Item
5.02 Departure of Directors or Certain Officers; Election of
Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
General
Each
year, the Compensation and Management Development Committee (“C&MD
Committee”) of the Board of Directors of AGL Resources Inc. (“AGL Resources” or
the “Company”) sets base salary, sets target levels for annual incentive pay and
makes long-term incentive grants for AGL Resources’ executive
officers. For benchmarking executive compensation practices and
levels, the C&MD Committee reviews data provided by the C&MD Committee’s
independent consultant for companies in the following two groups: AGL Resources’
proxy peer group of natural gas service providers (“Proxy Peers”); and a larger
group of energy service industry companies (“Industry Peers”).
This
report contains disclosure about the 2008 compensation for AGL Resources’
chairman, president and chief executive officer along with the executive
officers named in our proxy statement for the 2007 annual meeting of
shareholders, except for (1) our former interim, chairman and chief executive
officer who resigned from AGL Resources effective as of March 3, 2006; and (2)
our former executive vice president, utility operations who resigned from AGL
Resources effective as of June 15, 2007. These four officers are
hereinafter referred to as the “named executive officers.”
Base
Salary
On
February 5, 2008, the C&MD Committee reviewed and set base salaries for
executive officers for 2008. In reviewing base salaries, the C&MD Committee
considered pay for comparable positions reported in the Proxy Peer and Industry
Peer data described above, tenure in position, scope of responsibilities,
performance, retention and other considerations. The base salary for John W.
Somerhalder, the chairman, president and chief executive officer was increased
from $750,000 to $800,000; the base salary for Andrew W. Evans, the executive
vice president and chief financial officer was increased from $405,000 to
$445,000; the base salary for Kevin P. Madden, the executive vice president,
external affairs, was increased from $400,000 to $412,000; and the base salary
for Douglas N. Schantz, president, Sequent Energy Management, LP, was increased
from $305,000 to $320,000. The base salaries for these four named
executive officers were approved by the C&MD Committee but are not otherwise
set forth in a written agreement between AGL Resources and the
executives.
2007
Omnibus Performance Incentive Plan and Annual Incentive Plan
AGL
Resources’ annual incentive compensation program for the named executive
officers (other than Mr. Schantz) consists of the 2007 Omnibus Performance
Incentive Plan (“OPIP”) and the Annual Incentive Plan (“AIP”). The
terms of the OPIP are set forth in Annex A to the proxy statement for the
Company’s 2007 annual meeting of shareholders that was filed with the Securities
and Exchange Commission on March 19, 2007, and the description of the OPIP in
the section of the proxy statement entitled, “Proposal 2—Approval of the 2007
Omnibus Performance Incentive Plan.” The terms of the AIP were
previously filed as exhibit 10.1 to the Company’s current report on Form 8-K
dated August 6, 2007. The terms of the annual incentive arrangement
for Mr. Schantz were previously filed as exhibit 10.1.ax to the Company’s annual
report on Form 10-K filed on February 7, 2008. The annual
incentive compensation program for the named executive officers gives weight to
both corporate and individual performance.
How the OPIP and AIP
work. Under the OPIP, the C&MD Committee establishes an
objective performance measure from among a list of eligible measures set forth
in the plan, and the performance measure must be met or exceeded in order for
the named executive officers to receive a payout. The C&MD Committee reviews
the actual performance at the end of each year, compares it with the
predetermined goals, and certifies the results under the plan. In
order to attempt to maximize the federal income tax deductibility
of awards made to the named executive officers, the corporate
performance portion of the covered named executive officers’ annual incentive
awards, which constitutes 75% of their total incentive opportunity, is covered
under the shareholder-approved OPIP. The individual performance
portion of the named executive officers’ annual incentive awards, which
constitutes 25% of their total incentive opportunity, is not eligible for the
exemption from the federal income tax deductibility limit under Section 162(m)
of the Internal Revenue Code of 1986, as amended.
Under the
applicable annual incentive compensation program (including Mr. Schantz’s annual
incentive arrangement that is described below), each participant has a target
annual incentive compensation opportunity, expressed as a percentage of earned
base salary during the fiscal year. On February 5, 2008, the C&MD
Committee approved target annual incentive compensation opportunities for 2008,
expressed as a percentage of 2008 annual base salary, for each of AGL Resources’
named executive officers. For 2008, the incentive target level for
Mr. Somerhalder will increase from 85% of annual base salary to 100%, for
Messrs. Evans and Madden will remain at 60% and for Mr. Schantz will remain at
75%.
