FirstEnergy
Executive Incentive Compensation Plan
2002
The Executive Incentive Compensation Plan (EICP) is designed to attract, retain
and reward executives; to more closely align the interests of executives and
shareholders; and to promote growth in shareholder value.
The Plan consists of a Short-Term Incentive Program (STIP) for 2002; a Long-Term
Incentive Program (LTIP) for the period 2002 - 2004, and a Stock Option Program.
Target opportunities for each program are shown in Attachment 1.
Short-Term Incentive Program (STIP)
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Eligibility
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Employees with a March 1, 2002 market rate at or above $98,800 who have an
approved reporting relationship are eligible to participate in the STIP.
Employees who are employed as of January 1, 2002, must work through March 31,
2002, to be eligible for an STIP award. Newly hired employees must be on the
payroll prior to October 1, 2002, to be eligible for an STIP award.
Eligible employees who have separated employment during the year due to
retirement, disability, death, or under conditions for which the employee
qualifies and elects benefits under the FirstEnergy Severance Benefits Plan will
receive a prorated award based on the number of months worked in an eligible
position.
Eligible employees who voluntarily resign or are involuntarily separated for
cause at any time during the plan year or between December 31, 2002, and the
date awards are paid, are ineligible to receive an STIP award. A performance
rating of Does Not Meet Expectations also disqualifies an employee from
receiving an STIP award.
Eligible employees who work in an EICP position for less than the full plan year
will receive a prorated award based on the number of months worked in an
eligible position.
Transfer between Plans
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STIP 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, or those who exit under qualifying circumstances described above will have
their incentive awards prorated in whole month increments. Monthly increments
are determined by the effective date of the employee's move.
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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 in the "new" plan 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.
If an employee experiences a change in market rate within the EICP group during
the plan year, the employee will receive a prorated STIP award based on the
number of months at each market rate.
Key Performance Indicators (KPIs)
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Performance goals consist of FirstEnergy Financial KPIs and Operational KPIs.
FirstEnergy Financial KPIs apply to all employees. Operational KPIs are
established by each Business Unit Vice President. The weighting of Financial
KPIs and Operational KPIs varies among eligible employees depending upon their
job level.
Incentive Opportunity
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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.
STIP awards for the 2002 plan year will be paid in March 2003. Awards are
subject to tax withholding and are eligible for Employee Savings Plan
contributions. STIP awards will not be paid unless total earnings exceed the
amount of dividends paid plus the maximum awards from all incentive plans.
Plan participants may elect to defer a portion or all of their STIP award under
the terms of the Executive Deferred Compensation Plan (EDCP).
Discretionary Award
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There may be instances where an employee has demonstrated extraordinary
responsiveness or has made a substantial contribution that will not be properly
recognized in the STIP award process. In these cases, the Company (and/or the
Compensation Committee of the Board of Directors) may, at its discretion, grant
a special discretionary award to the employee.
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Long-Term Incentive Program (LTIP)
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Eligibility
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An employee who is hired or promoted into the EICP eligible group during January
2002 will be eligible to participate in the 2002 LTIP. An employee hired or
promoted into the EICP group on or after February 1, 2002, will become eligible
for the LTIP in 2003, assuming he/she remains in an eligible position.
An employee must work a minimum of 12 months in an EICP 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 2002 will not be eligible to
receive an LTIP award from the 2002 program.
An eligible employee must be actively employed as of December 31, 2004, or have
separated due to retirement, disability or death; or under conditions for which
the employee qualifies and elects benefits under the FirstEnergy Severance
Benefits Plan. In such cases, the employee will receive a prorated award at the
time of separation, based on the number of months of participation and the
Company's TSR rating at the time.
An employee who voluntarily resigns or is separated for cause at any time during
the three-year plan cycle, or between December 31, 2004, and the award payment
date, is ineligible to receive an LTIP award from the 2002 program.
If an EICP eligible employee is no longer in an eligible position on December
31, 2004, his/her LTIP award will be prorated to reflect the number of months
worked in an eligible position during the three-year plan cycle.
Performance Shares
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On January 1, 2002, each eligible employee's LTIP award is converted into
"Performance Shares" of FirstEnergy common stock based on the average of the
high and low common stock prices on the last trading day in 2001. These shares
are placed into a Performance Share Account for three years (2002 - 2004).
During the 2002 - 2004 plan cycle, 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 plan cycle, the employee's account value will
be based on the average of the high and low prices on the last trading day in
December 2004.
The account value may be adjusted upward or downward based upon the total
shareholder return (TSR) ranking of FirstEnergy common stock relative to an
energy services company index during the three-year period. The purpose of
applying a TSR factor is to strengthen the linkage between the participant's
total compensation and the long-term growth of shareholder value.
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If the Company's TSR ranking 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 award payment will be made.
Attachment 2 provides a LTIP award example.
Award Payments
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Awards for the 2002 - 2004 cycle will be paid in March 2005.
Plan participants may elect to defer a portion or all of their LTIP award under
the provisions of the Executive Deferred Compensation Plan (EDCP).
Stock Option Program
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In 2002, 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.
Beneficiary
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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.
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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. 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 Contract or Funded Trust
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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.
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.
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Attachment 1
Total Compensation Opportunity
2002
================= ============================== ========================================================= =====================
SHORT-TERM (STIP) LONG-TERM (LTIP) TOTAL
------------------------------ --------------------------------------------------------- ---------------------
Total Incentive
Executive Annual Incentive Performance Share Stock Option Compensation
Tier Target Opportunity* Target Opportunity* Target Opportunity* Opportunity*
================= ============================== =========================== ============================= =====================
V 25% 5% 35% 65%
================= ============================== =========================== ============================= =====================
<FN>
*Opportunity as a percent of the employee's March 1, 2002 market rate
</FN>
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STIP AWARD LEVERAGE (TIER V)
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KPIs WEIGHT THR TGT MAX
- ------------- -------------- ------------- ------------ ----------------
Financial 20% 50% 100% 200%
- ------------- -------------- ------------- ------------ ----------------
Operational 80% 50% 100% 150%
============= ============== ============= ============ ================
Total 100% 50% 100% 160%
============= ============== ============= ============ ================
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Attachment 2
FirstEnergy
2002 Executive Incentive Compensation Plan
Long-Term Incentive Program (LTIP)
Performance Share Example
Name: Jane Executive
Market Rate: $100,000
Target Incentive: 5% of Market Rate
Target Opportunity: $5,000
Performance Share Award: 142.207 shares (35.155/share)
Performance shares mature at the end of 2004 and are payable in March 2005 based
on the following factors:
o The account value after dividend equivalents are credited to the executive's
account during the performance period
o The common stock price calculated by averaging the high and low market
price of the Company's common stock on the last trading date of 2004
o The total shareholder return (TSR) of the Company's common stock during the
performance period relative to the peer company index. The TSR ranking will
determine a performance factor which will either increase or decrease the
value of the performance share account
The following table illustrates awards at various TSR percentile rankings
assuming that no dividends are paid and that the stock price does not appreciate
during the three-year performance period.
============================== ====================== =======================
Performance
TSR Ranking Award Payout* Factor
============================== ====================== =======================
86 - 100th Percentile $7,500 150%
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75th Percentile* $6,250 125%
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63rd Percentile* $5,000 100%
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52nd Percentile* $3,750 75%
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41st Percentile $2,500 50%
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1 - 40th Percentile $0 0%
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* Award payouts interpolated between the 86th and 41st percentile.
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