DEF 14A 1 def14a2020proxy.htm DEF 14A Document

SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. ) 
Filed by the Registrant    x
 
 
 
 
 
 
 
Filed by a Party other than the Registrant    ☐
 
 
 
 
 
 
Check the appropriate box:
 
 
 
 
 
 
 
☐    Preliminary Proxy Statement
 
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x    Definitive Proxy Statement
 
 
 
 
 
 
 
☐    Definitive Additional Materials
 
 
 
 
 
 
 
☐    Soliciting Material Pursuant to Rule 14a-12.
 
American Electric Power Company, Inc.
(Name of Registrant as Specified in its Charter)
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
 
Payment of Filing Fee (Check the appropriate box): 
x
No fee required.
 
 
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
 
 
(1) Title of each class of securities to which transaction applies:
 
 
 
(2) Aggregate number of securities to which transaction applies:
 
 
 
(3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):
 
 
 
(4) Proposed maximum aggregate value of transaction:
 
 
 
(5) Total fee paid:
 
 
Fee paid previously with preliminary materials.
 
 
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
 
 
(1) Amount Previously Paid:
 
 
 
(2) Form, Schedule or Registration Statement No.:
 
 
 
(3) Filing Party:
 
 
 
(4) Date Filed:
 




Notice of 2020 Annual Meeting • Proxy Statement
aeplogoa10.jpg
  
American Electric Power
1 Riverside Plaza
Columbus, OH 43215
  
Nicholas K. Akins
Chairman of the Board and
Chief Executive Officer
March 11, 2020

Dear Shareholders:

This year’s annual meeting of shareholders will be held at The Estate at New Albany, 5216 Forest Drive, New Albany, Ohio on Tuesday, April 21, 2020, at 9:00 a.m. Eastern Standard Time.

Your Board of Directors and I cordially invite you to attend. Registration will begin at 8:00 a.m. Only shareholders who owned shares on the record date, February 24, 2020, are entitled to vote and attend the meeting. To attend the meeting, you will need to present an admission ticket or the notice you received. If your shares are registered in your name, and you received your proxy materials by mail, your admission ticket is attached to your proxy card. If your shares are registered in your name and you received your proxy materials electronically via the Internet, you will need to print an admission ticket after you vote by clicking on the “Options” button. If you hold shares through an account with a bank or broker, you will need to contact them and request a legal proxy, or bring a copy of your statement to the meeting that shows that you owned the shares on the record date. Each ticket will admit a shareholder and one guest.

During the course of the meeting there will be the usual time for discussion of the items on the agenda and for questions regarding AEP’s affairs. Directors and officers will be available to talk individually with shareholders before and after the meeting.

Your vote is very important. Shareholders of record can vote in any one of the following three ways:
 
By Internet, at www.envisionreports.com/AEP

By toll-free telephone at 800-652-8683

By completing and mailing your proxy card if you receive paper copies of the proxy materials

If your shares are held in the name of a bank, broker or other holder of record, you will receive instructions from the holder of record that you must follow in order for you to vote your shares.

If you have any questions about the meeting, please contact Investor Relations, American Electric Power Company, 1 Riverside Plaza, Columbus, Ohio 43215. The telephone number is 800-237-2667.

Sincerely,
nasignature.jpg






NOTICE OF 2020 ANNUAL MEETING
 

American Electric Power Company, Inc.
1 Riverside Plaza
Columbus, Ohio 43215 
 
TIME
  
9:00 a.m. Eastern Time on Tuesday, April 21, 2020
 
 
PLACE
  
The Estate at New Albany
5216 Forest Drive
New Albany, OH
 
 
ITEMS OF BUSINESS
  
(1)
To elect the 13 directors named herein to hold office until the next annual meeting and until their successors are duly elected.
 
  
(2)
To ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for the year 2020.
 
  
(3)
To hold an advisory vote on executive compensation.
 
 
RECORD DATE
  
Only shareholders of record at the close of business on February 24, 2020 are entitled to notice of and to vote at the meeting or any adjournment thereof.
 
 
ANNUAL REPORT
  
Appendix A to this proxy statement has AEP’s audited financial statements, management’s discussion and analysis of results of operations and financial condition and the report of the independent registered public accounting firm.
 
 
PROXY VOTING
  
It is important that your shares be represented and voted at the meeting. Please vote in one of these ways:
 
  
(1)
MARK, SIGN, DATE AND PROMPTLY RETURN your proxy card if you received paper copies of the proxy materials.
 
  
(2)
CALL TOLL-FREE by telephone at 800-652-8683.
 
  
(3)
VISIT THE WEB SITE at www.envisionreports.com/AEP
 
 
 
  
If your shares are held in the name of a bank, broker or other holder of record, please follow the instructions from the holder of record in order to vote your shares.
 
 
 
 
 
 
Any proxy may be revoked at any time before your shares are voted at the meeting.
 
March 11, 2020
  
David M. Feinberg
Secretary












Important notice regarding the availability of proxy materials for the annual meeting of shareholders to be held on April 21, 2020: Our 2020 Proxy Statement and 2019 Annual Report to shareholders are available at www.edocumentview.com/aep




TABLE OF CONTENTS 
Proxy and Voting Information
Item 1: Election of Directors
AEP’s Board of Directors and Committees
Corporate Governance
Director Compensation
Item  2: Proposal to Ratify Appointment of Independent Registered Public Accounting Firm
Audit Committee Report
Item 3: Advisory Vote on Executive Compensation
Compensation Discussion and Analysis
Executive Summary
Overview
2019 Compensation Peer Group
Executive Compensation Program Detail
Annual Incentive Compensation
Long-Term Incentive Compensation
Retirement, Health and Welfare Benefits
Other Compensation Information
Human Resources Committee Report
Executive Compensation
Summary Compensation Table
Grants of Plan-Based Awards for 2019
Outstanding Equity Awards at Fiscal Year-End for 2019
Option Exercises and Stock Vested for 2019
Pension Benefits for 2019
Nonqualified Deferred Compensation for 2019
Potential Payments Upon Termination of Employment or Change in Control
CEO Pay Ratio
Share Ownership of Directors and Executive Officers
Share Ownership of Certain Beneficial Owners
Shareholder Proposals and Nominations
Exhibit A: Reconciliation of GAAP and Non-GAAP Financial Measures



Proxy Statement

March 11, 2020

Proxy and Voting Information

A notice of Internet availability of proxy materials or paper copy of this proxy statement, our 2019 Annual Report and a form of proxy or voting instruction card is first being mailed or made available to shareholders on or about March 11, 2020, in connection with the solicitation of proxies by the Board of Directors of American Electric Power Company, Inc., 1 Riverside Plaza, Columbus, Ohio 43215, for the annual meeting of shareholders to be held on April 21, 2020 in New Albany, Ohio.

We use the terms “AEP,” the “Company,” “we,” “our” and “us” in this proxy statement to refer to American Electric Power Company, Inc. and, where applicable, its subsidiaries. All references to “years,” unless otherwise noted, refer to our fiscal year, which ends on December 31.

Who Can Vote.    Only the holders of shares of AEP common stock at the close of business on the record date, February 24, 2020, are entitled to vote at the meeting. Each such holder has one vote for each share held on all matters to come before the meeting. On that date, there were 494,832,744 shares of AEP common stock, $6.50 par value, outstanding.

How You Can Vote.    Shareholders of record can give proxies by (i) mailing their signed proxy cards; (ii) calling a toll-free telephone number; or (iii) using the Internet. The telephone and Internet voting procedures are designed to authenticate shareholders’ identities, to allow shareholders to give their voting instructions and to confirm that shareholders’ instructions have been properly recorded. Instructions for shareholders of record who wish to use the telephone or Internet voting procedures are set forth on the proxy card or the website shown on the notice of Internet availability of proxy materials.

If your shares are held in the name of a bank, broker or other holder of record, you will receive instructions from the holder of record that you must follow in order for you to vote your shares.

When proxies are signed and returned, the shares represented thereby will be voted by the persons named on the proxy card or by their substitutes in accordance with shareholders’ directions. If a proxy card is signed and returned without choices marked, it will be voted for the nominees for directors listed on the card and as recommended by the Board of Directors with respect to other matters. The proxies of shareholders who are participants in the Dividend Reinvestment and Stock Purchase Plan include both the shares registered in their names and the whole shares held in their plan accounts on February 24, 2020.

Revocation of Proxies.    A shareholder giving a proxy may revoke it at any time before it is voted at the meeting by voting again after the date of the proxy being revoked or by attending the meeting and voting in person.

