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SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities
Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
Preliminary Information Statement
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(as permitted by Rule 14c-5(d)(2))
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X Definitive information statement
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WISCONSIN ELECTRIC POWER COMPANY
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
X No fee required.
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Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
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(2) Aggregate number of securities to which transaction applies:
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(3) 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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(4) Proposed maximum aggregate value of transaction:
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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.
(1) Amount Previously Paid:
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[LOGO]
Wisconsin Electric Power Company
231 W. Michigan, P.O. Box 2046, Milwaukee, WI 53201-2046 (414)221-2345
April 3, 1997
Dear Wisconsin Electric Stockholder:
Wisconsin Electric Power Company will hold its annual meeting of stockholders
at 9:00 a.m. on Tuesday, April 29, 1997 in Conference Room P437 at the Public
Service Building, 231 West Michigan Street, Milwaukee, Wisconsin. We are not
soliciting proxies for this meeting, as over 99% of the voting stock is owned,
and will be voted, by Wisconsin Electric's parent company, Wisconsin Energy
Corporation. If you wish, you may attend the meeting and vote your shares of
preferred stock; however, it will be a very short business meeting only.
On behalf of the directors and officers of Wisconsin Energy, I invite you to
attend Wisconsin Energy's annual meeting to be held Wednesday, April 30, 1997
at 9:30 a.m. The Wisconsin Energy meeting will be held at the Grand Milwaukee
Hotel, 4747 South Howell Avenue, near Milwaukee's airport. By attending this
meeting, you will have the opportunity to meet many of the Wisconsin Electric
officers and directors. Although you cannot vote your shares of Wisconsin
Electric preferred stock at the Wisconsin Energy meeting, you should find the
activities to be worthwhile. You will be asked to register before entering
the meeting.
The annual report to stockholders accompanies this information statement. If
you have any questions about the material presented or would like a copy of
the Wisconsin Energy Corporation summary annual report, please call our toll-
free Stockholder Hotline at 1-800-558-9663.
Sincerely,
/s/Richard A. Abdoo
Richard A. Abdoo
Chairman of the Board
and Chief Executive Officer
A subsidiary of Wisconsin Energy Corporation
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NOTICE
OF
ANNUAL MEETING OF STOCKHOLDERS
April 3, 1997
To the Stockholders of Wisconsin Electric Power Company:
The Annual Meeting of Stockholders of Wisconsin Electric Power Company will be
held at 9:00 a.m. on Tuesday, April 29, 1997 in Conference Room P437 at the
Public Service Building, 231 West Michigan Street, Milwaukee, Wisconsin, for
the following purposes:
1. To elect a Board of Directors to hold office until the 1998 Annual Meeting
of Stockholders; and
2. To consider any other matters which may properly come before the meeting.
Stockholders of record at the close of business on February 26, 1997 will be
entitled to vote at the meeting.
By Order of the Board of Directors
/s/Ann Marie Brady
Ann Marie Brady
Corporate Secretary and
Vice President - External Affairs
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Wisconsin Electric
A Wisconsin Energy Company
231 West Michigan Street
P.O. Box 2046
Milwaukee, Wisconsin 53201
INFORMATION STATEMENT
and
ANNUAL REPORT TO STOCKHOLDERS
-----------------------------
INFORMATION STATEMENT
This information statement is being furnished to stockholders beginning on or
about April 3, 1997 in connection with the annual meeting of stockholders of
Wisconsin Electric Power Company ("Wisconsin Electric" or "WE") to be held on
April 29, 1997, at WE's Public Service Building, 231 West Michigan Street,
Milwaukee, Wisconsin, and all adjournments of the meeting, for the purposes
listed in the Notice of Annual Meeting of Stockholders. The WE annual report
to stockholders accompanies this information statement.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. However, you may vote your shares of preferred stock at the meeting.
VOTING SECURITIES
As of February 26, 1997, WE had outstanding 44,498 shares of Six Per Cent.
Preferred Stock; 260,000 shares of $100 par value 3.60% Serial Preferred
Stock; and 33,289,327 shares of common stock. Each outstanding share of each
class is entitled to one vote. Stockholders of record at the close of
business on February 26, 1997 will be entitled to vote at the meeting. A
majority of the votes entitled to be cast by the shares entitled to vote shall
constitute a quorum.
All of WE's outstanding common stock, representing over 99% of its voting
securities, is owned beneficially by its parent company, Wisconsin Energy
Corporation ("Wisconsin Energy" or "WEC"). A list of stockholders of record
entitled to vote at the meeting will be available for inspection by
stockholders at WE's principal business office at 231 West Michigan Street,
Milwaukee, Wisconsin, prior to and at the meeting.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANT
Price Waterhouse LLP has acted as independent public accountant for WE or its
predecessor continuously since 1932, and was appointed by Wisconsin Energy's
board of directors to serve as independent public accountant of WEC and its
subsidiaries, including WE, during the current year. Representatives of the
firm will not attend the annual meeting, but will be present at Wisconsin
Energy's annual meeting on April 30, 1997 to make any statement they may
consider appropriate and to respond to questions which may be directed to
them.
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THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors is responsible for overseeing the performance of WE.
In 1996 the Board held eight meetings. The average attendance of all
directors for Board and committee meetings was 98%.
