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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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[ü] Preliminary Proxy Statement
Pinnacle West Capital Corporation
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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[ ] | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | |||||
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Post Office Box 53999
PHOENIX, ARIZONA 85072-3999
FOR ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
Wednesday May 21, 2008
(1) | Elect twelve (12) directors to serve until the 2009 Annual Meeting of Shareholders (Proposal 1); | ||
(2) | Approve an amendment to the Company’s Articles of Incorporation to provide for a majority shareholder vote to amend the Articles of Incorporation (Proposal 2); and | ||
(3) | Ratify the appointment of the Company’s independent auditors for the fiscal year ending December 31, 2008 (Proposal 3). |
By order of the Board of Directors, | ||||
NANCY C. LOFTIN | ||||
Senior Vice President, General Counsel and Secretary | ||||
April 10, 2008
Please see our General Information section for information about voting by telephone, internet or mail.
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• | FORelection of the nominated slate of directors (see Proposal 1); | ||
• | FORamending the Articles of Incorporation to provide for a majority shareholder vote to amend the Articles of Incorporation (see Proposal 2); and | ||
• | FORratification of the appointment of Deloitte & Touche LLP as the Company’s independent auditors for the fiscal year ending December 31, 2008 (see Proposal 3). |
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Finance, | ||||||||
Human | Corporate | Nuclear and | ||||||
Resources | Governance | Operating | ||||||
Director | Audit Committee | Committee | Committee | Committee | ||||
Edward N. Basha, Jr. | ü | ü | ü | |||||
Susan Clark-Johnson | ü | ü | ü | |||||
Jack E. Davis | ü | |||||||
Michael L. Gallagher | X | |||||||
Pamela Grant | ü | ü | ü | |||||
Roy A. Herberger, Jr. | X | ü | ü | |||||
William S. Jamieson | ü | ü | ü | |||||
Humberto S. Lopez | ü | ü | ü | |||||
Kathryn L. Munro | ü | X | ü | |||||
Bruce J. Nordstrom | X | ü | ü | |||||
W. Douglas Parker | ü | ü | ü | |||||
William J. Post | ü | |||||||
William L. Stewart | ü | |||||||
X Chairman
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• | the integrity of the Company’s financial statements; | ||
• | the independent auditors’ qualifications, independence and performance; | ||
• | the performance of the Company’s internal audit function; and | ||
• | the Company’s compliance with legal and regulatory requirements. |
• | review and assess reports from the Palo Verde Nuclear Oversight Committee (the “NOC”), which formally reports to the Committee and APS’ Chief Executive Officer; | ||
• | review the Company’s historical and projected financial performance and annual budgets; | ||
• | review and recommend approval of short-term investments and borrowing guidelines; | ||
• | review the Company’s financing plan and recommend approval of credit facilities and the issuance of long-term debt and common equity; | ||
• | review and recommend to the Board the Company’s dividend actions, including stock dividends and other distributions; | ||
• | review and monitor the performance of the Company’s environmental policies; and | ||
• | review and monitor the customer and power plant operations of the Company. |
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• | Serves as a liaison between the Chairman of the Board and the independent directors; | ||
• | Advises the Chairman of the Board on the appropriate schedule of Board meetings, reviews and provides the Chairman of the Board with input regarding agendas for the Board meetings and, as appropriate or as requested, reviews and provides the Chairman of the Board with input regarding information sent to the Board; | ||
• | Presides at all meetings at which the Chairman of the Board is not present, including executive sessions of the non-employee and the independent directors; | ||
• | Calls meetings of the non-employee and the independent directors when necessary and appropriate; | ||
• | Oversees the Board and Board committee self-assessment process; | ||
• | Is available for consultation and direct communication with the Company’s shareholders and other interested parties; and | ||
• | Performs such other duties as the non-employee directors may from time to time delegate. |
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Corporate Secretary Pinnacle West Capital Corporation 400 North 5th Street, Mail Station 9068 Phoenix, Arizona 85004 |
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Change in | ||||||||||||||||||||||||||||
Pension Value | ||||||||||||||||||||||||||||
and | ||||||||||||||||||||||||||||
Nonqualified | ||||||||||||||||||||||||||||
Fees Earned | Non-Equity | Deferred | ||||||||||||||||||||||||||
or Paid in | Stock | Option | Incentive Plan | Compensation | All Other | |||||||||||||||||||||||
Cash | Awards | Awards | Compensation | Earnings4 | Compensation | Total | ||||||||||||||||||||||
Name1 | ($)2 | ($)3 | ($) | ($) | ($) | ($) 5 | ($) | |||||||||||||||||||||
Edward N. Basha, Jr. | 70,500 | 44,605 | 0 | 0 | 0 | 61 | 115,166 | |||||||||||||||||||||
Jack E. Davis6 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
Michael L. Gallagher | 77,082 | 44,605 | 0 | 0 | 12,339 | 5,061 | 139,087 | |||||||||||||||||||||
Pamela Grant | 77,500 | 44,605 | 0 | 0 | 0 | 3,061 | 125,166 | |||||||||||||||||||||
Roy A. Herberger, Jr. | 77,000 | 44,605 | 0 | 0 | 9,811 | 4,061 | 135,477 | |||||||||||||||||||||
Martha O. Hesse | 21,500 | 0 | 0 | 0 | 273 | 19 | 21,792 | |||||||||||||||||||||
William S. Jamieson | 70,500 | 44,605 | 0 | 0 | 9,121 | 2,311 | 126,537 | |||||||||||||||||||||
Humberto S. Lopez | 75,500 | 44,605 | 0 | 0 | 17,318 | 5,061 | 142,484 | |||||||||||||||||||||
Kathryn L. Munro | 73,082 | 44,605 | 0 | 0 | 4,663 | 5,061 | 127,411 | |||||||||||||||||||||
Bruce J. Nordstrom | 78,334 | 44,605 | 0 | 0 | 6,363 | 61 | 129,363 | |||||||||||||||||||||
W. Douglas Parker | 9,500 | 43,450 | 0 | 0 | 0 | 8 | 52,958 | |||||||||||||||||||||
William J. Post6 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
William L. Stewart | 84,500 | 44,605 | 0 | 0 | 0 | 61 | 129,966 |
1 | The following Company directors also serve as directors of the following Company subsidiaries: APS: Messrs. Basha, Davis, Gallagher, Herberger, Jamieson, Lopez, Nordstrom, Parker, Post and Stewart, and Mses. Grant and Munro; APSES: Messrs. Post and Stewart; SunCor: Messrs. Gallagher, Lopez and Post, and Ms. Grant; and El Dorado: Messrs. Gallagher, Herberger and Post. Mr. Parker became a director of the Company and of APS effective November 1, 2007. Ms. Hesse did not stand for re-election at our 2007 Annual Meeting. Ms. Clark-Johnson became a director of the Company and of APS effective February 1, 2008 and thus is not included in the table. | |
2 | This amount includes fees paid to directors in connection with their service on the Board of Directors of the Company and of one or more of the Company’s subsidiaries. (See “How are directors compensated?” on page 7 of this proxy statement.) In addition, with respect to Mr. Stewart, this amount includes $20,000 paid to him in connection with his service as the Board’s liaison to the Palo Verde Nuclear Oversight Committee. | |
3 | Represents an annual stock grant of 1,100 shares. Each individual who is a non-employee director as of July 1 of a calendar year, and who meets the requirements of ownership of the Company’s common stock set forth below, receives 1,100 shares of the Company’s common stock. In the first calendar year in which a non-employee director is eligible to participate in this grant, he or she must own at least 900 shares of the Company’s common stock as of December 31 of the same calendar year to receive a grant of 1,100 shares of the Company’s common stock. If the non-employee director owns 900 shares of common stock as of June 30, he or she will receive a grant of 1,100 shares of common stock as of July 1 of the same calendar year. If the non-employee director does not own 900 shares of the Company’s common stock as of June 30, but acquires the necessary shares on or before December 31 of the same year, he or she will receive a grant of 1,100 shares of common stock within a reasonable time after the Company verifies that the requisite number of shares has been acquired. In each subsequent year, the number of shares of the Company’s common stock the non-employee director must own to receive a grant of 1,100 shares of common stock increases by 900 shares, until reaching a maximum of 4,500 shares. In each of the subsequent years, the non-employee director must own the requisite number of shares of the Company’s common stock as of June 30 of the relevant calendar year. In accordance with SEC rules, the amount in this column reflects the dollar amount expensed by the Company during 2007 for financial reporting purposes, |