How Votes are Counted.    The presence of the holders of a majority of the outstanding shares of common stock entitled to vote at the Annual Meeting, present in person or represented by proxy, is necessary to constitute a quorum. Abstentions and “broker non-votes” are counted as present and entitled to vote for purposes of determining a quorum. A “broker non-vote” occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner.

Under New York Stock Exchange (NYSE) rules, the proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm is considered a “discretionary” item. This means that brokerage firms may vote in their discretion on this matter on behalf of their clients who have not furnished voting instructions. The proposals to elect directors and the advisory vote on executive compensation are “non-discretionary” matters. That means that brokerage firms may not use their discretion to vote on such matters without express voting instructions from their clients.

1


The Company has implemented a majority voting standard for the election of directors in uncontested elections. The election of directors at the Annual Meeting is an uncontested election, so for a nominee to be elected to the Board, the number of votes cast “for” the nominee’s election must exceed the number of votes cast “against” his or her election. If a nominee does not receive a greater number of votes “for” his or her election than “against” such election, he or she will be required to tender his or her resignation for the Board’s consideration of whether to accept such resignation in accordance with our Bylaws.

The following table summarizes the Board’s voting recommendations for each proposal, the vote required for each proposal to pass, and the effect of abstentions and uninstructed shares on each proposal. 
Item
  
Board
Recommendation
 
Voting Standard
 
Abstentions
 
Broker
Non-Votes
Item 1 – Election of Directors
  
ü
  
FOR
 
Majority of votes cast for each Director
 
No effect
 
No effect
Item 2 – Ratification of the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for 2020(1)
  
ü
  
FOR
 
Majority of shares voted
 
No effect
 
Discretionary voting by broker permitted
Item 3 – Advisory vote to approve executive compensation (Say on Pay)(1)
  
ü
  
FOR
 
Majority of shares voted
 
No effect
 
No effect
 

(1)
As advisory votes, the proposals to ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm for 2020 and to approve executive compensation are not binding upon the Company. However, the Board, the Audit Committee and the Human Resources Committee value the opinions expressed by shareholders and will consider the outcome of these votes when making future decisions.

Your Vote is Confidential.    It is AEP’s policy that shareholders be provided privacy in voting. All proxies, voting instructions and ballots, which identify shareholders, are held on a confidential basis, except as may be necessary to meet any applicable legal requirements. We direct proxies to an independent third-party tabulator who receives, inspects, and tabulates them. Voted proxies and ballots are not seen by nor reported to AEP except (i) in aggregate number or to determine if (rather than how) a shareholder has voted, (ii) in cases where shareholders write comments on their proxy cards or (iii) in a contested proxy solicitation.

Multiple Copies of Annual Report, Proxy Statement or Notice of Internet Availability of Proxy Materials to Shareholders.    Securities and Exchange Commission (SEC) rules provide that more than one annual report, proxy statement or notice of Internet availability of proxy materials need not be sent to the same address. This practice is commonly called “householding” and is intended to eliminate duplicate mailings of shareholder documents. Mailing of your annual report, proxy statement or notice of Internet availability of proxy materials is being householded indefinitely unless you instruct us otherwise. We will deliver promptly upon written or oral request a separate copy of the annual report, proxy statement or notice of Internet availability of proxy materials to a shareholder at a shared address. To receive a separate copy of the annual report, proxy statement or notice of Internet availability of proxy materials, write to AEP, attention: Investor Relations, at 1 Riverside Plaza, Columbus, OH 43215 or call 1-800-237-2667. If more than one annual report, proxy statement or notice of Internet availability of proxy materials is being sent to your address, at your request, mailing of the duplicate copy can be discontinued by contacting our transfer agent, Computershare Trust Company, N.A. (Computershare), at 800-328-6955 or writing to them at P.O Box 505005, Louisville, KY 40233-5005. If you wish to resume receiving separate annual reports, proxy statements or notice of Internet availability of proxy materials at the same address in the future, you may call Computershare at 800-328-6955 or write to them at P.O Box 505005, Louisville, KY 40233-5005. The change will be effective 30 days after receipt.


2


Additional Information.    Our website address is www.aep.com. We make available free of charge on the Investor Relations section of our website (www.aep.com/investors) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (Exchange Act). We also make available through our website other reports filed with or furnished to the SEC under the Exchange Act, including our proxy statements and reports filed by officers and directors under Section 16(a) of the Exchange Act. You may request any of these materials and information in print, free of charge, by contacting Investor Relations at: AEP, attention: Investor Relations, 1 Riverside Plaza, Columbus, OH 43215. We do not intend for information contained on our website to be part of this proxy statement. In addition, this proxy statement and the Annual Report for the fiscal year ended December 31, 2019 are available at www.edocumentview.com/aep.

Item 1. Election of Directors

Currently, AEP's Board of Directors consists of 14 members. Mr. Lionel L. Nowell III will end his service as a member of the Board effective as of the date of the annual meeting. Accordingly, thirteen directors are to be elected to hold office until the next annual meeting and until their successors have been elected. AEP’s Bylaws provide that the number of directors of AEP shall be such number, not less than 9 nor more than 17, as shall be determined from time to time by resolution of the Board.

The 13 nominees were nominated by the Board on the recommendation of the Committee on Directors and Corporate Governance (the Corporate Governance Committee) following an individual evaluation of each nominee’s qualifications and 2019 performance. The proxies named on the proxy card or their substitutes will vote for the Board’s nominees, unless instructed otherwise. All of the Board’s nominees were elected by the shareholders at the 2019 annual meeting, except for Mr. Garcia, who was appointed as a director in September 2019. Mr. Garcia was recommended to the Board by a director search firm, which was paid a fee to identify and evaluate Board members. Some members of the Corporate Governance Committee interviewed Mr. Garcia, and the full Corporate Governance Committee reviewed his qualifications and recommended him to the full Board. We do not expect any of the nominees will be unable to stand for election or be unable to serve if elected. If a vacancy in the slate of nominees occurs before the meeting, the proxies may be voted for another person nominated by the Board or the number of directors may be reduced accordingly.

The Principles of Corporate Governance of the Board of Directors provides that directors will not generally be re-nominated for re-election at any annual shareholders meeting following their 72nd birthday. Mr. Crosby and Mr. Notebaert are nominees for re-election despite having reached their 72nd birthdays in 2019 because they are both long term members of the Human Resources Committee that is working on talent development and succession planning, and the Board concluded that it is desirable to have their continued participation in those discussions.

The Board of Directors unanimously recommends a vote FOR each of the director nominees below.

Biographical Information.    The following brief biographies of the nominees include their principal occupations, ages on the date of this proxy statement, accounts of their business experience and names of certain companies of which they are directors. Data with respect to the number of shares of AEP’s common stock and stock-based units beneficially owned by each of them appears on page 67.


3


Nominees For Director 
nabioa01.jpg
  
Nicholas K. Akins 

New Albany, Ohio

Age 59

Director since 2011
    
Professional Highlights
Elected chief executive officer of AEP in November 2011; elected Chairman of the Board in January 2014 and Chairman and chief executive officer of all of AEP’s major subsidiaries in November 2011. President of AEP from January 2011 to October 2011 and executive vice president of AEP from 2006 to 2011.
 
Mr. Akins’ qualifications to serve on the Board include his extensive senior executive experience in the utility industry and his deep knowledge of the Company as our chief executive officer. Mr. Akins brings to the Board experience in all facets of operational and compliance related activities in the utility industry, which enables him to effectively identify strategic priorities and execute strategy. Mr. Akins’ service on the board of another public company, including service as chair of its nominating and corporate governance committee, provides Mr. Akins additional governance insights that are valuable in his role as our Board Chairman.
 
Current Public Company Boards
Fifth Third Bancorp
 
 
 
 
 
dabioa01.jpg
  
David J. Anderson 

Greenwich, Connecticut 

Age 70 

Director since 2011
    
Professional Highlights
Former Chief Operating Officer and Chief Financial Officer of Nielsen Holdings plc, a leading global information, data and measurement company (September 2018 - December 2019). Former executive vice president and chief financial officer of Alexion Pharmaceuticals, a leading biotechnology company, from December 2016 to August 2017. Previously, chief financial officer from 2003 until his retirement in 2014 of Honeywell International, a diversified technology and manufacturing company.
 
Mr. Anderson’s qualifications to serve on the Board include his corporate finance expertise as the chief financial officer of a Fortune 100 company and his experience as a public company director. While at Honeywell, Mr. Anderson was responsible for the company’s corporate finance activities including tax, accounting, treasury, audit, investments, financial planning, acquisitions and real estate. Through his finance leadership positions, Mr. Anderson brings to the Board relevant experience in the areas of management and executive leadership and experience in developing and executing strategy. His extensive finance expertise provides valuable insight in the areas of financial reporting and accounting and controls.
 
