Progress Energy 2009 Annual Report Download - page 164

PROXY STATEMENT
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Hewitt did not provide any services or products to the Company other than those provided to the Committee
and related to the Company’s executive compensation and benefits program. Meridian solely provides executive
compensation advisory services to the Committee and provides no other services to the Committee or the Company.
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 an annual performance evaluation 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.
When we set and benchmark compensation for our executives against a peer group, we focus on “target”
compensation. Target compensation is the value of a pay opportunity as of the beginning of the year. For short-
term incentives, this means the value of that incentive opportunity based on the target percentage of salary if our
performance objectives are achieved. For example, the Chief Executive Officer’s target incentive opportunity is 85%
of salary. This means if we reach our target financial objectives for the year, a target incentive award would likely
be paid. Correspondingly, if performance should fall short or rise above these goals then the earned incentive award
would typically be lesser or greater than target. In any event, target incentive opportunities are not a certainty but
are a function of business results. For the performance shares, the ultimate value of any earned award is entirely a
function of performance against the pre-established 3-year performance goals as well as the value of the underlying
stock price. Also, for the restricted shares the value of any earned award is a function of extended service and the
value of the underlying stock price. The target value is not a certainty but only the value of the opportunity.
What ultimately might be earned from either short- or long-term incentives is a function of performance
and extended service. We do not benchmark realized values from our programs. With respect to our variable pay
programs it is generally not the Company’s purpose to deliver comparable pay outcomes since outcomes can
differ by company based on their performance. Our general compensation objective is to deliver comparable pay
opportunities. Realized results will then be a significant function of performance and extended service. This is a
common convention among companies; nonetheless, it is an important context to consider when reviewing the
remainder of this CD&A where regular references to targets and/or grant date values for our compensation programs
appear.
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 the aspect of the value chain in which the company participates
(generation, transmission and/or delivery), and how much of its business is governed by rate-of-return regulation as
opposed to competitive markets.