DEF 14A 1 d121171ddef14a.htm DEF 14A DEF 14A
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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 x   Filed by a Party other than the Registrant ¨

 

Check the appropriate box:

 

¨  Preliminary Proxy Statement

 

¨  CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
     (AS PERMITTED BY RULE 14a-6(e)(2))

 

x  Definitive Proxy Statement

 

¨  Definitive Additional Materials

 

¨  Soliciting Material Pursuant to §240.14a-12

 

 

 

 

EXELON CORPORATION


(Name of Registrant as Specified In Its Charter)

 

 

 

  


(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

 

Payment of Filing Fee (Check the appropriate box):

 

x  No fee required.

 

¨  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1)  Title of each class of securities to which transaction applies:

 

  

 

  (2)  Aggregate number of securities to which transaction applies:

 

  

 

  (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):

 

  

 

  (4)  Proposed maximum aggregate value of transaction:

 

  

 

  (5)  Total fee paid:

 

  

 

 

¨  Fee paid previously with preliminary materials.

 

¨  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.

 

  (1)  Amount Previously Paid:

 

  

 

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LOGO

March 16, 2016

NOTICE OF THE ANNUAL MEETING

AND 2016 PROXY STATEMENT

To the shareholders of Exelon Corporation:

Our annual meeting of shareholders will be held on Tuesday, April 26, 2016 at 9:00 a.m. Eastern Time in Energy Hall at PECO Energy Company headquarters, 2301 Market Street, Philadelphia, Pennsylvania to:

 

1) Elect director nominees named in the proxy statement;

 

2) Ratify PricewaterhouseCoopers LLP as Exelon’s independent auditor for 2016;

 

3) Approve the compensation of our named executive officers as disclosed in the proxy statement;

 

4) Approve the management proposal to amend Exelon’s Bylaws to provide proxy access; and

 

5) Conduct any other business that properly comes before the meeting.

Shareholders of record as of March 4, 2016 are entitled to vote at the annual meeting.

On or about March 16, 2016, we will mail to our shareholders a Notice Regarding the Availability of Proxy Materials, which will indicate how to access our proxy materials on the Internet. By furnishing the Notice Regarding the Availability of Proxy Materials we are lowering the costs and reducing the environmental impact of our annual meeting.

 

LOGO

Bruce G. Wilson

Senior Vice President,

Deputy General Counsel and Corporate Secretary

Your vote is important. We encourage you to vote promptly.

Internet and telephone voting are available through 11:59 p.m.

Eastern Time on April 25, 2016.


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ii   Exelon Corporation Notice of the Annual Meeting and 2016 Proxy Statement


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Proxy Statement Summary

 

 

 

We are providing these proxy materials in connection with the solicitation by the board of directors of Exelon Corporation (“Exelon,” the “company,” “we,” “us,” or “our”), a Pennsylvania corporation, of proxies to be voted at our 2016 annual meeting of shareholders and at any adjournment or postponement. The annual meeting of shareholders will take place on April 26, 2016 at 9:00 a.m. Eastern Time in Energy Hall at PECO Energy Company headquarters, 2301 Market Street, Philadelphia, Pennsylvania.

MATTERS FOR SHAREHOLDER VOTING

At this year’s annual meeting, we are asking our shareholders to vote on the following matters:

Proposal 1: Election of Directors

The board of directors recommends a vote FOR the election of the director nominees named in this proxy statement. See pages 1-18 for further information on the nominees.

Proposal 2: Appointment of PricewaterhouseCoopers LLP as independent auditor for 2016

The board of directors recommends a vote FOR this proposal. See page 40 for details.

Proposal 3: Advisory Approval of Executive Compensation

The board of directors recommends a vote FOR this proposal. See page 41-87 for details.

Proposal 4: Approve Management Proposal to Amend Exelon’s Bylaws to Provide Proxy Access

The board of directors recommends a vote FOR this proposal. See pages 88-91 for details.

The board of directors knows of no other matters to be presented for action at the annual meeting. If any matter is presented from the floor of the annual meeting, the individuals serving as proxies intend to vote on these matters in the best interest of all shareholders. Your signed proxy card gives this authority to Darryl M. Bradford and Bruce G. Wilson.

Please refer to the material on pages 94-97 for information about how to cast your votes, who may attend the meeting, and other frequently asked questions.

 

Exelon Corporation Notice of the Annual Meeting and 2016 Proxy Statement   iii


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Proxy Statement Summary

 

 

 

GOVERNANCE HIGHLIGHTS

Exelon is committed to maintaining the highest standards of corporate governance. Strong corporate governance practices help us achieve our performance goals and maintain the trust and confidence of our investors, employees, customers, regulatory agencies and other stakeholders. Our corporate governance practices are described in more detail on pages 19-33 and in our Corporate Governance Principles which are available on the Exelon website at www.exeloncorp.com on the corporate governance page under the Investors tab.

 

Director Independence

  

   12 of our 13 nominees are independent.

 

   Our CEO is the only management director.

 

   During 2015, all of our board committees (except the generation oversight committee and investment oversight committee) were composed exclusively of independent directors.

 

Board Leadership

  

   The positions of Chairman and CEO are separated. Our Chairman is independent.

 

Executive Sessions

  

   The independent directors regularly meet in executive sessions without management.

 

Board Oversight of Risk Management

  

   Our board reviews Exelon’s systematic approach to identifying and assessing risks faced by Exelon and our business units.

 

   The board considers enterprise risk in connection with emerging trends or developments and the evaluation of capital investments and business opportunities.

 

   The board’s finance and risk committee oversees our risk management strategy, policies and practices and financial condition and risk exposures.

 

Stock Ownership Requirements

  

   Our independent directors must hold at least 15,000 shares of Exelon common stock within five years after joining the board.

 

   Our CEO must, after five years of employment, hold Exelon Common Stock valued at six times base salary.

 

    Executive vice presidents and higher officers must, within five years after employment or September 30, 2012, hold Exelon Common Stock, valued at three times base salary.

 

Board Practices

  

   Our board annually reviews its effectiveness as a group.

 

   Continuing director education is provided during regular board and committee meetings.

 

   Directors may not stand for election after age 75.

 

Accountability

  

   All directors stand for election annually.

 

   In uncontested elections, directors must be elected by a majority of votes cast.

 

Board Diversity

  

   Directors represent the appropriate mix of skills and characteristics required to best fill the needs of the board in light of Exelon’s strategic direction.

 

    3 of 13 directors (23%) are female.

 

   2 of 13 directors (15%) are minorities.

 

iv   Exelon Corporation Notice of the Annual Meeting and 2016 Proxy Statement


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Proxy Statement Summary

 

 

 

2015 EXECUTIVE COMPENSATION HIGHLIGHTS

1 STRONG FINANCIAL AND OPERATIONAL PERFORMANCE

 

   

Exelon’s adjusted non-GAAP operating earnings per share (EPS) beat the annual incentive program (AIP) target by 8 cents, despite a difficult year in the markets, and was at approximately the mid-point of the upward adjusted earnings guidance range.

 

   

Exelon Utilities had high performance across the 26 metrics we track, with 21 of them being best or second-best ever including top quartile for each of its utilities (BGE, ComEd and PECO) for outage frequency, customer operations performance, and customer satisfaction, while ComEd and PECO had employee safety records approaching best-in-class.

 

   

Exelon Generation had exceptional plant performance, including world class nuclear capacity factor of nearly 94 percent, power dispatch match of almost 99 percent, and wind and solar energy capture of close to 96 percent, while Constellation’s load business outperformed expectations, experiencing growth in both our power and gas portfolios.

2 STRONG PAY FOR PERFORMANCE ALIGNMENT ON 2013-2015 PERFORMANCE SHARE AWARD PAYOUT

 

   

The lagging total shareholder return (TSR) performance due to continued low power prices was reflected in the 10 percent reduction in the payout of the 2013-2015 Performance Share Awards as a result of the TSR modifier in the program design.

 

   

Our 2015 TSR (including reinvested dividends) was down 22 percent for the year, tracking natural gas prices at Henry Hub, which were down 41 percent from the prior year.

 

   

The impact of low power prices on Exelon is significant as our exposure to power prices is greater compared with that of our peers.

 

   

Despite Exelon’s strong financial and operational performance, its lagging stock price was largely driven by factors outside of management’s control such as low power prices, low gas prices, and weak load growth.

3 CEO TARGET TOTAL DIRECT COMPENSATION (TDC) INCREASED SLIGHTLY FROM PRIOR YEAR

 

   

CEO TDC increased 5 percent from the prior year, with 95 percent of the TDC increase in the form of annual and long-term incentives.

 

   

Better aligns Mr. Crane’s pay with Exelon’s peer group.

 

   

Recognizes his contributions made to position the business for future success.

4 KEY STRATEGIC INTIATIVES

 

   

PJM capacity performance auctions results: These results for 2016-2019 were highly beneficial for Exelon’s generation assets in PJM, yielding $1.4 billion in incremental revenues over our plans.

 

   

Low carbon portfolio standard: We are disappointed that this failed to move in the Illinois legislature due to the current legislative gridlock over the state’s budget. Finding a comprehensive legislative solution that properly values the reliability and carbon-free benefits of our nuclear assets remains a priority for Exelon in 2016.

 

Exelon Corporation Notice of the Annual Meeting and 2016 Proxy Statement   v


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Proxy Statement Summary

 

 

 

5 COMMITMENT TO SHAREHOLDER ENGAGEMENT

 

   

The company met with investors holding approximately 46 percent of outstanding shares, consistent with the prior year.

 

   

Shareholders largely expressed support for the design changes that we implemented in 2013 and recommended that we stay the course, with the exception of replacing one of the financial metrics (FFO/Debt) with Operating EPS, starting with the 2016-2018 Performance Share Award program. This new metric will align more closely with the company’s overall growth strategy.

 

vi   Exelon Corporation Notice of the Annual Meeting and 2016 Proxy Statement


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Table of Contents

 

 

 

Notice of Annual Meeting of Shareholders

     i   

Proxy Statement Summary

     iii   

Proposal 1: Election of Directors

     1   

Corporate Governance at Exelon

     19   

Compensation of Non-Employee Directors

     34   

Ownership of Exelon Stock

     37   

Proposal 2: The Ratification of PricewaterhouseCoopers LLP as Exelon’s Independent Auditor for 2016

     40   

Proposal 3: Advisory Vote on Executive Compensation

     41   

Report of the Compensation and Leadership Development Committee

     42   

Compensation Discussion and Analysis

     43   

Overview

     43   

How We Design Our Executive Compensation Programs to Pay For Performance

     50   

What We Pay and Why We Pay It

     55   

Governance Features of Our Executive Compensation Programs

     65   

Executive Compensation Data

     68   

Proposal 4: Vote on Management Proposal to Amend Exelon’s Bylaws to Provide Proxy Access

     88   

Communication with the Board of Directors

     92   

Frequently Asked Questions

     94   

Appendix A

  

Proposed Amendment to Exelon’s Bylaws to Provide Proxy Access for Director Nominations

     A-1   

 

Exelon Corporation Notice of the Annual Meeting and 2016 Proxy Statement   vii


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Cautionary Statements Regarding Forward-Looking Information

This proxy statement contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. The factors that could cause actual results to differ materially from the forward-looking statements made by Exelon Corporation include those factors discussed herein, as well as the items discussed in (1) Exelon’s 2015 Annual Report on Form 10-K in (a) ITEM 1A. Risk Factors, (b) ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) ITEM 8. Financial Statements and Supplementary Data: Note 23 and (2) other factors discussed in filings with the SEC by Exelon. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this proxy statement. Exelon does not undertake any obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this proxy statement.

 

viii   Exelon Corporation Notice of the Annual Meeting and 2016 Proxy Statement


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Election of Directors

 

 

 

PROPOSAL 1: ELECTION OF DIRECTORS

The corporate governance committee regularly assesses the size of the board of directors. The committee believes that the current size of the board is appropriate for Exelon, considering the size and geographic scope of the company and our need to access a wide range of views and backgrounds to reflect the diversity and complexity of our business and the markets we serve. In recent years, the size of the board has ranged from 13 to 15. With the retirement of John Canning at the 2016 annual meeting, there are 13 nominees for director.

The board of directors held eight meetings during 2015. The board also attended a two-day strategy retreat with the senior officers of Exelon and subsidiary companies. All directors attended at least 75% of all board and committee meetings that they were eligible to attend, with an average attendance of approximately 96.38% across all directors for all board and committee meetings. Although Exelon does not have a formal policy requiring attendance at the annual shareholders meeting, all directors generally attend the annual meeting and all directors attended the 2015 annual shareholders meeting.

DIRECTOR QUALIFICATIONS AND NOMINATION

Exelon believes that effective development and execution of Exelon’s strategic direction requires a board of directors that includes individuals who bring diverse experiences, skills, backgrounds, viewpoints and perspectives in order to represent effectively the long-term interests of the public and our shareholders. The board of directors seeks to maintain an appropriate balance of diversity, skills and tenure on the board. Fresh perspectives and new ideas are essential to maintain a nimble and strategic board, while long-serving directors can bring important experience to board deliberations.

The corporate governance committee serves as the nominating committee and recommends director nominees. The board of directors receives the proposed nominations from the corporate governance committee and approves the nominees to be included in the Exelon proxy materials that are distributed to shareholders. The board believes that cognitive diversity among directors is an important consideration in selecting candidates for nomination. When considering candidates, the corporate governance committee and the full board take into account each candidate’s race, ethnicity, gender, age, cultural background, professional experience and other attributes relevant to our business and strategy. The corporate governance committee and the full board determine the appropriate mix of skills and characteristics required to best fill the needs of the board and periodically review and update the criteria as deemed necessary in light of Exelon’s strategic direction. All candidates are considered in light of the following standards and qualifications for director that are contained in the Exelon Corporate Governance Principles:

 

     

Highest personal and professional ethics, integrity and values;

 

     

An inquiring and independent mind;

 

     

Practical wisdom and mature judgment;

 

     

Broad training and experience at the policy-making level in business, government, education or technology;

 

     

Expertise useful to Exelon and complementary to the background and experience of other Exelon board members;

 

     

Willingness to devote the required amount of time to the duties and responsibilities of board membership;

 

     

A commitment to serve over a period of years to develop knowledge about Exelon; and

 

     

Involvement only in activities or interests that do not create a conflict with responsibilities to Exelon and its shareholders.

The satisfaction of these criteria is assessed by the corporate governance committee and the board. All of the nominees for director meet the standards listed above. In addition, all of the nominees demonstrate an appreciation for diversity among directors.

 

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Election of Directors

 

 

 

The corporate governance committee and the board of directors regularly consider the company’s strategy and the particular skills, experiences and other qualifications that should be represented on the board as a whole in order to achieve Exelon’s strategic direction. Listed below are summaries of specific qualifications that the corporate governance committee and the board believe must be represented on the board.

 

   

Financial, accounting and financial reporting experience

Exelon uses a wide range of financial metrics to measure its operating performance and strategic opportunities. Accurate and transparent financial reporting, measurement of operating performance, and assessment of the financial merits of strategic opportunities are critical to the company’s success.

 

   

Senior management leadership / CEO experience

Exelon believes that directors who have significant senior leadership experience are better able to recognize and develop leadership skills in others and are more likely to have a practical understanding of organizations and drivers of individual growth and development.

 

   

Knowledge of Exelon’s business / industry experience

Exelon engages in a complex business with significant public policy and public safety implications. The development and execution of effective strategy at Exelon depends on directors who have experience with issues of public policy and economics, energy markets, technology, nuclear power, renewable energy, and electric and gas transmission and distribution infrastructure. As the largest operator of nuclear power plants in the country and one of the largest in the world, it is important that the Exelon board include individuals with experience in the operation and oversight of nuclear power facilities.

 

   

Innovation and technology experience

The industry in which Exelon conducts its business is changing rapidly with the development of new technologies, changing energy policy and environmental regulation, rapid changes in energy markets, and physical and cyber threats against the security of assets and systems. Exelon recognizes the importance of representation on the board of directors by individuals who possess experience in these areas.

 

   

Government and regulatory experience

Exelon is engaged in a business subject to extensive regulation by multiple state and federal regulatory authorities. Experience with and understanding of government regulation is critical to Exelon’s ability to help shape public policy and government regulation that has a direct effect on Exelon’s business.

 

   

Risk oversight / risk management experience

Exelon’s business is subject to a number of highly varied risks that could have a significant effect on public safety and shareholder value. An understanding of the most significant risks facing Exelon is a critical skill that must be represented on the board of directors.

 

   

Investor relations / investment management experience

Exelon must assure strong alignment with its investors in setting strategy and direction. For this reason, the Exelon board of directors must include individuals who have an understanding of investments and the investment decision-making process in order to focus management and the board on significant value drivers.

 

2   Exelon Corporation Notice of the Annual Meeting and 2016 Proxy Statement


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Election of Directors

 

 

 

 

   

Manufacturing, construction, engineering and performance management experience

Exelon invests billions of dollars each year on maintenance and growth investments to improve reliability of Exelon’s electric and gas transmission and distribution systems and enhance customer service. Exelon also invests substantial sums each year for maintenance of complex machinery in the generation portfolio and in development and construction of generation assets. Experience with these complex processes is important for the board of directors to provide appropriate decision-making and oversight related to complex capital projects and large and complex organizations and systems.

DIRECTOR NOMINEES

Upon the recommendation of the corporate governance committee, the board nominated the 13 candidates named below for election as directors, each to serve a term ending with the annual meeting in 2017. Each of the nominees has agreed to be named in this proxy statement and to serve as a director, if elected. If any director is unable to stand for election, the board may reduce the number of directors or designate a substitute. In that case, shares represented by proxies may be voted for a substitute director. Exelon does not expect that any director nominee will be unable to serve.

The corporate governance committee and the board believe the skills and experiences listed above are adequately represented among the nominees for director and that the nominees have a wide diversity of experiences that fill the needs of the board and its committees. For example, ten nominees are current or former CEOs of corporations and three others have senior executive leadership experience. Two directors have extensive nuclear experience. Six directors have experience in banking and investment management. Two have served in government or government regulation and one has flag officer military experience. Individual directors have experience or expertise in accounting, auditing, information technology, innovation, utility regulation and operations, and environmental matters, law, the economics of energy, and government affairs. Included in each director nominee’s biographical information is a listing of the key qualifications, skills and experience of each nominee. Each nominee has other qualifications, skills and experiences that are not specifically listed.

The corporate governance committee believes that the nominees for director represent an effective mix of directors in terms of the range of backgrounds and experience and diversity. The nominees consist of directors who range in age from 50 to 71, with an average age of 62 and a median age of 61. The tenure of the nominees as directors is similarly varied, with one director having served since the company’s creation in 2000, one since 2002, two since 2007, one since 2009, five since 2012, one since 2013, one joining in 2015, and one joining in 2016. Four directors come from the Chicago area and one from the Philadelphia area, while eight come from other parts of the country including major metropolitan areas such as New York and Washington, D.C.

A brief summary of the qualifications of all of the nominees as a group is presented below.

 

LOGO

 

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Election of Directors

 

 

 

LOGO

 

LOGO

 

LOGO

 

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Election of Directors

 

 

 

 

LOGO

 

LOGO

 

The board of directors unanimously recommends a vote “FOR” each of the director nominees below.

