compensation Table.
|
|
|
|
|
|
|
|
|
|
|
2008 Options Exercised and Stock Vested |
|
Option Awards |
|
Stock
Awards |
|
Number of Shares Acquired on Exercise |
|
Value Realized on Exercise (A) |
|
Number of Shares Acquired on Vesting |
|
Value Realized on Vesting
(B) |
Donald E. Felsinger |
|
|
|
$ |
|
|
107,747 |
|
$ |
4,872,168 |
Neal E. Schmale |
|
50,000 |
|
$ |
1,624,695 |
|
119,307 |
|
$ |
6,130,339 |
Edwin A. Guiles |
|
|
|
$ |
|
|
59,794 |
|
$ |
2,531,084 |
Mark A. Snell |
|
|
|
$ |
|
|
46,299 |
|
$ |
1,959,848 |
Javade Chaudhri |
|
|
|
$ |
|
|
35,547 |
|
$ |
1,504,718 |
(A) |
Difference between the market value of option shares on the exercise date and the option exercise price. |
(B) |
Market value of vesting stock (including reinvested dividends) at the vesting date. |
39
Pension Benefits
Our Supplemental Executive Retirement Plan provides our executive officers with retirement benefits based upon final average earnings (average base salary for the 24 consecutive months of highest base salary prior to retirement plus the
average of the three highest annual bonuses during the ten years prior to retirement), years of service and age at retirement. Benefits begin to vest after five years of service and attainment of age 55 with full vesting when age plus years of
service total 70 or the executive attains age 60.
Upon normal retirement at age 62, the annual benefit (as a percentage of final average earnings) in the
form of a 50% joint and survivor annuity is 20% after five years of service, 40% after ten years of service, 50% after 15 years of service, 60% after 20 years of service, 62.5% after 30 years of service, and 65% after 40 years of service. Reduced
benefits based on age and years of service are provided for retirement as early as age 55 and the completion of five years of service.
Benefits payable
under the Supplemental Executive Retirement Plan are reduced by benefits payable under our Cash Balance and Cash Balance Restoration Plans in which our executives also participate. Our Cash Balance Plan is a broad-based tax-qualified retirement plan
supplemented by a Cash Balance Restoration Plan that restores benefits lost due to Internal Revenue Service limitations on pay and benefits under tax-qualified pension plans. Under the Cash Balance and Cash Balance Restoration Plans, we annually
credit to a notional account for each participant an amount equal to 7.5% of the participants salary and bonus. Account balances earn interest and are fully vested after three years of service.
Retiring employees may elect to receive the retirement date present value of their vested accumulated retirement benefits in a single lump sum payment. Alternatively,
they may elect an annuity that provides the actuarial equivalent of the lump sum benefit in monthly payments over a fixed term, for the life of the retiree, or the life of the retiree and the retirees spouse.
We summarize below the present value of accumulated benefits under our various retirement plans at December 31, 2008 for our executive officers named in the Summary
Compensation Table.
