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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 | |||
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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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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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(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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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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(4) | Date Filed: |
HAWAIIAN ELECTRIC INDUSTRIES, INC. PO BOX 730 HONOLULU, HI 96808-0730
Constance H. Lau
President and
Chief Executive Officer
March 21, 2011
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, located at 1001 Bishop Street, Honolulu, Hawaii, on May 10, 2011, at 9:30 a.m., local time. A map showing the location of the meeting site appears on page 85 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 2010 and their impact on you as a shareholder of HEI. HEI officers and Board members will be available before and after the meeting to talk with you and answer questions.
Of particular importance for your attention, this is the first year in which we will be asking our shareholders to submit an advisory vote on the Company's executive compensation. A description of the Company's executive compensation programs, as well as details of the compensation for the Company's named executive officers, is provided in the Proxy Statement.
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,
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Hawaiian Electric Industries, Inc. 900 Richards Street Honolulu, Hawaii 96813 |
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Date and Time | Tuesday, May 10, 2011, 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. To elect three Class III directors for a three-year term expiring at the 2014 Annual Meeting of Shareholders. |
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2. To approve the 2011 Nonemployee Director Stock Plan. | ||
3. To hold an advisory vote on the frequency of future advisory votes on HEI's executive compensation. | ||
4. To hold an advisory vote on a resolution approving HEI's executive compensation. | ||
5. To ratify the appointment of PricewaterhouseCoopers LLP as HEI's independent registered public accounting firm for 2011. | ||
Record Date |
March 2, 2011. |
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Annual Report |
The 2010 Annual Report to Shareholders, which is not a part of the proxy solicitation materials, has 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 (i.e., in "street name") should follow the voting instruction card provided by such 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 |
Only shareholders of record as of the record date are entitled to receive notice of, attend and vote at the Annual Meeting. If your shares are registered in street name, you must 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 Annual Meeting of Shareholders to be held on May 10, 2011 |
The Proxy Statement and Annual Report to Shareholders are available at www.hei.com/proxymatl.html. |
By Order of the HEI Board of Directors. | ||||
March 21, 2011 |
Chester A. Richardson Senior Vice President, General Counsel, Secretary and Chief Administrative Officer |
HEI is soliciting proxies for the Annual Meeting of Shareholders scheduled for May 10, 2011, 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 Report to Shareholders is March 21, 2011. The 2010 Annual Report to Shareholders accompanying this Proxy Statement is not considered proxy soliciting material.
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?
Electronic Access to Proxy Materials
HEI provides shareholders the option to access its proxy materials via the Internet. In keeping with our efforts to conserve natural resources, this method of delivery reduces the amount of paper necessary to produce these materials and reduces the costs associated with the printing and mailing of these materials to shareholders. On March 21, 2011, a Notice of Internet Availability of Proxy Materials
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(Notice) will be mailed to certain shareholders and our proxy materials will be posted on the website referenced in the Notice (www.ViewMaterial.com/HEI). As more fully described in the Notice, shareholders may choose 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. The Notice and website will provide information regarding how to request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis.
If you currently receive our proxy materials in printed form and would like to receive them electronically in the future, please so indicate on the enclosed proxy, if voting by mail, or by following the instructions provided when using the telephone or Internet voting options described under "How do shareholders vote?" below.
Only persons who own shares of HEI Common Stock as of the close of business on March 2, 2011 (the proxy record date) are entitled to vote.
How many shares are outstanding and entitled to vote?
On March 2, 2011, 94,915,883 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 of HEI Common Stock outstanding on March 2, 2011 and entitled to vote, and present in person or by proxy at the Annual Meeting, constitutes a quorum. Abstentions and broker votes of uninstructed shares on routine matters (such as ratification of the appointment of the independent registered public accounting firm) will be counted in the number of shares present in person or by proxy for purposes of determining a quorum. A quorum established for one purpose will apply for all purposes at the Annual Meeting.
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 before the Annual Meeting, or in person at the Annual Meeting. The Internet and telephone procedures are designed to authenticate your vote 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. If you vote by telephone, you will receive additional recorded instructions, and 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 or other holder of record seeking instruction as to how your shares should be voted. If you do not provide such instruction, your broker or nominee may vote your shares at its discretion on your behalf on routine matters, but not on nonroutine matters. The ratification of the appointment of HEI's independent registered public accounting firm is considered a routine matter. The election of directors, the approval of the 2011 Nonemployee Director Stock Plan, the advisory vote on the frequency of advisory votes on executive compensation and the advisory vote on executive compensation are considered nonroutine matters. Please provide instructions to your broker on how to vote your shares on all five proposals to ensure that your shares will be voted on all proposals at the Annual Meeting.
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, the HEI Retirement Savings Plan or the American Savings Bank 401(k) Plan?
If you own shares held in the Dividend Reinvestment and Stock Purchase Plan, the HEI Retirement Savings Plan (including shares previously received under the Tax Reduction Act Stock Ownership Plan) or the American Savings Bank 401(k) Plan, the respective plan trustees will vote those shares according to your directions. For all of these plans, 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 vote by any of the methods described above, you may revoke your proxy or vote at any time before the Annual Meeting in one of three ways:
If a quorum is present at the Annual Meeting, then:
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since your options are to vote either "FOR" or to "WITHHOLD" your vote for a nominee. Although the election of directors is considered a nonroutine matter, broker nonvotes (i.e., when your broker or other holder of record does not vote your shares on a nonroutine matter because you have not provided instructions regarding how to vote on that matter) will not affect the outcome of this matter.
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 for proxies of the other shareholders of record. Your identity and vote will not be disclosed to persons other than those acting as tabulators except:
Could other matters be decided at the Annual Meeting?
HEI knows of no business to be presented at the 2011 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 or postponement 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 remain valid 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.
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Director Nominees for Election and Continuing Directors
Nominees for Class III Directors Whose Terms Expire at the 2014 Annual Meeting
Peggy Y. Fowler, age 59, director nominee for 2011 Annual Meeting Ms. Fowler brings a wealth of knowledge and experience to HEI. Her prior positions in managing utility operations and leading a large public company as its chief executive officer impart significant expertise to the Board. Her recent experience serving on the board of a mainland bank holding company will strengthen the Board's capabilities in overseeing the subsidiary bank operations. Business experience and other public company and HEI affiliate directorships since 2006 Director and Audit Committee Member, Hawaiian Electric Company, Inc., since 2009 Co-Chief Executive Officer, Portland General Electric Company (PGE), 2009 President and Chief Executive Officer, PGE, 2000-2008 Director, PGE, since 1998 Director, Umpqua Holdings Corporation, since 2009, and Chair of Budget and Compensation Committees, since April 2010 |
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Skills and qualifications for HEI Board service |
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Involvement in certain legal proceedings |
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Keith P. Russell, age 65, director nominee for 2011 Annual Meeting Mr. Russell has extensive senior management experience in the banking industry. His prior service as chief risk officer of a large financial institution significantly strengthens the Board's capabilities in overseeing risk within the organization. In addition, Mr. Russell's many years of experience in managing and overseeing bank operations will contribute important expertise to the Board. Mr. Russell also has extensive knowledge and experience from his prior service as an officer of a lender to the electric utility industry. Business experience and other public company and HEI affiliate directorships since 2006 Director and Audit Committee Member, American Savings Bank, F.S.B. (HEI subsidiary), since 2010 President, Russell Financial, Inc. (strategic and financial consulting firm servicing business and high net worth families and individuals), since 2001 Vice Chair/Chief Risk Officer, Mellon Financial Corp., then Chairman, Mellon West, 1991-2001 Senior Executive Vice President, then Director, President and Chief Operating Officer, GLENFED/Glendale Federal Bank, 1983-1991 Director, Nationwide Health Properties, since 2002 Director, Sunstone Hotel Investors, since 2003 Director, Countrywide Financial, 2003-2008 |
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Skills and qualifications for HEI Board service |
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Barry K. Taniguchi, age 63, director since 2004 and nominee for 2011 Annual Meeting Audit Committee Chair Executive Committee Member Mr. Taniguchi brings to the Board considerable experience as a business leader in Hawaii, with extensive knowledge of the business climate and significant contacts and relationships within the business community and local governmental agencies. With the successes of his own businesses, and because of his commitment to a wide array of charitable causes, Mr. Taniguchi is one of the most well-respected businesspersons in the state of Hawaii. Business experience and other public company and HEI affiliate directorships since 2006 President and Chief Executive Officer, KTA Super Stores (grocery store chain), since 1989 President, K. Taniguchi Ltd. (real estate lessor), since 1989 Director, American Savings Bank, F.S.B. (HEI subsidiary), since 2002 Director since 2001 and Audit Committee Chair, Hawaiian Electric Company, Inc. (HEI subsidiary) Director, Hawaii Electric Light Company, Inc. (HEI subsidiary), 1997-2009 Director, Maui Electric Company, Limited (HEI subsidiary), 2006-2009 |
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Skills and qualifications for HEI Board service |
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Continuing Class I Directors Whose Terms Expire at the 2012 Annual Meeting
Constance H. Lau, age 59, director 2001-2004 and since 2006 Executive Committee Member Current and prior positions with the Company President and Chief Executive Officer and Director, HEI, since 2006 Chairman of the Board, Hawaiian Electric Company, Inc. (HEI subsidiary), since 2006 Chairman of the Board, American Savings Bank, F.S.B. (HEI subsidiary), since 2006 Chairman of the Board and Chief Executive Officer, American Savings Bank, F.S.B., 2008-2010 Chairman of the Board, President and Chief Executive Officer, American Savings Bank, F.S.B., 2006-2008 President and Chief Executive Officer and Director, American Savings Bank, F.S.B., 2001-2006 Senior Executive Vice President and Chief Operating Officer and Director, American Savings Bank, F.S.B., 1999-2001 Treasurer, HEI, 1989-1999 Financial Vice President and Treasurer, HEI Power Corp. (former HEI subsidiary), 1997-1999 Treasurer, Hawaiian Electric Company, Inc., and Assistant Treasurer, HEI, 1987-1989 Assistant Corporate Counsel, Hawaiian Electric Company, Inc., 1984-1987 |
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Other public company directorships since 2006 |
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Skills and qualifications for HEI Board service |
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A. Maurice Myers, age 70, director since 1991 Compensation Committee Member Business experience and other public company and HEI affiliate directorships since 2006 Chief Executive Officer and Owner, Myers Equipment Leasing LLC (equipment leasing company), since 2010 Chief Executive Officer and Director, POS Hawaii LLC (provider of point-of-sale business systems for restaurants and retailers), since 2009 Chief Executive Officer and Director, Wine Country Kitchens LLC (manufacturer of gourmet food products), since 2007 Chairman, Chief Executive Officer and President, Waste Management, Inc. (waste and environmental services provider), 1999-2004 Director, Hawaiian Electric Company, Inc. (HEI subsidiary), 2004-2006 and since 2009 |
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Skills and qualifications for HEI Board service |
James K. Scott, Ed.D., age 59, director since 1995 Audit Committee Member Nominating and Corporate Governance Committee Member Business experience and other public company and HEI affiliate directorships since 2006 President, Punahou School (K-12 independent school), since 1994 Director, American Savings Bank, F.S.B. (HEI subsidiary), since 2008 Skills and qualifications for HEI Board service Recognized leadership and executive management skills as President of Punahou School for 17 years. 26 years of experience developing and executing strategic plans as the chief executive at two independent schools, including overseeing fundraising programs and admissions/marketing functions. Governance and board leadership experience from his current positions as Chair of the Secondary School Admission Test Board, director and former Chair of the Hawaii Association of Independent Schools, member of the Board of Governors of the Pacific and Asian Affairs Council and member of the Advisory Board of the Klingenstein Center of Teachers College at Columbia University. |
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Continuing Class II Directors Whose Terms Expire at the 2013 Annual Meeting
Thomas B. Fargo, age 62, director since 2005 Compensation Committee Chair Nominating and Corporate Governance Committee Member Business experience and other public company and HEI affiliate directorships since 2006 Operating Executive Board Member, J.F. Lehman & Company (private equity firm), since 2008 Owner, Fargo Associates, LLC (defense and homeland/national security consultancy), since 2005 Chief Executive Officer, Hawaii Superferry, Inc. (interisland ferry), 2008-2009 President, Trex Enterprises Corporation (defense research and development firm), 2005-2008 Commander, U.S. Pacific Command, 2002-2005 Director since 2008 and Audit Committee Member, Northrop Grumman Corporation Director, Hawaiian Holdings, Inc., 2005-2008 Director since 2005, Hawaiian Electric Company, Inc. (HEI subsidiary) |
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Skills and qualifications for HEI Board service |
Kelvin H. Taketa, age 56, director since 1993 Nominating and Corporate Governance Committee Chair Business experience and other public company and HEI affiliate directorships since 2006 President and Chief Executive Officer, Hawaii Community Foundation (statewide charitable foundation), since 1998 Director, Hawaiian Electric Company, Inc. (HEI subsidiary), since 2004 Skills and qualifications for HEI Board service Executive management experience with responsibility for overseeing more than $405 million in charitable assets as President and Chief Executive Officer of the Hawaii Community Foundation. Proficiency in risk assessment, strategic planning and organizational leadership as well as marketing and public relations obtained from his current position at the Hawaii Community Foundation and his prior experience as Vice President and Executive Director of the Asia/Pacific Region for The Nature Conservancy and as Founder, Managing Partner and Director of Sunrise Capital Inc. Knowledge of corporate and nonprofit governance issues gained from his prior service as a director for Grove Farm Company, Inc., his current service as Vice Chair of the Independent Sector and Director of the Stupski Foundation and through publishing articles and lecturing on governance of tax-exempt organizations. |
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Jeffrey N. Watanabe, age 68, director since 1987 Chairman of the Board since 2006 Executive Committee Chair Business experience and other public company and HEI affiliate directorships since 2006 Managing Partner, Watanabe Ing & Komeiji LLP, 1972-2007 (now retired) Director since 2003 and Compensation and Corporate Governance Committee Member, Alexander & Baldwin, Inc. Director since 1988 and Executive Committee Member, American Savings Bank, F.S.B. (HEI subsidiary) Director, Hawaiian Electric Company, Inc. (HEI subsidiary), from 1999-2006 and since 2008 Skills and qualifications for HEI Board service Broad business, legal, corporate governance and leadership experience from serving as Managing Partner of the law firm he founded, advising clients on a variety of business and legal matters for 35 years and from serving on more than a dozen public and private company and nonprofit boards and committees, including his current service on the Compensation and Corporate Governance Committees for Alexander & Baldwin, Inc. Specific experience with strategic planning from providing strategic counsel to local business clients and prospective investors from the continental United States and the Asia Pacific region for 25 years of his law practice. |
Class I Director Who Intends to Resign at the 2011 Annual Meeting
Shirley J. Daniel, Ph.D., C.P.A., age 57, director since 2002 Audit Committee Member Business experience and other public company and HEI affiliate directorships since 2006 Professor of Accountancy, Shidler College of Business, University of Hawaii at Manoa, since 1995 Director, American Savings Bank, F.S.B. (HEI subsidiary), since 2004 Skills and qualifications for HEI Board service Current expertise in accounting, auditing and corporate governance from teaching courses on these subjects at the Shidler College of Business. Business and leadership experience from her current service as Director for the Pacific Asian Management Institute and Center for International Business Education and Research and from her prior service as Managing Director for the Pacific Asian Center for Entrepreneurship and E-Business. Prior experience in accounting and auditing from being a licensed certified public accountant and from working as an auditor and audit manager with the international accounting firm Arthur Young & Company (currently Ernst & Young LLP). |
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Class III Directors Who Are Not Continuing After the Expiration of Their Terms at the 2011
Annual Meeting
Don E. Carroll, age 69, director since 1996 Compensation Committee Member Business experience and other public company and HEI affiliate directorships since 2006 Retired Chairman, Oceanic Time Warner Cable Advisory Board, since 2004 Director since 2004 and Audit Committee Member, American Savings Bank, F.S.B. (HEI subsidiary) Skills and qualifications for HEI Board service 38 years of executive and finance management experience as President and Vice President, Finance of Oceanic Cable. Experience with financial institutions and executive compensation and compensation program oversight from serving as Chair of the Compensation Committee for Island Insurance Company, Ltd. and as a member of the Compensation Committee for Pacific Guardian Life. In-depth knowledge and familiarity with issues facing HEI and its banking subsidiary gained from 15 years of service as a director for HEI and 7 years of service as a director for American Savings Bank, F.S.B. |
Victor H. Li, S.J.D., age 69, director since 1988 Compensation Committee Member Business experience and other public company and HEI affiliate directorships since 2006 Co-Chairman, Asia Pacific Consulting Group (Pacific region trade consultancy), since 1992 Director, American Savings Bank, F.S.B. (HEI subsidiary), since 2004 Skills and qualifications for HEI Board service Thoughtful leadership and consensus-building skills and marketing and strategic planning experience acquired through his current position for the last 19 years as Co-Chairman of the Asia Pacific Consulting Group, and his former position for 10 years as chief executive for the East-West Center. Long-term knowledge and understanding of HEI's operations and strategic goals after 21 years on the Board. Prior energy and public company board experience from serving as a director at Grumman Corporation and AES China Generating Co. Ltd. |
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Proposal No. 1: Election of Class III Directors
In accordance with the Bylaws of the Company, the Board has fixed the size of the Board to serve from and after the 2011 Annual Meeting at nine directors, divided into three classes with staggered terms. The Board proposes that the following three nominees be elected at the 2011 Annual Meeting as Class III directors to serve until the 2014 Annual Meeting, or until their successors shall be duly elected and qualified:
The Board proposes three Class III nominees for election at the Annual Meeting:
Mr. Taniguchi is currently an incumbent Class III director of HEI. Ms. Fowler and Mr. Russell are new nominees, but they are not new to the HEI family of companies, as they are directors of HEI's principal subsidiaries. Ms. Fowler is a director of Hawaiian Electric Company and Mr. Russell is a director of American Savings Bank, and each has substantial experience in the electric power and banking industries, respectively. Ms. Fowler and Mr. Russell are nominated to fill the positions held by current Class III directors Don E. Carroll and Victor H. Li, who have served several terms on the HEI Board but are not seeking reelection. Mr. Carroll will continue serving the Company as a member of the board of directors for HEI subsidiary Hawaiian Electric Company. The Board has determined that all three nominees are independent under the applicable standards for director independence, as discussed below under "Board of DirectorsWho are the independent directors of the Board?". Each nominee has consented to serve for the new term expiring at the 2014 Annual Meeting if elected. If a nominee is unable to stand for election at the time of the 2011 Annual Meeting, the proxy holders listed in the proxy may vote in their discretion for a suitable substitute.
