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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ý | ||
Filed by a Party other than the Registrant o |
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Check the appropriate box: |
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
Hawaiian Electric Industries, Inc. |
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(Name of Registrant as Specified In Its Charter) |
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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Payment of Filing Fee (Check the appropriate box): | ||||
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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(1) | Title of each class of securities to which transaction applies: |
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(2) | Aggregate number of securities to which transaction applies: |
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(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
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(4) | Proposed maximum aggregate value of transaction: |
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(5) | Total fee paid: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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Amount Previously Paid: |
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(2) | Form, Schedule or Registration Statement No.: |
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(3) | Filing Party: |
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(4) | Date Filed: |
HAWAIIAN ELECTRIC INDUSTRIES, INC. PO BOX 730 HONOLULU, HI 96808-0730
Constance H. Lau
President and
Chief Executive Officer
March 18, 2009
Dear Fellow Shareholder:
On behalf of the Board of Directors, it is my pleasure to invite you to attend the Annual Meeting of Shareholders of Hawaiian Electric Industries, Inc. (HEI). The meeting will be held on HEI's premises in Room 805 on the eighth floor of the American Savings Bank Tower in Honolulu, Hawaii on May 5, 2009, at 9:30 a.m., local time. A map showing the location of the meeting site appears on page 72 of the Proxy Statement.
The accompanying Notice of Annual Meeting of Shareholders and Proxy Statement describe the items of business to be conducted during the meeting. In addition, we will review significant events of 2008 and their impact on you. HEI officers and Board members will be available before and after the meeting to talk with you and answer questions.
As a shareholder of HEI, it is important that your views be represented. Please help us obtain the quorum needed to conduct business at the meeting by promptly voting your shares.
The Board and management team of HEI would like to express their appreciation to you for your confidence and support. I look forward to seeing you at the Annual Meeting in Honolulu.
Sincerely,
Recycled |
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Hawaiian Electric Industries, Inc. 900 Richards Street Honolulu, Hawaii 96813 |
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Date and Time | Tuesday, May 5, 2009, at 9:30 a.m., local time. | |
Place |
American Savings Bank Tower, 1001 Bishop Street, 8th floor, Room 805, Honolulu, Hawaii 96813. |
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Items of Business |
1. Elect four Class I directors. |
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2. Ratify appointment of KPMG LLP, as HEI's independent registered public accounting firm. | ||
3. Amend and restate the HEI Restated Articles of Incorporation. | ||
Proxy Record Date |
February 25, 2009. |
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Annual Report |
The 2008 Annual Report to Shareholders (Appendix A) and Summary Report to Shareholders, which are not a part of the proxy solicitation materials, have been mailed or made available electronically along with this Notice and accompanying Proxy Statement. |
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Proxy Voting |
Shareholders of record may appoint proxies and vote their shares in one of four ways: |
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Via the Internet |
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By telephone |
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By mail |
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In person |
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Shareholders whose shares are held by a bank, broker, or other financial intermediary (street name) should follow the voting instruction card included by the intermediary. |
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Any proxy may be revoked in the manner described in the accompanying Proxy Statement. |
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Attendance at Meeting |
If your shares are registered in street name, please bring a letter from your bank or broker or provide other evidence of your beneficial ownership if you plan to attend the Annual Meeting. |
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Important Notice Regarding the Availability of Proxy Materials for the Shareholders Meeting to Be Held on May 5, 2009 |
The proxy statement, annual report, and summary report to shareholders are available at www.hei.com/proxymatl.html |
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By Order of the HEI Board of Directors. | |||
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March 18, 2009 |
Patricia U. Wong |
HEI is soliciting proxies for the Annual Meeting of Shareholders scheduled for May 5, 2009, at 9:30 a.m., local time, at the American Savings Bank Tower, 1001 Bishop Street, 8th floor, Room 805, Honolulu, Hawaii. The mailing address of the principal executive offices of HEI is P. O. Box 730, Honolulu, Hawaii 96808-0730.
The approximate mailing date for this Proxy Statement, form of proxy, and annual and summary reports to shareholders for the fiscal year ended December 31, 2008, is March 18, 2009. The annual report and summary report are not considered proxy soliciting materials.
Attendance will be limited to:
If you own shares of HEI Common Stock in the name of a bank, brokerage firm or other holder of record, you must show proof of ownership. This may be in the form of a letter from the holder of record or a recent statement from the bank or broker showing ownership of HEI Common Stock.
Any person claiming to be an authorized representative of a shareholder must produce written evidence of the authorization.
What are shareholders being asked to vote on?
Information about the Notice of Internet Availability of Proxy Materials
This year, instead of mailing a printed copy of our proxy materials to each shareholder of record, HEI has decided to provide access to these materials in a fast and efficient manner via the Internet to certain shareholders. In keeping with our efforts to conserve natural resources, this method of delivery will reduce the amount of paper necessary to produce these materials, as well as reduce the costs associated with the printing and mailing of these materials to shareholders. On March 18, 2009, a Notice of Internet Availability of Proxy Materials ("Notice") will be mailed to certain shareholders and our proxy materials posted on the website referenced in the Notice (www.ViewMaterial.com/HEI). As more fully described in the Notice, these shareholders may chose to access our proxy materials on the website referred to in the Notice or may request to receive a printed set of our proxy materials. In
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addition, the Notice and website will provide information regarding how you may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis.
Only shareholders of record at the close of business on February 25, 2009 (the proxy record date) are entitled to vote.
How many shares are outstanding and entitled to vote?
On February 25, 2009, 90,611,290 shares of HEI Common Stock were outstanding. Each shareholder is entitled to one vote for each share held. Under the Bylaws of HEI, shareholders do not have cumulative voting rights in the election of directors.
A quorum is needed to conduct business at the Annual Meeting. A majority of the shares entitled to vote at the meeting constitutes a quorum. Abstentions and broker nonvotes will be counted in the number of shares present, in person or by proxy, for purposes of determining a quorum. A broker nonvote occurs when a broker does not have discretionary voting power to vote on a specific matter (such as nonroutine proposals) and has not received voting instructions from the beneficial owner.
Whether or not you plan to attend the Annual Meeting, please take the time to vote. You may vote via the Internet, by touchtone telephone or by mail. The Internet and telephone procedures are designed to authenticate and confirm that your voting instructions are followed. If you vote via the Internet or by telephone, follow the instructions on the Notice or card you received by mail. Additionally, if you vote by telephone, you will receive recorded instructions, or if you vote via the Internet, you will receive additional instructions at the Internet website. You will need to have the control number on your Notice or proxy/voting instruction card, as applicable, available.
Shareholders who vote via the Internet or by telephone should not mail the proxy/voting instruction card.
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How do shareholders vote if their shares are held in street name?
If your shares are held in "street name" (that is, through a broker, trustee or other holder of record), you will receive a voting instruction card or other information from your broker seeking instruction as to how your shares should be voted. If no instructions are given, your broker or nominee may vote your shares at its discretion on your behalf on routine matters (such as the election of directors, the ratification of the independent registered public accounting firm, and the amending and restating of the Restated Articles of Incorporation) under New York Stock Exchange rules.
You may not vote shares held in "street name" at the Annual Meeting unless you obtain a legal proxy from your broker or holder of record.
How do shareholders vote if their shares are held in the Dividend Reinvestment and Stock Purchase Plan or the HEI Retirement Savings Plan?
If you own shares held in the Dividend Reinvestment and Stock Purchase Plan or the HEI Retirement Savings Plan (including shares previously received under the Tax Reduction Act Stock Ownership Plan), the respective plan trustees will vote the shares of stock held in these Plans according to your directions. For both Dividend Reinvestment and Stock Purchase Plan and HEI Retirement Savings Plan, the respective trustees will vote all the shares of HEI Common Stock for which they receive no voting instructions in the same proportion as they vote shares for which they receive instruction.
Can shareholders change their vote?
If you execute and return a proxy, you may revoke it at any time before the Annual Meeting in one of three ways:
If a quorum is present at the Annual Meeting, then:
Abstentions and broker nonvotes will count in establishing a quorum, but will not otherwise affect the outcome of the election of directors or the ratification of the appointment of HEI's independent registered public accounting firm. Abstentions and broker nonvotes, if any, will have the same effect as voting against the proposal to amend and restate the Restated Articles of Incorporation.
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Who will count the votes and are the votes confidential?
Corporate Election Services will act as tabulator for broker and bank proxies as well as the proxies of the other shareholders of record. Your identity and vote will not be disclosed to persons other than those acting as tabulators except as follows:
Could other matters be decided at the Annual Meeting?
HEI knows of no business to be presented at the 2009 Annual Meeting other than the items set forth in this proxy statement. If other business is properly brought before the Annual Meeting, or any adjournment thereof, the persons named on the enclosed proxy will vote your stock in accordance with their best judgment, unless authority to do so is withheld by you in your proxy.
What happens if the Annual Meeting is postponed or adjourned?
If the Annual Meeting is postponed or adjourned, your proxy will still be good and may be voted at the postponed or adjourned meeting. You will still be able to change or revoke your proxy until it is voted at the Annual Meeting.
1. Election of Class I Directors
The Board of Directors currently consists of 12 directors divided into three classes with staggered terms so that one class of directors must be elected at each Annual Meeting.
The four Class I nominees being proposed for election at this Annual Meeting are:
Each nominee is currently a member of the Board and has consented to serve for the new term expiring at the 2012 Annual Meeting. If a nominee is unable to stand for election, the proxy holders listed in the proxy may vote in their discretion for a suitable substitute.
YOUR BOARD RECOMMENDS THAT YOU VOTE FOR EACH OF THE NOMINEES FOR CLASS I DIRECTOR.
Detailed information on each Class I nominee and on the Class II and III directors is provided on pages 8-10.
2. Ratification of appointment of Independent Registered Public Accounting Firm
KPMG LLP, an independent registered public accounting firm, has been the auditor of HEI since 1981. The Audit Committee selected KPMG LLP as HEI's independent registered public accounting firm for 2009. The Board, upon the recommendation of its Audit Committee, recommends the ratification of KPMG LLP as the independent registered public accounting firm of HEI for fiscal year
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2009 and thereafter until its successor is appointed. Representatives of KPMG LLP will be present at the Annual Meeting and will be given the opportunity to make a statement and to respond to appropriate questions.
YOUR BOARD AND THE AUDIT COMMITTEE RECOMMEND THAT YOU VOTE FOR THE RATIFICATION OF KPMG LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR HEI.
3. Approval to amend and restate the HEI Restated Articles of Incorporation
The Board of Directors has approved, and recommends to shareholders that they approve, the Amended and Restated Articles of Incorporation of HEI in the form attached as Appendix B to this Proxy Statement. The summary set forth below of the amendments that will be effected by approval of this proposal is qualified by reference to the full text of the Amended and Restated Articles of Incorporation, which is incorporated herein by reference.
HEI last restated its Articles of Incorporation on December 16, 1987 (the "1987 Restated Articles"). Since that time, there have been three amendments to the 1987 Restated Articles recommended by the directors and approved by shareholders and one amendment to the 1987 Restated Articles that occurred by operation of law:
(a) amended the first paragraph of Article Fourth to increase the amount of HEI Common Stock from 100,000,000 shares to 200,000,000 shares and (b) replaced the provisions of Section (b) of Article Sixth with a new provision recognizing the responsibility of the audit committee for the appointment, removal, compensation and oversight of HEI's independent registered public accounting firm.
The proposed Amended and Restated Articles of Incorporation, if approved by shareholders, will:
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Change in Statutory Reference. As noted in the first bullet point above, the 1987 Restated Articles were amended in 1990 by the addition of a new Article Fourteenth, the first sentence of which provides:
The personal liability of directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under Hawaii law, including, without limitation, to the fullest extent permissible under Section 415-48.5 of the Hawaii Revised Statutes, as amended from time to time.
Since Article Thirteenth of the 1987 Restated Articles has been eliminated as unnecessary historical information, the provision added as Article Fourteenth in 1990 is numbered Article Thirteenth in the proposed Amended and Restated Articles of Incorporation. Article Thirteenth differs from former Article Fourteenth in the 1987 Restated Articles only in that the statutory reference in Article Thirteenth is changed from Section 415-48.5 of the Hawaii Revised Statutes to Section 414-222 of the Hawaii Revised Statutes. Section 415-48.5 was the provision of the Hawaii Business Corporation Act (Chapter 415 of the Hawaii Revised Statutes) in effect in 1990 that related to the ability of a corporation to eliminate or limit the liability of directors by a provision to that effect in its articles of incorporation, and Section 414-222 is the counterpart provision in the current Hawaii Business Corporation Act (Chapter 414 of the Hawaii Revised Statutes), which became effective in July of 2001.
Even without changing the statutory reference, Section 414-222 would determine the extent to which a director's liability has been eliminated by HEI, since Section 414-222 is the statutory provision that currently governs the extent to which a director's liability can be eliminated or limited under Hawaii law. Section 414-222 permits a corporation to eliminate the personal liability of a director in a provision such as Article Thirteenth except for (1) the amount of a financial benefit received by a director to which the director is not entitled, (2) an intentional infliction of harm on the corporation or its shareholders, (3) a violation of Section 414-223 (which relates to the liability of a director for an unlawful dividend or other distribution, such as an unlawful share repurchase) and (4) an intentional violation of criminal law.
Elimination of the Series A Junior Participating Preferred Stock. HEI and Continental Stock Transfer & Trust Company, as Rights Agent, entered into a Rights Agreement, dated October 28, 1997, which was subsequently amended on May 7, 2003 and October 26, 2004. At the time the Rights Agreement was entered into and in accordance with its provisions, the Board authorized a series of 500,000 shares of Preferred Stock designated as Series A Junior Participating Preferred Stock and filed the resolution establishing the terms of this series of preferred stock with the Hawaii Department of Commerce and Consumer Affairs. At its meeting on October 30, 2007, the Board unanimously voted to allow the Rights Agreement to expire in accordance with its terms on November 1, 2007 and the Rights Agreement and related rights created thereby have expired.
No shares of Series A Junior Participating Preferred Stock were ever issued pursuant to the Rights Agreement and, with expiration of the Rights Agreement, none are planned to be issued. Because the
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resolution establishing the terms of the Series A Junior Participating Preferred Stock is considered part of HEI's Articles of Incorporation, however, elimination of this series of preferred stock requires shareholder approval. By approving the proposed Amended and Restated Articles of Incorporation, which make no reference to the Series A Junior Participating Preferred Stock, shareholders will be approving the elimination of the Series A Junior Preferred Stock effective upon filing the Amended and Restated Articles of Incorporation with the Hawaii Department of Commerce and Consumer Affairs.
YOUR BOARD RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE AMENDED AND RESTATED ARTICLES OF INCORPORATION.
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Nominees for Class I directors whose terms expire at the 2012 Annual Meeting
Shirley J. Daniel, Ph.D., C.P.A. Age 55 Director Since 2002 Professor of Accountancy, Shidler College of Business, University of Hawaii-Manoa since 1986. Director of American Savings Bank, F.S.B., a subsidiary of HEI. |
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Constance H. Lau Age 56 Director 2001 to 2004 and since May 2006 President and Chief Executive Officer of Hawaiian Electric Industries, Inc. since May 2006. Chairman and Chief Executive Officer of American Savings Bank, F. S. B., a subsidiary of HEI, since February 2008. Chairman, President and Chief Executive Officer of American Savings Bank, F.S.B., from May 2006 to January 2008. President, Chief Executive Officer and director of American Savings Bank, F.S.B., from June 2001 to May 2006. Chairman of Hawaiian Electric Company, Inc., a subsidiary of HEI, since May 2006. Director of Hawaiian Electric Industries Charitable Foundation, Alexander & Baldwin, Inc., Hawaii Bankers Association, Associated Electric and Gas Insurance Services, Ltd., Consuelo Zobel Alger Foundation and Maunalani Foundation. Trustee, Punahou School. Member, Hawaii Business Roundtable. |
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A. Maurice Myers Age 68 Director Since 1991 Chairman, President and Chief Executive Officer of Waste Management, Inc. (environmental services), Houston, Texas from November 1999 to November 2004; now retired. Director of BIS Industries, Ltd. and member of the Oceanic Time Warner Cable advisory board. Chairman Emeritus, Keep America Beautiful. |
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James K. Scott, Ed.D. Age 57 Director Since 1995 President of Punahou School since 1994. Director of American Savings Bank, F.S.B., a subsidiary of HEI, and Hawaii Association of Independent Schools. Chairman, Secondary School Admission Test Board. Trustee, Blood Bank of Hawaii and Barstow Foundation. |
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Continuing Class II directors whose terms expire at the 2010 Annual Meeting
Thomas B. Fargo Age 60 Director Since 2005 President and Chief Executive Officer, Hawaii Superferry, Inc. since April 2008. President, Trex Enterprises Corporation from April 2005 to April 2008. Commander, U.S. Pacific Command from May 2002 to February 2005. Director of Hawaiian Electric Company, Inc., a subsidiary of HEI; United Services Automobile Association; Northrup Grumman Corporation; and Japan-America Society of Hawaii. Trustee, Hawaii Pacific University and Iolani School board of governors. National Vice Chair, Pearl Harbor Memorial Fund. |
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Diane J. Plotts Age 73 Director Since 1987 Business advisor since 2000. Director of American Savings Bank, F.S.B., a subsidiary of HEI. Trustee, Kamehameha Schools. |
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Kelvin H. Taketa Age 54 Director Since 1993 President and Chief Executive Officer of the Hawaii Community Foundation since 1998. Director of Hawaiian Electric Company, Inc., a subsidiary of HEI; Independent Sector; and Sunrise Capital, Inc., a private equity aquaculture development company. |
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Jeffrey N. Watanabe Age 66 Director Since 1987 Honorary Of Counsel in the law firm of Watanabe Ing LLP since July 2007. Senior partner, Watanabe Ing & Komeiji LLP from 1972 to June 2007. Chairman of Hawaiian Electric Industries, Inc. Director of Hawaiian Electric Company, Inc. and American Savings Bank, F.S.B., each a subsidiary of HEI; Hawaiian Electric Industries Charitable Foundation; Alexander & Baldwin, Inc.; Cellular Bioengineering, Inc.; First Insurance Company of Hawaii, Ltd.; Grace Pacific Corporation; Mid-Week Printing, Inc./Oahu Publications, Inc.; Tissue Genesis, Inc.; and Trex Enterprises Corporation. Trustee, Consuelo Zobel Alger Foundation, Punahou School, and Sesame Workshop. |
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Continuing Class III directors whose terms expire at the 2011 Annual Meeting
Don E. Carroll Age 67 Director Since 1996 Chairman of Oceanic Time Warner Cable Advisory Board from February 2001 to April 2005; now retired. Vice President of Time Warner Cable from 1985 to April 2005. Director of American Savings Bank, F.S.B., a subsidiary of HEI; Island Insurance Company; Pacific Guardian Life; and The 200 Club. Member of the advisory boards of Oceanic Time Warner Cable and Boy Scouts of America-Aloha Council. |
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Richard W. Gushman, II Age 63 Director Since 2007 President and Owner of DGM Group since 1988. Director of American Savings Bank, F.S.B., a subsidiary of HEI; Outrigger Enterprises; Servco Pacific Inc.; and James Campbell Corp., LLC. Managing Partner of Summit Financial Resources. Trustee of the Estate of James Campbell and Hawaii Community Foundation. Member of advisory boards of Boys and Girls Club of Hawaii and Department of Hawaiian Home Lands. |
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Victor H. Li, S.J.D. Age 67 Director Since 1988 Co-chairman, Asia Pacific Consulting Group since 1992. President, Li Xing School Foundation since 1989. Director of American Saving Bank, F.S.B., a subsidiary of HEI. Trustee, Pan Asian Repertory Theatre. |
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Barry K. Taniguchi Age 61 Director Since 2004 President and Chief Executive Officer of KTA Super Stores since 1989. Director of Hawaiian Electric Company, Inc. and American Savings Bank, F.S.B., each a subsidiary of HEI; Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited, each a subsidiary of Hawaiian Electric Company, Inc.; Hawaii Employers Mutual Insurance Corporation; and Hawaii Island Economic Development Board. Trustee, Hawaii Community Foundation, Public Schools of Hawaii Foundation, Tax Foundation of Hawaii, and Lyman House Memorial Museum. Chair, The Food Basket-Hawaii Island's Foodbank. Vice Chair, Hawaii Health System Corporation Corporate Board. |
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What are HEI's governance policies and guidelines?