As noted
above, annual incentive compensation for the named executive officers is
calculated using the following weights: 75% corporate performance
score, which is based on the corporate earnings per share (“EPS”) goals
described below (covered under the OPIP), and 25% individual performance score
(covered under the AIP). Other than for Mr. Schantz, maximum awards
for the named executive officers may be up to 200% of their overall target
annual incentive compensation opportunity.
On
February 5, 2008, the C&MD Committee established the corporate EPS goals,
hereinafter referred to as “Plan EPS” goals for the 2008 performance measurement
period. The Plan EPS goals under the AIP and the OPIP for 2008
are:
|
Plan
Earnings Per Share Goal*
|
Corporate
Performance Score
|
|
$2.66**
|
0%
|
|
$2.71
|
50%
|
|
$2.76
|
100%
|
|
$2.81
|
150%
|
|
$2.86
|
200%
|
*Plan EPS
is based on net income determined in accordance with accounting principles
generally accepted in the United States of America (“GAAP”), adjusted to reflect
the effect of economic value created in a plan year by the Company’s wholesale
services business unit, but not yet reflected in GAAP earnings reported for that
year. The purpose of this adjustment is to ensure that (i) economic
value created in a previous plan year is included in the Plan EPS goal for the
current plan year, and (ii) economic value created above or below the amount
expected to be created by management in the current plan year is considered by
the C&MD Committee when determining whether the Plan EPS goal is
met. Additionally, net income may be subject to the potential
exclusion of certain one-time items.
**The
Company’s actual Plan EPS must surpass the Plan EPS goal of $2.66 for the year
ending December 31, 2008 in order for payments based on corporate performance to
be made. Payouts for the portion of total performance based on
individual performance may be made if actual Plan EPS is less than $2.66,
subject to C&MD Committee approval. Payouts will be calculated
using a straight-line interpolation should actual Plan EPS fall between the Plan
EPS goals listed above.
The Plan
EPS goal, which reflects an overall reduction of $0.04 per share, is established
by the C&MD Committee solely for the purposes of performance measurement
under the annual incentive compensation program and should not be considered an
update to, and should not be compared to, previously provided earnings
guidance.
How the annual incentive plan works
for Mr. Schantz. The annual incentive arrangement for Mr.
Schantz (the “Schantz Annual Incentive”) is based upon Plan EPS, his individual
performance in leading the Sequent business, and the annual incentive
compensation payable to Mr. Schantz’s direct reports, who are paid under the
Sequent annual incentive plan. Pursuant to the terms of the Schantz
Annual Incentive, unless the C&MD Committee determines otherwise, in their
sole discretion, if the Company’s Plan EPS threshold is not achieved, then no
payment will be made.
Although
not subject to a specific cap, Mr. Schantz’s Annual Incentive has a mandatory
deferral feature.
Long-Term
Incentive Grants
On
February 5, 2008, the C&MD Committee approved stock option grants,
restricted stock unit awards and performance cash awards to certain of its
executive officers, other officers and key employees, including the following
named executive officers:
STOCK OPTIONS
|
Name
|
Number
of Nonqualified
Stock Options Awarded
|
|
|
|
|
John
W. Somerhalder
|
51,900
|
|
|
|
|
Andrew
W. Evans
|
17,400
|
|
|
|
|
Kevin
P. Madden
|
16,600
|
|
|
|
|
Douglas
N. Schantz
|
6,800
|
The
grants were made under the OPIP. A form of nonqualified stock option
agreement was previously filed as Exhibit 10.1.c to the Company’s Quarterly
Report on Form 10-Q filed on August 2, 2007.
The stock
options are exercisable at a price of $39.03 per share and vest in accordance
with the schedule set forth in the nonqualified stock option
agreement. Subject to earlier termination as described in the OPIP,
the stock options expire ten years from the date of grant. Upon a
change of control of the Company, unless the options are assumed or substituted
for by the surviving entity, all unvested options will become vested and
exercisable. In the event of an optionee’s death, disability or
retirement, any unvested option will vest and become exercisable as to that
number of shares originally scheduled vest within 12 months of the date of
termination. In the event of the optionee’s termination of employment
for any reason other than death, disability or retirement, any portion of the
option that was not exercisable immediately before the termination of employment
will be forfeited.
