EXHIBIT 10.3
PG&E CORPORATION
EXECUTIVE STOCK OWNERSHIP PROGRAM
Administrative Guidelines
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(As amended July 22, 1998)
1. Description. The Executive Stock Ownership Program
("Program") was approved by the Nominating and Compensation
Committee of the Board of Directors on October 15, 1997. The
Program is an important element of the Committee's compensation
policy of aligning executive interests with those of the
Corporation's shareholders. As an integral part of the Program,
the Committee also authorized the use of Special Incentive Stock
Ownership Premiums ("SISOPs") which are designed to provide
incentives to Eligible Executives to assist in achieving minimum
stock ownership targets established by the Committee. These
Guidelines were originally adopted by the Committee on November
19, 1997, and were amended by the Committee on July 22, 1998.
These amended Guidelines, along with the written materials
provided to the Committee on October 15, 1997, describe the
Program which became effective on January 1, 1998. The Program
is administered by the Corporation's Senior Human Resources
Officer.
2. Eligible Executives. The Chief Executive Officer shall
designate the officers of the Corporation and its affiliates who
shall be Eligible Executives covered by the Program. Initially,
the officers covered by the Guidelines and the applicable stock
ownership Target are:
Officer Band Position Stock Ownership Target
1 CEO 3 x base salary
2 Heads of Business 2 x base salary
Lines, CFO, &
General Counsel
3 SVPs of Corp. 1.5 x base salary
3. Annual Milestones. Under the Guidelines, stock ownership
levels are designed to be achieved by the end of the fifth
calendar year following the calendar year in which an officer
first becomes an Eligible Executive ("Target Date"). Annual
Milestones have been established as a means of measuring progress
towards achieving Targets and of providing incentives for
Eligible Executives to expeditiously meet their Targets. The
Annual Milestone at the end of the first full calendar year is 20
percent of the Target, and the Annual Milestone for each
succeeding year is an additional 20 percent of the Target.
Annual Milestones shall be adjusted to reflect changes in base
salary; provided, however, that in each instance any such
modification shall be amortized over the remaining original five-
year term. Following the Target Date, annual Targets also shall
be modified to reflect changes in base salary.
4. Calculation of Stock Ownership Levels. Stock ownership
level is the dollar value of stock and stock equivalents owned by
an Eligible Executive and calculated as of the last day of the
calendar year ("Measurement Date"). The purpose of this
calculation is to determine the value of the stock or stock
equivalents owned by the Eligible Executive as compared with the
Annual Milestone or Target for that executive. For purposes of
this calculation, the value per share of stock or stock
equivalent ("Measurement Value") is the average closing price of
PG&E Corporation common stock as traded on the New York Stock
Exchange for the last thirty (30) trading days of the year.
a) The value of stock beneficially owned by the Eligible
Executive is determined by multiplying the number of shares owned
beneficially on the Measurement Date times the Measurement Value.
b) The value of PG&E Corporation phantom stock units credited
to the Eligible Executive's account in the PG&E Corporation
Deferred Compensation Plan for Officers ("DCP") is determined by
multiplying the number of phantom stock units credited to the
Eligible Executive's DCP account on the Measurement Date times
the Measurement Value.
c) The value of stock held in the PG&E Corporation stock fund
of any defined contribution plan maintained by PG&E Corporation
or any of its subsidiaries is the value of the Eligible
Executive's PG&E Corporation stock fund on the Measurement Date.
d) The value of vested stock options is the difference between
the number of options multiplied by the Measurement Value minus
the number of options multiplied by the option exercise price
(for purposes of this calculation, any value attributable to
dividend equivalents is excluded).
5. Award of SISOPs. SISOPs are awarded to Eligible Executives
who achieve and maintain stock ownership levels prior to the end
of the third year following the year in which an officer first
became an Eligible Executive. For purposes of determining
awards, the total stock ownership level is calculated as set
forth under paragraph 4, on the Measurement Date. The amount of
a SISOP award shall be equal to:
a) For the first year, 20 percent of the amount of the Eligible
Executive's stock ownership level at the end of the year, up to
the Annual Milestone, plus an additional 30 percent of the amount
by which the stock ownership level exceeds the Annual Milestone
up to the target; and
b) For each of the second and third years, 20 percent of the
amount up to the Annual Milestone by which the end of the year
stock ownership level exceeds the beginning of the year stock
ownership level, plus an additional 30 percent of the amount by
which the end of the year balance exceeds the Annual Milestone,
up to the Target.
