Summary of 2010 Incentive Plans
On December 15, 2009, the Human Resources Committee (the Committee) approved the Pinnacle West 2010 Annual Incentive Award Plan (the PNW Plan), which provides an incentive award opportunity for Donald E. Brandt, the Chairman of the Board and Chief Executive Officer of Pinnacle West and Arizona Public Service Company (APS). On December 16, 2009, the Board of Directors of Pinnacle West, acting on the recommendation of the Committee, approved the APS 2010 Annual Incentive Award Plan (the APS Plan) and the 2010 APS Palo Verde Employee Incentive Plan (the Palo Verde Plan), which provide incentive award opportunities for Pinnacle West and APS employees, including the following named executive officers from the 2009 Proxy Statement: James R. Hatfield, Senior Vice President, Chief Financial Officer and Treasurer; Randall K. Edington, Executive Vice President and Chief Nuclear Officer of APS; and Steven M. Wheeler, Executive Vice President, Customer Service and Regulation, of APS. The PNW Plan, the APS Plan, and the Palo Verde Plan are referred to collectively herein as the 2010 Plans.
No incentive payments will be awarded under the 2010 Plans unless Pinnacle West, with respect to Mr. Brandt, and APS, with respect to Messrs. Hatfield, Wheeler and Edington, achieves a specified threshold earnings level. The Committee may evaluate the impacts of unusual or nonrecurring adjustments to earnings in determining whether any earnings level has been met for purposes of the 2010 Plans, and the impacts of any sale or disposal of assets will be excluded for purposes of the PNW Plan.
The award opportunity for Mr. Brandt under the PNW Plan is based on the achievement of specified 2010 Pinnacle West earnings levels. The award achieved may be further adjusted by the Committee based upon its evaluation of Mr. Brandts individual performance. Mr. Brandt has an award opportunity of up to 50% of his base salary if the threshold earnings level is met, up to 100% of his base salary if a target earnings level is met, and up to 150% of his base salary if a maximum earnings level is met, before adjustment for individual performance. In considering Mr. Brandts individual performance, the Committee may take into account factors such as shareholder value, financial strength, operating performance, development and execution of corporate strategy and safety.
The award opportunities for Messrs. Hatfield and Wheeler under the APS Plan are based on the achievement of specified 2010 APS earnings levels and specified business unit performance goals. The awards achieved may be further adjusted by the Committee, with input from the Chief Executive Officer, based upon its evaluation of each officers individual performance. Each officer has a target award opportunity of up to 50% of his base salary. He may earn less than the target amount or more, up to a maximum award opportunity of up to 100% of his base salary, depending on the achievement of the earnings and business unit performance goals separately or in combination, and before adjustment for individual performance. The business unit performance measures that will be considered for Mr. Hatfield and Mr. Wheeler are derived from APS five critical areas of focus as provided in its Strategic Framework: customers and communities, employees, environmental stewardship, operational excellence and shareholder value. In considering each officers individual performance, with input from the Chief Executive Officer, the Committee may take into account factors such as effective cost and financial management, APS financial strength, operational performance, customer service, regulatory processes and safety.
The award opportunity for Mr. Edington under the Palo Verde Plan is based on the achievement of specified 2010 APS earnings levels and specified business unit performance goals. Mr. Edington has an award opportunity of 25% of his base salary up to 100% of his base salary depending on the achievement of the earnings and business unit performance goals separately or in combination. The business unit performance indicators that will be considered for Mr. Edington are in the areas of safety, employee performance, achievement of operational metrics for the Palo Verde Nuclear Generating Station, performance improvement in key areas, and cost management.
In no event may any individual award under the PNW Plan or the APS Plan exceed 200% of the target payout level.