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which equals the number of shares issued (1,100) multiplied by the closing market price on the date the shares were issued: $39.50 with respect to Mr. Parker’s grant, which he received on November 1, 2007, the effective date of his appointment to the Board, and $40.55 with respect to all other directors except for Ms. Hesse, who was not a Company director at the time of the annual grant. Ms. Clark-Johnson received a grant of 1,100 shares on February 1, 2008, the effective date of her appointment to the Board. | ||
4 | The Company does not have a pension plan for directors. The amount in this column consists solely of the above-market portion of annual interest accrued under a deferred compensation plan under which directors may defer all or a portion of their Board fees. Under the SEC’s disclosure rules, the above-market portion of interest is determined by reference to 120% of the applicable federal long-term rate, with compounding. See the discussion of the rates of interest applicable to the deferred compensation program under the heading “Discussion of Nonqualified Deferred Compensation” on page 42 of this proxy statement. | |
5 | This amount represents a premium of $61 for an accidental death and dismemberment policy that covers all directors and officers. The amount has been pro-rated for Mr. Parker ($8) and Ms. Hesse ($19) for the period during which they served as directors during 2007. The remainder of the amount represents qualifying charitable contributions matched by the Company pursuant to a program adopted in December 2007 and described under “How are directors compensated?” on page 7 of this proxy statement. | |
6 | Both Messrs. Davis and Post are Named Executive Officers (as defined on page 12 of this proxy statement) and their compensation is set forth in the Summary Compensation Table on page 28 of this proxy statement. They received no additional compensation during 2007 in connection with their service as a director. |
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Director | ||||||||||
Name | Age | Occupation, Business & Directorships | Since | |||||||
Edward N. Basha, Jr. | 70 | Chairman of the Board of Bashas’ supermarket chain since 1968. Chief Executive Officer of Bashas’ and an Arizona civic leader dedicated to multiple Arizona community projects. | 1999 | |||||||
Susan Clark-Johnson | 60 | President, Gannett Newspaper Division, Gannett Co., Inc. since September 2005. Ms. Clark-Johnson was Chairman and CEO of Phoenix Newspapers, Inc. from August 2000 to September 2005. Ms. Clark-Johnson has been a director of the Company since February 1, 2008. | 2008 | |||||||
Michael L. Gallagher | 63 | Attorney-at-law with Gallagher & Kennedy, P.A., Phoenix, Arizona. Chairman Emeritus of Gallagher & Kennedy since 2001. Mr. Gallagher served as President of Gallagher & Kennedy from 1978 through 2000. Mr. Gallagher is also a director of AMERCO. | 1999 | |||||||
Pamela Grant | 69 | Civic leader. President of TableScapes, Inc. (party supply rentals) from July 1989 through January 1995. Ms. Grant was President and CEO of Goldwaters Department Stores (general mercantile), a division of May Department Stores, from January 1987 to April 1988. From November 1978 to January 1987, Ms. Grant was President, Chair and CEO of Goldwaters Department Stores, a division of Associated Dry Goods. | 1985 | |||||||
Roy A. Herberger, Jr. | 65 | President Emeritus of Thunderbird School of Global Management since November 2004. Mr. Herberger was President of Thunderbird from 1989 until August 2004. Mr. Herberger is also a director of MedAire, Inc., the Apollo Group and ECO2 Plastics Inc. | 1992 | |||||||
William S. Jamieson | 64 | President of Micah Institute of Asheville, North Carolina since January 2005. From January 1999 to December 2004, Mr. Jamieson was President of the Institute for Servant Leadership. | 1991 | |||||||
Humberto S. Lopez | 62 | President of HSL Properties, Inc. (real estate development and investment), Tucson, Arizona since 1975. | 1995 |
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Director | ||||||||||
Name | Age | Occupation, Business & Directorships | Since | |||||||
Kathryn L. Munro | 59 | Principal of BridgeWest, LLC (investment company) since July 2003. Ms. Munro was Chair of BridgeWest, LLC from February 1999 until July 2003. From 1996 to 1998, Ms. Munro served as CEO of Bank of America’s Southwest Banking Group and was President of Bank of America Arizona from 1994 to 1996. Ms. Munro is also a director of FLOW International Corporation and Knight Transportation, Inc. | 2000 | |||||||
Bruce J. Nordstrom | 58 | President of and certified public accountant at the firm of Nordstrom and Associates, PC, Flagstaff, Arizona, since 1988. | 2000 | |||||||
W. Douglas Parker | 46 | Chairman of the Board and Chief Executive Officer of US Airways Group (“USAG”) and US Airways since September 27, 2005 to present. Mr. Parker was President of USAG and US Airways from September 27, 2005 to October 1, 2006. Mr. Parker has served as Chairman of the Board and Chief Executive Officer of America West Holdings (“AWH”) and of America West Airlines (“AWA”) since September 2001, and has served as a director of AWH and AWA since 1999. Mr. Parker also served as President of AWH and AWA from September 2001 to October 1, 2006. Mr. Parker is also a director of USAG and Clear Channel Outdoor. Mr. Parker has been a director of the Company since November 1, 2007. | 2007 | |||||||
William J. Post | 57 | Chairman of the Board of the Company since February 2001 and CEO of the Company since February 1999. Mr. Post has served as an officer of the Company in the following additional capacities: from August 1999 to February 2001 as President; from February 1997 to February 1999 as President; and from June 1995 to February 1997 as Executive Vice President. Mr. Post is also Chairman of the Board of APS and has held various officer positions at APS since 1982. | 1997 | |||||||
William L. Stewart | 64 | Mr. Stewart retired from the Company effective November 26, 2003. Mr. Stewart served as Chief Executive Officer of Pinnacle West Energy Corporation (“PWEC”) from October 2002 until January 2003 and President of PWEC from October 1999 until January 2003. Mr. Stewart served as President, Generation, of APS from October 1998 to October 2002. | 2001 |
SLATE OF DIRECTORS
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Number of Shares | Shares Acquirable | |||||||||||
Name | Beneficially Owned1 | Within 60 Days2 | Percent of Class | |||||||||
Directors: | ||||||||||||
Edward N. Basha, Jr. | — | 0 | * | |||||||||
Susan Clark-Johnson | — | 0 | ||||||||||
Jack E. Davis | — | — | * | |||||||||
Michael L. Gallagher | — | 0 | * | |||||||||
Pamela Grant | — | 0 | * | |||||||||
Roy A. Herberger, Jr. | — | 0 | * | |||||||||
William S. Jamieson | — | 0 | * | |||||||||
Humberto S. Lopez | — | 0 | * | |||||||||
Kathryn L. Munro | — | 0 | * | |||||||||
Bruce J. Nordstrom | — | 0 | * | |||||||||
W. Douglas Parker | — | 0 | ||||||||||
William J. Post | — | — | * | |||||||||
William L. Stewart | — | 0 | * | |||||||||
Other Named Executive Officers: | ||||||||||||
Donald E. Brandt | — | 0 | * | |||||||||
Randall K. Edington | — | 0 | * | |||||||||
Steven M. Wheeler | — | 0 | * | |||||||||
All Directors and Executive Officers as a Group (24 Persons): | — | — | — | |||||||||
5% Beneficial Owners3: | ||||||||||||
Barclays Global Investors, NA. and certain other entities | 7,896,913 | N/A | 7.9 | % | ||||||||
45 Fremont Street | ||||||||||||
San Francisco, CA 94105 | ||||||||||||
Capital Group International Inc. | 6,662,570 | N/A | 6.6 | % | ||||||||
11100 Santa Monica Boulevard | ||||||||||||
Los Angeles, CA 90025 | ||||||||||||
Capital Guardian Trust Company | 5,684,870 | N/A | 5.7 | % | ||||||||
11100 Santa Monica Boulevard | ||||||||||||
Los Angeles, CA 90025 | ||||||||||||
Franklin Resources, Inc. and certain other entities | 7,233,100 | N/A | 7.2 | % | ||||||||
One Franklin Parkway | ||||||||||||
San Mateo, CA 94403-1906 | ||||||||||||
State Street Bank and Trust Company | 6,481,644 | N/A | 6.5 | % | ||||||||
One Lincoln Street | ||||||||||||
Boston, MA 02111 | ||||||||||||
T. Rowe Price Associates, Inc. | 8,596,188 | N/A | 8.5 | % | ||||||||
100 E. Pratt Street | ||||||||||||
Baltimore, MD 21202 |
* | Represents less than 1% of the outstanding common stock | |
1 | Does not include shares that could be purchased by the exercise of options available at March 24, 2008 or within 60 days thereof under the Company’s equity incentive plans. Those shares are shown in a separate column on this table. |
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2 | Reflects the number of shares that could be purchased by the exercise of options available at March 24, 2008 or within 60 days thereafter under the Company’s equity incentive plans. | |