WE has an Executive Committee, Compensation Committee and a Finance Committee;
it does not have audit or nominating committees. The Executive Committee,
which did not meet in 1996, may exercise all of the powers vested in the Board
during periods between Board meetings except action regarding dividends or
other distributions to stockholders, the filling of vacancies on the Board and
other powers which by law may not be delegated to a committee. Directors
Abdoo, Ahearne, Cornog, Grigg, Johnson and Stratton are regular members of the
Executive Committee; all other directors are alternate members. The
Compensation Committee, which met twice in 1996, identifies through succession
planning potential executive officers of WE and provides a competitive,
performance-based executive and director compensation program that enables WE
to attract and retain key individuals and to motivate them to achieve WE's
short and long-term goals. Directors Ahearne, Bergstrom and Cornog are
members of the Compensation Committee. The Finance Committee, which met once
in 1996, may take or authorize all necessary actions to effect financings,
refinancings and refundings pursuant to financing plans approved by the Board
of Directors, thus enhancing the WE's ability to act quickly with respect to
certain financing matters when market conditions warrant. Directors
Bergstrom, Grigg and Porter are members of the Finance Committee.
ELECTION OF DIRECTORS
At the 1997 annual meeting, there will be an election of eight directors to
hold office for a term of one year and until they are reelected or until their
respective successors are duly elected and qualified. Directors are elected
by a plurality of the votes cast by the shares entitled to vote in the
election at a meeting at which a quorum is present. "Plurality" means that
the individuals who receive the largest number of votes are elected as
directors up to the maximum number of directors to be chosen in the election.
Therefore, any shares not voted, whether by withheld authority, broker non-
vote or otherwise, have no effect in the election of directors.
The nominees named below have consented to being nominated and to serve if
elected. The Board of Directors does not expect that any of the nominees will
become unavailable for any reason. If that should occur before the meeting,
another nominee or nominees may be selected by the WE Board of Directors.
Biographical information regarding each nominee is shown below. Ages are
shown as of December 31, 1996.
Information Concerning Nominees (For Terms Expiring in 1998)
RICHARD A. ABDOO. Age 52. Chairman of the Board, President and Chief
Executive Officer of WEC since 1991. Chairman of the Board and Chief
Executive Officer of Wisconsin Electric, WEC's principal subsidiary, since
1990. Director of WEC since 1988. Director of Wisconsin Electric since 1989.
Chairman of the Board and Chief Executive Officer of Wisconsin Natural Gas
Company ("Wisconsin Natural" or "WN") from 1990 to 1995. Wisconsin Natural,
which was WEC's gas utility subsidiary, merged into Wisconsin Electric
effective January 1, 1996. Director of Wisconsin Natural from 1989 to 1995.
Director of Marshall & Ilsley Corporation, Sundstrand Corporation and United
Wisconsin Services, Inc.
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JOHN F. AHEARNE. Age 62. Director of the Sigma Xi Center for Sigma Xi, The
Scientific Research Society, an organization that provides grants to graduate
students and conducts national meetings on major scientific issues, since
1989. Adjunct Scholar of Resources for the Future, an economic research, non-
profit institute, since 1993. Lecturer, Duke University, since 1995. Vice
President and Senior Fellow of Resources for the Future from 1984 to 1993.
Commissioner of the United States Nuclear Regulatory Commission from 1978 to
1983, serving as its Chairman from 1979 to 1981. Member, National Academy of
Engineering. Director of WEC and Wisconsin Electric since 1994.
JOHN F. BERGSTROM. Age 50. Chairman and Chief Executive Officer of Bergstrom
Corporation since January 1997; President and Chief Executive Officer of
Bergstrom Corporation from 1974 to 1996. Bergstrom Corporation owns and
operates numerous automobile dealerships, three hotels and an automotive
leasing company. Director of WEC since 1987. Director of Wisconsin Electric
since 1985. Director of Bergstrom Corporation, First National Bank-Fox
Valley, Kimberly-Clark Corporation, Midwest Express Holdings, Inc., Universal
Foods Corporation, Driver's Mart Worldwide, Inc. and The Green Bay Packers,
Inc.
ROBERT A. CORNOG. Age 56. Chairman of the Board, President and Chief
Executive Officer of Snap-on Incorporated since 1991. Snap-on Incorporated is
a developer, manufacturer and distributor of professional hand and power
tools, diagnostic and shop equipment, and tool storage products. Director of
WEC since 1993. Director of Wisconsin Electric since 1994. Director of Snap-
on Incorporated and Johnson Controls, Inc.
RICHARD R. GRIGG. Age 48. Vice President of WEC and President and Chief
Operating Officer of Wisconsin Electric since January 1995; Chief Nuclear
Officer of Wisconsin Electric since December 1996. President and Chief
Operating Officer of Wisconsin Natural during 1995. Group Executive and Vice
President of Wisconsin Electric from June to December 1994. Vice President of
Wisconsin Electric from 1990 to 1994. Director of WEC since 1995. Director
of Wisconsin Electric since 1994. Director of Wisconsin Natural during 1995.
GENEVA B. JOHNSON. Age 67. Corporate Director. Former President and Chief
Executive Officer of Family Service America, an organization representing
private agencies in the United States and Canada that provide human service
programs, from 1983 to 1994. Director of WEC and Wisconsin Electric since
1988. Director of Firstar Bank Milwaukee, N.A.
DAVID K. PORTER. Age 53. Senior Vice President of WE since 1989. Vice
President of Wisconsin Natural from 1989 to 1995. Director of WE since 1989.
Director of Wisconsin Natural from 1988 to 1995.
FREDERICK P. STRATTON, JR. Age 57. Chairman and Chief Executive Officer of
Briggs & Stratton Corporation, a manufacturer of small gasoline engines, since
1986. Director of WEC since 1987. Director of Wisconsin Electric since 1986.
Director of Briggs & Stratton Corporation, Banc One Corporation, Midwest
Express Holdings, Inc. and Weyco Group, Inc.