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits at Year-End |
|
Plan |
|
Years of Credited Service |
|
Present Value of Accumulated Benefit (A) |
|
Donald E. Felsinger |
|
Cash Balance Plan |
|
|
|
$ |
1,308,882 |
|
|
|
Cash Balance Restoration Plan |
|
37 |
|
|
7,819,876 |
|
|
|
Supplemental Executive Retirement Plan |
|
|
|
|
13,626,777 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
22,755,535 |
(B) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Neal E. Schmale |
|
Cash Balance Plan |
|
|
|
$ |
371,120 |
|
|
|
Cash Balance Restoration Plan |
|
11 |
|
|
2,368,679 |
|
|
|
Supplemental Executive Retirement Plan |
|
|
|
|
7,725,277 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
10,465,076 |
(B) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Edwin A. Guiles |
|
Cash Balance Plan |
|
|
|
$ |
1,096,136 |
|
|
|
Cash Balance Restoration Plan |
|
37 |
|
|
4,867,593 |
|
|
|
Supplemental Executive Retirement Plan |
|
|
|
|
5,888,949 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
11,852,678 |
(B) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark A. Snell |
|
Cash Balance Plan |
|
|
|
$ |
106,456 |
|
|
|
Cash Balance Restoration Plan |
|
8 |
|
|
309,504 |
|
|
|
Supplemental Executive Retirement Plan |
|
|
|
|
2,355,545 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
2,771,505 |
(C) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Javade Chaudhri |
|
Cash Balance Plan |
|
|
|
$ |
91,803 |
|
|
|
Cash Balance Restoration Plan |
|
5 |
|
|
276,412 |
|
|
|
Supplemental Executive Retirement Plan |
|
|
|
|
1,783,278 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
$ |
2,151,493 |
(B) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
(A) |
Based upon the assumptions used for financial reporting purposes set forth in Note 9 of the Notes to Consolidated Financial Statements contained in our Annual Report to Shareholders
except retirement age has been assumed to be the earliest time at which the executive could retire under each of the plans without any benefit reduction due to age. |
Amounts shown for the Cash Balance and Cash Balance Restoration Plans are based on the greater of the amounts payable under those plans or the sum of the
present value of the accumulated benefit payable under a frozen predecessor plan plus future cash balance accruals. The amount shown for the Cash Balance Restoration Plan is the present value of the incremental benefit over that provided by the Cash
Balance Plan, and the amount shown for the Supplemental Executive Retirement Plan is the present value of the incremental benefit (based on a 50% joint and survivor annuity) over that provided by both the Cash Balance Plan and the Cash Balance
Restoration Plan.
(B) |
Messrs. Felsinger, Schmale, Guiles and Chaudhri, who at year-end were ages 61, 62, 59 and 56, respectively, are eligible for early retirement benefits. Had they retired at
December 31, 2008 and received their benefits under the plans as a lump sum, their early retirement benefits would have been $24,268,077 for Mr. Felsinger; $10,497,738 for Mr. Schmale; $14,812,620 for Mr. Guiles and $1,854,168
for Mr. Chaudhri. |
(C) |
Mr. Snell, who at year-end was age 52, is vested in benefits under the Cash Balance and Cash Balance Restoration Plans but not under the Supplemental Executive Retirement Plan.
Had his employment terminated at December 31, 2008, Mr. Snell would have received benefits of $531,426. |
Nonqualified Deferred
Compensation
Our nonqualified deferred compensation plans permit executives to elect on a year-by-year basis to defer the receipt of all or a portion
of their annual salary and bonus for payment in installments or in a lump sum at a future date selected by the executive at the time of the deferral election. Deferred amounts are fully vested and earn interest at a rate reset annually to the higher
of 110% of the Moodys Corporate Bond Yield Average Rate or the Moodys Rate plus 1% (7.25% for 2008) or, at the election of the executive, are deemed invested in investment accounts that mirror the investment accounts available under our
tax-qualified 401(k) Savings Plans in which all employees may participate.
We summarize below information regarding the participation in our nonqualified
deferred compensation plans by our executive officers named in the Summary Compensation Table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Nonqualified Deferred Compensation |
|
Executive Contributions in 2008 (A) |
|
Company Contributions in 2008 (B) |
|
Aggregate Earnings in 2008 (C) |
|
|
Aggregate Balance at 12/31/08
(D) |
Donald E. Felsinger |
|
$ |
189,495 |
|
$ |
95,614 |
|
$ |
(722,693 |
) |
|
$ |
15,730,112 |
Neal E. Schmale |
|
$ |
48,529 |
|
$ |
60,680 |
|
$ |
113,929 |
|
|
$ |
10,161,854 |
Edwin A. Guiles |
|
$ |
894,065 |
|
$ |
42,717 |
|
$ |
(895,495 |
) |
|
$ |
4,491,339 |
Mark A. Snell |
|
$ |
34,411 |
|
$ |
35,604 |
|
$ |
(72,176 |
) |
|
$ |
457,332 |
Javade
Chaudhri |
|
$ |
30,107 |
|
$ |
28,301 |
|
$ |
(9,188 |
) |
|
$ |
439,201 |
(A) |
Executive contributions consist of deferrals of salary and bonus that also are reported as compensation in the Summary Compensation Table. However, timing differences between
reporting bonus compensation in the Summary Compensation Table (which reports bonus amounts in the year for which they were earned) and related deferral dates (the date on which the bonuses would have been paid to the executive) may in any year
result in lesser or greater amounts reported as executive contributions in the accompanying table than the amounts that have been included in compensation reported in the Summary Compensation Table. Executive contributions in 2008 that are also
included as 2008 salary and bonus compensation reported in the Summary Compensation Table total $68,637 for Mr. Felsinger; $48,529 for Mr. Schmale; $38,665 for Mr. Guiles; $34,411 for Mr. Snell; and $30,107 for Mr. Chaudhri.
