FirstEnergy
Executive Incentive Compensation Plan
2001
Purpose
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The purpose of the Executive Incentive Compensation Plan (EICP) is to attract,
retain and motivate skilled executives; to more closely align the interests of
the executives and shareholders; and to promote growth in shareholder value.
Total Compensation Philosophy
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FirstEnergy's total compensation philosophy is based on the following
principles:
- - A "pay-for-performance" orientation under which total compensation reflects
corporate, business unit and individual success;
- - A focus on total compensation wherein base salaries and incentives are
targeted generally at or near median competitive market levels, with
opportunities to achieve total compensation at the 75th percentile level if
both corporate and business unit performance are superior;
- - A mix between short-term and long-term compensation opportunities designed to
reward both short and long-term strategic results and facilitate executive
retention;
- - An escalating proportion of an executive's total compensation opportunity at
risk through performance incentives and stock as an executive's level of
responsibility increases; and
- - The use of various equity based incentive vehicles to promote FirstEnergy
stock ownership and more closely align the interests of executives with the
long-term interests of shareholders.
Plan Components
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The Plan consists of a Short-Term Incentive Program (STIP) for 2001, a Long-Term
Incentive Program (LTIP) for the period 2001 - 2003, and a Stock Option Program.
Target incentive opportunities for each program are shown in Attachment 1.
Discretionary Award
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There may be instances where an executive has demonstrated extraordinary
responsiveness to an unforeseen circumstance or has made a substantial
contribution that will not be properly recognized in the normal award process.
In these cases, FirstEnergy (the Compensation Committee of the Board of
Directors in the case of a member of the Senior Management Committee), in its
sole discretion, may grant a special incentive award to the executive.
Short-Term Incentive Program (STIP)
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Eligibility
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Employees with a 2001 standard rate at or above $92,119 and are in approved
positions that report to members of the Senior Management Committee, regional
presidents, consolidated plant managers, nuclear directors, and general office
department heads, are eligible to participate in this plan.
Eligible executives also must perform their jobs for a minimum of 1000 regular
work hours (actual on-the-job work hours exclusive of any time off) during the
year. Therefore, separation due to retirement, death or disability generally
must occur during the second half of the year in order to meet the 1000 hour
requirement. If an employee is promoted into the executive group or reassigned
to another position outside the executive group, all hours worked during the
year are counted toward the 1000-hour requirement.
Eligible executives must be actively employed as of December 31, 2001 or have
separated employment during the year due to retirement, disability, death, or
under conditions in which the executive qualifies for and elects benefits under
the FirstEnergy Severance Benefits Plan. Thus, an executive who voluntarily
resigns or is involuntarily separated for cause is ineligible to receive a
short-term award. Also, an executive who has been involuntarily separated for
cause between December 31, 2001 and the date that any awards are paid is
ineligible to receive and award.
Executives must receive or would have received a performance rating of Meets
Expectations or above. An executive with a rating "Does Not Meet Expectations"
is ineligible to receive an annual award.
Transfer between Plans
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Annual incentive awards are based on whole months of eligibility in an incentive
plan. Thus, employees who transfer from one incentive plan to another and work
the full year, will have their incentive awards prorated between the two plans
in whole month increments that total 12 months. Whole month increments are
determined by the effective date of the employee's move.
For a move resulting in a change in incentive plan eligibility that is effective
between the 1st and 15th of any month except December, the employee becomes
eligible for the plan into which they are moving for that entire month. If the
move is effective on or after the 16th of any month except January, the employee
becomes eligible for the plan into which they are moving on the 1st of the
following month.
Employees hired or changing plans at any time during January will be credited
with plan eligibility for the entire month of January. Employees who change
plans at any time on or after November 16 will continue their eligibility in the
"old" plan for the entire month of December, and will become eligible for the
"new" plan in January.
Key Performance Indicators (KPIs)
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Performance goals are allocated between FirstEnergy Financial KPIs and
Operational KPIs. FirstEnergy Financial KPIs apply to all executives.
Operational KPIs are established by each Group Vice President. The weighting of
Financial KPIs and Operational KPIs varies among executives depending upon their
job level.