At the 2010 Annual Meeting, the Board was fixed at 11. However, Mr. Richard W. Gushman, II resigned from his position as a Class III director effective September 30, 2010. In addition, Dr. Shirley J. Daniel, a Class I director with a term expiring in 2012, intends to resign from the Board effective at the Annual Meeting (but she will continue to serve the Company as a member of the board of directors of HEI subsidiary American Savings Bank). Following the Annual Meeting, there will thus be a total of nine directors on the HEI Board with three directors in each of the three Board classes of directors.
Information regarding the business experience and certain other directorships for each Class III director nominee and for each continuing Class I and II director is provided on pages 5-12 above together with a description of the experience, qualifications, attributes and skills that led to the Board's conclusion at the time of this Proxy Statement that each of the nominees and directors should serve on the Board in light of HEI's current business and structure.
YOUR BOARD RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE NOMINEES FOR CLASS III DIRECTOR LISTED ABOVE.
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What are HEI's governance policies and guidelines?
In 2010, 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, regulations of the Securities and Exchange Commission and rules and regulations of the Board of Governors of the Federal Reserve, Federal Deposit Insurance Corporation and Office of Thrift Supervision applicable to HEI as a bank holding company. As part of an annual review, the HEI Categorical Standards of Director Independence (see Appendix B), Corporate Governance Guidelines, Corporate Code of Conduct and charters for the Audit, Compensation, Executive and Nominating and Corporate Governance Committees were reviewed and revised as deemed appropriate by the Board. These documents are available on HEI's website at www.hei.com.
What is the Board's leadership structure?
Since 2006, Mr. Watanabe has served as the nonexecutive Chairman of the Board and Ms. Lau has served as HEI's President and Chief Executive Officer. Since that time, Ms. Lau has also been the only employee director on the Board. Prior to 2006, the Company's Chief Executive Officer had also served as Chairman of the Board. During that time, the Board had an independent Lead Director.
Mr. Watanabe has served on the Board since 1987, but has never been employed by HEI or any HEI subsidiary. The Board has determined that he is independent. Among the many skills and qualifications that Mr. Watanabe brings to the Board, the Board considered: (i) his extensive experience in corporate and nonprofit governance from serving on other public company, private company and nonprofit boards; (ii) his reputation for effective consensus and relationship building and business and community leadership, including leadership of his former law firm; (iii) his willingness to spend time advising and mentoring members of HEI's senior management; and (iv) his dedication to committing the hard work and time necessary to successfully lead the Board.
As HEI's Chairman, Mr. Watanabe's key responsibilities are to:
The Board's Corporate Governance Guidelines provide that if the Chairman and Chief Executive Officer positions are held by the same individual, or if the Board determines that the Chairman is not independent, the independent directors should designate an independent director to serve as Lead Director. If a Lead Director is designated, the Lead Director's responsibilities would be to: (i) preside
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at Board and shareholder meetings when the Chairman is not present, (ii) preside at executive sessions of the independent directors, (iii) facilitate communication between the independent directors and the Chairman or the Board as a whole, (iv) call meetings of the nonmanagement or independent directors in executive session, (v) participate in approving meeting agendas, schedules and materials for the Board and (vi) perform other functions described in the Corporate Governance Guidelines or as determined by the Board from time to time.
The Board believes that its current leadership structure, which provides for an independent nonemployee Chairman, or an independent Lead Director if the Chairman is not independent, is appropriate and effective in light of HEI's current operations, strategic plans and overall corporate governance structure. Several reasons support this conclusion. First, the Board believes that having an independent Chairman or Lead Director has been important in establishing a tone at the top for both the Board and the Company that encourages constructive expression of views that may differ from those of senior management. Second, the Board believes that the presence of an independent Chairman or Lead Director, particularly at this time of growing government and investor scrutiny of public and financial company boards, demonstrates to the Company's regulators and shareholders that the Board is committed to serving the best interests of the Company and its shareholders and not the best interests of management. Third, the Board recognizes that the Company has an uncommon corporate governance structure in that the boards of its two primary operating subsidiaries are also composed mostly of nonemployee directors and that the HEI Chairman plays an important leadership role at these subsidiary boards. For instance, in addition to chairing executive sessions of the nonemployee directors and attending meetings of the audit committees of these subsidiary boards, the Chairman leads each subsidiary board in conducting its annual performance evaluation and assists communications between each of these boards and management of the respective subsidiary company and among members of each subsidiary board.
What is the Board's role in risk oversight?
HEI is a holding company that operates principally through its electric public utility and bank subsidiaries. At the holding company and subsidiary levels, the Company faces a variety of risks, including operational risks, regulatory and legal compliance risks, credit and interest rate risks, competitive risks and liquidity risks. Developing and implementing strategies to manage these risks is the responsibility of management, and that responsibility is carried out by assignments of responsibility to various officers and other employees of the Company under the direction of HEI's Chief Financial Officer, who also serves as HEI's chief risk officer. The role of the Board is to oversee the management of these risks.
The Board's specific risk oversight functions are as follows:
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risks and management's assessment of those risks reported by HEI's chief risk officer. As part of the Board's ongoing risk oversight, HEI's chief risk officer is responsible for providing regular reports to the Board and Audit Committee on the status of those risks, any changes to the risk catalog or management's assessment of those risks, and any other risk management matters that the Board may request from time to time. The Board and Audit Committee also receive reports from HEI's internal auditor evaluating the effectiveness of management's implementation of the approved ERM system.
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risks facing the Company and options to mitigate those risks. To facilitate strategic planning through constructive dialogue among management and Board members, members of management who are not directors may be invited to participate in the review. Based on the review, the Board and senior management, including the HEI chief risk officer, identify key issues to be addressed during the course of the next calendar year.
The Board believes that risk oversight is one of the areas in which having an independent Chairman or Lead Director is especially important in order to ensure that views that may differ from those of management are expressed. Since the HEI Chairman attends the meetings of the Board, the subsidiary boards and their respective committees, the HEI Chairman is also in a unique position to assist with communications regarding risk oversight and risk management among the Board and its committees, between the subsidiary boards and their respective committees and between directors and management.
How does the Board select nominees for the Board?
The Board believes that there are skill sets and qualities and attributes that should be represented on the Board as a whole but not necessarily by each director. The Nominating and Corporate Governance Committee and the Board thus consider the qualifications and attributes of directors and director candidates not only individually but also in the aggregate and in light of the current and future needs of HEI and its subsidiaries.
The Nominating and Corporate Governance Committee of the Board assists the Board in identifying and evaluating persons for nomination or renomination for Board service. To identify qualified candidates for HEI Board membership, the committee may consider persons who are serving on its subsidiary boards as well as persons suggested by Board members, management and shareholders or may retain a third-party search firm to help identify potentially qualified candidates. The committee's evaluation process does not vary based on whether or not a candidate is recommended by a shareholder.
Once a person is identified as a potential director candidate, the committee may review publicly available information to assess whether the candidate should be further considered. If so, a committee member or designated representative for the committee will contact the person. If the person is willing to be considered for nomination, the person is asked to provide additional information regarding his or her background, his or her specific skills, experience and qualifications for Board service, and any direct or indirect relationships with the Company. In addition, one or more interviews may be conducted with committee and Board members and committee members may contact one or more references provided by the candidate or others who would have first-hand knowledge of the candidate's qualifications.
In evaluating the qualifications and attributes of each potential candidate (including incumbent directors) for nomination or renomination, the committee considers:
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The Board considers the recommendations of the Nominating and Corporate Governance Committee and then makes the final decision whether to approve and extend an invitation to a candidate to join the Board upon appointment or election, subject to any approvals required by law, rule or regulation.
Ms. Fowler and Mr. Russell, both of whom are new nominees for election as HEI directors but are currently directors of Hawaiian Electric Company and American Savings Bank, respectively, were highly recommended by the Nominating and Corporate Governance Committee based on its observations of the performance of these individuals as directors of these HEI subsidiaries and taking into account their strong experience in the electric power and financial services industries, respectively. Ms. Fowler was recruited to the board of directors of Hawaiian Electric Company in 2009 and Mr. Russell to the American Savings Bank board in 2010, in each instance with the assistance of an international executive search firm.
Does the Board consider diversity in identifying nominees for the Board?
In assisting the Board to identify qualified director candidates, the Nominating and Corporate Governance Committee considers the diversity of race, ethnicity, gender, age, cultural background and professional experience of the candidate. The Board believes it functions most effectively with members who collectively possess a range of substantive expertise, skills and experience in areas that are relevant to leading the Company in accordance with the Board's fiduciary responsibilities. The Board also believes that having a board composed of members who can collectively contribute a range of perspectives, including perspectives that may arise from being female or a racial minority, improves the quality of the Board's deliberations and decisions because it enables the Board to view issues from a variety of angles and thus more thoroughly and completely. As the Company's operations and strategic plans and the Board's composition may evolve over time, the Nominating and Corporate Governance Committee is charged with identifying and assessing the appropriate mix of knowledge areas, qualifications and personal attributes contributed by Board members that will bring the most strategic and decision-making advantage to the Company.
With operations almost exclusively in the state of Hawaii, it is natural and advantageous that our Board be composed largely of members who live and work in the state and have firsthand knowledge of and experience with our customer base and political and regulatory environment. Since a large pool of potential candidates for Board membership come from this state, the Board benefits from the unique racial diversity that exists in Hawaii. If the shareholders vote to elect the three director nominees proposed by the Board for election at the Annual Meeting, the resulting composition of the Board would be as follows: four directors (or 44.4%) who are Caucasian, four directors (or 44.4%) who are Asian American and one director (or 11.1%) who is Caucasian, Asian American and native Hawaiian. Two (or 22.2%) of such nine directors, including current nominees, are female.
The Board also recognizes that, due to Hawaii's geographic isolation from the continental United States and the comparatively small number of public companies, banks and regulated utilities based in Hawaii, the Board also benefits from having directors who have gained business experience at companies located in other states because those Board members can and have contributed valuable information about experiences they have had working at or serving on the boards of other public
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companies and companies in similar industries, which also contributes to the breadth of perspectives on the Board.
How can shareholders communicate with the directors?
Interested parties, including shareholders, desiring to communicate with the Board, any director or the independent directors as a group regarding matters pertaining to the business or operations of HEI may address their correspondence in care of the Corporate Secretary, Hawaiian Electric Industries, Inc., P.O. Box 730, Honolulu, HI 96808-0730. The HEI Corporate Secretary may review, sort and summarize all such correspondence in order to facilitate communications to the Board. In addition, the HEI Corporate Secretary has the authority and discretion to handle any director communication that is an ordinary course of business matterincluding routine questions, complaints, comments and related communications that can appropriately be handled by management. Directors may at any time request copies of all correspondence addressed to them. The charter of the HEI Audit Committee, which is available for review at www.hei.com, sets forth procedures for submitting complaints or concerns regarding financial statement disclosures, accounting, internal accounting controls or auditing matters on a confidential, anonymous basis.
Who are the independent directors of the Board?
Under HEI's Corporate Governance Guidelines, a majority of Board members must qualify as independent under the listing standards of the New York Stock Exchange (NYSE) and any additional requirements as determined by the Board from time to time.
The Nominating and Corporate Governance Committee and the Board considered the information below, which was provided by the directors and director nominees and/or by HEI or its subsidiaries, concerning relationships between (i) HEI or its subsidiaries and (ii) the director, director nominee, the director's or director nominee's immediate family members (as defined by NYSE) or entities with
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which any of the directors, director nominees or immediate family members have certain affiliations. Based on its consideration of the relationships described below and the recommendations of the Nominating and Corporate Governance Committee, the Board determined at its meeting on February 8, 2011 that all of the nonemployee directors and director nominees of HEI (Messrs. Carroll, Fargo, Li, Myers, Russell, Scott, Taketa, Taniguchi and Watanabe and Mses. Daniel and Fowler) are independent. The remaining director, Ms. Lau, is the only employee director of HEI. In addition, the Board determined that Richard W. Gushman, II, who resigned from the Board effective September 30, 2010, and Diane J. Plotts, who retired from the Board at the 2010 Annual Meeting of Shareholders, were independent during their service on the Board in 2010.
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officer serves as a director or trustee and determined that none of these relationships affected the independence of these directors. None of these relationships resulted in a compensation committee interlock or would automatically preclude an independence finding under the NYSE listing standards or HEI Categorical Standards.
How often did the Board meet in 2010?
In 2010, there were nine regular meetings and no special meetings of the Board. All directors attended at least 75% of the combined total number of meetings of the Board and Board committees on which they served.
Does the Board meet in executive session without management present?
The nonemployee directors meet regularly in executive sessions without management present. In 2010, these sessions were chaired by Mr. Watanabe, who is the Chairman of the Board and an independent nonemployee director. Mr. Watanabe may request from time to time that other nonemployee directors chair the executive sessions.
Did all directors attend last year's Annual Meeting?
Ten of HEI's twelve directors attended the 2010 Annual Meeting of Shareholders. HEI encourages all directors to attend each year's Annual Meeting of Shareholders.
Does the Board evaluate itself?
The Board conducts annual evaluations to determine whether it and its committees are functioning effectively. In addition, each director annually evaluates his or her performance as a director and each member of the Audit, Compensation and Nominating and Corporate Governance Committees annually evaluates the performance of each committee on which he or she serves. The evaluation process is overseen by the Nominating and Corporate Governance Committee, in consultation with the Chairman. The chairperson of the Nominating and Corporate Governance Committee or the Chairman may meet with individual directors to discuss their performance, as he or she deems appropriate.
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What committees has the Board established and how often did they meet?
The Board has four standing committees: Audit, Compensation, Executive and Nominating and Corporate Governance. Members of these committees are appointed annually by the Board, taking into consideration the recommendations of the Nominating and Corporate Governance Committee. The table below shows committee members during 2010 and the number of meetings of each committee held in 2010.
|
|||||||||
---|---|---|---|---|---|---|---|---|---|
Name |
Audit |
Compensation |
Executive |
Nominating and Corporate Governance |
|||||
|
|||||||||
Don E. Carroll |
X | ||||||||
|
|||||||||
Shirley J. Daniel |
X | ||||||||
|
|||||||||
Thomas B. Fargo (1) |
X | X | (2) | X | |||||
|
|||||||||
Richard W. Gushman, II (3) |
X | ||||||||
|
|||||||||
Constance H. Lau (4) |
X | ||||||||
|
|||||||||
Victor H. Li |
X | ||||||||
|
|||||||||
A. Maurice Myers |
X | ||||||||
|
|||||||||
Diane J. Plotts (5) |
X | (2) | X | X | |||||
|
|||||||||
James K. Scott |
X | X | |||||||
|
|||||||||
Kelvin H. Taketa |
X | (2) | |||||||
|
|||||||||
Barry K. Taniguchi (6) |
X | (2) | X | ||||||
|
|||||||||
Jeffrey N. Watanabe |
X | (2) | |||||||
|
|||||||||
Number of Meetings in 2010 |
5 | 8 | 0 | 3 | |||||
|
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What are the primary functions of each of the four committees?
