Progress Energy 2008 Annual Report Download - page 156

PROXY STATEMENT
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Our executive officers meet with the compensation consultant to ensure the consultant understands
the Company’s business strategy. In addition, the executive officers ensure that the Committee receives
administrative support and assistance, and make recommendations to the Committee to ensure that
compensation plans are aligned with our business strategy and meet the principles described above.
John R. McArthur, our Executive Vice President, serves as management’s liaison to the Committee. Our
executive officers and other Company employees provide the consultant with information regarding
our executive compensation plans and benefits and how we administer them on an as-needed basis.
William D. Johnson, our Chief Executive Officer, is responsible for conducting annual performance
evaluations of the other executive officers and making recommendations to the Committee regarding those
executives’ compensation. The Committee conducts annual performance evaluations of Mr. Johnson.
COMPETITIVE POSITIONING PHILOSOPHY
The Committee’s compensation philosophy is to establish target compensation opportunities
near the 50th percentile of the market, with flexibility to pay higher or lower amounts based on individual
and corporate performance. The Committee believes that this philosophy is aligned with our executive
compensation objective of linking pay to actual performance.
Progress Energy, a regulated electric utility holding company, is considered to be part of the
broader industry classification of electric utilities. The Company is included in several well publicized
indices, including the S&P electric index and the Philadelphia utility index. Over the past decade, as
deregulation has occurred in several geographic areas of the United States, the investor community has
separated the utility industry into a number of subsectors. The two main themes of separation are 1) in
which aspect of the value chain does the company participate: generation, transmission and/or delivery, and
2) how much of its business is governed by rate-of-return regulation as opposed to competitive markets.
Thus, the industry now has subsectors identified frequently as competitive merchant, regulated delivery,
regulated integrated, and unregulated integrated (typically state-regulated delivery and unregulated
generation). Each of these subsectors typically differs in financial performance and market valuation
characteristics such as earnings multiples, earnings growth prospects and dividend yields.
Progress Energy generally is identified as being in the regulated integrated subsector. This means
Progress Energy and its peer companies are primarily rate-of-return regulated, operate in the full range of
the value chain, and typically have requirements to serve all customers under state utility regulations. Other
companies that are similar to us from a business model perspective and that are generally categorized in
our subsector include companies like Southern Company, Duke Energy, SCANA, Xcel and PG&E. The
Committee, therefore, monitors companies like these in comparing and evaluating Progress Energy’s financial
performance for investors and compensation for executives.
On an annual basis, the Committee’s compensation consultant provides the Committee with a written
analysis comparing base salaries, annual incentives and long-term incentives of our executive officers to
compensation opportunities provided to executive officers of our peers. For 2008, the Committee approved the
use of a peer group consisting of 18 integrated utilities (that is, utilities that have transmission, distribution and
generation assets). The peer group was chosen based on many factors including revenue, market capitalization
and percentage of regulated assets to total assets; the peer group also consists of the companies with which
we primarily compete for executive talent. The table below lists the companies in the peer group we use for
benchmarking purposes.
Allegheny Energy, Inc. Edison International Pinnacle West Capital Corporation
Ameren Corporation Entergy Corporation PPL Corporation
American Electric Power
Company, Inc. Exelon Corporation SCANA Corporation
Dominion Resources, Inc. FirstEnergy Corporation Southern Company
DTE Energy Company PG&E Corporation Xcel Energy, Inc.
Duke Energy Corporation FPL Group, Inc. TECO Energy