3 | Barclays Global Investors, NA.; Barclays Global Fund Advisors; Barclays Global Investors, Ltd; Barclays Global Investors Japan Trust and Banking Company Limited, Barclays Global Investors Japan Limited, Barclays Global Investors Canada Limited, Barclays Global Investors Australia Limited, and Barclays Global Investors (Deutschland) AG (collectively, “Barclays”); Schedule 13G filing, dated January 10, 2008 and filed with the SEC on February 6, 2008, reports beneficial ownership collectively of 7,896,913 shares, with sole voting power as to 1,692,910 shares and sole dispositive power as to 2,105,542 shares in Barclays Global Investors, NA., sole voting power and sole dispositive power as to 5,285,436 shares in Barclays Global Fund Advisors, sole voting power as to 348,383 shares and sole dispositive power as to 380,671 shares in Barclays Global Investors, Ltd., sole voting power and sole dispositive power as to 89,835 shares in Barclays Global Investors Japan Limited, and sole voting power and sole dispositive power as to 35,429 shares in Barclays Global Investors Canada Limited. Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr., and Franklin Advisers, Inc. (collectively, “Franklin”) Schedule 13G/A filing, dated January 24, 2008 and filed with the SEC on February 6, 2008, reports beneficial ownership collectively of 7,233,100 shares, with sole voting power as to 7,156,000 shares and sole dispositive power as to 7,231,000 shares in Franklin Advisers, Inc., and sole voting power and sole dispositive power as to 2,100 shares in Fiduciary Trust Company International. T. Rowe Price Associates, Inc. Schedule 13G/A filing, dated February 14, 2008 and filed with the SEC on February 12, 2008, reports beneficial ownership of 8,596,188 shares with sole voting power as to 1,446,812 shares and sole dispositive power as to 8,596,188 shares. State Street Bank and Trust Company Schedule 13G filing, dated February 12, 2008 and filed with the SEC on February 12, 2008, reports beneficial ownership of 6,481,644 shares, with sole voting power as to 3,517,323 shares, shared voting power as to 2,964,321 shares and shared dispositive power as to 6,481,644 shares. Capital Group International, Inc. and Capital Guardian Trust Company Schedule 13G filing, dated February 8, 2008 and filed with the SEC on February 12, 2008, reports beneficial ownership of 6,662,570 shares, with sole voting power as to 5,362,660 shares and sole dispositive power as to 6,662,570 shares in Capital Group International, Inc., and 5,684,870 shares, with sole voting power as to 4,609,160 shares and sole dispositive power as to 5,684,870 shares in Capital Guardian Trust Company. The Company makes no representations as to the accuracy or completeness of such information and believes these filings represent share ownership as of December 31, 2007. |
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• | Transactions in which rates or charges are fixed in conformity with law or governmental authority (such as APS rates approved by the Arizona Corporation Commission) or the rates or charges are determined by competitive bid; | ||
• | Transactions with SunCor or its affiliates (such as home purchases) that are offered to the Related Party on terms comparable to those that could be obtained in arm’s length dealing with an unrelated party; | ||
• | Transactions involving charitable or non-profit organizations where the Related Party serves only as a director or chairman of the organization’s Board of Directors for no compensation; | ||
• | Transactions in which the Related Party’s interest arises only: (a) from such person’s position as a director of the entity involved in the transaction; (b) from the direct or indirect ownership by such person, in the aggregate of less than a ten (10) percent equity interest in the entity involved in the transaction; or (c) the interest arises under both (a) and (b) above; and | ||
• | Any transaction involving a director that was considered by the Board in assessing the director’s independence and which resulted in a determination that disclosure of the transaction was not required under Item 404(a) of SEC Regulation S-K. |
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COMMITTEE CHAIRMAN | COMMITTEE MEMBERS | |||
Bruce J. Nordstrom | Edward N. Basha, Jr. | |||
Pamela Grant | ||||
William S. Jamieson | ||||
Humberto S. Lopez | ||||
Kathryn L. Munro | ||||
W. Douglas Parker |
Type of Service | 2006 | 2007 | ||||||
Audit Fees1 | $ | 2,722,685 | $ | 2,762,477 | ||||
Audit-Related Fees2 | 207,890 | 227,310 | ||||||
Tax Fees3 | 37,396 | 16,251 |
1 | The aggregate fees billed for services rendered for the audit of the Company’s annual financial statements, review of financial statements included in Forms 10-Q, services related to SEC matters and filings, and the financial statement audit of one of the Company’s subsidiaries, and for 2006 only, attestation procedures on internal controls over financial reporting. | |
2 | The aggregate fees billed for audit-related services, which primarily consist of fees for auditing of the Company’s benefit plans. | |
3 | The aggregate fees billed primarily for tax services and preparation of tax returns for one of the Company’s subsidiaries. |
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• | review management’s plans and programs for the attraction, retention, succession, motivation, and development of the human resources needed to achieve corporate objectives; | ||
• | review and approve policies on compensation, benefits, and perquisites, including incentive cash compensation plans, equity participation, and other forms of executive incentives; | ||
• | recommend persons for election or appointment as officers to the full Board; | ||
• | annually review the goals and performance of our elected officers, including review of compensation, benefits, and perquisites, to satisfy the Committee that there is equity in the compensation practices and general integrity in conforming to approved plans and policies; | ||
• | review and approve corporate goals and objectives relevant to compensation of our Chief Executive Officer (“CEO”), assess the CEO’s performance in light of these goals and objectives, and set the CEO’s compensation level based on this assessment; | ||
• | make recommendations to the Board with respect to non-CEO executive compensation, and incentive compensation and equity-based plans that are subject to Board approval; | ||
• | make recommendations to the Board for director compensation, equity participation, benefits and perquisites; | ||
• | act as the “committee” under our long-term incentive plans; and | ||
• | review and recommend changes to pension benefits. |
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• | Alignment with Shareholder Interests. Compensation should be tied to the Company’s stock performance through performance-based or other stock incentives so that executives’ interests are aligned with those of our shareholders. | ||
• | Business Performance Accountability. Compensation should be tied to the Company’s performance in several key areas, including customer satisfaction, so that executives are focused on specific strategic and operating objectives and are held accountable through their compensation for the performance of the Company. | ||
• | Individual Performance Accountability. Compensation should be tied to an individual’s performance so that individual contributions to the Company’s performance are rewarded. | ||
• | Retention. Compensation should be designed to promote key employee retention. | ||
• | Competitiveness. Finally, the compensation program should be designed to attract, retain and reward key leaders critical to the Company’s success by providing competitive total compensation. |
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• | be strongly represented by nuclear companies because the Company is a large nuclear operator; | ||
• | include representation of companies in the S&P 1500 Super Composite Electric Utility Index because the Company’s performance shares are earned based on financial performance compared to this index; | ||
• | include some companies smaller than the companies in the Index to balance the peer group from a size perspective; and | ||
• | have a solid reputation and long-term prospects. |
• | base salary at the median of the blended market; | ||
• | total cash compensation (base salary plus annual cash incentive) and total direct compensation (total cash compensation plus long-term incentive) for target/goal performance at or near the median of the blended market; | ||
• | total cash compensation and total direct compensation for exceptional performance around or above the 75th percentile of the blended market; and | ||
• | below median pay for below median performance. For purpose of this analysis, survey data for determining annual and long-term incentive opportunities is averaged for a three-year period to smooth any variation that may occur in a single year in the survey data. |
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• | the implementation of new base fuel rates and power supply adjustor amendments, as approved by the Arizona Corporation Commission, which addressed the need for timely recovery of our fuel and purchased power costs; | ||
• | the Company’s coal plants posted an 87.5 percent capacity factor, a new all-time fleet record, slightly ahead of the record set a year ago and well ahead of the industry average of 71 percent; | ||
• | in one of the hottest summers on record, APS established eight of the 10 highest system peak days ever, culminating in a 2007 peak of 7,545 MW, set on August 13, 2007; | ||