The primary functions of HEI's standing committees are described below. Each committee operates and acts under written charters that are approved by the Board and available for review on HEI's website at www.hei.com. Each of the Audit, Compensation and Nominating and Corporate Governance Committees may form subcommittees of its members and delegate authority to its subcommittees.
Audit Committee
The Audit Committee is responsible for overseeing (i) HEI's financial reporting processes and internal controls, (ii) the performance of HEI's internal auditor, (iii) risk assessment and risk management policies set by management and (iv) the Corporate Code of Conduct compliance program for HEI and its subsidiaries. In addition, this committee is directly responsible for the appointment, compensation and oversight of the independent registered public accounting firm that audits HEI's consolidated financial statements and maintains procedures for receiving and reviewing confidential reports to the committee of potential accounting and auditing concerns. See "Audit Committee Report" below for additional information about the Audit Committee.
All Audit Committee members are independent and qualified to serve on this committee pursuant to NYSE and SEC requirements and the Audit Committee meets the other applicable requirements of the Securities Exchange Act of 1934. None of the Audit Committee members serve on the audit committees of more than two other public companies.
Compensation Committee
The responsibilities of the Compensation Committee include (i) overseeing the compensation plans and programs for employees, executives and nonemployee directors of HEI and its subsidiaries, including equity and incentive plans; (ii) reviewing the extent to which risks that may arise from the Company's compensation policies and practices, if any, may have a material adverse effect on the Company and recommending changes to address any such risks; (iii) evaluating the compliance of American Savings Bank's incentive compensation practices under the principles for sound incentive compensation plans and (iv) assessing the independence of any compensation consultant involved in determining or recommending director or executive compensation. See "Compensation Discussion and AnalysisCompensation Process" and "Other Relationships and Related Person TransactionsCompensation Committee Interlocks and Insider Participation" below for additional information about the Compensation Committee.
All Compensation Committee members are independent and qualified to serve on this committee pursuant to NYSE requirements and also qualify as "outside directors" within the meaning of Section 162(m) of the Internal Revenue Code. At least a majority of the members of the Compensation Committee qualifies as "nonemployee directors" as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934. During 2010, a Nonemployee Director Subcommittee made equity grants on behalf of the Compensation Committee; however, the Compensation Committee as a whole has been, and will be, performing this function in 2011. A member of the board of directors of each of Hawaiian Electric Company and American Savings Bank attends meetings of the Compensation Committee as a nonvoting representative of such director's subsidiary board.
Executive Committee
The Executive Committee may exercise the power and authority of the Board when it appears to its members that action is necessary and a meeting of the full Board is impractical. It may also consider other matters concerning HEI that may arise from time to time between Board meetings. The
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committee is currently composed of the Chairman of the Board, who chairs the committee, the Audit Committee Chairperson and the HEI President and Chief Executive Officer.
Nominating and Corporate Governance Committee
The functions of the Nominating and Corporate Governance Committee include (i) evaluating the background and qualifications of potential nominees for the Board and for the boards of HEI's subsidiaries, (ii) recommending to the Board the director nominees to be submitted to shareholders for election at the next Annual Meeting, (iii) assessing the independence of directors and nominees, (iv) recommending the slate of executive officers to be appointed by the Board and subsidiary boards, (v) advising the Board with respect to matters of Board and committee composition and procedures, (vi) overseeing the annual evaluation of the Board and (vii) making recommendations to the Board and the boards of HEI's subsidiaries regarding corporate governance and board succession planning matters. See "Corporate Governance" above for additional information regarding the activities of the Nominating and Corporate Governance Committee.
How is director compensation determined?
The Board believes that a competitive package is necessary to attract and retain individuals with the experience, skills and qualifications 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 stock awards that will align the interests of directors with those of HEI shareholders. Only nonemployee directors are compensated for their service as directors. Ms. Lau, who is the only employee director of HEI, does not receive separate or additional compensation for serving as a director.
The Compensation Committee recommends nonemployee director compensation to the Board. In 2010, the committee asked its independent compensation consultant, Frederic W. Cook & Co. Inc. (Fred Cook & Co.), to conduct an evaluation of HEI's nonemployee director compensation practices. Fred Cook & Co. 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 the assessments used in its executive compensation review, which is described under "Compensation Discussion and AnalysisCompensation ProgramHow does HEI determine the amount for each element?" below. The 2010 analysis took into consideration the duties and scope of responsibilities of directors, especially in light of HEI's unique business and regulatory structure. The Compensation 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 August 9, 2010, the Board approved the Compensation Committee's recommendations on changes to nonemployee director compensation to be effective on January 1, 2011. Although Ms. Lau is a member of the HEI Board, neither she nor any other executive officer of the Company participated in the determination of nonemployee director compensation. There were no increases to the standard director retainer or meeting fees paid to directors in 2010.
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Retainer. The following is the annual cash retainer schedule for nonemployee directors of HEI, including those who also serve as directors of certain HEI subsidiaries, paid in quarterly installments in 2010, as well as the new schedule for 2011. Nonemployee directors of HEI who also serve on Board committees, or as directors on subsidiary company boards and committees, received fees for service on such boards or committees in 2010 as indicated below. However, starting in 2011, no additional fees are paid to HEI directors for service on subsidiary company boards. HEI directors who serve on committees of subsidiary boards will continue to receive fees in 2011 for such committee service, as shown below.
|
2010 | 2011 | |||||
---|---|---|---|---|---|---|---|
HEI Nonexecutive Chairman of the Board |
$ | 250,000 | $ | 250,000 | |||
HEI Director |
40,000 | 65,000 | |||||
HEI Audit Committee Chair |
15,000 | 15,000 | |||||
HEI Compensation Committee Chair |
10,000 | 15,000 | |||||
HEI Nominating and Corporate Governance Committee Chair |
5,000 | 10,000 | |||||
HEI Audit Committee Member |
6,000 | 6,000 | |||||
HEI Compensation Committee Member |
4,000 | 6,000 | |||||
HEI Nominating and Corporate Governance Committee Member |
4,000 | 4,000 | |||||
American Savings Bank Director (who is also an HEI Director) |
25,000 | | |||||
Hawaiian Electric Company Director (who is also an HEI Director) |
25,000 | | |||||
American Savings Bank Audit Committee Chair |
12,500 | 12,500 | |||||
Hawaiian Electric Company Audit Committee Chair |
10,000 | 10,000 | |||||
American Savings Bank Audit Committee Member |
5,000 | 5,000 | |||||
Hawaiian Electric Company Audit Committee Member |
4,000 | 4,000 |
Meeting Fees. Nonemployee directors of HEI and its subsidiary boards are also entitled to meeting fees for each meeting attended after the minimum number of meetings specified below.
|
2010 | 2011 | |||||
---|---|---|---|---|---|---|---|
HEI Audit Committee Member |
$ | 1,250 per meeting after 8 meetings | $ | 1,500 per meeting after 6 meetings | |||
American Savings Bank Audit Committee Member |
$ | 1,000 per meeting after 8 meetings | $ | 1,000 per meeting after 8 meetings | |||
Hawaiian Electric Company Audit Committee Member |
$ | 750 per meeting after 8 meetings | $ | 750 per meeting after 8 meetings | |||
HEI Nominating and Corporate Governance Committee Member |
$ | 500 per meeting after 6 meetings | $ | 1,500 per meeting after 6 meetings | |||
HEI Compensation Committee Member |
$ | 500 per meeting after 6 meetings | $ | 1,500 per meeting after 6 meetings |
Stock Awards. On June 30, 2010, each HEI nonemployee director received 1,800 shares of HEI Common Stock as an annual grant under HEI's 1990 Nonemployee Director Stock Plan, as last amended and restated on May 6, 2008 (1990 Director Plan) for the purpose of further aligning directors' and shareholders' interests. Stock grants to nonemployee directors under the 1990 Director Plan are made annually on the last business day in June.
As part of the Compensation Committee's 2010 reevaluation of nonemployee director compensation, the committee recommended and the Board approved an increase in the annual stock grants and initially fixed the amount of the grants to a specified dollar value rather than a specified number of shares. If shareholders approve the HEI 2011 Nonemployee Director Stock Plan at the
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Annual Meeting (see description below under "Proposal No. 2: Approval of 2011 Nonemployee Director Stock Plan"), HEI nonemployee directors on June 30, 2011 will receive shares of HEI Common Stock equal in value to $75,000, with the number of shares to be issued to each HEI nonemployee director to be determined based on the closing sales price of HEI Common Stock on the New York Stock Exchange on such date.
Retirement Benefit. Pursuant to the termination of the HEI Nonemployee Director Plan on December 17, 1996, previously retired directors continue to receive benefits in accordance with the terms of the plan. Upon their retirement from service as a director, Mr. Myers and Ms. Plotts (who retired from the Board in May 2010) are eligible to receive benefits from the plan in an annual amount of $15,000, paid quarterly, 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). All benefits payable under the plan, whether commenced or not, cease upon the death of the nonemployee director.
Deferred Compensation. Nonemployee directors may elect to participate in the HEI Nonemployee Directors' Deferred Compensation Plan, 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. Directors are also eligible to participate in the new 2011 Deferred Compensation Plan for HEI and Hawaiian Electric Company described under "Compensation Discussion and AnalysisCompensation ElementsCan named executive officers participate in nonqualified deferred compensation plans?" below.
Preferential Rate Loans. Under a program for American Savings Bank directors that has been discontinued since June 30, 2006, certain HEI directors were eligible to receive preferential rate mortgage loans because they were American Savings Bank directors at the time. When this program was discontinued, existing loans were grandfathered. Information regarding the grandfathered loans that nonemployee directors Messrs. Gushman and Watanabe and Mses. Daniel and Plotts had in 2010 is included under "Other Relationships and Related Person TransactionsAre there any related person transactions with HEI or its subsidiaries?" below. All preferential rate mortgage loans to nonemployee directors were either paid off or refinanced at market rates by January 2011.
Health Benefits. 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.
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The table below shows compensation to the HEI nonemployee directors in 2010.
2010 DIRECTOR COMPENSATION TABLE
Name
|
Fees Earned or Paid in Cash ($) (3) |
Stock Awards ($) (4) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (5) |
All Other Compensation ($) (6) |
Total ($) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Don E. Carroll |
75,000 | 41,301 | | | 116,301 | |||||||||||
Shirley J. Daniel |
71,000 | 41,301 | | 25,560 | 137,861 | |||||||||||
Thomas B. Fargo |
84,880 | 41,301 | | | 126,181 | |||||||||||
Richard W. Gushman, II (1) |
55,500 | 41,301 | | 44,513 | 141,314 | |||||||||||
Victor H. Li |
69,000 | 41,301 | | | 110,301 | |||||||||||
A. Maurice Myers |
70,000 | 41,301 | 6,024 | | 117,325 | |||||||||||
Diane J. Plotts (2) |
34,965 | | | 9,200 | 44,165 | |||||||||||
James K. Scott |
75,000 | 41,301 | | | 116,301 | |||||||||||
Kelvin H. Taketa |
70,000 | 41,301 | | | 111,301 | |||||||||||
Barry K. Taniguchi |
114,221 | 41,301 | | | 155,522 | |||||||||||
Jeffrey N. Watanabe |
341,812 | 41,301 | | 16,630 | 399,743 |
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The table below shows cash retainers paid to HEI nonemployee directors in 2010 for each board and committee (including subsidiary boards and committees) on which each director served in 2010 and for service as nonexecutive HEI Chairman in 2010.
Name
|
HEI Board Retainer ($) |
HEI Comm. Retainer ($) |
HEI Chairman of the Board Retainer ($) |
HECO Board Retainer ($) |
HECO Audit Comm. Retainer ($) |
ASB Board Retainer ($) |
ASB Audit Comm. Retainer ($) |
Total (1) ($) |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Don E. Carroll |
40,000 | 5,000 | | | | 25,000 | 5,000 | 75,000 | |||||||||||||||||
Shirley J. Daniel |
40,000 | 6,000 | | | | 25,000 | | 71,000 | |||||||||||||||||
Thomas B. Fargo |
40,000 | 16,728 | | 25,000 | 3,152 | | | 84,880 | |||||||||||||||||
Richard W. Gushman (2) |
30,000 | 3,000 | | | | 18,750 | 3,750 | 55,500 | |||||||||||||||||
Victor H. Li |
40,000 | 4,000 | | | | 25,000 | | 69,000 | |||||||||||||||||
A. Maurice Myers |
40,000 | 5,000 | | 25,000 | | | | 70,000 | |||||||||||||||||
Diane J. Plotts (3) |
14,493 | 6,885 | | | | 9,058 | 4,529 | 34,965 | |||||||||||||||||
James K. Scott |
40,000 | 10,000 | | | | 25,000 | | 75,000 | |||||||||||||||||
Kelvin H. Taketa |
40,000 | 5,000 | | 25,000 | | | | 70,000 | |||||||||||||||||
Barry K. Taniguchi |
40,000 | 11,753 | | 25,000 | 4,471 | 25,000 | 7,997 | 114,221 | |||||||||||||||||
Jeffrey N. Watanabe |
40,000 | | 250,000 | 25,000 | | 25,000 | 1,812 | 341,812 |
Proposal No. 2: Approval of 2011 Nonemployee Director Stock Plan
HEI's Compensation Committee and Board believe that the use of stock grants as a major part of the compensation to the nonemployee directors of HEI and its operating subsidiaries, whose oversight contributions are essential to the growth and success of HEI's business, best strengthens the commitment of these individuals to HEI and its subsidiaries, motivates such persons to faithfully and diligently perform their oversight responsibilities and attracts and retains competent and experienced persons whose efforts will contribute to the growth and success of HEI. To that end, on February 8, 2011, the Board approved the Hawaiian Electric Industries, Inc. 2011 Nonemployee Director Stock Plan (2011 Director Plan), subject to the approval of HEI's shareholders. The purpose of the 2011 Director Plan is to motivate nonemployee directors of HEI and its operating subsidiaries to continue as directors, to align their interests with those of HEI's shareholders, and to increase their efforts to promote HEI's business. Subject to shareholder approval of the 2011 Director Plan, no new awards will be made under HEI's 1990 Nonemployee Director Stock Plan, as last amended and restated on May 6, 2008 (1990 Director Plan). If shareholders do not approve the 2011 Director Plan, it will have no effect and awards may continue to be granted under the 1990 Director Plan. There currently are 46,678 shares of HEI Common Stock reserved for issuance and unissued under the 1990 Director Plan.
The 2011 Director Plan is being submitted to HEI's shareholders in order to ensure compliance with the New York Stock Exchange (NYSE) listing standards concerning shareholder approval of equity compensation plans. The NYSE listing standards provide that shareholders must be given the opportunity to vote on all equity compensation plans and material revisions to such plans. The 2011 Director Plan is an equity compensation plan (i.e., a plan that provides for the delivery of HEI Common Stock to our nonemployee directors as compensation for their services) and we are asking for your approval of the 2011 Director Plan in compliance with the NYSE listing standards. The purposes,
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terms and benefits under the 2011 Director Plan are summarized below and the full text of the plan is attached to this Proxy Statement as Appendix A.
Under the NYSE listing standards, the 2011 Director Plan will be approved if a majority of the votes cast are in favor of such approval, so long as the total votes cast represent more than 50% of all shares entitled to vote. Abstentions will be considered votes cast and will have the same effect as voting against the proposal. Broker nonvotes will have no effect on the outcome of the vote on the 2011 Director Plan.
YOUR BOARD RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE 2011 NONEMPLOYEE DIRECTOR STOCK PLAN.
What are the purposes and terms of the 2011 Director Plan?
The following is a summary of the material terms of the 2011 Director Plan and is qualified in its entirety by the full text of the 2011 Director Plan, which is attached as Appendix A to this Proxy Statement.
Purposes. The 2011 Director Plan, if approved by shareholders, will replace the 1990 Director Plan. The purposes of the 2011 Director Plan are to:
Administration of the 2011 Director Plan. The 2011 Director Plan will be administered in the discretion of a committee which may be the Compensation Committee, a subcommittee of the Compensation Committee or such other committee as may be appointed as administrator from time to time by the Board. The initial administrator of the 2011 Director Plan will be the Compensation Committee.
Eligibility to Participate. The 2011 Director Plan provides benefits to individuals who, on the grant date, are nonemployee directors of HEI and nonemployee directors of HEI operating subsidiaries approved as participating companies by the Board (initially Hawaiian Electric Company and American Savings Bank). If the 2011 Director Plan is approved at the Annual Meeting, we expect that eight HEI nonemployee directors, two American Savings Bank nonemployee directors (who are not also HEI directors) and four Hawaiian Electric Company nonemployee directors (who are not also HEI directors) will be eligible to participate in the Plan in 2011.