RESTRICTED STOCK UNITS
|
Name
|
Performance
Measurement Period
|
Number
of Restricted
Stock Units Awarded
|
|
|
|
|
|
John
W. Somerhalder
|
1
year
|
24,500
|
|
|
|
|
|
Andrew
W. Evans
|
1
year
|
8,200
|
|
|
|
|
|
Kevin
P. Madden
|
1
year
|
7,900
|
|
|
|
|
|
Douglas
N. Schantz
|
1
year
|
3,200
|
The
restricted stock unit awards were made under the OPIP. A form of the
restricted stock unit agreement was previously filed as Exhibit 10.1.e to the
Company’s Quarterly Report on Form 10-Q filed on August 2, 2007.
If the
performance measure for the restricted stock units, which is the Company’s EPS,
as adjusted to reflect the effect of economic value created by the Company’s
wholesale business unit, as set forth in the restricted stock unit agreement, is
met or exceeded, the restricted stock units will be converted to an equal number
of shares of Company common stock and vest in accordance with the schedule set
forth in the restricted stock unit agreement. If the performance
measure set forth in the agreement is not attained, the restricted stock units
will be forfeited. Upon a change in control of the Company, unless
the restricted stock units are assumed or substituted for by the surviving
entity, (i) the restricted stock units will convert to an equal number of shares
of Company common stock and become 100% vested and nonforfeitable; and (ii) any
outstanding unvested shares of restricted stock will become 100% vested and
nonforfeitable. Unless the C&MD Committee, which administers the
OPIP, decides otherwise, if the recipient’s employment is terminated for any
reason, all restricted stock units or shares of restricted stock will be
forfeited.
PERFORMANCE CASH AWARDS
|
Name
|
Performance
Measurement Period
|
Target
Payout
|
|
|
|
|
|
John
W. Somerhalder
|
3
years
|
$700,000
|
|
|
|
|
|
Andrew
W. Evans
|
3
years
|
$235,200
|
|
|
|
|
|
Kevin
P. Madden
|
3
years
|
$224,000
|
|
|
|
|
|
Douglas
N. Schantz
|
3
years
|
$91,500
|
The
performance cash awards were made under the OPIP. The performance
cash awards are payable in cash, based upon the attainment of the performance
measure set forth in the award agreement, which relates to the Company’s average
annual growth in actual reported earnings per share, as adjusted to reflect the
effect of economic value created by the Company’s wholesale business unit, plus
the average dividend yield (the “Performance Measure”). As set forth
in the award agreements, the formula used to calculate award payments is as
follows: Target Performance Cash divided by Target Performance Measure,
multiplied by the actual performance measure. The award agreements
also set forth a minimum Performance Measure percentage below which no award
payments will be made and a maximum Performance Measure percentage at which
award payments will be capped. Upon a change in control of the
Company, unless the performance cash units are assumed or substituted for by the
surviving entity, performance cash awards will become vested and nonforfeitable
(i) if during the first half of the performance period, at the target payout
level; and (ii) if during the second half of the performance period, based on
the actual level of achievement, and in any case, as prorated on a daily-basis,
based on the completed portion of the performance measurement period as of the
date of the change in control. Unless the C&MD Committee, which
administers the OPIP, decides otherwise, if the recipient’s employment is
terminated for any reason, all performance cash units will be
forfeited. A form of the performance cash award agreement was
previously filed as Exhibit 10.1.d to the Company’s Quarterly Report on Form
10-Q filed on August 2, 2007.
Lead
Director Retainer
The Lead
Director will receive $20,000 on the first day of each annual service term,
which begins immediately following the annual meeting of
shareholders. As with all other board member retainer fees, the Lead
Director retainer is payable, at the election of the Lead Director, in cash or
shares of Company common stock or, at the election of the Lead Director, may be
deferred under the 1998 Common Stock Equivalent Plan for Non-Employee
Directors. Mr. D. Raymond Riddle currently serves as the Company’s
Lead Director.