• | APS recorded all-time best results in reliability measures in 2007; and | ||
• | the Company continued to earn recognition for addressing environmental, social and governance issues, including the following: |
o | For the third consecutive year, Pinnacle West was named one of the Global 100 Most Sustainable Corporations in the World by Corporate Knights Inc., which evaluates performance on social, environmental and strategic governance issues. | ||
o | Also for the third straight year, Pinnacle West was selected for the 2007 U.S. Dow Jones Sustainability Index, the premier index recognizing sustainable business practices for publicly held corporations. | ||
o | Pinnacle West again achieved the highest rating (AAA) and is ranked in the top two of utilities in the United States by Innovest Strategic Value Advisors in its analysis covering the environmental, social and governance factors of the largest publicly-traded utility companies. |
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• | vest in 25% increments, beginning with respect to RSUs, on February 20, 2008, so that they will be fully vested on February 20, 2011 and with respect to Mr. Edington’s retention units, beginning with one fourth of the award immediately vesting on the grant date, and the remaining increments vesting on the first business day of each January following the grant date, so that the retention units will be fully vested on January 4, 2010; | ||
• | fully vest before the end of the regular vesting period if the participant or Mr. Edington retires or, with respect to Mr. Edington’s retention units, Mr. Edington becomes disabled or dies (unvested RSUs or retention units are forfeited if the participant terminates employment for any other reason); | ||
• | for RSUs, are payable in stock or cash to the participant (the election to receive cash or stock was made by the participant within thirty days of the date that the participant received the grant) as the RSUs vest (retention units are payable only in cash as the retention units vest), in an amount equal to the number of RSUs or retention units vesting multiplied by the fair market value of a share of our common stock on the vesting date (in the case of a participant’s or Mr. Edington’s retirement (or in the case of Mr. Edington’s death or disability) before the end of the vesting period, the RSUs and retention units are payable on the dates and in the percentages specified in the vesting schedule, even though fully vested); | ||
• | accrue dividend rights equal to the amount of dividends that a participant or Mr. Edington would have received if the participant or Mr. Edington had directly owned one share of our common stock for each RSU or retention unit held, with the dividend rights payable only on the RSUs or retention units that actually vest, plus interest at the rate of 5% per annum, compounded quarterly; and | ||
• | for RSUs, are not included in the calculation of pension benefits, however, for Mr. Edington’s retention units, are included in the determination of Mr. Edington’s compensation for purposes of calculating pension benefits under our supplemental excess benefit retirement program (the “Retirement Program”), to the extent the retention units ultimately vest. |
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COMMITTEE CHAIRMAN | COMMITTEE MEMBERS | |||
Roy A. Herberger, Jr. | Edward N. Basha, Jr. | |||
Susan Clark-Johnson | ||||
Pamela Grant | ||||
William S. Jamieson | ||||
Humberto S. Lopez |
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• | Cash compensation.Generally, the cash compensation actually received by our Named Executive Officers for 2007 is the sum of the “Salary,” “Bonus,” and “Non-Equity Incentive Plan Compensation” columns. |
• | Stock awards.Amounts accrued by the Company during 2007 for stock awards (including performance shares and RSUs) are shown in the “Stock Awards” column. |
• | Changes in pension value.Changes in estimated potential future pension benefits are shown in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column. |
Change in Pension | ||||||||||||||||||||||||||||||||||||
Value and | ||||||||||||||||||||||||||||||||||||
Nonqualified | ||||||||||||||||||||||||||||||||||||
Non-Equity | Deferred | |||||||||||||||||||||||||||||||||||
Stock | Option | Incentive Plan | Compensation | All Other | ||||||||||||||||||||||||||||||||
Name and Principal | Salary | Bonus | Awards | Awards | Compensation | Earnings | Compensation | Total | ||||||||||||||||||||||||||||
Position | Year | ($) | ($)1 | ($)2 | ($)3 | ($)4 | ($)5 | ($)6 | ($) | |||||||||||||||||||||||||||
William J. Post, | 2007 | 950,004 | 0 | 1,877,976 | 0 | 1,300,000 | 2,595,365 | 30,518 | 6,753,863 | |||||||||||||||||||||||||||
Chairman of the Board | 2006 | 950,004 | 0 | 3,725,544 | 52,644 | 985,000 | 2,353,845 | 31,902 | 8,098,939 | |||||||||||||||||||||||||||
and Chief Executive Officer and Chairman of the Board, APS | ||||||||||||||||||||||||||||||||||||
Donald E. Brandt, | 2007 | 599,999 | 0 | 542,513 | 0 | 766,800 | 440,417 | 24,815 | 2,374,544 | |||||||||||||||||||||||||||
Executive Vice | 2006 | 456,263 | 0 | 402,788 | 9,286 | 648,000 | 145,144 | 24,590 | 1,686,071 | |||||||||||||||||||||||||||
President and Chief Financial Officer and President and Chief Financial Officer, APS | ||||||||||||||||||||||||||||||||||||
Jack E. Davis,President | 2007 | 800,004 | 0 | 869,917 | 0 | 1,015,205 | 1,943,556 | 21,065 | 4,649,747 | |||||||||||||||||||||||||||
and COO and CEO, APS | 2006 | 800,004 | 99,840 | 2,115,499 | 21,334 | 860,000 | 2,885,510 | 24,590 | 6,806,777 | |||||||||||||||||||||||||||
Randall K. Edington, | 2007 | 547,955 | 266,000 | 378,538 | 0 | 432,300 | 1,251 | 451,460 | 2,077,504 | |||||||||||||||||||||||||||
Executive Vice President, and Chief Nuclear Officer, APS | ||||||||||||||||||||||||||||||||||||
Steven M. Wheeler, | 2007 | 416,258 | 0 | 228,759 | 0 | 353,330 | 1,142,931 | 19,695 | 2,160,973 | |||||||||||||||||||||||||||
Executive Vice President Customer Service and Regulation, APS |
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1 | Pursuant to the agreement with APS under which Mr. Edington was hired, he received a hiring bonus of $200,000. Mr. Edington’s hiring agreement is described under the heading “Employment Agreements” on page 34 of this proxy statement. Mr. Edington also received a cash award in the amount of $66,000 in January 2008 for his work at the Palo Verde Nuclear Generating Station in 2007. In 1999, the Company added an annual grant of 2,000 shares of restricted stock to Jack Davis’ compensation. In 2005 and 2006, because restricted stock was no longer available for issuance under the Company’s equity plans, Mr. Davis was granted a cash payment equal to the value of 2,000 shares of the Company’s common stock. | |
2 | This column reflects the dollar amounts accrued by the Company during 2007 and 2006 for financial reporting purposes for stock awards held by the Named Executive Officers and does not reflect value actually received by the Named Executive Officers. The column reflects expense accruals for the following types of stock awards: |
• | Performance Shares.We describe the performance shares under the heading “What are the elements of the Company’s compensation program? – Long-Term Incentives – Performance Shares” on page 23 of this proxy statement. With respect to the performance shares, we estimate the amount accrued based upon projections of the Company’s performance against projections of those companies in the comparator group. As earnings per share are reported by comparator companies, as new information becomes available, or as significant changes to the Company’s earnings become known, these estimates are updated. As such, based upon our estimates, the 2007 compensation expense accrued assumes that the following percentages of the target number of shares will be awarded: 2005 grant – 75%, 2006 grant – 100%, and 2007 grant – 75%. Compensation expense recorded for financial reporting purposes in 2006 for the 2004 grant was accrued using 100% of target shares, but the number of shares actually awarded was 54.6% of target shares. The expense accrued for this award in 2006 was adjusted in 2007, and the adjustment is reflected as a deduction in the 2007 stock award columns for each of the Named Executive Officers who were also named executive officers in 2006. In addition, the actual number of shares issued to the Named Executive Officers under the 2005 grant is set forth in the Option Exercises and Stock Vested table on page 37 of this proxy statement. The expense accrued for this award will be adjusted in 2008 to reflect the change from 75% of the target shares to ___% of the target shares, consistent with the number of shares actually awarded. The 2006 compensation expense accrued assumes that the following percentages of the target number of shares will be awarded for each grant year: 2004 grant – 100%, 2005 grant – 75%, 2006 grant – 100%. Furthermore, with respect to the 2007 and 2006 grants, pursuant to the terms of the award agreements, the employees become fully vested in the award upon retirement. Because Mr. Post and Mr. Davis had reached the age of retirement and attained the requisite years of service at the grant date, their entire awards were accrued on the grant date. Mr. Brandt’s, Mr. Wheeler’s, and Mr. Edington’s awards are being accrued over the three-year vesting period of the award. Based upon SEC guidance issued in August of 2007, we revised the 2006 amounts to exclude reductions to compensation expense that were made in 2006 but related to prior periods. | ||
