Progress Energy 2008 Annual Report Download - page 211

Progress Energy Proxy Statement
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PROPOSAL 3—APPROVAL OF THE PROGRESS ENERGY, INC.
2009 EXECUTIVE INCENTIVE PLAN TO COMPLY WITH SECTION 162(m)
OF THE INTERNAL REVENUE CODE
Background
The Board of Directors and Organization and Compensation Committee (the “Committee”) have
unanimously approved the adoption of the Progress Energy, Inc. 2009 Executive Incentive Plan (the “EIP”)
effective March 17, 2009, subject to shareholder approval of the EIP at the Annual Meeting of Shareholders
as described in this proposal. Below is a description of the material terms of the EIP. The discussion is
qualified in its entirety by reference to the EIP, a copy of which is attached to this Proxy Statement as
Exhibit D. Shareholders should refer to the EIP for more complete and detailed information about the plan.
The EIP creates an annual cash incentive plan for the Company’s named executive officers.
Bonus awards under this program are payable in cash from a bonus pool based upon the operating earnings
of the Company. In an attempt to preserve, to the extent practicable, the Company’s ability to deduct
compensation payable under the EIP to covered employees (generally, the named executive officers in the
Proxy Statement), the Company is proposing that shareholders approve the material terms of the EIP.
Under Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m) of
the Code”) and related regulations, compensation in excess of $1,000,000 paid in any one year to a public
corporation’s covered employees who are employed by the corporation at year-end will not be deductible
for federal income tax purposes unless the compensation is considered “qualified performance-based
compensation” under Section 162(m) of the Code (or another exemption is met). In order to qualify as
performance-based compensation, among other requirements, Section 162(m) of the Code and related
regulations require that shareholders approve the material terms of the performance goals under which
compensation may be paid under a plan. The material terms subject to shareholder approval include: (i)
the employees eligible to receive compensation; (ii) a description of the business criteria upon which the
performance goal is based; and (iii) either the maximum dollar amount of compensation that may be paid to
an employee during a specified period, or the formula used to calculate the amount of compensation to be
paid, if the performance goal is met. These material terms are described below.
If the shareholders do not approve the material terms of the EIP, the Committee intends to revisit
our cash incentive structure for our named executive officers for 2009, although it is anticipated that any
such incentive program would continue to be performance-based and to emphasize at-risk compensation.
Purpose
The purpose of the EIP is to assist the Company in attracting, retaining, motivating and rewarding
employees who occupy key positions and contribute to the growth and profitability of the Company
through the award of cash incentives. The plan is also intended to enable the Committee to preserve the tax
deductibility of incentive awards under Section 162(m) of the Code to the extent practicable.
Eligibility
Participants in the EIP are the principal executive officer and other executive officers of the
Company as may be named by the Committee, subject to the provisions of Section 162(m) of the Code.
Participants are selected on an annual or other periodic basis as determined by the Committee. At this time,
approximately 5 employees (including the named executive officers) are eligible to participate in the EIP.
Non-employee service providers and non-employee directors are not eligible to participate.