Award Leverage
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Each KPI has a threshold, target and maximum level of achievement. The
achievement of Financial KPIs at or above threshold will generate a payout from
50% to 200% of the target award. The achievement of Operational KPIs at or above
threshold will generate a payout from 50% to 150% of target. Results achieved
between threshold and target, and target and maximum, will be interpolated.
Award Payments
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Annual awards will be paid in March 2002. If an executive meets the eligibility
criteria and works in an executive position for less than the full performance
year, his/her annual award will be prorated to reflect the number of months that
he/she has worked in an eligible position.
If an executive changes his/her job within the executive group or is reassigned
to another position outside the executive group during the plan year, the
executive's total annual incentive award will be the sum of the prorated awards
earned in each position and incentive plan.
Plan participants may elect to defer the receipt of any STIP award under the
terms of the Executive Deferred Compensation Plan.
Shareowner Protection
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Short-term incentive awards will not be paid unless total earnings exceed the
amount of dividends paid plus the maximum annual awards from all incentive
plans.
Long-Term Incentive Program (LTIP)
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Eligibility
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An employee who is hired or promoted into the executive group on or after
February 1, 2001 will not be eligible for the LTIP until 2002, assuming he/she
remains eligible for EICP.
An executive must work a minimum of 12 months in an eligible position during the
three-year (36-month) plan cycle to be eligible for an award. Thus, an executive
who separates for any reason during 2001 will be ineligible to receive a
long-term award from the 2001 program.
An executive must be actively employed as of December 31, 2003, or have
separated due to retirement, disability or death; or under conditions in which
the executive qualifies for and elects benefits under the FirstEnergy Severance
Benefits Plan between December 31, 2001 and the award payment date. Thus, an
executive who voluntarily resigns or who is involuntarily separated for cause
during this time frame will be ineligible to receive an LTIP award.
Performance Shares
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On January 1, 2001, each eligible employees LTIP award will be converted into
equivalent "Performance Shares" of FirstEnergy common stock based on the average
of the high and low stock prices of the common stock on the last trading day in
2000. These shares are placed into a Performance Share Account for three years
(2001 - 2003).
During the 2001 - 2003 performance period, dividend equivalents will be
converted into additional shares based on the closing stock price on the date
the dividends are paid. At the end of the three-year performance period, the
executive's account will be valued based on the average of the high and low
prices on the last trading day in December 2003.
The value may be adjusted upward or downward based upon the total shareholder
return (TSR) of FirstEnergy common stock relative to an energy services company
index during this three-year period. If the TSR is at the 63rd percentile, the
award payout will be 100% of the account value. If the TSR rating is at or above
the 86th percentile, the award payout will be 150% of the account value. If the
TSR is at the 41st percentile, the award payout will be 50% of the account
value. Award payouts for a ranking above the 41st and below the 86th percentile
will be interpolated. For a TSR ranking below the 41st percentile, no long-term
award will be paid. The purpose of this award structure is to strengthen the
linkage between an executive's total compensation and the long-term growth of
shareholder value.
Award Payments
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Awards for the 2001 - 2003 cycle will be paid in March 2004.
If an executive meets the eligibility criteria and is no longer employed in an
executive position, his/her original LTIP target award will be prorated to
reflect the number of months worked in an eligible position during the
performance cycle.
Plan participants may elect to defer the receipt of any LTIP award under the
provisions of the Executive Deferred Compensation Plan.
Attachment 2 illustrates a Long-Term Incentive Program example.
Stock Option Program
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In 2001, eligible employees will receive stock option grants that will allow
them to purchase a specified number of common stock shares at a fixed grant
price over a defined period of time. The number of stock options granted and a
stock option agreement will be communicated to recipients at the time of the
grant.
Terms
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For the purposes of this Plan, the term FirstEnergy is defined as FirstEnergy
Corp. and all of its operating companies to which this Plan has been extended.
The term "Company" refers to FirstEnergy Corp. or its operating companies
individually, as appropriate.