• | Retention Units.We describe the retention units under the heading “What are the elements of the Company’s compensation program? – Long-Term Incentives – RSUs and Retention Units” on page 24 of this proxy statement. The retention units that were granted in December of 2006 (and with respect to Mr. Edington, January of 2007) are payable in 25% annual increments, beginning January 3, 2007 (except with respect to Mr. Edington, whose grant was payable beginning January 25, 2007) and ending January 4, 2010. Pursuant to the terms of the award agreement, the employee becomes fully vested in the award upon retirement, although the awards will be paid out over the standard vesting period described in the previous sentence. Under FAS 123R, we are required to accrue the entire compensation expense for retirement eligible employees on the date of the grant, as no additional services are required beyond that date. Because Mr. Post and Mr. Davis had reached the age of retirement and attained the requisite years of service at the grant date (December 13, 2006), their entire awards were accrued on the grant date. Mr. Brandt’s, Mr. Wheeler’s, and Mr. Edington’s awards are currently being accrued over the standard vesting period of the award. |
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• | Restricted Stock Units. We describe the RSUs under the heading “What are the elements of the Company’s compensation program? – Long-Term Incentives – RSUs and Retention Units” on page 24 of this proxy statement. The RSUs vest in 25% annual increments, beginning February 20, 2008 and ending February 20, 2011. Pursuant to the terms of the award agreement, the employee becomes fully vested in the award upon retirement, although the awards will be paid out over the standard vesting period described in the previous sentence. Because Mr. Post and Mr. Davis had reached the age of retirement and attained the requisite years of service at the grant date, which for purposes of FAS 123R is May 23, 2007, their entire awards were accrued on the grant date. Mr. Brandt’s, Mr. Wheeler’s, and Mr. Edington’s awards are being accrued over the standard vesting period of the award. | ||
• | Ownership Incentive Awards.The likelihood of a Named Executive Officer’s receiving a stock ownership incentive award is considered in the calculation of compensation expense. Because of the significant stock ownership requirements of these awards and the current holdings of the Named Executive Officers, no dollars were accrued in connection with the stock ownership incentive awards granted to Messrs. Post, Brandt, Davis, and Wheeler in 2006. No ownership incentive awards were granted in 2007. | ||
• | Special Grant.As described in footnote 1 to this table, in 1999, the Company added to Jack Davis’ compensation a grant of 2,000 shares of restricted stock. This grant was awarded each year through 2004. In 2005 and 2006, restricted stock was no longer available for issuance under the Company’s equity plans, so Mr. Davis was granted a cash payment equal to the value of 2,000 shares of the Company’s common stock. In 2007, the Board was able to grant stock under the 2007 Plan. This special grant was expensed immediately on the grant date of October 16, 2007 using the closing market price on that date multiplied by the number of shares. |
3 | This column represents the dollar amount recognized by the Company for financial statement reporting purposes with respect to fiscal year 2006 for stock option grants made in prior years. There were no amounts recognized by the Company for financial reporting purposes in 2007. In order to calculate the 2006 accrual associated with outstanding stock options (which consists of stock options granted in 2003), we used the Black-Scholes option-pricing model. The following weighted-average assumptions were used to calculate the fair value of the stock options granted in 2003 for purposes of this accrual: risk-free interest rate (3.345%); dividend yield (5.26%); volatility (38.03%); and expected life (5 years). The Company did not grant stock options to the Named Executive Officers in 2006 or 2007 and has not granted stock options since 2004. There were no forfeitures of stock options during 2006 or 2007. | |
4 | For 2007, this amount consists solely of the awards made under the 2007 Incentive Plans, which are discussed under the heading “What are the elements of our compensation program? – Annual Incentives” in the CDA on page 21 of this proxy statement. For 2006, this amount consists solely of the awards made under the 2006 Pinnacle West Variable Incentive Plan and the 2006 APS Variable Incentive Plan (collectively, the “2006 Plans”). The 2006 Plans are substantively similar to the 2007 Plans and were discussed in the compensation discussion and analysis section of the proxy statement for our 2007 Annual Meeting. | |
5 | The amount in this column for 2007 consists of: (i) the estimated aggregate change in the actuarial present value from December 31, 2006 to December 31, 2007 of each of the Named Executive Officer’s accumulated benefit payable under all defined benefit and actuarial pension plans (including supplemental plans and employment agreements) as follows: Mr. Post – $2,567,583 (Mr. Post is eligible to retire at age 60 and receive the full retirement benefit); Mr. Brandt – $429,500; Mr. Davis – $1,913,968 (Mr. Davis is 61 and has announced his retirement effective March 1, 2008; he is currently eligible to retire and receive the full retirement benefit); and Mr. Wheeler – $1,134,115; and (ii) the above-market portion of interest accrued under the deferred compensation plan as follows: Mr. Post – $27,782; Mr. Brandt – $10,917; Mr. Davis – $29,588; Mr. Edington – $1,251; and Mr. Wheeler – $8,816. As Mr. Edington was not employed by us at December 31, 2006, there is no change in pension value from that date. We describe the special agreement we have with Mr. Edington regarding his benefits under “Employment Agreements” on page 34 of this proxy statement. We describe the present value of Mr. Edington’s accumulated benefit under the special agreement and our pension plans in the Pension Benefits table on page 38 of this proxy statement. The amount in this column for 2006 consists of: (i) the estimated aggregate change in the actuarial present value from December 31, 2005 to December 31, 2006 of each of the Names Executive Officers’ accumulated benefit payable under all defined benefit and actuarial pension plans (including supplemental plans) as follows: Mr. Post – $2,330,983 (Mr. Post is eligible to retire at age 60 and receive the full retirement benefit); Mr. Brandt – $142,091; and Mr. Davis – $2,861,162 (Mr. Davis was 60 and was eligible to retire and receive the full retirement benefit); and (ii) the above-market portion of interest accrued under the deferred compensation plan as follows: Mr. Post – $22,862; Mr. Brandt – $3,053; and Mr. Davis – $24,348. Under the SEC’s disclosure rules, the above-market portion of interest is determined by reference to 120% of the applicable federal long-term rate, with compounding. See the discussion on the rates of interest applicable to the deferred compensation program under the heading “Discussion of Nonqualified Deferred Compensation” on page 42 of this proxy statement. |
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6 | The amount in this column for 2007 consists of: (i) the Company’s contributions under the Company’s 401(k) plan as follows: Mr. Post — $10,125; Mr. Brandt — $10,125; Mr. Davis - $10,125; Mr. Edington — $8,791; and Mr. Wheeler — $6,750; (ii) with respect to Mr. Post, executive life insurance premiums in the amount of $9,453; and with respect to each of the Named Executive Officers except Mr. Edington, a $61 premium, and for Mr. Edington, a $41 premium, for an accidental death and dismemberment policy that covers all directors and officers; (iii) for all of the Named Executive Officers except Mr. Edington, perquisites and personal benefits (consisting of a car allowance, a maximum annual physical benefit and, with respect to Messrs. Brandt and Wheeler, financial planning services), in the aggregate amounts as follows: Mr. Post — $10,879; Mr. Brandt - - $14,629; Mr. Davis — $10,879; and Mr. Wheeler — $12,884; and for Mr. Edington, perquisites and personal benefits (consisting of a car allowance and a maximum annual physical benefit) in the aggregate amount of $9,969 and $52,671 for relocation expenses in connection with his relocation to Phoenix, Arizona (of which $28,089 is for apartment rental expenses; $13,508 is for rental car expenses; $9,561 is for household goods and automobile transport; and $1,513 is for other travel expenses); and (iv) for Mr. Edington, a tax gross-up payment of $23,836 relating to the relocation expenses and a payment of $277,576 in connection with stock option grants that he forfeited when he became an employee of APS. As part of his agreement, APS agreed to pay Mr. Edington for performance shares and stock options that he held when he left his prior employment, as they would have vested. We describe Mr. Edington’s agreement under the heading “Employment Agreements” on page 34 of this proxy statement. In addition, the amount for Mr. Edington includes a payment of $78,576 made in January 2008 to compensate Mr. Edington for an annual incentive earned in his prior employment but unpaid by his prior employer. The amount for Mr. Edington excludes the aggregate incremental cost to the Company related to assistance provided by the Company in connection with the sale of Mr. Edington’s home as part of his relocation to Phoenix, Arizona. The Company paid Mr. Edington $62,321, which is equal to the estimated equity in his home, and assumed all obligations associated with the maintenance and sale of the home including mortgage payments, landscaping service fees, real estate agent fees, and taxes. The Company’s expenses will be offset by the amount received from the sale of the home. Consequently, the aggregate incremental cost to the Company cannot be determined until the home has been sold. |
