DEF 14A 1 d341304ddef14a.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 ☒   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))

 

☒  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):

 

☒  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:

 

  

 

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☐  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.

 

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LOGO

March 15, 2017

NOTICE OF THE ANNUAL MEETING

AND 2017 PROXY STATEMENT

To the shareholders of Exelon Corporation:

Our annual meeting of shareholders will be held on Tuesday, April 25, 2017 at 9:00 a.m. Eastern Time at 1310 Point Street, 10th Floor, Baltimore, Maryland to:

 

1) Elect director nominees named in the proxy statement;

 

2) Ratify PricewaterhouseCoopers LLP as Exelon’s independent auditor for 2017;

 

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

 

4) Advise on the frequency of future advisory votes on executive compensation; and

 

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

Shareholders of record as of March 3, 2017 are entitled to vote at the annual meeting.

On or about March 15, 2017, 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 24, 2017.


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ii   Exelon Corporation Notice of the Annual Meeting and 2017 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 2017 annual meeting of shareholders and at any adjournment or postponement. The annual meeting of shareholders will take place on April 25, 2017 at 9:00 a.m. Eastern Time at 1310 Point Street, 10th Floor, Baltimore, Maryland.

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 2017

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

Proposal 3: Advisory Approval of Executive Compensation

The board of directors recommends a vote FOR this proposal. See page 42-86 for details.

Proposal 4: Advisory Vote on Frequency of an Advisory Vote on Executive Compensation

The board of directors recommends a vote FOR the option of ONE YEAR. See page 87 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 Thomas S. O’Neill and Bruce G. Wilson.

Please refer to the material on pages 90-93 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 2017 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 Governance page under the Investors tab.

 

Director Independence

  

   12 of our 13 nominees are independent.

 

   Our CEO is the only management director.

 

   During 2016, all of our board committees (except the generation oversight committee, investment oversight committee and finance and risk committee) were composed exclusively of independent directors.

 

Board Leadership

  

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

 

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.

 

    5 of 13 directors (38%) are female or minorities.

 

Accountability & Shareholder Rights

  

   Extensive shareholder engagement reached holders of approximately 50% of our shares in 2016.

 

   All directors stand for election annually.

 

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

 

   Eligible shareholders may nominate directors through Exelon’s “proxy access” bylaws.

 

Board Practices & Governance

  

   Our board annually reviews its effectiveness as a group.

 

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

 

   The independent directors regularly meet in executive sessions without management.

 

   Directors may not stand for election after age 75.

 

   Political activities and contributions are disclosed.

 

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Proxy Statement Summary

 

 

 

 

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.

 

   Directors and executives are not permitted to hedge or pledge Exelon stock or engage in short sales.

 

Exelon Corporation Notice of the Annual Meeting and 2017 Proxy Statement   v


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Proxy Statement Summary

 

 

 

2016 EXECUTIVE COMPENSATION HIGHLIGHTS

 

We took considerable actions this year on our executive compensation program in response to the failed 2016 say-on-pay vote. These actions were in direct response to shareholder feedback received in meetings and calls conducted by the chair of the compensation committee and management beginning in June 2016.

Strong Company Performance

 

     

Beat adjusted (non-GAAP) operating EPS target for the Annual incentive program by 14 cents

 

     

Adjusted (non-GAAP) operating EPS growth in 2016 ($2.68) vs 2015 ($2.49) was 8%

 

     

EXC one-year total shareholder return (TSR) (32.8%) outperformed the UTY by 15.4 percentage points and the S&P 500 by 20.9 percentage points

 

     

Grew company enterprise value by $14.4 billion through M&A including PHI, ConEd Solutions, and the James A. FitzPatrick Nuclear Power Plant (pending)

 

 

     

NY and IL clean energy regulations and legislation

 

     

In 2016, through growth and acquisition achieved Fortune 100 status (only utility company)

 

     

All time best nuclear operating performance; best in class

 

     

Best on record or best in class utility operating performance

Rapid Response to Failed 2016 Say-on-Pay Vote

 

     

Reached out to shareholders holding approximately 50% of our shares

 

     

Immediately addressed the major shareholder concerns by modifying the Annual and Long-Term incentive programs

 

     

Changes included:

 

     

Moved performance share (PShares) goal measurement period from annual to 3-year

 

     

Changed PShare goals to align better with Exelon’s value proposition and strategic initiatives

 

     

Removed individual performance multipliers from all incentive programs

 

     

Strengthened the TSR modifier

 

     

Capped incentive payouts if one-year absolute TSR is negative

 

     

Moved operational metrics to Annual incentive program

 

     

Removed all legacy change in control tax gross-ups

CEO Pay for Performance Alignment

 

     

The board reduced the 2016 Annual incentive program payout from 143% to 100%, in part, to address shareholder concerns that the previous year’s AIP payout was too high relative to TSR performance

 

     

The board froze 2017 target pay at 2016 levels

 

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Proxy Statement Summary

 

 

 

Goal Rigor

 

     

2016 adjusted (non-GAAP) operating EPS target was set 5 cents above 2015 actual performance

 

     

2017 adjusted (non-GAAP) operating EPS target has been set at a meaningful level above the 2016 actual results (which included the impact of approximately 10 cents of favorable load, primarily driven by weather) and reflects significant stretch compared to internal budgeting and Wall Street guidance

 

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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

     38  

Proposal 2: The Ratification of PricewaterhouseCoopers LLP as Exelon’s Independent Auditor for 2017

     41  

Proposal 3: Advisory Vote on Executive Compensation

     42  

Report of the Compensation and Leadership Development Committee

     43  

Compensation Discussion and Analysis

     44  

Section I: Executive Summary

     47  

Section II: Key Drivers of our Compensation Program

     53  

Section III: NEO Compensation and Rationale

     56  

Section IV: Governance Features of Our Executive Compensation Programs

     64  

Executive Compensation Data

     67  

Proposal 4: Advisory Vote on the Frequency of An Advisory Vote on Executive Compensation

     87  

Communication with the Board of Directors

     88  

Frequently Asked Questions

     90  

Appendix

     A-1  

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 2016 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 24 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.

 

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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. There are 13 nominees for director at the 2017 annual meeting.

The board of directors held eight meetings during 2016. The board also attended a two-day strategy retreat with the senior officers of Exelon and subsidiary companies. All directors attended at least 82% of all board and committee meetings that they were eligible to attend, with an average attendance of approximately 96.84% 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 2016 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 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 and multiple cultures among directors and a commitment to sustainability and social issues.

 

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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 among other qualifications.

 

   

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 as a CEO, senior executive or board chair 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 and strategy.

 

   

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.

 

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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 2018. 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. Ten directors have experience with corporate governance matters. 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 51 to 72, with an average age of 63 and a median age of 62. 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 since 2015, and one since 2016. Four directors come from the Chicago area and one each come from the Philadelphia, Baltimore, and Washington, D.C. areas, while six come from other parts of the country including major metropolitan areas such as New York.

 

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A graphic summary of the qualifications of all 13 of the nominees as a group is presented below:

 

 

 

LOGO

The following page presents graphically the characteristics of the directors including diversity, tenure, age and independence:

 

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LOGO    LOGO
LOGO
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: 61

 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 E&Y’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 compensation committee; Avery Dennison Corporation (labeling and packaging materials), where he serves on the audit and finance committee and the governance and social responsibility committee; and Marsh & McLennan Companies (insurance), where he serves on the audit committee and the corporate responsibility committee. Mr. Anderson previously served as a director of First American Financial Corporation from 2012-2016 and 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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  ANN C. BERZIN

 

LOGO

 

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

 

 Age: 64

 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.

 

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  CHRISTOPHER M. CRANE

 

LOGO

 

 President and Chief Executive  Officer of Exelon Corporation

 

 Age: 58

 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), PECO Energy Company (PECO) and Pepco Holdings LLC (PHI).

 

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 32,700 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 million residential, public sector and business customers, including more than two-thirds of the Fortune 100; and Exelon’s six utilities, which deliver electricity and natural gas to approximately 10 million customers in Delaware (Delmarva Power & Light Company (DPL)), the District of Columbia (Potomac Electric Power Company (Pepco)), Illinois (ComEd), Maryland (BGE, DPL and Pepco), New Jersey (Atlantic City Electric Company (ACE)) and Pennsylvania (PECO).