Shares Reserved for Issuance under the Plan. The number of shares of HEI Common Stock reserved for issuance under the 2011 Director Plan is 300,000, subject to adjustment for certain changes in capitalization. The shares to be issued under the Plan may, in whole or in part, be authorized but unissued shares of HEI Common Stock or shares that may be reacquired by HEI in the open markets in private transactions or otherwise. The closing price per share of HEI Common Stock on March 2, 2011 was $24.63.
Benefits Under the Plan. The 2011 Director Plan provides for the grant of shares of HEI Common Stock (Stock Payments) to eligible nonemployee directors annually on the Grant Date, which will be each June 30 (or on the next preceding business day if June 30 is not a business day) or, in the case of
29
a person who is elected or appointed to serve as a new director after June 30, on the date that such person first becomes a director. The amount of HEI Common Stock to be issued to nonemployee directors under the Plan may be expressed either as a specified number of shares or as a specified dollar value. If the Stock Payment is expressed as a dollar value, then the number of shares to be issued on the Grant Date is determined by dividing the specified dollar value by the Fair Market Value (as defined in the Plan) of a share of HEI Common Stock on the Grant Date, with any resulting fractional share to be paid in cash.
Under the 2011 Director Plan, individuals who are serving as nonemployee directors of HEI, Hawaiian Electric Company or American Savings Bank on June 30, 2011 (the 2011 Grant Date) will be entitled to the following Stock Payments:
The amount of the Stock Payment to which participating nonemployee directors may be entitled, and whether the Stock Payment is expressed as a dollar value or in number of shares, may be changed in the discretion of the committee, subject to Board approval and without shareholder approval, but may not be changed more than once between annual meetings of shareholders.
Shareholder Rights. No participant in the 2011 Director Plan shall have any rights as an HEI shareholder with respect to any shares of HEI Common Stock except if and when such shares are issued. Recipients of Stock Payments shall have all the rights of a shareholder from and after the Grant Date with respect to the issued shares of HEI Common Stock granted. Once issued as a Stock Payment, the shares of HEI Common Stock thus granted are not subject to forfeiture.
Transferability of Rights. No participant in the 2011 Director Plan may assign the right to receive any Stock Payment or any other right or interest under the Plan, contingent or otherwise, or cause or permit any encumbrance, pledge or charge of any nature to be imposed on any such right to receive a Stock Payment. Each participant is responsible for complying with all applicable federal and state securities and other applicable laws relating to participation in the Plan or the shares received as a Stock Payment.
Amendment or Termination of the Plan. The Board in its discretion may amend, suspend or terminate the 2011 Director Plan at any time. However, no such amendment will, without approval of the shareholders of HEI, change the class of persons eligible to receive Stock Payments under the Plan (except for changing the subsidiaries whose nonemployee directors are eligible to participate in the Plan) or otherwise modify the requirements as to eligibility for participation in the Plan, or increase the total number of shares of HEI Common Stock which may be issued under the Plan (except for adjustment in the event of certain changes in capitalization). Moreover, no amendment, suspension or termination of the 2011 Director Plan will impair or adversely affect any right or obligation under any Stock Payment previously granted under the Plan. Notwithstanding the foregoing, the Board may, without further action by the shareholders of HEI, amend the 2011 Director Plan or modify the grants of stock under the Plan as described above under "Benefits Under the Plan" or in response to changes in securities or other laws, or rules, regulations or regulatory interpretations thereof, applicable to the Plan, or to comply with stock exchange rules or requirements.
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Term of the Plan. The 2011 Director Plan will become effective if it is approved by shareholders at the Annual Meeting and, unless terminated earlier by the Board, will terminate on April 30, 2021.
New 2011 Director Plan Benefits
The number of shares to be received by nonemployee directors under the 2011 Director Plan cannot be determined since the ultimate value of grants under the Plan depends on several factors, including the market value of HEI Common Stock, whether awards are denominated in dollar value or number of shares, the number of directors and the boards on which they serve and the level of future grants under the Plan. The following table shows the number of shares of HEI Common Stock which current nonemployee directors would have been entitled to receive if the 2011 Director Plan had been in effect in 2010, based on the Fair Market Value of HEI Common Stock on June 30, 2010. The table also shows the estimated number of shares that current nonemployee directors and director nominees who are expected to be serving as such on June 30, 2011 will receive assuming that the Fair Market Value of HEI Common Stock on that date is the Fair Market Value of HEI Common Stock on the record date (March 2, 2011).
Nonemployee Director
|
Number of Shares of HEI Common Stock if 2011 Director Plan had been in effect on 6/30/10 (2) |
Number of Shares of HEI Common Stock Estimated to be granted on 6/30/11 (3) |
|||||
---|---|---|---|---|---|---|---|
Don E. Carroll (1) |
3,342 | 1,624 | |||||
Shirley J. Daniel (1) |
3,342 | 1,624 | |||||
Thomas B. Fargo |
3,342 | 3,045 | |||||
Victor H. Li |
3,342 | 3,045 | |||||
A. Maurice Myers |
3,342 | 3,045 | |||||
James K. Scott |
3,342 | 3,045 | |||||
Kelvin H. Taketa |
3,342 | 3,045 | |||||
Barry K. Taniguchi |
3,342 | 3,045 | |||||
Jeffrey N. Watanabe |
3,342 | 3,045 | |||||
Nonemployee Director Nominee |
|||||||
Peggy Y. Fowler |
| 3,045 | |||||
Keith P. Russell |
| 3,045 |
31
Equity Compensation Plan Information
Information as of December 31, 2010 about HEI Common Stock that may be issued under all of the Company's equity compensation plans was as follows:
Plan category
|
(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) |
(b) Weighted-average exercise price of outstanding options, warrants and rights (2) |
(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (3) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Equity compensation plans approved by shareholders |
1,131,174 | $ | 20.76 | 3,953,169 | ||||||
Equity compensation plans not approved by shareholders |
| | | |||||||
Total |
1,131,174 | $ | 20.76 | 3,953,169 | ||||||
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Proposal No. 3: Advisory Vote on the Frequency of Future Advisory Votes on HEI'S Executive Compensation
HEI's shareholders are being asked to cast an advisory vote on a resolution approving HEI's executive compensation. The advisory vote on executive compensation, described in Proposal No. 4 below, is referred to as a "say-on-pay" vote. This Proposal No. 3 affords shareholders the opportunity to cast an advisory vote on how often HEI should include a say-on-pay vote in its proxy materials for future annual shareholder meetings. Under this Proposal No. 3, shareholders may vote to have the say-on-pay vote every year, every two years or every three years, or they may abstain from voting on this proposal.
HEI believes that, at least over the next several years, say-on-pay advisory votes should be conducted every year so that shareholders may annually express their views on the Company's executive compensation. Accordingly, unless shareholders express a strong preference that say-on-pay advisory votes be conducted less frequently, the Board anticipates that it will conduct a say-on-pay vote again next year. The Compensation Committee, which administers the Company's executive compensation programs, and the Board will value the opinions expressed by shareholders in these votes and will consider the outcome of these votes in making decisions on executive compensation.
YOUR BOARD RECOMMENDS THAT YOU VOTE FOR A FREQUENCY OF EVERY 1 YEAR FOR THE ADVISORY VOTE ON EXECUTIVE COMPENSATION (AS OPPOSED TO EVERY 2 YEARS OR EVERY 3 YEARS OR ABSTAINING).
Proposal No. 4: Advisory Vote on Resolution Approving HEI'S Executive Compensation
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, HEI is submitting for shareholder advisory vote a proposal on executive compensation, commonly known as a "say-on-pay" proposal. The Board is aware of the significant interest in executive compensation matters on the part of investors and the general public, and recognizes that shareholders should have the ability to voice their views on the Company's compensation policies and practices for executives.
The "say-on-pay" proposal gives HEI's shareholders the opportunity to endorse or not endorse the Company's executive compensation program through their vote on the following resolution:
Resolved: that shareholders approve HEI's executive compensation, including its executive compensation policies and practices and the compensation for the named executive officers, as set forth under "Compensation Discussion and Analysis" and "Executive Compensation" in the Proxy Statement for the 2011 Annual Meeting of Shareholders.
HEI's primary goals for its executive compensation program are to incent a high level of business performance that creates value for its shareholders and to attract, motivate and retain talented executives who will provide leadership for the Company's success. The Compensation Committee, which is composed entirely of independent directors, seeks to accomplish these goals in a manner that aligns the interests of its executives with the long-term interests of its shareholders and rewards achievement of the Company's financial, operational and strategic goals.
The Compensation Committee and Board believe that these are the appropriate goals for HEI's executive compensation program and that HEI's compensation is properly designed to achieve these goals. Accordingly, the Compensation Committee and Board recommend that you vote in favor of the shareholder resolution approving HEI's executive compensation.
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Compensation Program Design Summary
In making its compensation decisions, the Compensation Committee considered the following primary components of HEI's 2010 executive compensation program, which are described in greater detail below under "Compensation Discussion and Analysis" and "Executive Compensation," and how these components support HEI's compensation goals. Given the complicated nature of the Company's heavily-regulated subsidiaries, the Compensation Committee believes it is imperative to provide, and believes it has provided, an appropriate mix of compensation components at competitive levels relative to the Company's peers in order to attract and retain the highly qualified executives necessary to manage the Company's operations and motivate executives to achieve a high level of performance that generates shareholder value.
Compensation Element/Eligibility |
Description |
Linkage to Compensation Objectives |
||
---|---|---|---|---|
|
||||
CURRENT YEAR PERFORMANCE | ||||
|
||||
Base Salary All HEI and subsidiary executives, including named executive officers |
Salary is a market-competitive, fixed level of compensation. | Attract and retain qualified leaders capable of a high level of performance that builds shareholder value. | ||
|
||||
Annual Incentive All HEI and subsidiary executives, including named executive officers |
Cash award based on achievement of Company goals during the year. Combined with salary, target level of annual incentive provides a market-competitive total cash opportunity. Actual annual incentive payout depends on Company performance. Poor performance yields no incentive payment. |
Motivate high business performance in furtherance of creating value for shareholders. Attract and retain qualified leaders capable of a high level of performance that builds shareholder value. Vary compensation based on individual and business unit performance. |
||
|
||||
LONG-TERM INCENTIVE PLAN | ||||
|
||||
Long-term Performance-based Awards Approximately 25 HEI and subsidiary executives based on job responsibilities, including named executive officers |
Long-term incentive award opportunities based on performance and retention objectives for each executive. 2010-2012 long-term incentive plan awards are payable 100% in shares of HEI Common Stock. Award value at different performance levels (minimum, target and maximum) is converted to the number of shares by dividing the planned value by the closing sale price on date of establishing the award opportunity. Level of award is determined at the end of the three-year performance period based on achieving set goals. Payment in HEI shares upon completion of three-year performance period links the compensation value to the long-term performance of HEI. Poor performance yields no incentive payment. |
Align executive and shareholder interests and create long-term value. Attract and retain qualified leaders capable of a high level of performance that builds shareholder value. Motivate high business performance in furtherance of creating value for shareholders. Encourage sustained, long-term growth by linking portion of compensation to Company performance over three years. |
||
|
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Compensation Element/Eligibility |
Description |
Linkage to Compensation Objectives |
||
---|---|---|---|---|
|
||||
Annual Stock-Based Grant Approximately 15 HEI and subsidiary executives, including named executive officers |
Annual equity grants made in the form of restricted stock units (RSUs). The amount of an annual equity grant is a percentage of long-term compensation at market-competitive levels. Awards vest over 4 years. |
Align executive and shareholder interests and create long-term value. Attract and retain qualified leaders capable of a high level of performance that builds shareholder value. Motivate high business performance in furtherance of creating value for shareholders. |
||
|
||||
RETIREMENT, PENSION & SAVINGS | ||||
|
||||
HEI Retirement Plans All HEI and subsidiary executives, including named executive officers, except for American Savings Bank executives |
Executives participate in the defined benefit pension plans and savings plans under the same terms and conditions as all HEI employees. |
Attract and retain qualified leaders capable of a high level of performance that creates shareholder value. Enhance long-term employee well-being. |
||
|
||||
American Savings Bank 401(k) Plan Select American Savings Bank executives, including its president and CEO (who is a named executive officer) |
Separate 401(k) plan established to encourage full-career retention of key American Savings Bank executives. | Attract and retain qualified leaders capable of a high level of performance that creates shareholder value. Enhance long-term employee well-being. |
||
|
||||
HEI Excess Pay Plan HEI and subsidiary executives (other than American Savings Bank) with compensation expected to exceed applicable IRS limits, including named executive officers |
Established in accordance with U.S. Department of Labor and Internal Revenue Service guidelines to provide employees with the ability to earn retirement benefits correlated to salary compensation in excess of limits applicable to defined benefit pension plans. | Attract and retain qualified leaders capable of a high level of performance that creates shareholder value. Enhance long-term employee well-being. |
||
|
||||
HEI Deferred Compensation Plan All HEI and subsidiary executives, including named executive officers, except for American Savings Bank executives |
Nonqualified plan for executives and directors of HEI and Hawaiian Electric Company to defer portions of cash compensation, with certain limitations. | Attract and retain qualified leaders capable of a high level of performance that creates shareholder value. Enhance long-term employee well-being. |
||
|
||||
OTHER BENEFITS | ||||
|
||||
Change-in-Control Agreements Named executive officers and select HEI and subsidiary executives (7 participants total) |
Double-trigger agreements, with 1 times to 3 times payment multiples. (Double-trigger = change in control followed by qualifying loss of employment.) | Attract and retain qualified leaders capable of a high level of performance that creates shareholder value. Encourage focused attention of executives on performance in furtherance of the best interests of shareholders. |
||
|
||||
HEI Executive Death Benefit Plan Named executive officers employed prior to September 9, 2009 |
Form of insurance that provides death benefits to executive's beneficiaries in event of executive's death; plan frozen to those participants who were employees as of September 9, 2009. | Enhance long-term employee well-being. | ||
|
The Compensation Committee's allocation of the executive compensation components demonstrates its commitment to pay the Company's executives based on the Company's business performance.
35
The following chart demonstrates the relative mix of compensation elements that made up total direct compensation for the named executive officers in 2010:
The financial and strategic objectives HEI executives must achieve to receive awards under HEI's annual and long-term incentive plans are set at challenging levels to motivate a high degree of performance, with an emphasis on longer-term financial success and prudent risk management. Certain performance metrics under the annual incentive plan (net income and return on average common equity) and the long-term incentive plan (net income, total return to shareholders and performance relative to the Edison Electric Institute Index) focus executives on building the value of the HEI enterprise and sustaining that value over time. By tying incentives to sustained value creation, HEI's incentive plans align each executive's interests with the interest of shareholders in long-term growth in the value of their ownership stake in HEI.
As a result of the Compensation Committee's approach to executive compensation, the annual total direct compensation received by HEI's Chief Executive Officer over the past five years shows a consistent correlation to the performance of the Company. The graph below compares the Chief Executive Officer's annual total direct compensation to HEI's consolidated net income. The dotted line shows adjusted (or non-GAAP) net income, which adjusts GAAP net income to exclude the effects of certain actions taken by American Savings Bank in furtherance of its balance sheet restructure and its multi-year performance improvement initiative (as detailed in the notes to the table).
36
Correlation of CEO Annual Total Direct Compensation and HEI Consolidated Net Income
Alignment with Shareholder Interests
A significant portion of the named executive officers' 2010 total direct compensation took the form of equity awards (restricted stock units and awards under the long-term incentive plan) and HEI's share ownership guidelines require the named executive officers to hold a significant amount of HEI Common Stock to further align their interests with those of shareholders over the long term. In 2010 the Compensation Committee increased the portion of total direct compensation for the named executive officers that will be in the form of equity in the future by designing the 2010-2012 long-term incentive plan awards to be 100% in the form of equity, rather than a portion in cash and a portion in equity as in previous long-term incentive plans.
While the advisory vote on executive compensation is nonbinding, the Board understands that it is useful and appropriate to seek the views of shareholders when considering the design and initiation of executive compensation programs. Accordingly, the Board and the Compensation Committee will review the voting results and seek to determine the cause or causes of any significant negative vote. Voting results provide little detail by themselves, and the Company may consult directly with shareholders to better understand issues and concerns not previously presented. HEI expects to continue to engage regularly with shareholders concerned with executive compensation or any other matter. Shareholders who want to communicate with HEI's Board or management should visit the Company's website at www.hei.com and view "Contact Information."