 

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Election of Directors

 

 

 

 

  ANTHONY K. ANDERSON

 

 

LOGO

 

 Retired Vice Chair and  Midwest Area Managing  Partner of

 Ernst & Young

 

 Age: 60

 Director since: 2013

 

 Committees:

 Chair-Audit Committee

 Member-Finance and Risk

 Committee

 Member-Generation Oversight

 Committee

  

In 2012, Mr. Anderson retired as the Vice Chair and Midwest Area Managing Partner of Ernst & Young, after a 35-year career with E&Y. In that capacity, Mr. Anderson oversaw a practice of 3,500 audit, tax, and transaction professionals serving clients through the Midwest. Mr. Anderson also served for six years in the Los Angeles area as managing partner of E&Y’s Pacific Southwest region. Mr. Anderson also served as a member of Ernst & Young’s governing body, the Americas Executive Board. Mr. Anderson currently serves on the boards of AAR Corp. (aerospace and defense), where he serves on the audit and compensation committees; Avery Dennison Corporation (labeling and packaging materials), where he serves on the audit and finance committee; and First American Financial Corporation (financial services), where he serves on the governance and nominating committee. Mr. Anderson previously served as a director of the Federal Reserve Bank of Chicago from 2008-2010. Mr. Anderson is the chairman of the board of the Perspectives Charter School. He is also a member of the boards of Chicago Urban League, The Chicago Council on Global Affairs, the Regional Transportation Authority and World Business Chicago. In Los Angeles, Mr. Anderson served as chairman of Town Hall Los Angeles, the Children’s Bureau of Southern California, and the California Science Center. Mr. Anderson is a member of the American, California, and Illinois Institute of Certified Public Accountants.

 

KEY EXPERIENCE AND SKILLS:

 

   Financial, accounting and financial reporting experience

 

   Senior Management Leadership / CEO Experience

 

   Government and regulatory experience

 

   Risk oversight / risk management experience

 

Mr. Anderson’s experience as the vice chair of a global professional services firm and his training and experience as an audit partner and certified public accountant enhance his contribution to the Exelon board and add value to his service on the audit, finance and risk and generation oversight committees.

 

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Election of Directors

 

 

 

 

  ANN C. BERZIN

 

LOGO

 

 Former Chairman and Chief  Executive Officer of Financial  Guaranty Insurance Company  (FGIC)

 

 Age: 63

 Director since: 2012

 

 Committees:

 Member-Audit Committee

 Member-Finance and Risk

 Committee

  

Ms. Berzin served as Chairman and Chief Executive Officer of Financial Guaranty Insurance Company (FGIC), an insurer of municipal bonds, asset-backed securities and structured finance obligations from 1992 to 2001. Ms. Berzin joined FGIC in 1985 as its General Counsel following seven years of securities law practice in New York City. Ms. Berzin is a director of Ingersoll-Rand plc, Chair of its finance committee, and a member of its audit committee, and previously served as a director of Kindred Healthcare, Inc. (healthcare services) from 2006-2012. Ms. Berzin also served as a director of Constellation Energy Group from 2008 through March 2012 when Constellation merged with Exelon. Ms. Berzin also serves on the board of Baltimore Gas and Electric Company (BGE), an Exelon subsidiary.

 

KEY EXPERIENCE AND SKILLS:

 

   Financial, accounting and financial reporting experience

 

   Senior Management Leadership / CEO Experience

 

   Knowledge of Exelon’s business / industry experience

 

   Government and regulatory experience

 

   Risk oversight / risk management experience

 

   Investor relations / investment management experience

 

Ms. Berzin has broad business and executive leadership experience, as well as expertise in the financial services sector, which is particularly valuable for her service on the finance and risk and audit committees.

 

Exelon Corporation Notice of the Annual Meeting and 2016 Proxy Statement   7


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Election of Directors

 

 

 

 

  CHRISTOPHER M. CRANE

 

LOGO

 

 President and Chief Executive  Officer of Exelon Corporation

 

 Age: 57

 Director since: 2012

 

 Committees:

 Member-Finance and Risk

 Committee (eff. 2/1/16)

 Member-Generation Oversight

 Committee

 Member-Investment Oversight

 Committee

 

  

Mr. Crane is President and Chief Executive Officer of Exelon Corporation. Previously, he served as President and Chief Operating Officer, Exelon and Exelon Generation from 2008 to 2012. In that role, he oversaw one of the U.S. industry’s largest portfolios of electric generating capacity, with a multi-regional reach and the nation’s largest fleet of nuclear power plants. He directed a broad range of activities including major acquisitions, transmission strategy, cost management initiatives, major capital programs, generation asset optimization and generation development. Mr. Crane is one of the leading executives in the electric utility and power industries. He is a member of the executive committee of the Edison Electric Institute and the board of directors of the Institute of Nuclear Power Operations, the industry organization promoting the highest levels of safety and reliability in nuclear plant operation. He is vice chairman of the Nuclear Energy Institute, the nation’s nuclear industry trade association, where he has also served as chairman of the New Plant Oversight Committee and as a member of the Nuclear Strategic Issues Advisory Committee, the Nuclear Fuel Supply Committee and the Materials Initiative Group. Mr. Crane served as a director of Aleris International Inc. from 2010 through 2013 (manufacture and sale of aluminum rolled and extruded products), where he served on the compensation committee and as the chair of the nominating and corporate governance committee. Mr. Crane also serves as chair of the boards of directors of Exelon subsidiaries BGE, Commonwealth Edison Company (ComEd) and PECO Energy Company (PECO).

 

KEY EXPERIENCE AND SKILLS:

 

   Financial, accounting and financial reporting experience

 

   Senior Management Leadership / CEO Experience

 

   Knowledge of Exelon’s business / industry experience

 

   Innovation and technology experience

 

   Government and regulatory experience

 

   Risk oversight / risk management experience

 

   Investor relations / investment management experience

 

   Manufacturing, construction, engineering and performance management experience

 

Mr. Crane oversees a family of companies representing every stage of the energy value chain, including Exelon Generation, one of the largest competitive U.S. power generators, with approximately 32,000 megawatts of owned capacity comprising one of the nation’s cleanest and lowest-cost power generation fleets; Constellation, which provides energy products and services to more than 2.5 million residential, public sector and business customers, including more than two-thirds of the Fortune 100; and Exelon’s three utilities, which deliver electricity and natural gas to more than 7.8 million customers in central Maryland (BGE), northern Illinois (ComEd) and southeastern Pennsylvania (PECO).

 

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Election of Directors

 

 

 

 

  YVES C. DE BALMANN

 

LOGO

 

 Former Co-Chairman of  Bregal  Investments LP

 

 Age: 69

 Director since: 2012

 

 Committees:

 Member-Audit Committee  Member-Compensation and  Leadership Development

 Committee

 Member-Finance and Risk

 Committee

  

Mr. de Balmann served as the Co-Chairman of Bregal Investments LP, a private equity investing firm, from September 2002 through December 2012. He was Vice-Chairman of Bankers Trust Corporation, in charge of Global Investment Banking, until its merger with Deutsche Bank in 1999 when he became Co-Head of Deutsche Bank’s Global Investment Bank, and Co-Chairman and Co-Chief Executive Officer of Deutsche Banc Alex. Brown from June 1999 to April 2001, and then a Senior Advisor to Deutsche Bank AG from April 2001 to June 2003. Mr. de Balmann served as a director of Laureate Education, Inc. through December 2014; and he is non-executive Chairman of Conversant Intellectual Property Management. Mr. de Balmann served as a director of Constellation Energy Group from 2003 through March 2012 when Constellation merged with Exelon.

 

KEY EXPERIENCE AND SKILLS:

 

   Financial, accounting and financial reporting experience

 

   Senior Management Leadership / CEO Experience

 

   Knowledge of Exelon’s business / industry experience

 

   Risk oversight / risk management experience

 

   Investor relations / investment management experience

 

   Manufacturing, construction, engineering and performance management experience

 

Mr. de Balmann has extensive experience in corporate finance, including the derivatives and capital markets as well as industry experience as a director of Constellation Energy Group from 2003 through 2012.

 

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Election of Directors

 

 

 

 

  NICHOLAS DEBENEDICTIS

 

LOGO

 

 Chairman, Aqua America Inc.

 

 Age: 70

 Director since: 2002

 

 Committees:

 Member-Corporate Governance

 Committee

 Member-Finance and Risk

 Committee

 Member-Generation Oversight

 Committee

  

Mr. DeBenedictis is the Chairman (since 1993) and former President and Chief Executive Officer (1992 - 2015) of Aqua America Inc., a water utility with operations in 10 states. Aqua America is the second largest U.S.-based, publicly-traded water and wastewater company in the country. As CEO, Mr. DeBenedictis has experience in dealing with many of the same development, land use and utility regulatory issues that affect Exelon and its subsidiaries. Mr. DeBenedictis also has extensive experience in environmental regulation and economic development, having served in two cabinet positions in the Pennsylvania government, as Secretary of the Pennsylvania Department of Environmental Resources and as Director of the Office of Economic Development. He also spent eight years with the U.S. Environmental Protection Agency and was President of the Greater Philadelphia Chamber of Commerce for three years. Mr. DeBenedictis joined the board of MISTRAS Group (non-destructive testing) in October 2015 and serves on the Audit Committee. Mr. DeBenedictis has also served as a director of P.H. Glatfelter, Inc. (global supplier of specialty papers and engineered products) since 1995, where he has served on the audit, compensation and finance, and nominating and corporate governance committees and currently serves as the chair of the finance committee and on the compensation committee. Mr. DeBenedictis served as a director of Met-Pro Corporation (global provider of solutions and products for product recovery, pollution control, and fluid handling applications) (1997-2010). While a director of Met-Pro, he served as presiding independent director, chair of the corporate governance and nominating committee and a member of the audit committee. Mr. DeBenedictis has a master’s degree in environmental engineering and science. Mr. DeBenedictis also serves on the boards of ComEd and PECO, which are Exelon subsidiaries.

 

KEY EXPERIENCE AND SKILLS:

 

   Financial, accounting and financial reporting experience

 

   Senior Management Leadership / CEO Experience

 

   Knowledge of Exelon’s business / industry experience

 

   Government and regulatory experience

 

   Risk oversight / risk management experience

 

   Investor relations / investment management experience

 

   Manufacturing, construction, engineering and performance management experience

 

As a leader in the greater Philadelphia business community, Mr. DeBenedictis has knowledge of the communities and local economies served by PECO. Mr. DeBenedictis’ contribution to the Exelon board is enhanced by his experience as the former CEO of a public company, his experience on the boards of other companies, his experience as a utility executive, and his experience with environmental regulation, all of which bring useful perspectives to the Exelon board’s finance and risk committee and the generation oversight committee. His prior experience as the presiding director and chair of the corporate governance committee of another public company offers additional insight to the functions of the Exelon corporate governance committee.

 

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Election of Directors

 

 

 

 

NANCY L. GIOIA

 

LOGO

 

 Former Executive, Ford Motor  Company

 

 Age: 55

 Director since: 2016

 

 Committees:

 Member-Finance and Risk  Committee (eff. 2/1/16)

 Member-Generation Oversight  Committee (eff. 2/1/16)

  

Ms. Gioia formerly served as Ford Motor Company’s Director of Global Connectivity, Electrical and User Experience. During Ms. Gioia’s more than 30-year career at Ford, she led the company’s global electrification efforts. In this role, Ms. Gioia developed the technology, vehicle programs and value chain strategies as well as assessed the economic, social and environmental impacts including consumer insights and acceptance. Ms. Gioia worked closely with the Edison Electric Institute, the U.S. Department of Energy and the engineers at Ford to pilot and implement the strategy. Ms. Gioia serves on the board of Brady Corporation (international manufacturer and marketer, since 2013), where she is technology committee chair and serves on the compensation and management development committee. She also serves on the board and nominating committee of Inforum (women’s professional development and business forum, since 2012) and is the former chair of the Automotive NEXT executive committee. Since 2014, she has also served as an advisory council member on the board of the University of Michigan Electrical and Computer Engineering Council.

 

KEY EXPERIENCE AND SKILLS:

 

   Financial, accounting and financial reporting experience

 

   Senior Management Leadership / CEO Experience

 

   Innovation and technology experience

 

   Government and regulatory experience

 

   Manufacturing, construction, engineering and performance management experience

 

Ms. Gioia’s extensive background in innovation and product development provides the board with invaluable expertise. Ms. Gioia holds a bachelor of science in Electrical Engineering from the University of Michigan and a master of science in Manufacturing Systems Engineering from Stanford University.

 

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Election of Directors

 

 

 

 

  LINDA P. JOJO

 

LOGO

 

 Executive Vice President and  Chief Information Officer of  United Continental Holdings,  Inc.

 

 Age: 50

 Director since: 2015

 

 Committees:

 Member-Compensation and  Leadership Development  Committee (eff. 2/1/16)

 Member-Finance and Risk  Committee

  

Ms. Jojo is Executive Vice President and Chief Information Officer of United Continental Holdings, Inc. She is responsible for the effective implementation and management of technology strategy and solutions to support United’s global business. She has held her current position at United since September 2014. Prior to joining United, she served as Executive Vice President and Chief Information Officer for Rogers Communications Inc., a position she assumed in July 2011. There she was responsible for all IT systems for both customer facing and business support systems. Ms. Jojo served from 2008 to 2011 as Senior Vice President and Chief Information Officer for Energy Future Holdings Corporation in Dallas, which holds a portfolio of competitive and regulated energy companies. She served as Chief Information Officer of Flowserve Corporation in Irving, Texas, from June 2004 to 2008. Ms. Jojo worked for nearly 15 years in leadership positions at General Electric, ultimately serving as the Chief Information Officer of GE Silicones. She started her career at Digital Equipment Corporation. She is also on the board of trustees of the Adler Planetarium in Chicago.

 

KEY EXPERIENCE AND SKILLS:

 

   Financial, accounting and financial reporting experience

 

   Senior Management Leadership / CEO Experience

 

   Knowledge of Exelon’s business / industry experience

 

   Innovation and technology experience

 

   Manufacturing, construction, engineering and performance management experience

 

Ms. Jojo has a wealth of experience leading complex IT organizations and brings important information technology and innovation expertise to Exelon’s board of directors. Ms. Jojo holds a bachelor’s degree in Computer Science and a master’s degree in Industrial Engineering, both from Rensselaer Polytechnic Institute, Troy, N.Y.

 

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Election of Directors

 

 

 

 

  PAUL L. JOSKOW, PH. D.

 

LOGO

 

 President of the Alfred P.  Sloan  Foundation

 

 Age: 68

 Director since: 2007

 

 Committees:

 Member-Audit Committee

 Member-Finance and Risk  Committee

 Member-Investment Oversight  Committee

  

Dr. Joskow has been the President of the Alfred P. Sloan Foundation since January 1, 2008. The Sloan Foundation is a philanthropic institution that supports research and education in science, technology and economic performance. He is also the Elizabeth and James Killian Professor of Economics and Management Emeritus at the Massachusetts Institute of Technology (MIT). Dr. Joskow joined the MIT faculty in 1972 and served as head of the MIT Department of Economics (1994-1998) and Director of the MIT Center for Energy and Environmental Policy Research (1999-2007). At MIT he was engaged in teaching and research in the areas of industrial organization, energy and environmental economics, competition policy, and government regulation of industry for over 35 years. Much of his research and consulting activity has focused on the electric power industry, electricity pricing, fuel supply, demand, generating technology, and regulation. He is a Fellow of the American Academy of Arts and Sciences, the Econometric Society and a Distinguished Fellow of the American Economic Association. He has served on the U.S. Environmental Protection Agency’s (“EPA”) Acid Rain Advisory Committee, on the Environmental Economics Committee of EPA’s Science Advisory Board, and on the National Commission on Energy Policy. He served as the Chair of the National Academies Board of Science, Technology and Economic Policy through April 1, 2015 and on the Secretary of Energy Advisory Board until October 1, 2015. He is also a Trustee of the Putnam Mutual Funds. In addition to his teaching, research, publishing and consulting activities, he has experience in the energy business, serving as a director of New England Electric System, a public utility holding company (1987-2000), until it was acquired by National Grid. He then served as a director of National Grid plc, an international electric and gas utility holding company, and one of the largest investor-owned utilities in the world (2000-2007). Dr. Joskow served as a director of TransCanada Corporation from 2004 until March 2013. TransCanada is an energy infrastructure company with gas pipelines, oil pipelines, electric power operations, and natural gas storage facilities. He served on the audit and governance committees of TransCanada. He previously served on the audit committee of National Grid (2000-2005) and was chair of its finance committee until 2007. He also served on the audit committee of New England Electric System and as the chair of the audit committee of the Putnam Mutual Funds (2002-2005).

 

KEY EXPERIENCE AND SKILLS:

 

   Financial, accounting and financial reporting experience

 

   Senior Management Leadership / CEO Experience

 

   Knowledge of Exelon’s business / industry experience

 

   Government and regulatory experience

 

   Risk oversight / risk management experience

 

   Investor relations / investment management experience

 

Dr. Joskow’s extensive background in economics and experience as a utilities director offer a unique set of skills to the company’s board of directors.

 

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Election of Directors

 

 

 

 

  ROBERT J. LAWLESS

 

LOGO

 

 Former Chairman of the Board  of McCormick & Company,  Inc.

 

 Age: 69

 Director since: 2012

 

 Committees:

 Chair-Corporate Governance  Committee

 Member-Compensation and  Leadership Development  Committee

 Member-Finance and Risk  Committee (eff. 2/1/16)

  

Mr. Lawless served as Chairman of the Board of McCormick & Company, Inc. (food manufacturing industry) from January 1997 until March 2009, having also served as President until December 2006 and Chief Executive Officer until January 2008, and is now retired. He is also a director of The Baltimore Life Insurance Company. Mr. Lawless served as a director of Constellation Energy Group from 2002 through March 2012 when Constellation merged with Exelon.

 

KEY EXPERIENCE AND SKILLS:

 

   Financial, accounting and financial reporting experience

 

   Senior Management Leadership / CEO Experience

 

   Knowledge of Exelon’s business / industry experience

 

   Investor relations / investment management experience

 

   Manufacturing, construction, engineering and performance management experience

 

Mr. Lawless has extensive executive leadership and strategic planning experience. As a former chief executive officer of a public company, he can provide a critical perspective on issues affecting public companies.

 

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Election of Directors

 

 

 

 

  RICHARD W. MIES

 

LOGO

 

 President and Chief Executive  Officer of The Mies Group,  Ltd.

 

 Age: 71

 Director since: 2009

 

 Committees:

 Chair-Generation Oversight  Committee

 Member-Audit Committee  Member-Finance & Risk  Committee

  

Admiral Mies is President and Chief Executive Officer of The Mies Group, Ltd, a private consulting firm that provides strategic planning and risk assessment advice and assistance to clients on international security, energy, defense, and maritime issues. A graduate of the Naval Academy, he completed a 35-year career as a nuclear submariner in the US Navy. Admiral Mies has a wide range of operational command experience; he served as the senior operational commander of the US Submarine Force and he commanded U.S. Strategic Command for four years prior to retirement in 2002. He subsequently served as a Senior Vice President of Science Applications International Corporation, a provider of scientific and engineering applications for national security, energy, and the environment, and as the President and Chief Executive Officer of Hicks and Associates, Inc, a subsidiary of Science Applications International Corporation from 2002-2007. Admiral Mies served as a director of Mutual of Omaha, an insurance and banking company, from 2002-2014, where he chaired the governance committee and served as a member of the audit, compensation, investment, and executive committees. From 2008–2010 Admiral Mies was a director of McDermott International, an engineering and construction company focused on energy infrastructure, where he served on the audit and governance committees. In 2010 he transitioned to the board of Babcock and Wilcox (B&W) when that company spun off from McDermott International. He was the chair of B&W’s safety and security committee and served on the governance committee. Following the split of B&W into Babcock and Wilcox Enterprises and BWX Technologies, Inc., he transitioned to the board of BWXT where he serves on the governance and compensation committees. He is also a member of the Boards of Governors of Los Alamos and Lawrence Livermore National Security LLCs that operate their respective national laboratories. In addition to an undergraduate degree in mechanical engineering and mathematics, Admiral Mies completed post-graduate education at Oxford University, the Fletcher School of Law and Diplomacy, and Harvard University and holds a master’s degree in government administration and international relations.