OTHER MATTERS
The Board of Directors is not aware of any other matters which may properly
come before the meeting. The WE Bylaws set forth the requirements that must
be followed should a stockholder wish to propose any floor nominations for
director or floor proposals at annual or special meetings of stockholders. In
the case of annual meetings, the Bylaws state, among other things, that notice
and certain other documentation must be provided to WE at least 70 days and
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not more than 100 days before the scheduled date of the annual meeting. No
such notices have been received by WE.
COMPENSATION
Directors' Compensation
In order to more closely link directors' pay to performance and to align the
Board's interests with stockholders, effective January 1, 1996, the Board
determined that a portion of directors' fees will be paid in WEC common stock.
Directors can elect to receive the fee in common stock or defer the fee in the
WEC phantom common stock account under the Directors' Deferred Compensation
Plan.
During 1996, each nonemployee director received an annual retainer fee of
$18,000 (one-half in WEC common stock and the other half in cash) plus an
attendance fee of $1,250 for each Board or committee meeting attended. In
addition, a per diem fee of $1,000 for travel on company business is paid for
each day on which a Board or committee meeting is not also held. Nonemployee
directors are also paid $300 for each signed, written unanimous consent in
lieu of a meeting. Non-employee chairs of the committees of the Board
received a quarterly committee chair retainer of $1,250. Employee directors
receive no directors' fees. Although certain WE directors also serve on WEC's
board and compensation committee, only single fees are paid for meetings held
by both boards or committees on the same day. In these cases, fees are
allocated between WE and WEC based on services rendered.
Nonemployee directors may defer fees so long as they serve on the Board of WE
and/or its affiliates pursuant to the Directors' Deferred Compensation Plan.
Under the plan, fees may be deferred into an account which accrues interest
semiannually at the prime rate or into a WEC phantom common stock account, the
value of which will appreciate or depreciate based on the market performance
of WEC stock, as well as through the accumulation of any reinvested dividends.
Deferral amounts are credited to accounts in the name of each participating
director on the books of WE, are unsecured and are payable only in cash
following termination of the director's service to WE. The deferred amounts
will be paid out of the general corporate assets or the trust described under
"Retirement Plans" in this information statement.
Executive Officers' Compensation
The following table summarizes certain information concerning compensation
awarded to, earned by or paid to WE's Chief Executive Officer and each of WE's
or WEC's other five most highly compensated executive officers for services in
all capacities to WEC and its subsidiaries, including WE, for the last three
fiscal years. The amounts shown in this and all subsequent tables in this
information statement are WEC consolidated compensation data. The portion of
time devoted by each officer to WE in 1996, as determined by the percent of
time each officer worked for WE versus the other affiliated companies, is as
follows: Mr. Abdoo (81%), Mr. Grigg (95%), Mr. Brzezinski (40%), Ms. Krause
(100%), Mr. Porter (100%) and Mr. Baker (86%).
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SUMMARY COMPENSATION TABLE
Long-Term
Compensation
------------
Awards
Annual Compensation ------------
-------------------------------- Securities
Other Annual Underlying All Other
Name and Principal Position at WE Year Salary Bonus Compensation Options/SARs Compensation
($) ($) ($) (#) (1) ($) (2)
- ----------------------------------- ---- ------- ------- ------------ ------------ -------------
RICHARD A. ABDOO
Chairman of the Board and 1996 560,000 306,472 8,953 38,000 113,297
Chief Executive Officer 1995 496,000 232,000 8,321 38,000 83,858
1994 450,000 222,396 0 25,000 15,970
- ------------------------------------ ---- ------- ------- ------------ ------------ -------------
RICHARD R. GRIGG
President, Chief Operating Officer 1996 295,000 62,835 5,206 19,000 43,412
and Chief Nuclear Officer 1995 237,500 63,788 3,084 19,000 42,125
1994 168,333 46,667 0 6,500 11,000
- ------------------------------------ ---- ------- ------- ------------ ------------ -------------
FRANCIS BRZEZINSKI
Vice President-Business Development 1996 225,000 108,513(3) 5,933 9,500 19,247
1995 225,000 25,515 80,532(4) 7,600 17,051
1994 212,000 26,037 0 6,500 7,478
- ------------------------------------ ---- ------- ------- ------------ ------------ -------------
Kristine M. Krause 1996 190,000 68,750 0 9,500 23,239
Vice President-Fossil Operations 1995 160,000 48,904 0 9,500 16,532
1994 112,500 24,013 0 6,500 3,368
- ------------------------------------ ---- ------- ------- ------------ ------------ -------------
DAVID K. PORTER
Senior Vice President 1996 190,000 63,449 0 7,600 23,994
1995 190,000 46,170 0 7,600 21,766
1994 190,000 58,333 0 3,000 6,695
- ------------------------------------ ---- ------- ------- ------------ ------------ -------------
CALVIN H. BAKER
Vice President-Finance and 1996 170,000 70,298 1,420 9,500 21,996
Chief Financial Officer 1995 145,000 35,235 1,286 7,600 16,249
1994 132,000 34,737 0 3,000 4,331
- ------------------------------------ ---- ------- ------- ------------ ------------ -------------
(1) Grants of options were in combination with contingent dividend awards, as
described in the table entitled "Long-Term Incentive Plans--Awards in Last
Fiscal Year." No stock appreciation rights ("SARs") were awarded during any
of the fiscal years indicated.
(2) All Other Compensation for 1996 for Messrs. Abdoo, Grigg, Brzezinski, Ms.