Previous Public Company Boards
Cardinal Health, Inc. (2014-2018)
Fifth Street Asset Management, Inc. (2014-2015)
BE Aerospace Inc. (2014 – 2017)


4


Nominees For Director — continued
jbbioa01.jpg
  
J. Barnie Beasley, Jr. 

Sylvania, Georgia 

Age 68 

Director since 2014
    
Professional Highlights
Mr. Beasley served as an independent nuclear safety and operations expert to the board of directors of the Tennessee Valley Authority, a large electric utility in the southeastern United States, from 2011 to 2014. Retired chairman, president and chief executive officer of Southern Nuclear Operating Company, the nuclear operating company subsidiary of an electric utility (2004-2008). Advisor to EnergySolutions, Inc., a nuclear services company (2014-2019).
 
Mr. Beasley’s qualifications to serve on the Board include his nuclear expertise as the chief executive officer of the nuclear operating company subsidiary of Southern Company and his experience as a public company director. Mr. Beasley brings to the Board decades of experience in the nuclear and utility industries, including high level executive management and business oversight experience. He has substantial experience working with federal government administrators, which provides valuable insights in governmental and regulatory issues. His extensive experience in operations provides insights in risk management, safety, personnel development and environmental matters. His experience in the nuclear industry also provides him substantial experience in physical security and cybersecurity.
 
Current Public Company Boards
GSE Systems, Inc.
 
 
 
 
 
rcbioa01.jpg
  
Ralph D. Crosby, Jr.

McLean, Virginia

Age 72

Director since 2006
    
Professional Highlights
Retired chairman of EADS North America, Inc., an aerospace company (2002-2011). Retired chief executive officer of EADS North America, Inc. (2002-2009). Previous senior operating role at Northrop Grumman Corporation.
 
Mr. Crosby’s qualifications to serve on the Board include his extensive senior executive experience in the aerospace industry and his experience as a public company director. Mr. Crosby brings to the Board significant senior management and operations experience through his roles as chief executive officer in the highly regulated aerospace and defense industries. He has a deep understanding of the complexities of operating a global business, including strategic planning, regulatory and legislative and public policy matters. Through his career in the aerospace industry, he has experience in technology and innovation.
 
Current Public Company Boards
Airbus Group, SE
 
Previous Public Company Boards
Serco Group PLC (2012-2017)
 

5


Nominees For Director — continued 
garciaa04.jpg
 
Art A. Garcia

Southwest Ranches, Florida

Age 58

Director since 2019
 
Professional Highlights
Retired chief financial officer of Ryder System, Inc., a provider of fleet management, supply chain management and logistic solutions (2010-2019). Senior Vice President and Controller of Ryder (2005-2009). Mr. Garcia is a certified public accountant who began his career with Coopers & Lybrand before joining Ryder.

Mr. Garcia’s qualifications to serve on the Board include his corporate finance and accounting expertise as the chief financial officer and his experience as a public company director. While at Ryder, Mr. Garcia held several positions of increasing responsibility, including group director accounting services, as well as senior vice president and corporate controller before his appointment as chief financial officer. Mr. Garcia also oversaw corporate strategy and development, and led the reengineering of the company’s finance function to drive increased efficiencies. His extensive finance expertise provides valuable insight in the areas of financial reporting and accounting and controls. He also brings to the Board relevant experience in risk management, regulated industries, safety and strategy development.

Current Public Company Boards
ABM Industries Incorporated
Elanco Animal Health Incorporated


 
 
 
 
 
lgbioa01.jpg
  
Linda A. Goodspeed 

Marco Island, Florida

Age 58 

Director since 2005
    
Professional Highlights
Retired managing partner of Wealthstrategies Financial Advisors, LLC (2008-2017). Retired senior vice president and chief information officer of The ServiceMaster Company, a residential and commercial service company (2011-2013). From 2008 to 2011, vice president of information systems of Nissan North America, Inc., an automobile manufacturer.
 
Ms. Goodspeed’s qualifications to serve on the Board include her information technology expertise as a chief information officer and her experience as a public company director. Ms. Goodspeed has experience in key strategic and operational roles with several large global companies as chief information officer. Ms. Goodspeed brings to the Board a wealth of experience leading complex IT organizations and brings innovation experience. She has completed the National Association of Corporate Directors certification in cybersecurity oversight. She has experience as a senior leader of businesses developing electric vehicles, and past experience developing and marketing new customer facing products and technology in the appliance and automotive industries. 

Current Public Company Boards
AutoZone, Inc.
Darling Ingredients Inc.
 
Previous Public Company Boards
Global Power Equipment Group (2016-2018)
Columbus McKinnon Corp (2004-2017)

6


Nominees For Director — continued 
thbioa01.jpg
  
Thomas E. Hoaglin

Columbus, Ohio

Age 70

Director since 2008
    
Professional Highlights
Retired chairman and chief executive officer of Huntington Bancshares Incorporated, a bank holding company (2001-2009). Member, Nominating and Corporate Governance Committee Chair Advisory Council of the National Association of Corporate Directors.
 
Mr. Hoaglin’s qualifications to serve on the Board include his extensive senior executive experience in the banking industry and his experience as a public company director. With his experience as chairman and chief executive officer of Huntington Bancshares, Mr. Hoaglin brings to the Board extensive experience in consumer and commercial marketing, and experience as leader of a company focused on meeting customer expectations. His experience as a banker provides him with strong credit and risk management experience and knowledge of credit and capital markets. He also has extensive corporate governance expertise from his service on the Nominating and Corporate Governance Committee Chair Advisory Council of the National Association of Corporate Directors.
 
Current Public Company Boards
The Gorman-Rupp Company
 
 
 
 
 
slbioa01.jpg
 
Sandra Beach Lin

Flower Mound, Texas

Age 62

Director since 2012
    
Professional Highlights
Retired chief executive officer of Calisolar, Inc., a solar silicon company (2010-2011). Executive vice president, then corporate executive vice president of Celanese Corporation, a global hybrid chemical company (2007-2010). Previous senior operating roles at Avery Dennison, Alcoa and Honeywell. Member, Nominating and Corporate Governance Committee Chair Advisory Council of the National Association of Corporate Directors.
 
Ms. Lin’s qualifications to serve on the Board include her extensive senior executive experience managing large global businesses in multiple industries and her experience as a public company director. Ms. Lin brings to the Board extensive experience as a senior executive in operational roles at numerous industrial manufacturing sites, which gave her significant experience in employee safety and manufacturing. In her senior leadership positions, she created and executed strategies in diverse industries, including automotive, packaging, specialty chemicals and solar energy. She also has wide global experience in sales and marketing. In her executive leadership as the chief executive officer of a materials supplier to the solar industry, she helped bring to market new, innovative technology to reduce costs to solar cell manufacturers. Her service as a board leadership fellow for the National Association of Corporate Directors has given her additional expertise related to corporate governance.
 
Current Public Company Boards
Trinseo S. A.
PolyOne Corporation
Previous Public Company Boards
WESCO International (2002-2019)
 

7


Nominees For Director — continued 
mmbioa01.jpg
 
Margaret M. McCarthy

North Chatham, Massachusetts

Age 66

Director since 2019
 
Professional Highlights
Retired Executive Vice President – Technology Integration of CVS Health Corporation (December 2018 to June 2019). Executive vice president of operations and technology for Aetna, Inc., a diversified health care benefits company (2010 – 2018). Prior to joining Aetna in 2003, she served in information technology-related roles at CIGNA Healthcare and Catholic Health Initiatives.
 
Ms. McCarthy’s qualifications to serve on the Board include her extensive senior executive experience in the healthcare industry and her experience as public company director. Ms. McCarthy was responsible for innovation, technology, data security, procurement, real estate and service operations at Aetna. Ms. McCarthy also worked in technology consulting at Accenture and was a consulting partner at Ernst & Young. She was previously a director of a data center and cloud security company. She has extensive experience in the regulated insurance industry, business strategy, customer experience and cyber and physical security.
 
Current Public Company Boards
Brighthouse Financial, Inc.
First American Financial Corporation
Marriott International Inc.
 
 
 
 
 
rnbioa02.jpg
 
Richard C. Notebaert 
Naples, Florida 
Age 72 
Director since 2011
    
Professional Highlights
Retired chief executive officer of Qwest Communications International Inc., a telecommunications systems company (2002-2007). Previous chief executive officer of Ameritech Corporation and Tellabs, Inc.
 