|
(B) |
Company contributions are identical to the amounts that the executive would have received under our tax-qualified 401(k) Savings Plan but for maximum dollar limitations on amounts
that may be deferred under tax-qualified plans. These contributions are also reported as compensation in the Summary Compensation Table. |
(C) |
Earnings are measured as the difference in deferred account balances between the beginning and the end of the year minus executive and company contributions during the year.
Earnings consisting of above-market interest are reported in the Summary Compensation Table. Excluding above-market interest, losses for 2008 were $856,015 for Mr. Felsinger; $16,749 for Mr. Schmale; $923,100 for Mr. Guiles; $75,456
for Mr. Snell; and $14,044 for Mr. Chaudhri. These net losses are not reported in the Summary Compensation Table. |
41
(D) |
Year-end balances consist of executive and company contributions and earnings on contributed amounts. All contributions and all earnings that consist of above-market interest have
been included in the Summary Compensation Table for 2008 or prior years or would have been so included had the current reporting requirements been applicable to the executive. Such amounts that have or would have been reported in Summary
Compensation Tables are $4,903,464 for Mr. Schmale; $396,082 for Mr. Snell; and $402,875 for Mr. Chaudhri. They are estimated to be no less than $9,117,879 for Mr. Felsinger and $3,286,450 for Mr. Guiles.
|
Severance and Change in Control Benefits
We have a severance pay agreement with each of our executive officers named in the Summary Compensation Table other than Mr. Guiles who voluntarily relinquished his agreement during 2008 following his announcement that he would retire
in March 2009. Each agreement is for a term of two years and is automatically extended for an additional year upon each anniversary of the agreement unless we or the executive elect not to extend the term.
The severance pay agreements provide executives with severance benefits in the event that we were to terminate the executives employment during the term of the
agreement for reasons other than cause, death or disability or the executive were to do so for good reason as defined in the agreement. The nature and amount of the severance benefits vary somewhat with the executives position, and
increased benefits are provided if the executive enters into an agreement with the company to provide consulting services for two years and abide by certain covenants regarding non-solicitation of employees and information confidentiality.
Additional benefits are also provided if the termination of employment were to occur within two years of a change in control of the company.
The definitions of cause and good reason vary somewhat based on whether the termination of employment occurs before or after a change in control of the company. However, cause is generally defined to include a
willful and continued failure by the executive to perform his or her duties to the company, and good reason is generally defined to include adverse changes in the executives responsibilities, compensation and benefit opportunities, and certain
changes in employment location. A change in control is defined in the agreements to include events resulting in a change in the effective control of the company or a change in the ownership of a substantial portion of the companys
assets.
Our stock option, restricted stock, and restricted stock unit agreements provide that all stock options would become immediately exercisable and
all forfeiture and transfer conditions on restricted stock and restricted stock units would immediately terminate upon a change in control of the company, whether or not accompanied or followed by a termination of the executives employment.
Below we summarize the benefits each of our executive officers named in the Summary Compensation Table (other than Mr. Guiles) would have been
entitled to receive had we terminated his employment (other than for cause, death or disability) at December 31, 2008 or had the executive done so for good reason, and the benefits each executive would have been entitled to receive had the
termination occurred within two years following a change in control of the company. These amounts assume the executive had entered into a two-year consulting, non-solicitation and confidentiality agreement providing for enhanced severance benefits
and the enhanced benefits would not be subject to excise taxes for which the executive would be entitled to reimbursement. We also show the benefits that each executive (including Mr. Guiles) would have been entitled to receive (accelerated
vesting and exercisability of stock options and vesting of restricted stock and restricted stock units) had a change in control of the company occurred on December 31, 2008 whether or not accompanied or followed by a termination of the
executives employment.