 

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  YVES C. DE BALMANN

 

LOGO

 

 Former Co-Chairman of  Bregal  Investments LP

 

 Age: 70

 Director since: 2012

 

 Committees:

 Chair-Compensation and

 Leadership Development

 Committee (eff. 4/26/16)

 Member-Corporate Governance

 Committee (eff. 4/26/16)

 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 currently serves as a director of ESI Group (virtual prototyping software and services). Mr. de Balmann served as a director of Laureate Education, Inc. through December 2014; and he was the non-executive Chairman of Conversant Intellectual Property Management through August 2016. 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: 71

 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 8 states. Aqua America is the second largest U.S.-based, publicly-traded water and wastewater company in the country. As CEO, Mr. DeBenedictis had 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 8 years with the U.S. Environmental Protection Agency and was President of the Greater Philadelphia Chamber of Commerce for 3 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: 56

 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 is the principal of Gioia Consulting Services, LLC, a strategic business advisory company. She previously served on the board and nominating committee of Inforum (women’s professional development and business forum) 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: 51

 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: 69

 Director since: 2007

 

 Committees:

 Member-Audit Committee

 Member-Finance and Risk  Committee

 Member-Investment Oversight  Committee

  

Dr. Joskow has been the President and CEO 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. Dr. Joskow will retire as President of The Sloan Foundation at the end of 2017. 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. Dr. Joskow intends to return to MIT following his retirement from The Sloan Foundation at the end of 2017. 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 on 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: 70

 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: 72

 Director since: 2009

 

 Committees:

 Chair-Generation Oversight  Committee

 Member-Audit Committee

 Member-Finance and 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: 58

 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: 62

 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, and Alarm.com Holdings, Inc., where he is a member of the nominating and governance 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: 58

 Director since: 2007

 

 Committees:

 Chair-Finance and Risk

 Committee

 Member-Audit Committee

  

Mr. Steinour is the Chairman, President and Chief Executive Officer of Huntington Bancshares Incorporated (since 2009), a $101 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. He is Vice Chair of the Ohio Business Roundtable, Vice Chair of the Columbus Downtown Development Corporation, and a member of the Columbus Partnership where he serves on the executive committee. Mr. Steinour serves on the board of directors of the Financial Services Roundtable. He is a member of the American Bankers Association. Mr. Steinour is a member of council of The Pennsylvania Society, a non-profit, charitable organization which celebrates service to the Commonwealth of Pennsylvania. 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 as Chairman and CEO of Huntington Bancshares gives him a strong background in mergers and acquisitions, including post-merger integration and conversions, as well as in business development, business creation and partnerships. His 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. The National Association of Corporate Directors named Mr. Steinour to its 2016 “Directorship 100.”

 

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Corporate Governance at Exelon

 

 

 

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 corporate governance committee considers other factors that may be relevant to director independence, such as tenure and personal relationships. 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 ACE, BGE, DPL, ComEd, PECO, Pepco 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

 

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Corporate Governance at Exelon

 

 

 

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 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.

Anthony K. Anderson

Mr. Anderson serves as a director of a company that is a customer of Exelon. The company paid Exelon approximately $1.5 million in 2016.

Ann C. Berzin

Ms. Berzin serves as a director of a public company that provides equipment and services to Exelon Generation. In 2016, Exelon paid that company approximately $134,000.

Nicholas DeBenedictis

Mr. DeBenedictis serves as the non-executive chairman of a public water utility company that received approximately $11 million from Exelon for water supplies. Exelon made these purchases under tariffed utility rates. The company is also a customer of Exelon and paid approximately $14.1 million to Exelon in 2016. Mr. DeBenedictis serves as a director of a not-for-profit company that received approximately $4.3 million from Exelon in 2016 for health care coverage for Exelon employees. The company also paid Exelon approximately $2.2 million for power in 2016. Mr. DeBenedictis serves as a director of a company which provides asset protection solutions. Exelon paid that company approximately $1.8 million in 2016. Mr. DeBenedictis also serves on the Advisory Board of a company which provides engineering consulting services for which Exelon paid approximately $3 million in 2016. Mr. DeBenedictis serves as a director of a company that Exelon paid $2.3 million for Renewable Energy Credits in 2016. Mr. DeBenedictis also serves on the Advisory Board of a company which provides financial services for which Exelon paid $13 million in 2016.

Linda P. Jojo

Ms. Jojo is an employee of a commercial airline. In 2016, Exelon paid that company approximately $5.2 million.

Richard W. Mies

Admiral Mies serves as the director of a public company that provides services to Exelon Generation. In 2016, Exelon paid that company approximately $4.8 million. Admiral Mies also serves as a consultant to a company that acted as a consultant to Exelon in 2016. Exelon paid that company approximately $3.6 million in 2016.

John W. Rogers, Jr.

Mr. Rogers serves as a director of a company that is a customer of Exelon. The company paid Exelon approximately $18.7 million in 2016.

Mayo A. Shattuck III

Mr. Shattuck serves as a director of a company that paid Exelon approximately $300,000 in 2016. Mr. Shattuck also serves as the director of a public company that paid Exelon approximately $7.9 million for purchases from Constellation in 2016.

Stephen D. Steinour

Mr. Steinour is the chairman, president and chief executive officer of a company that provided financial services to Exelon. In 2016, Exelon paid that company approximately $300,000. For additional information, see Related Person Transactions below.

 

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Corporate Governance at Exelon

 

 

 

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 ACE, BGE, ComEd, DPL, PECO or Pepco 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 2016 that were disclosed by directors and executive officers of Exelon, ACE, BGE, ComEd, DPL, PECO and Pepco, 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 2016, Exelon and its subsidiaries paid Huntington Bank approximately $300,000 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. 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. 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 direct control. The company has an enterprise risk management (ERM) group consisting of a Chief Enterprise Risk Officer, a Chief Commercial Risk Officer, a Chief Credit Officer, a Vice President of ERM Operations, a Vice President of ERM Analytics and a full-time staff of 124. The risk management group draws upon other company personnel for additional support on various matters related to the identification, assessment, management, mitigation and monitoring, through established key risk indicators, of enterprise risks. The company also has a Risk Management Committee comprising select senior officers of the company who meet regularly to discuss matters related to enterprise risk management generally and particular risks associated with new developments or proposed transactions under consideration. The Chief Enterprise Risk Officer and the Risk Management Committee regularly meet with management of the company 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 a regular assessment of enterprise risks, drawing upon resources throughout the company for an assessment of the probability and severity of the identified risks as well as the control effectiveness. These risk assessments, which also include the review of operating company-specific key risk indicators, are discussed at operating company Risk Management Committees before being aggregated and reported and discussed with the board’s finance and risk committee as well as the audit committee and, when appropriate, the BGE, ComEd, PECO and PHI boards of directors. 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. Furthermore, 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 an 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 an orientation and onboarding program for new directors and provides 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 briefings on the executives’ responsibilities, programs and challenges. New directors are also invited for tours of various company facilities, depending on their orientation needs. Incumbent directors are also invited to participate in site visits.

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 and programs sponsored by other organizations. The company pays the cost for any director to attend outside director education seminars on 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 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 2016, 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 2016 and current memberships, changes in committee assignments in 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)2    Lawless (Chair)      Steinour (Chair)      Mies (Chair)    Rogers (Chair)
Berzin    de Balmann (Chair)3    Canning2    Anderson    Anderson    Crane
de Balmann1    Jojo4    de Balmann3    Berzin    Crane    Joskow
Joskow    Lawless    DeBenedictis    Canning2    DeBenedictis    Shattuck
Mies         Rogers    Crane4    Gioia4     
Steinour              de Balmann    Shattuck     
               DeBenedictis          
               Gioia4          
               Jojo          
               Joskow          
               Lawless4          
               Mies          
               Rogers4          
               Shattuck4          

Notes:

 

(1) Through April 26, 2016.

 

(2) Through April 26, 2016, upon Mr. Canning’s retirement from the board.

 

(3) Effective April 26, 2016.

 

(4) Effective February 1, 2016.

 

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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 31, 2017, and is available on the Exelon website at www.exeloncorp.com on the 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 89 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 seven times in 2016, 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 2016 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 2016, 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 2016. 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 2016. 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 2016 and 2015 can be found in the section of this proxy statement titled “Ratification of PriceWaterhouseCoopers LLP as Exelon’s Independent Auditor for 2017.” 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 2017. 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 utility and energy generation businesses, including relative to the corresponding expertise and capabilities of other audit firms; the quality, quantity and geographic location of PwC staff, and PwC’s ability to provide responsive service;

 

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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, relative to the company’s financial statement risk and the size and complexity of its business and related internal control environment, and compared to fees incurred by 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 2017. 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 2017.

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, 2016, for filing with the SEC.

 

 

February 7, 2017

 

THE AUDIT COMMITTEE

 
 

Anthony K. Anderson, Chair

Ann C. Berzin

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 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 89 of this proxy statement.

The compensation and leadership development committee met five times in 2016 and met informally or acted by unanimous written consent at other times. 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

 

   

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

 

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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.

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 and 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 (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 2016 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 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.

 

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The compensation and leadership development committee engaged Semler Brossy Consulting Group, LLC as its consultant through October 2016. In the summer and fall of 2016, the committee reviewed this relationship and determined to engage Meridian Compensation Partners, LLC as its consultant after conducting a request for proposal process involving seven compensation consulting firms. The committee determined that Meridian offered a strong and responsive team and would provide reliable and cost-competitive advice through experience, research and benchmarking. In reviewing the engagement in October 2016, the committee considered the following factors in determining that Meridian is an independent consultant and does not have any conflicts of interest:

 

   

Meridian 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.

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 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 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 1% 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

 

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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 2016, no fees were paid to Semler Brossy or Meridian for additional services beyond their work as consultants to the compensation and leadership development committee or, in the case of Semler Brossy, their work in preparing a director compensation study for the corporate governance 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 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 89 of this proxy statement.

The corporate governance committee met five times in 2016. 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 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.

 

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Corporate Governance at Exelon

 

 

 

FINANCE AND RISK COMMITTEE

Effective February 1, 2016, the finance and risk committee includes all members of the board of directors. The committee 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 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 89 of this proxy statement.

The finance and risk committee met five times in 2016. 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 2016.

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 2016.

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.