YOUR BOARD RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE SHAREHOLDER RESOLUTION APPROVING HEI'S EXECUTIVE COMPENSATION.
37
The Compensation Committee, which is composed solely of independent directors of the Board, assists the Board in fulfilling its responsibilities with regard to compensation matters, and is responsible under its charter for determining the compensation of HEI's executive officers. 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 to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and that it be incorporated by reference into HEI's 2010 Annual Report on Form 10-K.
SUBMITTED
BY THE COMPENSATION COMMITTEE OF THE
HEI BOARD OF DIRECTORS
Thomas B. Fargo, Chairperson
Don E. Carroll
Victor H. Li
A. Maurice Myers
Compensation Discussion and Analysis
Who were the named executive officers for HEI in 2010?
For 2010, the named executive officers of HEI were:
Beginning in 2008, HEI initiated strategies to set both of the operating companies on a new course. Hawaiian Electric Company entered into an agreement with the state of Hawaii to help create a clean energy future for Hawaii, and American Savings Bank set new performance standards while continuing its commitment to help Hawaii's communities grow and prosper. The year 2010 saw major progress on these initiatives and HEI's unique business model continues to provide the Company with a strong balance sheet and the financial resources to invest in the strategic growth of HEI and its operating subsidiaries while providing an attractive dividend to HEI's shareholders.
In 2010, HEI and its subsidiaries continued to pursue initiatives to improve fundamental operating and financial performance in order to improve profitability and capital efficiency, grow earnings, reduce risk and be positioned to benefit as economic conditions improve.
38
HEI's financial results are beginning to reflect the Company's strategic progress. In 2010, HEI's consolidated net income was $113.5 million, or $1.21 diluted earnings per share, compared to $0.91 per share in 2009 and $1.07 per share in 2008. With the achievement of major strategic milestones in 2010, HEI was able to improve earnings, maintain its dividend and achieve a 15% total return to shareholders for the year, significantly outperforming the Edison Electric Institute Index. Because of the hard work invested over the last few years, both Hawaiian Electric Company and American Savings Bank have strong business models and strategies that align, more than ever, with shareholder and stakeholder interests. We continue to move forward on key strategic initiatives, building upon our achievements, to continue to improve performance and shareholder value creation in the future.
The Compensation Committee recommends total compensation programs for executives of HEI and its subsidiaries, subject to the approval of the Board. In 2010, the Compensation Committee held eight meetings to consider and 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's focus has been to refine HEI's executive compensation programs by incorporating best practices and aligning executive compensation more directly with shareholder interests.
39
In establishing HEI's executive compensation program for 2010, the Compensation Committee was guided by three principles:
The following are the major changes to the executive compensation program in 2010:
HEI has eliminated nearly all tax gross-ups for named executive officers. There are no gross-ups in the change-in-control agreements given to the named executive officers and aggregate payments under the agreements are limited to the maximum amount deductible under Section 280G of the Internal Revenue Code. There are no tax gross-ups allowed on club membership initiation or membership fees. Tax gross-ups of death benefits have been restricted to the executives who have contractual entitlements to such gross-ups pursuant to their participation in the applicable plan prior to September 9, 2009 (the date the death benefit plan was frozen).
The primary refinement has been to make HEI's executive compensation more performance based. The compensation program applicable to the named executive officers consists of short-term and long-term components. The short-term components comprise base salary and an annual incentive bonus plan, the latter being performance based. Long-term incentive compensation is made up of a long-term incentive plan (which is performance based) and a restricted stock unit grant (which is time vested over four years). The Compensation Committee and the Board believe that the current executive compensation program reflects "best practices" and is structured to encourage participants to build long-term value in the Company for the benefit of its shareholders.
40
The Compensation Committee recommends total compensation programs 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 and/or rejects its consultants', advisors' or management's recommendations regarding executive compensation programs, including incentive compensation and equity-based plans. The Board approves the actions of the committee and, where the executive is employed by 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 HEI President and Chief Executive Officer in light of corporate goals and objectives relevant to her compensation. The Compensation Committee, with the assistance of its independent compensation consultant, recommends to the Board an executive compensation package for the HEI President and Chief Executive Officer based on the Board's evaluation. The independent directors of the Board approve the compensation of the HEI President and Chief Executive Officer.
The Compensation Committee reserves the right to amend, suspend or terminate any incentive program or other executive compensation program, or any individual executive's participation in such programs. The committee can exercise its discretion to reduce or increase (except to the extent an award or payout is intended to satisfy the requirements for deductibility under Section 162(m) of the Internal Revenue Code) the size of any award or payout. In 2010, no portion of any bonus or long-term incentive compensation paid by HEI or any of its subsidiaries to executives was nondeductible under Section 162(m).
In making its compensation determinations, the Compensation Committee will consider financial accounting and tax 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. As another example, 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.
The Compensation Committee has retained Frederic W. Cook & Co. Inc. (Fred Cook & Co.) as its independent compensation consultant since December 2009. The consultant was engaged directly by the committee to provide advice and data with respect to executive compensation analyses, benchmarking and market practices, including to (i) conduct a review of HEI's executive compensation policies and practices; (ii) evaluate and determine the appropriate selection of competitive peer groups (for benchmarking purposes); (iii) examine the compensation components and pay ranges for the named executive officers; and (iv) recommend the appropriate mix of compensation elements and levels for the named executive officers.
In February 2010, Fred Cook & Co. concluded its executive compensation review on behalf of the Compensation Committee, which included the selection of peer companies for HEI and its subsidiaries and a comparison of HEI, Hawaiian Electric Company and American Savings Bank executive compensation against executive compensation for such companies. After extensive deliberations in committee meetings held over the course of three months, and after receipt of the report from Fred Cook & Co., the Compensation Committee reached its determinations with respect to the 2010 compensation for the named executive officers. The results of Fred Cook & Co.'s review and the determinations made by the Compensation Committee are discussed below.
41
In 2010 and with the permission of the Compensation Committee, HEI executive officers discussed with Fred Cook & Co. the compensation philosophy of the Company and its methodology and metrics for computing executive incentives. Human resources and finance personnel provided data in response to the requests of the Compensation Committee and Fred Cook & Co.
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. However, in her role as HEI President and Chief Executive Officer, she did review the performance of the other named executive officers and made recommendations with respect to their compensation to the Compensation Committee. In addition, she participates in the deliberations of the Board in acting on the recommendations of the Compensation Committee with respect to the compensation of these other named executive officers.
Executive officers do not have a role in determining director compensation other than providing administrative support and responses to data requests from the Compensation Committee and its independent consultant.
HEI has an Enterprise Risk Management function that is principally responsible for identifying and monitoring risk across the holding company and its two operating companies, and for reporting high risk areas to the boards of directors and designated board committees. As a result, all of the HEI directors, including those who serve on the Compensation Committee, are apprised of the risks which could have a material adverse effect on HEI. The Compensation Committee assessed and considered these risks when establishing HEI's compensation policies and practices and the executive compensation program described in this Compensation Discussion and Analysis. The Board and the Compensation Committee have concluded that the executive compensation program does not encourage unnecessary or excessive risk-taking.
HEI's compensation policies and practices are designed to encourage executive management to maximize value for shareholders, while considering its key stakeholders (including customers, employees and regulators), and to discourage decisions that introduce risks that may have a material adverse effect on HEI. The executive compensation program is structured to pay for performance and align the executive officers' interests with shareholder interests, as well as encourage executives to focus on profitability, efficient use of capital, earnings growth and stock price appreciation in both the short and long terms. Because the executive officers are in a position to directly influence HEI's performance, compensation for executive officers involves a significant portion of pay that is "at risk" and tied directly to HEI performancenamely, the annual incentive bonus plan and long-term equity-based incentives.
In structuring the incentive compensation plans and setting the particular goals, targets and metrics for awards under those plans, the Compensation Committee incorporates the following elements and practices to ensure consistent leadership and appropriate and prudent decision-making among the named executive officers in a manner that requires cooperation and execution without taking unnecessary or excessive risks:
42
HEI's compensation philosophy is reflected in the following key design priorities that govern its executive compensation decisions:
43
The compensation programs are designed to support HEI's business goals and promote both short- and long-term profitable growth of the Company. HEI's equity plans are used in its executive compensation programs to align executive compensation with the long-term interests of HEI's shareholders. Total compensation for each executive varies with the performance of HEI and its subsidiaries in achieving financial and nonfinancial objectives.
What are the objectives of HEI's executive compensation programs and what are they designed to reward?
The following are the primary objectives of HEI's compensation programs:
HEI's executive compensation elements comprise
Why does HEI choose to pay each element?
44
median) to recognize the individual's position, responsibilities, experience, performance and contributions.
HEI uses competitive market peer company comparisons to determine the amount of each element of executive compensation. Peer companies are companies which, in the aggregate, are similar in business focus, financial scope and valuation, provide similar products and services and are sources for talented employees. Peer companies are selected by the Compensation Committee's independent compensation consultant and are reviewed and approved by the Compensation Committee. The resulting peer companies are used as a reference in determining appropriate pay levels and mix of pay components by benchmarking toward a competitive median and allowing differences to recognize high performers.
Peer companies for HEI and its subsidiaries should reflect HEI's diverse businesses. HEI is a Hawaii-based holding company with a unique blend of two regulated operating subsidiaries, a bank and electric utilities. HEI supplies power to 95% of Hawaii's population through its electric utilities, Hawaiian Electric Company and its subsidiaries, Hawaii Electric Light Company and Maui Electric Company, 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 (i) to provide differentiated reward strategies among HEI and its operating bank and utility subsidiaries in order to align with specific business needs and talent markets and (ii) to reward performance relative to strategic plans that support shareholder value.
Peer companies in 2010
In February 2010, Fred Cook & Co. conducted a peer group selection and compensation comparison in which the same utility peer group would apply to HEI and Hawaiian Electric Company and a banking peer group would apply to American Savings Bank for purposes of setting 2010 compensation.
45
The following are the HEI and Hawaiian Electric Company peer group companies* in 2010:
Allegheny Energy | Pinnacle West Capital | |
Alliant Energy | PNM Resources | |
Great Plains Energy | Portland General Electric | |
Mirant | Questar | |
Northeast Utilities | TECO Energy | |
NSTAR | Vectren | |
NV Energy | Wisconsin Energy | |
OGE Energy |
The following are the American Savings Bank peer group companies* in 2010:
1st Source | Great Southern Bancorp | |
BancFirst | Hancock | |
Bank of Hawaii | IBERIABANK | |
Bank of the Ozarks | Independent Bank | |
City Holding Company | NBT Bancorp | |
Community Bank System | Oriental Financial Group | |
CVB Financial | Park National | |
Dime Community Bancshares | Prosperity Bancshares | |
First Financial Bankshares | Republic Bancorp | |
FirstMerit | United Bankshares | |
Flushing Financial | Westamerica Bancorporation | |
Glacier Bancorp |
46
With the assistance of its compensation consultant, the Compensation Committee reviews each compensation element to determine whether it fits into HEI's overall compensation objectives. The committee also requests that, at least annually, management prepare and the consultant review tally sheets on each executive officer to determine how each executive's elements of paysuch as base salary, annual incentives, benefits and long-term incentivescompared to executives in functionally comparable positions at peer companies. The Compensation 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 reviews internal equity among the named executive officers when developing pay recommendations. The Compensation 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.
In May 2010, 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 May 2010, Ms. Lau recommended to the Compensation Committee base salary increases for Messrs. Ajello, Richardson and Rosenblum. These adjustments were considered by the Compensation Committee to be relatively modest in light of the salary freeze in effect for named executive officers during 2009 (excluding one salary adjustment in 2009 for Mr. Richardson, who assumed additional responsibilities in 2009). After considering these recommendations, the following salary adjustments, effective May 1, 2010, were approved by the Board:
Name
|
% Base Salary Increase |
$ Base Salary Increase |
Base Salary Effective May 1, 2010 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau |
3.0 | % | $ | 23,200 | $ | 795,000 | ||||
James A. Ajello |
4.0 | % | $ | 17,000 | $ | 442,000 | ||||
Chester A. Richardson |
3.4 | % | $ | 12,000 | $ | 361,000 | ||||
Richard M. Rosenblum |
1.2 | % | $ | 7,000 | $ | 587,000 | ||||
Timothy K. Schools (1) |
n/a | n/a | $ | 550,000 | ||||||
Richard F. Wacker (2) |
n/a | n/a | n/a |
HEI's annual incentive plan is known as the Executive Incentive Compensation Plan (EICP). For the 2010 EICP, the Compensation Committee established minimum thresholds for each of the financial and other operational goals of the annual executive incentive plan designed to align management decisions with shareholder value. The table below lists the named executive officer performance metrics, weightings, minimum thresholds and target and maximum goals for the 2010 annual incentive compensation plan. Unless otherwise specified throughout this Proxy Statement, a reference to utility goals means consolidated goals of the utilities, which include Hawaiian Electric Company and its subsidiaries, Maui Electric Company and Hawaii Electric Light Company.
47
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. The committee, however, retained the discretion to reduce any such award if the resulting payout was not in the best interest of HEI and its shareholders. In setting goals for the other named executive officers, 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.
Name
|
Weight | Performance Metric |
Minimum Threshold |
Target Goal |
Maximum Goal |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau James A. Ajello Chester A. Richardson |
50 | % | HEI Return on Average Common Equity | 7.2% | 7.9% | 8.5% | |||||
50 | % | HEI Net Income | $105 million | $115 million | $125 million | ||||||
100 | % | ||||||||||
Richard M. Rosenblum | 15 | % | HEI Net Income | $105 million | $115 million | $125 million | |||||
15 | % | HEI Return on Average Common Equity | 7.2% | 7.9% | 8.5% | ||||||
40 | % | Utility Net Income | $75 million | $80 million | $85 million | ||||||
10 | % | Utility Safety (Total Cases Incident Rate) | 3.20 | 2.41 | 1.41 | ||||||
10 | % | Hawaii Clean Energy Initiative (HCEI) | Meet minimum project milestones | Meet target project milestones | Meet maximum project milestones | ||||||
10 | % | Utility Customer Satisfaction | 76.6% | 78.2% | 82.0% | ||||||
100 | % | ||||||||||
Timothy K. Schools Richard F. Wacker |
50 | % | Bank Return on Assets | 1.00% | 1.10% | 1.20% | |||||
50 | % | Bank Net Income | $50 million | $55 million | $60 million | ||||||
100 | % | ||||||||||
The above goals were set by the Compensation Committee and approved by the Board in 2010 because they were believed to provide the necessary incentives to properly align executive compensation with achievement of performance goals that enhance shareholder value. HEI's goals of net income and return on average common equity are determined on a consolidated basis, and are thus impacted by the results from both American Savings Bank and Hawaiian Electric Company.
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The following were the award ranges, shown as a percentage of annual base salary, that the Compensation Committee approved in February 2010 for the 2010 EICP:
Name
|
Minimum | Target | Maximum | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau |
42.5 | % | 85 | % | 170 | % | ||||
James A. Ajello |
25 | % | 50 | % | 100 | % | ||||
Chester A. Richardson |
25 | % | 50 | % | 100 | % | ||||
Richard M. Rosenblum |
30 | % | 60 | % | 120 | % | ||||
Timothy K. Schools (1) |
40 | % | 80 | % | 160 | % | ||||
Richard F. Wacker (2) |
40 | % | 80 | % | 160 | % |
HEI's adjusted net income, after excluding from HEI consolidated net income $272,000 of committee-approved exclusions for severance expenses and lease buyouts related to the performance improvement project, was $113.8 million, which exceeds the 2010 minimum threshold of $105 million, and its adjusted return on common equity was 7.8%, which exceeds the minimum 2010 threshold of 7.2%. As a result, named executive officers Ms. Lau and Messrs. Ajello and Richardson received awards for performance between the minimum threshold and target goal levels. Mr. Rosenblum's bonus was impacted in part because 30 percent of his goals were based on achievement of HEI goals, with the other 70 percent being based on utility goals.
In 2010, the utility met the following annual incentive goals:
49
October 2008 to proactively reduce the state's dependency on fossil fuels by moving toward a future of increasing renewable energy. In 2010, Hawaiian Electric Company met minimum project milestones for the Hawaii Clean Energy Initiative.
With respect to the goals for Messrs. Schools and Wacker, American Savings Bank's return on assets, after approved exclusions for severance expenses and lease buyouts related to the performance improvement project, was 1.21%, which was at the maximum level for that performance metric, and its net income was $58.7 million, which was between the target goal and maximum level for that performance metric. The Compensation Committee concluded that it was appropriate to recognize the outstanding performance of American Savings Bank executives in completing the bank's aggressive multi-year performance improvement project. As a result of American Savings Bank's performance, Messrs. Schools and Wacker received an award based on performance at a level between the target and maximum levels. Mr. Schools had earlier agreed to remain with the bank until the performance improvement project was substantially completed. After the project's completion in August 2010, the Company agreed to a September departure by Mr. Schools but with credit for a full year's service in 2010 for purposes of the incentive compensation programs in recognition of his leadership in completing the bank's performance improvement initiative. Mr. Wacker, who was hired on November 15, 2010, received an award prorated for the days worked in 2010.