Mr. Notebaert’s qualifications to serve on the Board include his extensive senior executive experience in the regulated telecommunications industry and his experience as a public company director. Mr. Notebaert spent more than 11 years as Chairman and Chief Executive Officer of large publicly traded telecommunication companies. Mr. Notebaert brings to the Board relevant experience in the areas of operations, markets, risk management, mergers and acquisitions, management, finance, executive leadership, strategic planning, human resources and labor relations and corporate governance. Mr. Notebaert also brings to the Board valuable perspective and insights from his service as a director of Aon Corporation, an insurance brokerage and services company, including experience in risk management and executive compensation from chairing its Compensation Committee. Through his executive experience in the regulated telecommunications industry, he has experience managing regulatory and public policy matters.
 
Current Public Company Boards
Aon Corporation
 

Previous Public Company Boards
Cardinal Health, Inc. (1999-2015)
 

8


Nominees For Director — continued 
srbioa01.jpg
  
Stephen S. Rasmussen 

West Des Moines, Iowa 

Age 67

Director since 2012
    
Professional Highlights
Retired Chief executive officer of Nationwide Mutual Insurance Company (Nationwide) (2009 - September 2019). President and chief operating officer of Nationwide (2003 – 2009).
 
Mr. Rasmussen’s qualifications to serve on the Board include his extensive senior executive experience in the insurance industry. As the former chief executive officer of Nationwide Mutual Insurance Company, a Fortune 100 large diversified insurance and financial services organization, Mr. Rasmussen brings to the Board extensive experience in risk management and strategic planning in the highly regulated insurance industry. He also brings to the Board relevant experience in the areas of marketing, management, finance, executive leadership, and the customer experience.
 
 
 
 
 
orbioa01.jpg
  
Oliver G. Richard, III 

Lake Charles, Louisiana

Age 67

Director since 2013
    
Professional Highlights
Owner and president of Empire of the Seed LLC, a company that preserves older buildings for reuse since 2005. Mr. Richard served as chairman, president and chief executive officer of Columbia Energy Group (Columbia Energy) from April 1995 until Columbia Energy was acquired by NiSource Inc. in November 2000. Mr. Richard served as a commissioner of the Federal Energy Regulatory Commission from 1982 to 1985.
 
Mr. Richard’s qualifications to serve on the Board include his extensive knowledge of the utility industry as a former commissioner of the Federal Energy Regulatory Commission, his senior executive experience at utility companies and his experience as a public company director. Mr. Richard brings to the board experience as a regulator in our industry, along with his other legal and public policy experience, which gives him unique and valuable perspective to our industry. He also has a breadth of experience in the energy sector, through his position as chairman, president and chief executive officer of a Fortune 500 company, with relevant experience in the areas of operations, management, executive leadership, strategic planning, human resources and corporate governance. He also has experience as a consultant in the energy and management industries.
 
Current Public Company Boards
Cheniere Energy Partners, GP, LLC

Previous Public Company Boards
Buckeye Partners, L.P. (2009 - 2019)

9


Nominees For Director — continued 
stbioa01.jpg
  
Sara Martinez Tucker 

Dallas, Texas 

Age 64 

Director since 2009
    
Professional Highlights
Former Chief Executive Officer of the National Math and Science Initiative from February 2013 to March 2015. From 2009 to February 2013, independent consultant. Former Under Secretary of Education in the U.S. Department of Education (2006-2008). Chief executive officer and president of the Hispanic Scholarship Fund from 1997 to 2006. Retired executive of AT&T.
 
Ms. Tucker’s qualifications to serve on the Board include her experience in governmental affairs as the Under Secretary of Education, her experience in human resources and customer service operations in the telecommunications industry and her experience as a public company director. Her leadership positions in government and education provide perspective on social responsibility and diversity. Ms. Tucker brings to the Board relevant expertise from her various leadership positions in government and education and her business experience in the highly regulated telecommunications industry at AT&T in regulatory affairs, government and public policy matters. As an executive at AT&T, she had experience in consumer and retail businesses and human resources.
 
Current Public Company Boards
Service Corporation International
Sprint Corporation

Previous Public Company Boards
Xerox Corporation (2011 - 2019)


10


AEP’s Board of Directors and Committees

Under New York law, AEP is managed under the direction of the Board of Directors. The Board establishes broad corporate policies and authorizes various types of transactions, but it is not involved in day-to-day operational details. During 2019, the Board held six regular meetings and three telephonic meetings. AEP encourages but does not require members of the Board to attend the annual shareholders’ meeting. Last year, all but two directors attended the annual meeting.

Two members of our Corporate Governance Committee, Ms. Lin and Mr. Hoaglin, are members of The National Association of Corporate Directors’ (NACD) Nominating and Governance Chair Advisory Council, a group that seeks to identify ways that board nominating and governance committees can help build investor confidence in publicly traded companies. Ms. Lin is also an NACD Board Leadership Fellow.

Board Meetings and Committees.    The Board expects that its members will rigorously prepare for, attend and participate in all Board and applicable committee meetings. Directors are also expected to become familiar with AEP’s management team and operations as a basis for discharging their oversight responsibilities.

The Board has seven standing committees. The table below shows the number of meetings conducted in 2019 by each committee and the directors who currently serve on these committees. Each director attended 91 percent or more of the meetings of the Board and Board committees on which he or she served during 2019, and the average director attendance in 2019 was 97 percent. 
DIRECTOR
BOARD COMMITTEES
Audit
Directors
and
Corporate
Governance
Policy
Executive
Finance
Human
Resources
Nuclear
Oversight
Mr. Akins
 
 
X
X (Chair)
 
 
 
Mr. Anderson
X (Chair)
 
X
X
X
 
 
Mr. Beasley
 
 
X
 
 
X
X (Chair)
Mr. Crosby
 
 
X
X
 
X (Chair)
X
Mr. Garcia
X
X
X
 
X (Chair)
 
 
Ms. Goodspeed
X
 
X
 
 
 
X
Mr. Hoaglin
X
X (Chair)
X
X
 
 
 
Ms. Lin
X
X
X
 
 
 
 
Ms. McCarthy
X
 
X
 
 
 
X
Mr. Notebaert
 
X
X
 
X
X
 
Mr. Nowell
 
X
X
 
X
 
 
Mr. Rasmussen
 
X
X
 
X
X
 
Mr. Richard
 
 
X (Chair)
 
 
X
X
Ms. Tucker
 
X
X
 
 
X
 
2019 Meetings
7
5
2
0
5
7
4

The functions of the committees are described below. The committee charters provide a more detailed discussion of the purposes, duties and responsibilities of the committees. A copy of each of the committee charters can be found on our website at www.aep.com/investors/governance.


11


The Committee on Directors and Corporate Governance (the Corporate Governance Committee) is responsible for:
 
1.
Recommending the size of the Board within the limits imposed by the Bylaws.

2.
Recommending selection criteria for nominees for election or appointment to the Board.

3.
Conducting independent searches for qualified nominees and screening the qualifications of candidates recommended by others.

4.
Recommending to the Board nominees for appointment to fill vacancies on the Board as they occur and the slate of nominees for election at the annual meeting.

5.
Reviewing and making recommendations to the Board with respect to compensation of directors and corporate governance.

6.
Recommending members to serve on committees and chairs of the committees of the Board.

7.
Reviewing the independence and possible conflicts of interest of directors and executive officers.

8.
Overseeing the AEP Corporate Compliance Program.

9.
Overseeing the annual evaluation of the Board of Directors.

10.
Overseeing the annual evaluation of individual directors.

11.
Monitoring AEP’s Related Person Transaction Approval Policy.

12.
Overseeing AEP’s Corporate Accountability Report which includes information on sustainability, environmental, social and governance matters and material concerning political contributions.

Consistent with the rules of the NYSE and our Director Independence Standards, all members of the Corporate Governance Committee are independent.

The Human Resources Committee (the HR Committee) annually reviews and approves AEP’s executive compensation in the context of the performance of management and the Company. None of the members of the HR Committee is or has been an officer or employee of the Company or any of its subsidiaries. In addition, each of the current members of the HR Committee has been determined to be independent by the Board in accordance with NYSE rules and our Director Independence Standards. In addition, each member is a “non-employee director” as defined in SEC Rule 16b-3 under the Exchange Act.

The HR Committee also reviews the Compensation, Discussion and Analysis section of this proxy statement, and recommends that it be included in the Company’s Annual Report on Form 10-K.

For a more complete description of the HR Committee’s responsibilities, see the Human Resources Committee Report on page 46.

The Audit Committee is responsible for, among other things, the appointment of the independent registered public accounting firm (independent auditor) for the Company; reviewing with the independent auditor the plan and scope of the audit and approving audit fees; monitoring the adequacy of financial reporting and internal control over financial reporting and meeting periodically with the internal auditor and the independent auditor.