 

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Compensation of Non-Employee Directors

 

 

 

COMPENSATION OF NON-EMPLOYEE DIRECTORS

For their service as directors of the corporation in 2016, 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

  $ 132,867     $ 36,000     $ 118,709     $     $ 287,576  

Berzin

    101,630       28,000       118,709       15,000       263,339  

Canning 2

    28,929       20,000       32,143       515,000       596,072  

de Balmann

    111,287       34,000       118,709       15,000       278,996  

DeBenedictis

    109,946       32,000       118,709       15,000       275,655  

Gioia 3

    102,707       22,000       110,193       3,200       238,100  

Jojo

    98,709       24,000       118,709       12,500       253,918  

Joskow

    101,630       32,000       118,709             252,339  

Lawless 4

    112,830       30,000       118,709             261,539  

Mies

    132,867       36,000       118,709       15,000       302,576  

Rogers

    108,709       26,000       118,709             253,418  

Shattuck

    409,946       23,000       118,709       15,000       566,655  

Steinour

    115,788       22,000       118,709       15,000       271,497  

Total All Directors

    1,667,845       365,000       1,448,135       620,700       4,101,680  

 

(1) 

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

(2) 

Mr. Canning retired from the board effective April 26, 2016. All retainers were prorated through that date.

(3) 

Ms. Gioia was appointed to the board effective February 1, 2016. All retainers were prorated from that date.

(4) 

In addition to the amounts shown in the table, Mr. Lawless, who also served as a director of the Exelon Foundation during 2016, received $4,000 from the Foundation for attending meetings of the Foundation’s board. Exelon contributes to the Foundation to pay for the Foundation’s operating expenses.

Compensation Philosophy

The Exelon board has a policy of targeting director compensation to the median board compensation of the same peer group of companies used to benchmark executive compensation. In July 2016, the board adjusted director compensation effective August 1, 2016, based on the advice of the compensation consultant and other analysis by Exelon’s Office of Corporate Governance. The changes were designed to place greater reliance on compensation in the form of stock awards and increase total director compensation closer to the median target. The approved changes resulted in the elimination of fees for attendance at board and committee meetings and attendance at the annual meeting and an increase in the component of director compensation paid as stock awards. Adjustments were also made to retainers paid for some committee chairs and committee membership.

 

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Compensation of Non-Employee Directors

 

 

 

Fees Earned or Paid in Cash

Based upon advice of the compensation consultant and other analysis by Exelon’s Office of Corporate Governance, the corporate governance committee recommended, and the board of directors approved, changes to non-employee director compensation effective August 1, 2016. Prior to that date, the cash compensation for non-employee directors was as follows.

All directors received an annual retainer of $80,000 paid in cash. 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 received 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, received an additional $5,000 per year for their participation on these committees, and the chairs of these committees received a $20,000 annual retainer.

Directors received $2,000 for each meeting of the board that they attended, whether in person or by means of teleconferencing or video conferencing equipment. Directors serving on board committees received $2,000 for each meeting they attended; directors serving on the generation oversight committee received $3,000 for each meeting of that committee they attended due to the additional travel that is required and the length of those meetings. Directors also received a $2,000 meeting fee for attending the annual shareholders meeting and the annual strategy retreat.

Effective August 1, 2016, the following changes were made to cash compensation for non-employee directors:

 

   

The chairs of the corporate governance and investment oversight committees receive a $10,000 annual retainer.

 

   

The chairs of all other standing committees receive a $20,000 annual retainer.

 

   

Each member of the generation oversight committee, including the chair, receives a $20,000 retainer.

 

   

Meeting fees are no longer paid.

Each director continues to receive an annual retainer of $80,000 paid in cash. The non-executive chairman of the board continues to receive an annual retainer at the rate of $300,000 per year. Fees paid to non-employee directors in 2016 were prorated to account for the changes made effective August 1, 2016.

Stock Awards

Rather than paying directors entirely in cash, Exelon pays a significant portion of director compensation in the form of deferred stock units in order to align the interests of directors with the interests of shareholders. Prior to August 1, 2016, directors received deferred stock units worth $100,000 per year, payable quarterly in arrears. Effective August 1, 2016, based upon advice of the compensation consultant and analysis by the Office of Corporate Governance, the corporate governance committee recommended, and the board of directors approved, an increase in the annual deferred stock unit compensation to $145,000 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.

 

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Compensation of Non-Employee Directors

 

 

 

As of December 31, 2016, the directors held the following amounts of deferred Exelon common stock units.    

 

      


Total
Deferred
Stock
Units
(1)
 
 
 
 
Anthony K. Anderson      13,624  
Ann C. Berzin      43,703  
John A. Canning      24,907  
Yves C. de Balmann      53,973  
Nicholas DeBenedictis      35,794  
Nancy L. Gioia      3,243  
Linda P. Jojo      4,762  
Paul L. Joskow      29,085  
Robert J. Lawless      58,052  
Richard W. Mies      26,147  
John W. Rogers, Jr      50,793  
Mayo A. Shattuck III      13,344  
Stephen D. Steinour      29,454  
Total All Directors      386,881  

 

(1) 

Total deferred stock units includes deferred stock units from the current Exelon deferred stock unit plan and stock units deferred from the equivalent plans for Unicom Corporation and Constellation Energy Group, Inc. for Exelon directors who previously served as directors of those predecessor companies.

Deferred Compensation

Directors may elect to defer any portion of their cash compensation 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.

 

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Compensation of Non-Employee Directors

 

 

 

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 2016, Exelon incurred $1,667 of incremental costs to provide these perquisites and the aggregate amount paid to all directors as a group (13 directors) for reimbursement of taxes on imputed income was $2,070.

Exelon and the Exelon Foundation have 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.

 

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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, 2017.

 

Name     



Stock
Ownership
Target
(Shares)
[A]




 
    




Total Shares
and Share
Equivalents
Held as of
January 31, 2017
[B]





 
    


Stock
Ownership
Percentage
[B]/[A]



 
Crane      188,062        531,141        282%  
Thayer      53,148        169,994        320%  
Von Hoene      57,236        190,054        332%  
Cornew      57,236        146,316        256%  
O’Brien      59,280        165,520        279%  

 

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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, 2017 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. Anderson 4             13,624               13,624               13,624  
Ann C. Berzin             43,703               43,703        17,397        61,100  
Yves, C. de Balmann      1,910        53,973               55,883               55,883  
Nicholas DeBenedictis      10,000        35,794               45,794               45,794  
Nancy L. Gioia 4             3,243               3,243               3,243  
Linda P. Jojo 4             4,762               4,762               4,762  
Paul L. Joskow      2,000        29,085               31,085        6,491        37,576  
Robert J. Lawless      3,273        58,052               61,325        16,313        77,638  
Richard W. Mies             26,147               26,147               26,147  
John W. Rogers, Jr.      11,374        50,792               62,166        14,795        76,961  
Mayo A. Shattuck III      379,692        13,344        2,228,958        2,621,994               2,621,994  
Stephen D. Steinour      4,045        29,454               33,499        35,725        69,224  
Christopher M. Crane      313,701        211,233        509,000        1,033,934        6,207        1,040,141  
Jonathan W. Thayer      83,256        86,738        650,366        820,360               820,360  
Kenneth W. Cornew      53,363        91,299        135,200        279,862        1,654        281,516  
William A. Von Hoene, Jr.      109,688        77,135        232,200        419,023        3,231        422,254  
Denis P. O’Brien      98,648        60,910        230,700        390,258        5,962        396,220  
Total                  

Directors & Executive Officers as a group (23 people)

See Note 3

     1,314,370        1,023,455        4,196,324        6,534,148        107,775        6,641,923  

 

(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.

(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 2016 Annual Report on Form 10-K filed on February 13, 2017 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. Ms. Gioia was appointed to the board effective February 1, 2016.

 

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Ownership of Exelon Stock

 

 

 

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 January 24, 2017, The Vanguard Group on February 9, 2017, State Street Corporation on February 6, 2017, and FMR LLC on February 14, 2017.

 

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

     73,653,441      8.0%

The Vanguard Group (2)

100 Vanguard Blvd.

Malvern, PA 19355

     61,839,937      6.70%

State Street Corporation (3)

State Street Financial Center

One Lincoln Street

Boston, MA 02111

     55,931,776      6.06%

FMR LLC (4)

245 Summer Street

Boston, MA 02210

     46,634,135      5.057%

 

(1) 

BlackRock, Inc. disclosed in its Schedule 13G/A that it has sole power to vote or to direct the vote of 64,831,600 shares and sole power to dispose or direct the disposition of 73,653,441 shares.

(2) 

The Vanguard Group disclosed in its Schedule 13G/A that it has sole power to vote or direct the vote of 1,445,471 shares, shared voting power over 192,662 shares, sole power to dispose or direct the disposition of 60,206,148 shares, and shared dispositive power over 1,633,789 shares.

(3) 

State Street Corporation disclosed in its Schedule 13G that it has shared voting power over 46,405,358 shares and shared dispositive power over 55,931,776 shares.

(4) 

FMR LLC disclosed in its Schedule 13G/A that it has sole power to vote or direct the vote of 5,395,152 shares and sole power to dispose or direct the disposal of 46,634,135 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 Section 16 filings on a timely basis during 2016.

 

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Exelon’s Independent Auditor for 2017

 

 

 

PROPOSAL 2: THE RATIFICATION OF PRICEWATERHOUSECOOPERS LLP AS EXELON’S INDEPENDENT AUDITOR FOR 2017

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 for 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, 2016 and 2015, and fees billed for other services rendered by PricewaterhouseCoopers during those periods.

 

              Year Ended December 31,         
(in thousands)      2016        2015  
Audit fees (a)      $24,986        $18,287  
Audit related fees (b)      3,656        2,392  
Tax fees (c)      1,943        1,250  
All other fees (d)      836        160  

 

(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 2017.