In 2008, the Board and management continued to review and monitor corporate governance trends and best practices to comply with the corporate governance requirements of the New York Stock Exchange Listed Company Manual and Securities and Exchange Commission regulations. As part of an annual review, the HEI Corporate Governance Guidelines, Revised Code of Conduct (which includes the code of ethics for the HEI Chief Executive Officer, Financial Vice President and Controller), and charters for the Audit, Compensation, Executive, and Nominating and Corporate Governance Committees were reviewed and revised as deemed appropriate by the Board. Current copies of these documents may be found on HEI's website at www.hei.com and are available in print to any shareholder who requests them.
How does the Board select nominees for the Board?
The Nominating and Corporate Governance Committee considers candidates for Board membership suggested by its members and other Board members, as well as by management and shareholders. The Committee may retain a third-party search firm to help identify candidates from time to time.
Among the qualifications considered in the Nominating and Corporate Governance Committee's assessment of a proposed candidate are knowledge, experience, skills, expertise, diversity, personal and professional integrity, character, business judgment, time availability in light of other commitments, dedication, and absence of conflicts of interest. The Committee believes that the Board should reflect a diversity of experience, gender, ethnicity, and age. The Committee also considers other relevant factors as it deems appropriate including, but not limited to, current composition of the Board, balance of independent and non-independent directors, and need for financial expertise.
Once candidates are identified, the Nominating and Corporate Governance Committee may review publicly available information to assess whether the candidate should be considered further. If the Committee determines that the candidate warrants further consideration, the Chairman of the Committee or another member of the Committee will contact the person and, if the person indicates a willingness to be considered for service on the Board, the candidate will be asked to provide information such as accomplishments and qualifications and one or more interviews may be conducted. The Committee members may contact one or more references provided by the candidate or other members of the business community who may have first-hand knowledge of the candidate's qualifications and accomplishments. The evaluation process does not vary based on whether or not a candidate is recommended by a shareholder.
How can shareholders communicate with the directors?
Shareholders and all interested parties may contact (1) any member of the Board, including the nonemployee Chairman of the Board and any employee director or (2) the nonemployee directors as a group, by mail. To communicate with the Board, any individual director or any group of directors, correspondence should be addressed to the Board or any such individual or group by either name or title. All such correspondence should be sent in care of the Corporate Secretary, Hawaiian Electric Industries, Inc., P. O. Box 730, Honolulu, HI 96808-0730. The mail will be forwarded, unopened, to the named individual director or, in the case of a group, to the Chairman of the Board.
How does the Board evaluate itself?
The Board follows an annual process of evaluating the operations and effectiveness of the Board as a whole, as well as self-evaluations by individual directors up for election. In reviewing the Board as
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a whole, directors evaluate and comment on board structure, meetings, responsibilities, performance of directors and relationship between the Board and management. Directors who are nominees for reelection evaluate their own individual meeting preparation, participation in meetings, contributions to the group, knowledge of the issues and concerns of HEI and understanding of the role of the Board in the governance of HEI. The Board and self-evaluation forms are submitted to the Nominating and Corporate Governance Committee for its review, after which the Committee recommends to the Board any procedures and practices to be adopted to improve the operations of the Board. The Chairman of the Committee or the nonemployee Chairman of the Board may meet with individual directors to discuss their performance, as appropriate.
As required by the New York Stock Exchange corporate governance listing standards, the Audit, Compensation, and Nominating and Corporate Governance Committees developed a process for self-evaluation whereby committee members reviewed and evaluated their respective committee charters and committee meetings. The Audit Committee also reviewed and evaluated its duties and responsibilities, its relationships with management and the internal and external auditors and the qualifications of its members, including financial expertise.
Who are the independent directors of the Board?
For a director to be considered independent, the Board must affirmatively determine that the director does not have any direct or indirect material relationship with HEI or its consolidated subsidiaries, in compliance with the New York Stock Exchange corporate governance listing standards. The Board has established categorical standards to assist it in determining director independence. In applying these standards, which are set forth in Appendix C to this Proxy Statement and are also available on HEI's website at www.hei.com, the Board considers all relevant facts and circumstances in making a determination of independence.
In its annual reviews of director independence, the Board affirmatively determined that, with the exception of Constance H. Lau, HEI's President and Chief Executive Officer, who is the only employee director of HEI, each director, nominee for director, and each person who served as a director in 2008 has no direct or indirect material relationship with HEI or its consolidated subsidiaries and is independent. In making these determinations, the Board considered the relationships listed below:
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None of the relationships described above exceeded the applicable thresholds in HEI's categorical standards for director independence or were determined by the Board to be a direct or indirect material relationship that would impair a nonemployee director's independence.
What other Board practices does HEI have?
The nonemployee directors meet regularly in executive sessions without management present. In 2008, these sessions were chaired by Jeffrey N. Watanabe, who is the Chairman of the Board. Mr. Watanabe may request that other nonemployee directors chair the executive sessions.
Information related to issues to be considered at a Board or Committee meeting and other materials are distributed, to the extent practical, to the directors in advance of the meeting to allow for review prior to the meeting.
How often did the Board of Directors meet in 2008?
In 2008, there were seventeen regular and two special meetings of the Board of Directors. All directors attended at least 75% of the combined total meetings of the Board and Board committees on which they served (during the periods they served).
Did all directors attend last year's Annual Meeting?
All members of the Board of Directors attended the 2008 Annual Meeting of Shareholders. HEI encourages the directors to attend each year's Annual Meeting of Shareholders.
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What committees has the Board established and how often did they meet?
The Board of Directors has four standing committees: Audit, Compensation, Executive, and Nominating and Corporate Governance. Members of these committees are generally appointed annually by the Board taking into consideration the recommendation of the Nominating and Corporate Governance Committee. The names of the current committee members are shown on the table below. In addition, the table below also shows the number of meetings of each committee held in 2008.
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Name |
Audit |
Compensation |
Executive |
Nominating and Corporate Governance |
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Don E. Carroll |
X | ||||||||
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Shirley J. Daniel |
X | ||||||||
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Thomas B. Fargo (1) |
X | X | (4) | ||||||
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Richard W. Gushman, II |
X | ||||||||
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Constance H. Lau (2) |
X | ||||||||
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Victor H. Li |
X | ||||||||
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Bill D. Mills (3) |
X | ||||||||
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A. Maurice Myers |
X | ||||||||
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Diane J. Plotts |
X | (4) | X | X | |||||
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James K. Scott |
X | X | |||||||
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Kelvin H. Taketa |
X | (4) | |||||||
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Barry K. Taniguchi |
X | ||||||||
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Jeffrey N. Watanabe |
X | (4) | |||||||
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Number of Meetings in 2008 |
4 | 8 | 0 | 6 | |||||
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What are the primary functions of each of the four committees?
Audit Committee
The Audit Committee operates and acts under a written charter, which was adopted and approved by the Board and may be found on HEI's website at www.hei.com and is available in print to any shareholder who requests it. The Committee provides independent and objective oversight of HEI's (1) financial reporting processes, (2) appointment, compensation and oversight of the independent registered public accounting firm performing audits of HEI's financial statements, (3) internal controls, (4) risk assessment and risk management policies set by management and (5) oversight of related
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person transactions of officers. The Committee also reviews and approves or disapproves related person transactions for officers and reviews and resolves complaints from any employee regarding accounting, internal controls or auditing matters. All members of the Committee are independent directors as independence for audit committee members is defined in the listing standards of the New York Stock Exchange. Admiral Fargo, a member of the committee, is also a member of the audit committee of Northrop Grumman Corporation, a publicly traded company. See pages 68-69 for the Audit Committee Report.
Compensation Committee
The Compensation Committee operates and acts under a written charter, which was adopted and approved by the Board and may be found on HEI's website at www.hei.com and is available in print to any shareholder who requests it. The Committee oversees HEI's employee and director compensation and employee benefit plans and practices, including its executive compensation plans and its incentive compensation and equity-based plans. See "Compensation Discussion and AnalysisCompensation Process," pages 19-20, for additional discussion of the role of the Compensation Committee, including the scope of the authority, the extent to which it may delegate authority and any role of the compensation consultant or executive officers in the compensation process.
The Compensation Committee consists of three or more directors as determined from time to time by the Board. Each member of the Committee is qualified to serve on the Committee pursuant to the requirements of the New York Stock Exchange. At least a majority of the members of the Committee qualifies as "nonemployee directors" within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended, and "outside directors" within the meaning of Section 162(m) of the Internal Revenue Code. The Committee may form subcommittees of its members and delegate its authority to the subcommittee. The Nonemployee Director Subcommittee of the Compensation Committee has the authority to make equity grants on behalf of the Committee.
See Compensation Committee Interlocks and Insider Participation on page 67.
Executive Committee
The Executive Committee operates and acts under a written charter, which was adopted and approved by the Board and may be found on HEI's website at www.hei.com and is available in print to any shareholder who requests it. The Committee is authorized to act on matters brought before it when a meeting of the full Board is impractical. It may also consider any other matter concerning HEI that may arise from time to time. The Committee is currently comprised of the Chairman of the Board, the HEI President and Chief Executive Officer and one additional independent director.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee operates and acts under a written charter, which was adopted and approved by the Board and may be found on HEI's website at www.hei.com and is available in print to any shareholder who requests it. All members of the Committee are independent directors as defined in the listing standards of the New York Stock Exchange. Its functions include (1) reviewing the background and qualifications of potential nominees for the board of directors of HEI and its subsidiary companies presented by shareholders, directors and management, (2) recommending to the Board the slate of nominees to be submitted to shareholders for election at the next Annual Meeting, (3) advising the Board with respect to matters of Board composition and procedures, (4) overseeing the annual evaluation of the Board, (5) reviewing nonemployee director related person transactions and (6) overseeing corporate governance matters generally.
See the section on Corporate Governance on pages 11-12 for a discussion concerning the involvement of this Committee on matters relating to corporate governance.
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The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis that follows. Based on that review and discussion, the Compensation Committee recommended, and the Board concurred, that the Compensation Discussion and Analysis be included in this proxy statement.
SUBMITTED
BY THE COMPENSATION COMMITTEE OF
THE HEI BOARD OF DIRECTORS
Thomas B. Fargo, Chairman
Don E. Carroll
Victor H. Li
A. Maurice Myers
Diane J. Plotts
Compensation Discussion and Analysis
Who were the named executive officers for HEI in 2008?
For 2008, the named executive officers of HEI were:
In 2006 and 2007, HEI, Hawaiian Electric Company and American Savings Bank did not meet their respective minimum financial thresholds and no annual executive incentive bonuses were paid to executives at HEI, Hawaiian Electric Company or American Savings Bank. For the past three
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long-term performance periods (2003 - 2005, 2004 - 2006, and 2005 - 2007), no HEI (holding company) long-term incentive goals were achieved and no HEI long-term incentive awards were paid to HEI executives (although Ms. Lau did receive long-term incentive awards for subsidiary bank goals that were set when she was American Savings Bank President and Chief Executive Officer).
In 2008, HEI successfully achieved its annual and long-term incentive goals. HEI's stock price and total returns outperformed many of its utility peers. The utility regained financial strength primarily due to interim rate relief for Hawaiian Electric Company in the last quarter of 2007. On October 20, 2008, Hawaiian Electric Company and the State of Hawaii announced an ambitious agreement to speed up the State's move toward renewable energy, positioning Hawaii at the forefront of clean energy leadership and providing the potential to change the utility's business model. In June 2008, American Savings Bank substantially completed the restructuring of its balance sheet through the sale of approximately $1.3 billion of mortgage-related securities and the early extinguishment of $1.2 billion of certain borrowings to strengthen future profitability ratios of net interest margin and return on assets, while remaining "well-capitalized" and without significantly impacting future net income and interest rate risk. The restructuring allowed the bank to pay a dividend to HEI of $54.7 million on September 9, 2008 to fund HEI's third quarter common dividend and reduce HEI's commercial paper levels. Excluding the one-time charge related to the balance sheet restructuring, bank earnings improved, benefitting from a steeper yield curve, good credit quality and lower expenses resulting from performance improvement initiatives. Based on these results, the Compensation Committee decided to award incentives to each of the named executive officers as detailed below.
Summary of Significant Changes
The Compensation Committee has the responsibility for recommending the total compensation program for HEI and its subsidiaries, subject to the approval of the Board. In 2008, the Compensation Committee held eight meetings to approve the overall executive compensation program design. The Committee held lengthy discussions, with and without management present, regarding best pay practices and trends. The Compensation Committee substantially revamped HEI's executive compensation programs to comply with new regulations, to establish leading best practices, and to align executive compensation more directly with shareholder interests. The primary purpose of the changes was to make HEI's executive compensation more performance based.
The following are some of the major revisions made to the executive compensation programs in 2008:
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supplemental pension benefit, the pension Ms. Lau will earn under the HEI Excess Pay Plan is more in line with what other employees and executives receive upon retirement and thus provides for a more equitable compensation program.
The following are some of the major revisions that will be made to the executive programs in 2009:
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The Compensation Committee has the responsibility for recommending the total compensation program for HEI and its subsidiaries, subject to the approval of the Board. The Committee has authority to retain or terminate the services of consultants and advisors to provide advice to the Committee. The Committee approves, modifies or rejects its consultants', advisors' or management's recommendations regarding executive compensation programs, including incentive compensation and equity-based plans. The Committee may delegate authority to a subcommittee of no fewer than two members of the Committee to determine matters such as equity compensation. The Board approves the actions of the Committee, and where the executive works at a subsidiary of HEI, the actions of the Committee are also approved by the subsidiary board.
The Board conducts an evaluation of the performance of the President and Chief Executive Officer, including her performance, in light of corporate goals and objectives relevant to her compensation. The Compensation Committee, with the assistance of its independent compensation consultant, recommends an executive compensation package for the President and Chief Executive Officer based on the Board's evaluation. The independent directors of the Board approve the compensation of the President and Chief Executive Officer.
The Compensation Committee reserves the right to amend, suspend or terminate incentive programs or any other executive compensation program. The Committee can exercise its discretion to reduce or (except to the extent an award or payout is intended to satisfy the requirements of Section 162(m) of the Internal Revenue Code) increase the size of any award or payout.
In making its compensation determinations, the Compensation Committee will consider financial accounting consequences if appropriate. For instance, the Committee may determine that there should not be any incentive payout that would otherwise result solely from a new way of accounting for a financial measure. The Committee will also consider tax consequences if appropriate. For instance, the Committee will take into account tax deductibility in establishing executive compensation, but it reserves the right to award compensation even when not deductible, if it is reasonable and appropriate.
In 2007, the Compensation Committee approved, and the Board ratified, an executive compensation recovery policy for the recoupment of performance-based awards paid to executives who are found to be personally responsible for fraud, gross negligence, or intentional misconduct that causes
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HEI or any of its operating subsidiaries to restate all or a portion of its financial statements. The amount to be recovered from the executive will be the amount by which the performance-based award exceeded the amount that would have been payable to the executive had the financial statements been initially filed as restated, or any other amount (including, but not limited to, the entire award) that the Committee shall determine, but in no event will the amount to be recovered by HEI be less than the amount required to be repaid or recovered as a matter of law. The Committee has the discretion to determine whether HEI shall effect any such recovery (i) by seeking repayment from the executive, (ii) by reducing any other amount payable under any compensatory plan or program maintained by HEI, (iii) by withholding payment of future increases in compensation (including the payment of any discretionary bonus amount) or grants of compensatory awards, or (iv) by any combination of the foregoing. In addition, HEI may dismiss an executive found to be personally responsible for the fraud, gross negligence, or intentional misconduct or take such other action to enforce the executive's obligations to HEI as it may deem appropriate based on the particular circumstances of the situation.
The Compensation Committee's independent compensation consultant is Towers Perrin. The Committee engages Towers Perrin to provide the Committee with advice and data with respect to compensation benchmarking and market practices. Towers Perrin works with the Compensation Committee Chairman and Committee members in recommending executive compensation initiatives and proposed changes.
In 2008, the Compensation Committee engaged Towers Perrin to provide a comprehensive review of HEI's compensation and benefit policies and practices for executives. This review included HEI's peer group, compensation philosophy, compensation levels, incentive and stock plan design, and other compensation components. The Committee authorized these projects to ensure that all of HEI's compensation and benefit programs align with its strategies, to enhance linkage of rewards to results that support shareholder value, to ensure fairness in the administration of plans, to simplify programs to drive greater understanding, to maintain the competitiveness of the program, and to manage costs within HEI's financial resources.
Towers Perrin does not provide any other services to HEI and its subsidiaries other than the compensation services described above. Actuarial services to HEI, American Savings Bank, and Hawaiian Electric Company are provided by Watson Wyatt Worldwide.
