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SOUTHERN INDIANA GAS & ELECTRIC COMPANY
CORPORATE PERFORMANCE INCENTIVE PLAN
FEBRUARY 1994
I. PURPOSE OF THE OUTLINE
* To highlight the annual corporate performance
incentive plan approved for the period January
1994 - December 1996, subject to annual review by
the compensation committee of the Board of
Directors.
* To review the objectives and key features of the
plan.
II. PLAN OBJECTIVES
* To motivate and reward outstanding performance by
SIGECO and its executive team.
* To compare SIGECO's performance with a group of
regional utilities.
* To focus on stockholder and rate payer interests.
* To support long-term objectives by achieving
short-term goals.
III. KEY FEATURES OF THE PLAN
* Participation limited to officers, management
staff, and other selected management positions.
* Incentive awards determined primarily by
corporate results:
- Five measures of Company performance.
- Results for annual and multi-year periods
compared to ten other utilities.
* Payments of awards in cash.
* Levels of award opportunities established to
reflect organizational level of responsibility
and impact on company performance for each
position.
* Opportunity for the Chief Executive Officer to
adjust individual awards by +/- 5% based on his
judgment of the participants' base salaries
during the plan year.
* Award levels stated as percentage of
participants' basic salaries during the plan
year.
* Maximum annual incentive plan fund limited to
1.5% of net income.
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IV. PARTICIPATION AND INCENTIVE AWARD LEVELS
* A review of SIGECO's organization structure
suggests that eligibility for plan participation
should be limited to officer and key management
positions per the following categories:
RANGE OF AWARD OPPORTUNITIES
INCENTIVE (% OF BASE SALARY)
CATEGORY POSITION THRESHOLD MAXIMUM
I. Chairman and Chief Executive Officer 20% 30%
II. Sr. Vice President-Operations 15% 25%
Sr. Vice President-Secretary & Treasurer
III. All Other Plan Participants 10% 20%
V. INCENTIVE PLAN FUNDING
* The size of the incentive fund will be determined
each plan year by five measures of Company
performance compared with the performance of ten
utilities.
* Measures to be used are shown below. Different
measures may be appropriate in subsequent plan
years based on Company objectives and priorities.
PERFORMANCE MEASURES BASIS FOR COMPARISON
Shareholder Related
1. Ratio of market to book value Fiscal year end - highest
2. Total shareholder return on common stock Five-year total return -
highest
Customer Related
1. Revenue per kilowatt hour Annual average - lowest
2. Revenue per Mcf Annual average - lowest
3. Total operating expenses per customer Average annual growth rate
over a three year period -
lowest
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VI. COMPARISON OF RESULTS FOR PLAN YEAR
* SIGECO's results for the five performance
measures will be compared to the performance of
10 utilities: 8 combination companies (primarily
located in the midwest), 1 electric and 1
gas company (both located in Indiana).
COMPARISON COMPANIES
* Indiana Energy * Louisville Gas & Electric
* Indianapolis Power & Light * Northwestern Public Service
* Interstate Power * Orange & Rockland Utilities
* Iowa-Illinois Gas & Electric * Wisconsin Power & Light
* Madison Gas & Electric * Wisconsin Public Service
* Comparing SIGECO's performance to other
utilities:
- provides an objective measure from the
standpoint of the Company's external publics,
- encourages management to out-perform similar
utilities,
- reduces the influence of factors beyond
management's control, such as general economic
and utility industry conditions.
* At the end of the plan year, the performance
scale shown below is used to evaluate SIGECO's
performance for each of the measures selected,
compared with the utility group.
PERFORMANCE LEVEL PERFORMANCE RATING RANKING
POINTS
Equals or exceeds nine companies Outstanding 20
in the comparison group
Equals or exceeds seven companies Superior 15
in the comparison group
Equals or exceeds five companies in Satisfactory 10
the comparison group
Falls below the fifth highest Below Standard 0
company in the comparison group
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PERFORMANCE RATING TOTAL POINTS
Outstanding 90 - 100
Superior 70 - 89
Satisfactory 50 - 69
Below Standard Below 50
* The Chairman and Chief Executive Officer's award
will be established directly from the performance
rating of SIGECO against the comparison
companies.
* The Chairman will have the latitude to adjust the
indicated awards for other participating
executives by +/- 5%, based on his evaluation of
their individual contributions during the plan
year.
VII. SUMMARY OF STEPS TO DETERMINE AWARDS
* Corporate results are calculated for each
performance measure used.
* SIGECO's results are ranked in relation to the
comparison group of utilities and the total
incentive award is determined. This total may
not exceed 1.5% of SIGECO's net income for the
plan year.
* The indicated award for the other participants
may be adjusted by +/- 5% by the CEO on the basis
of individual performance during the plan year,
but total fund dollars available may not be
exceeded.
* Recommended awards are reviewed and approved by
the Compensation Committee and the Board of
Directors.
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VIII. COMPENSATION COMMITTEE RESPONSIBILITIES
* The Compensation Committee has responsibility for
approving the plan and assuring that it meets
SIGECO's objectives. The Committee's specific
responsibilities include:
1. Approving corporate performance measures, the
measurement scale used, and the comparison
utilities selected.
2. Reviewing eligibility for plan participation.
3. Approving the size of the total incentive
fund and individual levels of award
opportunities.
4. Reviewing and approving the recommended
awards for participants.