Krause, Messrs. Porter and Baker, respectively, includes: (i) employer
matching of contributions by each named executive into the Employee Savings
Plan (ESP) in the amount of $4,750 for each named executive officer, (ii)
"make whole" payments under the Executive Deferred Compensation Plan with
respect to matching in the ESP on deferred salary or salary received but not
otherwise eligible for matching in the amounts of $13,450, $4,512, $2,529,
$3,325, $1,425 and $775, respectively, and (iii) the full dollar value of life
insurance premiums paid by the company in the amounts of $95,097, $34,150,
$11,968, $15,164, $17,819 and $16,471, respectively, under a split-dollar life
insurance program.
(3) Mr. Brzezinski's 1996 award is higher than in previous years because of
accomplishments by WEC's non-utility subsidiaries; the award includes $17,238
relating to performance in connection with development of land known as the
Westridge project.
(4) Includes $41,893 for club memberships; the balance is for related tax
gross-up payments.
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OPTION/SAR GRANTS IN LAST FISCAL YEAR
| Grant Date
Individual Grants (1) | Value
--------------------------------------------------|-------------
Percent of
Number of Total
Securities Options/SARs Exercise
Underlying Granted to or Base Grant Date
Options/SARs Employees in Price Expiration Present
Name Granted(#) Fiscal Year ($/Sh) Date Value($)(2)
- ------------------ ------------ ------------ -------- ----------- -----------
Richard A. Abdoo 38,000 18.0% 26.81 11/26/2006 119,407
Richard R. Grigg 19,000 9.0% 26.81 11/26/2006 59,704
Francis Brzezinski 9,500 4.5% 26.81 11/26/2006 29,852
Kristine M. Krause 9,500 4.5% 26.81 11/26/2006 29,852
David K. Porter 7,600 3.6% 26.81 11/26/2006 23,881
Calvin H. Baker 9,500 4.5% 26.81 11/26/2006 29,852
(1) Consists of incentive and non-qualified stock options to purchase shares
of WEC common stock granted pursuant to WEC's 1993 Omnibus Stock Incentive
Plan ("OSIP") on November 27, 1996. These options were granted with an equal
number of contingent dividend awards (as described in the table entitled
"Long-Term Incentive Plans--Awards in Last Fiscal Year"), have exercise prices
equal to the fair market value of the WEC shares on the date of grant and
first become exercisable on November 27, 2000, at which time they become fully
exercisable. Upon a "change in control" of WEC, as defined in the OSIP, or
upon retirement, permanent total disability or death of the option holder,
these options shall become immediately exercisable. The proposed merger with
Northern States Power Company ("NSP") will not be considered a change in
control of WEC for purposes of the OSIP. These options were granted for a
term of ten years, subject to earlier termination in certain events related to
termination of employment. In the discretion of the WEC compensation
committee, the exercise price may be paid by delivery of already-owned shares
and tax withholding obligations related to exercise may be satisfied by
withholding shares otherwise deliverable upon exercise, subject to certain
conditions. Subject to the limitations of the OSIP, the WEC compensation
committee has the power with the participant's consent to modify or waive the
restrictions on vesting of these options, to amend these options and to grant
extensions or to accelerate these options.
(2) The Black-Scholes option pricing model was used to determine the options'
present value as of the date of the grant. The assumptions used in the Black-
Scholes equation are: market price of stock: $26.81; exercise price of
option: $26.81; stock volatility: 14.41%; annualized risk-free interest
rate: 6.28%; exercise at the end of 10-year option term; and dividend yield:
5.28%. WE's use of this model should not be construed as an endorsement of
its accuracy. Whether the model's assumptions will prove to be accurate
cannot be known at the date of grant. The ultimate value of the options, if
any, will depend upon the future value of the WEC common stock, which cannot
be forecast with reasonable accuracy, and the optionee's investment decisions.
No stock options other than those granted pursuant to the OSIP were
outstanding in the last fiscal year. The earliest date outstanding options
previously granted under the OSIP become exercisable is December 15, 1997.
Consequently, no options were exercisable in 1996. The following table sets
forth the number of options which were not exercisable and the value of such
options based upon the difference between the exercise price and the market
price of the underlying shares as of December 31, 1996.
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Underlying Value of Unexercised In-the-Money
Unexercised Options/SARs Options/SARs
at Fiscal Year-End at Fiscal Year-End
(#) ($)
------------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ------------------ ------------- --------------- --------------- ---------------
Richard A. Abdoo 0 123,500 0 3,906
Richard R. Grigg 0 51,000 0 1,581
Francis Brzezinski 0 30,100 0 992
Kristine M. Krause 0 26,750 0 992
David K. Porter 0 24,700 0 657
Calvin H. Baker 0 23,100 0 775
The following table further describes the long-term incentive awards made
during 1996:
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
Estimated Future
Payouts Under
Performance Non-Stock
Number of or Other Price-Based Plans
Shares, Units Period Until -------------------
or Other Maturation Target
Name Rights(#)(1) or Payout ($ or #) (2)
- ------------------ ------------- ------------- -------------------
Richard A. Abdoo 38,000 11/26/2000 $245,277
Richard R. Grigg 19,000 11/26/2000 $122,638
Francis Brzezinski 9,500 11/26/2000 $61,319
Kristine M. Krause 9,500 11/26/2000 $61,319
David K. Porter 7,600 11/26/2000 $49,055
Calvin H. Baker 9,500 11/26/2000 $61,319
(1) Consists of performance units awarded under the OSIP in combination with
stock options (as described in the table entitled "Option/SAR Grants in Last
Fiscal Year" above). These performance units, entirely in the form of
contingent dividends, will be paid if total shareholder return (appreciation
in the value of WEC common stock plus reinvested dividends) over a four-year
period ending November 26, 2000 equals or exceeds the median return earned by
the companies included in the Peer Group Index in the "Performance Graph"
section of WEC's proxy statement for the 1997 Annual Meeting, except that
there will be no payout if WEC's total shareholder return is negative over the
course of such period. If payable, each participant shall receive an amount
equal to the actual dividends paid on WEC common stock for the period of
November 27, 1996 through November 26, 2000 multiplied by the number of
performance units awarded to such participant. Upon a "change in control" of
WEC, as defined in the OSIP, this benefit shall immediately vest with all
performance goals deemed fully achieved. As described in footnote 1 to the
table entitled "Option/SAR Grants in Last Fiscal Year," WEC's proposed merger
with NSP does not constitute a change in control under the OSIP with respect
to any outstanding contingent dividends granted to the above executive
officers.