With the permission of the Compensation Committee, in 2008, the HEI President and Chief Executive Officer, the HEI Senior Vice President-General Counsel and Chief Administrative Officer, the American Savings Bank President and other executives discussed with, and provided perspectives to, Towers Perrin regarding HEI's compensation philosophy and the methodology and metrics for computing executive incentives. Human resources and finance and other personnel provided data in response to the Compensation Committee's and Towers Perrin's requests.
Although the HEI President and Chief Executive Officer is a director on the HEI Board, she did not participate in any Board decisions impacting her own compensation. In April 2008, Ms. Lau recommended to the Compensation Committee base salary increases for her direct reports: Mr. May, Mr. Harada, and Mr. Richardson.
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The following are the primary objectives of HEI's compensation programs:
To meet the compensation objectives described above, the compensation for named executive officers includes the following elements:
Why does HEI choose to pay each element?
HEI supplies power to 95% of Hawaii's population through its electric utilities, Hawaiian Electric Company and its subsidiaries, Hawaii Electric Light Company, Inc. and Maui Electric Company,
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Limited, and provides a wide range of financial services to individuals and businesses through American Savings Bank, one of the state's largest financial institutions based on asset size. Among the objectives of the HEI compensation program are to provide differentiated reward strategies among HEI and its operating bank and utility subsidiaries to align with specific business needs and talent markets and to reward performance relative to strategic plans that support shareholder value.
With the assistance of its compensation consultant, the Compensation Committee targets total compensation and each component at the median of relevant peers. The actual awards are differentiated based upon the performance of HEI and its operating subsidiaries and the individual's contribution. At more senior levels in the organization, a greater emphasis is placed upon the performance-based incentives and the actual compensation received under these plans is determined by the results of HEI and the operating subsidiaries and increases in shareholder value. Above median incentives may be given to individual executives for superior performance.
Peer companies are comprised of companies that, in aggregate, are similar in business focus, financial scope and valuation, are product and service competitors, provide sources for talent, and are similar with respect to cost-of-labor and cost-of-living. The peers also include companies that compete for talent in the same geographic area. The resulting peer companies are used as a reference in determining appropriate pay levels and mix of pay components.
Because HEI is a Hawaii-based holding company with a unique blend of two regulated operating subsidiaries, a bank and electric utilities, the peer groups for holding company and operating unit executives differ. Towers Perrin conducted its 2008 peer selection by considering companies within a range of one-half to two times the size, based on assets, of HEI, American Savings Bank or Hawaiian Electric Company, eliminating companies that had three-year total shareholder returns that were significantly negative.
To screen peer companies for American Savings Bank executives, Towers Perrin reviewed commercial banks, thrifts and mortgage finance companies with $2.7 to $10.8 billion in assets, 665 to 2,600 employees, and a return on assets greater than 1.0%. To screen peer companies for Hawaiian Electric Company executives, Towers Perrin reviewed electric utilities and multi-utilities with $1.0 to $4.2 billion in revenues, 1,070 to 4,300 employees, and a return on average common equity greater than 5%. To screen peer companies for HEI executives, Towers Perrin reviewed electric utilities, multi-utilities, commercial banks, thrifts and mortgage finance companies with $1.25 to $5 billion in revenues, 1,700 to 7,040 employees, and a market cap of $1.0 to $4.2 billion. Not all peers met all of the criteria.
22
The following are the American Saving Bank peer group companies:
Financial Services/Banking Peers | ||
---|---|---|
Bank of Hawaii Corp. Central Pacific Financial Corp. Citizens Republic Bancorp, Inc. City National Bank Corp. CVB Financial Corp. First Financial Bankshares, Inc. F.N.B. Corp. Frontier Financial Corp. Glacier Bancorp, Inc. NBT Bancorp, Inc. |
Old National Bancorp Pacific Capital Bancorp Park National Corp. Prosperity Bancshares, Inc. Sterling Bancshares, Inc. SVB Financial Group Trustmark Corp. Umpqua Holdings Corp. Washington Federal, Inc. Westamerica Bancorporation |
The following are the Hawaiian Electric Company peer group companies:
Utility Peers* | ||
---|---|---|
Allegheny Energy Inc.** Alliant Energy Corp. Ameren Corp.** Aquila Inc. Avista Corp. Entergy Corp.** Great Plains Energy, Inc. Mirant Corp. Northeast Utilities NSTAR OGE Energy Corp. Pinnacle West Capital Corp. PNM Resources, Inc. |
Portland General Electric Co. PPL Corp.** Puget Energy, Inc. Questar Corp. San Diego Gas & Electric Co. Sierra Pacific Resources TECO Energy, Inc. UIL Holdings Corp. UniSource Energy Corp. Vectren Corp. Westar Energy, Inc. Wisconsin Energy Corp. |
The following are the HEI peer group companies:
Financial Services/Banking Peers | Utility Peers* | |
---|---|---|
Bank of Hawaii Corp. Central Pacific Financial Corp. Citizens Republic Bancorp, Inc. City National Bank Corp. CVB Financial Corp. F.N.B. Corp. Old National Bancorp Pacific Capital Bancorp Park National Corp. Prosperity Bancshares, Inc. SVB Financial Group Trustmark Corp. Umpqua Holdings Corp. Washington Federal, Inc. |
Allegheny Energy, Inc. Alliant Energy Corp. Ameren Corp. Entergy Corp. Great Plains Energy, Inc. Mirant Corp. Northeast Utilities NSTAR OGE Energy Corp. Pinnacle West Capital Corp. PNM Resources, Inc. Portland General Electric Co. PPL Corp. Puget Energy Inc. Questar Corp. Sempra Energy Sierra Pacific Resources TECO Energy, Inc. Vectren Corp. Wisconsin Energy Corp. |
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With the assistance of its compensation consultant, the Compensation Committee reviews each compensation element. The Committee uses this information to consider whether any element should be reduced or increased or whether the mix of elements should be changed.
The Compensation Committee also reviewed internal equity amongst the top executives when developing pay recommendations. The Committee believes that the comparative compensation among the named executive officers is fair, considering job scope, experience, value to the organization, and duties relative to the other named executive officers: Constance H. Lau holds multiple positions, as (i) President and Chief Executive Officer of HEI, (ii) Chairman of the Boards of Hawaiian Electric Company and American Savings Bank, and (iii) Chief Executive Officer of American Savings Bank. Her compensation reflects her leadership of a publicly traded mid-cap holding company and her responsibilities for guiding two diverse and regulated operating subsidiaries. Curtis Y. Harada, the HEI Vice President, Controller, and Chief Accounting Officer, was the certifying officer responsible for overseeing the financial performance of the holding company for eleven months of 2008. Chester A. Richardson is HEI Senior Vice President-General Counsel and Chief Administrative Officer and his compensation is commensurate with that role. The compensation of T. Michael May, former President and Chief Executive Officer of Hawaiian Electric Company who retired on December 31, 2008, and Timothy K. Schools, President of American Savings Bank, reflects their roles as heads of HEI's major operating subsidiaries.
In April 2008, the Board evaluated Ms. Lau's performance for the prior year and the Compensation Committee recommended to the Board a salary increase taking into consideration the Board's evaluation. Also, in April 2008, Ms. Lau recommended to the Compensation Committee base salary increases for Mr. May, Mr. Harada, and Mr. Richardson. After considering these recommendations, the following salary increases for the named executive officers, effective May 1, 2008, were approved by the Board:
Name
|
% Base Salary Increase |
$ Base Salary Increase |
Base Salary, Effective May 1, 2008 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau (1) |
3.5 | % | $ | 25,800 | $ | 771,800 | ||||
Eric K. Yeaman (2) |
|
|
414,000 430,000 |
(HEI) (HECO) |
||||||
Curtis Y. Harada (3) |
3.2 |
% |
6,600 |
215,600 |
||||||
Chester A. Richardson (4) |
3.7 | % | 11,400 | 321,400 | ||||||
T. Michael May (5) |
3.0 | % | 17,900 | 615,900 | ||||||
Timothy K. Schools (6) |
| | 550,000 |
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Base salaries for the named executive officers, excluding salary adjustments for executives who assume additional responsibilities as has Mr. Richardson, will be frozen in 2009. The salary structure (cost of living adjustments to the executive salary grades) will also be frozen in 2009.
25
HEI's annual incentive plan is otherwise known as the Executive Incentive Compensation Plan (EICP). The following were the award ranges, shown as a percentage of the salary midpoint (the middle salary level in a salary range for a particular job grade or position), that the Compensation Committee approved for the 2008 annual incentive plan:
Name
|
Minimum | Target | Maximum | 2008 salary midpoint |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau |
42.5 | % | 85 | % | 170 | % | $ | 776,000 | |||||
Eric K. Yeaman (1) |
25.0 |
% |
50 |
% |
100 |
% |
405,000 441,000 |
(HEI) (HECO) |
|||||
Curtis Y. Harada |
20.0 |
% |
40 |
% |
80 |
% |
213,000 |
||||||
Chester A. Richardson |
22.5 | % | 45 | % | 90 | % | 334,000 | ||||||
T. Michael May |
30.0 | % | 60 | % | 120 | % | 581,000 | ||||||
Timothy K. Schools (2) |
30.0 |
% |
60 |
% |
120 |
% |
468,000 532,000 |
(COO) (President) |
In March 2008, the Compensation Committee set the following minimum financial thresholds that had to be met in order for the 2008 annual incentive awards to be paid:
* Unless otherwise specified throughout this proxy statement, a reference to utility goals means utility consolidated goals, which include Hawaiian Electric Company and its subsidiaries Maui Electric Company, Limited and Hawaii Electric Light Company, Inc.
In setting these award levels, the Compensation Committee recognized that adjustments would be appropriate in measuring whether these thresholds, as well as specific individual thresholds set for the named executive officers and others, had been met in the event that American Savings Bank implemented the restructuring of its balance sheet that was then under consideration. The restructuring, while beneficial to both the bank and HEI, was expected to entail an adverse impact on 2008 earnings, significantly downsize the assets of the bank, and also reduce the bank's equity, making possible a return of capital to HEI.
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At its meeting on February 20, 2009, the Compensation Committee considered the effects of American Savings Bank's balance sheet restructuring, which was substantially completed in June of 2008, in its determination of annual incentive awards for 2008 performance. The restructuring was successful in that it allowed the bank to reduce the size of its balance sheet by approximately $1.1 billion, while enabling it to maintain its earnings power on a lower capital base. This allowed American Savings Bank to return $54.7 million of capital to HEI, which was used in part to pay down HEI's short-term borrowings. However, to achieve these benefits, American Savings Bank recognized an after-tax loss of $11.6 million on the sale of $1.3 billion of mortgage related securities and incurred an after-tax loss of $24 million on the early repayment of $1.2 billion of interest bearing liabilities, for a total charge of $35.6 million after-tax to 2008 earnings at American Savings Bank and HEI.
The Compensation Committee determined, consistent with its March 2008 determination, that the $35.6 million charge to earnings resulting from the balance sheet restructuring should be excluded to arrive at adjusted earnings for 2008 to be used in determining whether the overall and individual thresholds had been met for 2008. Excluding this charge, HEI's adjusted earnings for 2008 were $125.9 million and ASB's adjusted earnings were $53.4 million. Using these adjusted net income figures for purposes of determining whether thresholds were met, HEI's adjusted earnings per share were $1.49 and American Savings Bank's return on assets (one of the individual metrics described below) was 0.875%. These results exceeded the corresponding general and individual HEI and American Savings Bank thresholds, as shown in the table below.
In addition to the minimum thresholds on the respective company annual incentive programs, the Compensation Committee established minimum thresholds for each of the financial and other operational goals designed to align management decisions with shareholder value. The following table lists the named executive officer performance metrics, weightings, minimum thresholds, target goals, actual/adjusted results achieved, and payouts for the 2008 annual incentive compensation plan:
Name
|
Weight | Performance Metric |
Minimum Threshold (1) |
Target Goal |
Actual/Adjusted Results |
Award | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 40 | % | HEI Earnings Per Share | $1.26 per share | $1.47 per share | $1.49 per share (2) | $ 290,224 | ||||||
30 | % | Utility Free Cash Flow | ($88.0 million) | ($77.7 million) | ($17.1 million) | 395,760 | |||||||
30 | % | Bank Return on Assets | | 0.693% | 0.875% (2) | 395,760 | |||||||
100 | % | $1,081,744 | |||||||||||
Eric K. Yeaman |
35 |
% |
Utility Net Income |
$90.2 million |
$100.2 million |
|
|||||||
35 | % | Utility Free Cash Flow | ($88.0 million) | ($77.7 million) | | ||||||||
10 | % | Preferred Energy Future | Meet project minimum schedule and minimum threshold | Meet project schedule Not to exceed budget |
| ||||||||
10 | % | Expand Renewable Generation | Meet project minimum schedule and minimum threshold | Meet project schedule Not to exceed budget |
| ||||||||
10 | % | Execute Regulatory Strategy | Implement by August 2008 | Implement by July 2008 |
| ||||||||
100 | % | | |||||||||||
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Name
|
Weight | Performance Metric |
Minimum Threshold (1) |
Target Goal |
Actual/Adjusted Results |
Award | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Curtis Y. Harada |
40 |
% |
HEI Earnings Per Share |
$1.26 per share |
$1.47 per share |
$1.49 per share (2) |
$ 37,488 |
||||||
30 | % | Utility Free Cash Flow | ($88.0 million) | ($77.7 million) | ($17.1 million) | 51,120 | |||||||
30 | % | Bank Return on Assets | | 0.693% | 0.875% (2) | 51,120 | |||||||
100 | % | $ 139,728 | |||||||||||
Chester A. Richardson |
40 |
% |
HEI Earnings Per Share |
$1.26 per share |
$1.47 per share |
$1.49 per share (2) |
$ 66,132 |
||||||
30 | % | Utility Free Cash Flow | ($88.0 million) | ($77.7 million) | ($17.1 million) | 90,180 | |||||||
30 | % | Bank Return on Assets | | 0.693% | 0.875% (2) | 90,180 | |||||||
100 | % | $ 246,492 | |||||||||||
T. Michael May |
35 |
% |
Utility Net Income |
$90.2 million |
$100.2 million |
$92.0 million |
$ 71,833 |
||||||
35 | % | Utility Free Cash Flow | ($88.0 million) | ($77.7 million) | ($17.1 million) | 244,020 | |||||||
10 | % | Preferred Energy Future | Meet project minimum schedule and minimum threshold | Meet project schedule Not to exceed budget |
Not met | 0 | |||||||
10 | % | Expand Renewable Generation | Meet project minimum schedule and minimum threshold | Meet project schedule Not to exceed budget |
Achieved at target | 34,860 | |||||||
10 | % | Execute Regulatory Strategy | Implement by August 2008 | Implement by July 2008 |
Achieved at target | 34,860 | |||||||
100 | % | $385,573 | |||||||||||
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Name
|
Weight | Performance Metric |
Minimum Threshold (1) |
Target Goal |
Actual/Adjusted Results |
Award | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Timothy K. Schools |
35 |
% |
Bank Net Income |
|
$48.1 million |
$53.4 million (2) |
$221,340 |
||||||
35 | % | Bank Return on Assets | | 0.693% | 0.875% (2) | 221,340 | |||||||
10 | % | Achieve regulatory compliance | | Meet or exceed standards of well-managed peers | Achieved Maximum results | 63,240 | |||||||
7.5 | % | Consumer Average Loan Balance (including home equity loans and excluding education loans growth) | $11.5 million | $12.8 million | $36.9 million | 47,430 | |||||||
7.5 | % | Business banking average loan balance growth | $2.9 million | $3.2 million | $5.8 million | 47,430 | |||||||
5 | % | Successfully improve Consumer/Business Banking Processing turn time | Meet minimum goal | Meet assigned goal | Achieved Maximum results | 31,620 | |||||||
100 | % | $632,400 | |||||||||||
The above goals were set by the Compensation Committee and approved by the Board in 2008 because they were believed to provide the necessary incentives to align executive compensation with shareholder value. Each target goal was based on the budget. The minimum performance reflected what the Compensation Committee believed to be investors' minimum expectations relative to other investment opportunities and the maximum goal provided greater upside potential for out-performance stretch goals. Each goal was aligned with HEI's or the operating company's strategic plan and determined by the Compensation Committee to be sufficiently difficult to be worthy of a bonus.
The HEI executives had the heaviest weighting on earnings per share, which is a general measure of public company performance. The other two measures for HEI executives, utility free cash flow and bank return on assets, are operating measures of subsidiary financial success, which drives HEI performance. Excluding the impact of the bank's previously-disclosed balance sheet restructuring charge of $35.6 million or 42 cents per share, adjusted 2008 earnings at HEI were $125.9 million or $1.49 earnings per share, which was above the target goal. HEI's focus on improved operating performance and financial flexibility helped HEI to continue to post improved results in a year of unprecedented corporate failures, depressed economic conditions, frozen credit markets and a volatile equity market. HEI initiated strategic initiatives during 2008 at both its operating businesses and realized the benefits from those initiatives. Hawaiian Electric Company achieved a negative $17.1 million in utility free cash flow, which was above the maximum goal. The utility free cash flow for 2008 was due to higher net cash from operating activities resulting from lower than budgeted fuel oil costs, as well as scheduling of major capital projects. American Savings Bank also achieved a return on assets of 0.875%, excluding the restructuring charge to net income, which was above the maximum goal. American Savings Bank's
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balance sheet restructuring reduced the size of the bank's balance sheet by approximately $1.1 billion, while enabling the bank to maintain its earnings power on a lower capital base. The bank was able to maintain its core earnings in the face of a very challenging economic environment. The balance sheet restructuring positioned the bank to deal with the challenges ahead by improving its profitability measures, capital position and liquidity, while enabling the bank to dividend excess capital to HEI. In addition, the bank's efforts on improving efficiency helped buffer financial performance from deteriorating market conditions. Consequently, at its meeting on February 20, 2009, the Compensation Committee awarded Ms. Lau $1,081,744, Mr. Harada $139,728, and Mr. Richardson $246,492 in annual incentives.
Mr. May's goals were focused on the utility. The two heaviest weightings for Mr. May's annual bonus were on utility net income and free cash flow, which were the key drivers of the utility's financial success in 2008; his other goals, based on facilitation of a preferred energy future to expand renewable generation and the execution of a regulatory strategy, were to reward successful execution of operational strategies. The preferred energy future goal involved Hawaiian Electric Company's progress on renewable fuels, such as biodiesel. In order for this goal to be achieved at the target level, Hawaiian Electric Company was required to successfully reach project milestones and submit all required filings with the Hawaii Public Utilities Commission for these activities. The expand renewable generation goal included activities to develop a comprehensive plan and assess strategies that would increase the utility's resources of renewable energy. In order for this goal to be achieved at the target level, Hawaiian Electric Company was required to issue a 100 megawatt renewable energy request for proposal, complete a wind integration study, and perform an assessment of wind integration mitigation strategies. The regulatory strategy execution goal involved the timely execution of Hawaiian Electric Company's rate case filing with the Hawaii Public Utilities Commission to support the financial health of the utility as it makes critical investments in infrastructure to support reliable service for customers and prepares for increased renewable energy production. Because the utility met its goals for net income and free cash flow, its expand renewable generation goal and its regulatory strategy goal, the Compensation Committee at its meeting on February 20, 2009, awarded Mr. May $385,573 in annual incentives.