42
|
|
|
|
|
|
|
|
|
|
|
|
Severance and Change in Control Benefits |
|
Termination of Employment by the Company Without Cause or by the Executive Officer for
Good Reason |
|
|
|
Change in Control Only |
|
Unrelated to a Change
in Control |
|
Change in Control |
|
|
|
(Without Termination of Employment) |
|
|
|
|
|
Donald E. Felsinger |
|
|
|
|
|
|
|
|
|
|
|
Lump Sum Cash Payment (A) |
|
$ |
5,737,600 |
|
$ |
8,606,400 |
|
|
|
$ |
|
Acceleration of Existing Equity Awards (B) |
|
|
|
|
|
15,951,308 |
|
|
|
|
15,951,308 |
Enhanced Retirement Benefits (C) |
|
|
|
|
|
|
|
|
|
|
|
Health & Welfare Benefits (D) |
|
|
28,127 |
|
|
45,424 |
|
|
|
|
|
Financial Planning (E) |
|
|
50,000 |
|
|
75,000 |
|
|
|
|
|
Outplacement (F) |
|
|
50,000 |
|
|
50,000 |
|
|
|
|
|
Excise Tax Gross-Up (G) |
|
|
|
|
|
10,351,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,865,727 |
|
$ |
35,079,203 |
|
|
|
$ |
15,951,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neal E. Schmale |
|
|
|
|
|
|
|
|
|
|
|
Lump Sum Cash Payment (A) |
|
$ |
3,838,133 |
|
$ |
5,757,200 |
|
|
|
$ |
|
Acceleration of Existing Equity Awards (B) |
|
|
|
|
|
10,307,540 |
|
|
|
|
10,307,540 |
Enhanced Retirement Benefits (C) |
|
|
|
|
|
|
|
|
|
|
|
Health & Welfare Benefits (D) |
|
|
36,045 |
|
|
57,949 |
|
|
|
|
|
Financial Planning (E) |
|
|
50,000 |
|
|
75,000 |
|
|
|
|
|
Outplacement (F) |
|
|
50,000 |
|
|
50,000 |
|
|
|
|
|
Excise Tax Gross-Up (G) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,974,178 |
|
$ |
16,247,689 |
|
|
|
$ |
10,307,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edwin A. Guiles |
|
|
|
|
|
|
|
|
|
|
|
Lump Sum Cash Payment (A) |
|
$ |
|
|
$ |
|
|
|
|
$ |
|
Acceleration of Existing Equity Awards (B) |
|
|
|
|
|
|
|
|
|
|
5,896,758 |
Enhanced Retirement Benefits (C) |
|
|
|
|
|
|
|
|
|
|
|
Health & Welfare Benefits (D) |
|
|
|
|
|
|
|
|
|
|
|
Financial Planning (E) |
|
|
|
|
|
|
|
|
|
|
|
Outplacement (F) |
|
|
|
|
|
|
|
|
|
|
|
Excise Tax Gross-Up (G) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
|
|
$ |
5,896,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark A. Snell |
|
|
|
|
|
|
|
|
|
|
|
Lump Sum Cash Payment (A) |
|
$ |
2,506,933 |
|
$ |
3,756,400 |
|
|
|
$ |
|
Acceleration of Existing Equity Awards (B) |
|
|
|
|
|
4,965,887 |
|
|
|
|
4,965,887 |
Enhanced Retirement Benefits (C) |
|
|
|
|
|
3,307,887 |
|
|
|
|
|
Health & Welfare Benefits (D) |
|
|
44,699 |
|
|
89,550 |
|
|
|
|
|
Financial Planning (E) |
|
|
50,000 |
|
|
75,000 |
|
|
|
|
|
Outplacement (F) |
|
|
50,000 |
|
|
50,000 |
|
|
|
|
|
Excise Tax Gross-Up (G) |
|
|
|
|
|
5,791,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,651,632 |
|
$ |
18,035,920 |
|
|
|
$ |
4,965,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Javade Chaudhri |
|
|
|
|
|
|
|
|
|
|
|
Lump Sum Cash Payment (A) |
|
$ |
2,219,333 |
|
$ |
3,329,000 |
|
|
|
$ |
|
Acceleration of Existing Equity Awards (B) |
|
|
|
|
|
3,517,725 |
|
|
|
|
3,517,725 |
Enhanced Retirement Benefits (C) |
|
|
|
|
|
929,346 |
|
|
|
|
|
Health & Welfare Benefits (D) |
|
|
44,699 |
|
|
91,917 |
|
|
|
|
|
Financial Planning (E) |
|
|
50,000 |
|
|
75,000 |
|
|
|
|
|
Outplacement (F) |
|
|
50,000 |
|
|
50,000 |
|
|
|
|
|
Excise Tax Gross-Up (G) |
|
|
|
|
|
3,405,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,364,032 |
|
$ |
11,398,750 |
|
|
|
$ |
3,517,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43
(A) |
Severance payment equal to two times (three times following a change in control) the sum of annual base salary and the average of the last three incentive bonuses. Excludes payment
of bonus earned in the year of termination. |
(B) |
