ComEd 2006 Annual Report Download - page 339

a theoretical value of each option determined by the compensation committee using a Black-Scholes
valuation formula. Options vest in equal annual installments over a four-year period and have a term of
ten years. Time vesting adds a retention element to our stock option program. Stock option repricing is
prohibited by policy or terms of the company’s long-term incentive plans. Accordingly, no options have
been repriced. Stock option awards are generally granted at the regularly scheduled January
compensation committee meeting when the committee reviews results for the preceding year and
establishes the compensation program for the coming year. The compensation committee has
delegated to the CEO the authority to make off-cycle awards to an employee who is not subject to the
limitations of Section 162(m), is not an executive officer for purposes of reporting under Section 16 of
the Securities Exchange Act of 1934, and is not an executive vice president or higher of Exelon,
provided that such authority is limited to making grants of up to 1,200,000 options in the aggregate and
20,000 options per recipient in any year. These grants are ratified by the compensation committee. On
rare occasions, stock options are granted to new hires on the date they commence employment. This
delegated authority was used to make seven grants in 2006, none of which were to NEOs. All grants to
the NEOs must be approved by the full board of directors, which acts after receiving a recommendation
from the compensation committee, except grants to Mr. Rowe, which must be approved by the
independent directors, who act after receiving recommendation from the compensation committee.
Performance Share Units
The compensation committee established a performance share unit award program contingent on
performance as measured against predetermined objectives over a multi-year measurement period with
the value fluctuating with stock price changes as well as performance against objectives. At the beginning
of each year, the compensation committee and the board of directors establish targets for performance
share unit awards for each executive. The performance goals are based on total shareholder return for
Exelon as compared to the companies in the Standard & Poor’s 500 Index and the Dow Jones Utility
Index for the three-year period ending on December 31 of that year and may include other measures. For
information concerning the goals applicable to the 2006 long-term performance share unit awards, please
see the Long-term Incentives section below. Actual awards are determined at the January meeting of the
compensation committee and the board of directors after the end of the performance period when the
extent of achievement of the performance goals is known. One third of the awarded performance shares
vests upon the award date with the balance vesting in January of the next two years. The vesting
schedule is designed to add a retention factor to the program. The form of payment provides for payment
in Exelon common stock to executives with lower levels of stock ownership, with increasing portions of
the payments being made in cash as executives’ stock ownership levels increase in excess of the
ownership guidelines. This payment structure serves to deliver the long-term compensation in cash
where the executive has substantially greater than the required stock ownership and provides the
executive with liquidity and the opportunity for diversification.
Restricted Stock & Restricted Stock Units
In limited cases, the compensation committee has determined that it is necessary to grant
restricted shares of Exelon common stock or restricted stock units to executives as a means to recruit
and retain talent. They may be used for new hires to offset annual or long-term incentives that are
forfeited from a previous employer. They are also used as a retention vehicle and are subject to
forfeiture if the executive voluntarily terminates.
Executive stock ownership and trading requirements
To strengthen the alignment of executives’ interests with those of shareholders, officers of the
company are required to own certain amounts of Exelon common stock by the later of five years after
their employment or promotion to their current position. For additional information about Exelon’s stock
ownership guidelines, please see the Stock Ownership Guidelines section in Item 12—Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
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