 

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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 2017 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 2017 Annual Meeting of Shareholders pursuant to the rules of the SEC, including the Compensation Discussion and Analysis, the 2016 Summary Compensation Table and the other related tables and disclosure.

 

The board of directors recommends a vote FOR this proposal for the following reasons:

 

     

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.

 

 

     

In 2016 Exelon had strong financial and operational performance as well as total shareholder return (TSR) performance of 32.8%; and

 

 

     

The company achieved success on key strategic initiatives, including the Pepco Holdings Inc. (PHI) acquisition and the passage of the New York clean energy regulation and the Illinois Future Energy Jobs bill.

 

 

     

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

 

 

     

The company’s compensation framework provides market-aligned pay opportunities that foster the attraction, motivation and retention of key talent.

 

 

     

The compensation committee and the board valued the extensive shareholder feedback we heard in the summer and fall of 2016 and have implemented significant changes to our incentive plans to strengthen the connection between pay and performance.

 

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.

 

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 our executives with those of our shareholders and other key stakeholders.”

The Compensation & Leadership Development Committee

The compensation & leadership development committee (the compensation committee) is 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 and incorporating feedback from our shareholders. In 2016, we were disappointed with the say-on-pay vote outcome. The compensation committee took action by soliciting feedback from shareholders and redesigning the incentive plans to address shareholders’ concerns and to better align the programs with the company’s strategy. A full discussion of these changes is included within the section “2016 Say-on-Pay Vote Outcome and Shareholder Engagement.”

The compensation 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 compensation committee recommended to the board that the Compensation Discussion and Analysis be included in the 2017 Proxy Statement.

The compensation committee is composed solely of independent directors. Effective April 26, 2016, Yves C. de Balmann replaced John A. Canning Jr. as the Chair.

March 6, 2017

THE COMPENSATION & LEADERSHIP DEVELOPMENT COMMITTEE

Yves C. de Balmann, Chair

Robert J. Lawless

Linda P. Jojo

 

Exelon Corporation Notice of the Annual Meeting and 2017 Proxy Statement   43


Table of Contents

Compensation Discussion & Analysis

 

 

 

Key Take-Aways for 2016

 

We took considerable actions this year on our executive compensation program in response to the failed 2016 say-on-pay vote. These actions were in direct response to shareholder feedback received in meetings and calls conducted by the chair of the compensation committee and management beginning in June 2016.

In the pages that follow we detail our process, evaluation, and changes made. However, for a quick understanding, we have summarized below the performance of your company, the feedback we collected, and the actions we took to strengthen the alignment of pay and performance.

Strong Company Performance

 

     

Beat adjusted (non-GAAP) operating EPS target for the Annual incentive program by 14 cents

 

     

Adjusted (non-GAAP) operating EPS growth in 2016 ($2.68) vs 2015 ($2.49) was 8%

 

     

EXC one-year TSR (32.8%) outperformed the UTY by 15.4 percentage points and the S&P 500 by 20.9 percentage points

 

 

     

Grew company enterprise value by $14.4 billion through M&A including PHI, ConEd Solutions, and the James A. FitzPatrick Nuclear Power Plant (pending)

 

     

NY and IL clean energy regulations and legislation

 

     

In 2016, through growth and acquisition achieved Fortune 100 status (only utility company)

 

     

All time best nuclear operating performance; best in class

 

     

Best on record or best in class utility operating performance

Rapid Response to Failed 2016 Say-on-Pay Vote

 

     

Reached out to shareholders holding approximately 50% of our shares

 

     

Immediately addressed the major shareholder concerns by modifying the Annual and Long-Term incentive programs

 

     

Changes included:

 

     

Moved PShares goal measurement period from annual to 3-year

 

     

Changed PShare goals to align better with Exelon’s value proposition and strategic initiatives

 

     

Removed individual performance multipliers from all incentive programs

 

     

Strengthened the TSR modifier

 

     

Capped incentive payouts if one-year absolute TSR is negative

 

     

Moved operational metrics to Annual incentive program

 

     

Removed all legacy change in control tax gross-ups

 

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Compensation Discussion & Analysis

 

 

 

CEO Pay for Performance Alignment

 

     

The board reduced the 2016 Annual incentive program payout from 143% to 100%, in part, to address shareholder concerns that the previous year’s AIP payout was too high relative to TSR performance

 

     

The board froze 2017 target pay at 2016 levels

Goal Rigor

 

     

2016 adjusted (non-GAAP) operating EPS target was set 5 cents above 2015 actual performance

 

     

2017 adjusted (non-GAAP) operating EPS target has been set at a meaningful level above the 2016 actual results (which included the impact of approximately 10 cents of favorable load, primarily driven by weather) and reflects significant stretch compared to internal budgeting and Wall Street guidance

 

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Compensation Discussion & Analysis

 

 

 

Introduction to Exelon’s Executive Compensation Program

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 that support the company’s long-term strategic plan. The executive compensation program is constructed to attract, motivate and retain the high quality leaders that are necessary to manage a company of Exelon’s size and complexity.

In designing the company’s executive compensation program, the compensation committee strives to align the incentives of our NEOs with the interests of our shareholders by using metrics and challenging goals that tie directly to the company’s strategy. This includes the use of risk-mitigating design features to discourage our executives and employees from taking excessive risks to drive short-term benefits that may not be in the long-term interests of the company and our shareholders. We believe consistent execution of our strategy over multi-year periods will drive long-term value creation.

This Compensation Discussion and Analysis (CD&A) discusses Exelon’s 2016 executive compensation program. The program covers compensation for our Named Executive Officers (NEOs):

 

 

Exelon’s Named Executive Officers

Christopher M. Crane

President and Chief Executive Officer, Exelon

Jonathan W. Thayer

Sr. EVP and Chief Financial Officer, Exelon

William A. Von Hoene, Jr.

Sr. EVP and Chief Strategy Officer, Exelon

Kenneth W. Cornew

Sr. EVP and Chief Commercial Officer, Exelon; President and Chief Executive Officer, Exelon Generation

Denis P. O’Brien

Sr. EVP, Exelon; Chief Executive Officer, Exelon Utilities

 

Table of Contents

 

        

Introduction to Exelon’s Executive Compensation Program

    
   

Section I: Executive Summary

    
   

   Business and Strategy Overview, Value Proposition and Performance Highlights

     47  
   

   2016 Say On Pay Vote Outcome and Shareholder Engagement

     49  
   

  January 2017 CEO Pay Determinations

     51  
   

   Compensation Program is Directly Linked to Value Drivers

     51  
   

   Rigorous Targets and Robust Goal-Setting Process

     52  
   

Section II: Key Drivers of Compensation Program

    
   

  Guiding Principles

     53  
   

  Compensation Governance Best Practices

     54  
   

   Roles of Board, Compensation Committee and CEO

     55  
   

   Peer Groups Used for Benchmarking Executive Compensation

     55  
   

Section III: NEO Compensation and Rationale

    
   

  2016 Compensation Program

     56  
   

   Total Cash Compensation (Base Salary and Annual Incentive Program)

     58  
   

  2016 Long-Term Incentive Program (LTIP)

     60  
   

Section IV: Governance Features of Our Executive Compensation Programs

    
   

  Stock Ownership and Trading Requirements

     64  
   

  Recoupment (Clawback) Policy

     65  
   

   Compensation Policies and Practices as They Relate to Risk Management

     65  
   

  Tax Consequences

     66  
   

Appendix

    
   

  2016 Adjusted (non-GAAP) Operating Earnings

     A-1  
   

  2014 PShare Scorecard

     A-2  
   

  2015 PShare Scorecard

 

    

 

A-2

 

 

 

 

 

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Compensation Discussion & Analysis

 

 

 

Section I: Executive Summary

Business and Strategy Overview, Value Proposition and Performance Highlights

Business Overview

Exelon is composed of two primary businesses.

 

   

Regulated Utilities: We have regulated operations that consist of six regulated utility subsidiaries, and serve approximately 10 million electricity and gas customers, more than any other company in the industry. In March 2016, we closed the $6.8 billion acquisition of PHI, which increased our investment in regulated assets consistent with our long-term strategy.

 

   

Electric Generation: We also operate a generation business that comprises the largest competitive electric generation businesses in the country and largest competitive retail supply business serving wholesale, commercial, and industrial customers. More than 90% of our power production is carbon free, and we are the best-in-class operator in terms of outage days and operating costs.

Financial Strategy Overview

Exelon’s financial strategy centers on employing our competitive integrated business model to deliver stable growth, sustainable earnings and an attractive dividend.

 

   

Stable, Visible Growth: We focus our growth capital expenditures toward regulated utility and long-term contracted assets that drive better than peer growth with high level of earnings visibility.

 

   

Redeploying Cash Flows: We are redeploying the significant free cash flow from our competitive generation business to fund both outsized regulated utility growth and reduce outstanding debt at Exelon Generation.

 

   

Attractive Dividend: We are committed to providing a robust and growing dividend, including 2.5% annual growth through 2018.

Exelon’s Value Proposition and Strategic Initiatives

The value proposition that we articulate for shareholders provides more granular insight into our long-term goals and the path to achieving them. We focus on five key strategic initiatives that will continue to drive strong operating and financial performance.