As a result of achieving the aforementioned goals at the levels indicated above, the Compensation Committee approved in February 2011 the payment of the following 2010 annual incentive awards to the named executive officers:
Name
|
Payout | |||
---|---|---|---|---|
Constance H. Lau |
$ | 625,202 | ||
James A. Ajello |
$ | 203,830 | ||
Chester A. Richardson |
$ | 166,770 | ||
Richard M. Rosenblum |
$ | 282,037 | ||
Timothy K. Schools |
$ | 824,032 | ||
Richard F. Wacker |
$ | 103,851 |
HEI's three-year performance incentive plan is otherwise known as the Long-Term Incentive Plan and provides awards measured over rolling three-year performance periods. In 2008, the Compensation Committee approved the following 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), for the following HEI named executive officers who were participants in the 2008-2010 long-term incentive plan:
Name
|
Minimum | Target | Maximum | Super Maximum | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau |
65 | % | 130 | % | 260 | % | n/a | ||||||
Chester A. Richardson (1) |
30 | % | 60 | % | 120 | % | n/a | ||||||
Timothy K. Schools (2) |
40 | % | 80 | % | 100 | % | 175 | % |
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In addition to the minimum, target and maximum levels, the American Savings Bank 2008-2010 long-term incentive plan also has a super maximum level. This additional level was included for this performance period to focus Mr. Schools and the other American Savings Bank executives on achieving the highest established goals for net income, return on assets and efficiency ratio, and was established for American Savings Bank executives in recognition for the extraordinary work that needed 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 of the above-named executive officers 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 exclusions as in the 2008-2010 long-term incentive plan. Payment of any awards made under this supplemental program would be paid in a combination of 50% cash and 50% stock (versus 60% cash and 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 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau |
13.5 | % | 27 | % | 54 | % | ||||
Chester A. Richardson (1) |
6.5 | % | 10 | % | 20 | % | ||||
Timothy K. Schools (2) |
10 | % | 20 | % | 42 | % |
Messrs. Ajello, Rosenblum and Wacker did not participate in the 2008-2010 long-term incentive plan and supplemental 2008-2010 long-term incentive plan because they became employed at their respective companies after the start of this performance period.
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The table below shows the performance metrics, weightings, minimum threshold, target, maximum and super maximum goals for the 2008-2010 long-term incentive plan and supplemental 2008-2010 long-term incentive plan. The executives listed together below shared the same goals.
Name
|
Weight | Performance Metric |
Minimum Threshold |
Target Goal |
Maximum Goal |
Super Maximum Goal |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau Chester A. Richardson |
40 | % | HEI Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index (1) | 50th percentile of the Edison Electric Institute Index (1) | 70th percentile of the Edison Electric Institute Index (1) | n/a | ||||||
15 | % | Utility Free Cash Flow (2) | ($24.1 million) | ($13.0 million) | ($1.8 million) | n/a | |||||||
15 | % | Utility Return on Average Common Equity (3) | 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 | 100% of consolidated allowed rate of return on equity less 50 basis points | n/a | |||||||
15 | % | Bank Net Income (4) | $55.277 million | $57.053 million | $62.025 million | n/a | |||||||
15 | % | Bank Return on Assets (4) | 0.789% | 0.816% | 0.885% | n/a | |||||||
100 | % | ||||||||||||
Timothy K. Schools | 40 | % | Bank Net Income (4) | $55.277 million | $57.053 million | $62.025 million | $68.082 million | ||||||
30 | % | Bank Return on Assets (4) | 0.789% | 0.816% | 0.885% | 0.952% | |||||||
30 | % | Bank Efficiency Ratio (4) | 65.47% | 64.83% | 63.20% | 61.16% | |||||||
100 | % | ||||||||||||
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based on total return to shareholders. In 2010, the following companies were in the three-year Edison Electric Institute Index:
|
||||
---|---|---|---|---|
Allegheny Energy ALLETE Alliant Energy Ameren American Electric Power Avista Black Hills Centerpoint Energy Central Vermont Public Service CH Energy Group CLECO CMS Energy Consolidated Edison Constellation Energy Group Dominion DPL DTE Energy Duke Energy Edison International |
El Paso Electric The Empire District Electric Entergy Exelon First Energy Great Plains Energy Hawaiian Electric Industries IDACORP Integrys Energy Group MDU Resources Group MGE Energy NEXTERA Energy NiSource Northeast Utilities NorthWestern Energy NSTAR NV Energy OGE Energy Otter Tail |
Pepco Holdings PG&E Pinnacle West Capital PNM Resources Portland General Electric PPL Progress Energy Public Service Enterprise Group Scana Sempra Energy Southern TECO Energy UIL Holdings UniSource Energy Unitil Vectren Westar Energy Wisconsin Energy Xcel Energy |
||
|
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 long-term shareholder value. The minimum performance levels 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 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.
HEI's three-year total return to shareholders was 19% and HEI ranked in the 75th percentile of the Edison Electric Institute Index, which was above the maximum level for that performance metric. As a result, named executive officers Ms. Lau and Mr. Richardson received awards at the maximum level for the portion of incentive compensation correlated to that performance measure.
Net income, return on assets and efficiency ratio are standard measurements used by banks to gauge performance. American Savings Bank's results for these goals were measured in the third year of performance to incent bank executives in pursuing its aggressive performance improvement project because the results of these improvements would be fully achieved toward the end of the three-year performance period. American Savings Bank's net income after approved exclusions for severance expenses and lease buyouts of $272,000 related to the performance improvement project was $58.7 million, bank return on assets was 1.21%, and its efficiency ratio was 56%. As a result of American Savings Bank's performance, Ms. Lau and Mr. Richardson received an award based on
53
performance at a level between the target and maximum levels for net income and at the maximum level for bank return on assets for the long-term incentive plan and the supplemental long-term incentive plan. Mr. Schools received an award based on performance at a level between target and maximum for the net income goal for the long-term incentive plan and at a level between minimum and target for the net income goal for the supplemental long-term incentive plan. He received an award at the super maximum level for the return on assets and efficiency ratio goals for the long-term incentive plan and at the maximum level for the return on assets and efficiency ratio goals for the supplemental long-term incentive plan. Mr. Schools had earlier agreed to remain with American Savings Bank until the performance improvement project was substantially completed. After the project's completion in August 2010, the Company agreed to a September 2010 departure by Mr. Schools but with credit for the full three years of service for purposes of the 2008-2010 long-term incentive plan programs to recognize his outstanding performance in completing the bank's aggressive performance improvement effort.
The utility average annual free cash flow was $3.0 million, which was at the maximum level. As a result, named executive officers Ms. Lau and Mr. Richardson received an award based on the maximum level for that performance measure.
A higher total return to shareholders and increased American Savings Bank net income, return on assets and efficiency ratio benefit shareholders of HEI, employees and customers by increasing the overall financial strength of the HEI enterprise. Because of the achievement of these goals at the levels indicated above, on February 4, 2011 the Compensation Committee approved the following long-term incentive awards under the 2008-2010 long-term incentive plan for the named executive officers who were in the plan, payable 60% in cash and 40% in shares of HEI Common Stock:
Name
|
Total Payout | |||
---|---|---|---|---|
Constance H. Lau |
$ | 1,614,618 | ||
Chester A. Richardson |
$ | 340,113 | ||
Timothy K. Schools |
$ | 757,362 |
In addition, the Compensation Committee also approved the following supplemental long-term incentive awards payable 50% in cash and 50% in shares of HEI Common Stock:
Name
|
Total Payout | |||
---|---|---|---|---|
Constance H. Lau |
$ | 335,344 | ||
Chester A. Richardson |
$ | 56,685 | ||
Timothy K. Schools |
$ | 162,048 |
HEI's 2009-2011 long-term incentive plan was explained in the proxy statement for HEI's 2009 Annual Meeting of Shareholders.
The Compensation Committee modified the design of the long-term incentive plan from the 2009-2011 performance period for the 2010-2012 performance period based on Company strategy and recommendations of Fred Cook & Co. after its executive compensation review. Awards under the 2010-2012 long-term incentive plan generally will be paid 100% in shares of HEI Common Stock plus accrued dividends less applicable taxes with the potential number of shares to be issued determined at the beginning of the performance period, instead of at the time of the payment of the award. The number of shares was determined by the Compensation Committee based on the participant's salary at the beginning of the performance period and the fair market value of HEI Common Stock on the date the award opportunity was established. The Compensation Committee believes that setting a fixed number of shares determined at the beginning of the performance period, rather than a number of shares determined by the dollar value of the award divided by the market price of the shares at payout, encourages even greater alignment of executive incentives with shareholder interests and will appropriately incentivize and reward executives to improve long-term shareholder value.
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In February 2010, the Compensation Committee established the following award ranges for the 2010-2012 long-term incentive plan, shown as a percentage of actual annual base salaries on January 1, 2010, for the named executive officers:
Name
|
Minimum | Target | Maximum | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau |
70 | % | 140 | % | 280 | % | ||||
James A. Ajello |
40 | % | 80 | % | 160 | % | ||||
Chester A. Richardson |
35 | % | 70 | % | 140 | % | ||||
Richard M. Rosenblum |
45 | % | 90 | % | 180 | % |
Mr. Schools forfeited his participation in the 2010-2012 long-term incentive plan when he resigned in September 2010. Mr. Wacker is not participating in the 2010-2012 long-term incentive plan because he became employed at the bank after the start of this performance period.
The Compensation Committee also approved the following long-term incentive goals for the 2010-2012 long-term incentive plan performance period for each of the participating named executive officers. The executives listed together below share the same goals.
Name
|
Weight | Performance Metric (1) |
Minimum Threshold |
Target Goal | Maximum Goal | ||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau James A. Ajello Chester A. Richardson |
50 | % | HEI Total Return to Shareholders (2) | 30th percentile of the Edison Electric Institute Index | 50th percentile of the Edison Electric Institute Index | 75th percentile of the Edison Electric Institute Index | |||||
50 | % | HEI 2-year Average Consolidated Net Income (3) | $172 million | $191 million | $210 million | ||||||
100 | % | ||||||||||
Richard M. Rosenblum | 40 | % | HEI Total Return to Shareholders | 30th percentile of the Edison Electric Institute Index | 50th percentile of the Edison Electric Institute Index | 75th percentile of the Edison Electric Institute Index | |||||
30 | % | HEI 2-year Average Consolidated Net Income (3) | $172 million | $191 million | $210 million | ||||||
30 | % | Utility Consolidated Return on 2-year Average Common Equity (4) | 8.5% | 9.1% | 10.0% | ||||||
100 | % | ||||||||||
55
the growth in the price per share of HEI Common Stock as measured from the beginning of the performance period to the end, plus all dividends paid during the period, assuming reinvestment, divided by the beginning price of HEI Common Stock.
The Compensation Committee chose the above goals to encourage long-term achievement of HEI earnings and enhancement of shareholder value. Shareholders, customers and employees all benefit when these goals are met. Total Return to Shareholders is a performance measure to show the return on stock to an investor. HEI's total return is compared to that of the Edison Electric Institute Index of investor-owned electric companies. It is a primary measure that reflects value created for shareholders compared to that created by other investor-owned electric companies. Utility Consolidated ROACE is a measure of the utility's ability to earn net income as a percentage of HEI's equity. As Utility Consolidated ROACE increases, it reduces the difference between the ROACE allowed by regulation and its actual ROACE, thus providing more income and thereby increasing the utilities' dividends to HEI. HEI, in turn, is made stronger financially and better able to maintain shareholder dividends and invest in value-enhancing investments, including reinvesting in the utilities. There is also a strong correlation between a higher Utility Consolidated ROACE and market value of HEI.
HEI provides stock awards to the named executive officers to strengthen the linkage of executive compensation with improvement in shareholder value and promote executive retention.
Long-term incentive awards
Long-term incentive awards in 2010 through 2012 were or will be paid at least partially in the form of stock as follows:
56
Annual equity awards
The named executive officers are eligible to receive annual equity awards as determined by the Compensation Committee. The intent of the annual equity awards program is to encourage executive retention by providing for equity compensation based on staying at the Company for a specified period of time.
In 2010, restricted stock units were granted to the named executive officers, except for Mr. Schools (who received no equity awards in 2010) and Mr. Wacker (who received an award of restricted stock as part of his signing bonus). With restricted stock units, no stock is issued or outstanding until the actual release of the shares at vesting. The restricted stock units awarded in 2010 vest four years after the grant date, except that monthly pro-rata vesting applies upon an executive's retirement, death or disability. The restricted stock units accrue dividend equivalents until vested. The 2010 grants of restricted stock unit awards and restricted stock specific to the named executive officers are summarized in the 2010 Grants of Plan-Based Awards table and related notes below.
The Compensation Committee determined the number of shares (or units) awarded in service vesting grants (versus shares that are performance based) in consultation with its compensation consultant and considering peer practices. Ms. Lau's restricted stock unit award total was determined after review of grants made to chief executive officers at peer companies and consideration of her total direct compensation compared to the peer group competitive median. The independent consultant also found that the equity grants to the other named executive officers are generally competitive with peers.
Equity award vesting periods
The unvested value from the long-term incentive plan in restricted stock units is about twice the annual grant values, based upon the component allocation determined by the Compensation Committee to be appropriate, and which the Compensation Committee views as sufficient for retention purposes. The cliff vesting of the restricted stock units granted in 2010 ensures unvested value extends out four years with no pro-rata vesting before the vesting period ends (except when the participant's termination is due to retirement, death or disability), and therefore adds support for retention purposes. The restricted stock granted to Mr. Wacker as part of his signing bonus vests annually over a four-year period.
HEI provides retirement benefits to all eligible employees, including the named executive officers (other than the American Savings Bank executive officers), through the tax-qualified HEI Retirement Plan as a means of providing financial security in recognition of their years of service. Additional retirement benefits are also provided to certain named executive officers through the nonqualified HEI Excess Pay Plan, which provides the portion of benefits that cannot be paid from the qualified plan due to Internal Revenue Code limits.
Mr. Schools participated, and Mr. Wacker participates, in the American Savings Bank 401(k) Plan, a qualified defined contribution retirement plan that enables eligible employees to save for retirement on a tax-deferred basis. The plan allows eligible American Savings Bank employees to elect to reduce their salary in return for a tax-deferred contribution to their account in the plan. American Savings Bank provides matching contributions to the accounts of eligible employees of American Savings Bank on a dollar-for-dollar basis up to 4% of eligible compensation, subject to the Internal Revenue Service limit on the amount of annual compensation that can be used for calculating benefits under qualified retirement plans. American Savings Bank also provides discretionary, nonelective profit sharing contributions to the accounts of eligible employees of American Savings Bank. In 2010, Mr. Schools received matching contributions for the 2010 plan year and a 4% profit sharing contribution for the 2009 plan year.
57
Retirement benefits under these plans specific to the named executive officers as of December 31, 2010 are discussed in further detail in the 2010 Pension Benefits table and related notes below.
HEI provides named executive officers with the opportunity to participate in deferred compensation plans that allow them to defer compensation and the resulting tax liability.
Deferred compensation benefits under these plans specific to the named executive officers in 2010 are discussed in further detail in the 2010 Nonqualified Deferred Compensation table and related notes below.
The Executive Death Benefit Plan of HEI and Participating Subsidiaries, which provides death benefits to an executive's beneficiaries in the event of an executive's death while employed or after retirement, was closed to new participants effective September 9, 2009. These death benefits are provided to beneficiaries of named executive officers who were participants in the plan prior to that date. In addition, the benefits to beneficiaries of participants who were employees as of such date were frozen (i.e., the plan was amended to foreclose any increase in death benefits that would occur due to salary increases after September 9, 2009). Under the original terms of the Executive Death Benefit Plan contracts with the participants, as in effect before September 9, 2009, the death benefits were grossed up for tax purposes. This treatment was considered appropriate because the executive death benefit is a form of life insurance and traditionally life insurance proceeds have been tax-exempt. Ms. Lau and Messrs. Ajello, Richardson and Rosenblum are covered under the Executive Death Benefit Plan. Mr. Schools did not participate in the plan. Mr. Wacker is not covered under the plan because he became an HEI executive officer after September 9, 2009. Death benefits are discussed in further detail in the 2010 Pension Benefits table and related notes below.
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The Compensation Committee and Board view change-in-control agreements to 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. Accordingly, each of the named executive officers has a change-in-control agreement, except that Mr. Schools' agreement expired upon his resignation from American Savings Bank.