The Compensation Committee approved the terms of a letter agreement entered into on June 13, 2008, in which Hawaiian Electric Company agreed that if the incentive award for 2008 performance under the annual incentive compensation plan was less than the amount Mr. May would receive if his 2008 goals were achieved at his target levels, then Hawaiian Electric Company would make up that shortfall with an additional payment to Mr. May, in consideration of Mr. May's many years of service with the utility. Because Mr. May's actual annual incentive bonus for 2008 of $385,573 was greater than his potential target bonus of $348,600, no additional discretionary bonus was required to be paid by Hawaiian Electric Company to Mr. May.
Mr. Schools' goals were focused on American Savings Bank. The two heaviest weightings for Mr. Schools' annual incentive were on bank net income and return on assets, which were the key drivers of the bank's financial success in 2008; his other goals were based on bank operational strategies to strengthen regulatory compliance, improve consumer average loan balances, encourage business banking average loan balance growth and successfully improve consumer/business banking turnover time. American Savings Bank had at or above maximum performance for each of Mr. Schools' goals in 2008. Consequently, at its meeting on February 20, 2009, the Compensation Committee awarded Mr. Schools $632,400 in annual incentives.
The 2008 grants of annual incentive awards specific to the named executive officers are summarized in the 2008 Grants of Plan-Based Awards and related notes on page 47.
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The Compensation Committee substantially revamped HEI's 2009 annual executive incentive compensation plan as a result of Towers Perrin's executive compensation review of practices at peer companies and to provide a competitive program that aligns with current company strategies. The 2009 annual executive incentive compensation plan provides greater emphasis on differentiated reward strategies by company/business unit. The program will encourage HEI executives to focus on results that drive consolidated shareholder value rather than roll-up subsidiary results; encourage American Savings Bank executives to focus on performance improvement; and encourage Hawaiian Electric Company executives to focus on successful rate relief, the Hawaii Clean Energy Initiative and other utility metrics. In 2008, there was a minimum threshold for the entire annual incentive plan in order for awards to be made under the plan, as well as minimum thresholds for applicable metrics. In 2009, each metric will have its own threshold and there will not be an overall plan threshold.
The Committee decided to simplify the program to drive greater understanding of performance measurement and plans. HEI executive goals are limited to two corporate financial measures to maintain focus of the holding company executives on these key metrics. On February 20, 2009, the Compensation Committee established the following performance metrics for the following named executive officers for the 2009 annual incentive plan (1):
Name
|
Weight | Performance Metric |
Minimum Threshold |
Target Goal | |||||
---|---|---|---|---|---|---|---|---|---|
Constance H. Lau Curtis Y. Harada |
60 | % | HEI Return on Average Common Equity | 7.1% | 7.9% | ||||
Chester A. Richardson | 40 | % | HEI Net Income | $101.5 million | $112.8 million | ||||
100 | % | ||||||||
Timothy K. Schools | 100 | % | Bank Return on Assets | 0.85% | 0.95% |
There are no 2009 goals for Mr. May, who retired on December 31, 2008, or for Mr. Yeaman, whose resignation was effective on June 12, 2008.
HEI has return on average common equity and net income as its annual incentive compensation goals in 2009 because these are basic measures of financial success at HEI and for its shareholders. American Savings Bank is using a single profitability measure of return on assets in 2009, consistent with the need for the bank to focus on efficient use of assets to generate satisfactory returns. Traditionally, banks have measured returns relative to assets as a primary profitability measure. Banks make loans and take in deposits and the difference between the interest income received on loans, interest expense paid on deposits, less credit and other expenses, is their profit. Since most income is from the balance sheet, the balance sheet is an appropriate benchmark to use in comparing profitability from different banks or different business lines within a bank. Return on assets (net income divided by total average assets) is a simple and widely used benchmark.
In setting Mr. Schools' goals, the Compensation Committee determined to exclude one-time charges such as severance and lease buyouts in light of American Savings Bank's aggressive performance improvement project to reduce its cost structure and improve its efficiency, profitability and go-forward earnings. In addition, in light of the unprecedented volatility, illiquidity, uncertainty and unusually low asset valuations in the capital markets and in the banking industry, the Committee excluded the impact of other-than-temporary impairment charges and goodwill impairment charges and related impacts. The Committee, however, retained the discretion to reduce any such award if the resulting payout is not in the best interest of American Savings Bank and exclude any gain from the sale of securities for which other-than-temporary impairment is excluded in any current or future bonus
31
calculations. In setting HEI executives' goals, the Committee also determined that any adjustments made at American Savings Bank and Hawaiian Electric Company would also be applied for purposes of calculating HEI metrics.
The proposed 2009 annual award will be determined as a percentage of base salary, instead of salary midpoint, which allows for awards to better reflect individual contribution. At its meeting on February 20, 2009, the Compensation Committee approved the following award ranges for the named executive officers, shown as a percentage of salary, for the 2009 annual incentive plan:
Name
|
Minimum | Target | Maximum | 2009 estimated salary | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau |
42.5 | % | 85 | % | 170 | % | $ | 771,800 | |||||
Curtis Y. Harada |
20 | % | 40 | % | 80 | % | 215,600 | ||||||
Chester A. Richardson (1) |
25 | % | 50 | % | 100 | % | 344,400 | ||||||
Timothy K. Schools |
40 | % | 80 | % | 160 | % | 550,000 |
HEI's three-year performance incentive plan is otherwise known as the Long-Term Incentive Plan (LTIP). In 2006, the Committee approved the following award ranges, shown as a percentage of the salary midpoint, for the 2006-2008 long-term incentive plan for the following individuals who are currently HEI named executive officers:
Name
|
Minimum | Target | Maximum | 2008 salary midpoint |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau (1) |
65 | % | 130 | % | 260 | % | $ |
641,000 776,000 |
(ASB) (HEI) |
||||
Eric K. Yeaman (2) |
30 |
% |
60 |
% |
130 |
% |
405,000 441,000 |
(HEI) (HECO) |
|||||
Curtis Y. Harada |
20 |
% |
40 |
% |
80 |
% |
213,000 |
||||||
T. Michael May |
40 | % | 80 | % | 170 | % | 581,000 |
Mr. Richardson and Mr. Schools did not participate in the 2006-2008 long term incentive plan because they became employed by Hawaiian Electric Industries and American Savings Bank, respectively, midway through this performance period.
Based on the Compensation Committee's view that achievement of these goals would enhance shareholder value during this performance period, HEI executives had three long-term goals: a total
32
shareholder return goal based on performance at HEI, a return on average common equity goal at American Savings Bank, and a return on average common equity goal at Hawaiian Electric Company (consolidated). Mr. May had a Total Shareholder Return goal, but with a lesser weighting than HEI holding company executives, since his primary focus was on improving utility financial metrics, such as utility return on average common equity and average annual utility net income.
After three long-term incentive performance periods (2003-2005, 2004-2006, 2005-2007) where no HEI (holding company) long-term incentive goals were achieved and no HEI long-term incentive awards were paid to HEI executives (long-term incentive awards were paid to subsidiary executives for the achievement of subsidiary goals during these performance periods), HEI executives received a long-term incentive award for the 2006-2008 performance period. The long-term incentive award for this performance period was paid out 60% in cash and 40% in HEI Common Stock based on the stock value as of the time of the award. The stock component aligns executives' interests with shareholders.
Name
|
Weight | Performance Metric |
Minimum Threshold |
Target Goal | Actual Results | Payout | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau |
40 | % | Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index (1) | 50th percentile of the Edison Electric Institute Index (1) | 38.5th percentile of the Edison Electric Institute Index (1), (2) | $ | 281,951 | |||||||
|
30 |
% |
Bank Return on Average Common Equity |
10.39% |
11.23% |
9.89% (3) |
|
||||||||
|
30 |
% |
Utility Return on Average Common Equity |
30th percentile of the Edison Electric Institute Index (1) |
50th percentile of the Edison Electric Institute Index (1) |
12th percentile of the Edison Electric Institute Index (1), (2) |
|
||||||||
|
100 | % | $ | 281,951 | |||||||||||
Eric K. Yeaman |
40 |
% |
Total Return to Shareholders |
30th percentile of the Edison Electric Institute Index (1) |
50th percentile of the Edison Electric Institute Index (1) |
38.5th percentile of the Edison Electric Institute Index (1), (2) |
|
||||||||
|
30 |
% |
Bank Return on Average Common Equity |
10.39% |
11.23% |
9.89% (3) |
|
||||||||
|
30 |
% |
Utility Return on Average Common Equity |
30th percentile of the Edison Electric Institute Index (1) |
50th percentile of the Edison Electric Institute Index (1) |
12th percentile of the Edison Electric Institute Index (1), (2) |
|
||||||||
|
100 | % | | ||||||||||||
33
Name
|
Weight | Performance Metric |
Minimum Threshold |
Target Goal | Actual Results | Payout | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Curtis Y. Harada |
40 | % | Total Return to Shareholders |
30th percentile of the Edison Electric Institute Index (1) |
50th percentile of the Edison Electric Institute Index (1) |
38.5th percentile of the Edison Electric Institute Index (1), (2) |
$ | 24,282 | |||||||
|
30 |
% |
Bank Return on Average Common Equity |
10.39% |
11.23% |
9.89% (3) |
|
||||||||
|
30 |
% |
Utility Return on Average Common Equity |
30th percentile of the Edison Electric Institute Index (1) |
50th percentile of the Edison Electric Institute Index (1) |
12th percentile of the Edison Electric Institute Index (1), (2) |
|
||||||||
|
100 | % | $ | 24,282 | |||||||||||
T. Michael May |
40 |
% |
Utility Return on Average Common Equity |
30th percentile of the Edison Electric Institute Index (1) |
50th percentile of the Edison Electric Institute Index (1) |
12th percentile of the Edison Electric Institute Index (1), (2) |
|
||||||||
|
40 |
% |
Utility Net Income |
$89.465 million |
$99.405 million |
$73.0 million |
|
||||||||
|
20 |
% |
Total Return to Shareholders |
30th percentile of the Edison Electric Institute Index (1) |
50th percentile of the Edison Electric Institute Index (1) |
38.5th percentile of the Edison Electric Institute Index (1), (2) |
66,234 |
||||||||
|
100 | % | $ | 66,234 | |||||||||||
34
and total return to shareholders. In 2008, the following companies were in the three-year Edison Electric Institute Index:
|
||||
---|---|---|---|---|
Allegheny Energy Inc. Allete Inc. Alliant Energy Corp. Ameren Corp. American Electric Power Co. Avista Corp. Black Hills Corp Centerpoint Energy Inc. Central Vermont Public Service Corp CH Energy Corp CLECO Corp CMS Energy Corp Consolidated Edison Inc. Constellation Energy Group Inc. Dominion Resources Inc. DPL, Inc. DTE Energy Co. Duke Energy Corp |
Edison International El Paso Electric Co. Empire District Electric Co. Entergy Corp. Exelon Corp. First Energy Corp. FPL Group Inc. Great Plains Energy Inc. Hawaiian Electric Industries Inc. Idacorp Inc. Integrys Energy Group Maine and Maritimes Corp MDU Resources Group Inc MGE Energy Inc. NISOURCE Inc. Northeast Utilities Northwestern Corp. NSTAR NV Energy, Inc. OGE Energy Corp. |
Otter Tail Corp. Pepco Holdings Inc. PG&E Corp. Pinnacle West Capital Corp. PPL Corp. PNM Resources, Inc. Progress Energy, Inc. Public Service Enterprise Group, Inc. Puget Energy, Inc. Scana Corp. Sempra Energy Southern Co. TECO Energy, Inc. UIL Holdings Corp. UniSource Energy Corp. Unitil Corp. Westar Energy, Inc. Xcel Energy Inc Vectren Corp. Wisconsin Energy Corp. |
||
|
The above goals were set by the Compensation Committee and approved by the Board in 2006 because they were believed to provide the necessary incentives to align executive compensation with shareholder value. The minimum performance reflected what the Compensation Committee believed to be investors' minimum expectations relative to other investment opportunities and the maximum goal provided greater upside potential for out-performance stretch goals. Each goal was aligned with HEI's or the operating company's strategic plan and determined by the Compensation Committee to be sufficiently difficult to be worthy of a bonus.
The only goal met in the 2006-2008 long-term performance plan was the minimum goal for HEI Total Return to Shareholders. Consequently, at its meeting on February 20, 2009, the Compensation Committee awarded Ms. Lau $281,951, Mr. Harada $24,282, and Mr. May $66,234 in long-term incentives, payable 60% in cash and 40% in HEI Common Stock.
HEI's 2007-2009 long-term incentive plan was explained in its 2007 proxy statement.
35
In February 2008, the Compensation Committee approved the following long-term incentive award levels for the 2008-2010 period for each of the named executive officers if the following incentive performance goals for that period are met:
Name
|
Weight | Performance Metric | Minimum Threshold | Target Goal | |||||
---|---|---|---|---|---|---|---|---|---|
Constance H. Lau Curtis Y. Harada Chester A. Richardson |
40 | % | HEI Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index | 50th percentile of the Edison Electric Institute Index | ||||
15 |
% |
Utility Free Cash Flow |
($24.1 million) |
($13.0 million) |
|||||
15 |
% |
Utility Ratemaking Return on Average Common Equity vs. Allowed Return |
90% of consolidated allowed rate of return on equity less 50 basis points |
95% of consolidated allowed rate of return on equity less 50 basis points |
|||||
15 |
% |
Bank Net Income |
$55.277 million |
$57.053 million |
|||||
15 |
% |
Bank Return on Assets |
0.789% |
0.816% |
|||||
100 | % | ||||||||
T. Michael May Eric K. Yeaman |
50 |
% |
Utility Free Cash Flow |
($24.1 million) |
($13.0 million) |
||||
30 | % | Utility Ratemaking Return on Average Common Equity vs. Allowed Return | 90% of consolidated allowed rate of return on equity less 50 basis points | 95% of consolidated allowed rate of return on equity less 50 basis points | |||||
20 |
% |
HEI Total Return to Shareholders |
30th percentile of the Edison Electric Institute Index |
50th percentile of the Edison Electric Institute Index |
|||||
100 | % | ||||||||
Timothy K. Schools |
40 |
% |
Bank Net Income |
$55.277 million |
$57.053 million |
||||
30 |
% |
Bank Return on Assets |
0.789% |
0.816% |
|||||
30 |
% |
Bank Efficiency Ratio |
65.47% |
64.83% |
|||||
100 | % | ||||||||
The metrics used in this program are common financial measures for the most part. Utility ratemaking return on average common equity vs. allowed return is a useful measurement for comparing the utility's earnings to the earnings regulators have determined are reasonable in the most recent ratemaking proceeding of each respective utility. It encourages executives to seek to have each utility earn its allowed regulated return. Bank efficiency ratio is a measure of how efficiently the bank spends its funds in relation to the income it generates. The efficiency ratio is calculated as follows:
Noninterest
Expense (excluding amortization of intangible assets)
Net interest income + noninterest income
The Committee also determined that the financial impacts (gain and/or loss), if any, of restructuring American Savings Bank's balance sheet in order to return capital to HEI (e.g., sale of investment securities, extinguishment of wholesale funding, sale of merchant services divisions) shall be excluded in calculating net income and return on assets for purposes of determining performance under the 2008-2010 long-term incentive plan.
36
The following are the award levels for these incentives:
Name
|
Minimum | Target | Maximum | Super Maximum |
2010 projected salary midpoint of position grade (5) |
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau |
65 | % | 130 | % | 260 | % | | $ | 815,000 | |||||||||
Eric K. Yeaman (1) |
30 |
% |
60 |
% |
130 |
% |
|
426,000 463,000 |
(HEI) (HECO) |
|||||||||
Curtis Y. Harada |
20 |
% |
40 |
% |
80 |
% |
|
224,000 |
||||||||||
Chester A. Richardson (2) |
30 | % | 60 | % | 120 | % | | 351,000 | ||||||||||
T. Michael May (3) |
40 | % | 80 | % | 170 | % | | 581,000 | ||||||||||
Timothy K. Schools (4) |
40 |
% |
80 |
% |
100 |
% |
175 |
% |
482,000 559,000 |
(COO) (President) |
In addition to the minimum, target and maximum levels, the American Savings Bank 2008-2010 long-term incentive plan has a fourth level, a super maximum level. Mr. Schools' estimated future payout under level four would be $974,507. This added level was done for this performance period to focus Mr. Schools and the other American Savings Bank executives on achieving the highest established goals, namely $68 million net income (a 42% increase over 2008 budget), 1.0% return on assets (26 basis points increase over 2008 budget), and a 61% efficiency ratio (832 basis point increase over 2008 budget). This fourth level was established for American Savings Bank executives in recognition for the extraordinary work that needs to be achieved by the bank in a short period to improve its performance.
In addition to the basic long-term incentive plan, the Compensation Committee also approved supplemental long-term incentive award levels for the 2008-2010 period for each named executive officer so that HEI's long-term incentive program would be even more performance-based. Rather than providing restricted stock awards at the levels given in 2007, the Committee reduced the restricted stock awards given to the named executive officers and provided an additional supplemental long-term incentive opportunity, using the same goals, metrics, and exclusion as in the 2008-2010 long-term incentive plan. Payment of any awards that may be made under this supplemental 2008-2010 long-term incentive program will be paid in a combination of 50% cash and 50% stock (versus 60% cash and
37
40% stock for the basic long-term incentive plan) to promote greater stock ownership and alignment with shareholder interests. The following are the award levels for these supplemental incentives:
Name
|
Minimum | Target | Maximum | 2010 projected salary midpoint of position grade (5) |
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau |
13.5 | % | 27.0 | % | 54.0 | % | $ | 815,000 | |||||||
Eric K. Yeaman (1) |
7.5 |
% |
15.0 |
% |
32.5 |
% |
426,000 463,000 |
(HEI) (HECO) |
|||||||
Curtis Y. Harada |
6.5 |
% |
10.0 |
% |
20.0 |
% |
224,000 |
||||||||
Chester A. Richardson (2) |
6.5 | % | 10.0 | % | 20.0 | % | 351,000 | ||||||||
T. Michael May (3) |
9.0 | % | 18.0 | % | 38.0 | % | 581,000 | ||||||||
Timothy K. Schools (4) |
10.0 |
% |
20.0 |
% |
42.0 |
% |
482,000 559,000 |
(COO) (President) |
The 2008-2010 grant of long term incentive and supplemental long term incentive awards specific to the named executive officers are summarized in the 2008 Grants of Plan-Based Awards and related notes on page 47.