12


Consistent with the rules of the NYSE and our Director Independence Standards, all members of the Audit Committee are independent. The Board has also determined that all members of the Audit Committee, Messrs. Anderson, Garcia and Hoaglin and Mses. Goodspeed, Lin and McCarthy, are “audit committee financial experts” as defined by SEC rules.

The Finance Committee monitors and reports to the Board with respect to the capital requirements and financing plans and programs of AEP and its subsidiaries, including reviewing and making recommendations concerning their short and long-term financing plans and programs. The Finance Committee also provides recommendations to the Board on dividend policy, including the declaration and payment of dividends. The Finance Committee also reviews and approves the treasury policies of the Company.

The Nuclear Oversight Committee is responsible for overseeing and reporting to the Board with respect to the management and operation of AEP’s nuclear generation.
 
The Policy Committee is responsible for examining AEP’s policies on major public issues affecting the AEP System, including environmental, technology, industry change and other matters.

The Executive Committee is empowered to exercise all the authority of the Board, subject to certain limitations prescribed in the Bylaws, during the intervals between meetings of the Board.

Corporate Governance

AEP maintains a corporate governance page on its website that includes key information about corporate governance initiatives, including AEP’s Principles of Corporate Governance (Principles), AEP’s Principles of Business Conduct, Code of Business Conduct and Ethics for Members of the Board of Directors, Director Independence Standards, and charters for the Audit Committee, the Corporate Governance Committee and the HR Committee. The corporate governance page can be found at www.aep.com/investors/governance. Printed copies of all of these materials also are available without charge upon written request to Investor Relations at: AEP, attention: Investor Relations, 1 Riverside Plaza, Columbus, Ohio 43215.

We are committed to strong governance practices that protect the long-term interests of our shareholders. Our governance framework includes the following key governance best practices:
Governance Highlights
12 out of 13 director nominees are independent
Annual shareholder engagement on governance issues, including ESG matters and strategy with Lead Director participation
Strong Independent Lead Director with clearly delineated duties
Executive sessions of non-management directors at every Board meeting
Annual election of all directors
Robust stock ownership guidelines for executive officers and non-employee directors
Majority voting in the election of directors with director resignation policy (plurality standard to apply in contested elections)
Risk oversight by full Board and Committees
Annual Board and Committee self-evaluations, including individual Board member evaluations
Board and Committees may hire outside advisors independently of management
Audit Committee, HR Committee, and Corporate Governance Committee composed entirely of independent directors
Limit on the number of public company directorships Board members may hold (4)
Diverse Board in terms of gender, ethnicity and specific skills and qualifications
Proxy access for shareholders


13


Directors

Qualifications

The Principles are available on our website at www.aep.com/investors/governance. With respect to director qualifications and attributes, the Principles provide that, in nominating a slate of Directors, it is the Board’s objective, with the assistance of the Corporate Governance Committee, to select individuals with skills and experience to effectively oversee management’s operation of the Company’s business.

In addition, the Principles provide that directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the long-term interests of the shareholders, and that directors must also have an inquisitive and objective perspective, practical wisdom and mature judgment.
 
These requirements are expanded in the Criteria for Evaluating Directors (Criteria). The Criteria are available on the Company’s website at www.aep.com/investors/governance.

As indicated in the Principles and the Criteria, directors should have personal attributes such as high integrity, intelligence, wisdom and judgment. In addition, they should have skills and experience that mesh effectively with the skills and experience of other Board members, so that the talents of all members blend together to be as effective as possible in overseeing a large energy business.

Diversity

The Criteria also includes the Company’s statement regarding how the Board considers diversity in identifying nominees for our Board. The Criteria provide:

Two central objectives in selecting board members and continued board service are that the skills, experiences and perspectives of the Board as a whole should be broad and diverse, and that the talents of all members of the Board should blend together to be as effective as possible. Diversity in gender, race, age, tenure of board service, geography and background of directors, consistent with the Board’s requirements for knowledge and experience, are desirable in the mix of the Board.

Our Corporate Governance Committee considers these criteria each year as it determines the slate of director nominees to recommend to the Board for election at our annual meeting. It also considers these criteria each time a new director is recommended for election or appointment to the Board. The Corporate Governance Committee is committed to including in each director search qualified candidates who reflect diverse backgrounds, including diversity of gender and race. The Board believes that its implementation of this policy is effective in maintaining the diversity of the members of the Board.
 

14


Understanding the importance of Board composition and refreshment for effective oversight, the Corporate Governance Committee strives to maintain an appropriate balance of tenure, diversity, skills and experience on the Board. Below are highlights of the composition of our Director nominees:
Of Our 13 Nominees
38%
are
Diverse
2
are Hispanic
4
are Women
chart-357e40b068f4f9720cd.jpg

Selection of Director Candidates

The Corporate Governance Committee is responsible for recruiting new directors and identifies, evaluates and recommends director candidates to the Board. The Corporate Governance Committee regularly assesses the appropriate size and composition of the Board, the needs of the Board and the respective committees of the Board and the qualifications of candidates in light of these needs. Candidates may come to the attention of the Corporate Governance Committee through shareholders, management, current members of the Board or search firms. Shareholders who wish to recommend director candidates to the Corporate Governance Committee may do so by following the procedures described in Shareholder Proposals and Nominations.

Linking Business Strategy with Key Skills Represented on the Board
 
AEP’s long-term strategy is to be a fully regulated, premier energy company focused on investment in infrastructure and energy solutions that customers want and need. We are focused on building a smarter energy infrastructure and delivering new technologies and custom energy solutions to our customers. And we continue to grow our renewable generation portfolio as part of our strategy to diversify generation resources to provide clean energy options to customers. We operate and maintain the nation’s largest electricity transmission system and more than 221,000 miles of distribution lines to efficiently deliver safe, reliable power to nearly 5.5 million regulated customers in 11 states. AEP also is one of the nation’s largest electricity producers with approximately 31,000 megawatts of diverse generating capacity, including more than 5,200 megawatts of renewable energy.

The Corporate Governance Committee and the Board regularly consider the Company’s strategy and the particular skills, experiences and other qualifications that should be represented on the Board as a whole, to effectively oversee the Company’s strategic direction. As part of the Board’s succession planning, the Board reviews the skills currently represented on the Board but, more importantly, focuses on the skills needed in the future. In that regard, the Board sought a new director with digital/technology, marketing and IT skills, and recruited Ms. McCarthy to join the Board in April 2019. In addition, the Board sought a new director with a finance and accounting background to replace directors who were expected to retire with that expertise and recruited Mr. Garcia to join the Board in September 2019.

15


We believe that our director nominees, taken together as a group, possess the skills and expertise appropriate for maintaining an effective Board aligned with the Company’s long term strategy. Listed below are summaries of specific qualifications that the Corporate Governance Committee and the Board believe should be represented on the Board.
Senior Executive Leadership and Business Strategy
 
Regulated Industry Experience
 
Directors who hold or have held significant senior leadership experience as a CEO or senior executive provide the Company with unique insights. They generally possess extraordinary leadership skills as well as the ability to recognize and develop leadership skills in others. They have a practical understanding of organizations, strategy and risk management, and know how to drive growth.

 
 
Our business is heavily regulated. AEP engages in a complex business with significant public policy and public safety implications. A portion of our business deals with nuclear regulations and operations. The development and execution of our strategy depends on directors who have experience with public policy issues, energy markets, technology, renewable energy, and electric transmission and distribution infrastructure.

Industrial Operations Experience
 
Safety and Talent
 
AEP invests billions of dollars each year on maintenance and growth investments to improve reliability of its electric transmission and distribution systems, and to enhance customer service. AEP also invests substantial sums in our generation portfolio. Having directors with experience with these complex processes is important because it allows the Board to provide AEP with appropriate decision-making and oversight related to complex capital projects.
 
 
With safety as an AEP core value, maintaining the safety of AEP employees and the public is imperative. Therefore, it is helpful to have directors with experience who can assist the Board in its oversight of the Company’s programs and performance related to health and safety. In addition, directors who have significant leadership experience as a CEO or senior executive are better able to recognize and develop leadership skills and talents in others.

Risk Management
 
Innovation and Technology
 
Managing risk in a rapidly changing utility industry is critical to our success. Directors with an understanding of the most significant risks facing AEP and experience and leadership to provide effective oversight of management risk processes is critical to our success.
 
 
The utility industry is rapidly changing with the development of new technologies and shifting energy policy and environmental regulation in energy markets. Therefore, it is important to have directors who possess experience in these areas.
Finance and Accounting
 
Cybersecurity and Physical Security
 
Accurate and transparent financial reporting is critical to our success. Given the capital intensive nature of our business, we also seek directors who have experience overseeing effective capital allocation. We seek to have a number of directors who qualify as audit committee financial experts.