 

 

LOGO

2016 Pay for Performance Highlights

Exelon successfully executed its strategy in 2016, which drove strong operational and financial performance and positioned us well for the future. Highlights included:

 

   

Continued best in class operational performance across our nuclear fleet, and strong operational performance across our fossil and renewable fleets

 

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Compensation Discussion & Analysis

 

 

 

 

   

Continued growth at Exelon Utilities driven by increased distribution revenues across our utilities due to higher rates and increased capital investment as well as favorable weather and lower-than-normal storm activity

 

   

Filed 9 rate cases to lay the foundation for continued strong performance within Exelon Utilities

 

   

Acquired PHI, ConEdison Solutions’ retail electricity and natural gas business; acquisition of the James A. FitzPatrick nuclear power plant is pending

 

   

Supported key policy initiatives that will help drive our long-term, sustainable success, including the New York clean energy regulations, the Illinois Future Energy Jobs Act, the White House Equal Pay Pledge and expanding our paid leave policies

The charts below illustrate the strong pay for performance alignment for Exelon’s CEO over the last three years, as his pay reflected in the summary compensation table increased 1.6% while Exelon’s stock price increased 29.57% between January 1, 2014 and December 31, 2016 and its TSR for 2014-2016 increased 45.3%.

 

LOGO

Our strong fundamental performance has created value for our shareholders outperforming both the PHLX Utility Sector Index (UTY) and our peer group over the trailing one- and three-year time periods.

 

LOGO

 

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Compensation Discussion & Analysis

 

 

 

2016 Say On Pay Vote Outcome and Shareholder Engagement

The committee regularly reviews executive compensation. However, in response to the company’s 2016 advisory vote on executive compensation, which received only 38% support from shareholders, the compensation committee and management undertook an enhanced engagement program to solicit feedback from shareholders. As part of this process, Exelon contacted nearly 50% of our shareholder base and met with shareholders accounting for approximately 45% of Exelon’s shares outstanding.

Mr. Yves de Balmann, the new chairman of the compensation committee as of April 2016, led meetings and calls with shareholders accounting for approximately 45% of Exelon’s shares outstanding. The compensation committee considered the shareholder feedback from these engagement meetings and implemented a number of changes that were responsive to this feedback.

The breadth of the company’s outreach program enabled the compensation committee to speak with and consider feedback from a significant cross-section of Exelon’s shareholder base. Exelon’s engagement team met with governance professionals and portfolio managers from active funds as well as governance professionals from index funds, ranging from shareholders with positions as large as 7.6% of Exelon’s shares outstanding to those who own less than 1%.

 

The compensation committee took the opportunity to modify the compensation program at its July meeting in order to respond to the say-on-pay vote and implemented shareholder feedback immediately, including retroactively modifying the 2016 program in line with this feedback.

A summary of the shareholder outreach process is set forth below:

 

 

LOGO

A summary of the key feedback that we received from shareholders and our responses to that feedback is outlined in the tables below. The refinements made to the compensation program are broadly designed to:

 

   

Drive even closer alignment between executive compensation and company performance

 

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Compensation Discussion & Analysis

 

 

 

 

   

Further increase the rigor of the targets used within the program

 

   

Enhance the link between incentive compensation and our value proposition

 

   

Incorporate the current perspectives of our shareholders into the compensation program

Annual Incentive Program (AIP)

Changes implemented retroactively to awards granted for 2016:

 

 

Shareholder Feedback

 

  

 

Response

 

   2015 payout was above target when TSR lagged peers

  

 

    Future payouts capped at target if negative absolute TSR for 12 months

 

   Operational metrics are more appropriate for AIP than PShares

 

  

   Added operational metrics to AIP with a 30% weighting

 

   Individual Performance Multiplier (IPM) is discretionary

 

  

   Eliminated the IPM component

 

Long-term Performance Share Award Program (PShares)

Changes to be implemented retroactively where possible and in all future awards:

 

 

Shareholder Feedback

 

  

 

Response

 

    One-year performance periods are too short

  

   Moving PShare performance periods from annual to 3-year through a phased-in process (reference transition table under “2016 Long-Term Incentive Program”)

   EPS metric overlaps with AIP and operational metrics are more appropriate in AIP than PShares

  

   Moved EPS and operational metrics from PShares to AIP in 2016; adopted new PShares financial metrics tied to our value proposition for 2017

   IPM is discretionary

  

   Eliminated the IPM component starting with the 2014-2016 performance periods paid in 2017

   TSR modifier for PShares does not have big enough impact

  

    Amended TSR modifier starting with the 2014-2016 performance periods paid in 2017

   Moved from a stair-step approach to a point-for-point approach

   Removed limit on TSR modifier

   Performance compared to the UTY instead of the four-company competitive integrated peer group

   Future payouts capped at target if negative absolute TSR for the final 12 months of the measurement period

Other Compensation Program Changes Made for 2016 and 2017

 

 

Shareholder Feedback

 

  

 

Response

 

   Legacy excise tax gross-up on “golden parachute” arrangements

  

   Removed excise tax gross-up provisions for transactions resulting in change in control with no recompense for removal

   Concern that goal-setting process is not rigorous and goals were not challenging

  

   Further enhanced and clarified goal setting process as described in this CD&A

 

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Compensation Discussion & Analysis

 

 

 

January 2017 CEO Pay Determinations

In order to address shareholder concerns, the compensation committee and board were conservative in making decisions about 2016 payouts and setting 2017 pay targets despite exceptional earnings and TSR performance in 2016. In particular, the AIP award reduction specifically addresses shareholder feedback that last year’s incentive payouts were not aligned with TSR performance as discussed in the section “Total Cash Compensation (Base Salary and Annual Incentive Program).” The table below summarizes these decisions.

 

  2016 AIP Award    Payout reduced from actual performance of 143.08% to 100%. For more information about the compensation committee’s rationale in reducing the 2016 AIP award please see pages 59-60.
  2014-2016 PShare Payout    Three-year average performance was 117.68% with a TSR modifier of 0.64% for outperforming the UTY resulting in an overall payout of 118.43%.
  2017 CEO Target Pay Setting    The compensation committee determined not to increase CEO pay targets from 2016, targeting total pay at $13 million which approximates the peer group median.

Compensation Program is Directly Linked to Value Drivers

As a result of the modifications that we have made to the compensation program, there will be an even stronger link between our NEOs’ incentives and Exelon’s value proposition.

 

Strategic Business Objective           Compensation Component or Metric

   Regulated utility growth with utility EPS rising 7-9% and rate base growth of 6.1% annually from 2016-2020

     LOGO     

   Adjusted (non-GAAP) Operating EPS

—     Performance measure for the AIP

   Utility Net Income

—     New metric for PShares granted in 2017 and later

 

 

   Strong free cash generation and maintaining a strong balance sheet will support utility growth

     LOGO     

   Exelon FFO/Debt

—     New metric for PShares granted in 2017 and later

 

   Invest in utilities where we can earn an appropriate return

     LOGO     

   Utility Return on Equity

—     New metric for PShares granted in 2017 and later

 

   Superior operational performance to support achievement of financial objectives

     LOGO     

   Operational Metrics

—     Outage duration, outage frequency, net fleetwide capacity factor and dispatch match are performance measures for the AIP

 

   Create sustainable value for shareholders by executing business strategy

     LOGO     

   Relative TSR

—     Modifier for PShares grants

 

 

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Compensation Discussion & Analysis

 

 

 

Rigorous Targets and Robust Goal-Setting Process

The compensation committee aims to set targets that are challenging and continue to motivate and retain executives, while also driving short- and long-term success. Operational metrics are typically benchmarked at the top quartile or higher as compared to industry standards and financial metrics targets have historically been based on our internal business plans and external market factors. The compensation committee attempts to select metrics that are tied directly to the company’s current operational and financial strategies and are proven measures of long-term value creation.

Target-Setting for 2017

In 2017, Exelon enhanced its target-setting process to employ a multi-layer analysis that incorporates a blend of objective and subjective business considerations and other analytical methods in order to ensure that the goal-setting process is rigorous. We have also enhanced our disclosure regarding target-setting to better demonstrate for shareholders the rigor of the decision-making process.

Factors considered in this process include:

 

   

Recent History: Goals should generally reflect a logical progression of results from recent past

 

   

Relative Performance: Performance against a relevant group of peers

 

   

Strategic Aspirations: Near- and intermediate-term goals should follow a trend line consistent with long-term aspirations

 

   

Shareholder Expectations: Goals should be aligned with externally communicated financial guidance and shareholder expectations

 

   

Sustainable Sharing: Earned awards should reflect a balanced degree of sharing between shareholders and participants

To ensure increased rigor within the goal-setting process for the financial metrics in the PShares, we independently ran statistical simulations to understand the level of difficulty of our payout range. We sensitized across a reasonable range of values for several internal and external variables that are significant drivers of performance. We also examined the level of deviation of performance from plan on a historical basis.

 

Example: 2017 EPS Target

As an example of the compensation committee’s focus on setting rigorous targets, the compensation committee decided to set the adjusted (non-GAAP) operating EPS AIP target for 2017 at a level higher than our actual performance in 2016 and above both our 2017 internal plan and the midpoint of our 2017 external financial guidance.

 

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Compensation Discussion & Analysis

 

 

 

Section II: Key Drivers of Compensation Program

Guiding Principles

The following principles help guide and inform the compensation committee in delivering highly effective executive compensation programs that drive performance, mitigate risk, and foster the attraction, motivation and retention of top leadership talent 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

Our compensation framework is market-based and drives pay for performance and alignment with shareholders by having a majority of NEO pay at risk in the form of annual incentives and long-term stock awards.