The Compensation Committee substantially modified the long-term incentive program for 2009-2011 based on company strategy and recommendations of Towers Perrin after its executive compensation review. The 2009-2011 long-term incentive plan generally will be paid 60% in cash and 40% in stock units with a value determined at the beginning of the performance period. By determining share award levels as of the beginning of the performance period, the awards under the plan have a stronger linkage to improvements in shareholder value. Any award for Mr. Schools, as President of American Savings Bank, will be granted in cash to align his incentive compensation solely with the performance of the bank.
38
At its meeting on February 20, 2009, the Compensation Committee approved the following long-term incentive performance metrics for the 2009-2011 period for each of the named executive officers (1):
Name
|
Weight | Performance Metric | Minimum Threshold | Target Goal | |||||
---|---|---|---|---|---|---|---|---|---|
Constance H. Lau Curtis Y. Harada Chester A. Richardson |
60 | % | HEI Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index | 50th percentile of the Edison Electric Institute Index | ||||
40 |
% |
HEI Return on Average Common Equity |
9.1% |
10.1% |
|||||
100 | % | ||||||||
Timothy K. Schools |
70 |
% |
Bank Return on Assets |
1.0% |
1.1% |
||||
30 |
% |
Bank Net Income |
$51 - $54 million |
$56 - $59 million |
|||||
100 | % | ||||||||
The Compensation Committee approved the HEI metrics because they simplify the program and align performance measurement with the scope of the role and responsibilities of these executive officers. Mr. Schools' long-term metrics, bank return on assets and bank net income, focus performance on the key bank value drivers. In setting Mr. Schools' goals, the Compensation Committee determined to exclude one-time charges such as severance and lease buyouts in light of American Savings Bank's aggressive performance improvement project to reduce its cost structure and improve its efficiency, profitability and go-forward earnings. In addition, in light of the unprecedented volatility, illiquidity, uncertainty and unusually low asset valuations in the capital markets and in the banking industry, the Committee excluded the impact of other-than-temporary impairment charges and goodwill impairment charges and related impacts. The Committee, however, retained the discretion to reduce any such award if the resulting payout is not in the best interest of American Savings Bank and exclude any gain from the sale of securities for which other-than-temporary impairment is excluded in any current or future bonus calculations. In setting HEI executives' goals, the Committee also determined that any adjustments made at American Savings Bank and Hawaiian Electric Company would also be applied for purposes of calculating the HEI metrics.
The Compensation Committee established the following award ranges, shown as a percentage of actual annual salaries on January 1, 2009, for the following named executive officers:
Name
|
Minimum | Target | Maximum | January 1, 2009 Annual Salary |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau |
70 | % | 140 | % | 280 | % | $ | 771,800 | |||||
Curtis Y. Harada |
27.5 | % | 55 | % | 110 | % | 215,600 | ||||||
Chester A. Richardson |
35 | % | 70 | % | 140 | % | 321,400 | ||||||
Timothy K. Schools |
50 | % | 100 | % | 200 | % | 550,000 |
Mr. Schools' potential long-term incentive award levels are higher than the other executive officers, except for Ms. Lau, because his long-term incentive is paid entirely in cash and in consideration of the freeze of the American Savings Bank Supplemental Executive Retirement Plan. A portion of the 2009-2011 long-term incentive for other executive officers was awarded in restricted stock units, as described below.
39
How does HEI award stock and options to named executive officers?
HEI provides stock awards to executives to strengthen the linkage of executive compensation with improvement in shareholder value. The long-term incentive awards described above are performance-based and generally paid partially in stock. Stock awards granted to the executives increase their total long-term compensation opportunities. The Compensation Committee determines the value and number of additional shares awarded considering individual performance and contribution, as well as competitive practices.
Since 2006, HEI has been utilizing grants of restricted stock to provide executives with ownership of HEI shares. Quarterly dividends on the restricted stock shares are paid in cash to the executives during the vesting period. The primary purpose of restricted stock awards is retention. Any executive who terminates employment from HEI or its operating subsidiaries prior to four years will forfeit the restricted shares, unless the executive is involuntarily terminated without cause or the termination follows a change in control.
At its meeting held on April 15, 2008, the Compensation Committee revised HEI's equity program to make it more performance-based. The Committee transferred the value of half of the shares of restricted stock historically awarded to named executive officers to a new supplemental performance-based long-term incentive plan (described above) so that an approximately equivalent value is paid to participants if the target goals are achieved. This structure provides for an increased value to be awarded if maximum performance goals are achieved, but also a lower value if minimum performance goals are achieved or no award if performance falls short of the minimum goals. For the other half of the shares of restricted stock, the Committee continued HEI's practice of awarding the restricted shares on a four-year cliff-vesting basis to retain key executives. Under the revised equity program, on April 15, 2008, Ms. Lau was granted 8,000 restricted shares, Mr. Yeaman 2,500 shares, Mr. Harada 1,000 restricted shares, Mr. Richardson 1,500 restricted shares, Mr. May 4,000 restricted shares, and Mr. Schools 4,000 restricted shares. These restricted shares will vest for each executive officer who remains with HEI or its operating subsidiaries four years from the date of grant. By resigning from Hawaiian Electric Company on June 12, 2008 and retiring from Hawaiian Electric Company on December 31, 2008, respectively, within the four-year vesting period, Mr. Yeaman and Mr. May forfeited the restricted shares they received in 2006, 2007, and 2008.
For the 2009 equity program, restricted stock units were granted, instead of restricted stock awards. With restricted stock units, no stock is issued or outstanding until the actual release of the shares at vesting. Dividend equivalents will accrue during the vesting period and be payable upon vesting four years from the date of grant. Restricted stock units will allow prorata vesting upon an executive's retirement, death or disability, while discouraging voluntary departures prior to retirement. Unlike previous years, the distribution of equity awards at HEI and its operating subsidiaries in 2009 will be limited. Mr. Schools has 100% of his long-term incentive paid in cash, instead of receiving restricted stock units, to focus his rewards on the performance of the bank.
At its meeting on February 20, 2009, the Compensation Committed awarded annual restricted stock units as follows (1):
Name
|
Restricted Stock Units |
|||
---|---|---|---|---|
Constance H. Lau (2) |
34,500 | |||
Curtis Y. Harada |
1,500 | |||
Chester A. Richardson |
2,500 | |||
Timothy K. Schools (3) |
0 |
40
The 2008 grant of restricted stock awards specific to the named executive officers are summarized in the 2008 Grants of Plan-Based Awards and related notes on page 47.
What retirement benefits do named executive officers have?
HEI provides retirement benefits to all eligible employees, including the named executive officers, through qualified retirement plans as a means of providing financial security in recognition of their years of service. Nonqualified retirement benefits are also provided to certain executives, including the named executive officers. The HEI Excess Pay Plan is a nonqualified retirement plan that provides the portion of benefits that cannot be paid from the qualified plans due to Internal Revenue Code limits applicable to qualified plans. Until December 31, 2008, HEI and American Savings Bank also provided certain named executive officers additional pension benefits through nonqualified supplemental executive retirement plans that allowed all or part of their annual bonuses to be included in the final average compensation upon which their pension benefits were determined. These nonqualified supplemental executive retirement plans were frozen effective December 31, 2008. The Compensation Committee decided to freeze these plans because of the expense of maintaining these benefits, the recognition of current economic times, and in light of what it considered to be best practices. In deciding to freeze these plans, the Compensation Committee concluded that the inclusion of annual incentive compensation in addition to base salary in the calculation of these supplemental pension benefits, while competitive at the time the plans were enacted, was not consistent with HEI's philosophy to emphasize performance-based rewards driven by results that support growth in shareholder value. The primary remaining nonqualified retirement plan that HEI named executive officers, except for Mr. Schools, can participate in is the HEI Excess Pay Plan, which determines pension benefits on base salary and does not include annual bonuses.
The HEI Excess Pay Plan, HEI Supplemental Executive Retirement Plan, ASB Supplemental Executive Retirement, Disability, and Death Benefit Plan, HEI Executives' Deferred Compensation Plan, HEI Non-Employee Directors' Deferred Compensation Plan, and American Savings Bank Select Deferred Compensation Plan were amended and restated effective January 1, 2009, to comply with final regulations under Section 409A of the Internal Revenue Code. Benefits paid from all these plans to "specified employees" (to the extent not grandfathered, as described in Section 409A) on account of separation from service must be delayed until at least six months after the specified employee's separation from service. The plans were also amended so that a participant will forfeit all benefits if terminated for cause, defined as a violation of the HEI Corporate Code of Conduct, which governs HEI and its affiliated companies. Retirement benefits under these plans specific to the named executive officers are discussed in further detail in the Pension Benefits table and related notes on pages 50-53.
Do named executive officers have executive death benefits?
HEI provides HEI and Hawaiian Electric Company executives with death benefits payable to their beneficiaries under the Executive Death Benefit Plan of HEI and Participating Subsidiaries. These benefits are provided for the welfare of an executive's beneficiaries in the traumatic event of an executive's death before or after retirement. Death benefits are discussed in further detail in the Pension Benefits table and related notes on pages 50-53.
41
Can named executive officers participate in nonqualified deferred compensation plans?
HEI provides named executive officers with the opportunity to participate in deferred compensation plans to allow executives to defer compensation and the resulting tax liability. The HEI Executives' Deferred Compensation Plan, as amended effective January 1, 2009, is a nonqualified deferred compensation plan that allows an HEI or Hawaiian Electric Company executive to defer payment of annual and long-term incentive awards. The American Savings Bank Select Deferred Compensation Plan, as amended effective January 1, 2009, is also a nonqualified deferred compensation plan. The plan allows a select group of American Savings Bank management and certain other highly compensated employees to defer up to 100% of current salary, bonus or commissions based upon annual elections made prior to the beginning of each deferral year. Deferred compensation benefits under these plans specific to the named executive officers are discussed in further detail in the 2008 Nonqualified Deferred Compensation table and related notes on page 54.
Do named executive officers have change-in-control agreements?
Change-in-control agreements can be an appropriate tool to recruit executives as an expected part of the compensation package, to encourage the continued attention of key executives to the performance of their assigned duties without distraction in the event of a potential change in control, and to assist in retaining key executives. Change-in-control agreements can also protect against executive flight during a transaction when key executives might, in the absence of the agreement, accept employment with competitors.
In 2008, with the assistance of Towers Perrin and HEI's external legal counsel, the Compensation Committee substantially revamped HEI's change-in-control agreements for certain HEI and subsidiary executives. The Committee replaced the old agreements with new versions designed to be consistent with best practices and to vary the severance multiplier amongst executives taking into account the executive's expected role in a potential transaction, value to the organization, service to HEI, and fairness. The Compensation Committee provided cash lump sum severance multipliers of three times for Ms. Lau and Mr. Schools, two times for Mr. Richardson, and one time for Mr. Harada. The multiplier is applied to the sum of the executive's base salary and bonus (determined to be the greater of the current target bonus or the largest actual bonus during the preceding three years). The severance benefits are subject to a release of claims by the executive.
The new agreements have terms of two years following execution. They are automatically renewed for one year on each anniversary unless 90 days notice of nonrenewal is provided by either party, so that the protected period is at least one year upon nonrenewal. The agreements remain in effect for two years following a change in control. The change-in-control agreements define a change in control to mean essentially a change in ownership of HEI or substantial change in the voting power of HEI's securities or a change in the majority of the composition of the Board following a consummation of a merger, tender offer or similar transaction. Mr. Schools' agreement also defines a change in control as essentially a change in ownership of American Savings Bank. Mr. Schools has other agreements that involve triggers upon a change in control at American Savings Bank. Mr. Schools was given these agreements in consideration of the volatility of the financial institution environment. Mr. May's change-in-control agreement terminated upon his retirement on December 31, 2008. Mr. Yeaman's change-in-control agreement terminated when he resigned from Hawaiian Electric Company on June 12, 2008. Change in control benefits specific to the named executive officers are discussed in further detail in the Potential Payments upon Termination or Change in Control section and related notes on pages 55-59.
42
What perquisites and other benefits do named executive officers have?
HEI provides limited perquisites to the named executive officers that the Compensation Committee believes are appropriate in light of their positions and value to the organization. During 2008, the named executive officers were eligible for business parking, club memberships, and voluntary annual physical exams. Ms. Lau, Mr. Yeaman, Mr. May and Mr. Schools were eligible for reimbursement for their spouses' travel expenses when their spouses accompanied them to meetings where spouse attendance was required or expected for business purposes. Hawaiian Electric Company executives Mr. May and Mr. Yeaman were also eligible to receive a car and gas allowance for business and personal use. As Chairman of the Board of Hawaiian Electric Company, Ms. Lau is eligible to receive a residential electricity discount, which is available to all qualifying Hawaiian Electric Company employees and retirees. Ms. Lau and Mr. Schools are eligible to receive preferential rate loans, which were available to all qualifying American Savings Bank employees and certain former employees in 2008. These loans will no longer be offered to new American Savings Bank employees, including executives, effective January 1, 2009. Existing loans will be grandfathered. New named executive officers Mr. Richardson and Mr. Schools, who joined HEI and American Savings Bank, respectively, in 2007, were also eligible for reimbursement in 2008 for relocation expenses pursuant to their moves from the mainland to Hawaii. Mr. Richardson and Mr. Schools also were eligible for four weeks of vacation, two weeks more than other employees at their respective companies with similar years of service, so that they would have vacation benefits similar to officers in similar positions outside the company and because of the heavy workloads that both carry. Perquisites and other compensation plans specific to the named executive officers are discussed in further detail in the Summary Compensation Table and related notes on pages 44-46.
43
The following summary compensation table shows the base salary, annual bonus, stock awards, option awards, non-equity incentive compensation, change in pension value and nonqualified deferred compensation earnings, and all other compensation and benefits earned by the named executive officers during 2006, 2007 and 2008 (as applicable).
Name and 2008 Principal Positions |
Year | Salary ($) |
Bonus ($) (1) |
Stock Awards ($) (2) |
Option Awards ($) (3) |
Non-Equity Incentive Plan Compensation ($) (4) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (5) |
All Other Compensation ($) (6) |
Total ($) |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau |
2008 2007 2006 |
763,200 736,000 680,667 |
|
338,896 273,540 143,202 |
50,583 84,562 144,312 |
1,363,695 67,245 191,449 |
1,302,489 499,747 2,500,135 |
40,727 51,326 41,555 |
3,859,590 1,712,420 3,701,320 |
|||||||||||||||||||
|
||||||||||||||||||||||||||||
Eric K. Yeaman* |
2008 2007 2006 |
194,890 398,575 382,333 |
|
75,691 55,267 63,240 |
57,537 90,896 113,021 |
|
69,220 44,141 |
18,277 16,606 |
328,118 632,235 619,341 |
|||||||||||||||||||
|
||||||||||||||||||||||||||||
Curtis Y. Harada** |
2008 2007 2006 |
213,400 196,655 190,300 |
165,000 |
30,276 22,107 9,239 |
10,117 16,490 25,362 |
164,010 |
239,884 88,455 90,298 |
555 15,570 15,896 |
823,242 339,277 331,095 |
|||||||||||||||||||
|
||||||||||||||||||||||||||||
Chester A. Richardson*** |
2008 | 317,600 | | 21,188 | | 246,492 | 89,487 | 125,768 | 800,535 | |||||||||||||||||||
|
||||||||||||||||||||||||||||
T. Michael May**** |
2008 2007 2006 |
609,933 590,650 571,334 |
100,000 |
121,105 88,427 36,955 |
50,583 84,562 144,312 |
451,807 |
207,934 389,129 |
24,754 28,757 21,317 |
1,566,116 792,396 1,163,047 |
|||||||||||||||||||
|
||||||||||||||||||||||||||||
Timothy K. Schools***** |
2008 | 541,667 | | 32,125 | | 632,400 | 19,682 | 87,339 | 1,313,213 | |||||||||||||||||||
|
44
Mr. Harada received a $15,000 monthly bonus for every month he served as Acting HEI Financial Vice President, Treasurer and Chief Financial Officer. Having served 11 months in that role during 2008, his bonus was $165,000.
45
2007 and are not included in the change in pension value above. For a further discussion of these plans, see the Pension Benefits table and related notes on pages 50-53 and Nonqualified Deferred Compensation table and notes on page 54.
Additional narrative disclosure about salary, bonus, stock awards, option awards, non-equity incentive plan compensation, change in pension value, nonqualified deferred compensation, and other compensation can be found in the Compensation Discussion and Analysis on pages 16-43 and the discussions under Executive Compensation on pages 44-59.
46
The following table relates to awards to the named executive officers in 2008 under the annual incentive plan tied to performance for 2008 and under the long-term incentive plan tied to performance over the 2008-2010 period. Also shown are the restricted stock awards granted under the Stock Option and Incentive Plan in 2008.