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All Other | ||||||||||||||||||||||||||||||||||||||||
Stock | ||||||||||||||||||||||||||||||||||||||||
Awards: | ||||||||||||||||||||||||||||||||||||||||
Estimated Possible Payouts | Estimated Future Payouts | Number | Grant Date | |||||||||||||||||||||||||||||||||||||
Under Non-Equity Incentive | Under Equity Incentive | of Shares | Fair Value of | |||||||||||||||||||||||||||||||||||||
Plan Awards1 | Plan Awards | of Stock | Stock and | |||||||||||||||||||||||||||||||||||||
Approval | Threshold | Target | Maximum | Threshold | Target | Maximum | or Units | Option | ||||||||||||||||||||||||||||||||
Name | Grant Date | Date | ($)3 | ($) | ($) | (#) | (#) | (#) | (#) | Awards2 | ||||||||||||||||||||||||||||||
William J. Post, Chairman | 01/16/2007 | 475,002 | 950,004 | 1,425,006 | ||||||||||||||||||||||||||||||||||||
of the Board and Chief | 02/20/2007 | 4 | 11,250 | 22,500 | 45,000 | 1,089,450 | ||||||||||||||||||||||||||||||||||
Executive Officer and | 05/23/2007 | 5 | 02/20/2007 | 6 | 22,500 | 1,048,050 | ||||||||||||||||||||||||||||||||||
Chairman of the Board, APS | ||||||||||||||||||||||||||||||||||||||||
Donald E. Brandt, | 01/17/2007 | 225,000 | 450,000 | 900,000 | ||||||||||||||||||||||||||||||||||||
Executive Vice President | 02/20/2007 | 4 | 5,000 | 10,000 | 20,000 | 484,200 | ||||||||||||||||||||||||||||||||||
and Chief Financial | 05/23/2007 | 5 | 02/20/2007 | 6 | 10,000 | 465,800 | ||||||||||||||||||||||||||||||||||
Officer and President and Chief Financial Officer, APS | ||||||||||||||||||||||||||||||||||||||||
Jack E. Davis, President | 01/17/2007 | 300,002 | 600,003 | 1,200,006 | ||||||||||||||||||||||||||||||||||||
and COO and CEO, APS | 02/20/2007 | 4 | 5,000 | 10,000 | 20,000 | 484,200 | ||||||||||||||||||||||||||||||||||
05/23/2007 | 5 | 02/20/2007 | 6 | 10,000 | 465,800 | |||||||||||||||||||||||||||||||||||
10/16/2007 | 7 | 2,000 | 83,760 | |||||||||||||||||||||||||||||||||||||
Randall K. Edington, | 01/17/2007 | 1 | 330,000 | 660,000 | ||||||||||||||||||||||||||||||||||||
Executive Vice President, | 01/25/2007 | 8 | 01/16/2007 | 8 | 10,000 | 505,500 | ||||||||||||||||||||||||||||||||||
and Chief Nuclear | 02/20/2007 | 4 | 3,050 | 6,100 | 12,200 | 295,362 | ||||||||||||||||||||||||||||||||||
Officer, APS | 05/23/2007 | 5 | 02/20/2007 | 6 | 6,100 | 284,138 | ||||||||||||||||||||||||||||||||||
Steven M. Wheeler, | 01/17/2007 | 1 | 222,500 | 445,000 | ||||||||||||||||||||||||||||||||||||
Executive Vice President | 02/20/2007 | 4 | 1,925 | 3,850 | 7,700 | 186,417 | ||||||||||||||||||||||||||||||||||
Customer Service and | 05/23/2007 | 5 | 02/20/2007 | 6 | 3,850 | 179,333 | ||||||||||||||||||||||||||||||||||
Regulation, APS |
1 | The amounts in this column represent the possible payouts under the 2007 Incentive Plans, which are described under the heading “What are the elements of the Company’s compensation program? — Annual Incentives” in the CDA on page 21 of this proxy |
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statement. The actual amounts paid to the Named Executive Officers are set forth in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 28 of this proxy statement. | ||
2 | The amount in this column represents the full grant date fair value for financial reporting purposes for the 2007 performance share awards, 2007 RSUs and for Mr. Edington, a grant of retention units, and for Mr. Davis, a 2,000 share grant. We describe these awards under the heading “What are the elements of the Company’s compensation program? — Long-Term Incentives” on page 22 of this proxy statement. | |
3 | As required by SEC rules, the “Estimated Possible Payouts” in this column represent the “threshold,” “target,” and “maximum” payouts the Named Executive Officers were eligible to receive under the 2007 Incentive Plans, although any awards were subject to the discretion of the Human Resources Committee. The actual awards payable to the Named Executive Officers under the 2007 Incentive Plans are disclosed in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 28 of this proxy statement and reflect reductions from what the Named Executive Officers could have received based solely on the attainment of the performance measures under the 2007 Plans. With respect to Messrs. Edington and Wheeler, the minimum amount payable for which each officer would have been eligible to receive was calculated based on the Company earnings achieving the threshold amount, which would result in no payment with respect to the Company’s earnings portion of the 2007 Incentive Plans, and the business unit results at the lowest possible award. See “What are the elements of the Company’s compensation program? — Annual Incentives” in the CDA on page 21 of this proxy statement for additional information about the 2007 Incentive Plans and the reduced incentive payments. | |
4 | This amount represents the 2007 performance share award made pursuant to the 2007 Plan and described under the heading “What are the elements of the Company’s compensation program? - Long-Term Incentives — Performance Shares” in the CDA on page 23 of this proxy statement. Based upon available information about the Company and the comparator companies at the date of the grant, we valued the awards using 100% of the target award and, in accordance with FAS 123R, the closing stock price on the date of the grant. | |
5 | This amount represents the 2007 RSU awards made pursuant to the 2007 Plan and described under the heading “What are the elements of the Company’s compensation program? - Long-Term Incentives — RSUs and Retention Units” in the CDA on page 24 of this proxy statement. We valued the RSUs using the number of RSUs awarded multiplied by, in accordance with FAS 123R, the closing stock price on the date of the grant. | |
6 | On February 20, 2007, the Human Resources Committee granted the RSUs contingent on shareholder approval of the 2007 Plan at the 2007 Annual Meeting. The 2007 Plan was approved by the shareholders on May 23, 2007. | |
7 | This amount represents 2,000 shares granted to Mr. Davis, which grant is described in footnote 2 to the Summary Compensation Table on page 28 of this proxy statement. | |
8 | On January 16, 2007, the Human Resources Committee granted Mr. Edington 10,000 retention units contingent upon his actual employment, which was effective on January 25, 2007. The retention units are described under the heading “What are the elements of the Company’s compensation program? — Long-Term Incentives — RSUs and Retention Units” in the CDA on page 24 of this proxy statement. |
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Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||||||
Equity | Equity | |||||||||||||||||||||||||||||||||||||||
Incentive | Incentive | |||||||||||||||||||||||||||||||||||||||
Plan | Plan | |||||||||||||||||||||||||||||||||||||||
Awards: | Awards: | |||||||||||||||||||||||||||||||||||||||
Equity | Number | Market or | ||||||||||||||||||||||||||||||||||||||
Incentive | of | Payout | ||||||||||||||||||||||||||||||||||||||
Plan | Market | Unearned | Value of | |||||||||||||||||||||||||||||||||||||
Awards: | Number | Value of | Shares, | Unearned | ||||||||||||||||||||||||||||||||||||
Number of | Number of | Number of | of Shares | Shares or | Units or | Shares, | ||||||||||||||||||||||||||||||||||
Securities | Securities | Securities | or Units | Units of | Other | Units or | ||||||||||||||||||||||||||||||||||
Underlying | Underlying | Underlying | of Stock | Stock | Rights | Other | ||||||||||||||||||||||||||||||||||
Unexercised | Unexercised | Unexercised | Option | That | That | That Have | Rights | |||||||||||||||||||||||||||||||||
Option | Options | Options | Unearned | Exercise | Option | Have Not | Have Not | Not | That Have | |||||||||||||||||||||||||||||||
Grant | (#) | (#) | Options | Price | Expiration | Vested | Vested | Vested | Not Vested | |||||||||||||||||||||||||||||||