 
 
The industry in which AEP conducts its business is subject to physical and cyber threats against the security of assets and systems. AEP recognizes the importance of directors who possess experience in these areas.

Government, Legal and Environmental Affairs
 
Customer Experience and Marketing
 
AEP is engaged in a business that is subject to extensive regulation by multiple state and federal regulatory authorities. Experience with and understanding of government regulation is critical to AEP’s efforts to help shape public policy and government regulation that has a direct effect on its business and strategy. The production of energy also has environmental implications and how we address rapidly evolving environmental regulation has important strategic implications. As such, we seek directors with experience in government, legal and environmental affairs to provide insight on effective strategies in these areas.

 
 
Understanding the needs of our customers is important in our rapidly changing industry. Marketing expertise is also important as our business becomes more competitive and as we focus on meeting customer expectations and transforming the customer experience. We seek directors who have experience in consumer businesses and are committed to excellence in service.

The Corporate Governance Committee also considers a wide range of additional factors, including each candidate’s projected retirement date to assist in Board succession planning; other positions the candidate holds, including other boards of directors on which he or she serves; and the independence of each candidate.

In our corporate governance outreach calls with our largest shareholders, several asked us to consider reducing the number of public company boards that our directors may serve on to ensure that directors have sufficient time to dedicate to their Board service. In response to this shareholder feedback, we amended our Principles in 2015 to reduce the number of public boards our directors can serve on from six to four.


16


Typically, the Corporate Governance Committee identifies candidates through the use of an outside search firm, which is how Mr. Garcia was identified. The Corporate Governance Committee provides the outside search firm with the characteristics, skills and experiences that may complement those of the existing members. The outside search firm then provides recommendations for candidates with such attributes and skills. The Corporate Governance Committee meets in executive session to discuss potential candidates and determines which candidates to interview.

The Corporate Governance Committee believes it is important to have a mix of experienced directors with a deep understanding of the Company and others who bring a fresh perspective. The Corporate Governance Committee has recruited new directors to the Board through the rigorous process described above. In the Board's view, the best method to ensure healthy board evolution is through thoughtful consideration of the nomination of directors prior to each election or appointment based on a variety of factors, including director performance, skills and expertise, the Company’s needs and board diversity.

Director Independence

In accordance with the NYSE standards, a majority of the members of the Board of Directors must qualify as independent directors. Under the NYSE standards, no member of the Board is independent unless the Board affirmatively determines that such member does not have a direct or indirect material relationship with the Company. The Board has adopted categorical standards to assist it in making this determination of director independence (Director Independence Standards). These standards can be found on our website at www.aep.com/investors/governance.

Each year, our directors complete a questionnaire that elicits information to assist the Corporate Governance Committee in assessing whether the director meets the NYSE’s independence standards and the Director Independence Standards. Each director lists all the companies and charitable organizations that he or she, or an immediate family member, has a relationship with as a partner, trustee, director or officer, and indicates whether that entity made or received payments from AEP. The Company reviews its financial records to determine the amounts paid to or received from those entities. A list of the entities and the amounts AEP paid to or received from those entities is provided to the Corporate Governance Committee. Utilizing this information, the Corporate Governance Committee evaluates, with regard to each director, whether the director has any material relationship with AEP or any of its subsidiaries and also confirms that none of these relationships is advisory in nature. The Corporate Governance Committee determines whether the amount of any payments between those entities and AEP could interfere with a director’s ability to exercise independent judgment. The Corporate Governance Committee also reviews any other relevant facts and circumstances regarding the nature of these relationships to determine whether other factors, regardless of the categorical standards the Board has adopted or under the NYSE’s independence standards, might impede a director’s independence.

We are an energy company that provides electric service in eleven different states. Any organization that does business in our service territory is served by one of our subsidiaries. Many of our directors live in our service territory or are executives, directors or trustees of organizations that do business in our service area. Most of those organizations purchase electric service from us. However, these organizations purchase electric service from us at tariff rates or at rates obtained through a competitive bid process. Therefore, the Corporate Governance Committee determined that none of those relationships impedes a director’s independence.

We make numerous charitable contributions to nonprofit and community organizations and universities in the states where we do business. Again, because many of our directors live in our service territory and are highly accomplished individuals in their communities, our directors are frequently affiliated with many of the same educational institutions, museums, charities and other community organizations. The Corporate Governance Committee reviews charitable contributions made by AEP to organizations with which our directors or their immediate family members are affiliated. The Corporate Governance Committee also reviews contributions made from The American Electric Power Foundation, which was created to support and play an active, positive role in the communities in which we operate by contributing funds to organizations in those communities. The Corporate Governance Committee determined that the Company’s contributions were not materially influenced by the director’s relationship with the organization, and therefore none of these relationships conflicts with the interests of the Company or would impair the director’s independence or judgment.


17


The Board’s independence determinations specifically included reviewing the following transactions:

Mr. Rasmussen was an executive officer of Nationwide Insurance and retired in September 2019. Nationwide purchases electricity from our subsidiaries (substantially less than one percent of either company’s gross revenues). In addition, the Company paid an insignificant amount to Nationwide for standard insurance premiums, rent for office space and interest payments on ordinary course debt issued by the Company and its subsidiaries, which was sold through underwriters or brokers (which totaled substantially less than one percent of either company’s gross revenues). The transactions between Nationwide and the Company were in the ordinary course and entered into on an arm’s length basis, and payments were for services that were transactional in nature and did not involve any consulting or advisory work. Therefore, the Board determined that these transactions did not impair the independence of Mr. Rasmussen.

Ms. McCarthy was an Executive Vice President at CVS Health Corporation (CVS) and retired in June 2019. She supported the technology organization through a period of transition following the completion of CVS’ acquisition of Aetna, Inc. Ms. McCarthy was not an executive officer of CVS and her transition services agreement with CVS terminated in June 2019. CVS purchases electricity from our subsidiaries (substantially less than one percent of either company’s gross revenues). The transactions between CVS and the Company were in the ordinary course and entered into on an arm’s length basis. Therefore, the Board determined that these transactions did not impair the independence of Ms. McCarthy.

As a result of this review, the Board has determined that, other than Mr. Akins, each of the directors standing for election, including Messrs. Anderson, Beasley, Crosby, Garcia, Hoaglin, Notebaert, Rasmussen and Richard and Mses. Goodspeed, Lin, McCarthy and Tucker, has no material relationship with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company) and is independent under the NYSE rules and the Company’s Director Independence Standards.

Shareholder Nominees for Directors

The Corporate Governance Committee will consider shareholder recommendations of candidates to be nominated as directors of the Company. All such recommendations must be in writing and submitted in accordance with the procedures described under Shareholder Proposals and Nominations and must include information required in AEP’s Policy on Consideration of Candidates for Director Recommended by Shareholders. A copy of this policy is on our website at www.aep.com/investors/governance. Shareholders’ nominees who comply with these procedures will receive the same consideration that all other nominees receive.
 
Board Leadership

We believe the Company and its shareholders are best served by a Board that has the flexibility to establish a leadership structure that fits the needs of the Company at a particular point in time. Under the Principles, the Board has the authority to combine or separate the positions of Chairman and CEO, as well as to determine whether, if the positions are separated, the Chairman should be an employee, non-employee or an independent director.

At this time, the Board believes that the functioning of the Board is currently best served by maintaining a structure of having one individual serve as both Chairman and CEO. The Board believes that having a single person acting in those capacities promotes unified leadership and direction for both the Board and management and also provides a single, clear focus to execute the Company’s strategy especially during this time of significant change in the utility business. However, in certain circumstances, such as the transition from one chief executive officer to another, the Board believes it may be appropriate for the role of Chairman and CEO to be split.

Under the Principles, in circumstances where the Chairman of the Board is not independent or where the positions of Chairman and Chief Executive Officer are filled by the same person, the Board considers it useful and appropriate to designate a Lead Director. The Company already has policies and practices in place to provide independent oversight

18


of management and the Company’s strategy. The Board currently includes 13 independent directors among its 14 members. The Board holds executive sessions at which only independent directors are present at every board meeting, and, each year, the independent directors select a Lead Director responsible for facilitating and chairing the independent directors sessions.