2008 GRANTS OF PLAN-BASED AWARDS
|
|
|
|
|
|
|
|
All Other Stock Awards: Number of Shares of Stock or Units (#) (2) |
|
|
||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) |
Estimated Future Payouts Under Equity Incentive Plan Awards |
All Other Option Awards: Number of Securities Underlying Options (#) |
|
|||||||||||||||||||||||||
|
|
Grant Date Fair Value of Stock and Option Awards ($) (3) |
||||||||||||||||||||||||||||
Name
|
Grant Date |
Threshold ($) |
Target ($) |
Maximum ($) |
Threshold (#) |
Target (#) |
Maximum (#) |
|||||||||||||||||||||||
Constance H. Lau |
2/19/08 EICP 2/19/08 LTIP 4/15/08 SLTIP 4/15/08 RS |
329,800 529,750 110,025 |
659,600 1,059,500 220,050 |
1,319,200 2,119,000 440,100 |
|
|
|
8,000 |
|
197,640 |
||||||||||||||||||||
Eric K. Yeaman |
2/19/08 EICP |
110,250 138,900 34,725 |
220,500 277,800 69,450 |
441,000 601,900 150,475 |
|
|
|
2,500 |
|
61,763 |
||||||||||||||||||||
Curtis Y. Harada |
2/19/08 EICP |
42,600 44,800 14,560 |
85,200 89,600 22,400 |
170,400 179,200 44,800 |
|
|
|
1,000 |
|
24,705 |
||||||||||||||||||||
Chester A. Richardson |
2/19/08 EICP |
75,150 105,300 22,815 |
150,300 210,600 35,100 |
300,600 421,200 70,200 |
|
|
|
1,500 |
|
37,058 |
||||||||||||||||||||
T. Michael May |
2/19/08 EICP |
174,300 244,000 54,900 |
348,600 488,000 109,800 |
697,200 1,037,000 231,800 |
|
|
|
4,000 |
|
98,820 |
||||||||||||||||||||
Timothy K. Schools |
2/19/08 EICP |
158,100 222,744 55,686 |
316,200 445,489 111,372 |
632,400 974,507 233,882 |
|
|
|
4,000 |
|
98,820 |
47
Outstanding Equity Awards at Fiscal Year-End
OUTSTANDING EQUITY AWARDS AT 2008 FISCAL YEAR-END
|
Option Awards (1) | Stock Awards (2) | |||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
Equity Incentive Plan Awards |
||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) |
Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested ($) |
|||||||||||||||||||||
|
|
|
|
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
|
|
|
|
|||||||||||||||||||||||
|
|
Number of Securities Underlying Unexercised Options |
|
|
Shares or Units of Stock That Have Not Vested |
||||||||||||||||||||||||||
|
|
Option Exercise Price ($) |
Option Expira- tion Date |
||||||||||||||||||||||||||||
Name
|
Grant Year |
Exer- ciseable (#) |
Unexer- ciseable (#) |
Number (#) |
Market Value ($) (3) |
||||||||||||||||||||||||||
Constance H. Lau |
2000 | 40,000 | | | 14.74 | 4/24/10 | | | | | |||||||||||||||||||||
|
2000 DE | 11,172 | | | | 4/24/10 | | | | | |||||||||||||||||||||
|
2001 | 40,000 | | | 17.96 | 4/23/11 | | | | | |||||||||||||||||||||
|
2001 DE | 9,409 | | | | 4/23/11 | | | | | |||||||||||||||||||||
|
2002 | 50,000 | | | 21.68 | 4/22/12 | | | | | |||||||||||||||||||||
|
2002 DE | 7,985 | | | | 4/22/12 | | | | | |||||||||||||||||||||
|
2003 | 50,000 | | | 20.49 | 4/21/13 | | | | | |||||||||||||||||||||
|
2003 DE | 4,790 | | | | 4/21/13 | | | | | |||||||||||||||||||||
|
2004 | 50,000 | | | 26.02 | 4/19/14 | | | | | |||||||||||||||||||||
|
2004 DE | 2,549 | | | | 4/19/14 | | | | | |||||||||||||||||||||
|
2005 | | 50,000 | | 26.18 | 4/07/15 | | | | | |||||||||||||||||||||
|
2005 DE | | 2,523 | | | 4/07/15 | | | | | |||||||||||||||||||||
|
2006 | | | | | | 31,000 | 686,340 | | | |||||||||||||||||||||
|
2007 | | | | | | 16,000 | 354,240 | | | |||||||||||||||||||||
|
2008 | | | | | | 8,000 | 177,120 | | | |||||||||||||||||||||
|
Total | 265,905 | 52,523 | | 55,000 | 1,217,700 | | | |||||||||||||||||||||||
Eric K. Yeaman |
Total | | | | | | | | |||||||||||||||||||||||
Curtis Y. Harada |
2004 | 10,000 | | | 26.02 | 4/19/14 | | | | | |||||||||||||||||||||
|
2004 DE | 139 | | | | 4/19/14 | | | | | |||||||||||||||||||||
|
2005 | | 10,000 | | 26.18 | 4/07/15 | | | | | |||||||||||||||||||||
|
2005 DE | | 505 | | | 4/07/15 | | | | | |||||||||||||||||||||
|
2006 | | | | | | 2,000 | 44,280 | | | |||||||||||||||||||||
|
2007 | | | | | | 2,000 | 44,280 | | | |||||||||||||||||||||
|
2008 | | | | | | 1,000 | 22,140 | | | |||||||||||||||||||||
|
Total | 10,139 | 10,505 | | 5,000 | 110,700 | | | |||||||||||||||||||||||
Chester A. Richardson |
2007 | | | | | | 3,000 | 66,420 | | | |||||||||||||||||||||
|
2008 | | | | | | 1,500 | 33,210 | | | |||||||||||||||||||||
|
Total | | | | 4,500 | 99,630 | | | |||||||||||||||||||||||
T. Michael May |
2002 | 40,000 | | | 21.68 | 4/22/12 | | | | | |||||||||||||||||||||
|
2002 DE | 6,388 | | | | 4/22/12 | | | | | |||||||||||||||||||||
|
2004 | 50,000 | | | 26.02 | 4/19/14 | | | | | |||||||||||||||||||||
|
2004 DE | 2,549 | | | | 4/19/14 | | | | | |||||||||||||||||||||
|
2005 | 50,000 | | | 26.18 | 4/07/15 | | | | | |||||||||||||||||||||
|
2005 DE | 2,523 | | | | 4/07/15 | | | | | |||||||||||||||||||||
|
2006 | | | | | | 8,000 | 177,120 | | | |||||||||||||||||||||
|
2007 | | | | | | 8,000 | 177,120 | | | |||||||||||||||||||||
|
2008 | | | | | | 4,000 | 88,560 | | | |||||||||||||||||||||
|
Total | 151,460 | | | 20,000 | 442,800 | | | |||||||||||||||||||||||
Timothy K. Schools |
2007 | | | | | | 3,000 | 66,420 | | | |||||||||||||||||||||
|
2008 | | | | | | 4,000 | 88,560 | | | |||||||||||||||||||||
|
Total | | | | 7,000 | 154,980 | | |
48
Option Exercises and Stock Vested
2008 OPTION EXERCISES AND STOCK VESTED
|
Option Awards | Stock Awards | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Number of Shares Acquired on Exercise (#) (1) |
Value Realized on Exercise ($) (2) |
Number of Shares Acquired on Vesting (#) |
Value Realized on Vesting ($) |
|||||||||
Constance H. Lau |
43,876 | 559,504 | | | |||||||||
Eric K. Yeaman |
25,564 | 267,466 | | | |||||||||
Curtis Y. Harada |
12,291 | 71,854 | | | |||||||||
T. Michael May |
55,452 | 444,281 | | | |||||||||
Timothy K. Schools |
| | | | |||||||||
Chester A. Richardson |
| | | |
49
The table below shows the present value as of December 31, 2008 of accumulated benefits for each of the named executive officers and the number of years of service credited to each such executive under the applicable pension plan and executive death benefit plan, determined using the interest rate, mortality rate, and other assumptions set out below, which are consistent with those used in HEI's financial statements. (See Note 8 to HEI's Notes to Consolidated Financial Statements under Item 8 of HEI's Form 10-K for the year ended December 31, 2008.)
Name
|
Plan Name | Number of Years Credited Service (#) |
Present Value of Accumulated Benefit ($) (6) |
Payments During the Last Fiscal Year ($) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau |
HEI Retirement Plan (1) |
17.8 | 903,978 | | ||||||||
|
American Savings Bank Retirement Plan (1) |
6.4 | 125,432 | | ||||||||
|
HEI Supplemental Executive Retirement Plan (2) |
24.3 | 5,719,769 | | ||||||||
|
HEI Executive Death Benefit (3) |
| 310,876 | | ||||||||
Eric K. Yeaman |
HEI Retirement Plan (1) |
5.3 | 52,700 | | ||||||||
|
HEI Supplemental Executive Retirement Plan (2) |
5.3 | 40,637 | | ||||||||
|
HEI Executive Death Benefit (3) |
| | | ||||||||
Curtis Y. Harada |
HEI Retirement Plan (1) |
19.4 | 662,407 | | ||||||||
|
HEI Excess Pay Plan (4) |
19.4 | 182,069 | | ||||||||
|
HEI Executive Death Benefit (3) |
| 75,444 | | ||||||||
Chester A. Richardson |
HEI Retirement Plan (1) |
1.3 | 77,275 | | ||||||||
|
HEI Excess Pay Plan (4) |
1.3 | 28,436 | |||||||||
|
HEI Executive Death Benefit (3) |
| 42,618 | | ||||||||
T. Michael May |
HEI Retirement Plan (1) |
16.9 | 964,889 | | ||||||||
|
HEI Supplemental Executive Retirement Plan (2) |
16.9 | 1,958,024 | | ||||||||
|
HEI Executive Death Benefit (3) |
| 366,387 | | ||||||||
Timothy K. Schools |
American Savings Bank Supplemental Executive Retirement, Disability, and Death Benefit Plan (5) |
1.5 | 19,682 | |
50
retirement
benefit is reduced by an applicable percentage, which ranges from 30% for early retirement at age 50 to 1% at age 59. Accrued or earned benefits are not reduced for eligible employees who
retire at age 60 and above. Ms. Lau and Mr. Harada are eligible for early retirement benefits under the HEI Retirement Plan. Mr. Yeaman resigned from Hawaiian Electric Company on
June 12, 2008, with a vested benefit payable at age 65 or upon meeting the early retirement provisions of the plan at age 55. Mr. May retired on December 31, 2008, at age 62, and
accordingly his accrued benefits were not reduced. Mr. Richardson will become vested upon completion of five years of service.
On December 11, 2007, the HEI Board adopted an amendment to freeze future benefit accruals for all participants under the American Savings Bank Retirement Plan, effective December 31, 2007. Credited service and compensation after December 31, 2007 will not be recognized in calculating retirement benefits under the American Savings Bank Retirement Plan. Normal retirement benefits under the frozen American Savings Bank Retirement Plan are calculated based on a formula of 1.5% × Credited Service to December 31, 2007 (maximum 35 years) × Final Average Compensation at December 31, 2007 (averaged over the highest paying five consecutive calendar years out of the last ten calendar years prior to 2008). Compensation is primarily gross earnings but excludes commissions, stock options and other equity compensation, long-term incentive plan payments, deferrals to and distributions from the American Savings Bank Select Deferred Compensation Plan, and other "fringe benefits" as defined in the American Savings Bank Retirement Plan. Early retirement benefits are available for participants who meet the age and service requirements at ages 55-64, with a minimum of 10 years of service. Early retirement benefits are reduced for participants who retire prior to age 65, based on the participant's age at the early retirement date. The accrued normal retirement benefit is reduced by an applicable percentage which ranges from 59.8% for early retirement at age 55 to 2% at age 64. Ms. Lau is a participant in the frozen American Savings Bank Retirement Plan. At the time of her promotion to HEI President and Chief Executive Officer on May 2, 2006, her credited service under the American Savings Bank Retirement Plan was frozen and she resumed participation in the HEI Retirement Plan. Ms. Lau is eligible for early retirement under the American Savings Bank Retirement Plan. Mr. Schools was not a participant in the plan at the time it was frozen and is not entitled to any benefits under this plan.
51
to pay income taxes on the grossed up benefit amount. The beneficiaries of Ms. Lau, Mr. Harada and Mr. Richardson are entitled to two times the respective executive's base salary if they die while actively employed, or, if disabled, die prior to age 65. Mr. Yeaman is no longer eligible to receive benefits under this plan since he terminated prior to becoming eligible for early retirement. Mr. May's beneficiaries are entitled to a death benefit equal to Mr. May's base salary at his retirement (grossed up for taxes) upon his death.
Methodology: The benefits are calculated as of December 31, 2008 based on the service and pay of the named executive officer as of such date.
Assumptions:
52
named executive officers other than Mr. Schools) is 6.625% for retirement benefits and 6.5% for executive death benefits as of December 31, 2008. The discount rate used in the present value calculation (for Mr. Schools) is the minimum present value segment rates under IRC Section 417(e)(3) for the 2009 plan year which is based on a September look back month.
53
Nonqualified Deferred Compensation
2008 NONQUALIFIED DEFERRED COMPENSATION
Name
|
Executive Contributions in Last FY ($) |
Registrant Contributions in Last FY ($) |
Aggregate Earnings/(Losses) in Last FY ($) |
Aggregate Withdrawals/ Distributions ($) |
Aggregate Balance at Last FYE ($) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau (1) |
| | (91,517 | ) | | 165,216 | ||||||||||
Eric K. Yeaman |
| | | | | |||||||||||
Curtis Y. Harada |
| | | | | |||||||||||
Chester A. Richardson |
| | | | | |||||||||||
T. Michael May |
| | | | | |||||||||||
Timothy K. Schools |
| | | | |
54
Potential Payments Upon Termination or Change in Control
The table below reflects the amount of potential payments to each named executive officer in the event of retirement, voluntary termination, termination for cause, termination without cause, and termination following a change in control, assuming termination occurred on December 31, 2008 (except in the case of Mr. Yeaman and Mr. May, for whom the amounts are only those actually payable by reason of their resignation and retirement, respectively, during 2008). The amounts listed below are estimates (except in the case of Mr. Yeaman and Mr. May); actual amounts to be paid would depend on the actual date of termination and circumstances existing at that time. The amounts shown below for payments made upon a qualifying termination of employment after a change in control relate to the individual change-in-control agreements effective January 1, 2009 as if they had been in effect on December 31, 2008.
TERMINATION/CHANGE-IN-CONTROL PAYMENT TABLE
Name/ Benefit Plan or Program |
Retirement on 12/31/08 ($) (1) |
Voluntary Termination on 12/31/08 ($) (2) |
Termination for Cause on 12/31/08 ($) (3) |
Termination without Cause on 12/31/08 ($) (4) |
Qualifying Termination after Change in Control on 12/31/08 ($) (5) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau |
||||||||||||||||
Executive Incentive Compensation Plan (6) |
| | | | | |||||||||||
Long-Term Incentive Plan (7) |
1,114,650 | | | | | |||||||||||
Stock Appreciation Rights (8) |
| | | | | |||||||||||
Restricted Stock (9) |
| | | 637,881 | | |||||||||||
Preferential mortgage interest rate (10) |
26,966 | | | | | |||||||||||
Change-in-Control Agreement |
| | | | 4,674,385 | |||||||||||
TOTAL |
1,141,616 | | | 637,881 | 4,674,385 | |||||||||||
Eric K. Yeaman |
||||||||||||||||
Executive Incentive Compensation Plan (6) |
| | | | | |||||||||||
Long-Term Incentive Plan (7) |
| | | | | |||||||||||
Stock Appreciation Rights (8) |
| | | | | |||||||||||
Restricted Stock (9) |
| | | | | |||||||||||
Change-in-Control Agreement |
| | | | | |||||||||||
TOTAL |
| | | | | |||||||||||
Curtis Y. Harada |
||||||||||||||||
Executive Incentive Compensation Plan (6) |
| | | | | |||||||||||
Long-Term Incentive Plan (7) |
95,201 | | | | | |||||||||||
Stock Appreciation Rights (8) |
| | | | | |||||||||||
Restricted Stock (9) |
| | | 52,201 | | |||||||||||
Change-in-Control Agreement |
| | | | 810,215 | |||||||||||
TOTAL |
95,201 | | | 52,201 | 810,215 | |||||||||||
55
Name/ Benefit Plan or Program |
Retirement on 12/31/08 ($) (1) |
Voluntary Termination on 12/31/08 ($) (2) |
Termination for Cause on 12/31/08 ($) (3) |
Termination without Cause on 12/31/08 ($) (4) |
Qualifying Termination after Change in Control on 12/31/08 ($) (5) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Chester A. Richardson |
||||||||||||||||
Executive Incentive Compensation Plan (6) |
| | | | | |||||||||||
Long-Term Incentive Plan (7) |
81,900 | | | | | |||||||||||
Stock Appreciation Rights (8) |
| | | | | |||||||||||
Restricted Stock (9) |
| | | 26,067 | | |||||||||||
Change-in-Control Agreement |
| | | | 986,676 | |||||||||||
TOTAL |
81,900 | | | 26,067 | 986,676 | |||||||||||
T. Michael May |
||||||||||||||||
Executive Incentive Compensation Plan (6) |
| | | | | |||||||||||
Long-Term Incentive Plan (7) |
516,600 | | | | | |||||||||||
Stock Appreciation Rights (8) |
| | | | | |||||||||||
Restricted Stock (9) |
| | | 208,806 | | |||||||||||
Change-in-Control Agreement |
| | | | | |||||||||||
TOTAL |
516,600 | | | 208,806 | | |||||||||||
Timothy K. Schools |
||||||||||||||||
Executive Incentive Compensation Plan (6) |
| | | | | |||||||||||
Long-Term Incentive Plan (7) |
185,763 | | | | | |||||||||||
Stock Appreciation Rights (8) |
| | | | | |||||||||||
Restricted Stock (9) |
| | | 35,869 | | |||||||||||
Preferential mortgage interest rate (10) |
29,080 | | | | | |||||||||||
Change-in-Control Agreement |
| | | | 2,890,556 | |||||||||||
TOTAL |
214,843 | | | 35,869 | 2,890,556 | |||||||||||
Note: All stock-based award amounts were valued using the 2008 year-end closing price of HEI Common Stock of $22.14 per share. Other benefits that are available to all employees on a non-discriminatory basis and perquisites aggregating less than $10,000 in value have not been listed.
56
which will remain after April 7, 2009) and unvested restricted stock would be forfeited as well. The executive's participation in the change-in-control agreement would also end and the executive's benefit from the nonqualified retirement plans would be forfeited.
Ms. Lau and Mr. Schools each have a lump sum severance multiplier of three times, Mr. Richardson has a lump sum severance multiplier of two times, and Mr. Harada has a lump sum severance multiplier of one time applied to the sum of the executive's base salary and bonus (determined to be the greater of the current target bonus or the largest actual bonus during the preceding three years). Mr. Yeaman's change-in-control agreement terminated when he resigned from Hawaiian Electric Company on June 12, 2008. Mr. May's change-in-control agreement terminated upon his retirement on December 31, 2008.
In addition, executives would receive continued life, disability, dental, accident and health insurance benefits for the severance period (the number of years equal to the applicable severance multiplier). Executives would receive a lump sum payment equal to the present value of the additional benefit the executives would have earned under their respective retirement and savings plans during the severance period. Executives would also receive the greater of current target or actual projected short- and long-term incentive bonuses, prorated if termination occurs during the first half of the applicable performance period and the full aggregate value if termination occurs after the end of the first half of the applicable performance period. For all the HEI named executive officers, additional age and service credit is received for the severance period for purposes of determining retiree welfare benefit eligibility; however, American Savings Bank does not have a post-retirement medical benefits plan and Mr. Schools will not participate in this benefit. Executives would receive financial, tax planning and outplacement services, capped at 15% of salary. Payment would generally be delayed for six months following termination of employment to the extent required to avoid an additional tax under Section 409A of the Internal Revenue Code. Interest would accrue during the six-month delay period at the prevailing six-month certificate of deposit rate and payments would be set aside during that period in a grantor ("rabbi") trust.