Name | Date1 | Exercisable | Unexercisable | (#) | ($) | Date | (#) | ($)2 | (#) | ($)2 | ||||||||||||||||||||||||||||||
William J. Post, | 11/18/1998 | 20,000 | 0 | 0 | 46.78 | 11/17/2008 | ||||||||||||||||||||||||||||||||||
Chairman of the | 01/20/1999 | 70,000 | 0 | 0 | 41.00 | 1/19/2009 | ||||||||||||||||||||||||||||||||||
Board and Chief | 11/17/1999 | 37,500 | 0 | 0 | 34.66 | 11/16/2009 | ||||||||||||||||||||||||||||||||||
Executive Officer | 11/15/2000 | 65,000 | 0 | 0 | 44.03 | 11/14/2010 | ||||||||||||||||||||||||||||||||||
and Chairman of the | 11/14/2001 | 65,000 | 0 | 0 | 42.55 | 11/13/2011 | ||||||||||||||||||||||||||||||||||
Board, APS | 06/19/2002 | 108,000 | 3 | 0 | 0 | 38.37 | 06/18/2012 | |||||||||||||||||||||||||||||||||
03/18/2003 | 85,750 | 0 | 0 | 32.29 | 03/17/2013 | |||||||||||||||||||||||||||||||||||
15,776 | 4 | 669,060 | ||||||||||||||||||||||||||||||||||||||
22,500 | 5 | 954,225 | ______ | 6 | — | |||||||||||||||||||||||||||||||||||
______ | 7 | — | ||||||||||||||||||||||||||||||||||||||
Donald E. Brandt, | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||
Executive Vice | 8,264 | 4 | 350,476 | |||||||||||||||||||||||||||||||||||||
President and Chief | 10,000 | 5 | 424,100 | _____ | 6 | — | ||||||||||||||||||||||||||||||||||
Financial Officer | _____ | 7 | — | |||||||||||||||||||||||||||||||||||||
and President and Chief Financial Officer, APS | ||||||||||||||||||||||||||||||||||||||||
Jack E. Davis, | 11/18/1998 | 13,500 | 0 | 0 | 46.78 | 11/17/2008 | ||||||||||||||||||||||||||||||||||
President and COO | 11/15/2000 | 26,250 | 0 | 0 | 44.03 | 11/14/2010 | ||||||||||||||||||||||||||||||||||
and CEO, APS | 11/14/2001 | 26,250 | 0 | 0 | 42.55 | 11/13/2011 | ||||||||||||||||||||||||||||||||||
14,273 | 4 | 605,318 | ||||||||||||||||||||||||||||||||||||||
10,000 | 5 | 424,100 | ______ | 6 | — | |||||||||||||||||||||||||||||||||||
______ | 7 | — | ||||||||||||||||||||||||||||||||||||||
Randall K. Edington, | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||
Executive | 7,500 | 4 | 318,075 | |||||||||||||||||||||||||||||||||||||
Vice President and | 6,100 | 5 | 258,701 | |||||||||||||||||||||||||||||||||||||
Chief Nuclear | _____ | 7 | — | |||||||||||||||||||||||||||||||||||||
Officer, APS | ||||||||||||||||||||||||||||||||||||||||
Steven M. Wheeler, | 0 | 0 | 0 | |||||||||||||||||||||||||||||||||||||
Executive Vice | 5,259 | 4 | 223,034 | |||||||||||||||||||||||||||||||||||||
President Customer | 3,850 | 5 | 163,279 | _____ | 6 | — | ||||||||||||||||||||||||||||||||||
Service and | _____ | 7 | — | |||||||||||||||||||||||||||||||||||||
Regulation, APS |
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1 | The options became exercisable one-third of the grant per year commencing on the first anniversary of the grant date, except as otherwise specified in footnote 3. | |
2 | The amount in this column is calculated by multiplying the closing market price of our common stock at the end of 2007 ($42.41 per share as of December 31, 2007) by the number of retention units, RSUs and performance shares listed for the specified officer. | |
3 | These options became exercisable one-third of the grant on June 19, 2003, one-third of the grant on December 19, 2003 and the remaining one-third on December 19, 2004. | |
4 | This amount represents the retention units awarded in 2006 for all Named Executive Officers except for Mr. Edington, who was granted retention units in 2007. The retention units, including their vesting schedule, are described under the heading “What are the elements of the Company’s compensation program? — Long-Term Incentives — RSUs and Retention Units” in the CDA on page 24 of this proxy statement. | |
5 | This amount represents the RSUs awarded in 2007 that are described, with their vesting schedule, under the heading “What are the elements of the Company’s compensation program? - Long-Term Incentives — RSUs and Retention Units” in the CDA on page 24 of this proxy. | |
6 | This amount represents the performance shares granted in 2006. The payout of the performance shares granted in 2005 are reported in the Option Exercises and Stock Vested table on page 37 of this proxy statement. The performance shares granted in 2006 have a performance period beginning on January 1, 2006 and ending on December 31, 2008. They otherwise are substantially identical in operation with the 2007 performance shares that are described in footnote 7 below. | |
7 | This amount represents the performance shares granted in 2007. The performance shares granted in 2007 are described with their vesting schedule under the heading “What are the elements of the Company’s compensation program? — Long-Term Incentives -Performance Shares” in the CDA on page 23 of this proxy. |
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Option Awards | Stock Awards | |||||||||||||||
Number of Shares | Value Realized On | Number of Shares | Value Realized on | |||||||||||||
Acquired on Exercise | Exercise | Acquired on Vesting | Vesting | |||||||||||||
Name | (#) | ($)1 | (#)2 | ($)3 | ||||||||||||
William J. Post, | 16,500 | 32,727 | — | — | ||||||||||||
Chairman of the Board and Chief Executive Officer and Chairman of the Board, APS | ||||||||||||||||
Donald E. Brandt, | 0 | 0 | — | — | ||||||||||||
Executive Vice President and Chief Financial Officer and President and Chief Financial Officer, APS | ||||||||||||||||
Jack E. Davis, | 0 | 0 | — | — | ||||||||||||
President and COO and CEO, APS | ||||||||||||||||
Randall K. Edington, | 0 | 0 | — | — | ||||||||||||
Executive Vice President and Chief Nuclear Officer, APS | ||||||||||||||||
Steven M. Wheeler, | 0 | 0 | — | — | ||||||||||||
Executive Vice President Customer Service and Regulation, APS |
1 | Represents the number of options exercised multiplied by the difference between the market price of the Company’s common stock on the exercise date and the exercise price of the options. Mr. Post retained all shares received upon the exercise of options, except for those sold for the purpose of meeting option exercise costs and estimated tax-withholding requirements. As a result, rather than “realizing” value on the option exercises, Mr. Post essentially converted the “in-the-money” value of the options, less taxes, into 389 shares of Company common stock. | |
2 | The amount in this column consists of: (i) performance shares granted in February of 2005 that vested as of the end of the applicable performance period (December 31, 2007) as follows: Mr. Post — ; Mr. Brandt — ; Mr. Davis — ; and Mr. Wheeler — , which were issued on ; (ii) retention units that were granted to Messrs. Post, Davis, Brandt and Wheeler in December 2006 and that vested in part on January 2, 2007; (iii) retention units that were granted to Mr. Edington in January 2007 and that vested in part on January 25, 2007; and (iv) the 2007 stock grant award to Mr. Davis of 2,000 shares issued on October 16, 2007. The performance shares, RSUs and retention units are described in “What are the elements of the Company’s compensation program? — Long Term Incentives” on page 22 of this proxy statement. For more information on Mr. Davis’ grant, see footnote 2 to the Summary Compensation Table on page 29 of this proxy statement. | |
3 | The value realized for the performance shares granted in 2005 and the retention units is calculated by multiplying the number of shares of stock or units vested by the market value of the common stock on the vesting date. |
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Number of | Payments | |||||||||||||
Years Credited | Present Value of | During Last | ||||||||||||
Service | Accumulated Benefits | Fiscal Year | ||||||||||||
Name | Plan Name | (#) | ($)1 | ($) | ||||||||||
William J. Post, Chairman of the Board and Chief Executive Officer and Chairman of the Board, APS | Pinnacle West Capital Corporation Retirement Plan | 35 | 1,196,073 | 2 | 0 | |||||||||
Pinnacle West Capital Corporation Supplemental Excess Benefit Retirement Plan (the “Supplemental Plan”) | 25 | 3 | 12,366,194 | 2 | 0 | |||||||||
Arizona Public Service Company Deferred Compensation Plan (the “APS Plan”) | N/A | 4 | 1,043,916 | 5 | 0 | |||||||||
Donald E. Brandt, Executive Vice President and Chief Financial Officer and President and Chief Financial Officer, APS | Pinnacle West Capital Corporation Retirement Plan | 5 | 96,566 | 6 | 0 | |||||||||
Pinnacle West Capital Corporation Supplemental Excess Benefit Retirement Plan | 5 | 850,791 | 6 | 0 | ||||||||||
Jack E. Davis, President and COO and CEO, APS | Pinnacle West Capital Corporation Retirement Plan | 35 | 1,338,824 | 7 | 0 | |||||||||
Pinnacle West Capital Corporation Supplemental Excess Benefit Retirement Plan | 25 | 3 | 11,582,104 | 7 | 0 | |||||||||
Arizona Public Service Company Deferred Compensation Plan | N/A | 8 | 1,254,304 | 9 | 0 | |||||||||
Randall K. Edington, Executive Vice President and Chief Nuclear Officer, APS | Pinnacle West Capital Corporation Retirement Plan | 1 | 13,235 | 10 | 0 | |||||||||
Pinnacle West Capital Corporation Supplemental Excess Benefit Retirement Plan | 1 | 177,910 | 10 | 0 | ||||||||||
Employment agreement | N/A | 2,884,065 | 10 | |||||||||||