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(2) Assumes, for purposes of illustration only, 4% per year compound annual
dividend increase based on the current quarterly dividend rate.
Severance Policy. In connection with the Agreement and Plan of Merger between
WEC and Northern States Power Company (approved by WEC's stockholders on
September 13, 1995) the WEC board adopted a Senior Executive Severance Policy
("Severance Policy"). The Severance Policy was adopted to encourage certain
executive officers and other key employees, whose expertise has been critical
to WE's success, to remain with WE during the WEC/NSP merger transition
process. The Severance Policy provides for payment of severance to
participants whose employment is terminated under certain circumstances (e.g.,
terminations by WE that are other than for cause, disability or retirement;
terminations resulting from certain sales of a business by WE; and
terminations resulting from reductions in participants' salaries,
responsibilities or benefits) at any time before (i) the second anniversary of
the effective time of the merger with NSP if the transaction is consummated or
(ii) April 28, 2000 if the transaction with NSP is not consummated.
The severance benefits under the Severance Policy consist of: (i) three years'
salary and annual incentive compensation; (ii) payment of the actuarial
equivalent of the additional retirement benefits the participant would have
earned if he or she had remained employed for three more years; (iii)
continued medical, dental and life insurance coverage for three years; (iv)
outplacement services or the use of office space and support; and (v)
financial planning counseling.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Philosophy and Objectives. The Compensation Committee, which is
comprised entirely of independent non-employee directors of WEC and WE, is
responsible for making decisions regarding succession planning and executive
compensation. The committee, which functions as a combined Compensation
Committee for WE and WEC, seeks to provide a competitive, performance-based
executive compensation program that enables WE to attract and retain key
individuals and motivate them to achieve WE's short and long-term goals. The
committee regularly re-examines its compensation philosophy to determine if
the executive compensation package is effective in helping WE achieve its
corporate objectives.
The committee believes that a substantial portion of overall executive
compensation should be at risk, dependent on achievement of individual and
corporate goals that are aligned with the interests of WE's and WEC's
stockholders and customers. As a result, compensation for executives will
vary from year to year, based upon the level of achievement of operating,
financial, safety, environmental stewardship, customer satisfaction and other
performance goals. Superior performance will be rewarded with above-average
compensation; performance below expectations will yield below-average
compensation.
The committee employs a nationally recognized compensation consultant, Towers
Perrin, to advise it on matters relating to the administration and design of
WE's executive compensation program. The consultant provides the committee
with information regarding competitive compensation levels, practices and
trends within the industry. In addition, information on general corporate
compensation practices is provided.
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In determining competitive compensation for WE's officer positions, the
committee relies primarily on an analysis of compensation practices for the
companies included in the industry peer group used to compare investment
performance in WEC's proxy statement for the 1997 Annual Meeting ("Peer
Group"). The committee relies secondarily on a broader analysis of
compensation data from a survey of approximately 100 utilities conducted by
the Edison Electric Institute ("EEI"), a consortium of utilities, and on a
survey of compensation practices in general industry. The committee reviews
both peer group specific and broader industry and general industry pay
practices to be fully informed of compensation levels. The committee does not
mathematically average the data from these analyses but, rather, considers
them as three separate views of the external market.
Elements of Compensation. The 1996 compensation of WE's executives primarily
consisted of three elements: base salary, annual incentive compensation and
long-term incentive compensation. The committee's basis for determining
appropriate levels of executive compensation for 1996 for each of these
elements is described below. Specific values of 1996 compensation for the
Chief Executive Officer and the five other most highly-compensated officers in
the WE organization are included in the Summary Compensation Table provided in
this information statement.
Base Salary. In determining appropriate executive base salaries, the
committee considered factors such as individual experience, performance and
potential, changes in duties and responsibilities, economic conditions in the
utility service areas, the reputation of WE's utility operations,
competitiveness of utility service rates and impact of cost-control
achievements. In addition, the committee reviewed executive compensation
practices for comparable positions at companies within the Peer Group, as well
as the broader group of utilities in the EEI database and practices in general
industry. As noted above, the committee does not mathematically average the
data from these analyses but, rather, considers them as three separate views
of the external market. In general, base salaries are targeted at or near the
50th percentile of the average of these three groups.
Annual Incentive Compensation. The committee administers WEC's Short-Term
Performance Plan ("STPP") which provides annual cash incentive opportunities
to executive officers and other key employees. The STPP is designed to
promote the achievement of shareholder and customer-focused objectives of WEC
and its subsidiaries, including WE, while recognizing individual and team
performance of participants.