Other benefits are provided to the executives upon a change in control under the Stock Option Incentive Plan, as amended and restated, effective May 6, 2008, as described below. All such severance and benefit payments under the change-in-control agreements are limited to the maximum amount deductible under Section 280G of the Internal Revenue Code, and to the extent necessary to make such payments deductible, the severance and benefit payments may be reduced.
Mr. Schools' agreement also defines a change in control as a change in ownership of American Savings Bank. At its meeting on October 30, 2007, the same date when the Committee approved
57
Mr. Schools' compensation upon his promotion to President of American Savings Bank, the Compensation Committee determined that Mr. Schools need not repay any portion of his $400,000 signing bonus if there was a change in control at American Savings Bank (and he lost his employment as a result thereof) within four years from the date of commencement of his employment on July 15, 2007. Additionally, at its meeting on January 14, 2008, the Compensation Committee determined that if American Savings Bank was sold in 2008 and if Mr. Schools' employment with American Savings Bank was terminated within 12 months as a result of the sale, necessitating his return to the mainland, then HEI would purchase Mr. Schools' residence in Hawaii for the same closing price at which Mr. Schools acquired the house in 2007, namely, $3.635 million, but only after Mr. Schools listed the house for sale and attempted for at least six months to sell it. HEI would also pay for: (a) the realtor commission expense in selling the house (at £ 6%); and (b) the cost of relocating Mr. Schools and his family back to the mainland (not to exceed $75,000 in total exclusive of realtor commission). The January 14, 2008 agreement to purchase Mr. Schools' house terminated on December 31, 2008.
58
The amount that is shown in the table is the intrinsic ("spread") value of the vested award. The stock appreciation rights had no intrinsic value as of December 31, 2008 because the exercise price was greater than the 2008 year-end closing price.
How is director compensation determined?
The Board believes that a competitive package is necessary to attract and retain individuals with the talent needed for the challenging role of serving as a director of a publicly traded company with a unique blend of highly regulated industries. The Board chooses to compensate nonemployee directors using a mix of cash and HEI Common Stock to allow for an appropriate level of compensation for services, including a level of stock awards that will align the interests of directors with HEI shareholders. Only nonemployee directors are compensated for their service as directors.
The Compensation Committee has the responsibility for recommending nonemployee director compensation to the Board. In 2007, the Committee asked Towers Perrin to conduct a review of HEI's nonemployee director compensation practices. Towers Perrin assessed the structure of HEI's nonemployee director compensation program and its value compared to competitive market practices of financial services and utility peer companies, similar to those used in its executive compensation review. The 2007 analysis took into consideration the duties, scope of role and responsibilities of the corporate and subsidiary board members, in addition to the HEI regulatory structure. The Committee reviewed the analysis in determining its recommendations to the Board concerning the appropriate nonemployee director compensation, including cash retainers, stock awards, and meeting fees. In its meeting on May 3, 2007, the Board approved the Committee's recommendations on director compensation. Although Ms. Lau is a member of the HEI Board, she does not participate in the determination of nonemployee director compensation.
59
Retainer
The following is the annual retainer schedule for nonemployee directors of HEI and subsidiary companies paid in quarterly installments. Nonemployee directors of HEI who also serve on Board committees or as directors on subsidiary company boards receive fees for service on such boards or committee as indicated below.
HEI Nonexecutive Chairman of the Board |
$ | 250,000 | ||
HEI Director |
40,000 | |||
HEI Audit Committee Chairman |
15,000 | |||
HEI Compensation Committee Chairman |
10,000 | |||
HEI Nominating and Corporate Governance Chairman |
5,000 | |||
HEI Audit Committee Member |
6,000 | |||
HEI Compensation Committee Member |
4,000 | |||
HEI Nominating and Corporate Governance Member |
4,000 | |||
American Savings Bank Director |
25,000 | |||
Hawaiian Electric Company Director |
25,000 | |||
American Savings Bank Audit Committee Chairman |
12,500 | |||
Hawaiian Electric Company Audit Committee Chairman |
10,000 | |||
American Savings Bank Audit Committee Member |
5,000 | |||
Hawaiian Electric Company Audit Committee Member |
4,000 |
Meeting Fees
In January 2008, the Board approved the Compensation Committee's recommendation to revise the compensation of nonemployee directors of HEI serving on the Boards of Hawaii Electric Light Company and Maui Electric Company, both subsidiaries of Hawaiian Electric Company, from an annual retainer of $8,000 to a per meeting fee schedule as indicated below:
Hawaii Electric Light Company Director |
$500 per meeting attended | |
Maui Electric Company Director |
$500 per meeting attended |
Nonemployee directors on the American Savings Bank Compliance Committee received a meeting fee of $1,000 for each meeting attended. The American Savings Bank Compliance Committee was dissolved in January 2009.
In addition, the Board has also approved the following additional meeting fee schedule earned by a director per extra meeting, after attending the following minimum number of committee meetings during the calendar year:
HEI Audit Committee Member |
$1,250 per meeting after 8 meetings | |
American Savings Bank Audit Committee Member |
$1,000 per meeting after 8 meetings | |
Hawaiian Electric Company Audit Committee Member |
$750 per meeting after 8 meetings | |
HEI Nominating and Corporate Governance Committee Member |
$500 per meeting after 6 meetings | |
HEI Compensation Committee Member |
$500 per meeting after 6 meetings |
60
Stock Awards
For 2008, each HEI nonemployee director received 1,800 shares of HEI Common Stock, which is granted annually for the purpose of further aligning directors' and shareholders' interests. Stock grants to existing directors are made during the quarter of HEI's annual meeting.
Retirement Benefit. At its meeting on December 17, 1996, the Board voted to terminate the Nonemployee Director Retirement Plan, which had been approved by the shareholders on April 17, 1990. Pursuant to the terms of the termination, the right of previously retired directors to receive benefits continues in accordance with the terms of the Nonemployee Director Retirement Plan as in effect at termination, and the present value of the accrued benefit of directors age 55 or younger or with 5 years of service or less as of April 22, 1997 has been paid out. The retirement benefit for all other directors who had been participating in the Nonemployee Director Retirement Plan (Mr. Myers and Ms. Plotts) was frozen as of December 31, 1996, and will be paid upon retirement of the director. Upon their retirement from service as a director, Mr. Myers and Ms. Plotts will each receive an annual amount, paid quarterly, of $15,000 (their annual retainer in effect at December 31, 1996) for a period equal to the number of years of their active service through December 31, 1996 (7 years for Mr. Myers and 10 years for Ms. Plotts). Upon the death of the director, whether retired or not, HEI's obligation to make payments ceases. As of December 31, 2008, the present value of Mr. Myers' and Ms. Plotts' accumulated benefit was $53,165 and $98,090, respectively.
Deferred Compensation. Nonemployee directors may elect to participate in the HEI Nonemployee Directors' Deferred Compensation Plan, as amended and restated, effective January 1, 2009, which allows any nonemployee director to defer compensation from HEI for service as a director. The plan allows for either lump sum or installment distributions upon the retirement of the director. Upon the death of the director, the balance of the deferred account will be distributed in a lump sum to a designated beneficiary. Mr. Mills, who retired from the Board on July 9, 2008, was the only participant in the plan in 2008, although he did not make any deferral elections in 2008. The annual earnings on the plan are credited by HEI based upon the American Savings Bank three-year certificate of deposit rate established on January 1 of each year. As of December 31, 2008, Mr. Mills' deferred compensation balance was $59,231. Mr. Mills elected to receive a lump sum distribution upon his retirement and was paid his full balance in January 2009.
PerquisitesDiscounted Fees and Services. The Board approved a recommendation of the Nominating and Corporate Governance Committee in 2006 that, effective June 30, 2006, new preferential rate loans not be extended to any nonemployee director of American Savings Bank (including American Savings Bank directors who are also nonemployee directors of HEI). Existing preferential rate loans to nonemployee American Savings Bank directors as of June 30, 2006 were grandfathered. The preferential rate loans provided to directors that exceeded $120,000 in the aggregate at any time during 2008 are described under "Other Relationships and Related Person TransactionsAre there any related person transactions with HEI or its subsidiaries?" on pages 66-67 and are reflected in the Director Compensation Table under All Other Compensation on page 62. American Savings Bank continues to offer grandfathered preferential employee rate loans to its executive officers and employees who were employed prior to January 1, 2009, as allowed by the amended Federal Reserve Act.
Other Perquisites. Directors, at their election and at their cost, may participate in the group employee medical, vision and dental plans generally made available to HEI, Hawaiian Electric Company or American Savings Bank employees. Mr. Gushman participates in this program, but since he pays all of the premiums, no aggregate incremental cost is attributed to HEI.
HEI directors who are also nonemployee directors of American Savings Bank may receive other free services such as personal checking and traveler's checks, safe deposit boxes, notary services and
61
stop payment services. American Savings Bank directors may also receive these services if they qualify as Private Banking customers. These services are made in the ordinary course of business and on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and do not involve more than the normal risk of collectability or present other unfavorable features.
The following director compensation table shows the compensation of the HEI Board of Directors for 2008:
2008 DIRECTOR COMPENSATION TABLE
Name
|
Fees Earned or Paid in Cash ($) (1) |
Stock Awards ($) (2) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (3) |
All Other Compensation ($) (4) |
Total ($) |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Don E. Carroll |
75,000 | 44,640 | | | | | 119,640 | |||||||||||||||
Shirley J. Daniel |
71,000 | 44,640 | | | | 27,920 | 143,560 | |||||||||||||||
Thomas B. Fargo |
84,000 | 44,640 | | | | | 128,640 | |||||||||||||||
Richard W. Gushman, II |
72,667 | 44,640 | | | | 63,392 | 180,699 | |||||||||||||||
Victor H. Li |
69,500 | 44,640 | | | | 8,292 | 122,432 | |||||||||||||||
Bill D. Mills (5) |
25,333 | 44,640 | | | | | 69,973 | |||||||||||||||
A. Maurice Myers |
45,000 | 44,640 | | | 1,542 | | 91,182 | |||||||||||||||
Diane J. Plotts |
100,500 | 44,640 | | | 3,922 | 13,623 | 162,685 | |||||||||||||||
James K. Scott |
70,834 | 44,640 | | | | | 115,474 | |||||||||||||||
Kelvin H. Taketa |
70,000 | 44,640 | | | | | 114,640 | |||||||||||||||
Barry K. Taniguchi |
109,000 | 44,640 | | | | | 153,640 | |||||||||||||||
Jeffrey N. Watanabe |
340,833 | 44,640 | | | | 20,589 | 406,062 |
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Details of cash retainers for board and committee service are noted below:
Name
|
HEI Board Retainer ($) |
HEI Comm. Retainer ($) |
HEI Chairman of the Board Retainer ($) |
HECO Board Retainer ($) |
HECO Audit Comm. Retainer ($) |
HELCO Board Fee ($) |
MECO Board Fee ($) |
ASB Board Retainer ($) |
ASB Audit Comm. Retainer ($) |
ASB Compliance Comm. Meeting Fee |
Additional Meeting Fees ($) (1) |
Total ($) |
|||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Don E. Carroll |
40,000 | 4,000 | | | | | | 25,000 | 5,000 | | 1,000 | 75,000 | |||||||||||||||||||||||||
Shirley J. Daniel |
40,000 | 6,000 | | | | | | 25,000 | | | | 71,000 | |||||||||||||||||||||||||
Thomas B. Fargo |
40,000 | 14,000 | | 25,000 | 4,000 | | | | | | 1,000 | 84,000 | |||||||||||||||||||||||||
Richard W. Gushman |
40,000 | 2,667 | | | | | | 25,000 | 5,000 | | | 72,667 | |||||||||||||||||||||||||
Victor H. Li |
40,000 | 4,000 | | | | | | 25,000 | | | 500 | 69,500 | |||||||||||||||||||||||||
Bill D. Mills |
20,000 | 5,333 | | | | | | | | | | 25,333 | |||||||||||||||||||||||||
A. Maurice Myers |
40,000 | 4,000 | | | | | | | | | 1,000 | 45,000 | |||||||||||||||||||||||||
Diane J. Plotts |
40,000 | 19,000 | | | | | | 25,000 | 12,500 | 3,000 | 1,000 | 100,500 | |||||||||||||||||||||||||
James K. Scott (3) |
40,000 | 10,000 | | 4,167 | | | | 16,667 | | | | 70,834 | |||||||||||||||||||||||||
Kelvin H. Taketa |
40,000 | 5,000 | | 25,000 | | | | | | | | 70,000 | |||||||||||||||||||||||||
Barry K. Taniguchi |
40,000 | 6,000 | | 25,000 | 10,000 | 1,500 | 1,500 | 25,000 | | | | 109,000 | |||||||||||||||||||||||||
Jeffrey N. Watanabe (2) |
40,000 | | 250,000 | 20,833 | | | | 25,000 | 5,000 | | | 340,833 |
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How much stock do HEI's directors and executive officers own?
The following table shows how many shares of HEI Common Stock were beneficially owned as of February 20, 2009 by each director, nominee for director and named executive officer (as listed in the Summary Compensation Table on pages 44-46) and by all directors and executive officers as a group, based in part on information furnished by the respective individuals.
Amount of Common Stock and Nature of Beneficial Ownership
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name of Individual or Group |
Sole Voting or Investment Power (1) |
Shared Voting or Investment Power (2) |
Other Beneficial Ownership (3) |
Stock Options/ Restricted Stock Units (4) |
Total (5) |
|||||||||||
|
||||||||||||||||
Nonemployee directors |
||||||||||||||||
Don E. Carroll |
15,985 | 15,985 | ||||||||||||||
Shirley J. Daniel |
12,935 | 12,935 | ||||||||||||||
Thomas B. Fargo |
9,468 | 9,468 | ||||||||||||||
Richard W. Gushman, II |
10,688 | 10,688 | ||||||||||||||
Victor H. Li |
2,626 | 11,204 | 507 | 14,337 | ||||||||||||
A. Maurice Myers |
31,016 | 4,281 | 35,297 | |||||||||||||
Diane J. Plotts |
16,880 | 16,880 | ||||||||||||||
James K. Scott |
19,633 | 19,633 | ||||||||||||||
Kelvin H. Taketa |
15,021 | 15,021 | ||||||||||||||
Barry K. Taniguchi |
21,608 | 21,608 | ||||||||||||||
Jeffrey N. Watanabe |
22,501 | 4 | 22,505 | |||||||||||||
Employee director and Named Executive Officer |
||||||||||||||||
Constance H. Lau |
149,513 | 6,680 | 215,511 | 371,704 | ||||||||||||
Other Named Executive Officers |
||||||||||||||||
Curtis Y. Harada |
12,602 | 93 | 12,695 | |||||||||||||
T. Michael May (6) |
38,071 | 46,387 | 84,458 | |||||||||||||
Chester A. Richardson |
4,500 | 4,500 | ||||||||||||||
Timothy K. Schools |
7,000 | 7,000 | ||||||||||||||
Eric K. Yeaman (6) |
0 | |||||||||||||||
All directors and executive officers as a group (17 persons) (5) |
330,468 |
37,093 |
7,191 |
215,604 |
590,356 |
|||||||||||
|
64
Does anyone own more than 5% of HEI's stock?
No person is known to HEI to be the beneficial owner of more than 5% of the outstanding HEI Common Stock.
Does HEI have stock ownership guidelines for directors and officers?
In 2003, the Board adopted stock ownership guidelines for HEI officers and directors, which went into effect on January 1, 2004. Each officer and director subject to the guidelines has five years to achieve the level of required stock ownership. Stock ownership is measured on January 1 of each year based on the average closing price of HEI common stock on all trading days of the previous calendar year. As of January 1, 2009, each of the directors and officers subject to the guidelines met the ownership requirements, except for those directors and officers who were appointed after 2003 and still have time to meet the guidelines: Admiral Fargo, who has until January 1, 2011, and Mr. Gushman,
65
Mr. Richardson and Mr. Schools, who have until January 1, 2013, to meet the guidelines. At its meeting on January 26, 2009, the HEI Board amended the policy to increase the stock ownership guidelines for the HEI President and Chief Executive Officer to five times (from two and a half times) her base salary in stock within five years from the date the policy was amended in keeping with peers and what the Compensation Committee believes to be best practices. The targets are as follows: (1) HEI President and Chief Executive Officer5 times base salary; (2) other named executive officers of HEI1.5 times base salary; (3) members of the Board of Directors of HEI5 times annual cash retainer; and (4) Chairman of the Board1 times Chairman's cash retainer.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on a review of forms filed by its reporting persons during the last fiscal year, HEI believes that the reporting persons complied with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, except for Mr. Taniguchi and Mr. Mills (who has since retired from the Board), who each failed inadvertently to report one transaction in a timely fashion. Each of these reports has now been filed.
Other Relationships and Related Person Transactions
Does HEI have a written related person transaction policy?
The Board of Directors has adopted a written related person transaction policy that is separate from HEI's Corporate Code of Conduct. The related person transaction policy is specific to transactions between related persons such as executive officers and directors and their immediate family members in which the amount involved exceeds $120,000 and in which any related person had or will have a direct or indirect material interest. Under the policy, the Board, acting through the Nominating and Corporate Governance Committee, will approve a related person transaction involving a director if the Board determines in advance that the transaction is not inconsistent with the best interest of HEI and its shareholders. The Board, acting through the Audit Committee, will approve a related person transaction involving an officer if the Board determines in advance that the transaction is not in violation of HEI's Corporate Code of Conduct.
Are there any family relationships between any HEI executive officer, director and nominee for director?
There are no family relationships between any HEI executive officer, director and nominee for director.
Are there any related person transactions with HEI or its subsidiaries?