 

KEY EXPERIENCE AND SKILLS:

 

   Financial, accounting and financial reporting experience

 

   Senior Management Leadership / CEO Experience

 

   Knowledge of Exelon’s business / industry experience

 

   Innovation and technology experience

 

   Government and regulatory experience

 

   Risk oversight / risk management experience

 

   Manufacturing, construction, engineering and performance management experience

 

Admiral Mies makes a unique contribution to Exelon’s generation oversight, finance and risk, and audit committees through his extensive leadership experience with nuclear power and strategic planning in the Navy and in business and through his experience on the boards of other companies.

 

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Election of Directors

 

 

 

 

  JOHN W. ROGERS, JR.

 

LOGO

 

 Chairman and CEO of Ariel  Investments, LLC

 

 Age: 57

 Director since: 2000

 

 Committees:

 Chair-Investment Oversight  Committee

 Member-Corporate Governance  Committee

 Member-Finance and Risk  Committee (eff. 2/1/16)

  

Mr. Rogers is the founder, Chairman and CEO of Ariel Investments, LLC, an institutional money management firm with over $9 billion in assets under management, and serves as trustee of the Ariel Investment Trust. Since 2003, he has served as a director of McDonald’s Corporation (global foodservice retailer) where he has served on the compensation, finance and governance committees. Previously, he served as a director of Aon Corporation (risk management services, insurance and reinsurance brokerage and human capital and management consulting services) (1993-2012), where he served on the finance committee and as chair of the audit committee; GATX Corporation (rail, marine and industrial equipment leasing) (1998-2004), where he served on the audit committee; Bank One Corporation (bank) (1998-2004), where he served on the audit and risk management and public responsibility committees; and Bally Total Fitness (fitness and health clubs) (2003-2006), where he served as the lead independent director and as chair of the compensation committee.

 

KEY EXPERIENCE AND SKILLS:

 

   Financial, accounting and financial reporting experience

 

   Senior Management Leadership / CEO Experience

 

   Knowledge of Exelon’s business / industry experience

 

   Government and regulatory experience

 

   Risk oversight / risk management experience

 

   Investor relations / investment management experience

 

Mr. Rogers’ experience on the boards of a number of major corporations based in Chicago in a variety of industries has made him a leader in the Chicago business community with perspective into Chicago business developments. His role in Chicago’s and the nation’s African-American community brings diversity to the board and emphasis to Exelon’s diversity initiatives and community outreach. His experience in investment management and financial markets and as a director of an insurance brokerage and services company are useful to Exelon, particularly with respect to risk management and the management of Exelon’s extensive nuclear decommissioning and pension and post-retirement benefit trust funds, which are overseen by the investment oversight committee, which he chairs. Mr. Rogers’ service on the boards and committees of other companies has given him experience that adds further depth to the Exelon corporate governance committee. He has spoken at and participated in a number of corporate governance conferences. He was named by the Outstanding Directors Exchange as one of six 2010 Outstanding Directors.

 

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Election of Directors

 

 

 

 

  MAYO A. SHATTUCK III

 

LOGO

 

 Former Chairman, President  and Chief Executive Officer of  Constellation Energy

 

 Age: 61

 Director since: 2012

 

 Chairman of the Board

 

 Committees:

 Member-Finance and Risk  Committee (eff. 2/1/16)

 Member-Generation

 Oversight Committee

 Member-Investment

 Oversight Committee

  

Mr. Shattuck is Chairman of the Board of Exelon Corporation. Previously, Mr. Shattuck served as the Executive Chairman from March 2012 to February 2013. Prior to joining Exelon, Mr. Shattuck was the Chairman, President and Chief Executive Officer of Constellation Energy, a position he held from 2001 to March 2012. Mr. Shattuck was previously at Deutsche Bank, where he served as Chairman of the Board of Deutsche Bank Alex. Brown and, during his tenure, served as Global Head of Investment Banking and Global Head of Private Banking. From 1997 to 1999, he served as Vice Chairman of Bankers Trust Corporation, which merged with Deutsche Bank in June 1999. From 1991 until 1997, Mr. Shattuck was President and Chief Operating Officer and a Director of Alex. Brown Inc., which merged with Bankers Trust in September 1997. Mr. Shattuck is the past Chairman of the Board of the Institute of Nuclear Power Operations and was previously a member of the executive committee of the board of Edison Electric Institute. He was also Co-Chairman of the Center for Strategic & International Studies Commission on Nuclear Policy in the United States. He currently serves on the board of directors of Gap Inc. and is chairman of its audit and finance committee. He also serves as a director of Capital One Financial Corporation, where he is chairman of its compensation committee.

 

KEY EXPERIENCE AND SKILLS:

 

   Financial, accounting and financial reporting experience

 

   Senior Management Leadership / CEO Experience

 

   Knowledge of Exelon’s business / industry experience

 

   Innovation and technology experience

 

   Government and regulatory experience

 

   Risk oversight / risk management experience

 

   Investor relations / investment management experience

 

   Manufacturing, construction, engineering and performance management experience

 

Mr. Shattuck’s qualifications to serve as director include his extensive experience in business and the energy industry in particular, gained from his service as Constellation Energy’s Chief Executive Officer, which enables him to effectively identify strategic priorities and execute strategy. His financial expertise gained from his years of experience in the financial services industry also brings a valuable perspective to the board.

 

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Election of Directors

 

 

 

 

  STEPHEN D. STEINOUR

 

LOGO

 

 Chairman, President and Chief  Executive Officer of  Huntington Bancshares  Incorporated

 

 Age: 57

 Director since: 2007

 

 Committees:

 Chair-Finance & Risk Committee

 Member-Audit Committee

  

Mr. Steinour is the Chairman, President and Chief Executive Officer of Huntington Bancshares Incorporated (since 2009), a $64 billion regional bank holding company. Previously, he was the Chairman and Managing Partner of CrossHarbor Capital Partners, a private equity firm (2008-January 2009). From 2006 to 2008, he was President and CEO of Citizens Financial Group, Inc., a multistate commercial bank holding company. Prior to that, Mr. Steinour served as Vice Chairman and Chief Executive Officer of Citizens Mid-States regional banking (2005-2006). He served as Vice Chairman and Chief Executive Officer of Citizens Mid-Atlantic Region (2001-2005). At the beginning of his career, Mr. Steinour was an analyst for the U.S. Treasury Department and subsequently worked for the Federal Deposit Insurance Corporation. Mr. Steinour was a member of the board of trustees of the Liberty Property Trust (an office and industrial property real estate investment trust) from February 2010 until May 2014, where he served on its audit and compensation committees. Mr. Steinour has served on the board of directors of L Brands (fashion retailer) since 2014. He was elected to The Ohio State University Wexner Medical Center Board in November 2013. Mr. Steinour is a member of council of The Pennsylvania Society, a non-profit, charitable organization which celebrates service to the Commonwealth of Pennsylvania. He also serves as a trustee of the Eisenhower Fellowships and is a member of the Columbus Partnership and a trustee of the Columbus Downtown Development Corporation. He is a member of the American Bankers Association. Mr. Steinour also served as a member on the policy and legal affairs committees of the Pennsylvania Business Roundtable, an association of CEOs in large Pennsylvania companies representing significant employment and economic activity in the Commonwealth. He also has served on the board of and as the chairman of the Greater Philadelphia Chamber of Commerce.

 

KEY EXPERIENCE AND SKILLS:

 

   Financial, accounting and financial reporting experience

 

   Senior Management Leadership / CEO Experience

 

   Innovation and technology experience

 

   Government and regulatory experience

 

   Risk oversight / risk management experience

 

   Investor relations / investment management experience

 

Mr. Steinour’s experience at Citizens Bank gave him knowledge of the markets that Exelon Generation and PECO serve. His experience as a banker, with strong credit and risk management experience and knowledge of credit and capital markets, and his experience as Chairman and CEO of Huntington Bancshares enhances Mr. Steinour’s value to the Exelon board and to the finance and risk and audit committees.

 

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DIRECTOR INDEPENDENCE

Under Exelon’s Corporate Governance Principles, a substantial majority of the board must be composed of independent directors, as defined by the NYSE. In addition to complying with the NYSE rules, Exelon monitors the independence of audit and compensation and leadership development committee members under rules of the SEC (for members of the audit committee and compensation and leadership development committee) and the Internal Revenue Service (for members of the compensation and leadership development committee). The board has adopted independence criteria corresponding to the NYSE rules for director independence and the following categorical standards to address those relationships that are not specifically covered by the NYSE rules:

 

1. A director’s relationship with another company with which Exelon does business will not be considered a material relationship that would impair the director’s independence if the aggregate of payments made by Exelon to that other company, or received by Exelon from that other company, in the most recent fiscal year, is less than the greater of $1 million or 5% of the recipient’s consolidated gross revenues in that year. In making this determination, a commercial transaction will not be deemed to affect a director’s independence, if and to the extent that: (a) the transaction involves rates or charges that are determined by competitive bidding, set with reference to prevailing market prices set by a well-established commodity market, or fixed in conformity with law or governmental authority; or (b) the provider of goods or services in the transaction is determined by the purchaser to be the only practical source for the purchaser to obtain the goods or services.

 

2. If a director is a current employee, or a director’s immediate family member is an executive officer, of a charitable or other tax-exempt organization to which Exelon has made contributions, the contributions will not be considered a material relationship that would impair the director’s independence if the aggregate of contributions made by Exelon to that organization in its most recent fiscal year is less than the greater of $1 million or 2% of that organization’s consolidated gross receipts in that year. In any other circumstance, a director’s relationship with a charity or other tax-exempt organization to which Exelon makes contributions will not be considered a material relationship that would impair the director’s independence if the aggregate of all contributions made by Exelon to that organization in its most recent fiscal year is less than the greater of $1 million or 5% of that organization’s consolidated gross receipts in that year. Transactions and relationships with charitable and other tax-exempt organizations that exceed these standards will be evaluated by the board to determine whether there is any effect on a director’s independence.

Each year, directors are requested to provide information about their business relationships with Exelon, including other boards on which they may serve, and their charitable, civic, cultural and professional affiliations. We also gather information on significant relationships between their immediate family members and Exelon. All relationships are evaluated by Exelon’s Office of Corporate Governance for materiality. Data on transactions between Exelon and companies for which an Exelon director or an immediate family member serves as a director or executive officer are presented to the corporate governance committee, which reviews the data and makes recommendations to the full board regarding the materiality of such relationships for the purpose of assessing director independence. The same information is considered by the full board in making the final determination of independence.

Mr. Crane is not considered an independent director because of his employment as president and chief executive officer of Exelon. Each of the other current Exelon directors was determined by our board of directors to be “independent” under applicable guidelines presented above. The amounts involved in the transactions between Exelon and its subsidiaries, on the one hand, and the companies with which a director or an immediate family member is associated, on the other hand, all fell below the thresholds specified by the NYSE rules and the categorical standards specified in the company’s Corporate Governance Principles. Because Exelon provides utility services through its subsidiaries BGE, ComEd, PECO and Constellation and many of its directors live in areas served by the Exelon subsidiaries, many of the directors are affiliated with businesses and charities that receive utility services from Exelon’s subsidiaries. The corporate governance committee does not review transactions pursuant to which Exelon sells gas or electricity to these businesses or charities at tariffed rates. Similarly, because Exelon and its subsidiaries are active in their communities and make substantial charitable

 

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Corporate Governance at Exelon

 

 

 

contributions, and many of Exelon’s directors live in communities served by Exelon and its subsidiaries and are active in those communities, many of Exelon’s directors are affiliated with charities that receive contributions from Exelon and its subsidiaries. None of the directors or their immediate family members is an executive officer of any charitable organizations to which Exelon or its subsidiaries contribute. All such payments to charitable organizations were immaterial under the applicable independence criteria.

We describe below various transactions and relationships considered by the board in assessing the independence of Exelon directors.

Ann C. Berzin

Ms. Berzin serves as a director of a public company that provides equipment and services to Exelon Generation. In 2015, Exelon paid that company approximately $238,000.

Nicholas DeBenedictis

Mr. DeBenedictis serves as the chairman, president and chief executive officer of a public water utility company that received approximately $11,800,000 from Exelon for water supplies. Exelon made these purchases under tariffed utility rates. Mr. DeBenedictis serves as a director of a not-for-profit company that received approximately $4,000,000 from Exelon for health care coverage for Exelon employees. Mr. DeBenedictis serves as a director of a company that Exelon paid $1,500,000 in 2015 for Renewable Energy Credits. Mr. DeBenedictis also serves on the Advisory Board of a company which provides financial services for which Exelon paid $7,200,000 in 2015.

Linda P. Jojo

Ms. Jojo is an employee of a commercial airline. In 2015, Exelon paid that company approximately $5,400,000.

Richard W. Mies

Admiral Mies serves as the director of a public company that provides services to Exelon Generation. In 2015, Exelon paid that company approximately $3,900,000.

John W. Rogers, Jr.

Mr. Rogers serves as a director of a company that is a customer of Exelon. The company paid Exelon approximately $18,700,000 in 2015.

Mayo A. Shattuck III

Mr. Shattuck serves as a director of a company that provides service fees and hosting and maintenance fees in connection with analytic services. In 2015, Exelon paid that company approximately $1,800,000 as a result of a competitive bidding process.

Stephen D. Steinour

Mr. Steinour is the chairman, president and chief executive officer of a company that provided financial services to Exelon. In 2015, Exelon paid that company approximately $1,100,000. For additional information, see Related Person Transactions below.

 

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RELATED PERSON TRANSACTIONS

Exelon has a written policy for the review and approval or the ratification of related person transactions. Transactions covered by the policy include commercial transactions for goods and services and the purchase of electricity or gas at non-tariffed rates from Exelon or any of its subsidiaries by an entity affiliated with a director or officer of Exelon. The retail purchase of electricity or gas from BGE, ComEd or PECO at rates set by tariff, and transactions between or among Exelon or its subsidiaries are not considered. Charitable contributions approved in accordance with Exelon’s Charitable Contribution Guidelines are deemed approved or ratified under the Related Persons Transaction policy and do not require separate consideration and ratification.

As required by the policy, the board reviewed all commercial, charitable, civic and other relationships with Exelon in 2015 that were disclosed by directors and executive officers of Exelon, BGE, ComEd and PECO, and by executive officers of Exelon Generation that required separate consideration and ratification. The Office of Corporate Governance collected information about each of these transactions, including the related persons and entities involved and the dollar amounts either paid by or received by Exelon. The Office of Corporate Governance also conducted additional due diligence, where required to determine the specific circumstances of the particular transaction, including whether it was competitively bid or whether the consideration paid was based on tariffed rates.

The corporate governance committee and the board reviewed the analysis prepared by the Office of Corporate Governance, which identified those related person transactions which required ratification or approval, under the terms of the policy, or disclosure under the SEC regulations. The corporate governance committee and the board considered the facts and circumstances of each of these related person transactions, including the amounts involved, the nature of the director’s or officer’s relationship with the other party to the transaction, whether the transaction was competitively bid and whether the price was fixed or determined by a tariffed rate.

The committee recommended that the board ratify all of the transactions. On the basis of the committee’s recommendation, the board did so. Several transactions were ratified because the related person served only as a director of the affiliated company, was not an officer or employee of the affiliated company and did not have a pecuniary or material interest in the transaction. For some of these transactions, the value or cost of the transaction was very small, and the board considered the de minimis nature of the transaction as further reason for ratifying it. The board approved and ratified other transactions that were the result of a competitive bidding process, and therefore were considered fairly priced, or arms-length, regardless of any relationship. The remaining transactions were approved by the board, even though the director is an executive officer of the affiliated company, because the transactions involved only retail electricity or gas purchases under tariffed rates or the price and terms were determined as a result of a competitive bidding process. Only one of the related person transactions is required to be disclosed in this proxy statement.

Huntington Bank is a lender to Exelon and its subsidiaries and participates in their credit facilities. Huntington participates in the credit facilities on the same basis as other participating banks with terms based on a competitive process with a syndicate of banks. In 2015, Exelon and its subsidiaries paid Huntington Bank approximately $1,100,000 in fees for credit facilities and letters of credit. Mr. Steinour, an Exelon director, is also Chairman, President and Chief Executive Officer of Huntington Bancshares, the parent of Huntington Bank.

The corporate governance committee and the Exelon board reviewed Huntington Bank’s participation in the credit facilities as related person transactions and concluded that the transactions were in the best interests of Exelon because Huntington participates in the credit facilities on terms equivalent to those of an unrelated bank. There is no indication that Mr. Steinour was involved in the negotiations of the credit facilities or had any direct or indirect material interest in the transactions or influence over them. As compared to Exelon’s and Huntington’s overall revenues, the transactions are immaterial, individually and in the aggregate.

 

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CORPORATE GOVERNANCE PRINCIPLES

Exelon is committed to maintaining the highest standards of corporate governance. We believe that strong corporate governance is critical to achieving our performance goals and maintaining the trust and confidence of investors, employees, customers, regulatory agencies and other stakeholders.

Our Corporate Governance Principles, together with the board committee charters, provide the framework for the effective governance of Exelon. The board of directors has adopted our Corporate Governance Principles to address matters including qualifications for directors, standards of independence for directors, election of directors, responsibilities and expectations of directors, and evaluating board, committee and individual director performance. The Corporate Governance Principles also address director orientation and training, the evaluation of the chief executive officer and succession planning. The Corporate Governance Principles are revised from time to time to reflect emerging governance trends and to better address the particular needs of the company as they change over time.

THE BOARD’S FUNCTION AND STRUCTURE

Exelon’s business, property and affairs are managed under the direction of the board of directors. The board is elected by shareholders to oversee management of the company in the long-term interest of all shareholders. All directors stand for election annually and in uncontested elections must be elected by a majority of the votes cast. The board considers the interests of other constituencies, which include customers, employees, annuitants, suppliers, the communities we serve, and the environment. The board is committed to ensuring that Exelon conducts business in accordance with the highest standards of ethics, integrity, and transparency.

BOARD LEADERSHIP

Exelon’s Corporate Governance Principles grant the board of directors discretion to separate the roles of chairman and chief executive officer if the board determines that such a separation is in the best interests of Exelon and its shareholders. Upon the completion of the merger between Exelon and Constellation Energy Group in 2012, the board of directors separated the positions of chairman of the board and chief executive officer. Currently, Mayo A. Shattuck III serves as the independent chairman of the board of directors. Christopher M. Crane serves as president and chief executive officer of Exelon.

As specified in the Corporate Governance Principles, in the event the chairman of the board cannot fulfill his duties, the chair of the corporate governance committee would serve as the acting chairman of the board until such time as a chairman of the board is selected.