Lead Director

Mr. Hoaglin has been the Lead Director of the Board since April 2012. The purpose of the Lead Director is to promote the independence of the Board in order to represent the interests of the shareholders. The Lead Director is selected by the independent directors. As the Lead Director, Mr. Hoaglin:
Works closely with the Chairman in developing the agenda for Board meetings and the information sent to the Board
 
Participates in the Company’s annual shareholder outreach calls
Consults with and advises the Chairman on matters arising between Board meetings
 
Sets the agenda for and chairs the executive sessions at every Board meeting
Advises the Chairman on Board Committee and Committee Chair assignments
 
Serves as a liaison between the Chairman and the independent directors
Leads the Board’s annual self-assessment
 
Has the authority to call special meetings of the Board
Reviews the results of the annual evaluation of individual directors with each director
 
Has the authority to retain outside legal counsel or other advisors as needed by the Board
Co-leads, with the Chair of the HR Committee, the annual performance assessment of the Chief Executive Officer
 
 
 

The Board’s role in AEP’s risk oversight process

The Board has the overall responsibility for overseeing the Company’s management of risks. Management is responsible for identifying and managing the Company’s risks. The Board reviews the Company’s processes for identifying and managing risks and communicating with the Board about those risks to help ensure that the processes are effective.

Like other companies, we have very diverse risks. These include financial and accounting risks, capital deployment risks, operational risks, cyber security risks, compensation risks, liquidity risks, litigation risks, strategic risks, regulatory risks, reputation risks, natural-disaster risks and technology risks. Some critical risks having enterprise-wide significance, such as corporate strategy and capital budget, require the full Board’s active oversight, but our Board committees also play a key role because they can devote more time to reviewing specific risks.

The Board is responsible for ensuring that these types of risks are properly delegated to the appropriate committee, and that the risk oversight activities are properly coordinated and communicated among the Board and the various committees that oversee the risks. Our Chief Risk Officer attends Audit Committee meetings and reviews and discusses Company risks. Management has prepared and categorized a list of the Company’s major types of risks. The Audit Committee reviewed that list and proposed an assignment of risks either to the full Board or to specific committees.

Cyber security and the effectiveness of AEP’s cyber security processes are reviewed annually with the Board of Directors and at several meetings of the Audit Committee of the Board of Directors throughout the year.

The Audit Committee is responsible for overseeing financial reporting risks, and oversees the Company’s maintenance of financial and disclosure controls and procedures and specifically reviews our litigation and regulatory risks as part of their review of the Company’s disclosures. The Audit Committee also discusses AEP’s policies for risk assessment and risk management. Our Chief Financial Officer, Chief Risk Officer, Chief Accounting Officer and General Counsel attend the Audit Committee meetings.


19


Our Finance Committee broadly oversees our financial risks, which include energy trading risks, liquidity risks and interest rate risks. The Finance Committee reviews and approves the Company’s risk policies relating to our power marketing and hedging activities and also oversees the performance of the assets in our pension plans. Our Chief Financial Officer and General Counsel attend the Finance Committee meetings.

Our HR Committee reviews the Company’s incentive compensation practices to ensure they do not encourage excessive risk-taking and are consistent with the Company’s risk tolerance. The HR Committee also oversees our succession planning, executive leadership development and other human capital related risks. Our Chief Administrative Officer attends the HR Committee meetings.

The Corporate Governance Committee focuses on corporate governance risks and oversees the Company’s Corporate Compliance Program, which includes the Company’s whistleblower program. The Corporate Governance Committee also oversees environmental performance and compliance risks. Our Chief Financial Officer and our General Counsel attend the meetings of the Corporate Governance Committee.

Our Nuclear Oversight Committee focuses on the specific risks of operating a nuclear plant.
 
Compensation Risk

The Company has designed its executive compensation process, with oversight from the HR Committee, to identify and manage risks and to ensure that its executive compensation programs do not encourage excessive risk taking. The Company’s incentive compensation has the following characteristics:
 
Incentive award opportunities for employees as a group are capped at 200 percent of target, while awards for individual employees are capped at 250 percent of their target. Capping the potential payout limits the extent that employees could potentially profit by taking on excessive risk;

The large majority of incentive compensation is provided to executive officers as long-term stock-based incentive compensation to ensure that short-term performance is not encouraged or rewarded at the expense of long-term performance. This is important due to the large amount of long-term capital investments required in our business;

Annual incentive compensation funding for nearly all employees, including all executive officers, is based substantially on AEP’s operating earnings per share, which helps ensure that incentive awards are commensurate with the Company’s earnings;

Performance metrics for annual incentive compensation include safety measures which helps ensure that no employees are encouraged to achieve earnings objectives at the expense of workforce safety;

Performance metrics for long-term incentive compensation are comprised of cumulative operating earnings per share (50% weight) and total shareholder return (TSR) relative to the Company's utility peer group (50% weight for 2019 and 40% for 2020). These are both robust measures of shareholder value that reduce the risk that employees might be encouraged to pursue other objectives that increase risk or reduce financial performance;

Incentive compensation performance scores are subject to an internal audit. Incentive award payouts to senior AEP management are subject to review and approval of the HR Committee, or, in the case of the CEO, the independent members of the Board. The Board and the HR Committee have the discretionary authority to reduce or eliminate any incentive payouts;

Annual and long-term incentive payments and deferrals are subject to the Company’s recoupment of incentive compensation (clawback) policy;





20


AEP grants 75 percent of its long-term incentive awards in the form of performance shares with a 3 year performance and vesting period, and the remaining 25 percent in the form of restricted stock units that vest over a forty-month period. These long-term incentive awards align the interests of employees with the long-term interests of shareholders and serve as a retention tool; and

AEP maintains stock ownership requirements for 57 officers (as of January 1, 2020).

As specified in its charter, the HR Committee (with the assistance of its independent compensation consultant and Company management) reviewed the Company’s compensation policies and practices for all employees, including executive officers. As a result of this review and the processes described above, the HR Committee concluded that the Company’s compensation program appropriately balance risks and rewards in a way that does not encourage excessive or imprudent risk taking or create risks that are reasonably likely to have a material adverse effect on the Company.
 
CEO and Senior Management Succession Planning

Our Board oversees management succession planning and talent development. The HR Committee regularly reviews and discusses with management the CEO succession plan and the succession plans for key positions at the senior officer level across the Company. The HR Committee reviews potential internal senior management candidates with our CEO, including the qualifications, experience, and development priorities for these individuals. The full Board spends the bulk of one of its meetings each year discussing succession plans. The Board also evaluates succession plans in the context of our overall business strategy. Potential leaders are visible to Board members through formal presentations and informal events to allow directors to assess candidates personally.

Our Board also establishes steps to address emergency CEO succession planning in extraordinary circumstances. Our emergency CEO succession planning is intended to enable our Company to respond to unexpected emergencies and minimize potential disruption or loss of continuity to our Company’s business and operations.

Human Capital Management and Corporate Culture

Attracting, developing and retaining the best people is crucial to AEP’s long-term success and is central to our long-term strategy. We are investing in our employees to ensure we remain an employer of choice and to continue to build an inclusive culture that inspires leadership, encourages innovative thinking and welcomes everyone. The Company has been recognized for its efforts in this area. Recently,

AEP was named to Fortune magazine’s World’s Most Admired Companies list in the electric and gas utilities sector.

AEP was included in the 2020 Bloomberg Gender-Equality Index (GEI), which recognizes companies that are committed to supporting gender equality through policy development, representation, and transparency.

AEP was recognized in the Corporate Equality Index as a Best Place to Work for LGBTQ Equality.

AEP was recognized by Victoria Media as a Top 100 Military Friendly Employer.

AEP was named to Forbes magazine's America's Best Employers for Diversity 2019 list.

AEP was named a Best Place to Work for Disability Inclusion.

Culture

At AEP, we believe in doing the right thing every time for our customers, each other and our future. The Board has oversight responsibility for AEP’s culture and assuring that it supports the long-term best interests of the Company. AEP leaders at all levels are responsible for fostering an environment that supports a positive culture and for acting in a manner that positively models it.

21


Mr. Akins is a key leader in the Company’s cultural transformation through his continual encouragement of employees to work together collaboratively to safely do their best work. We continually strive for excellence in every part of our operations. We believe in a culture dedicated to diversity and inclusion, which values and promotes equal opportunity. We always aim to meet our customers’ expectations, and we are committed to conducting our operations in accordance with the highest ethical standards.

Employees are given an opportunity to share their perspectives by participating in the Employee Culture Survey to measure the progress we are making in improving our culture. The Board and the HR Committee review the results of the annual survey, and the survey results are measured as part of our annual incentive compensation plan.

Company executives have candid meetings with employees to discuss the Company’s challenges, opportunities, what is going well and what can be even better. The Board participates in these same efforts through informal meetings with senior and mid-level officers. The Board discusses Company culture with Mr. Akins in executive session, and directors interact with employees to get an independent read on the pulse of the organization. Culture, integrity and ethics, in particular, are part of the CEO’s annual performance evaluation. The reputational and other risks associated with culture are also discussed and addressed through the risk oversight process described above.

In 2019, the independent directors had meetings with employees without the presence of management to discuss the Company’s culture. In addition, in 2019, the Board received a presentation from the Company’s Chief Diversity & Inclusion Officer and the Company's Chief Compliance Officer.

