Director Compensation. The Compensation Committee periodically reviews the level and form of the Company’s director compensation including how such compensation relates to director compensation at companies of comparable size, industry and complexity. The committee, with input from the Corporate Governance Committee, recommends changes to director compensation for approval by the full board. For additional insight into non-employee director compensation, go to the Non-Employee Director Compensation section of the Corporate Governance Guidelines. Details can also be found in the Director Compensation section of our Annual Meeting Proxy Statement.
Executive Compensation. The principal goal of the Compensation Committee is to provide a performance-based executive compensation program that is competitive with programs of comparable employers, aligns management’s incentives with the short-term and long-term interests of our stockholders and encourages the retention of top performers. A substantial portion of executive compensation is at risk.
As a general matter, we believe that the labor market for our executives is consistent with that of general industry, and to retain top performing executive officers, our compensation practices must be competitive with those of general industry. As such, we compensate our executives through a mix of elements including:
In addition, each executive officer is entitled to severance compensation under our compensation program if his or her employment is terminated in connection with a change in control of the Company.
Annual Base Salary. The annual base salary component of our executive compensation program provides each executive officer with a fixed level of annual cash compensation. Actual salary determinations were made taking into consideration factors such as the relative levels of individual experience, performance, responsibility and contribution to the results of the Company’s operations. After being frozen for two consecutive years at 2008 levels due to general economic conditions, and in light of the Company’s financial and operational performance over the past several years, the Compensation Committee increased base salaries for 2011.
Annual Cash Incentive Compensation. The annual incentive plan provides for cash awards to executives based on achievement of pre-established stockholder-, customer- and employee-focused objectives. All payments under the plan are at risk. Payments are made only if performance goals are achieved, and awards may be less than or greater than targeted amounts based upon actual performance. Annual incentive awards for executive officers for 2011 were targeted at 40 percent to 100 percent of base salary. Actual awards could have ranged from zero to 210 percent of the target award, based on actual results. The plan also gives the Compensation Committee discretion to recognize individual performance.
At the Compensation Committee’s direction, the annual performance incentive program for 2011 principally focused on the attainment of the key financial measures of earnings per share from ongoing operations. The Company’s 2011 financial performance satisfied the maximum payout level goals as defined by the committee such that our executive officers earned 200% of the target levels.
In addition to financial performance, our executives' final awards may also be impacted by performance in three key operational areas: customer satisfaction, safety, and supplier and work force diversity. The Company's performance in customer satisfaction, safety and diversity increased the bonus awards to our executive officers by 10 percent.
Performance incentives for 2012 again depend upon financial achievement determined by the Company's performance against earnings per share from ongoing operations. As was the case in 2011, the Company's performance in the operational areas of customer satisfaction, safety, and supplier and work force diversity could either increase or decrease final awards by up to 10 percent. In addition, the Compensation Committee retains discretion to consider individual performance when awarding annual cash incentive compensation.
Long-Term Incentive Compensation. The Compensation Committee administers Wisconsin Energy Corporation’s 1993 Omnibus Stock Incentive Plan, amended and restated effective May 5, 2011, which is a stockholder approved, long-term incentive plan designed to link the interests of our executives and other key employees to creating long-term stockholder value. It allows for various types of awards keyed to the performance of our common stock, including stock options, stock appreciation rights and restricted stock. The Compensation Committee also administers the Wisconsin Energy Corporation Performance Unit Plan under which the committee may also award performance units.
The Compensation Committee primarily uses stock options, restricted stock and performance units to deliver long-term incentive opportunities. Since management benefits from a stock option award only to the extent our stock price appreciates above the exercise price of the stock option, which is set to equal the fair market value of our common stock on the date of grant, stock options align the interests of management with those of our stockholders in attaining long-term stock price appreciation.
The Compensation Committee also awards restricted stock as part of the long-term incentive plan as market data indicated that many companies were shifting the mix of long-term compensation by reducing the number of options awarded and granting time-vesting restricted stock. Performance units are designed to provide an additional form of long-term incentive compensation that more closely aligns the interests of management with those of a typical utility stockholder who is focused not only on stock price appreciation but also on receiving dividend payments. Under the terms of the performance units, cash payouts are based on the Company’s level of “total stockholder return” (stock price appreciation plus dividends) in comparison to a peer group of companies over a three-year performance period. In 2011, the Compensation Committee approved a long-term incentive award consisting of 80% performance units, 10% stock options and 10% restricted stock.
Executive Benefits. We provide our executive officers with other employee benefit programs (such as medical benefits coverage, retirement benefits and annual contributions to a qualified savings plan) that are generally the same programs offered to substantially all of the Company’s salaried employees. In addition, certain perquisites and other benefits are provided to executive officers including:
Further details concerning our executive compensation program can be found in the Compensation Discussion and Analysis section of our Annual Meeting Proxy Statement.