Annual incentive compensation awards are targeted at approximately the 75th
percentile of industry pay practices. In 1996, target incentive awards were
set for participants that ranged from 15% to 55% of base salary. Each
participant is eligible to receive an award if pre-established corporate
performance goals are met. Awards may be increased by up to 100% of targeted
amounts or reduced to zero based on individual and team performance.
Except for WE Chief Executive Officer Abdoo and Mr. Grigg, who serves as WE
President, Chief Operating Officer and Chief Nuclear Officer, performance
goals for 1996 were 50% financial and 40% operational. The remaining 10%
related to improving WE's relationship with its customers as measured by its
Customer Value Added (CVA) score. Financial goals focused on achievement of
target earnings per share. Operational goals were specific to WE's business
processes and, among other things, related to energy marketing efforts,
development of new energy services, customer satisfaction, employee training
and development, environmental stewardship, safety of operations, and
corporate strategic planning. Mr. Abdoo's goals were 80% financial, 10%
operational and 10% CVA; Mr. Grigg's goals were 60% financial, 30% operational
and 10% CVA.
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For 1996, Wisconsin Electric did very well in achieving a number of
performance goals. Along with these accomplishments, however, Wisconsin
Electric received penalties from regulatory agencies. A civil penalty was
levied by the Nuclear Regulatory Commission related to operations at WE's
Point Beach Nuclear Plant. A notice of violation of air emissions
requirements at WE's Port Washington Power Plant was referred to the Wisconsin
Department of Justice. This matter was resolved through payment of a
forfeiture. In order that stockholders not assume responsibility for these
penalties, the committee agreed that incentive awards for 1996 be reduced to
cover the costs of these penalties. As a result, all STPP awards, including
the award for Mr. Abdoo, were reduced by 12.2%. In addition, awards for
participants who are employed in WE's Nuclear Business Unit were further
reduced by 50% to more appropriately reflect nuclear performance results. Mr.
Grigg, who began serving as WE's Chief Nuclear Officer in December 1996, also
had his award reduced. Based on these adjustments, awards to WE and WEC
executive officers under the STPP for 1996 ranged from 0% to 54.7% of base
salary.
Long-Term Incentive Compensation. The committee administers WEC's 1993
Omnibus Stock Incentive Plan ("OSIP"), a long-term incentive plan designed to
link the interests of executives and other key employees to long-term
shareholder value. The OSIP allows the company to grant stock options, stock
appreciation rights, stock awards and performance units to participants.
Equity interests in WEC common stock enable participants to share in the
appreciation of the value of WEC common stock and provide an incentive for
managing the continued performance and value of the company. Long-term
incentive awards are targeted at the 90th percentile of the industry grant
practices.
For 1996, awards in the form of stock options and performance dividend units
were granted to each of several groups of OSIP participants. Stock option and
performance dividend unit grants to executive officers who received grants
ranged from 3,800 to 38,000 shares and related performance dividend units.
The grant level was dependent on each participant's role in influencing the
achievement of long-term performance goals.
The committee believes that an important adjunct to the long-term incentive
program is significant stock ownership by participants. Accordingly, as a
condition of participating in the OSIP, the committee has implemented stock
ownership guidelines for participants. Guidelines for executive officers
range from 100% to 300% of base salary.
Chief Executive Officer Compensation. Performance and compensation of the
Chief Executive Officer are of particular importance to the committee. Mr.
Abdoo's performance was evaluated by the committee and compensation was
determined in accordance with the executive compensation policies described
above.
As part of a procedure instituted in 1995, the Compensation Committee chair
requested that non-employee directors provide a written evaluation of the
CEO's performance. The directors' written feedback was discussed by committee
members as part of its compensation determinations and has been shared with
the CEO.
With respect to base salary, in recognition of the leadership provided by the
Chief Executive Officer in shaping and guiding a financially strong
organization that is able to provide quality services to its customers at
competitive prices, as well as his role in guiding the reengineering of
several business processes and related cost-control achievements of the
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company, the outstanding reputation of Wisconsin Electric's utility operations
in the utility industry and in consideration of competitive salary data, the
committee set Mr. Abdoo's base salary at $560,000 for 1996. Mr. Abdoo's base
salary approximates the 50th percentile of the data reviewed by the committee.
With respect to annual incentive compensation for fiscal year 1996, the
Compensation Committee awarded Mr. Abdoo the annual incentive award set forth
in the "Bonus" column of the Summary Compensation Table. In this regard, the
committee established his 1996 STPP target award level at 55% of base salary.
The committee's evaluation of Mr. Abdoo's 1996 performance resulted in an
award under the STPP of $306,472 or 54.7% of base salary. The award was based
upon Mr. Abdoo's actual performance versus specific company-wide financial and
operational performance goals. As noted above, Mr. Abdoo's goals were weighted
80% financial, 10% operational and 10% CVA. Mr. Abdoo's financial goals
focused on achievement of target earnings per share. Operational goals were
specific to achieving a high level of nuclear safety, generating new revenue
from energy and non-energy related sources, staying within a prescribed budget
and safety of operations. His CVA goals related to improving WE's
relationship with its customers.