Each time a SISOP award calculation is made, a second
calculation also is made to determine the minimum number of
shares which must be retained by the Eligible Executive to
avoid forfeiture of the SISOP award ("Minimum Ownership
Level") as discussed below in paragraph 8. This calculation
converts the dollar value of the stock ownership level used
as the basis for qualifying for SISOPs into a number of
shares of
stock. It is calculated by dividing the stock
ownership level by the Measurement Value. Thus, for
example, if an Eligible Executive's stock ownership level
was $250,000 and the Measurement Value was $25 per share,
then the Minimum Ownership Level would be 10,000 shares.
For purposes of this calculation, the maximum share
ownership level used is the Eligible Executive's Target. If
an Eligible Executive has a share ownership level higher
than his/her Target, the increment over the Target is not
included. Thus, for example, if an Eligible Executive has a
Target of $750,000 and his/her share ownership level is
$900,000, then only $750,000 is used to calculate the
Minimum Ownership Level.
6. Vesting. SISOPs vest only upon the expiration of three
years after the date of award, or, if earlier, upon an Eligible
Executive's death, disability, or retirement.
7. SISOPs Credited to the Deferred Compensation Plan. Upon
award, SISOPs are credited to the Eligible Executive's DCP
account and converted into units of phantom stock each equal in
value to a share of PG&E Corporation common stock ("SISOP units")
as determined in accordance with paragraph 6 of the DCP. Once a
SISOP unit is credited to the Eligible Executive's DCP account,
it shall be subject to all of the terms and conditions
specifically applicable to SISOP units under the DCP. Once
vested, SISOP units are distributed in the form of an equal
number of shares of PG&E Corporation common stock as provided in
the DCP. The SISOP units constitute "incentive awards"
authorized to be awarded by the Committee to Eligible Executives
under the PG&E Corporation Long-Term Incentive Program ("LTIP").
Upon credit of SISOP units to an Eligible Executive's DCP
account, an equal number of shares of PG&E Corporation common
stock shall be reserved for issuance from the pool of shares
authorized for issuance under the LTIP.
8. Forfeiture of SISOP Units. So long as SISOP units remain
unvested, such units are subject to forfeiture if, on each
Measurement Date, the Eligible Executive's stock ownership is
less than the Minimum Ownership Level established when the SISOPs
were granted (see paragraph 5). To determine forfeiture, the
following steps are followed on each Measurement Date:
a) The number of shares and PG&E Corporation phantom stock
units credited to the Eligible Executive's DCP account is
determined.
b) The share-equivalent of the value of the vested "in the
money" stock options is determined by dividing the value of such
options (computed in the manner described in 4(d)) by the current
Measurement Value (e.g., if the value of the vested "in the
money" options is $100,000 and the current Measurement Value is
$25 per share, then the share equivalent is 4,000 shares).
c) The number of shares, PG&E Corporation phantom stock units,
and share-equivalents of vested "in the money" options is added
together. This total ("Current Holdings") is compared with the
Minimum Ownership Level determined when the SISOPs were granted.
If the Current Holdings are equal to or greater than the Minimum
Ownership Level, then no unvested SISOP units are forfeited. If
the Current Holdings are less than the Minimum Ownership Level,
then the unvested SISOP units are forfeited in
the same proportion as the Current Holdings are less than Minimum
Ownership Level (for example, if the Current Holdings are 20
percent less than the Minimum Ownership Level, then 20 percent of
the SISOP units are forfeited).
9. Failure to Achieve or Maintain Target. Failure to achieve
stock ownership levels at Target on the Target Date, or to
maintain stock ownership levels at Target on any Measurement Date
thereafter, will result in the deferral into the PG&E Corporation
Phantom Stock Fund of the DCP of annual awards from the
Performance Unit Plan ("PUP") and the Short Term Incentive Plan
("STIP"). As of any Measurement Date, to the extent that stock
ownership levels are below Target, PUP awards shall be converted
into PG&E Corporation Phantom Stock Units and held in the PG&E
Corporation Phantom Stock Fund of the DCP. If, with the addition
of the phantom stock units attributable to the PUP award, the
stock ownership level is still below Target for any Measurement
Date, any STIP award above target STIP also shall be converted
into phantom stock units, to the extent necessary to achieve the
Target stock ownership level. Such conversion of PUP and STIP
awards shall continue for successive Measurement Dates, if
necessary, until Target is met. Phantom stock units attributable
to PUP and STIP awards described in this paragraph 9 will be paid
from the DCP in a lump sum in January of the year following the
year in which the Eligible Executive's employment terminates, or
upon such earlier date as may have been elected by the Eligible
Executive within thirty days after the date of mandatory deferral
of PUP and/or STIP awards which date shall not be earlier than
three (3) years after the date of mandatory deferral.