In recommending the terms of executive change-in-control agreements to the Board, the Compensation Committee varies the severance multiplier among executives, taking into account the executive's expected role in a potential transaction, value to the organization and fairness. The change-in-control agreements are double trigger, which means that the executives receive severance payments only if there is both a change in control and they lose their jobs as a result. The change-in-control agreements approved by the Compensation Committee provide for cash lump sum severance multipliers of three times for Ms. Lau and two times for Messrs. Ajello, Richardson, Rosenblum and Wacker. The multiplier is applied to the sum of the executive's annual base salary and annual bonus (determined to be the greater of the current target bonus or the largest actual bonus during the preceding three fiscal years). The severance benefits are conditioned on the Company receiving a release of claims by the executive.
The change-in-control agreements have initial terms of two years and are automatically renewed for an additional 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 a change in ownership of HEI, a 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. The change-in-control agreements for Messrs. Rosenblum and Wacker also define a change in control as a change in ownership of Hawaiian Electric Company and American Savings Bank, respectively. 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 below.
HEI provides certain limited other compensation to the named executive officers because they are commonly provided to business executives in Hawaii, such as club memberships primarily for the purpose of business entertainment, or are necessary to recruit executives, such as relocation expenses or extra weeks of vacation, or because of legacy programs that have since been discontinued, such as preferential mortgage loans.
In 2010, each of the named executive officers had a club membership for the primary purpose of business entertainment expected of executives in their positions. Ms. Lau continues to have a preferential rate mortgage loan from American Savings Bank, which ceased offering such loans to its employees and executives as of July 1, 2009.
HEI has eliminated all tax gross-up practices where possible, particularly with respect to perquisites. HEI may, from time to time, reimburse for reasonable business-related expenses. Messrs. Ajello and Rosenblum each received a signing bonus upon being hired in 2009 by HEI and Hawaiian Electric Company, respectively, subject to monthly pro-rata reimbursement in the event of a voluntary termination or termination for cause prior to the completion of 36 months of service. As part of their employment offers, Messrs. Ajello and Rosenblum also were extended special 3-year declining severance agreements
59
that provide that, in the event their employment is terminated without cause on or before the third anniversary of the date of their hire, they will be paid a declining portion of their annual base salary and any target annual bonus amount, depending on the length of their service. Such severance agreements are not uncommon when hiring experienced executives, especially from the mainland United States, who may have difficulty in finding other employment if their job is terminated within months of their hire and relocation. In order to recruit Mr. Rosenblum, an experienced utility executive, Hawaiian Electric Company also agreed to give Mr. Rosenblum a credit of two years age and service for purposes of calculating his retirement benefits under the HEI Excess Pay Plan. Mr. Rosenblum also received ten days of sick leave and four weeks of vacation as part of his offer, which is more than a new employee would usually receive.
For purposes of retention of Mr. Schools, who was instrumental to the success of the bank's performance improvement project, American Savings Bank agreed to purchase his residence in Honolulu (at its original purchase price of $3.635 million, less normal selling costs including brokers' commissions) by June 30, 2011 or, if earlier, his termination as an American Savings Bank employee, as long as Mr. Schools remained employed at American Savings Bank through the end of 2010 or such earlier date as the Company determined in its sole discretion. American Savings Bank purchased Mr. Schools' residence in August 2010 in connection with his voluntary resignation from the bank in September 2010.
As part of Mr. Wacker's recruitment, he was granted four weeks of vacation annually upon commencement of his employment, which is more than a new employee would usually receive.
Other than the special severance agreements mentioned above for Messrs. Ajello and Rosenblum, there are no separate severance agreements for the named executive officers. The named executive officers would participate in the same manner as all HEI and Hawaiian Electric Company employees in the Company's standard severance policy based on years of service to the Company. American Savings Bank has no severance plan or program applicable to its executives or employees.
The following table shows the base salary, bonus, grant date fair value of stock awards, nonequity incentive compensation under the 2010 Executive Incentive Compensation Plan (EICP) and under the long-term incentive plan for the period 2008-2010, change in pension value and nonqualified deferred compensation earnings and all other compensation and benefits earned by the named executive officers during 2008, 2009 and 2010 (as applicable). Only the amounts reported in the "Salary," "Bonus," and "Nonequity Incentive Plan Compensation" columns of the table represent cash compensation earned for the applicable year, which is comprised of base salary, annual incentive bonuses, the cash portion of long-term incentive awards for the performance period ending in the applicable year and, to the extent applicable, the cash portion of a signing bonus awarded to a named executive officer in the year such executive was hired.
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2010 SUMMARY COMPENSATION TABLE*
Name and 2010 Principal Positions |
Year | Salary ($) |
Bonus ($) (1) |
Stock Awards ($) (2) |
Nonequity Incentive Plan Compensation ($) (3) |
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (4) |
All Other Compensation ($) (5) |
Total ($) |
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau | 2010 | 787,267 | | 1,722,253 | 2,575,164 | 1,448,910 | 34,408 | 6,568,002 | ||||||||||||||||||
HEI President and Chief | 2009 | 771,800 | | 921,483 | 338,106 | 774,297 | 34,049 | 2,839,735 | ||||||||||||||||||
Executive Officer | 2008 | 763,200 | | 197,640 | 1,363,695 | 1,394,006 | 40,727 | 3,759,268 | ||||||||||||||||||
American Savings Bank Chair Hawaiian Electric Company Chair |
||||||||||||||||||||||||||
James A. Ajello** | 2010 | 436,333 | | 597,479 | 203,830 | 180,636 | 25,741 | 1,444,019 | ||||||||||||||||||
HEI Senior Financial Vice | 2009 | 389,583 | 250,000 | 255,509 | 223,889 | 157,041 | 209,912 | 1,485,934 | ||||||||||||||||||
President, Treasurer and Chief Financial Officer | ||||||||||||||||||||||||||
Chester A. Richardson*** | 2010 | 357,000 | | 447,715 | 563,568 | 178,365 | 16,605 | 1,563,253 | ||||||||||||||||||
HEI Senior Vice President, | 2009 | 344,400 | | 112,316 | 197,916 | 119,845 | 15,111 | 789,588 | ||||||||||||||||||
General Counsel, Secretary and Chief Administrative Officer | 2008 | 317,600 | | 37,058 | 246,492 | 89,487 | 125,768 | 816,405 | ||||||||||||||||||
Richard M. Rosenblum**** | 2010 | 584,667 | | 786,620 | 282,037 | 279,777 | 26,335 | 1,959,436 | ||||||||||||||||||
Hawaiian Electric Company | 2009 | 580,000 | 250,000 | 348,916 | 322,289 | 435,513 | 149,881 | 2,086,599 | ||||||||||||||||||
President and Chief Executive Officer | ||||||||||||||||||||||||||
Richard F. Wacker***** | 2010 | 68,750 | 150,020 | 399,980 | 103,851 | | | 722,601 | ||||||||||||||||||
American Savings Bank | ||||||||||||||||||||||||||
President and Chief Executive Officer | ||||||||||||||||||||||||||
Timothy K. Schools****** | 2010 | 366,667 | | | 1,743,442 | | 147,752 | 2,257,861 | ||||||||||||||||||
Former American Savings | 2009 | 550,000 | | | 528,000 | 85 | 73,121 | 1,151,206 | ||||||||||||||||||
Bank President | 2008 | 541,667 | | 98,820 | 632,400 | 19,682 | 87,339 | 1,379,908 | ||||||||||||||||||
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Mr. Richardson and Mr. Schools. Messrs. Ajello, Rosenblum and Wacker did not participate in the long-term incentive plans for either 2007-2009 or 2008-2010 because they joined HEI after the beginning of the applicable performance periods. The change in Ms. Lau's pension value, reported under "Change in Pension Value and Nonqualified Deferred Compensation Earnings," increased in 2010 compared to 2009 due to a decrease in the discount rate used to calculate pension benefits and due to the inclusion of one additional year of service in the calculation of the present value of her pension benefits. The calculation of the present value of pension benefits depends on a number of variables, which may differ significantly for individual named executive officers and which can change year to year depending on the assumptions used. See the additional notes below for further detail on the items reported in the above table.
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|
Perquisites and Other Personal Benefits | |
|
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Relocation Expenses ($) |
Preferential Mortgage Loan Interest ($) |
Other ($) |
Payments Received Upon Termination ($) |
Contributions to Defined Contribution Plans ($) |
Total All Other Compensation ($) |
||||||||||||||
Constance H. Lau |
| 23,209 | 11,199 | | | 34,408 | ||||||||||||||
James A. Ajello |
4,746 | | 20,995 | | | 25,741 | ||||||||||||||
Chester A. Richardson |
| | 16,605 | | | 16,605 | ||||||||||||||
Richard M. Rosenblum |
| | 26,335 | | | 26,335 | ||||||||||||||
Richard F. Wacker |
| | | | | | ||||||||||||||
Timothy K. Schools |
| 19,785 | 17,125 | 92,222 | 18,620 | 147,752 |
63
Additional narrative disclosure about salary, bonus, stock awards, option awards, non-equity incentive plan compensation, change in pension value and nonqualified deferred compensation earnings and other compensation can be found in the Compensation Discussion and Analysis above.
The table below shows awards that may be made to the named executive officers under the 2010 annual incentive plan for 2010 performance and under the 2010-2012 long-term incentive plan for performance over the 2010-2012 period. Also shown are the restricted stock unit awards granted under the 1987 Stock Option and Incentive Plan in February 2010 and the restricted shares granted under the 2010 Equity and Incentive Plan in December 2010.
64
2010 GRANTS OF PLAN-BASED AWARDS
|
|
|
|
|
|
|
|
All Other Stock Awards: Number of Shares of Stock or Units (#) (3) |
|
||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Estimated Future Payouts Under Nonequity Incentive Plan Awards (1) |
Estimated Future Payouts Under Equity Incentive Plan Awards (2) |
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|
Grant Date Fair Value of Stock Awards ($) (4) |
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Name
|
Grant Date |
Threshold ($) |
Target ($) |
Maximum ($) |
Threshold (#) |
Target (#) |
Maximum (#) |
||||||||||||||||||||
Constance H. Lau |
2/11/10 EICP | 333,498 | 666,995 | 1,333,900 | | | | | | ||||||||||||||||||
|
2/08/10 LTIP | 28,517 | 57,035 | 114,069 | | 1,180,503 | |||||||||||||||||||||
|
6/09/10 RSU | | | | | | | 25,000 | 541,750 | ||||||||||||||||||
James A. Ajello |
2/11/10 EICP |
108,025 |
216,050 |
432,100 |
|
|
|
|
|
||||||||||||||||||
|
2/08/10 LTIP | 8,973 | 17,947 | 35,893 | | 371,478 | |||||||||||||||||||||
|
5/11/10 RSU | | | | | | | 10,000 | 226,000 | ||||||||||||||||||
Chester A. Richardson |
2/11/10 EICP |
88,700 |
177,400 |
354,800 |
|
|
|
|
|
||||||||||||||||||
|
2/08/10 LTIP | 6,448 | 12,895 | 25,790 | | 266,915 | |||||||||||||||||||||
|
5/11/10 RSU | | | | | | | 8,000 | 180,800 | ||||||||||||||||||
Richard M. Rosenblum |
2/11/10 EICP |
176,900 |
353,800 |
707,600 |
|
|
|
|
|
||||||||||||||||||
|
2/08/10 LTIP | 13,777 | 27,553 | 55,107 | | 560,620 | |||||||||||||||||||||
|
5/11/10 RSU | | | | | | | 10,000 | 226,000 | ||||||||||||||||||
Richard F. Wacker |
11/15/10 EICP |
28,336 |
56,672 |
113,344 |
|
|
|
|
|
||||||||||||||||||
|
12/09/10 RS | | | | | | | 18,009 | 399,980 | ||||||||||||||||||
Timothy K. Schools (5) |
2/11/10 EICP |
222,933 |
445,867 |
891,733 |
|
|
|
|
|
||||||||||||||||||
|
2/08/10 LTIP | 14,516 | 29,031 | 58,063 | | |
65
Outstanding Equity Awards at Fiscal Year-End
OUTSTANDING EQUITY AWARDS AT 2010 FISCAL YEAR-END
|
Option Awards | Stock Awards | |||||||||||||||||||||||||||||
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|
|
Equity Incentive Plan Awards |
||||||||||||||||||||||
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|
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|
|
|
|
|
Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested ($) (2) |
|||||||||||||||||||||
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|
|
|
|
|
|
|
|
Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#) (3) |
||||||||||||||||||||||
|
|
|
|
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
|
|
|
|
|||||||||||||||||||||||
|
|
Number of Securities Underlying Unexercised Options |
|
|
Shares or Units of Stock That Have Not Vested (1) |
||||||||||||||||||||||||||
|
|
Option Exercise Price ($) |
Option Expira- tion Date |
||||||||||||||||||||||||||||
Name
|
Grant Year |
Exer- ciseable (#) |
Unexer- ciseable (#) |
Number (#) |
Market Value ($) (2) |
||||||||||||||||||||||||||
Constance H. Lau |
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 | 1,831 | | | | 4/19/14 | | | | | |||||||||||||||||||||
|
2005 | 50,000 | | | 26.18 | 4/07/15 | | | | | |||||||||||||||||||||
|
2007 | | | | | | 16,000 | 364,640 | | | |||||||||||||||||||||
|
2008 | | | | | | 8,000 | 182,320 | | | |||||||||||||||||||||
|
2009 | | | | | | 34,500 | 786,255 | 12,723 | 289,957 | |||||||||||||||||||||
|
2010 | | | | | | 25,000 | 569,750 | 57,035 | 1,299,828 | |||||||||||||||||||||
|
Total | 214,606 | | | | | 83,500 | 1,902,965 | 69,758 | 1,589,785 | |||||||||||||||||||||
James A. Ajello |
2009 | | | | | | 9,000 | 205,110 | 3,892 | 88,699 | |||||||||||||||||||||
|
2010 | | | | | | 10,000 | 227,900 | 17,947 | 409,012 | |||||||||||||||||||||
|
Total | | | | | | 19,000 | 433,010 | 21,839 | 497,711 | |||||||||||||||||||||
Chester A. Richardson |
2007 | | | | | | 3,000 | 68,370 | | | |||||||||||||||||||||
|
2008 | | | | | | 1,500 | 34,185 | | | |||||||||||||||||||||
|
2009 | | | | | | 2,500 | 56,975 | 2,649 | 60,371 | |||||||||||||||||||||
|
2010 | | | | | | 8,000 | 182,320 | 12,895 | 293,877 | |||||||||||||||||||||
|
Total | | | | | | 15,000 | 341,850 | 15,544 | 354,248 | |||||||||||||||||||||
Richard M. Rosenblum |
2009 | | | | | | 11,000 | 250,690 | 6,147 | 140,090 | |||||||||||||||||||||
|
2010 | | | | | | 10,000 | 227,900 | 27,553 | 627,933 | |||||||||||||||||||||
|
Total | | | | | | 21,000 | 478,590 | 33,700 | 768,023 | |||||||||||||||||||||
Richard F. Wacker |
2010 | | | | | | 18,009 | 410,425 | | | |||||||||||||||||||||
|
Total | | | | | | 18,009 | 410,425 | | | |||||||||||||||||||||
Timothy K. Schools |
| | | | | | | | | | |||||||||||||||||||||
|
Total | | | | | | | | | |
All information presented has been adjusted for the 2-for-1 stock split in June 2004.