HEI's banking subsidiary, American Savings Bank, offers grandfathered preferential employee rate loans to its executive officers and employees who were employed prior to January 1, 2009, as allowed by the amended Federal Reserve Act. The Board approved a recommendation of the Nominating and Corporate Governance Committee that effective June 30, 2006, new preferential rate loans not be extended to any nonemployee director of American Savings Bank. Existing preferential rate loans to
66
nonemployee American Savings Bank directors as of June 30, 2006 were grandfathered. Preferential rate loans that exceeded $120,000 in the aggregate at any time during 2008 are shown below:
Name
|
Largest Principal Amount Outstanding During 2008 |
Principal Amount Outstanding on 1/31/09 |
Amount of Principal Paid in 2008 |
Amount of Interest Paid in 2008 |
Type of Transaction |
Average Interest Rate Charged (1) |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Shirley J. Daniel |
1,436,682 | 1,405,218 | 28,995 | 56,940 | First Mortgage | 4.000% | ||||||||||||
Richard W. Gushman, II |
1,782,268 | 1,731,038 | 47,225 | 57,224 | First Mortgage | 3.250% | ||||||||||||
Constance H. Lau |
775,502 | 750,122 | 23,402 | 20,077 | First Mortgage | 2.625% | ||||||||||||
Constance H. Lau |
33,259 | 29,769 | 3,217 | 994 | Second Mortgage | 3.125% | ||||||||||||
Constance H. Lau |
3,271 | 0 | 8,866 | 0 | Credit Card | 12.000% | ||||||||||||
Victor H. Li |
334,321 | 325,181 | 8,427 | 9,914 | First Mortgage | 3.000% | ||||||||||||
Diane J. Plotts |
422,396 | 408,748 | 12,584 | 10,937 | First Mortgage | 2.625% | ||||||||||||
Timothy K. Schools |
2,908,000 | 2,908,000 | 0 | (2) | 185,385 | First Mortgage | 6.375% | |||||||||||
Jeffrey N. Watanabe |
521,725 | 501,732 | 18,425 | 19,250 | First Mortgage | 3.750% |
American Savings Bank has made other loans, established lines of credit and issued credit cards to directors and executive officers of HEI, and to members of their immediate families. These loans and extensions of credit were made in the ordinary course of business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectability or present other unfavorable features.
Compensation Committee Interlocks and Insider Participation
Don E. Carroll, Thomas B. Fargo, Victor H. Li, Bill D. Mills, A. Maurice Myers and Diane J. Plotts were members of the HEI Compensation Committee for all or part of 2008. Mr. Mills was Compensation Committee Chairman from January 1, 2008 to May 6, 2008. He retired from the Board on July 9, 2008. Admiral Fargo was appointed Compensation Committee Chairman on May 6, 2008.
Victor Li and Diane Plotts are members of the HEI Board and Compensation Committee and are also members of the American Savings Bank Board. As members of the American Savings Bank Board, they have received preferential rate loans as described above.
67
The Audit Committee is responsible for providing independent, objective oversight of HEI's accounting functions and internal controls. It operates and acts under a written charter, which was adopted and approved by the Committee and the HEI Board of Directors. The Board has determined that the five directors of the Audit Committee meet the independence and other qualification requirements of the New York Stock Exchange Listed Company Manual and applicable securities laws. Ms. Plotts, Dr. Daniel and Mr. Taniguchi have been determined by the Board of Directors to be the "audit committee financial experts" on the Audit Committee. In addition, the Committee has standby arrangements with its own independent legal counsel and accounting advisors.
The Audit Committee oversees HEI's financial process on behalf of the Board of Directors. Management has the primary responsibility for HEI's consolidated financial statements and reporting process, including the systems of internal control. The independent registered public accounting firm has the responsibility for the independent audit of the consolidated financial statements and expressing an opinion on the conformity of those audited consolidated financial statements with U.S. generally accepted accounting principles.
In connection with these responsibilities, the Audit Committee held four regular meetings in 2008. In these meetings with management and KPMG LLP, HEI's independent registered public accounting firm, the Committee's review and discussion included the audited consolidated financial statements, audit plan, and quality/adequacy of internal controls. The Committee believes that management maintains effective systems of internal control that result in fairly presented consolidated financial statements. Discussions with KPMG LLP included the matters required by Statement on Auditing Standards No. 61, which incorporates information regarding the scope and results of the audit.
Independent Registered Public Accounting Firm's Independence
KPMG LLP provided the Committee with written disclosures and a letter regarding its independence from management as required by professional standards and other regulatory requirements including applicable requirements of the Public Company Accounting Oversight Board. Based on its review of the disclosure statements and discussions with KPMG LLP, the Audit Committee satisfied itself as to the independence of the external auditor.
68
Auditors' Fees
The following table sets forth the fees paid or payable to KPMG LLP relating to the audit of the 2008 consolidated financial statements and fees for other professional services billed in 2008 with comparative amounts for 2007:
|
2008 | 2007 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Fees | % | Fees | % | |||||||||
Audit fees (principally consisted of fees associated with the audit of HEI's, HECO's and ASB's consolidated financial statements and internal control over financial reporting (SOX 404), quarterly reviews, issuances of letters to underwriters, accounting consultations on matters reflected in the financial statements, statutory audits, review of registration statements, and issuance of consents) |
$ | 2,080,000 | 95.5 | $ | 2,011,500 | 93.0 | |||||||
Audit-related fees (principally consisted of fees associated with the audit of the financial statements of certain employee benefit plans) |
64,400 | 3.0 | 60,300 | 2.8 | |||||||||
Tax fees (tax compliance services with respect to Federal and State taxes) |
32,500 | 1.5 | 90,500 | 4.2 | |||||||||
All other fees |
| | | | |||||||||
|
$ | 2,176,900 | 100.0 | $ | 2,162,300 | 100.0 | |||||||
All of the foregoing amounts were preapproved.
The Audit Committee, pursuant to the terms of its charter, approves all audit services to be performed by the independent registered public accounting firm. In addition, the Audit Committee's preapproval policies and procedures for nonaudit services proposed to be performed by HEI's independent registered public accounting firm are initiated by departmental requests for nonaudit services, which are reviewed by senior management and, once found by management to be acceptable, are sent to the Audit Committee for approval via unanimous written consent or at a meeting of the Audit Committee. In addition, the Audit Committee reviewed the professional fees billed by KPMG LLP and determined that the provision of nonaudit services was compatible with the maintenance of the auditors' independence.
Based on its reviews and discussions with management and KPMG LLP described above and review of their representations and disclosures, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in HEI's 2008 Annual Report on Form 10-K.
SUBMITTED
BY THE
AUDIT COMMITTEE
OF THE HEI BOARD OF DIRECTORS
Diane
J. Plotts, Chairman
Shirley J. Daniel
Thomas B. Fargo
James K. Scott
Barry K. Taniguchi
69
How are proxies solicited and what is the cost?
HEI will solicit proxies by mail, telephone, or other means of communication. We have engaged Laurel Hill Advisory Group to assist in the distribution of proxy materials and solicitation of proxies from shareholders at a cost of $6,500 plus reasonable expenses for such services. In addition, Laurel Hill may also solicit proxies by telephone, for which we will reimburse their expenses. We will also reimburse brokers, fiduciaries and custodians for their costs in forwarding proxy materials to beneficial owners of our Common Stock.
What is the deadline for submitting a proposal for next year's Annual Meeting?
Shareholders who want to have a proposal included in the Proxy Statement and form of proxy for the 2010 Annual Meeting of Shareholders must notify the Corporate Secretary of HEI in writing. The proposal must be received by November 18, 2009.
How can business matters be brought before the Annual Meeting and how will they be voted?
Shareholders who want to properly present business before the Annual Meeting must give notice to the Corporate Secretary of HEI no later than 60 days nor earlier than 90 days prior to the anniversary date of the preceding year's annual meeting. To be timely in the year 2010, notice must be received by the Corporate Secretary of HEI no later than March 6, 2010 and no earlier than February 4, 2010. The notice must be in writing and state the reason and brief description of the business, the name and address of the shareholder, number of shares of HEI Common Stock owned by the shareholder, and any material interest of the shareholder in such business, and include a representation that the shareholder will present the business before the meeting in person or by proxy.
How can shareholders make recommendations for director nominees or nominate a candidate for election?
You can recommend any person as a director of HEI to the Nominating and Corporate Governance Committee by writing to that Committee in care of the Corporate Secretary, Hawaiian Electric Industries, Inc., P. O. Box 730, Honolulu, Hawaii 96808-0730. Recommendations must be received by November 30, 2009 for consideration by the Nominating and Corporate Governance Committee for the 2010 Annual Meeting of Shareholders. The recommendation must include the nominee's qualifications to be a director of HEI and other relevant biographical information and confirmation of the nominee's consent to serve. In addition, a shareholder nominating any person for election to the board at the annual meeting must provide notice no later than March 6, 2010 and no earlier than February 4, 2010. The notice must be in writing and provide the information required to be disclosed in any filing made in connection with solicitations of proxies for the election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. The nomination must be accompanied by a written confirmation of the nominee's consent to serve.
What provisions has HEI made for "householding"?
As permitted by rules of the Securities and Exchange Commission, HEI has adopted a procedure referred to as "householding," under which only one annual report to shareholders will be delivered to shareholders sharing the same address unless contrary instructions are received. Householding reduces the volume of duplicate information received at your household and the cost to HEI of preparing and mailing duplicate materials. Certain shareholder accounts at a householded address will continue to receive separate proxy statements and proxy cards. Dividend payments and account statements are not
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affected. Householding will continue until you are notified otherwise or until you notify us that you wish to receive a separate annual report. You will be removed from the householding program within 30 days of receipt of your notice. If you wish to discontinue householding of the annual report, you may notify us by calling us toll free at (866) 672-5841 or (808) 532-5841 between 7:30 a.m.3:00 p.m., Hawaii Standard Time. You may also discontinue householding by writing to us at the following address Hawaiian Electric Industries, Inc. Shareholder Services, P.O. Box 730, Honolulu, Hawaii 96808-0730 or e-mail us at invest@hei.com.
If you hold your shares in "street name," please contact your bank, broker or other holder of record to request information about householding.
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If other business is properly brought before the Annual Meeting, or at any adjournment thereof, the persons named on the enclosed proxy will vote your stock in accordance with their best judgment. HEI knows of no other business to be presented at the 2009 Annual Meeting.
Please vote your proxy as soon as possible to make certain that your shares will be counted at the meeting.
Patricia U. Wong Vice President-Administration and Corporate Secretary |
March 18, 2009
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AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
HAWAIIAN ELECTRIC INDUSTRIES, INC.
First:
The name of said corporation shall be
"HAWAIIAN ELECTRIC INDUSTRIES, INC."
Second:
The principal office of the corporation shall be located at 900 Richards Street, Honolulu, Hawaii, 96813 and the corporation may have such other offices within or without the State of Hawaii as the nature of its business shall require.
Third:
The purposes of the corporation, itself or achieved through subsidiary corporations, shall be:
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The foregoing clauses shall each be construed as purposes and powers and the matters expressed in each clause or any part of any clause shall be in no wise limited by reference to or inference from any other clause or any other part of the same clause but shall be regarded as independent purposes and powers and the enumeration of specific purposes and powers shall not be construed to limit or restrict in any manner the meaning of the general purposes and powers of the corporation nor shall the expression of one thing be deemed to exclude another, although it be of like nature not expressed.
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Fourth:
The amount of the capital stock of the corporation shall be two hundred million (200,000,000) shares of Common Stock without par value and ten million (10,000,000) shares of Preferred Stock without par value.
The corporation shall also have the power from time to time to issue two or more classes of stock with the preferences, voting powers, restrictions and qualifications thereof fixed in the resolutions authorizing the issue thereof and to provide that the par value of the shares of one class may be the same as or different from the par value of the capital stock of any other class or classes. The corporation shall have similar powers with respect to two or more issues of stock within the same class.
The Board of Directors is authorized to provide for the issuance from time to time of authorized but unissued shares of stock of any class of the corporation and to approve and determine the consideration for which such shares shall be issued, and to divide the authorized and unissued shares of stock of any class into series and to issue any such series, and to fix the terms, preferences, voting powers, restrictions and qualifications of any class or any series of any class. The Board of Directors is authorized to provide for the issuance of any other securities of the corporation upon terms fixed by the Board of Directors, including but not limited to the determination of the consideration for the issuance thereof.
No holder of the shares of stock of any class shall have any preemptive or preferential right of subscription for or to purchase any shares of any class of stock or other securities of the corporation, whether now or hereafter authorized, other than such right or rights, if any, and upon such terms and at such price as the Board of Directors, in its discretion, from time to time may determine, and the Board of Directors may issue shares of stock of any class or other securities without offering the same in whole or in part to the stockholders of the corporation.
The Board of Directors is authorized to provide for the issuance from time to time of authorized but unissued shares of stock of any class or any series of any class, as and for a stock dividend or dividends on shares of the same class or series or any other class or any other series of any class. The Board of Directors is authorized to determine whether the stock of any class or any series of any class shall be exchangeable for or convertible into shares of the same class or series or any other class or any other series of any class, or cash, indebtedness, securities or other property, and to determine the terms and conditions and the limitations, if any, upon which the stock of any class or any series of any class shall be so exchangeable or convertible.
Fifth:
There shall be a board of directors of the corporation to consist of not less than five nor more than eighteen members, who shall be elected or appointed at such times, in such manner, and for such terms as may be prescribed by the By-laws, which also may provide for the removal of directors and the filling of vacancies and may contain provisions that the remaining members of the board of directors, although less than a majority thereof, may, by the affirmative vote of the majority of such remaining members, fill vacancies in the board. The directors need not be stockholders of the corporation. The board of directors shall have full power to control and direct the business and affairs of the corporation, subject, however, to instructions by the stockholders and to any limitations which may be set forth in statutory provisions and in these Articles of Incorporation and in any resolutions authorizing the issuance of shares of preferred stock, and in the By-laws of the corporation. The board of directors of the corporation, without the approval of the stockholders of the corporation, or of any percentage thereof, may authorize the borrowing of money or the incurring of debts, even though as a result thereof the amount of the corporation's indebtedness may exceed its capital stock. The board of directors, without the approval of the stockholders of the corporation, or of any percentage thereof, may authorize the making of donations referred to in subparagraph (m) of Article Third.
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Sixth:
Seventh:
The corporation shall have power to sue and be sued, by said corporate name; to make and use a common seal, and to alter the same at pleasure; to hold, purchase, lease and convey, either absolutely or by way of mortgage, such real and personal property, including therein its own shares, or shares in other corporations and such franchises as the purposes of the corporation shall require and to mortgage the same to secure any debt of the corporation; to appoint such officers and agents as the business of the corporation shall from time to time require and to make such By-laws for the management of its property, the election and removal of its officers, the regulation of its affairs, and the transfer of its stock as the business of the corporation shall from time to time require.
Eighth:
The board of directors in the name of the corporation shall have power at any time or from time to time to make or to delegate to any officer or officers the power to make contracts with any person, firm, corporation, association or organization, employing, engaging or appointing such person, firm, corporation, association or organization as agent of the corporation or as manager of the business and affairs of the corporation, to perform duties and services and to exercise powers and authority in behalf of the corporation, including ministerial, executive, discretionary and/or managerial powers, subject, however, to the supervision of the board of directors. Any such contract shall run for such period of time and shall contain such terms and provisions with respect to the duties, services, powers and authority to be performed and exercised by such agent or manager and with respect to the compensation to be given to such agent or manager therefor, and otherwise, as the board of directors may determine.
Ninth:
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have been known to the board of directors authorizing or approving the same, or to a majority thereof. Any director of the corporation who is pecuniarily or otherwise interested in or is a director or officer or member of such other corporation or any such firm, association or other organization, may be counted in determining a quorum of any meeting of the board of directors which shall authorize or approve any such contract, transaction or act, and may vote thereon with like force and effect as if the director were in no way interested therein. Neither any director nor officer of the corporation, being so interested in any such contract, transaction, or act of the corporation which shall be approved by the board of directors of the corporation, nor any corporation, firm, association, or other organization in which such director or officer may be interested, shall be liable or accountable to the corporation, or to any stockholder thereof, for any loss incurred by the corporation pursuant to or by reason of such contract, transaction, or act, or for any gain received by any such other party pursuant thereto or by reason thereof.
Tenth:
Service of process against the corporation may be made upon the president, secretary, or treasurer of the corporation.
Eleventh:
The corporation shall have succession and corporate existence in perpetuity and become a body corporate under the name and style of HAWAIIAN ELECTRIC INDUSTRIES, INC. and shall have all the powers and rights and be subject to all of the liabilities provided by law for incorporated companies and shall have all the benefits of all general laws hereafter enacted in regard to corporations. All of the property of the corporation shall be liable for the just debts thereof, but no holder of or subscriber for shares of the capital stock of the corporation shall as such be individually liable beyond the amount, if any, which may be due upon the share or shares of capital stock held or subscribed for by him.
Twelfth:
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corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of this corporation and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
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request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article.
Thirteenth:
The personal liability of directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under Hawaii law, including, without limitation, to the fullest extent permissible under Section 414-222 of the Hawaii Revised Statutes, as amended from time to time. No repeal or amendment of this Article directly or by adoption of an inconsistent provision of these Restated Articles of Incorporation will be effective with respect to the liability of a director for acts or omissions occurring prior to such repeal or amendment.
These Amended and Restated Articles of Incorporation supersede the original articles of incorporation and all restatements thereof and amendments thereto.
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HAWAIIAN ELECTRIC INDUSTRIES, INC.
CATEGORICAL STANDARDS OF DIRECTOR INDEPENDENCE
Adopted September 13, 2004
"Immediate family member" includes a person's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law and anyone (other than domestic employees) who shares such person's home.
References to "the company" mean Hawaiian Electric Industries, Inc. and its consolidated subsidiaries.
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If you do not vote by telephone or Internet, please sign and date this proxy card and return it promptly in the enclosed postage-paid envelope, or otherwise to Corporate Election Services, PO Box 3200, Pittsburgh, PA 15230, so that your shares may be represented at the Meeting. If you vote by telephone or Internet, it is not necessary to return this proxy card.
v Please fold and detach card at perforation before mailing. v
HAWAIIAN ELECTRIC INDUSTRIES, INC. | PROXY |
Said proxies are instructed to vote as indicated below. If no direction is indicated, said proxies will vote FOR all Nominees and FOR proposals 2 and 3. Said proxies are also authorized to vote in their discretion with respect to any other matters that may come before the meeting.
The Board of Directors recommends a vote FOR all of the Nominees and FOR proposals 2 and 3.
o | FOR all nominees listed above (except as marked to the contrary below) |
o | WITHHOLD authority to vote for all nominees listed above |
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To withhold authority to vote for any individual nominee, write that nominee's name or number on the line below. | ||||||||||
FOR | AGAINST | ABSTAIN | ||||||
2. | Ratification of KPMG LLP as independent registered public accounting firm. | o | o | o | ||||
3. |
To amend and restate the HEI Restated Articles of Incorporation. |
o |
o |
o |
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o |
Please check this box if you consent to access future Annual Reports and Proxy Statements via the Internet. |
PROXY TO BE SIGNED AND DATED ON THE REVERSE SIDE
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VOTE BY TELEPHONE | ||||||
Have your proxy card available when you call the Toll-Free number 1-888-693-8683 using a touch-tone telephone and follow the simple instructions presented to record your vote. |
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VOTE BY INTERNET | ||||||
Have your proxy card available when you access the website www.cesvote.com and follow the simple instructions presented to record your vote. |
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