Each employee's rights under the Plan are at all times governed by the official
text of the Executive and Directors Incentive Compensation Plan Document and are
in no way altered or modified by the contents of this summary.
Each executive may, at any time, designate one or more persons as the
executive's primary or contingent beneficiary (ies) to whom awards earned under
this Plan shall be paid in the event of the executive's death prior to payment
of such awards to the executive. In the absence of an effective beneficiary
designation, or if all beneficiaries predecease the executive, the executive's
designated beneficiary shall be the person in the first of the following classes
in which there is a survivor: the executive's surviving spouse; the executive's
estate.
Right to Modify or Terminate
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This Plan may be amended or terminated at any time with or without notice by the
Compensation Committee of the Board of Directors of FirstEnergy. The Plan may
change from year to year or even be discontinued in the future. If it is
determined that significant unusual events occurred that impacted the
FirstEnergy's reported earnings but do not truly reflect the achieved operating
results of the FirstEnergy, then the Compensation Committee may, in its sole
discretion, increase or decrease the amount of any awards determined by this
Plan or even determine that no awards will be paid. Not withstanding, the
Committee shall have no authority to adjust upwards the amount payable to a
Covered Employee with respect to a particular Award, to take any of the
foregoing actions or to take any other action to the extent that such action or
the Committee's ability to take such action would cause any Award under the Plan
to any Covered Employee to fail to qualify as "performance-based compensation"
within the meaning of Code Section 162(m)(4) and the regulations issued
thereunder.
No Employment Guarantee
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Nothing in this Plan shall be construed as giving any participant the right to
be retained in the employ of any Company, nor shall any Company be required, by
virtue of the existence of this Plan, to maintain the employment of any
participant through any specified date.
Not A Funded Trust
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All awards paid under this Plan shall at all times constitute general unsecured
liabilities of any Company, payable out of its own general assets. In no event
shall any Company be obliged to reserve any funds or assets to secure the
payment of such amounts and nothing contained in the Plan shall confer upon any
participant the right, title or interest of any assets of any Company.
Administration
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The Plan is administered by the Human Resources Department.
Attachment 1
Executive Incentive Compensation Plan
Total Compensation Opportunity
2001
SHORT-TERM PROGRAM LONG-TERM PROGRAM TOTAL
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Performance Stock
Annual Incentive Shares Options
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Target Target Target Total Incentive
Tier Incentive* KPI % Mix Incentive* Award* Opportunity*
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V 25% Fin 20% 5% 35% 65%
Oper 80%
* Incentive opportunity as a percent of standard rate.
STIP Award Leverage
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KPIs THR TGT MAX
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Financial 50% 100% 200%
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Operational 50% 100% 150%
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Total 50% 100% 160%
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Attachment 2
Performance Share Example
Tier: V
Standard Rate: $120,000
Target Incentive: 5%
Target Opportunity: 5% x $120,000 = $6,000
Performance Share Award: 200 shares ($6,000 @ $30/share)
Performance shares mature at the end of 2003 and are payable in March 2004 based
on the following factors:
- Quarterly dividend equivalents that may be credited to the executive's
accounhe performance period.
- The average of the high and low price of the Company's common stock on
the last trading day of 2003.
- The total shareholder return (TSR) of the Company's common stock
during the performance period relative to the peer company index.
The following table illustrates potential awards at various TSR percentile
rankings based on the target opportunity. This illustration assumes that no
dividends are paid and that the common stock price does not appreciate during
the three-year performance period.
TSR Ranking Award Payout Percent Earned
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86 - 100th Percentile $9,000 150%
75th Percentile $7,500 125%
63rd Percentile $6,000 100%
52nd Percentile $4,500 75%
41st Percentile $3,000 50%
1 - 40th Percentile $0 0%
* For 2001, the method of representing our TSR ranking is being
changed to reflect our percentile ranking in the more traditional
way. This year, the TSR ranking is shown in the inverse of how it
has been represented in the past. Previously, top performance was
reflected as the "1st percentile"; this year, top performance is
represented as the "100th percentile". This change has no impact
on the "Award Payout" or the "Percent Earned".