Fair market value at December 31, 2008 of performance-based restricted stock and shares subject to performance-based restricted stock units for which forfeiture restrictions
would terminate, and the difference between the fair market value at that date and the exercise price of stock options that would become exercisable. Stock option amounts include those attributable to fully vested but otherwise not yet exercisable
options held by retirement eligible executives. Such amounts are $90,677 for Mr. Felsinger; $67,731 for Mr. Schmale; $62,509 for Mr. Guiles; and $37,189 for Mr. Chaudhri. For additional information regarding options held by
retirement eligible executives, please see Note A to Outstanding Equity Awards at Year-End. |
(C) |
For Messrs. Snell and Chaudhri, the amount shown for termination accompanied by a change in control is the incremental actuarial value assuming that they had attained age 62,
but reduced for applicable early retirement factors. |
(D) |
Estimated value associated with continuation of health benefits for two years for termination unrelated to a change in control and continuation of health, life, disability and
accident benefits for three years for termination accompanied by a change in control. |
(E) |
Estimated value associated with continuation of financial planning services for two years for termination unrelated to a change in control, and three years for termination
accompanied by a change in control. |
(F) |
Estimated value associated with outplacement services for two years for termination unrelated to a change in control, and three years for termination accompanied by a change in
control. |
(G) |
Gross-up payment covering the full cost of excise tax under Internal Revenue Code Sections 280G and 4999. |
Executive officers who voluntarily terminate their employment (other than for good reason) or whose employment is terminated by death or by the company for cause are not
entitled to enhanced benefits.
This Notice of Annual Meeting and Proxy Statement are sent by order of the Sempra Energy Board of Directors.
Randall L. Clark
Corporate Secretary
Dated: March 2, 2009
44
D I R E C T I O N S
to the Sempra Energy Annual Meeting of Shareholders
April 30, 2009
Fairmont Newport Beach
4500 MacArthur Blvd
Newport Beach, California 92660
Valet parking will be provided (your valet ticket will be validated upon registration).
From John Wayne / Orange County Airport
|
|
|
Turn right on MacArthur Blvd. |
|
|
|
Pass through the light at Birch Street and make an immediate left turn into The Fairmont Newport Beach driveway. |
|
|
|
Hotel is located on MacArthur Blvd. between Birch Street and Von Karman Avenue. |
From Points North or South
|
|
|
From I-405 exit MacArthur Blvd. |
|
|
|
Turn left onto MacArthur. Pass through the light at Birch Street and make an immediate left turn into The Fairmont Newport Beach
driveway. |
|
|
|
Hotel is located on MacArthur Blvd. between Birch Street and Von Karman Avenue. |
From Points East
|
|
|
Follow the 91 Freeway West to the 55 Freeway South to the 405 Freeway South. |
|
|
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Turn left onto MacArthur. Pass through the light at Birch Street and make an immediate left turn into The Fairmont Newport
Beach driveway. |
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Hotel is located on MacArthur Blvd. between Birch Street and Von Karman Avenue. |
ADMISSION TICKET
ADMIT ONE SHAREHOLDER AND GUEST
2009 Annual Meeting of
Sempra Energy Shareholders
Thursday,
April 30, 2009 - 10:00 a.m
The Fairmont Hotel
4500 MacArthur Blvd.
Newport Beach, California
Directions to the meeting are located
at the
end of the Proxy Statement
Upon arrival, please present this
admission ticket and photo identification
at the registration desk.