Exelon’s Corporate Governance Principles establish the position of Lead Director when (1) the positions of chairman of the board and the chief executive officer are held by the same person, or (2) for other reasons the person holding the position of chairman of the board is not an independent director under the applicable director independence standards. Dr. William C. Richardson served as Lead Director during 2015. Exelon’s chairman of the board is currently an independent director, so the board has not appointed a Lead Director. In the absence of appointment of a Lead Director when a Lead Director is required, the Corporate Governance Principles call for the chair of the corporate governance committee to serve as the Lead Director. Exelon’s Corporate Governance Principles specify in detail the responsibilities of the Lead Director.

 

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The board believes that Exelon has in place effective arrangements and structures to ensure that the company maintains the highest standard of corporate governance and board independence and independent board leadership and continued accountability of the chairman and the CEO to the board. These arrangements and structures include:

 

   

12 of the 13 nominees are independent and meet the independence requirements under the NYSE listing standards and the additional independence requirements under the company’s Corporate Governance Principles.

 

   

The audit, compensation and leadership development, and corporate governance committees are composed solely of and chaired by independent directors. The finance and risk, investment oversight and generation oversight committees are chaired by independent directors.

 

   

A significant portion of the business of the Exelon board is reviewed or approved by the board’s committees, and the agendas of the board’s committees are driven by the independent chairs through their discussions with management.

 

   

The board agendas, in turn, are determined in large part by the committee agendas, and discussions at board meetings are driven to a significant degree by the committee agendas and the reports the committee chairs present to the full board.

 

   

The performance and compensation of the CEO is reviewed annually by the full board in executive session under the leadership of the corporate governance and compensation and leadership development committees.

DIRECTOR RETIREMENT POLICY

Exelon’s director retirement policy provides that independent directors must retire at the end of the calendar year in which he or she reaches the age of 75. Dr. William C. Richardson reached age 75 during 2015 and retired from the board effective December 31, 2015. Also, independent directors are required to submit to the board of directors a letter offering to resign if his or her principal occupation or business association changes substantially during his or her tenure as a director. The corporate governance committee will review and recommend to the board the action, if any, to be taken with respect to the offer of resignation.

BOARD OVERSIGHT OF RISK

The company operates in a market and regulatory environment that involves significant risks, many of which are beyond its control. The company has a risk management group consisting of a Chief Enterprise Risk Officer, a Chief Commercial Risk Officer, a Chief Credit Officer and a full-time staff of 130. The risk management group draws upon other company personnel for additional support on various matters related to the identification, assessment and management of enterprise risks. The company also has a Risk Management Committee comprising company officers who meet regularly to discuss matters related to enterprise risk management generally and particular risks associated with new developments or proposed transactions under consideration. Management of the company regularly meets with the Chief Enterprise Risk Officer and the Risk Management Committee to identify and evaluate the most significant risks of the businesses and appropriate steps to manage and mitigate those risks. In addition, the Chief Enterprise Risk Officer and the risk management group perform an annual assessment of enterprise risks, drawing upon resources throughout the company for an assessment of the probability and severity of the identified risks. The Chief Enterprise Risk Officer and senior executives of the company discuss those risks with the board’s finance and risk committee as well as the audit committee and, when appropriate, the BGE, ComEd and PECO boards of directors. In addition, the Exelon board’s generation oversight committee evaluates risks related to the company’s generation business. The committees of the Exelon board regularly report to the full board on the committees’ discussions of enterprise risks. In addition, the Exelon board regularly discusses enterprise risks in connection with consideration of emerging trends or developments and in connection with the evaluation of capital investments and other business opportunities and business strategies.

 

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BOARD/COMMITTEE/DIRECTOR EVALUATION

The board has a three-part annual evaluation process that is coordinated by the chair of the corporate governance committee: committee self-evaluations; a full board evaluation; and the evaluation of the individual directors. The committee self-evaluations consider whether and how well each committee has performed the responsibilities in its charter, whether the committee members possess the right skills and experience to perform their responsibilities or whether additional education or training is required, whether there are sufficient meetings covering the right topics, whether the meeting materials are effective, and other matters. The full board evaluation considers the following factors, among others, in light of the committee self-assessments: (1) the effectiveness of the board organization and committee structure; (2) the quality of meetings, agendas, presentations and meeting materials; (3) the effectiveness of director preparation and participation in discussions; (4) the effectiveness of director selection, orientation and continuing education processes; (5) the effectiveness of the process for establishing the CEO’s performance criteria and evaluating his performance; and (6) the quality of administrative planning and logistical support.

Individual director performance assessments are conducted informally as needed and involve a discussion among the chairman and other directors, including members of the corporate governance committee, using the performance expectations for directors contained in the Corporate Governance Principles. In addition, the chair of the corporate governance committee or the chairman of the board provides individual feedback, as necessary.

DIRECTOR EDUCATION

The board has a program for orienting new directors and providing continuing education for all directors that is overseen by the corporate governance committee. The orientation program is tailored to the needs of each new director depending on his or her level of experience serving on other boards and knowledge of the company or industry acquired before joining the board. New directors receive materials about Exelon, the board and board policies and operations and attend meetings with the CEO and executive vice presidents and members of their staff for a briefing on the executives’ responsibilities, programs and challenges. New directors are also scheduled for tours of various company facilities, depending on their orientation needs (incumbent directors are also invited to participate in the site visits, if available).

Continuing director education is provided during portions of regular board and committee meetings and focuses on the topics necessary to enable the board to consider effectively issues before them at that time (such as new regulatory or accounting standards). The education often takes the form of “white papers,” covering timely subjects or topics, which a director can review before the meeting and ask questions about during the meeting. The audit committee devotes a meeting each year to educating the committee members about new accounting rules and standards, and topics that are necessary to having a good understanding of our accounting practices and financial statements. The generation oversight committee uses site visits as a regular part of education for its members; the committee holds each meeting at a different generating station (nuclear, fossil or hydro) and the agenda always includes a briefing by local plant management, a tour of the facility and lunch with plant personnel. Continuing director education also involves individual directors’ attendance at director education seminars. The company pays the cost for any director to attend outside director education seminars on corporate governance or other topics relevant to their service as directors.

 

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INFORMATION ABOUT THE BOARD COMMITTEES

In determining the membership of the committees, the corporate governance committee has sought to have each committee reflect a range of backgrounds and experience and diversity. Every member of the audit committee qualifies as an “audit committee financial expert,” as defined by SEC rules, and most of the members serve or have served on audit committees of other companies. The chairs of the audit and finance and risk committees sit on each other’s committees, and there was significant overlap in the membership of these two committees in 2015. Similarly, the chairs of the corporate governance and compensation and leadership development committees sit on each other’s committees, which is helpful in the company’s process for evaluating the performance and setting the compensation of the CEO. Several members of the corporate governance committee serve or have served on the corporate governance committees of other corporations. Several of the members of the compensation and leadership development committee have served on the compensation committees of other corporations. The investment oversight committee includes members with experience in investment banking and the economics of energy. Effective February 1, 2016, the finance and risk committee includes all members of the board of directors. The finance and risk committee, therefore, includes members with experience in the economics of energy, nuclear operations, and banking and investment management, reflecting experience in dealing with the range of risks that the company faces.

In 2015, six standing committees assisted the board in carrying out its duties: the audit committee, the compensation and leadership development committee, the corporate governance committee, the finance and risk committee, the generation oversight committee and the investment oversight committee. The chairman and the CEO are invited guests and are welcome to attend all committee meetings, except for the CEO when the independent directors meet in executive session. The committees, their membership during 2015 and current memberships, changes in committee assignments in 2015 and 2016, and their principal responsibilities are described below:

 

Audit   

Compensation

and Leadership

Development

   Corporate
Governance
   Finance and Risk    Generation
Oversight
   Investment
Oversight
Anderson (Chair)    Canning (Chair)    Lawless (Chair)      Steinour (Chair)      Mies (Chair)    Rogers (Chair)
Berzin    de Balmann    Canning    Anderson    Anderson    Crane
de Balmann    Jojo2    DeBenedictis    Berzin    Crane    Joskow
Joskow    Lawless    Richardson1    Canning2    DeBenedictis    Shattuck
Mies    Richardson1    Rogers    Crane2    Diaz3     
Richardson1              de Balmann    Gioia2     
Steinour              DeBenedictis    Shattuck     
               Diaz3          
               Gioia2          
               Jojo4          
               Joskow          
               Lawless2          
               Mies          
               Rogers2          
               Shattuck2          

Notes to Committee Membership Table:

 

1) Through December 31, 2015, upon Dr. William C. Richardson’s retirement from the board.

 

2) Effective February 1, 2016.

 

3) Through April 28, 2015, upon Hon. Nelson A. Diaz’ retirement from the board.

 

4) Effective September 1, 2015.

 

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AUDIT COMMITTEE

Report of the Audit Committee

The audit committee’s primary responsibility is to assist the board of directors in fulfilling its responsibility to oversee and review the quality and integrity of the company’s financial statements and internal controls over financial reporting, the independent auditor’s qualifications and independence, and the performance of the company’s internal audit function and of its independent auditor.

The audit committee is comprised entirely of independent directors and is governed by a board-approved, written charter stating its responsibilities. The charter is reviewed annually and updated, as appropriate, to address changes in regulatory requirements, authoritative guidance, evolving oversight practices and investor feedback. The audit committee charter was last amended on January 26, 2016, and is available on the Exelon website at www.exeloncorp.com on the corporate governance page under the Investors tab, and is available in print to any shareholder who requests a copy from Exelon’s corporate secretary as described on page 93 of this proxy statement.

The audit committee satisfies the independence, financial experience and other qualification requirements of the New York Stock Exchange (NYSE) and applicable securities laws and regulations. The board of directors has determined that each of the members of the audit committee is an “audit committee financial expert” for purposes of the SEC’s rules and also that each of the members of the audit committee is independent as defined by the rules of the NYSE and Exelon’s Corporate Governance Principles.

Under its charter, the audit committee’s principal duties include:

 

   

Having sole authority to appoint, retain, or replace the independent auditor, subject to shareholder ratification, and to oversee the independence, compensation and performance of the independent auditor;

 

   

Reviewing financial reporting and accounting policies and practices;

 

   

Overseeing the work of the internal auditor and reviewing internal controls;

 

   

With the advice and assistance of the finance and risk committee, reviewing in a general manner the processes by which Exelon assesses and manages enterprise risk; and

 

   

Reviewing policies and procedures with respect to internal audits of officers’ and directors’ expenses, compliance with Exelon’s Code of Business Conduct, and the receipt and response to complaints regarding accounting, internal controls or auditing matters.

Each member of the audit committee also serves on the finance and risk committee. On occasion, the audit and finance and risk committees have met jointly to review areas of mutual interest between the two committees.

The audit committee meets outside the presence of management for portions of its meetings to hold separate discussions with the independent auditor, the internal auditors, and the chief legal officer.

The audit committee met eight times in 2015, fulfilling its duties and responsibilities as outlined in its charter, as well as receiving periodic updates on the company’s financial performance and strategic initiatives, as well as other matters germane to its responsibilities.

Management has primary responsibility for preparing the company’s financial statements and establishing effective internal controls over financial reporting. PricewaterhouseCoopers LLP (PwC), the company’s independent auditor, is responsible for auditing those financial statements and expressing an opinion on the conformity of the company’s audited financial statements with generally accepted accounting principles and on the effectiveness of the company’s internal controls over financial reporting based on criteria established in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission.

 

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In this context, the audit committee has reviewed and discussed with management and PwC the company’s audited financial statements contained in the 2015 Annual Report on SEC Form 10-K, including the critical accounting policies applied by the company in the preparation of these financial statements. The audit committee discussed with PwC the

requirements of the Public Company Accounting Oversight Board (PCAOB), and had the opportunity to ask PwC questions relating to such matters. These discussions included the quality, and not just the acceptability, of the accounting principles utilized, the reasonableness of significant accounting judgments, and the clarity of disclosures in the financial statements.

At each of its meetings in 2015, the audit committee met with the company’s chief financial officer and other senior members of the company’s financial management. The audit committee reviewed with PwC and the company’s internal auditor the overall scope and plans for their respective audits in 2015. The audit committee also received regular updates from the company’s internal auditor on internal controls and business risks and from the company’s general counsel on compliance and ethics issues.

The audit committee met with the internal auditor and PwC, with and without management present, to discuss their evaluations of the company’s internal controls and the overall quality of the company’s financial reporting. The audit committee also met with the company’s general counsel and deputy general counsel, with and without management present, to review and discuss compliance and ethics matters, including compliance with the company’s Code of Business Conduct.

On an ongoing basis, the audit committee considers the independence, qualifications, compensation and performance of PwC. Such consideration includes reviewing the written disclosures and the letter provided by PwC in accordance with applicable requirements of the PCAOB regarding PwC’s communications with the audit committee concerning independence, and discussing with PwC their independence.

The audit committee is responsible for the approval of audit fees, and the committee reviewed and pre-approved all fees paid to PwC in 2015. The audit committee has adopted a policy for pre-approval of services to be performed by the independent auditor. Further information on this policy and on the fees paid to PwC in 2015 and 2014 can be found in the section of this proxy statement titled “Ratification of PriceWaterhouseCoopers LLP as Exelon’s Independent Auditor for 2016.” The audit committee periodically reviews the level of fees approved for payment to PwC and the pre-approved non-audit services PwC has provided to the company to ensure their compatibility with independence. The audit committee also monitors the company’s hiring of former employees of PwC.

The audit committee monitors the performance of PwC’s lead partner responsible for the audit, oversees the required rotation of PwC’s lead audit partner and, through the audit committee chair, reviews and approves the selection of the lead audit partner. In addition, to help ensure auditor independence, the audit committee periodically considers whether there should be a rotation of the independent auditor.

PwC has served as the company’s independent auditor since the company’s formation in 2000. As in prior years, the audit committee and management have engaged in a review of PwC in connection with the audit committee’s consideration of whether to recommend that shareholders ratify the selection of PwC as the company’s independent auditor for 2016. In that review, the audit committee considered both the continued independence of PwC and whether retaining PwC is in the best interests of the company and its shareholders. In addition to independence, other factors considered by the audit committee included:

 

   

PwC’s historical and recent overall performance on the audit, including the quality of the audit committee’s ongoing discussions with PwC;

 

   

PwC’s expertise and capability in handling the accounting, internal control, process and system risks and practices present in the company’s energy generation and utility businesses, including relative to the corresponding expertise and capabilities of other audit firms;

 

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the quality, quantity and geographic location of PwC staff, and PwC’s ability to provide responsive service;

 

   

PwC’s tenure as the company’s independent auditor and its familiarity with the company’s operations and businesses, accounting policies and practices and internal control over financial reporting;

 

   

the significant time commitment required to onboard and educate a new audit firm that could distract management’s focus on financial reporting and internal control;

 

   

the appropriateness of PwC’s fees, on both an absolute basis and as compared to services provided by other auditing firms to peer companies;

 

   

an assessment of PwC’s identification of its known significant legal risks and proceedings that may impair PwC’s ability to perform the audit; and

 

   

external information on audit quality and performance, including recent PCAOB reports on PwC and its peer firms.

The audit committee has concluded that PwC is independent from the company and its management, and has retained PwC as the company’s independent auditor for 2016. The audit committee and the board believe that the continued retention of PwC is in the best interests of the company and its shareholders and have recommended that shareholders ratify the appointment of PwC as the company’s independent auditor for 2016.

In addition, in reliance on the reviews and discussions referred to above, the Exelon audit committee recommended to the Exelon board of directors (and the Exelon board of directors approved) that the audited financial statements be included in Exelon Corporation’s Annual Report on Form 10-K for the year ended December 31, 2015, for filing with the SEC.

 

 

February 8, 2016

 

THE AUDIT COMMITTEE

 
 

Anthony K. Anderson, Chair

Ann C. Berzin

Yves C. de Balmann

 

Paul L. Joskow

Richard W. Mies

Stephen D. Steinour

COMPENSATION AND LEADERSHIP DEVELOPMENT COMMITTEE

The compensation and leadership development committee is composed entirely of independent directors and is governed by a board-approved charter stating its responsibilities. The charter is reviewed annually and updated, as appropriate, to address changes in regulatory requirements, authoritative guidance, evolving oversight practices and investor feedback. The compensation and leadership development committee charter was last amended on January 26, 2016, and is available on the Exelon website at www.exeloncorp.com on the corporate governance page under the Investors tab, and is available in print to any shareholder who requests a copy from Exelon’s corporate secretary as described on page 93 of this proxy statement.

The compensation and leadership development committee met six times in 2015. The committee’s principal duties, as discussed in its charter, include:

 

   

Ensuring that executive compensation levels and targets are aligned with, and designed to achieve, Exelon’s strategic and operating objectives;

 

   

Reviewing recommendations from management and outside consultants and approving or recommending approval of matters of executive compensation for officers of Exelon and its subsidiaries, including base salary, incentive awards, equity grants, perquisites, and other forms of compensation; and

 

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Reviewing and making recommendations to the board on leadership development, succession planning (other than the chief executive officer and president) and diversity.

Executive officers are involved in evaluation of the performance and development of initial recommendations with respect to compensation adjustments; however, the compensation and leadership development committee (and the independent directors with respect to the compensation of the CEO) makes the final determinations with respect to compensation programs and adjustments. The chairman and the CEO are considered invited guests and are welcome to attend the meetings of the compensation and leadership development committee, except when the committee meets in executive session to discuss, for example, the CEO’s compensation. The chairman and the CEO cannot call meetings of the compensation and leadership development committee.

Management, including the executive officers, makes recommendations as to goals for the incentive compensation programs that are aligned with Exelon’s business plan. The compensation and leadership development committee reviews the recommendations and establishes the final goals. The committee strives to ensure that the goals are consistent with the overall strategic goals set by the board of directors (including the individual goals of subsidiaries, as appropriate), that they are sufficiently difficult to meaningfully incent management performance, and, if the targets are met, that the payouts will be consistent with the design for the overall compensation program. Executive officers take an active role in evaluating the performance of the executives who report to them, directly or indirectly, and in recommending the amount of compensation their subordinate executives receive. Executive officers review peer group compensation data for each of their subordinates in conjunction with their annual performance reviews to formulate a recommendation for base salary and whether to apply an individual performance multiplier to the subordinate executive’s incentive payouts, and if so, the amount of the multiplier.

Executive officers generally do not make recommendations with respect to annual and long-term incentive target percentages or payouts. The CEO reviews all of the recommendations of the executive officers before they are presented to the compensation and leadership development committee. The human resources function provides to the compensation and leadership development committee and the independent directors data showing the history of the compensation of the CEO and data that analyzes the cost of a range of several alternatives for changes to the compensation of the CEO, but the executive officers, the CEO do not make any recommendation to the compensation and leadership development committee or the independent directors with respect to the compensation of the CEO.

The compensation and leadership development committee has delegated to the CEO the authority to make off-cycle equity awards to employees who are not subject to the limitations of Internal Revenue Code Section 162(m), are not executive officers for purposes of reporting under Section 16 of the Securities Exchange Act of 1934, and are not executive vice presidents or higher officers of Exelon, provided that such authority is limited to making grants of up to 600,000 shares in the aggregate, and 20,000 shares per recipient in any year. The compensation and leadership development committee reviews and ratifies these grants.

During fiscal 2015 and as of the date of this proxy statement, none of the members of the compensation and leadership development committee was or is an officer or employee of the company, and no executive officer of the company served or serves on any compensation committee or board of any company that employed or employs any members of the company’s compensation and leadership development committee or board of directors.