 

Extensive Shareholder Engagement

We engage directly with shareholders and take responsive 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 2016, our CEO’s requirement was 6X base salary, while other NEOs were 3X base salary.

 

Balance

The portion of NEO pay at risk rewards the appropriate balance of short- and long-term financial and strategic business results.

 

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Compensation Discussion & Analysis

 

 

 

Compensation Governance Best Practices

 

What We Do

 

  ü  

Pay for performance – 90% of CEO pay and an average of 81% of NEO pay is at risk

 

  ü  

Significant stock ownership requirements for directors and executive officers – 6X base salary for CEO and 3X for other NEOs

 

  ü  

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

 

  ü  

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

 

  ü  

Retain an independent compensation consultant to advise the compensation committee

 

  ü  

Evaluate management succession and leadership development efforts annually

 

  ü  

Provide limited, modest perquisites based on sound business rationale

 

  ü  

Proactively seek shareholder feedback on executive compensation programs, reaching holders of approximately 50% of our shares in 2016

 

  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 LTIP programs

 

  û  

No employment agreements

 

  û  

No excise tax gross-ups for change-in-control agreements

 

  û  

No dividend-equivalents on unearned PShares

 

  û  

No inclusion of the value of LTIP 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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Compensation Discussion & Analysis

 

 

 

Roles of Board, Compensation Committee and CEO

As stated in its charter, one of the compensation committee’s most important responsibilities is to recommend the CEO’s compensation to the independent directors. The compensation 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 compensation 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 committee, and CEO

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

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

   The compensation committee is advised by an independent compensation consultant.

Setting Target TDC for our NEOs

The compensation committee uses a variety of data to gauge market competitiveness, including peer group data and regression analysis, 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).

Peer Groups Used for Benchmarking Executive Compensation

An assessment of our executives’ compensation levels against our peer group is one of several considerations in the process of determining compensation for our NEOs. While we would prefer to focus on peers from the energy services industry, there are not enough comparably-sized companies to create a robust peer group. Therefore, we use a blended peer group consisting of two sub-groups: Energy Services peers and General Industry peers.

 

   

Energy Services – We include 10 energy services companies in our peer group even though 5 had 2015 revenues that were less than half the size of Exelon’s (prior to the PHI acquisition). These include:

 

AEP Co., Inc.

   Dominion Resources, Inc.    Duke Energy Corp.    Edison International    Entergy Corporation

FirstEnergy Corp.

   NextEra Energy, Inc.    PG&E Corp.    PSEG, Inc.    Southern Company

 

   

General Industry – General industry peers emphasize companies that are capital asset-intensive and may be subject to effects of volatile commodity prices. These include:

 

3M

   Alcoa    Deere & Company    DuPont    General Dynamics

Hess Corporation

   Honeywell Co.    International Paper    Johnson Controls Inc.    Northrop Grumman

How We Use the Peer Group

 

   

An input in developing compensation targets and pay mix

 

   

Assessing the competitiveness of compensation and benefit programs

 

   

Benchmarks for incentive program design

 

   

Benchmarks for stock ownership guidelines

 

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Section III: NEO Compensation and Rationale

2016 Compensation Program

The compensation committee designed Exelon’s 2016 compensation program to incentivize and reward leaders who create long-term value for our shareholders. The primary compensation elements utilized include:

 

   

Base salary

 

   

An annual incentive program (AIP)

 

   

A long-term incentive program (LTIP) consisting of the PShares and Restricted Stock Units (RSUs)

 

LOGO    LOGO

 

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

The majority of compensation paid to our NEOs is tied to the achievement of short- and long-term financial and operational goals. Additionally, a significant portion is paid in the form of equity and all components except for salary are “at-risk.”

 

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Compensation Discussion & Analysis

 

 

 

Key components of our 2016 compensation program are listed below.

 

Pay

 Element 

  Form   Performance
Period
  Performance Link   Purpose
Salary   Cash   N/A   N/A   Provide income certainty at competitive levels to attract and retain key talent
AIP   Cash   1 Year  

   Adjusted (non-GAAP) Operating EPS (70%)

   Operational Goals (30%)

–   Outage Duration, Outage Frequency, Net Fleetwide Capacity Factor, Dispatch Match

   TSR Cap if negative 1-year absolute TSR

  Motivate executives to achieve key annual financial and operational objectives
LTIP  

Performance

Share Units

(67% of LTIP)

 

Weighted

Average of

Performance

2016-2018

 

2016

Scorecard

 

   Earned ROE at Exelon (50%)

   FFO/Debt at ExGen (50%)

 

  Focus executives on driving long-term success and align interests of executives with shareholders
     

2017-2018

Scorecard

 

   Utility Earned Return on Equity (33.3%)

   Utility Net Income (33.3%)

   Exelon FFO/Debt (33.4%)

 

 
     

2016-2018

Modifier

 

   Relative TSR Modifier (3 year period)

   TSR Cap if negative 1-year absolute TSR

 

 
 

Restricted

Stock Units

(33% of LTIP)

 

Vest One-Third

Per Year Over

3 Years

 

   Stock Price

  Enhance retention of key talent and align interests of executives with shareholders

2016 Target Adjustments

In January, as part of the annual merit review, the compensation committee (and board of directors with respect to the CEO) approved a 2.5% increase in base salary for each executive officer effective March 1, 2016. Based on the market assessment for each NEO, which included peer group and regression data, no changes were made to target AIP or LTIP compensation. In April, the compensation committee increased Mr. Von Hoene’s target total direct compensation effective May 2, 2016 to reflect the importance of his role. Base salary was increased by 11.3%, AIP increased to 100% and target total LTIP increased from $2,297,625 to $2,920,000.

The table below lists target 2016 compensation by element as of December 31, 2016.

 

    Cash Compensation     Long-Term Incentives     Target Total
Direct
Compensation
 
  Name   Base     AIP
Target
    Target
Total Cash
    RSUs
33%
    PShares
67%
    Target Total
LTIP
   
  Crane   $ 1,261,000       130   $ 2,900,300     $ 3,332,901     $ 6,766,799     $ 10,099,700     $ 13,000,000  
  Thayer     788,200       95     1,536,990       891,333       1,809,677       2,701,010       4,238,000  
  Von Hoene     865,000       100     1,730,000       963,600       1,956,400       2,920,000       4,650,000  
  Cornew     862,000       100     1,724,000       962,940       1,955,060       2,918,000       4,642,000  
  O’Brien     804,600       95     1,568,970       815,110       1,654,920       2,470,030       4,039,000  

 

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Total Cash Compensation (Base Salary and Annual Incentive Program)

2016 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 compensation 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 compensation 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.

2016 AIP

Overview. We grant performance-based annual incentive awards to compensate our NEOs for achieving the company’s annual financial and operational performance goals. Refer to “Compensation Program is Directly Linked to Value Drivers” above for the rationale for the selection of the performance goals.

 

   
Step 1   Step 2   Step 3   Step 4
       

Set AIP Target

 

 

    Expressed as percentage of base salary, as of 12/31/16

    CEO annual incentive target of 130%

    Other NEO annual incentive targets range from 95% to 100%

 

Determine Performance Factor

 

   Based on 70% adjusted (non-GAAP) operating EPS and 30% operational metrics*

 

Determine Negative TSR Cap*

 

   If one-year absolute TSR is negative, AIP payout will be capped at target

 

Apply Final Multiplier

 

 

   Multiply the target award by the lesser of (i) the performance factor or (ii) the negative TSR cap if applicable

   Award can range from 0% to 200% of target (target of 100%)

* New feature for 2016 added in response to shareholder feedback

In prior years, the AIP process included an additional step to apply an individual performance multiplier. Some shareholders voiced concern about the use of the discretionary IPM, so it was removed from current and future AIP payout determinations.

 

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2016 Performance. The following table describes the performance scales and results for the 2016 goals. The compensation committee and board of directors elected to exercise negative discretion to reduce the amount that would otherwise have been payable under the formulaic performance calculation shown below:

 

Goals   Threshold     Target     Distinguished     2016 Actual     Weighting    

Weighted Payout as

a % of Target

 

Financial

                                               
Adjusted (non-GAAP) Operating Earnings Per Share (EPS)*   $ 2.37     $ 2.54     $ 2.83     $ 2.68       70 %      103.79 % 

Operational

                                               

Outage Duration (CAIDI)

Calculated as the total number of customer interruption minutes divided by the total number of customer interruptions

    97       89       83       91       7.5 %      6.56 % 

Outage Frequency (SAIFI)

Calculated as the total number of customer interruptions divided by the total number of customers served

    0.92       0.82       0.71       0.78       7.5 %      10.23 % 

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

    91.7 %      93.7 %      94.6 %      94.8 %      7.5 %      15.00 % 

Dispatch Match

Measure the responsiveness of a fossil generating unit to the market

    94.5 %      97.2 %      99.0 %      97.2 %      7.5 %      7.50 % 

Formulaic Performance Calculation

 

    143.08 % 
* Refer to Appendix for the rationale for using and a reconciliation of adjusted (non-GAAP) operating earnings per share to GAAP earnings per share.

Performance Considerations. During our outreach several shareholders expressed concern about our AIP outcome for 2015, in which we awarded our NEOs a payout of 129.63% despite absolute TSR being negative. Based on this feedback, the compensation committee considered the company’s combined performance during 2015 and 2016 when determining the 2016 AIP award levels.