66
Option Exercises and Stock Vested
2010 OPTION EXERCISES AND STOCK VESTED
|
Option Awards | Stock Awards | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Number of Shares Acquired on Exercise (#) |
Value Realized on Exercise ($) |
Number of Shares Acquired on Vesting (#) |
Value Realized on Vesting ($) |
|||||||||
Constance H. Lau |
100,581 | (1) | 838,170 | 31,000 | (2) | 718,115 | |||||||
James A. Ajello |
| | | | |||||||||
Chester A. Richardson |
| | | | |||||||||
Richard M. Rosenblum |
| | | | |||||||||
Richard F. Wacker |
| | | | |||||||||
Timothy K. Schools |
| | | |
The table below shows the present value as of December 31, 2010 of accumulated benefits for each of the named executive officers and the number of years of service credited to each such executive under the applicable pension plan and executive death benefit plan, determined using the interest rate, mortality rate and other assumptions described below, which are consistent with those used in HEI's financial statements (see Note 9 to HEI's Consolidated Financial Statements in HEI's 2010 Form 10-K):
Name
|
Plan Name | Number of Years Credited Service (#) |
Present Value of Accumulated Benefit ($) (6) |
Payments During the Last Fiscal Year ($) |
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau |
HEI Retirement Plan (1) |
19.8 | 1,353,370 | | ||||||||
|
American Savings Bank Retirement Plan (2) |
6.4 | 163,253 | | ||||||||
|
HEI Supplemental Executive Retirement Plan (3) |
24.3 | 6,980,440 | | ||||||||
|
HEI Excess Pay Plan (4) |
2.0 | 370,688 | | ||||||||
|
HEI Executive Death Benefit (5) |
| 415,511 | |||||||||
James A. Ajello |
HEI Retirement Plan (1) |
1.9 | 138,384 | | ||||||||
|
HEI Excess Pay Plan (4) |
1.9 | 105,024 | | ||||||||
|
HEI Executive Death Benefit (5) |
| 94,269 | | ||||||||
Chester A. Richardson |
HEI Retirement Plan (1) |
3.3 | 213,004 | | ||||||||
|
HEI Excess Pay Plan (4) |
3.3 | 87,763 | |||||||||
|
HEI Executive Death Benefit (5) |
| 145,772 | | ||||||||
Richard M. Rosenblum |
HEI Retirement Plan (1) |
2.0 | 133,097 | | ||||||||
|
HEI Excess Pay Plan (4) |
4.0 | 436,498 | | ||||||||
|
HEI Executive Death Benefit (5) |
| 145,695 | | ||||||||
Timothy K. Schools (7) |
|
| | | ||||||||
Richard F. Wacker (8) |
|
| | |
67
service with HEI or other participating companies (Hawaiian Electric Company, Maui Electric Company and Hawaii Electric Light Company). Additional credited service of up to eight months is used to calculate benefits for participants who retire at age 55 or later with respect to unused sick leave from the current year and prior two years. Credited service is also granted to disabled participants who are vested at the time of disability for the period of disability. The normal form of benefit is a joint and 50% survivor annuity for married participants and a single life annuity for unmarried participants. Other actuarially equivalent optional forms of benefit are also available. Participants who qualify to receive benefits immediately upon termination may also elect a single sum distribution of up to $50,000 with the remaining benefit payable as an annuity. At early retirement, the single sum distribution option is not actuarially equivalent to the other forms of benefit. Retirement benefits are increased by an amount equal to approximately 1.4% of the initial benefit every twelve months following retirement. The plan provides benefits at early retirement (prior to age 65), normal retirement (age 65), deferred retirement (over age 65) and death. Early retirement benefits are available for participants who meet the age and service requirements at ages 50-64. Early retirement benefits are reduced for participants who retire prior to age 60, 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 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. Subject to the collective bargaining process, HEI has amended the HEI Retirement Plan to reduce the early retirement subsidies for benefits accrued after January 31, 2011. The retirement benefits, including the early retirement subsidies, accrued by all participants through January 31, 2011, will remain unchanged. These amendments do not apply to participants who had attained age 45 and were fully vested in their retirement benefits as of January 31, 2011. (Generally, a participant becomes fully vested after completing five years of employment with HEI or its subsidiaries.) Under the amended plan, early retirement subsidies are reduced for participants who retire prior to age 62 and are eliminated for participants who retire prior to age 55. For retirements between the ages of 55 and 61, there will be a 3% reduction for each year prior to age 62. For retirements prior to age 55, no subsidy will be available. A participant retiring after age 50 and before age 55 will receive the actuarial equivalent of the age 65 benefit. Ms. Lau is eligible for early retirement benefits under the HEI Retirement Plan. Messrs. Ajello, Richardson and Rosenblum are not eligible for early retirement benefits under the HEI Retirement Plan and have no vested interest in the amounts reported above because none of them have satisfied the five-year minimum service requirement.
68
Disability and Death Benefit Plan and social security. Early retirement and death benefits similar to those available under the HEI Retirement Plan are available under the HEI Supplemental Executive Retirement Plan. Ms. Lau is eligible for early retirement benefits under the HEI Supplemental Executive Retirement Plan based on 26 years and 3 months of actual service with all HEI affiliated companies as of December 31, 2010. Upon her retirement, Ms. Lau's benefits from this plan will be based upon benefits earned through December 31, 2008.
Methodology: The present values are calculated as of December 31, 2010 based on the credited service and pay of the named executive officer as of such date (or the date of benefit freeze, if earlier).
Assumptions:
69
Nonqualified Deferred Compensation
2010 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) |
| | 28,183 | | 244,722 | |||||||||||
James A. Ajello |
| | | | | |||||||||||
Chester A. Richardson |
| | | | | |||||||||||
Richard M. Rosenblum |
| | | | | |||||||||||
Richard F. Wacker |
| | | | | |||||||||||
Timothy K. Schools |
| | | | |
70
Potential Payments Upon Termination or Change in Control
The table below shows the amount of potential payments to each named executive officer in the event of retirement, voluntary termination, termination for cause, termination without cause and a qualifying termination following a change in control, assuming termination occurred on December 31, 2010. The amounts listed below are estimates; actual amounts to be paid would depend on the actual date of termination and circumstances existing at that time.
2010 TERMINATION/CHANGE-IN-CONTROL PAYMENT TABLE
Name/ Benefit Plan or Program |
Retirement on 12/31/10 ($) (1) |
Voluntary Termination on 12/31/10 ($) (2) |
Termination for Cause on 12/31/10 ($) (3) |
Termination without Cause on 12/31/10 ($) (4) |
Qualifying Termination after Change in Control on 12/31/10 ($) (5) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Constance H. Lau |
||||||||||||||||
Executive Incentive Compensation Plan (6) |
| | | | | |||||||||||
Long-Term Incentive Plan (7) |
1,252,099 | | | | | |||||||||||
Restricted Shares, Restricted Stock and Restricted Stock Units (8) |
464,346 | | | 461,498 | | |||||||||||
Preferential Mortgage Loan Interest (9) |
168,753 | | | | | |||||||||||
Change-in-Control Agreement |
| | | | 5,341,338 | |||||||||||
TOTAL |
1,885,198 | | | 461,498 | 5,341,338 | |||||||||||
James A. Ajello |
||||||||||||||||
Executive Incentive Compensation Plan (6) |
| | | | | |||||||||||
Long-Term Incentive Plan (7) |
| | | | | |||||||||||
Restricted Shares, Restricted Stock and Restricted Stock Units (8) |
| | | | | |||||||||||
Special Severance Payment (10) |
| | | 442,000 | | |||||||||||
Change-in-Control Agreement |
| | | | 2,477,091 | |||||||||||
TOTAL |
| | | 442,000 | 2,477,091 | |||||||||||
Chester A. Richardson |
||||||||||||||||
Executive Incentive Compensation Plan (6) |
| | | | | |||||||||||
Long-Term Incentive Plan (7) |
| | | | | |||||||||||
Restricted Shares, Restricted Stock and Restricted Stock Units (8) |
| | | 76,099 | | |||||||||||
Change-in-Control Agreement |
| | | | 1,289,045 | |||||||||||
TOTAL |
| | | 76,099 | 1,289,045 | |||||||||||
71
Name/ Benefit Plan or Program |
Retirement on 12/31/10 ($) (1) |
Voluntary Termination on 12/31/10 ($) (2) |
Termination for Cause on 12/31/10 ($) (3) |
Termination without Cause on 12/31/10 ($) (4) |
Qualifying Termination after Change in Control on 12/31/10 ($) (5) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Richard M. Rosenblum |
||||||||||||||||
Executive Incentive Compensation Plan (6) |
| | | | | |||||||||||
Long-Term Incentive Plan (7) |
| | | | | |||||||||||
Restricted Shares, Restricted Stock and Restricted Stock Units (8) |
| | | | | |||||||||||
Special Severance Payment (10) |
| | | 587,000 | | |||||||||||
Change-in-Control Agreement |
| | | | 2,491,646 | |||||||||||
TOTAL |
| | | 587,000 | 2,491,646 | |||||||||||
Richard F. Wacker |
||||||||||||||||
Executive Incentive Compensation Plan (6) |
| | | | | |||||||||||
Restricted Shares, Restricted Stock and Restricted Stock Units (8) |
| | | 410,425 | 410,425 | |||||||||||
Change-in-Control Agreement |
| | | | | |||||||||||
TOTAL |
| | | 410,425 | 410,425 | |||||||||||
Mr. Schools received no benefits under his change-in-control agreement upon his departure from the Company in September 2010.
Note: All stock-based award amounts were valued using the 2010 year-end closing price of HEI Common Stock of $22.79 per share. Other benefits that are available to all employees on a nondiscriminatory basis and perquisites aggregating less than $10,000 in value have not been listed.
72
not include amounts payable under the 2010 executive incentive compensation plan or the 2008-2010 long term incentive plan or supplemental long-term incentive plan because those amounts would have vested without regard to voluntary termination since December 31, 2010 was the end of the applicable performance periods.
"Change in control" generally means a change in ownership of HEI, a substantial change in the voting power of HEI's securities or a change in the majority of the composition of the Board following the consummation of a merger, tender offer or similar transaction. Mr. Rosenblum's and Mr. Wacker's change-in-control agreements define "change in control" to also mean a sale of (or equivalent transaction involving) Hawaiian Electric Company or American Savings Bank, respectively. The aggregate payments under the agreements are limited to the maximum amount deductible under Section 280G of the Internal Revenue Code and there are no excise tax gross ups provided for in the agreements. The change-in-control agreements are also double trigger, meaning that severance payments are made only if a change in control occurs and the named executive officer also loses his or her job under the qualifying circumstances described in his or her change-in-control agreement. Ms. Lau has a lump sum severance multiplier of three times and Messrs. Ajello, Richardson, Rosenblum and Wacker have a lump sum severance multiplier of two times applied to the sum of the executive's base salary and annual bonus (determined to be the greater of the current target bonus or the largest actual bonus during the preceding three years).
In addition, under the change-in-control agreements executives would receive continued life, disability, dental, accident and health insurance benefits for the severance period (i.e., the number of years equal to the applicable severance multiplier). Executives would receive a lump sum
73
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. Any unvested restricted stock and restricted stock units awarded under the SOIP will become vested and free of restrictions upon a change in control. For restricted shares, restricted stock units, nonqualified stock options and stock appreciation rights awarded under the EIP, in the event of a change in control either (i) the acquiring entity shall assume all outstanding awards or substitute similar awards for all outstanding awards or (ii) all outstanding awards shall become fully vested and, if applicable, exercisable. For the named executive officers who are eligible to participate in the HEI Retirement Plan, additional age and service credit is received for the severance period for purposes of determining retiree welfare benefit eligibility. Executives would receive financial, tax planning and outplacement services, capped at 15% of annual base 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 compensation benefits are provided to the executives upon a change in control as described below. All the foregoing benefit amounts are included in this column but the total severance amount shown is limited to the maximum amount deductible under Section 280G of the Internal Revenue Code with respect to each named executive officer.
74
in footnote 5 above. Restricted stock vests on a pro-rata basis (based on service to date compared to the original vesting period) upon termination without cause and becomes fully vested upon a change in control. For all other termination events, the unvested restricted stock is forfeited. Upon termination due to death, disability or retirement, restricted stock units awarded under the SOIP vest on a pro-rata basis (based on completed quarters of service over the original vesting period) and restricted stock units awarded under the EIP vest (i) based on actual performance if the restrictions are performance-based and (ii) on a pro-rata basis if the restrictions are based on lapse of time (based on service to date compared to the original vesting period). The effect of a change in control on restricted stock units awarded under the EIP is described in footnote 5 above. All other termination events result in the forfeiture of the unvested restricted stock units, whether awarded under the SOIP or the EIP. The amount shown is based on the 2010 year-end closing price of vested shares. The vesting of restricted shares, restricted stock and restricted stock units and severance payments in the event of a change in control are described in footnote 5 above and have been quantified as part of the Change-in-Control Agreement payment in the table above.
75
Security Ownership of Certain Beneficial Owners
The table below shows the number of shares of HEI Common Stock beneficially owned as of February 8, 2011 (or such other date as indicated below) by (a) each person known by HEI to own beneficially more than five percent of the outstanding shares of HEI Common Stock, (b) each director who is a current director or served as a director during any part of 2010, each nominee for director and each named executive officer (as listed in the 2010 Summary Compensation Table above) and (c) all directors and executive officers as a group, based in part on information furnished by the respective shareholders. No HEI directors, executive officers or named executive officers own any shares of Preferred Stock of HEI's wholly owned subsidiary, Hawaiian Electric Company.
Amount and Nature of Beneficial Ownership of HEI Common Stock
|
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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 and RSUs (4) |
Total |
Percent of Class |
|||||||||||||
|
|||||||||||||||||||
Nonemployee directors |
|||||||||||||||||||
Don E. Carroll |
26,130 | | | | 26,130 | * | |||||||||||||
Shirley J. Daniel |
16,535 | | | | 16,535 | * | |||||||||||||
Thomas B. Fargo |
14,612 | | | | 14,612 | * | |||||||||||||
Richard W. Gushman, II (5) |
16,003 | | | | 16,003 | * | |||||||||||||
Victor H. Li |
5,851 | 12,097 | 558 | | 18,505 | * | |||||||||||||
A. Maurice Myers |
39,481 | | | | 39,481 | * | |||||||||||||
Diane J. Plotts (5) |
18,680 | | | | 18,680 | * | |||||||||||||
James K. Scott |
22,864 | | | | 22,864 | * | |||||||||||||
Kelvin H. Taketa |
23,122 | | | | 23,122 | * | |||||||||||||
Barry K. Taniguchi |
| 23,727 | | | 23,727 | * | |||||||||||||
Jeffrey N. Watanabe |
33,449 | | 4 | | 33,453 | * | |||||||||||||
Nonemployee director nominees |
|||||||||||||||||||
Peggy Y. Fowler |
| 1,934 | | | 1,934 | * | |||||||||||||
Keith P. Russell |
1,000 | | | | 1,000 | * | |||||||||||||
Employee director and Named Executive Officer |
|||||||||||||||||||
Constance H. Lau |
226,065 | | 7,617 | 139,860 | 372,112 | * | |||||||||||||
Other Named Executive Officers |
|||||||||||||||||||
James A. Ajello |
2,000 | | | | 2,000 | * | |||||||||||||
Chester A. Richardson |
14,366 | | 3,036 | | 17,402 | * | |||||||||||||
Richard M. Rosenblum |
700 | | | | 700 | * | |||||||||||||
Timothy K. Schools (5) |
15,338 | | | | 15,338 | * | |||||||||||||
Richard F. Wacker |
18,009 | | | | 18,009 | * | |||||||||||||
All directors and executive officers as a group (16 persons) |
444,183 |
37,758 |
11,214 |
139,860 |
633,015 |
* |
|||||||||||||
|
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Does HEI have stock ownership and retention guidelines for directors and officers and does it have a policy regarding hedging the risk of ownership?
In 2003, the Board adopted stock ownership and retention guidelines for HEI's directors, executive officers and controller. Each officer and director subject to the guidelines has until January 1 of the year following the fifth anniversary of the later of (i) amendment to the guidelines affecting his or her specified level of stock ownership or (ii) his or her first becoming subject to the guidelines to achieve the specified level of stock ownership (compliance date). In 2009, the Board increased the specified level of stock ownership guidelines for the HEI President and Chief Executive Officer to five times (from two and a half times) her base salary. In December 2010, the Board increased the stock ownership guidelines for the HEI named executive officers (other than the HEI President and Chief Executive Officer) to two times (from one and one-half times) their respective base salaries. In addition, the Board increased the Chairman of the Board's stock ownership level from one times his annual cash retainer to two times. For other directors, stock ownership guideline targets are five times their annual Board and Board committee cash retainer. As of January 1, 2011, each director who has reached his or her initial compliance date had achieved his or her stock ownership target. Ms. Lau's initial compliance date is January 1, 2015; however, she has already reached the specified level of stock ownership for her position. The initial compliance date for Messrs. Ajello, Richardson, Rosenblum and Wacker is January 1, 2016.
Prior to his or her initial compliance date, directors and officers subject to the stock ownership and retention guidelines must observe the following stock retention requirements: (i) HEI directors must retain all shares received under their annual stock retainer and (ii) HEI and subsidiary officers subject to the guidelines must retain all shares received in payout under the Long-Term Incentive Plan and 20% of shares received through the exercise of nonqualified stock options or stock appreciation rights
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or through the vesting of restricted stock or restricted stock units. The Compensation Committee has the authority to approve temporary hardship exceptions to these retention requirements.
The Company's Insider Trading Policy prohibits all directors, officers and employees of HEI and its subsidiaries (as well as the spouses, minor children, adult family members sharing the same household and any other person for whom the director, officer or employee exercises substantial control over such persons' securities trading decisions) from trading in options, warrants, puts, calls or similar instruments on Company securities, making short sales in Company securities, holding Company securities in margin accounts or pledging Company securities.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of t