Steven M. Wheeler, Executive Vice President Customer Service and Regulation, APS | Pinnacle West Capital Corporation Retirement Plan | 7 | 177,380 | 11 | 0 | |||||||||
Pinnacle West Capital Corporation Supplemental Excess Benefit Retirement Plan | 7 | 12 | 905,216 | 12 | 0 | |||||||||
Employment agreement | 12 | 12 | 2,477,882 | 12 |
1 | See Note 8 of the Notes to Consolidated Financial Statements in the Pinnacle West/APS Annual Report on Form 10-K for the fiscal year ended December 31, 2007 for additional information about the assumptions used by the Company in calculating pension obligations. | |
2 | The amount shown is the present value of Mr. Post’s accumulated benefits to be paid at age 60, the earliest age at which he could retire with no reduction in benefits. | |
3 | Under the terms of this plan, no additional benefit is awarded for credited years of service over 25 years of service. | |
4 | Mr. Post made his contribution to the APS Plan in 1986. He became vested in the payout at age 55, 19 years from the date of his investment. This plan was only offered from 1984-1986. For a description of the APS Plan, see “Discussion of Pension Benefits – APS Plan” on page 41 of this proxy statement. |
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5 | Represents the present value of Mr. Post’s benefit under his current election to begin these payments at age 60. | |
6 | The amount shown is the present value of Mr. Brandt’s accumulated benefits to be paid at age 65. | |
7 | The amount shown is the present value of Mr. Davis’ accumulated benefits to be paid currently, since Mr. Davis is currently eligible to retire with no reduction in benefits. Mr. Davis announced his retirement effective March 1, 2008. | |
8 | Mr. Davis made his contributions to the APS Plan in 1984 and 1985. He became vested in the payout at age 55, 17 years from the date of his initial investment. As noted in footnote 4, this plan was only offered from 1984-1986. For a description of the APS Plan, see “Discussion of Pension Benefits — APS Plan” on page 41 of this proxy statement. | |
9 | The benefit amount is the present value of Mr. Davis’ benefit under his current election to begin these payments at age 62. | |
10 | The amounts shown are the present values of Mr. Edington’s accumulated benefits to be paid after five years of service, the earliest time at which he could retire with no reduction in benefits. Mr. Edington is currently not vested in the present value of his Retirement Plan and Supplemental Plan benefits; however, if he were to leave the company prior to retirement, these amounts could be payable to him under his employment agreement. With respect to Mr. Edington’s employment agreement, see “Employment Agreements” on page 34 of this proxy statement. | |
11 | The amount shown is the present value of Mr. Wheeler’s accumulated benefit to be paid at age 65, the earliest age at which he could retire with no reduction in benefits. | |
12 | The amount shown is the present value of Mr. Wheeler’s accumulated benefit to be paid at age 60, the earliest age at which he could retire with no reduction in benefits. Mr. Wheeler has an additional 12 years of service credited to him in the Supplemental Plan pursuant to an agreement with the Company. See “Employment Agreements” on page 34 of this proxy statement. |
• | 3% of the participant’s average monthly compensation multiplied by the participant’s first ten years of service, plus | ||
• | 2% of the participant’s average monthly compensation multiplied by the participant’s next fifteen years of service, |
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• | minus benefits payable under the Retirement Plan. |
Percent of Monthly Compensation | ||||
Age at End of Plan Year | Contribution Rate | |||
Less than 35 | 12 | % | ||
35-39 | 14 | % | ||
40-44 | 16 | % | ||
45-49 | 20 | % | ||
50-54 | 24 | % | ||
55 and over | 28 | % |
Age Plus Whole Years of Service at | Percent of Monthly Compensation | |||
End of Plan Year | Contribution Rate | |||
Less than 40 | 4 | % | ||
40-49 | 5 | % | ||
50-59 | 6 | % | ||
60-69 | 7 | % | ||
70-79 | 9 | % | ||
80 and over | 11 | % |
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Executive | Registrant | Aggregate | Aggregate | |||||||||||||||||
Contributions in | Contributions in | Aggregate Earnings | Withdrawals/ | Balance at Last | ||||||||||||||||
Last Fiscal Year | Last Fiscal Year | in Last Fiscal Year | Distributions | Fiscal Year End | ||||||||||||||||
Name | ($)1 | ($) | ($)2 | ($) | ($)3 | |||||||||||||||
William J. Post, | 0 | 0 | 114,486 | 0 | 1,640,961 | |||||||||||||||
Chairman of the Board and Chief Executive Officer and Chairman of the Board, APS | ||||||||||||||||||||
Donald E. Brandt, | 396,000 | 0 | 44,987 | 0 | 644,811 | |||||||||||||||
Executive Vice President and Chief Financial Officer and President and Chief Financial Officer, APS | ||||||||||||||||||||
Jack E. Davis, | 0 | 0 | 121,927 | 0 | 1,747,624 | |||||||||||||||
President and COO and CEO, APS | ||||||||||||||||||||
Randall K. | 75,000 | 0 | 5,156 | 0 | 80,156 | |||||||||||||||
Edington, Executive Vice President and Chief Nuclear Officer, APS4 | ||||||||||||||||||||
Steven M. Wheeler, | 205,834 | 0 | 36,330 | (142,729 | )5 | 520,724 | ||||||||||||||
Executive Vice President Customer Service and Regulation, APS |
1 | The amount of the executive contribution is solely from the voluntary deferral by the executive of the executive’s designated compensation and does not include any separate Company contribution. These deferred amounts are included in the “Salary” and “Non-Equity Incentive Plan Compensation” columns in the Company’s Summary Compensation Table on page 28 of this proxy statement. | |
2 | A portion of the amounts reported in this column is also reported as compensation in the Company’s Summary Compensation Table on page 28 of this proxy statement, including, for Mr. Post — $27,782; Mr. Brandt — $10,917; Mr. Davis — $29,588; Mr. Edington — $1,251 and Mr. Wheeler - $8,816. See clause (ii) of the first sentence of footnote 5 to the Summary Compensation Table. | |
3 | The historical contributions of each Named Executive Officer to his aggregate balance at December 31, 2007, including “market rate” interest (as defined by the SEC) from the date of each contribution, is as follows: Mr. Post — $1,309,568; Mr. Brandt — $626,959; Mr. Davis - $1,427,450; Mr. Edington — $78,905; and Mr. Wheeler — $479,933. | |
4 | Mr. Edington will not be fully vested until December 31, 2011. In the event Mr. Edington had left the Company on December 31, 2007, his aggregate balance would have been $78,231. | |
5 | In December 2001, Mr. Wheeler elected to receive his deferrals during 2002 as a lump sum payment in January 2007, instead of leaving those deferrals in the Plan until his separation from service. |
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Years of Plan Participation | Participation Rate | |
Less than Five | Crediting Rate | |
Five or More | Preferred Rate |
Years of Plan Participation | Participation Rate | |
Less than Five | Crediting Rate | |
Five or More | Preferred Rate |
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• | Any amendment to the provisions set forth in Article Third (with respect to Serial Preferred Stock); | ||
• | Any amendment to the provisions set forth in Article Fifth (with respect to the provisions relating to the Board of Directors); and | ||
• | Any amendment to Article Ninth (with respect to an amendment of the Articles). |
• | On May 23, 2007, the Company’s shareholders approved an amendment to the Articles destaggering the Board of Directors by obtaining the affirmative vote of 86% of the outstanding shares entitled to vote and 98% of the votes cast. Retaining the two-thirds voting standard would make it more difficult to re-stagger the Board of Directors or implement other provisions impacting the election of directors; | ||
• | Retaining the two-thirds voting standard would make it more difficult to amend the provisions relating to Serial Preferred Stock, including by limiting the Board of Director’s ability to issue Serial Preferred Stock; and | ||
• | A two-thirds voting requirement provides some protection against self-interested actions by one or a few large shareholders. |
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• | Two-thirds voting requirements can limit the ability of a majority of the shareholders at any particular time to effect change; | ||
• | Lowering the voting threshold can increase shareholders’ ability to participate effectively in corporate governance; and | ||
• | Many shareholders now view two-thirds voting requirement provisions as inconsistent with principles of good corporate governance. |
MAJORITY SHAREHOLDER VOTE TO AMEND THE ARTICLES OF INCORPORATION
DELOITTE & TOUCHE LLP AS THE COMPANY’S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2008.
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• | call the Company’s Shareholder Services at 1-602-250-5511; | ||
• | mail a request to receive separate copies to Shareholder Services at P.O. Box 53999, Mail Station 8602, Phoenix, AZ 85072-3999; or | ||
• | e-mail a request to: shareholderdept@pinnaclewest.com; |
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