Compensation Consultant

Pursuant to the compensation and leadership development committee’s charter, the committee is authorized to retain and terminate, without board or management approval, the services of an independent compensation consultant to provide advice and assistance, as the committee deems appropriate. The committee has the sole authority to approve the consultant’s fees and other retention terms, and reviews the independence of the consultant and any other services that the

 

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consultant or the consultant’s firm may provide to the company. The chair of the compensation and leadership development committee reviews, negotiates and executes an engagement letter with the compensation consultant. The compensation consultant directly reports to the committee.

The compensation and leadership development committee has engaged Semler Brossy Consulting Group, LLC and its Managing Principal Ms. Blair Jones as its consultant. The committee determined that Semler Brossy offered the strongest and most responsive team and would provide the most reliable and cost-competitive advice through experience, research

and benchmarking. In reviewing the engagement in December 2015, the committee considered the following factors in determining that Ms. Jones and the firm are independent consultants and do not have any conflicts of interest:

 

   

Semler Brossy performs no other services for the company or its affiliates and received no other fees from the company;

 

   

the firm has formal written policies designed to prevent conflicts of interest; and

 

   

there were no relationships of the firm and its consultants and Exelon and its officers, directors or affiliates except that Dr. Richardson had known another consultant from the firm in connection with his consulting for the compensation committee at another company where Dr. Richardson had previously served as a director.

As part of its ongoing services to the compensation and leadership development committee, the compensation consultant supports the committee in executing its duties and responsibilities with respect to Exelon’s executive compensation programs by providing information regarding market trends and competitive compensation programs and strategies. In supporting the committee, the compensation consultant does the following:

 

   

Prepares market data for each senior executive position, including evaluating Exelon’s compensation strategy and reviewing and confirming the peer group used to prepare the market data;

 

   

Provides the committee with an independent assessment of management recommendations for changes in the compensation structure;

 

   

Works with management to ensure that the company’s executive compensation programs are designed and administered consistent with the committee’s requirements; and

 

   

Provides ad hoc support to the committee, including discussing executive compensation and related corporate governance trends.

Exelon’s human resources staff and senior management use the data provided by the compensation consultant to prepare documents for use by the compensation and leadership development committee in preparing their recommendations to the full board of directors or, in the case of the CEO, the independent directors, on compensation for the senior executives. In addition to its general responsibilities, the compensation consultant attends the compensation and leadership development committee’s meetings, if requested. The committee, or Exelon’s management on behalf of the committee, may also ask the compensation consultant to perform other executive and non-executive compensation-related projects. The committee has established a process for determining whether any significant additional services will be needed and whether a separate engagement for such services is necessary.

The committee has a formal compensation consultant independence policy that codifies its past practices. The compensation consultant independence policy is available on the Exelon website at www.exeloncorp.com, on the corporate governance page under the Investors tab. The purpose of the policy is to ensure that the advisers or consultants retained by the committee are independent of the company and its management, as determined by the committee using its reasonable business judgment. The committee considers all facts and circumstances it deems relevant, such as the nature of any relationship between a compensation consultant, the compensation consultant’s firm, and the company and the nature of any services provided by the compensation consultant’s firm to the company that are unrelated to the compensation consultant’s

 

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work for the committee. Under the policy, a compensation consultant shall not be considered independent if the compensation consultant or the compensation consultant’s firm receives more than one percent of its annual gross revenues for services provided to the company. Under the policy, the compensation consultant reports directly to the chair of the compensation and leadership development committee, and the committee approves the aggregate amount of fees to be paid to the compensation consultant or the compensation consultant’s firm. The policy requires that the compensation consultant and any associates providing services to the compensation and leadership development committee have no direct involvement with any other aspects of the compensation consultant’s firm’s relationship with Exelon (other than any director compensation services that may be performed for the corporate governance committee), and that no element of the compensation consultant’s compensation may be based on any consideration of the revenues for other services that the firm may provide to Exelon. For 2015, no fees were paid to Semler Brossy for additional services beyond its work as consultant to the compensation and leadership development committee.

CORPORATE GOVERNANCE COMMITTEE

The corporate governance committee is composed entirely of independent directors and is governed by a board-approved charter stating its responsibilities. The charter is reviewed annually and updated, as appropriate, to address changes in regulatory requirements, authoritative guidance, evolving oversight practices and investor feedback. The corporate governance committee charter was last amended on January 26, 2016, and is available on the Exelon website at www.exeloncorp.com on the corporate governance page under the Investors tab, and is available in print to any shareholder who requests a copy from Exelon’s corporate secretary as described on page 93 of this proxy statement.

The corporate governance committee met five times in 2015. In addition to its other duties described elsewhere in this proxy statement, the corporate governance committee’s principal duties, as discussed in its charter, include:

 

   

Reviewing and making recommendations on corporate, board and committee structure, organization, committee membership, functions, compensation and effectiveness;

 

   

Monitoring corporate governance trends and making recommendations to the board regarding the Corporate Governance Principles;

 

   

Identifying potential director candidates and coordinating the nominating process for directors;

 

   

Coordinating the board’s role in establishing performance criteria for the CEO and evaluating the performance of the CEO;

 

   

Monitoring CEO succession planning;

 

   

Overseeing Exelon’s strategies and efforts to protect and improve the environment, including climate change and sustainability policies;

 

   

Approving or amending delegations of authority for Exelon and its subsidiaries; and

 

   

Overseeing Exelon’s efforts to promote diversity among its contractors and suppliers.

The committee may act on behalf of the full board when the board is not in session. The committee utilizes an independent compensation consultant to assist it in evaluating directors’ compensation, and for this purpose it periodically asks the consultant to prepare a study of the compensation of the company’s directors compared to the directors of companies in the same peer group used for executive compensation. This study is used as the basis for the corporate governance committee’s recommendations to the full board with respect to director compensation. The corporate governance committee may utilize other consultants, such as specialized search firms to identify candidates for director.

As part of the corporate governance committee’s role in monitoring and oversight of CEO succession planning, the committee developed an emergency CEO succession plan, which is reviewed by the committee and the full board

 

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annually. In addition, CEO succession is a topic on the agenda for meetings of the full board at least twice each year. In these discussions, the board reviews the qualifications of several potential internal succession candidates and considers their development opportunities.

FINANCE AND RISK COMMITTEE

The finance and risk committee is composed entirely of independent directors and is governed by a board-approved charter stating its responsibilities. The charter is reviewed annually and updated, as appropriate, to address changes in regulatory requirements, authoritative guidance, evolving oversight practices and investor feedback. The finance and risk committee charter was last amended on January 26, 2016, and is available on the Exelon website at www.exeloncorp.com on the corporate governance page under the Investors tab, and is available in print to any shareholder who requests a copy from Exelon’s corporate secretary as described on page 93 of this proxy statement.

The finance and risk committee met five times in 2015. The finance and risk committee’s principal duties, as discussed in its current charter, include:

 

   

Overseeing the company’s risk management functions;

 

   

Overseeing matters relating to the financial condition and risk exposures by Exelon;

 

   

Monitoring the financial condition, capital structure, financing plans and programs, dividend policy, treasury policies and liquidity and related financial risk at Exelon and its major subsidiaries;

 

   

Overseeing or appraising of the capital management and planning process, including capital investments, acquisitions and divestitures;

 

   

Overseeing the company-wide risk management strategy, policies, procedures, and mitigation efforts, including insurance programs;

 

   

Overseeing the strategy and performance of risk management policies relating to risks associated with marketing and trading of energy and energy-related products; and

 

   

Reviewing and approving risk policies relating to power marketing, hedging and the use of derivatives.

GENERATION OVERSIGHT COMMITTEE

The generation oversight committee met four times in 2015.

The generation oversight committee’s principal duties, as discussed in its charter, include:

 

   

Advising and assisting the full board in fulfilling its responsibilities to oversee the safe and reliable operation of all generating facilities owned or operated by Exelon or its subsidiaries, including those in which Exelon has significant equity or operational interests;

 

   

Overseeing the management and operation of the company’s generating facilities and the overall organizational effectiveness (both corporate and stations) of the generation operations;

 

   

Overseeing the establishment of and compliance with policies and procedures to manage and mitigate risks associated with the security and integrity of Exelon Generation’s assets; and

 

   

Reviewing environmental, health and safety issues related to the company’s generating facilities.

 

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Corporate Governance at Exelon

 

 

 

INVESTMENT OVERSIGHT COMMITTEE

The investment oversight committee is responsible for general oversight of Exelon’s investment management functions. The committee serves as a resource and advisory panel for Exelon’s management-level investment management team and reports to the board.

The investment oversight committee met three times in 2015.

The investment oversight committee’s principal duties, as discussed in its charter, include:

 

   

Overseeing the management and investment of the assets held in trusts established or maintained by the company or any subsidiary for the purpose of funding the expense of decommissioning nuclear facilities;

 

   

Monitoring the performance of the nuclear decommissioning trusts and the trustees, investment managers and other advisors and service providers for the trusts;

 

   

Overseeing the evaluation, selection and retention of investment advisory and management, consulting, accounting, financial, clerical or other services with respect to the nuclear decommissioning trusts;

 

   

Overseeing the evaluation, selection and appointment of trustees and other fiduciaries for the nuclear decommissioning trusts;

 

   

Overseeing the administration of the nuclear decommissioning trusts; and

 

   

Monitoring and receiving periodic reports concerning the investment performance of the trusts under the pension and post-retirement welfare plans and the investment options under the savings plans.

 

Exelon Corporation Notice of the Annual Meeting and 2016 Proxy Statement   33


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Compensation of Non-Employee Directors

 

 

 

COMPENSATION OF NON-EMPLOYEE DIRECTORS

For their service as directors of the corporation in 2015, Exelon’s non-employee directors received the compensation shown in the following table and explained in the accompanying notes. Mr. Crane, not shown in the table, received no additional compensation for his service as a member of the board of directors or its committees.

 

     Fees Earned or Paid in Cash     Stock
Awards
(see
description
below)
   

All Other
Compensation

(Note 1)

    Total  
     Annual
Board &
Committee
Retainers
    Board &
Committee
Meeting
Fees
       

Anderson

  $ 110,000      $ 55,000      $ 100,000      $      $ 265,000   

Berzin

    85,000        46,000        100,000        15,000        246,000   

Canning

    90,000        34,000        100,000        15,000        239,000   

de Balmann

    85,000        58,000        100,000               243,000   

DeBenedictis

    85,000        54,000        100,000        15,000        254,000   

Diaz 2

    27,788        7,000        32,692        505,000        572,480   

Jojo 3

    26,739        10,000        33,152               69,891   

Joskow

    85,000        52,000        100,000               237,000   

Lawless 4

    90,000        46,000        100,000               236,000   

Mies

    110,000        58,000        100,000        15,000        283,000   

Richardson 4

    110,000        60,000        100,000        500,000        770,000   

Rogers

    90,000        36,000        100,000        15,000        241,000   

Shattuck

    385,000        38,000        100,000        15,000        538,000   

Steinour

    95,000        40,000        100,000        15,000        250,000   

Total All Directors

    1,474,528        594,000        1,265,844        1,110,000        4,444,372   

Notes:

(1) 

Values in this column represent the company’s matching portion of the director’s contribution to qualified non-for-profit organizations pursuant to Exelon’s matching gift plan described below in Other Compensation. For Mr. Diaz and Dr. Richardson, the amount includes charitable contributions made by Exelon following their retirement in honor of their service to the company and its shareholders.

(2) 

Mr. Diaz retired from the board effective April 28, 2015. All retainers were prorated through that date.

(3) 

Ms. Jojo was appointed to the board effective September 1, 2015. All retainers were prorated from that date.

(4) 

In addition to the amounts shown in the table, Mr. Lawless and Dr. Richardson, who also served as directors of the Exelon Foundation during 2015, received $4,000 each from the Foundation for attending meetings of the Foundation’s board. Exelon contributes to the Foundation to pay for the Foundation’s operating expenses.

Fees Earned or Paid in Cash

In 2015, all directors received an annual retainer of $80,000 paid in cash. In 2015, Dr. Richardson served as the Lead Director and received an additional annual retainer of $25,000. The non-executive chairman of the board received an annual retainer at the rate of $300,000 per year in addition to board and selected committee meeting fees. Committee chairs receive an additional $10,000 retainer per year. In recognition of the additional time commitment and responsibility, members of the audit committee and generation oversight committee, including the committee chairs, receive an additional $5,000 per year for their participation on these committees, and the chairs of these committees receive a $20,000 annual retainer.

Directors receive $2,000 for each meeting of the board that they attend, whether in person or by means of teleconferencing or video conferencing equipment. Directors serving on board committees receive $2,000 for each meeting they attend;

 

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Compensation of Non-Employee Directors

 

 

 

directors serving on the generation oversight committee receive $3,000 for each meeting of that committee they attend due to the additional travel that is required and the length of those meetings. Directors also receive a $2,000 meeting fee for attending the annual shareholders meeting and the annual strategy retreat.

Stock Awards

Rather than paying directors entirely in cash, Exelon pays a significant portion of director compensation in the form of deferred stock units. Directors receive deferred stock units worth $100,000 per year. Deferred stock units are granted and credited to a notional account maintained on the books of the corporation at the end of each calendar quarter based upon the closing price of Exelon common stock on the day the quarterly dividend is paid. Deferred stock units earn the same dividends available to all holders of Exelon common stock, which are reinvested in the account as additional stock units. The deferred stock units are not paid out to the directors until they retire from the board, leaving these amounts at risk during the director’s entire tenure on the board.

As of December 31, 2015, the directors held the following amounts of deferred Exelon common stock units. The units are valued at the closing price of Exelon common stock on December 31, 2015, which was $27.77. Legacy plans include those stock units earned from Exelon’s predecessor and merged companies, PECO Energy Company, Unicom Corporation and Constellation Energy Group, Inc. For Mr. Rogers, the legacy deferred stock units reflect accrued benefits from the Unicom 1996 Directors Fee Plan, which was terminated in 2000; for Ms. Berzin, Mr. de Balmann and Mr. Lawless the legacy units reflect accrued benefits from the Constellation Energy Group, Inc. Deferred Compensation Plan for Non-employee Directors, which was terminated on March 12, 2012.

 

      
 
 
Year First
Elected to
the Board
 
 
  
    
 
 
 

 

Deferred
Stock Units
From Legacy
Plans

#

 
 
 
  

  

    
 
 
 
 
Deferred
Stock Units
From
Exelon Plan
#
 
 
 
 
  
    
 
 
 

 

Total
Deferred
Stock
Units

#

 
 
 
  

  

    
 
 
 

 

Fair
Market
Value as of
12/31/15

$

 
 
 
  

  

Anthony K. Anderson      2013                 9,765         9,765         $271,174   
Ann C. Berzin      2012         25,997         12,767         38,764         1,076,476   
John A. Canning      2008                 23,096         23,096         641,376   
Yves C. de Balmann      2012         35,897         12,767         48,664         1,351,399   
Nicholas DeBenedictis      2002                 31,138         31,138         864,702   
Nelson A. Diaz      2004                 28,663         28,663         795,972   
Linda P. Jojo      2015                 1,221         1,221         33,907   
Paul L. Joskow      2007                 24,670         24,670         685,086   
Robert J. Lawless      2012         39,830         12,767         52,597         1,460,619   
Richard W. Mies      2009                 21,838         21,838         606,441   
William C. Richardson      2005                 28,652         28,652         795,666   
John W. Rogers, Jr      2000         4,760         40,838         45,598         1,266,256   
Mayo A. Shattuck III      2012                 9,495         9,495         263,676   
Stephen D. Steinour      2007                 25,026         25,026         694,972   
Total All Directors               106,484         282,703         389,187         $10,807,722   

 

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Compensation of Non-Employee Directors

 

 

 

Deferred Compensation

Directors may elect to defer any portion of their meeting fees and cash retainers as described above in a non-qualified multi-fund deferred compensation plan. Each director has an unfunded account where the dollar balance can be invested in one or more of several mutual funds, including one fund composed entirely of Exelon common stock. Fund balances (including those amounts invested in the Exelon common stock fund) will be settled in cash and may be distributed in a lump sum or in annual installment payments upon a director’s reaching age 65, age 72 or upon retirement from the board. These funds are identical to those that are available to company employees who participate in the Exelon Employee Savings Plan.

Other Compensation

Exelon has a board expense reimbursement policy under which directors are reimbursed for reasonable travel to and from their primary or secondary residence and lodging expenses incurred when attending board and committee meetings or other events on behalf of Exelon (including director’s orientation or continuing education programs, facility visits or other business related activities for the benefit of Exelon). Under the policy, Exelon will arrange for its corporate aircraft to transport groups of directors, or when necessary, individual directors, to meetings in order to maximize the time available for meetings and discussion. Directors may bring their spouses or guests on Exelon’s corporate aircraft when they are invited to an Exelon event, and the value of this travel, calculated according to IRS regulations, is imputed to the director as additional taxable income.

Exelon pays the cost of a director’s spouse’s travel, meals, lodging and related activities when the spouses are invited to attend company or industry related events where it is customary and expected that directors attend with their spouses. The cost of such travel, meals and other activities is imputed to the director as additional taxable income. However, in most cases there is no direct incremental cost to Exelon of providing transportation and lodging for a director’s spouse when he or she accompanies the director, and the only additional costs to Exelon are those for meals and activities and to reimburse the director for the taxes on the imputed income. In 2015, Exelon incurred no direct incremental cost to provide these perquisites and the aggregate amount paid to all directors as a group (14 directors) for reimbursement of taxes on imputed income was $525.

Exelon has a matching gift program available to directors, officers and employees that matches their contributions to eligible not-for-profit organizations up to $15,000 per year for directors; $10,000 per year for executives and up to $5,000 per year for other employees.

Compensation Philosophy

The Exelon board has a policy of targeting their compensation to the median board compensation of the same peer group of companies used to benchmark executive compensation. In January 2014, the board increased the annual cash retainer for board service from $50,000 to $80,000 in order to bring total director compensation closer to the median target, but left all other compensation unchanged. Director compensation has remained unchanged since January 2014.

 

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Ownership of Exelon Stock

 

 

 

STOCK OWNERSHIP REQUIREMENTS FOR DIRECTORS AND OFFICERS

Under Exelon’s Corporate Governance Principles, all directors are required to own, within five years after election to the board, at least 15,000 shares of Exelon common stock or deferred stock units or shares accrued in the Exelon common stock fund of the directors’ deferred compensation plan. The board amended the corporate governance principles in July 2013 to increase the ownership requirement from 5,000 shares to 15,000 shares. The corporate governance committee utilized an independent compensation consultant who determined that, compared to its peer group, Exelon’s ownership requirement is reasonable.

To strengthen the alignment of executives’ interests with those of shareholders, the compensation and leadership development committee establishes stock ownership requirements for officers of the company. Officers, other than the CEO, are required to own, within the later of five years after their employment or September 30, 2012, stock having a market value (based on the 60-day average stock price as of September 30, 2012) equal to or greater than multiples of their base salary or fixed numbers of shares as shown in the table below. The CEO is required to own six times his base salary. The compensation and leadership development committee has determined that stock options are not considered for purposes of satisfying this requirement. Unvested restricted shares, restricted stock units, and shares held in the Exelon Stock Deferral Plan will count toward the stock ownership requirement, as will certificates and dividend reinvestment plans; shares held in 401(k) Employee Savings Plans; shares held by spouses or children; broker accounts held in street name; and IRAs and trust accounts in which the executive is a beneficiary. These guidelines may be equitably adjusted in the case of promotions in the discretion of the Senior Vice President and Chief Human Resources Officer.