Doors will open at 9:00 A.M.
Cameras, tape recorders and similar devices will not be allowed in the meeting rooms.
YOUR VOTE IS IMPORTANT:
Even if you plan to attend the Annual Meeting in person
please vote your shares.
SEMPRA ENERGY
ANNUAL MEETING OF SHAREHOLDERS APRIL 30, 2009
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS
As an alternative to completing this form, you may enter your vote instruction by telephone at 1-800-PROXIES, or via the Internet
at WWW.VOTEPROXY.COM and follow the simple instructions. Use the Company Number and Account Number shown on your proxy card.
DONALD E.
FELSINGER and JAVADE CHAUDHRI jointly or individually and with full power of substitution, are authorized to represent and vote the shares of the undersigned at the 2009 Annual Meeting of Shareholders of Sempra Energy, and at any adjournment or
postponement thereof, in the manner directed on the reverse side of this card and in their discretion on all other matters that may properly come before the meeting.
This card also provides voting instructions for shares held in the Sempra Energy Direct Stock Purchase Plan and Employee Savings Plans of Sempra Energy and its subsidiaries.
(Continued and to be signed on the reverse side)
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14475 |
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ANNUAL MEETING OF SHAREHOLDERS OF
SEMPRA ENERGY
April 30, 2009
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PROXY VOTING INSTRUCTIONS |
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INTERNET - Access www.voteproxy.com and follow the on-screen instructions. Have your proxy card available when you access the web page, and use the
Company Number and Account Number shown on your proxy card. |
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TELEPHONE - Call toll-free 1-800-PROXIES (1-800-776-9437) in the United States and Canada or 1-718-921-8500
from foreign countries from any touch-tone telephone and follow the instructions. Have your proxy card available when you call and use the Company Number and Account Number shown on your proxy card. Vote online or by phone until 11:59 PM EST the day before the meeting. |
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COMPANY NUMBER |
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ACCOUNT NUMBER |
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MAIL - Sign, date and mail your proxy card in the
envelope provided as soon as possible. |
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IN PERSON - You may vote your shares in person by attending the Annual Meeting. |
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NOTICE REGARDING INTERNET AVAILABILITY OF
PROXY MATERIALS: The notice of meeting, proxy statement, proxy card and annual report to shareholders are available
at http://www.amstock.com/ProxyServices/ViewMaterials.asp. |
Please detach along perforated line and mail in the envelope provided IF you are not voting by telephone or the Internet.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S).
IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ITEMS 1 THROUGH 13 AND AGAINST ITEMS 14 AND 15.
PLEASE SIGN,
DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE x
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DIRECTOR ELECTION: |
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BOARD RECOMMENDS A VOTE FOR THE LISTED NOMINEES. |
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FOR |
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AGAINST |
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ABSTAIN |
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FOR |
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AGAINST |
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ABSTAIN |
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1. James G. Brocksmith Jr. |
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9. William C. Rusnack |
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2. Richard A. Collato |
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10. William P. Rutledge |
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3. Donald E. Felsinger |
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11. Lynn Schenk |
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4. Wilford D. Godbold Jr. |
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12. Neal E. Schmale |
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5. William D. Jones |
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PROPOSALS: |
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6. Richard G. Newman |
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BOARD RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSAL. |
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7. William G. Ouchi |
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13. Ratificationof Independent Registered Public Accounting Firm. |
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8. Carlos Ruiz |
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BOARD RECOMMENDS A VOTE AGAINST THE FOLLOWING PROPOSALS. |
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14. ShareholderProposal for an Advisory Vote on Executive Compensation |
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15. ShareholderProposal for North Dakota Reincorporation |
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To change the address on your account, please check the box at right and indicate your new address in the address space above.
Please note that changes to the registered name(s) on the account may not be submitted via this method. |
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MARK X HERE IF YOU PLAN TO ATTEND THE MEETING. |
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MARK X HERE IF YOU WANT CONFIDENTIAL VOTING.
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Signature of Shareholder |
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Date: |
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Signature of Shareholder |
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Date: |
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Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should
sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person. |
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