Absent the exercise of discretion by the compensation committee and board of directors, the AIP payout would have resulted in a payout of 143.08% of target, which we believe would have been appropriate in a year where we:

 

   

exceeded the midpoint of our upwardly revised external EPS guidance range ($2.65) by 3 cents and the midpoint of our initial external EPS guidance range ($2.55) by 13 cents,

 

   

had an absolute TSR of 32.8%,

 

   

had a relative TSR that outperformed the UTY by 15.4%, and

 

   

were ranked second highest TSR in the UTY.

However, the compensation committee and board of directors considered the impact that this year’s structural changes would have had on the CEO’s payouts if these changes had been in place for 2015. In this scenario, the payout for 2015 would have been capped at 100%. If we deducted the difference from this year’s formulaic AIP outcome it would have resulted in an AIP payout of 114.18% of target for 2016.

 

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The compensation committee and board of directors also considered how the CEO’s total direct compensation (i.e., the sum of base salary, AIP and LTIP) would have been impacted if the changes made to the LTIP had been in place for 2016. Balancing this impact with a number of other factors, including the CEO’s strong performance in 2016 and accompanying strong financial results and shareholder return, the compensation committee and board of directors decided to set the CEO’s AIP for 2016 at 100% of target.

In addition to impacting the AIP payout, the discretion used on the CEO’s award also impacts his pension value. The application of negative discretion resulted in a 35% or $971,581 reduction in the increase in his pension value. As a result, instead of an $2,807,792 increase, his pension value increased by $1,836,211 in 2016.

 

LOGO

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

 

NEO    AIP Target      Formulaic
Performance
Factor
     Formulaic
Award
     Performance
Factor with
Negative
Discretion
     Actual
Award
 

Crane

   $ 1,639,300        143.08    $ 2,345,510        100.00    $ 1,639,300  

Thayer

     748,790        143.08      1,071,368               1,071,368  

Von Hoene

     865,000        143.08      1,237,642               1,237,642  

Cornew

     862,000        143.08      1,233,350               1,233,350  

O’Brien

     764,370        143.08      1,093,660               1,093,660  

2016 Long-Term Incentive Program (LTIP)

The compensation committee approves the annual equity incentive grants at its meeting in January each year. On January 25, 2016, the compensation committee approved the 2016 grants for RSUs and PShares, which are shown in detail in the Grants of Plan-Based Awards table.

Restricted Stock Units. RSUs vest ratably over three years. The compensation 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. The PShare program is a target granted at the beginning of a three-year cycle and based on performance over the cycle. The final payout is subject to a total shareholder return modifier over the three-year period, relative to the performance of the UTY. Refer to “Compensation Program is Directly Linked to Value Drivers” above for the rationale for the selection of the performance goals.

 

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Based on shareholder feedback, we are transitioning from the average of three one-year performance periods to a three-year performance period as shown below:

 

         2014       2015        2016       2017       2018       2019
2014-2016     

Operational Excellence (40%)

Financial Management (60%)

   

 

Operational Excellence (40%) Financial Management (60%)

 

    

 

Earned ROE at Exelon (50%)

FFO/Debt at ExGen (50%)

 

                                                       
    

Average of three years of performance

 

         
2015-2017          Operational Excellence (40%) Financial Management (60%)     

Earned ROE at Exelon (50%)

FFO/Debt at ExGen (50%)

   

 

Utility Net Income (33.3%)

Utility Earned ROE (33.3%)

Exelon FFO/Debt (33.4%)

 

 

       
        

Average of three years of performance

 

     
2016-2018              

 

Earned ROE at Exelon (50%)

FFO/Debt at ExGen (50%)

 

   

Utility Net Income (33.3%)

Utility Earned ROE (33.3%)

Exelon FFO/Debt (33.4%)

   
             

Weighted average of two performance periods

 

   
2017-2019                  

 

Utility Net Income (33.3%)

Utility Earned ROE (33.3%)

Exelon FFO/Debt (33.4%)

 

                  Straight performance, no average

How the PShares Work. Each NEO’s target performance share unit award is applied against the following:

 

               

Step 1

 

   

Step 2

 

   

Step 3

 

   

Step 4

 

   

Step 5

 

               

Establish PShare Target

 

   Set in January of the first year of the performance cycle

   

Determine Performance Multiplier

 

   Performance over the cycle

   Performance can range from 0% to 150% of target (target of 100%)

   

Determine TSR Modifier

 

   Subtract the performance of the UTY from Exelon’s absolute TSR performance over the three-year performance period (e.g., 2016-2018)

   

Calculate Final Multiplier

 

   Multiply the Performance Multiplier by (1 + the TSR Multiplier)

   If one-year Exelon absolute TSR is negative, PShare payout will be capped at target*

   

Apply Final Multiplier

 

   Apply the final multiplier to the number of shares granted

    Award can range from 0% to 200% of target (target of 100%) after application of the TSR modifier

* New feature for 2016 added in response to shareholder feedback

In prior years, the PShare process included an additional step to apply an individual performance multiplier. Some shareholders voiced concern about the use of the discretionary IPM, so it was removed from future PShare payout determinations.

 

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2016-2018 PShare Scorecards

Due to the transition to a three-year performance period, the 2016-2018 PShares granted in January 2016 will be awarded based on the weighted average performance for two scorecards, 2016 and 2017-2018.

2016 PShare Scorecard

The table below reflects the 2016 PShare Scorecard, which uses a “stair-step” approach with no interpolation between data performance levels. Performance was evaluated at the end of 2016. The 2016 scorecard applies to the first year of the 2016-2018 PShare program, the second year of the 2015-2017 PShare program and the final year of the 2014-2016 PShare program.

 

2016 PShare Scorecard  
Metrics   

Metric

Weighting

     Threshold      Target      Distinguished      Final  Score      Actual
Award  vs.
Metric
Weighting
 

Exelon ROE

     50.0      6.60      7.05      7.50      8.08      75.0

ExGen FFO/Debt

     50.0      27.0      30.0      38.01      33.7      50.0
    
Committee-Approved
Performance
 
 
     125.00%  

2017-2018 PShare Scorecard

The table below reflects the 2017-2018 PShare Scorecard. FFO/Debt uses a “stair-step” approach with no interpolation between data performance levels, where Utility Return on Equity and Utility Net Income use interpolation. Performance will be evaluated at the end of 2018 after the completion of the two-year performance period. This is part of the transition to the three-year performance period.

 

Utility Earned ROE    Utility Net Income    Exelon FFO/Debt

   Average utility return on equity weighted on the basis of EPS contribution

 

   Measure of the company’s ability to generate earnings in relation to the amount of equity shareholders have invested in the company

  

   Aggregate utility adjusted (non-GAAP) operating earnings, including Corporate

 

   Internal measure to evaluate the company’s performance and manage operations

  

   Funds from operations to total debt ratio

 

   Leverage ratio that a credit rating agency uses to evaluate a company’s financial risk

 

2017-2018 PShare Scorecard

 

Metrics (1)    Metric
Weighting
     Threshold
50%
     Target
100%
     Distinguished
150%
 

Utility Net Income

     33.3    $ 1,362.00      $ 1,571.00      $ 1,785.00  

Utility Earned Return on Equity (ROE)

     33.3      8.20      9.30      10.40

 

Metric (2)    Metric
Weighting
     Threshold
50%
     75%      Target
100%
     125%      Distinguished
150%
 

Exelon FFO/Debt

     33.4    ³ 16.0    ³ 17.0    ³ 18.0    ³ 22.0    ³ 24.0
(1) 

Interpolation between threshold and target and target and distinguished.

(2) 

Stair-step approach, no interpolation between points.

 

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Payout of 2014-2016 PShare Program

The 2014-2016 PShare payout was determined based on the performance of the following metrics:

Financial Management Metrics (2014, 2015, and 2016 Scorecards)

 

   

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

 

   

ExGen FFO/Debt: Key ratio analyzed by rating agencies in determining the company’s credit rating, which affects our cost of capital.

Operational Excellence Metrics (2014 and 2015 Scorecards)

 

   

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.

 

 

Based on shareholder feedback, in 2016 the compensation committee moved operational metrics from the PShare program to the AIP.

2014-2016 TSR Modifier

 

LOGO  

 

In order to address shareholder concerns in 2016, the following modifications were made to the TSR modifier:

 

   Changed TSR modifier peer group from the competitive integrated companies (Entergy, FirstEnergy, NextEra Energy, and PSEG) to the UTY

 

   Changed to a point-for-point approach, where the UTY’s absolute TSR performance is subtracted from Exelon’s absolute TSR over the three-year period

 

   The modifier is no longer capped (positive or negative)

 

   For the 2014-2016 cycle, the TSR modifier is limited to positive 10% to mitigate any gain that the new modifier might have over the old modifier

 

   If Exelon’s one-year absolute TSR is negative, the overall payout after calculated performance and the TSR modifier would be capped at target, regardless of Exelon’s performance to the UTY

 

The modifier for the 2014-2016 payout is
45.34% – 44.70% = 0.64%

 

 

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2014-2016 PShare Program Payout Determination

The compensation committee approved a payout of 118.43%, based on the average performance of 117.68% for the 2014, 2015 and 2016 scorecards and a TSR modifier of 0.64% based on 2014-2016 TSR performance. The 2014 and 2015 scorecards are presented in the Appendix; the 2016 scorecard is presented above under “2016-2018 PShare Scorecards.”