 

Officer    Number of Exelon Shares
Chief Executive Officer    6 x annual salary divided by 60-day average share price
Exelon executive vice presidents and above    3 x annual salary divided by 60-day average share price
Presidents of subsidiary companies    2 x annual salary divided by 60-day average share price
Senior vice presidents    The lesser of 17,500 shares or 2 x annual salary divided by 60-day average share price
Vice presidents and other executives    The lesser of 6,500 shares or 1 x annual salary divided by 60-day average share price

The following table shows the status of each currently-employed NEO against the new ownership targets as of January 31, 2016.

 

Name     
 
 
 
 
Stock
Ownership
Target
(Shares)
[A]
 
 
 
 
  
    
 
 
 
 
 
Total Shares
and Share
Equivalents
Held as of
January 31, 2016
[B]
 
 
 
 
 
  
    
 
 
 
Stock
Ownership
Percentage
[B]/[A]
 
 
 
  
Crane      188,062         468,294         249%   
Thayer      53,148         160,792         303%   
Cornew      57,236         159,840         279%   
Von Hoene      57,236         161,404         282%   
O’Brien      59,280         149,051         251%   

 

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Ownership of Exelon Stock

 

 

 

BENEFICIAL OWNERSHIP TABLE

The following table shows the ownership of Exelon common stock as of January 31, 2016 by each director, each named executive officer in the Summary Compensation Table, and for all directors and executive officers as a group.

 

       [A]         [B]         [C]         [D]=[A]+[B]+[C]         [E]         [F]=[D]+[E]   

Directors

(Note 3)

    
 
 
Beneficially
Owned
Shares
 
 
  
    
 
 
 
 
Shares
Held in
Company
Plans
(Note 1)
 
 
 
 
  
    
 
 
 
 
 
 
 
Vested
Stock
Options
and
Options
that Vest
Within 60
days
 
 
 
 
 
 
 
  
    

 
 

Total

Shares
Held

  

 
  

    
 
 
 
 
 
Share
Equivalents
to be
Settled in
Cash
(Note 2)
 
 
 
  
 
  
    
 
 
Total
Share
Interest
 
 
  
Anthony K. Anderson4              9,765                 9,765                 9,765   
Ann C. Berzin              38,764                 38,764         12,957         51,721   
John A. Canning, Jr.      5,000         23,096                 28,096         1,152         29,248   
Yves, C. de Balmann      1,910         48,664                 50,574                 50,574   
Nicholas DeBenedictis      5,000         31,138                 36,138                 36,138   
Linda P. Jojo4              1,221                 1,221                 1,221   
Paul L. Joskow      2,000         24,670                 26,670         6,285         32,955   
Robert J. Lawless      3,273         52,597                 55,870         11,812         67,682   
Richard W. Mies              21,838                 21,838                 21,838   
William C. Richardson      1,786         28,652                 30,438                 30,438   
John W. Rogers, Jr.      11,374         45,598                 56,972         14,325         71,297   
Mayo A. Shattuck III      491,436         9,495         2,955,520         3,456,451                 3,456,451   
Stephen D. Steinour      5,001         25,026                 30,027         30,751         60,778   
Christopher M. Crane      240,157         222,126         544,000         1,006,283         6,011         1,012,294   
Jonathan W. Thayer      70,784         90,008         650,366         811,158                 811,158   
Kenneth W. Cornew      62,844         95,394         143,700         301,938         1,602         303,540   
William A. Von Hoene, Jr.      87,509         70,766         251,200         409,475         3,129         412,604   
Denis P. O’Brien      79,364         63,913         249,700         392,977         5,774         398,751   
Total                  

Directors & Executive Officers as a group (23 people)

See Note 3

     1,242,880         1,020,478         5,018,886         7,282,244         93,798         7,376,042   

 

(1) 

The shares listed under Shares Held in Company Plans, Column [B], include directors’ deferred stock units, officers’ restricted stock units and deferred shares held in the Stock Deferral Plan.

(2) 

The shares listed above under Share Equivalents to be Settled in Cash, Column [E], include phantom shares held in a non-qualified deferred compensation plan which will be settled in cash on a 1 for 1 basis upon retirement or termination.

 

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Ownership of Exelon Stock

 

 

 

(3) 

Beneficial ownership, shown in Column [A], of directors and executive officers as a group represents less than 1% of the outstanding shares of Exelon common stock. Total includes share holdings from all directors and NEOs as well as those executive officers listed in Item 1, Executive Officers of the Registrants in Exelon’s 2015 Annual Report on Form 10-K filed on February 3, 2016 who are not NEOs for purposes of compensation disclosure.

(4) 

Mr. Anderson was appointed to the board effective February 1, 2013; Ms. Jojo was appointed to the board effective September 1, 2015.

OTHER SIGNIFICANT OWNERS OF EXELON STOCK

Shown in the table below are those owners who are known to Exelon to hold more than 5% of the outstanding common stock. This information is based on the most recent Schedule 13Gs filed with the SEC by BlackRock, Inc. on February 10, 2016, Capital Research Global Investors on February 16, 2016, FMR LLC on February 12, 2016, The Vanguard Group on February 10, 2016, and State Street Corporation on February 12, 2016.

 

Name and address of beneficial owner     
 
Amount and nature of
beneficial ownership
 
  
    
 
Percent of
class
 
  

BlackRock, Inc. (1)

55 East 52nd Street

New York, NY 10055

     66,693,581         7.25%   

Capital Research Global Investors (2)

333 South Hope Street

Los Angeles, CA 90071

     60,495,735         6.58%   

The Vanguard Group (3)

100 Vanguard Blvd.

Malvern, PA 19355

     57,627,572         6.26%   

FMR LLC (4)

245 Summer Street

Boston, MA 02210

     53,391,732         5.80%   

State Street Corporation (5)

State Street Financial Center

One Lincoln Street

Boston, MA 02111

     52,883,925         5.75%   

 

(1) 

BlackRock, Inc. disclosed in its Schedule 13G/A that it has sole power to vote or to direct the vote of 58,837,656 shares and sole power to dispose or direct the disposition of 66,693,581 shares.

(2) 

Capital Research Global Investors disclosed in its Schedule 13G/A that it has sole voting and dispositive power over 60,495,735 shares.

(3) 

The Vanguard Group disclosed in its Schedule 13G/A that it has sole power to vote or direct the vote of 1,689,231 shares, shared voting power over 87,100 shares, sole power to dispose or direct the disposition of 55,849,781 shares, and shared dispositive power over 1,777,791 shares.

(4) 

FMR LLC disclosed in its Schedule 13G that it has sole power to vote or direct the vote of 3,030,691 shares and sole power to dispose or direct the disposal of 53,391,732 shares.

(5) 

State Street Corporation disclosed in its Schedule 13G/A that it has shared voting power over 42,704,841 shares and shared dispositive power over 52,883,925 shares.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based upon signed affirmations received from directors and officers, as well as administrative review of company plans and accounts administered by private brokers on behalf of directors and officers which have been disclosed to Exelon by the individual directors and officers, Exelon believes that its directors and officers made all required filings on a timely basis during 2015.

 

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Exelon’s Independent Auditor for 2016

 

 

 

PROPOSAL 2: THE RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS EXELON’S INDEPENDENT AUDITOR FOR 2016

The audit committee and the board of directors have concluded that retaining PricewaterhouseCoopers LLP (PwC) is in the best interests of the company and its shareholders based on consideration of the factors set forth in the Report of the Audit Committee on pages 26-28 of this proxy statement. Representatives of PwC will attend the annual meeting to answer appropriate questions, and may make a statement if they desire.

The Exelon audit committee policy for pre-approval of audit and non-audit services to be performed by the independent auditor is available on the Exelon website at www.exeloncorp.com on the corporate governance page under the Investors tab. Under this policy the audit committee pre-approves all audit and non-audit services to be provided by the independent auditor, taking into account the nature, scope and projected fees of each service as well any potential implications on auditor independence. The policy specifically sets forth services the independent auditor is prohibited from performing by applicable law or regulation. Further, the audit committee may determine to prohibit other services that in its view may compromise, or appear to compromise, the independence and objectivity of the independent auditor. Predictable and recurring audit and permitted non-audit services are considered for pre-approval by the audit committee on an annual basis. For any services not covered by these initial pre-approvals, the audit committee has delegated authority to the committee’s chair to pre-approve any audit or permitted non-audit service with fees in amounts less than $500,000. Services with fees exceeding $500,000 require full committee pre-approval. The audit committee receives quarterly reports on the actual services provided by and fees incurred with the independent auditor. None of the services provided by the independent auditor was provided pursuant to the de minimis exception to the pre-approval requirements contained in the SEC’s rules.

The following table presents fees for professional audit services rendered by PricewaterhouseCoopers for the audit of Exelon’s annual financial statements for the years ended December 31, 2015 and 2014, and fees billed for other services rendered by PricewaterhouseCoopers during those periods.

 

       Year Ended December 31,   
(in thousands)      2015         2014   
Audit fees (a)      $18,287         $17,751   
Audit related fees (b)      2,392         1,607   
Tax fees (c)      1,250         1,562   
All other fees (d)      160         37   

 

(a) 

Audit fees include financial statement audits and reviews under statutory or regulatory requirements and services that generally only the auditor reasonably can provide, including issuance of comfort letters and consents for debt and equity issuances and other attest services required by statute or regulation.

(b) 

Audit related fees consist of assurance and related services that are traditionally performed by the auditor such as accounting assistance and due diligence in connection with proposed acquisitions or sales, consultations concerning financial accounting and reporting standards and audits of stand-alone financial statements or other assurance services not required by statute or regulation.

(c) 

Tax fees consist of tax compliance, tax planning and tax advice and consulting services, including assistance and representation in connection with tax audits and appeals, tax advice related to proposed acquisitions or sales, employee benefit plans and requests for rulings or technical advice from taxing authorities.

(d) 

All other fees primarily reflect accounting research software license costs.

 

The board of directors unanimously recommends a vote “FOR” the ratification

of PricewaterhouseCoopers LLP as Exelon’s Independent Auditor for 2016.

 

 

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Advisory Vote on Executive Compensation

 

 

 

PROPOSAL 3: ADVISORY VOTE ON EXECUTIVE COMPENSATION

We are providing shareholders with an annual advisory vote on the compensation paid to the company’s named executive officers, as disclosed in this proxy statement, in accordance with the compensation disclosure rules of the SEC. Accordingly, you may vote on the following resolution at the 2016 annual meeting.

RESOLVED, that the company’s shareholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the company’s proxy statement for the 2016 Annual Meeting of Shareholders pursuant to the rules of the SEC, including the Compensation Discussion and Analysis, the 2015 Summary Compensation Table and the other related tables and disclosure.

The board of directors recommends a vote FOR this proposal because it believes:

 

   

The company’s compensation framework is effective in achieving its goals of providing market competitive pay that fosters the attraction, motivation and retention of key talent;

 

   

A majority of compensation is performance-based and contingent on achieving financial and operational results that align the interests of executives with those of the company’s shareholders; and

 

   

The compensation framework is consistent with best practices that drive outstanding company performance while creating long-term shareholder value.

While this advisory proposal, commonly referred to as “say-on-pay,” is not binding, the board of directors and the compensation and leadership development committee will review and consider the voting results when annually evaluating our executive compensation program.

 

When casting your 2016 say on pay vote, we encourage you to consider the company’s 2015 performance, which included strong financial performance in the middle of Exelon’s upwardly adjusted earnings guidance range, with the utilities earning over $1 billion in net income and an aggregate return on equity of 9.5 percent leveraging strong results in reliability, customer service, and outstanding operational performance. The utilities achieved best or second best ever in 21 of the 26 metrics we track and Exelon Nuclear performed at world class levels for reliability in all seasons at a nearly 94 percent capacity factor. We were, however, disappointed with lagging total shareholder return, which followed gas prices down. The compensation and leadership development committee and board continue to believe that the changes to the compensation program we made in 2013, largely based on shareholder feedback and alignment with market practice, have strengthened the connection of pay with performance. The committee and the board appreciate your feedback and continue to look forward to hearing from shareholders about potential future program enhancements.

 

The board of directors unanimously recommends a vote “FOR” approval of the compensation paid to the company’s named executives, as disclosed in this proxy statement.

 

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Report of the Compensation and Leadership Development Committee

 

 

 

 

 

“Exelon’s executive compensation framework is designed to pay for performance and align the interests of executives, shareholders and other key stakeholders.”

The Compensation & Leadership Development Committee

The committee is composed solely of independent directors, and we are accountable for ensuring that the decisions we make about executive compensation are in the best long-term interests of shareholders. We accomplish this objective by having robust executive compensation principles. One of the tenets is having a strong compensation framework that drives pay for performance and aligns executive pay with shareholder interests. For Exelon’s CEO, 90 percent of his compensation is at risk in the form of annual and long-term incentives, with 78 percent of total pay tied directly to Exelon’s stock price performance. Therefore, as the stock rises or falls, the CEO’s compensation is aligned with shareholders’ interests.

The committee proactively seeks shareholder feedback as part of its year-round engagement program, which includes reaching out to our top shareholders to listen to feedback regarding our executive compensation program, disclosure practices and corporate governance. The committee values our shareholders’ insights and considers their feedback in addition to other factors such as emerging market practices, when formulating our executive compensation programs and making pay decisions. A full description of our shareholder outreach efforts and the changes we have made based on your feedback is detailed under “Shareholder Engagement” below.

The compensation and leadership development committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the committee recommended to the board that the Compensation Discussion and Analysis be included in the 2016 Proxy Statement. Dr. William C. Richardson, a long-time member of the committee, retired from the board of directors on December 31, 2015, and Linda Jojo was appointed to the committee as of February 1, 2016, after the 2015 compensation decisions had been made.

February 25, 2016

THE COMPENSATION & LEADERSHIP DEVELOPMENT COMMITTEE

John A. Canning, Jr., Chair

Yves C. de Balmann

Robert J. Lawless

 

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  Section I: Overview
  Section II: How We Design Our Executive Compensation Programs to Pay for Performance
  Section III: What We Pay and Why We Pay it
  Section IV: Governance Features of Our Executive Compensation Programs

Section I: Overview

Company Strategy

Exelon’s key objectives are to employ our competitive integrated business model to deliver stable growth, sustainable earnings and an attractive dividend.

 

   

Stable Growth – Grow our regulated and contracted businesses and optimize our existing generation portfolio

 

   

Sustainable Earnings – Profits from utilities, contracted assets, and balanced generation to load strategy are an engine for predictable earnings, and our generation business positions us to capture market upside

 

   

Attractive Dividend – Dividend will be covered by the utilities, insulated from the earnings volatility of the generation business

Exelon will continue to do what it does best: operate its generation, transmission and distribution assets at the highest levels of excellence and reliability; find and deliver innovative and responsive solutions for customer priorities; invest for stable and reliable returns; and work to ensure a fair and competitive environment for our assets. The pace of change in our business is unprecedented. Exelon’s culture of innovation and excellence is designed to ensure that we keep this pace, and that we never take our eye off the essentials – keeping the lights on and the gas flowing.

Executive Compensation Goals are aligned with the Company’s Strategy: In designing the company’s executive compensation programs, the committee strives to align the goals and underlying metrics with the company’s strategy, while including compensation risk-mitigating design features to discourage our executives and employees from taking excessive risks for short-term benefits that may harm the company and our shareholders. We believe consistent execution of our strategy over multi-year periods will lead to long-term value creation for our shareholders.

Base Salary increases are modest and averaged 2.5 percent in 2015 for our NEOs, which was lower than the 3.0 percent market data for executives.

For the company’s Annual Incentive Program (“AIP”), all named executive officers (“NEOs”), with the exception of the CEO of Exelon Utilities, are tied 100 percent to adjusted non-GAAP operating earnings per share (“EPS”), directly correlating to bottom-line financial results that drive shareholder value creation. For the Long-Term Incentive (“LTI”) Program, our NEOs receive both Performance Share Units (“PShares”) and Restricted Stock Units (“RSUs”). The PShares are contingent on achieving a threshold level of performance over a three-year period based on two goals — financial management and operational excellence — that are aligned with driving long-term shareholder value creation. A full scorecard for the PShare goals, underlying metrics, and 2013-2015 performance, including the total shareholder return (“TSR”) modifier is set forth below.

 

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Key Take-Aways for 2015

1 STRONG FINANCIAL AND OPERATIONAL PERFORMANCE

 

   

Exelon’s adjusted non-GAAP operating earnings per share (EPS) beat the annual incentive program (AIP) target by 8 cents, despite a difficult year in the markets, and was at approximately the mid-point of the upward adjusted earnings guidance range.

 

   

Exelon Utilities had high performance across the 26 metrics we track, with 21 of them being best or second-best ever including top quartile for each of its utilities (BGE, ComEd and PECO) for outage frequency, customer operations performance, and customer satisfaction, while ComEd and PECO had employee safety records approaching best-in-class.

 

   

Exelon Generation had exceptional plant performance, including world class nuclear capacity factor of nearly 94 percent, power dispatch match of almost 99 percent, and wind and solar energy capture of close to 96 percent, while Constellation’s load business outperformed expectations, experiencing growth in both our power and gas portfolios.

2 STRONG PAY FOR PERFORMANCE ALIGNMENT ON 2013-2015 PSHARE PAYOUT

 

   

The lagging TSR performance due to continued low power prices was reflected in the 10 percent reduction in the payout of the 2013-2015 PShares as a result of the TSR modifier in the program design.

 

   

Our 2015 TSR (including reinvested dividends) was down 22 percent for the year, tracking natural gas prices at Henry Hub, which were down 41 percent from the prior year.

 

   

The impact of low power prices on Exelon is significant as our exposure to power prices is greater compared with that of our peers.

 

   

Despite Exelon’s strong financial and operational performance, its lagging stock price was largely driven by factors outside of management’s control such as low power prices, low gas prices, and weak load growth.

3 CEO TARGET TOTAL DIRECT COMPENSATION (TDC) INCREASED SLIGHTLY FROM PRIOR YEAR

 

   

CEO TDC increased 5 percent from the prior year, with 95 percent of the TDC increase in the form of annual and long-term incentives.

 

   

Better aligns Mr. Crane’s pay with Exelon’s peer group.

 

   

Recognizes his contributions made to position the business for future success.

4 KEY STRATEGIC INTIATIVES

 

   

PJM capacity performance auctions results: These results for 2016-2019 were highly beneficial for Exelon’s generation assets in PJM, yielding $1.4 billion in incremental revenues over our plans.

 

   

Low carbon portfolio standard: We are disappointed that this failed to move in the Illinois legislature due to the current legislative gridlock over the state’s budget. Finding a comprehensive legislative solution that properly values the reliability and carbon-free benefits of our nuclear assets remains a priority for Exelon in 2016.

 

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5 COMMITMENT TO SHAREHOLDER ENGAGEMENT

 

   

The company met with investors holding approximately 46 percent of outstanding shares, consistent with the prior year.

 

   

Shareholders largely expressed support for the design changes that we implemented in 2013 and recommended that we stay the course, with the exception of replacing one of the financial metrics (FFO/Debt) with Operating EPS, starting with the 2016-2018 PShare program. This new metric will align more closely with the company’s overall growth strategy.