In determining Mr. Abdoo's 1996 STPP award, the committee specifically noted
several accomplishments by the CEO during 1996, including (i) his leadership
toward promoting continued close control of operating expenditures which has
resulted in significant reductions in costs since 1993, (ii) exceeding
earnings targets, in part through earnings growth from WE's gas operations,
(iii) continued growth of the organization's customer base, (iv) completion of
the purchase of the Milwaukee County Power Plant, (v) successful start-up of a
state-of-the art Customer Call Center, (vi) implementation of a new,
integrated financial system, (vii) his consistent support of equal
opportunity, diversity, cross-cultural sensitivity and strong labor-management
relationships within WE, (viii) his leadership role and continued visionary
efforts to restructure the electric utility industry and (ix) his
effectiveness in guiding employees to implement productivity improvements that
will enable WE to become the low-cost energy provider in the upper midwest
region and in ensuring that the organization and its employees are prepared
for the merger of WEC and Northern States Power Company. As noted above, the
committee reduced Mr. Abdoo's award by 12.2% in recognition of the penalties
levied by the Nuclear Regulatory Commission and the Wisconsin Department of
Justice against Wisconsin Electric.
With respect to the OSIP, in keeping with the Compensation Committee's
philosophy as stated above, Mr. Abdoo was awarded stock options and related
dividend performance units in 1996 as set forth in the "Long-Term Compensation
Awards" column of the Summary Compensation Table to specifically link a
portion of his compensation to the achievement of WE's longer term goals. The
award of dividend performance units will be paid if total shareholder return
(appreciation in the value of WEC common stock plus reinvested dividends) over
a four-year period ending November 26, 2000 equals or exceeds the median
return earned by the Peer Group, except that there will be no payout if WEC's
total shareholder return is negative over the course of such period.
The committee also applied subjective judgment in evaluating the relative
importance of the factors which were the basis for determining each element of
Mr. Abdoo's compensation to precisely determine his salary and awards.
Compliance With Tax Regulations Regarding Executive Compensation. Section
162(m) of the Internal Revenue Code generally disallows a tax deduction to
public companies for compensation over $1 million paid to the corporation's
chief executive officer and the other executive officers named in the Summary
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Compensation Table. Qualifying performance-based compensation will not be
subject to the deduction limit if certain requirements are met. The committee
will continue to review these tax regulations as they apply to WE's executive
compensation program. It is the committee's intent to preserve the
deductibility of executive compensation to the extent reasonably practicable
and to the extent consistent with its other compensation objectives.
Respectfully submitted to WE's stockholders by the Compensation Committee of
the Board of Directors.
Robert A. Cornog, Committee Chair
John F. Ahearne
John F. Bergstrom
STOCK OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
WE directors, nominees and executive officers as a group (15 persons) do not
own any of WE's stock, but do own 85,216 shares of common stock of its parent
company, Wisconsin Energy (less than 1% of total WEC common stock
outstanding). The following table lists the beneficial ownership of WEC
common stock (including phantom common stock) of each director, nominee and
executive officer named in the Summary Compensation Table below, as of
February 11, 1997. Included are shares owned by each individual's spouse,
minor children or any other relative sharing the same residence, as well as
shares held in a fiduciary capacity or held in WEC's Stock Plus Investment
Plan and Wisconsin Electric's Employee Savings Plan ("ESP").
Number Number
of of
Name Shares(1) Name Shares(1)
-------------------- ------ ------------------------- ------
Richard A. Abdoo 22,078 Richard R. Grigg 3,605
John F. Ahearne 766 Geneva B. Johnson 3,040
Calvin H. Baker 4,309 Kristine M. Krause 4,805
John F. Bergstrom 5,522 David K. Porter 10,175
Francis Brzezinski 3,260 Frederick P. Stratton, Jr. 6,949
Robert A. Cornog 3,514
(1) Share units held in the WEC phantom common stock account under WEC's
Directors' Deferred Compensation Plan or Executive Deferred Compensation Plan
are: Mr. Abdoo (5,334), Mr. Baker (1,157), Mr. Bergstrom (2,522), Mr.
Brzezinski (1,053), Mr. Cornog (858), Mr. Grigg (263), Mrs. Johnson (633), Ms.
Krause (173), Mr. Porter (229), and Mr. Stratton (1,249). Share units are
intended to reflect the performance of WEC common stock and are payable in
cash.
Each person has sole voting and investment power as to all shares listed for
such person (other than phantom shares) except that the following persons have
shared voting and/or investment power as to the indicated number of shares so
listed: Mr. Baker (400), Mr. Brzezinski (108), Mr. Stratton (3,300), Ms.
Krause (1,333) and all above-named directors and officers and other executive
officers as a group (5,589).
Information on beneficially owned shares is based on data furnished by the
specified persons and is determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as required for purposes of this information
statement. It is not necessarily to be construed as an admission of
beneficial ownership for other purposes.
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RETIREMENT PLANS
In 1996, WE maintained a defined benefit pension plan of the cash balance type
for most employees, including WE executive officers. The plan bases a
participant's defined benefit pension on the value of a hypothetical account
balance. For individuals participating in the plan as of December 31, 1995, a
starting account balance was created equal to the present value of the benefit
accrued as of December 31, 1994, under the plan benefit formula prior to the
change to a cash balance approach. That formula provided a retirement income
based on years of credited service and final average compensation for the 36
highest consecutive months, without any deduction for Social Security or other
offset, with a Social Security integrated benefit formula based on percentages
of final average compensation for up to 30 years of credited service and
additional (lower) percentages of compensation in excess of 30 years, up to a
maximum of 10 years. In addition, individuals participating in the plan as of
December 31, 1995 received a special one-time transition credit amount equal
to a specified percentage varying with age multiplied by credited service and
1994 base pay.
The present value of the accrued benefit as of December 31, 1994, plus the
transition credit were also credited with interest at a stated rate. For 1996
and thereafter, a participant receives annual credits to the account equal to
5% of base pay (including certain incentive payments, pre-tax deferrals and
other items), plus an interest credit on all prior accruals equal to 4% plus
75% of the annual time-weighted trust investment return for the year in excess
of 4%.