 

 

Year

 

  

 

Scorecard
Performance

 

  

Average
Performance

 

  

 

TSR Modifier

 

  

 

Overall Award Payout

 

2014

  

105.56%

   117.68%    0.64%   

118.43%

 

117.68% x (100%+0.64%)

2015

  

122.48%

        

2016

  

125.00%

        

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

 

NEO    Target
Shares
             Performance
Factor
             Actual Award  

Crane

     222,700        x        118.43      =        263,744  

Thayer

     62,200        x        118.43      =        73,663  

Von Hoene

     60,800        x        118.43      =        72,006  

Cornew

     66,700        x        118.43      =        78,993  

O’Brien

     56,600        x        118.43      =        67,031  

Settlement of PShares is 50% in shares with the balance in cash. However, participants who have achieved 200% 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.

Section IV: Governance Features of Our Executive Compensation Programs

Stock Ownership and Trading Requirements

To strengthen the alignment of executives’ interests with those of shareholders, officers of the company are required to own certain amounts of Exelon common stock. In 2012, following the merger with Constellation, Exelon reviewed the ownership requirements and updated the guidelines. Executives must meet these guidelines within five years after the later of the implementation of the new guidelines, their employment or promotion to a new position. As of the annual measurement date of September 30, 2016, all NEOs exceeded 200% of their stock ownership guidelines as shown in the table below:

 

NEO  

Required Minimum

Ownership

  

Ownership as of

Sept 30, 2016

Crane

 

6 times base salary

  

256% (of 6x)

Thayer

 

3 times base salary

  

306% (of 3x)

Von Hoene

 

3 times base salary

  

297% (of 3x)

Cornew

 

3 times base salary

  

230% (of 3x)

O’Brien

 

3 times base salary

  

255% (of 3x)

For additional information about Exelon’s stock ownership guidelines, please see Stock Ownership Requirements for Directors and Officers and the Beneficial Ownership Table.

 

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Compensation Discussion & Analysis

 

 

 

Exelon has adopted a policy requiring executive vice presidents and higher officers who wish to sell Exelon common stock to do so only through Rule 10b5-1 stock trading plans, and permitting other officers to enter into such plans. This requirement is designed to enable officers to diversify a portion of their holdings in excess of the applicable stock ownership requirements in an orderly manner as part of their retirement and tax planning activities. The use of Rule 10b5-1 stock trading plans serves to reduce the risk that shareholders will view routine portfolio diversification stock sales by executive officers as a signal of negative expectations with respect to the future value of Exelon’s stock. In addition, the use of Rule 10b5-1 stock trading plans reduces the potential for accusations of trading on the basis of material, non-public information, which could damage the reputation of the company. Exelon’s stock trading policy does not permit short sales, hedging or pledging.

Recoupment (Clawback) Policy

Consistent with the pay-for-performance policy, in May 2007, the board of directors adopted a recoupment policy as part of Exelon’s Corporate Governance Principles. The board of directors may seek recoupment of incentive compensation paid to an executive officer if the board determines, in its sole discretion, that:

 

   

the executive officer engaged in fraud or intentional misconduct;

 

   

as a result of which Exelon was required to materially restate its financial results;

 

   

the executive officer was paid more incentive compensation than would have been payable had the financial results been as restated;

 

   

recoupment is not precluded by applicable law or employment agreements; and

 

   

the board concludes that, under the facts and circumstances, seeking recoupment would be in the best interest of Exelon and its shareholders.

In addition, the AIP includes a provision that the compensation committee and management may curtail awards if there is a “significant event,” which is defined as a single, high-profile event caused by a failure of Exelon that is determined to have been directly or indirectly caused by a human error or poor management attention. Significant events may include a single high-profile outage or another event that may result in negative customer and media impact or a significant adverse governmental or regulatory action. The compensation committee also has the right to apply negative discretion to unvested equity incentive awards if there is a significant event or other occurrence that may have a similar impact on the company.

Compensation Policies and Practices as They Relate to Risk Management

The compensation committee has considered Exelon’s policies and practices of compensating its employees, including non-executive officers, as they relate to risk management practices and risk-taking incentives and believes that such policies and practices are not reasonably likely to have a material adverse effect on Exelon. In this regard, the compensation committee considered the following factors:

 

   

The AIP and LTIP place limits on incentive compensation grants and awards.

 

   

Exelon’s incentive programs are closely linked to the company’s value proposition and shareholder value creation.

 

   

Incentive goals are not driven solely by revenue-generating conduct.

 

   

The AIP key performance indicators are reviewed in a challenge session by a senior management panel to make sure the goals are fair, reasonable, aligned with the overall business plan and balanced between financial and operational excellence.

 

   

The AIP contains features that limit payouts on operating company and business unit key performance indicators, and the compensation committee reserves the right to curtail awards if a business unit under-performs.

 

   

Exelon’s officers are required to own Exelon stock, and PShares are paid out after a three-year performance period.

 

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The LTIP provides that the compensation committee may amend or adjust the performance measures or other terms and conditions of an outstanding award in recognition of unusual or nonrecurring events affecting the company or its financial statements or changes in law or accounting principles.

 

   

The company has a recoupment policy.

Although the foregoing factors address financial risks, the compensation committee also considered that Exelon’s policies and practices include measures to make sure that the cost reduction and other goals designed to address financial performance do not present significant operational risk issues. These measures include the following:

 

   

For employees and all officers with business unit responsibilities, the AIP includes measures based on business unit operating measures, such as safety and reliability.

 

   

Management carefully tracks a variety of safety and reliability metrics on a routine basis to make sure that performance is not adversely affected by such things as cost reduction efforts.

Tax Consequences

Under Section 162(m) of the Code, executive compensation in excess of $1 million paid to a CEO or other person among the three other highest compensated officers (excluding the CFO) is generally not deductible for purposes of corporate federal income taxes. However, qualified performance-based compensation, within the meaning of Section 162(m) and applicable regulations, remains deductible. The compensation committee intends to continue reliance on performance-based compensation programs, consistent with sound executive compensation policy. The compensation committee’s policy has been to seek to cause executive incentive compensation to qualify as “performance-based” in order to preserve its deductibility for federal income tax purposes to the extent possible. However, the compensation committee reserves the right to approve compensation that may not be deductible under federal tax laws to maintain flexibility in designing appropriate compensation programs.

Because it is not “qualified performance-based compensation” within the meaning of Section 162(m), base salary is not eligible for a federal income tax deduction to the extent that it exceeds $1 million. Accordingly, Exelon is unable to deduct that portion of Mr. Crane’s base salary in excess of $1 million. AIP awards and PShares payable to NEOs are intended to be qualified performance-based compensation under Section 162(m), and to be deductible for federal income tax purposes. Restricted stock and RSUs are not deductible by the company for federal income tax purposes under the provisions of Section 162(m) to the extent an NEO’s compensation that is not “qualified performance-based compensation” is in excess of $1 million.

In order to qualify payments under the AIP and performance share program as performance-based for Section 162(m) of the Code, the compensation committee uses a “plan-within-plan” two-step approach to determine the amount of the bonus payment. The first step is to fund the overall bonus pool. The pool is funded if the company meets the pre-established performance metrics. The second step is accomplished when the compensation committee exercises “negative discretion” by making adjustments to the formula award funded by the overall pool. Negative discretion is used to reduce the amount funded by the pool to an amount equal to the target bonus (for AIP) or target equity (for the performance share program) adjusted for final company performance and individual performance.

Under Section 4999 of the Code, there is an excise tax if change-in-control or severance benefits are greater than 2.99 times the five-year average amount of income reported on an individual’s W-2. In April 2009 the compensation committee adopted a policy that no future employment or severance agreements that provide for benefits for NEOs on account of termination will include an excise tax gross-up. In 2016, the named executive officers consented to the removal of the remaining legacy excise tax gross-up provisions for transactions resulting in a change-in-control, with no recompense for said removal.

 

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Executive Compensation Data

 

 

 

Executive Compensation

The tables below summarize the total compensation paid or earned by each of the Named Executive Officers (NEOs) of Exelon for the year ended December 31, 2016, presented in accordance with SEC requirements. Basic information about the elements of compensation as disclosed in the tables is shown below:

Salary:

 

   

Amounts may not match the amounts discussed in Compensation Discussion and Analysis because that discussion concerns salary rates; the amounts reported in the Summary Compensation Table reflect actual salaries paid during the year including the effect of changes in salary rates.

 

   

Changes to base salary generally take effect on March 1. There may also be changes at other times during the year to reflect promotions or changes in responsibilities.

Bonus:

 

   

Reflects discretionary bonuses or amounts paid under the AIP on the basis of the individual performance multiplier or discretionary amounts approved by the compensation and leadership development committee or, in the case of Mr. Crane, approved by the independent directors. The individual performance multiplier was removed in 2016 as part of the compensation program redesign.

Stock Awards:

 

   

Values reported show the grant date fair value calculated in accordance with FASB ASC Topic 718.

 

   

Consist primarily of performance share unit awards and restricted stock unit awards pursuant to the terms of the 2011 Long-Term Incentive Plan.

 

   

Since 2013, award mix is 67% performance share units and 33% restricted stock units; stock options are no longer granted.

Performance Share Units:

 

   

Compensation and leadership development committee redesigned the program in 2016.

 

     

Moved measurement period from annual to 3-year.

 

     

Changed goals to align with Exelon’s value proposition and strategic initiatives.

 

     

Removed individual performance multiplier.

 

     

Strengthened the TSR modifier.

 

     

Capped incentive payouts if Exelon’s TSR is negative over the last 12 months of the performance period.

 

     

Moved operational metrics to AIP.