Strategic Business Results for 2015

Strong Financial and Operational Performance with Lagging 2015 TSR Performance: Despite a challenging year for the sector and a difficult year in the markets, strong operating performance at both the utility and generation business enabled Exelon to deliver strong 2015 earnings, coming in at $2.49 per share in (non-GAAP) operating earnings. This ended up roughly in the middle of our upward adjusted EPS range of $2.40-$2.60 despite the effects of the extension of bonus depreciation and the drag resulting from the delay in closing the PHI merger.

Strong 2015 company performance demonstrated once again our ability to run the business well and manage through even the most challenging environments. Highlights for both the utility and generation business are shown below:

 

Exelon Utilities – Operational Excellence Drove Strong Financial Performance and Positive Regulatory Outcomes in 2015

Leading Operational Excellence

 

   

First quartile SAIFI (“Outage Frequency”) performance

 

   

First quartile CAIDI (“Outage Duration”) performance

 

   

First quartile customer satisfaction – best ever scores at ComEd and BGE

Strong Financial Performance

 

   

Delivered the highest utilities earnings on record exceeding $1 billion in net income

 

   

Invested $3.7 billion to make the grid smarter, more reliable and provide better services to customers

Positive Regulatory Outcomes

 

   

Unanimous approval of PECO’s rate case settlement and Long Term Infrastructure Improvement Plan

 

   

Fourth year of constructive outcomes in ComEd’s formula rate filings

 

Exelon Generation Delivered Strong Operational and Financial Performance in 2015

World Class Operational Performance

 

   

Nuclear Capacity Factor of nearly 94%

 

   

Best average refueling outage duration since 2002: 22 days

 

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Power dispatch match of almost 99%

 

   

Renewables energy capture close to 96%

Industry Leading Load Serving Business

 

   

At Constellation, our Generation to Load matching strategy meaningfully contributed to 2015 earnings with both power and gas experiencing growth in the load serving business

 

   

Served 195 terawatt hours of wholesale and retail load, which was 40 terawatt hours more than in 2014

 

   

Increased our delivered retail gas by 40 percent to 710 BCF

Looking Forward to 2016 and Beyond:

Proper valuation of the reliable, carbon-free attributes of our nuclear generation assets was a key public policy issue in 2015 for the company, and will continue to be in 2016. Revenue uplifts from the PJM capacity performance auction results for 2016-2019 were highly beneficial for Exelon’s generation assets in PJM.

As discussed on our February 3, 2016 earnings call, our board approved a policy to raise our dividend by 2.5 percent each year for the next three years beginning with the June 2016 dividend. The dividend increase shows our commitment to provide an attractive total return proposition for our shareholders and reflects the shift in focus toward our regulated utility and long-term contract businesses. Our balance sheet and our cash flow profile support the shift in the dividend policy, allowing us to maintain a high credit quality, while investment grade rating remains a top priority. We also affirmed our 3 percent to 5 percent compound annual growth rate for 2016-2018 for Exelon and 7 percent to 9 percent for the utilities.

Exelon is also working on company-wide initiatives as it seeks to increase shareholder value such as:

 

   

Cost savings of $400 million have been identified and incorporated into the current long range plan, comprising $175 million at Exelon Generation, $175 million in Corporate Shared Services, and $50 million of nuclear fuel savings; and

 

   

Innovation initiatives that explore new technologies to improve performance and efficiency. Examples include, “digital worker” technologies, such as wearable technologies, biometrics, expanded mobile apps, etc., and advanced analytics that will optimize asset performance and predictive maintenance.

The continued investments in ComEd’s smart grid and grid modernization initiatives, and significant gas and electric infrastructure improvements across all three utilities, are designed to improve reliability, customer service and shareholder return, despite continued weak load growth. The investments also include commitments to innovative technology and customer-oriented systems. The utilities are transforming the way they interact with customers through innovative online and mobile-based applications, and with strategic partnerships to leverage the capabilities of the smart grid network.

In 2016, at Exelon Generation, we will continue to operate a world-class fleet of assets at the highest level of performance while continuing to execute our strategy of growing the contracted generation business with 350 megawatts of wind projects in development. At Constellation, we expect to achieve our targets of serving 210 terawatt hours of load across our wholesale and retail base, using our commercial platform as both a risk management vehicle and an earnings driver. Each of our businesses is well positioned to continue strong performance in 2016 operationally and financially.

 

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Executive Compensation Framework and Central Themes

The goal of our executive compensation program is to retain and reward leaders who create long-term value for our shareholders by delivering on objectives set forth in the company’s long-term strategic plan. This goal affects the compensation elements we use and drives our compensation decisions. The primary compensation elements are depicted in the table below, with all except for base salary being “pay-at-risk” and linked to changes in the stock price and achievement of short and long-term company financial and operational goals that build shareholder value.

 

 

LOGO

Executive Compensation Principles

The following principles help guide and inform the committee in delivering highly effective executive compensation programs that drive performance, mitigate risk, and foster the attraction, motivation and retention of top leadership talent in order to enable the company to execute against its strategic business plan and ultimately deliver long-term shareholder value.

 

We Manage for the Long-term

The board manages for the long-term and makes pay decisions that are in the best long-term interests of the company and shareholders.

 

Strong Compensation Framework

We have a strong compensation framework that is market-based and drives pay for performance and alignment with shareholders based on having a majority of NEO pay at risk in the form of annual incentives and stock awards.

  Strong Shareholder Engagement

We engage directly with shareholders and
take actions to improve our compensation
programs based on year-round feedback
from shareholders.

Competitiveness

Our NEOs’ pay levels are set by taking into consideration multiple factors, including peer group market data, internal equity comparisons, experience, performance and retention.

 

Robust Stock Ownership Guidelines

Executives are required to meet and maintain significant stock ownership requirements. For 2015, our CEO’s requirement was 6X base salary, while other NEOs were 3X base salary.

  Balance

Since we manage for the long-term, we
believe pay at risk should reward the
appropriate balance of short- and long-term
financial and strategic business results.

 

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CEO Pay at-a-Glance

2015 Target Total Direct Compensation (TDC): In determining target TDC for the CEO, the independent directors considered his individual performance and assessed market competitiveness before it set Mr. Crane’s 2015 target TDC at $12.65 million (up 5.0 percent from the prior year) as shown in the table below.

 

Component    Percent
Increase
    
 
Dollar
Increase
  
  
   Percent of
Total Increase
    
 
Approved
2015 level
  
  
Base Salary    2.5%      $30,000       5%      $1.23 million   
AIP Target    6.7%      $99,000       16%      $1.60 million   
LTI    5.0%      $476,000       79%      $9.82 million   
Target TDC    5.0%      $605,000       N/A      $12.65 million   

 

Almost the entire amount (95 percent) of Mr. Crane’s 2015 TDC increase was in the form of AIP and LTI, with only 5 percent of the total amount in the form of a base salary increase.

Looking ahead to 2016 Target Total Direct Compensation (TDC): Mr. Crane’s 2016 TDC was set at $13.0 million, representing a 2.8 percent increase from 2015. Base salary increased 2.5 percent to $1.261 million, AIP remained flat at 130 percent of base salary, and LTI target opportunity increased to $10.1 million. These adjustments were made to ensure that Mr. Crane’s pay remain competitive relative to Exelon’s 20 company peer group.

2015 CEO Payouts:

Strong financial performance drives above-target 2015 AIP: For Mr. Crane, the independent directors on the board awarded a 2015 AIP payout of $2,072,777 based on operating EPS performance of $2.49 (129.63 percent of target).

2013-2015 PShare payout slightly above target: The independent directors also approved the 2013-2015 PShare award of 202,500 shares based on an overall performance of 105.91 percent (average of 2013, 2014 and 2015 PShare performance, including a 10 percent reduction as a result of the TSR modifier), valued at $5,499,900 based on the closing stock price of $27.16 on January 25, 2016.

 

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Effective payout is only 92 percent of target value

Even though the overall performance factor was 105.91 percent of target, the effective payout was only about 92 percent of the grant date value, resulting in our CEO’s actual payout being almost $500,000 less than the target or intended value as shown in the table below:

 

Target Performance Shares at Grant Date (“Intended Value”)

 

Grant Date    Grant Stock
Price
   Performance
Multiplier
Range
   Target Shares    Intended Value

1/28/2013

   $31.18    50% to 150%    191,200    $5,961,616

Board Approved Performance Shares (“Actual Value”)

 

Award Date    Vesting Stock
Price
   Performance
Multiplier
   Awarded
Shares
   Actual Value

1/25/2016

   $27.16    105.91%    202,500    $5,499,898

Dollar Difference of Actual vs. Intended Value

   ($461,718)

Actual Value as a Percent of Intended Value

   92%

Shareholder Engagement

2015 Advisory Vote on Executive Compensation. Shareholders approved our advisory vote on executive compensation with 82 percent of the votes cast FOR the compensation of our NEOs, which was a 13 percentage point increase from the prior year. Based on our conversations with shareholders, the higher vote in favor of executive compensation was primarily a result of:

 

   

Positive 2014 total shareholder return (over 40.6 percent), and

 

   

Strong compensation framework and disclosure, and robust goals, with eight of the ten underlying PShare metrics increasing in difficulty from the prior year.

We actively engage our shareholders throughout the year. Since 2006, we have maintained a shareholder engagement program in which we proactively contact our top shareholders and leading proxy advisory services firms and educate them about the corporate governance and executive compensation changes we have implemented, while also seeking feedback on executive compensation and corporate governance matters. Our engagement team comprises leaders from human resources, investor relations and the office of corporate governance. For 2015, the company offered the participation of the committee chair.

Robust 2015 Shareholder Outreach. In the spring and fall of 2015, we spoke with holders of about 46 percent of our outstanding common shares. These discussions were highly valuable, as we were able to summarize and answer questions about the 2015 proxy statement and key executive compensation and corporate governance matters, as well as review executive compensation changes that were implemented based on prior shareholder input. Overall, the feedback we received was positive and supported our programs.

Positive shareholder feedback for 2014 CEO pay (reported in 2015 proxy):

 

   

Pay-for-performance alignment: 2014 CEO pay as reported in the Summary Compensation Table decreased, and total shareholder return was up significantly,

 

   

Strong stock ownership achievement levels: Each NEO owns at least 200 percent of his stock ownership target, and the CEO’s target is now 6X base salary and the CEO owns over 200 percent of this target,

 

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Pay-at-risk: CEO’s pay-at-risk is 90 percent (with 78 percent in the form of LTI),

 

   

LTI mix: 67 percent PShares and 33 percent RSUs for NEOs,

 

   

Quality of disclosure: Shareholders complimented the robust and comprehensive executive compensation disclosures, noting the simplified and summarized relevant information and the use of graphics and an executive summary.

Our 2015 executive compensation program was largely unchanged from 2014 as the committee believes the program is aligned strongly with shareholder interests and market practice. The shareholder feedback we received, including the higher level of support on the say on pay vote in 2015, was positive. Even though the committee believes the program is meeting its objectives in rewarding financial, operational, and strategic success, it is always seeking ways to improve the executive compensation program and disclosure. During 2015, the company assessed trends in executive compensation practices and looked for ways to improve disclosures about our program. In addition, the committee and management reviewed correspondence submitted by individual and institutional shareholders, analyzed market practices at peer companies, and sought advice from the committee’s independent compensation consultant. Based on shareholder discussions and recommendations, the committee, during its annual evaluation of the company’s executive compensation programs made only slight modifications to our programs, and disclosures:

 

2015 Shareholder Feedback    Exelon Actions as a result of 2015 Shareholder Feedback
Replace FFO/Debt with a growth metric for the PShare Program    Starting with the 2016-2018 PShare program, Operating EPS will replace FFO/Debt, aligning with the company’s growth story of 3 percent – 5 percent CAGR through 2018
Concern about any Individual Performance Multiplier (IPM) above 100 percent for NEOs    Even though the company had strong financial and operational performance in 2015, no NEO received an IPM greater than 100 percent in either the AIP or PShare program
Requested a greater focus on performance goals and transparency    The company added a detailed performance scorecard for each year of the 2013-2015 PShare program
Supported Proposal to Allow EVPs and higher officers to elect the form of PShare settlement    Starting with the settlement of the 2013-2015 PShare program (paid out in January 2016), EVPs and above who owned two times their stock ownership guidelines could elect to have the PShares paid out 100 percent in stock, half in stock and half in cash, or 100 percent in cash

Section II: How We Design Our Executive Compensation Programs to Pay for Performance

Our approach to compensating our NEOs is to align the long-term interests of Exelon’s executives with those of our shareholders. Our compensation framework is based on providing market-competitive programs that attract and retain top talent necessary to effectively lead a company with the scale and technical complexity of Exelon throughout all phases of the business cycle. The framework promotes pay for performance by putting a majority of pay at risk and directly linking it to Exelon’s shareholder returns and to other performance factors that measure our progress against the financial management and operational excellence goals in our strategic and operating plans. This means when excellent performance is achieved, pay will be above target. Failure to achieve objectives will result in below-market pay.

In order to reaffirm the link between pay and performance, the committee annually reviews the executive compensation components, targets and payouts and approves compensation for all NEOs except the CEO, whose compensation is approved by the independent directors on the recommendation of the committee and its independent consultant (Semler

 

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Brossy Consulting Group). The committee evaluates goals under the annual and long-term incentive programs to ensure that they are challenging, contain appropriate stretch, and are designed to mitigate excessive risk. Goals are selected and evaluated based on support for Exelon’s long-term business plan.

2015 NEO Pay Decisions

As stated in its charter, one of the committee’s most important responsibilities is to recommend the CEO’s compensation to the independent directors. The committee fulfills its oversight responsibilities and provides thoughtful recommendations by analyzing peer group compensation data with its independent compensation consultant and company performance data. The committee reviews the various elements of the CEO’s compensation in the context of the target total direct compensation (base salary, annual and long-term incentive target opportunities) and then presents its recommendations following the compensation governance process set forth below.

 

Roles of board, compensation and leadership development committee, and CEO

   CEO compensation decisions are made by the independent members of the board, based on recommendation of the compensation and leadership development committee.

   Other NEO compensation decisions are made by the committee, based on a number of factors including input from the CEO and the independent compensation consultant.

   The committee is advised by an independent compensation consultant.

The key executive compensation activities that occur annually are shown below:

 

Activities    Timing
Design Compensation Program – 2015 incentive programs are discussed, including AIP and LTI designs and compensation study comparing executive officer compensation with their peers.    November 24, 2014
Establish Range of Compensation Opportunities – AIP and LTI opportunities are set with appropriate stretch (threshold, target, and distinguished performance levels). Individual AIP and LTI opportunities are established, as well as any base salary adjustment.    January 26, 2015
Review Performance – Performance is reviewed, which leads to payout decisions (e.g., AIP, and 2013-2015 PShare award).    January 25, 2016

How Pay-for-Performance Works

Overview. Exelon has a long-standing commitment to link pay and performance by providing a majority of compensation that is tied to stock price or contingent on achieving short and long-term objectives.

 

   

Program Design: Over 80 percent of NEO pay at Exelon is variable as depicted in the chart below, which directly ties pay to the company’s performance, including financial results, operational goals, and stock performance relative to our peer group.

 

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Performance Assessment: The committee uses a comprehensive and well-defined process to assess performance, which encompasses both short and long-term financial and operational results relative to our goals. The committee ensures that the goal-setting process is rigorous and contains appropriate stretch for both internal measures and operational metrics that generally set achieving industry first quartile performance as the target.

 

LOGO

 

Almost 78 percent of our CEO’s target total direct compensation is in the form of LTI, which is almost 7 percentage points higher than the average CEO in our peer group.

 

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What We Do and Don’t Do

Exelon’s executive compensation philosophy focuses on pay-for-performance and reflects appropriate governance practices aligned with the needs of our business. Below is a summary of our executive compensation practices that are aligned with best practices, as well as a list of those practices we avoid because they do not align with shareholders’ long-term interests.

 

What We Do

 

  ü  

Pay for performance – 90 percent of CEO pay (and almost 81 percent for other NEOs) is at risk

 

  ü  

Require robust stock ownership – 6X base salary for CEO and 3X for other NEOs

 

  ü  

Mitigate undue risk in executive compensation programs (e.g., incentive awards are capped at 200 percent)

 

  ü  

Require double-trigger for change-in-control benefits – change-in-control plus involuntary termination

 

  ü  

Retain an independent compensation consultant to advise the committee

 

  ü  

Evaluate management succession and leadership development efforts annually

 

  ü  

Provide limited, modest perquisites based on sound business rationale

 

  ü  

Proactively seek investor feedback on executive compensation programs, reaching 46 percent in 2015

 

  ü  

Prohibit hedging transactions, short sales, derivative transactions or pledging of company stock

 

  ü  

Require executive officers to trade through 10b5-1 trading plans or obtain pre-approval before trading Exelon stock

 

  ü  

Annually assess our programs against peer companies and best practices

 

  ü  

Include appropriate stretch in incentive targets based on industry performance and/or Exelon’s business plan

 

  ü  

Clawback incentive compensation paid to an executive who has engaged in fraud or intentional misconduct

 

What We Don’t Do

 

  û  

No guaranteed minimum payout of AIP or LTI programs

 

  û  

No employment agreements

 

  û  

No dividend-equivalents on unearned PShares

 

  û  

No excise tax gross-ups for change-in-control agreements entered into after April 2009

 

  û  

No inclusion of the value of LTI awards in pension or severance calculations

 

  û  

No additional credited service under supplemental pension plans since 2004

 

  û  

No option re-pricing or buyouts

 

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Assessing Executive Compensation Programs

Overview. An assessment of our executives’ compensation levels against our peer group is one of several considerations in the pay setting process. Peer group practices are analyzed each year for target total direct compensation and for other pay practices, such as perquisites and the mix of LTI vehicles. Because Exelon is one of the largest energy services companies, we compare executive compensation against a blended peer group with which we compete for talent. Each year the compensation and leadership development committee, working with its independent consultant, reviews the composition of the peer group and determines whether any changes should be made. For 2015, the committee approved a change to the peer group to remove PepsiCo Inc., which was larger than the company’s criteria of 0.5X to 2.0X for both revenue and market capitalization. Additionally, Caterpillar and PPG Industries did not participate in the TowersWatson executive compensation survey. As a result, the committee approved replacing these three companies with Deere & Company, General Dynamics and Northrup Grumman. These companies all fit within our parameters for both revenue and market capitalization and those averages did not materially change as a result of these changes. The peer group has the following general characteristics:

 

     

Includes 10 energy services companies and 10 general industry companies

 

     

General industry peers include an emphasis on companies that are capital asset-intensive and may be subject to effects of commodity prices

 

     

Energy Services peers include an emphasis on companies that have at least 25 percent of their assets in unregulated businesses

 

     

These Competitive Integrated peers include Entergy, FirstEnergy, NextEra, and Public Service Enterprise Group and form our TSR peer group as well.

 

     

Comparable annual sales (.5x to 2x) and market capitalizations generally above $10 billion

 

     

Median revenue of our peer group for the year ended December 31, 2015 was approximately $18.5 billion

 

     

As compared to Exelon’s revenues of $29.4 billion

 

     

Median market capitalization of our peer group was $29.7 billion at December 31, 2015

 

     

As compared to Exelon’s market capitalization of $25.5 billion

The peer group for 2015 is shown in the table below:

 

General Industry   Energy Services

3M

 

Hess Corporation

  AEP Co., Inc.   FirstEnergy Corp.

Alcoa

 

Honeywell Co.

  Dominion Resources, Inc.   NextEra Energy, Inc.