The life annuity payable under the plan is determined by converting the
hypothetical account balance credits into annuity form. Individuals who were
participants in the plan on December 31, 1995 are in no event to receive any
less than what would have been provided under the prior formula, had it
continued, if they terminate on or before January 1, 2011, and do not elect to
commence benefits before the earlier of age 55 and completion of 10 years'
service, or age 65.
All of the individuals listed in the Summary Compensation Table are
"grandfathered" under the prior plan benefit formula. Since their estimated
benefits under that formula are higher than under the cash balance plan
formula, utilizing current assumptions, their benefits would currently be
determined by the prior plan benefit formula. The following table shows
estimated annual benefits payable in life annuity form on normal retirement
for persons in various compensation and years of service classifications
during 1996, based on the grandfathered continuation of the prior plan formula
(including supplemental amounts providing additional benefits described below
in the "Other Retirement Benefits" section):
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PENSION PLAN TABLE
Years of Service
----------------------------------------------------------
Remuneration 15 20 25 30 35 40
- ------------ -------- -------- -------- -------- -------- --------
$ 50,000 $ 10,960 $ 14,614 $ 18,267 $ 21,920 $ 24,028 $ 26,136
100,000 23,897 31,862 39,828 47,794 52,339 56,885
150,000 36,835 49,114 61,392 73,670 80,653 87,636
200,000 49,772 66,362 82,953 99,544 108,964 118,385
250,000 62,708 83,611 104,514 125,417 137,275 149,132
300,000 75,647 100,862 126,078 151,294 165,589 179,885
400,000 101,522 135,362 169,203 203,044 222,214 241,385
500,000 127,397 169,862 212,328 254,794 278,839 302,885
600,000 153,272 204,362 255,453 306,544 335,464 364,385
700,000 179,147 238,862 298,578 358,294 392,089 425,885
800,000 205,022 273,362 341,703 410,044 448,714 487,385
900,000 230,897 307,862 384,828 461,794 505,339 548,885
1,000,000 256,772 342,362 427,953 513,544 561,964 610,385
1,100,000 282,647 376,862 471,078 565,294 618,589 671,885
The compensation for the individuals listed in the Summary Compensation Table
in the columns labeled "Salary" and "Bonus" is virtually equivalent to the
compensation considered for purposes of the retirement plans and the various
supplemental plans. Messrs. Abdoo, Grigg, Brzezinski, Ms. Krause, Messrs.
Porter and Baker currently have 21, 26, 7, 18, 27 and 5 credited years of
service, respectively.
Other Retirement Benefits. Designated elected officers of WEC and WE
participate in the Supplemental Executive Retirement Plan ("SERP"). The SERP
provides monthly supplemental pension benefits to participants, which will be
paid out of unsecured corporate assets, or the grantor trust described below,
as follows: (a) an amount equal to the difference between the actual pension
benefit payable under the pension plan and what such pension benefit would be
if calculated without regard to any limitation imposed by the Internal Revenue
Code on pension benefits or covered compensation; (b) an amount calculated so
as to provide participants with a supplemental lifetime annuity, estimated to
amount to between 8% and 10% of final average compensation depending on which
pension payment option is selected; and (c) an amount for certain participants
equal to the difference between the actual pension benefit payable under the
pension retirement plan and what the pension benefit would be if calculated
under the prior benefit formula in effect on December 31, 1988. Except for a
"change in control" of WEC, as defined in the SERP, no payments are made until
after the participant's retirement or death.
WEC and WE have entered into agreements with Mr. Abdoo and Mr. Baker,
respectively, who cannot accumulate by normal retirement age the maximum
number of years of credited service under the pension plan formula in effect
immediately before the change to the cash balance formula. According to Mr.
Abdoo's agreement, Mr. Abdoo at retirement will receive supplemental
retirement payments which will make his total retirement benefits at age 58 or
older substantially the same as those payable to employees who are age 60 or
older, who are in the same compensation bracket and who became plan
participants at the age of 25. According to Mr. Baker's agreement, Mr. Baker
at retirement will receive supplemental retirement payments which will make
his total retirement benefits at age 60 or older substantially the same as
those payable to employees who are in the same compensation bracket and who
became plan participants at the age of 25.
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The WEC Amended Non-Qualified Trust, a grantor trust, has been established to
fund the SERP, the Executive Deferred Compensation Plan and Mr. Abdoo's and
Mr. Baker's agreements. The plans and agreements provide for optional lump
sum payments and, in the instance of a change in control, mandatory lump sum
payouts without regard to whether the executive's employment has terminated.
In each case, the interest rate benchmark formula for calculating the lump sum
amount is the five-year U. S. Treasury Note yield as of the last business day
of the month prior to date of payment.
The SERP, the Executive Deferred Compensation Plan, the Directors' Deferred
Compensation Plan, the Amended Non-Qualified Trust and Mr. Abdoo's and Mr.
Baker's agreements have each been amended to provide that WEC's proposed
merger with NSP will not constitute a change in control under such plans,
trust and agreements.
AVAILABILITY OF FORM 10-K
A COPY (WITHOUT EXHIBITS) OF THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1996 AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS AVAILABLE WITHOUT CHARGE TO ANY STOCKHOLDER OF RECORD OR
BENEFICIAL OWNER OF WE COMMON STOCK BY WRITING TO THE CORPORATE SECRETARY, ANN
MARIE BRADY, 231 WEST MICHIGAN STREET, P. O. BOX 2046, MILWAUKEE, WISCONSIN
53201.
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