Deere & Company

 

International Paper

  Duke Energy Corp.   PG&E Corp.

EI DuPont

 

Johnson Controls Inc.

  Edison International   PSEG, Inc.

General Dynamics

 

Northrop Grumman

  Entergy Corporation   Southern Company

Setting Target TDC for our NEOs. The committee initially sets target TDC at market median of peer group companies, but TDC can vary based on competencies and skills, scope of responsibilities, the executive’s experience and performance, retention, succession planning and the organizational structure of the businesses (e.g., internal alignment and reporting relationships). In establishing NEO compensation levels, the committee does not formally consider the ratio of individual NEO compensation relative to other NEOs.

 

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Section III: What We Pay and Why We Pay it

Our NEOs for 2015 are unchanged from 2014 as shown below:

 

Name    Title

Christopher M. Crane

  

President and Chief Executive Officer, Exelon

Jonathan W. Thayer

  

Senior EVP and Chief Financial Officer, Exelon

Kenneth W. Cornew

   Senior EVP and Chief Commercial Officer, Exelon; President and Chief Executive Officer, Exelon Generation

Denis P. O’Brien

   Senior EVP, Exelon; Chief Executive Officer, Exelon Utilities

William A. Von Hoene, Jr.

  

Senior EVP and Chief Strategy Officer, Exelon

Compensation Framework and 2015 Performance-based Pay Actions

 

LOGO

Pay at Risk

Pay at risk in action. Consistent with our pay-for-performance culture and to ensure alignment with shareholder interests, the committee recommends CEO pay decisions to the independent directors based on the core compensation principle of putting the majority of compensation in the form of variable pay that is at risk.

 

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Compensation Discussion & Analysis

 

 

 

Base Salary

Overview. We pay base salaries to attract and retain talented executives and to provide a fixed level of cash compensation. Base salaries for our NEOs are set by the committee and adjusted following an annual market assessment of peer group compensation. Base salaries may be adjusted (1) as part of the annual merit review, or (2) based on a promotion or significant change in job scope. The committee considers the results of the annual market assessment in addition to the following factors when contemplating a merit review: individual performance, scope of responsibility, leadership skills and values, current compensation, internal equity, and legacy matters.

2015 base salary adjustments. The table below depicts 2015 base salary adjustments that were effective March 1, 2015 as part of the annual merit review. There were no adjustments based on promotion or significant change in job scope in 2015.

 

Name    Merit Increase  

Crane

     2.5

Thayer

     2.5

Cornew

     2.6

O’Brien

     2.5

Von Hoene, Jr.

     2.5

Performance-based Annual Incentive Program

Overview. We grant performance-based annual incentive awards to compensate our NEOs for achieving the company’s annual performance goals. These awards represent a relatively small percentage of the executives’ target total direct compensation (e.g., 13 percent for our CEO to about 18 percent for all other NEOs on average), as a majority of NEO pay is in the form of LTI. Both the AIP and the LTI are considered at risk and subject to recoupment pursuant to Exelon’s recoupment policy in the case of a material negative adjustment of Exelon’s financial or operational results.

 

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Performance Goals. The performance goal used to determine the annual incentives and bonuses for the named executive officers was adjusted non-GAAP operating EPS, which represents earnings directly related to ongoing operations of the business. Mr. O’Brien, the CEO of Exelon Utilities, has an AIP target based on a blend of EPS and the average operational and cost results for our three utilities (BGE, ComEd, and PECO). These goals were chosen because they reflect financial management and operational excellence goals that are associated with the creation of value for shareholders. Financial and operational goals are set at threshold (50 percent), target (100 percent) and distinguished (200 percent) levels based on objectives in the company’s strategic business plan. The 2015 adjusted non-GAAP operating EPS target approved by the committee contains stretch goals based on the company’s internal business plan. The committee set the operational goals based on industry performance benchmarks (where available).

 

       

Target Annual

  Incentive Opportunity    

    X     Company/Business Unit
               Performance              
    X    

                    Individual                     

Performance Multiplier (IPM)

    =     Actual Annual
         Incentive Award        

   Expressed as percentage of base salary, as of 12/31/15

    CEO annual incentive target of 130 percent

    Other NEO annual incentive targets range from 85 percent to 100 percent

   

   Based on non-GAAP operating EPS for all NEOs, except Mr. O’Brien

    Performance is 0 percent to 200 percent (target of 100 percent)

   

   Measures individual performance

    Can range from 50 percent to 110 percent for NEOs (target of 100 percent)

   IPMs determined by the committee, with the exception of the CEO’s IPM, which the independent directors approve

   

   Maximum award of 200 percent of target

2015 Performance. The committee approved a payout of 129.63 percent, based on adjusted non-GAAP operating EPS performance of $2.49 per share, with the exception of Mr. O’Brien whose payout was 133.38 percent, based on a blend of EPS and utility financial and operational metrics. All NEOs received an IPM of 100 percent.

The following table describes the performance scales and results for the 2015 goals:

 

Goals   Threshold     Target     Distinguished     2015 Results     Unadjusted
Payout as
a % of
Target
 

Adjusted (non-GAAP) Operating Earnings Per Share (EPS)

  $ 2.24      $ 2.41      $ 2.68      $ 2.49        129.63

Avg of BGE, ComEd and PECO Operational Results*

   

 

Performance scale is a composite

of multiple measures

  

  

    137.60

Avg of BGE, ComEd and PECO Cost Results*

      128.70
* Mr. O’Brien’s performance factor differs from the other NEO’s based on the following weighting: 25% Utilities cost measures, 25% Utilities operational measures, and 50% Operating EPS. His resultant performance factor is 133.38%.

 

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Note: Adjusted (non-GAAP) Operating Earnings

Adjusted (non-GAAP) operating earnings are provided as a supplement to results reported in accordance with GAAP. The adjustments generally exclude significant one-time charges or credits that are not normally associated with ongoing operations, mark-to-market adjustments from economic hedging activities and unrealized gains or losses from nuclear decommissioning trust fund adjustments. Management uses such adjusted (non-GAAP) operating earnings internally to evaluate the company’s performance and manage its operations and externally to report performance to investors. Accordingly, management also uses adjusted (non-GAAP) operating earnings as a goal in its annual incentive plan. A reconciliation of adjusted (non-GAAP) operating earnings per share to reported GAAP earnings for 2015 is presented below; amounts may not add due to rounding:

 

2015 Adjusted (non-GAAP) Operating Earnings (Loss) Per Share

   $ 2.49   

Adjustments:

        

Mark-to-Market Impact of Economic Hedging Activities

     0.18   

Tax Settlements

     0.06   

CENG Non-Controlling Interest

     0.04   

Mark-to-Market Impact of PHI Related Interest Rate Swaps

     0.02   

Midwest Generation Recoveries

     0.01   

ARO Update

     0.01   

Reduction in State Income Tax Reserve

     0.01   

Amortization of Commodity Contract Intangibles

       

Unrealized Gain (Losses)-NDTF

     (0.13

Merger and Integration Costs

     (0.07

Reassessment of State Deferred Income Taxes

     (0.05

Long-lived Asset Impairments

     (0.02

PHI Merger Related Debt Exchange

     (0.01

Plant Retirements and Divestitures

       

Bargain-Purchase Gain on Integrys Acquisition

       

Gain on CENG Integration

       

2015 GAAP Earnings (Loss) Per Share

   $ 2.54   

The following table shows how the formula was applied and the actual amounts awarded.

 

NEO   Salary           

Target

AIP%

          

Performance

Factor

          

Total Award

for 2015

Performance

           IPM%           

Actual

Award

 

Crane

  $ 1,230,000        x        130     x        129.63     =      $ 2,072,777        x        100     =      $ 2,072,777   

Thayer

  $ 750,000        x        95     x        129.63     =      $ 947,006        x        100     =      $ 947,006   

Cornew

  $ 820,000        x        100     x        129.63     =      $ 1,090,185        x        100     =      $ 1,090,185   

O’Brien

  $ 765,500        x        95     x        133.38     =      $ 994,688        x        100     =      $ 994,688   

Von Hoene, Jr.

  $ 740,000        x        85     x        129.63     =      $ 835,753        x        100     =      $ 835,753   

 

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2015 LTI Awards

One of our central tenets of executive compensation is to manage for the long-term and we believe that execution against the company’s strategy over multi-year periods will position the company for future growth and lead to an increase in long-term shareholder value creation. The LTI program for our senior vice presidents and higher officers (including our NEOs) consists of RSUs and PShares.

The committee approves the annual equity grants at its meeting in January. On January 26, 2015, the committee approved the 2015 grants for RSUs and PShares, which are shown in detail in the Grants of Plan-Based Awards table.

The number of shares subject to each award type was based on the 2015 target awards that were approved by the committee. The grant date fair value of the awards based on the January 26, 2015 closing stock price of $37.34 is shown in the Summary Compensation Table, and the amounts of equity awards granted to each NEO are listed below as well as in the Grants of Plan-Based Awards table. Outstanding equity awards are shown in the Outstanding Equity Awards table.

Restricted Stock Units. RSUs vest ratably over three years. The committee believes that RSUs provide stability, foster retention and less volatility than other forms of LTI such as stock options, but are still linked to changes in shareholder value. Dividend equivalents with respect to RSUs are reinvested as additional RSUs, subject to the same vesting conditions as the underlying RSUs.

Performance Share Units. Beginning in 2013, the committee adopted overlapping three-year PShare cycles rather than discrete performance cycles to increase the focus on long-term shareholder value creation while aligning the structure to market practice. The PShare program is based on two three-year goals consisting of financial management (weighted 60 percent) and operational excellence (weighted 40 percent), with ten underlying metrics as defined below. Final payout is subject to a total shareholder return modifier (up to +/- 25 percent) over three years relative to Exelon’s TSR peer group comprising competitive integrated companies that have at least 25 percent or more of their assets in unregulated businesses (Entergy, First Energy, NextEra Energy, and PSEG). PPL formerly was part of the TSR peer group but dropped after 2015 once they spun off part of their business to form Talon Energy. We compare our performance against these companies due to their similar operating model and investment profile.

How the Performance Share Units Work. Each NEO’s target performance share award is applied against the following:

 

       

Average of 2015, 2016

    and 2017 performance    

    X    

Total Shareholder Return

              Modifier              

    X    

                    Individual                     

Performance Multiplier (IPM)

    =    

Actual Performance

        Share Award        

   Three year  goals (financial management and operational excellence)

   

   Total shareholder return measured over three years relative to peer group may increase or decrease the award up to 25 percent

   

   IPM can  decrease the award by up to 50 percent or increase the award by up to 10 percent

   

   150 percent maximum award prior to total shareholder return and IPM (200 percent maximum after total shareholder return and IPM)

 

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PShare Weighting Based on Financial and Operational Goals

 

 

LOGO

Financial Metrics

 

   

ROE: Measures the company’s ability to generate earnings in relation to the amount of equity shareholders have invested in the company.

 

   

FFO/Debt: Key ratio analyzed by the rating agencies in determining the company’s credit rating.

Operational Metrics

 

   

Outage Duration: Calculated as the total number of customer interruption minutes divided by the total number of customer interruptions. Applies to BGE, ComEd, and PECO for a total of three metrics.

 

   

Outage Frequency: Calculated as the total number of customer interruptions divided by the total number of customers served. Applies to BGE, ComEd, and PECO for a total of three metrics.

 

   

Net Fleetwide Capacity Factor: The weighted average of the capacity factor of all Exelon nuclear units, calculated as the sum of net generation in megawatt hours divided by the sum of the hourly annual mean net megawatt rating, multiplied by the number of hours in a period.

 

   

Dispatch Match: Measure the responsiveness of a fossil generating unit to the market.

 

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2015 PShare Performance

In 2015, we completed the first year of the PShare performance period for our 2015-2017 award, the second year of the PShare performance period for our 2014-2016 award, and the third year of the PShare performance period of our 2013-2015 award.

The table below reflects the 2015 PShare Scorecard, which uses a “stair-step” approach with no interpolation between data performance levels. The committee may elect to modify the metric targets annually on a forward-looking basis to address unintended consequences with the challenges of setting three-year goals. Once the annual scorecard is approved for the year, the goals are locked-down and may not be reset. However, for the upcoming year the performance levels around a metric such as ROE may be adjusted on a forward-looking basis for the year based on updated financial information and changing market conditions.

Goal Setting: All metrics are designed to be challenging to achieve and were chosen because they are key measures for driving long-term success for Exelon. Operational metrics are set at challenging levels (i.e., target typically corresponds to top quartile performance) compared to industry standards. Financial metrics (e.g., ROE and FFO/Debt) have targets that are set based on the internal business plan. For 2015, six of the ten metrics were made more challenging, which is consistent with the 2014 Committee actions.

For the PShare scorecard below, a lower number is more challenging for both outage duration and outage frequency, whereas a higher number is more challenging for all other metrics. The checkmark indicates the 2015 metric was set more challenging relative to 2014.

 

2015 Performance Share Scorecard  

Goals/

Weighting

  Metrics  

Metric

 Weighting 

 

Operating

Company

  Threshold      Target     

Year-over-

Year

More
Challenging?

   

Target

Calibrated to

 

 Disting- 

uished

   

Final

Score

   

Actual

Award vs.

Metric

Weighting

 

Financial
Management

 

ROE

  30.0%   Exelon Corp     7.25     7.75           Budget     8.50     8.23     37.5
  FFO/Debt   30.0%   ExGen HoldCo     27.0     30.0           Budget     42.7     33.1     30.0

Operational

Excellence

  Outage Duration (Average)   6.7%   BGE     100.0        88.0      ü        1st Quartile     85.0        91.0        1.68
        ComEd     93.0        83.0      ü        1st Quartile     82.0        82.0        3.35
      PECO     93.0        87.0      ü        1st Quartile     85.0        84.0        3.35
 

Outage

Frequency (Average)

  6.7%   BGE     1.00        0.80      ü        1st Decile     0.76        0.82        1.68
        ComEd     0.87        0.77      ü        1st Decile     0.74        0.78        1.68
      PECO     0.87        0.77      ü        1st Decile     0.74        0.70        3.35
   

Net Fleetwide Capacity Factor

  13.3%   Nuclear     91.1     93.1           1st Quartile     93.6     93.9     19.95
   

Dispatch Match

  13.3%   Power     94.3     96.6           Internal Measure     97.8     98.6     19.95
   
 

 

Committee
Approved

Performance

  
  

  

    122.48

Rationale for the four metrics that were set at a less challenging level in 2015 compared to 2014 is below:

 

   

ROE

 

     

The target decreased from 8.00% in 2014 to 7.75% in 2015 based on the business plan target being slightly lower from the prior year, as well as tightening the performance scale (i.e., we decreased the range from threshold to distinguished from 7.00% to 9.00% in 2014 to 7.25% to 8.50% in 2015).

 

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FFO/Debt

 

     

The target decreased from 40.5% in 2014 to 30.0% in 2015 primarily due to a higher debt balance as a result of incremental cash needs across the organization.

 

   

Net Fleetwide Capacity Factor

 

     

The target decreased from 93.3% in 2014 to 93.1% in 2015 based on refueling outages increasing from 9 in 2014 to 13 in 2015. The duration of the refueling outages also increased from 212 days in 2014 to 284 days in 2015.

 

   

Dispatch Match

 

     

The target decreased from 97.1% in 2014 to 96.6% in 2015 primarily due to two drivers: the portfolio makeup changed, driven by asset divestitures; and the composition of units contributing to Dispatch Match changed driven by market forces, such as older and less reliable units.

TSR Modifier. The amount of the 2013-2015 PShare award was reduced by 10 percent based on Exelon’s TSR performance relative to the TSR average of its peer group from 2013-2015. The table below to the left depicts the stair-step approach that was used for determining the TSR modifier performance level. The table below to the right illustrates each peer group’s TSR from 2013-2015.

 

LOGO

How the 2013-2015 PShare Performance was Determined. The PShare payout for the 2013-2015 cycle was approved by the committee at the January 25, 2016 meeting at 105.91 percent as shown in the table on line 1. This was based on the average annual PShare performance results over 2013, 2014, and 2015 factoring in the TSR modifier of negative 10 percent based on Exelon’s performance relative to the Competitive Integrated peer group from 2013-2015.

 

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However, as shown in the table below under line 2, the payout for our CEO would have been $355,000 higher if the independent directors had not applied downward discretion to reduce the payout percent applicable to 2013 performance from 147.8 percent to 125 percent.

 

LOGO

Settlement of PShares is 50 percent in shares with the balance in cash. However, executive vice presidents and higher officers who have achieved 200 percent or more of their stock ownership target as of September 30 of the year prior to payout have the option of settling the award (a) entirely in stock, (b) entirely in cash, or (c) half in stock and half in cash.

 

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Supplemental information: 2014 and 2013 PShare Scorecards

Below are the 2014 and 2013 PShare Scorecards that were used to determine the 2013-2015 PShare performance. Versions of these 2014 and 2013 scorecards were disclosed in the Exelon 2015 and 2014 proxy statements, on pages 53 and 56, respectively. We have included them to assist the reader in better understanding our overall performance on the key metrics below.

 

2014 Performance Share Scorecard  

Goals/

Weighting

  Metrics  

Metric

 Weighting 

   

Operating

Company

  Threshold     Target    

Target

Calibrated to

 

 Disting- 

uished

   

Final

Score

   

Actual

Award vs.

Metric

Weighting

 

Financial
Management

 

ROE

    30.0   Exelon Corp     7.0     8.0   Budget     9.0     8.22     30.00
  FFO/Debt     30.0   ExGen HoldCo     39.0     40.6   Budget     43.1     41.0     30.00

Operational

Excellence

  Outage Duration (Average)     6.7   BGE     113.0        95.0      2nd Quartile     91.5        92.0        2.79
        ComEd     94.0        85.0      1st Quartile     84.0        84.0        3.35
      PECO     94.0        88.0      1st Quartile     85.5        90.0        1.68
 

Outage
Frequency (Average)

    6.7   BGE     1.12        0.97      2nd Quartile     0.91        0.77        3.35
        ComEd     0.90        0.78      1st Decile     0.76        0.81        1.68
      PECO     0.90        0.78      1st Decile     0.76        0.77        2.79
   

Net Fleetwide Capacity Factor

    13.3   Nuclear     91.3     93.3   1st Quartile     93.8     94.2     19.95
   

Dispatch Match

    13.3   Power     95.1     97.1   Internal Measure     97.9     96.5     9.98
   
 

 

Committee
Approved

Performance

  
 

  

    105.56
                 
2013 Performance Share Scorecard  

Goals/

Weighting

  Metrics  

Metric

 Weighting 

   

Operating

Company

  Threshold     Target    

Target

Calibrated to

 

 Disting- 

uished

   

Final

Score

   

Actual

Award vs.

Metric

Weighting

 

Financial
Management

 

ROE

    30.0   Exelon Corp     8.0     9.0   Budget     9.5     9.70     45.00
  FFO/Debt     30.0   ExGen HoldCo     25.0     27.0   Budget     30.0     37.0     45.00

Operational

Excellence

  Outage Duration (Average)     6.7   BGE     126.0        120.0      3rd Quartile     116.5        96.0        3.35
        ComEd     94.0        86.0      1st Quartile     85.0        81.0        3.35
      PECO     94.0        88.0      1st Quartile     87.0        94.0        1.12
 

Outage
Frequency (Average)

    6.7   BGE     1.25        1.10      2nd Quartile     1.04