Diversity and Inclusion

AEP is committed to cultivating a diverse and inclusive environment that supports the development and advancement of all. We foster an inclusive workplace that encourages diversity of thought, culture and background, and actively work to eliminate unconscious biases. We believe our workforce should reflect the diversity of our customers and communities we serve to better understand how to tailor our services to meet their demands and expectations.

Board’s Oversight of Strategy and Sustainability

One of the key responsibilities of AEP's Board of Directors is overseeing the Company’s strategy to create long-term value for AEP’s shareholders. Environmental policies have a significant impact on the Company’s strategy. As a result, the Board regularly engages with senior management in the oversight of environmental issues, including climate change, energy efficiency, renewable energy and technology changes in the industry. As AEP continues to transition its business, the Board works with the senior management team to adjust plans as needed to respond to rapid changes in the industry, including technology and public policy. Management identifies and incorporates significant environmental, social and governance (ESG) issues, including climate change impacts, into the business strategy. We believe that our performance on ESG matters is linked to our ability to create long-term value for our shareholders.

As part of its oversight role, the Board monitors climate risks and reviews opportunities that may be realized with climate change. The Board also receives an environmental report from management at every regularly scheduled Board meeting. In addition, the Board holds extended meetings twice a year, to provide extra time for a more robust review of the Company’s strategy. Discussions about carbon and carbon risk occur during Board meetings and those strategic planning sessions. In 2019, the Board heard from two outside speakers that discussed climate change. The Board is also responsible for reviewing and approving the Company’s allocation of capital.

The Board has delegated responsibility for overseeing the Company’s annual Corporate Accountability Report (CAR) to its Corporate Governance Committee. This committee reviews and approves the annual CAR, which in 2019 included sustainability goals. The Corporate Governance Committee also receives updates twice a year from management on its sustainability initiatives. During those meetings, management reports on its engagement with stakeholders on a range of issues, including climate change.


22


Under the Board’s oversight, in 2018, AEP issued a report that announced new intermediate and long-term CO2 emission reduction goals, based on the output of the Company’s integrated resource plans, which take into account economics, customer demand, grid reliability and resiliency, regulations and the Company’s current business strategy. In September 2019, AEP revised its intermediate and long-term CO2 emission reduction goals, based on the output of the company's integrated resource plans. The intermediate goal is a 70% reduction from 2000 CO2 emission levels from AEP generating facilities by 2030; the long-term goal is to surpass an 80% reduction of CO2 emissions from AEP generating facilities from 2000 levels by 2050. AEP's aspirational emissions goal is zero CO2 emissions by 2050. Technological advances, including energy storage, will determine how quickly AEP can achieve zero emissions while continuing to provide reliable, affordable power for customers.
 
Annual Board, Committee and Individual Director Evaluations

Each year, the Corporate Governance Committee engages an independent third party, experienced in corporate governance matters, to interview each Director to obtain his or her assessment of the effectiveness of the Board and committees. In addition, the third party seeks input from each Director as to the performance of the other Board members’ performance. The Chairman of the Corporate Governance Committee instructs the third party on the particular criteria to be covered in the assessment, such as conduct of the meetings and committees, leadership and process. Each Director is asked to identify any opportunities the Board can focus on to enhance its effectiveness. The third party organizes the Director feedback and reviews it with the Chair of the Corporate Governance Committee. The Corporate Governance Committee Chair holds private conversations with each Director to give honest feedback provided from other Directors, which is meant to help Directors improve their own individual performance. The Corporate Governance Committee Chair also reviews, with the Corporate Governance Committee and the full Board, the assessment of the Board’s performance and leads a discussion to determine which areas the Board would like to focus on during the coming year to enhance its effectiveness. Finally, the Corporate Governance Committee Chair engages the Board in a mid-year discussion to gauge the Board’s satisfaction with the progress made in addressing any focus areas that were identified by the Board in its annual evaluation.

Annual Shareholder Outreach

Our Board and management are committed to engaging with our shareholders and soliciting their views and input on important governance, environmental, social, executive compensation and other matters. The Corporate Governance Committee is responsible for overseeing the shareholder engagement process and the periodic review and assessment of shareholder input. Our Lead Director plays a central role in our Board’s shareholder engagement efforts. Our management team contacted institutions holding approximately 50% of our Common Stock and offered to engage with these investors. During 2019, our Lead Director and members of management had discussions with a diverse mix of our shareholders on a variety of environmental, social and corporate governance issues, including Board refreshment, the Board’s role in its oversight of culture and climate change, Company strategy, executive compensation, the responsibilities of the Lead Director and the Board’s annual evaluation process. These shareholder views were shared with our Corporate Governance and HR Committees. These engagements help our Board and management understand and address the issues that are important to our shareholders.

Communicating with the Board

Anyone who would like to communicate directly with our Board, our independent directors as a group or our Lead Director, may submit a written communication to American Electric Power Company, Inc., P.O. Box 163609, Attention: AEP Independent Directors, Columbus, Ohio 43216. The Company’s Corporate Secretary reviews such inquiries or communications, and communications other than advertising or promotions of a product or service are forwarded to our Board, our independent directors as a group or our Lead Director, as appropriate.


23


Transactions with Related Persons

The American Electric Power Company, Inc. Related Person Transaction Approval Policy (Policy) was adopted by the Board in December 2006. The written Policy is administered by the Corporate Governance Committee. A copy of the Policy is available on our website at www.aep.com/investors/governance.

The Policy defines a “Transaction with a Related Person” as any transaction or series of transactions in which (i) the Company or a subsidiary is a participant, (ii) the aggregate amount involved exceeds $120,000 and (iii) any “Related Person” has a direct or indirect material interest. A “Related Person” is any director or executive officer of the Company, any nominee for director, any shareholder owning in excess of five percent of the total equity of the Company and any immediate family member of any such person.
 
The Corporate Governance Committee considers all of the relevant facts and circumstances in determining whether or not to approve a Transaction with a Related Person and approves only those transactions that it believes are in the best interests of the Company and its shareholders.

In determining whether to approve a Transaction with a Related Person, the Corporate Governance Committee considers various factors, including, among other things: the nature of the Related Person’s interest in the transaction; whether the transaction involves arm’s-length bids or market prices and terms; the materiality of the transaction to each party; the availability of the product or services through other sources; whether the transaction would impair the judgment of a director or executive officer to act in the best interest of the Company; the acceptability of the transaction to the Company’s regulators; and in the case of a non-employee director, whether the transaction would impair his or her independence or status as an “outside” or “non-employee” director.

If Company management determines it is impractical or undesirable to wait until a meeting of the Corporate Governance Committee to consummate a Transaction with a Related Person, the Chair of the Corporate Governance Committee may review and approve the Transaction with a Related Person. Any such approval is reported to the Corporate Governance Committee at or before its next regularly scheduled meeting.

No approval or ratification of a Transaction with a Related Person supersedes the requirements of the Company’s Code of Business Conduct and Ethics for Members of the Board of Directors or AEP’s Principles of Business Conduct applicable to any executive officer. To the extent applicable, any Transaction with a Related Person is also considered in light of the requirements set forth in those documents.

Since January 1, 2019, there have been no transactions, and there are no currently proposed transactions, involving an amount exceeding $120,000 in which AEP was or is expected to be a participant and in which any Related Person had a direct or indirect material interest.


24


Director Compensation

Directors who are employees of the Company receive no additional compensation for service as a director other than accidental death insurance coverage. The table below shows the elements and the annual compensation that we paid to our non-employee directors for 2019.
Compensation Element
 
Amount
Annual Retainer (1)
 
$
120,500

Annual Stock Unit Awards (2)
 
$
157,500

Committee Chair Annual Retainers (1):
 
 
Audit Committee
 
$
25,000

HR Committee
 
$
20,000

Corporate Governance Committee
 
$
15,000

Finance Committee
 
$
15,000

Nuclear Oversight Committee
 
$
17,500

Policy Committee
 
$
5,000

Lead Director Annual Retainer (1)
 
$
30,000

 
(1)
Retainer amounts are paid in cash in quarterly installments.
(2)
In 2019, pursuant to the Stock Unit Accumulation Plan for Non-Employee Directors, each non-employee director was awarded $157,500 in AEP stock units. These AEP stock units are credited to directors quarterly, in an amount calculated by dividing the dollar value of the award amount by the closing price of AEP common stock on the grant date. Amounts equivalent to cash dividends on the AEP stock units accrue as additional AEP stock units. AEP stock units are paid to each non-employee director in cash after termination of service unless the director has elected to further defer payments.

The Corporate Governance Committee’s independent compensation consultant, Meridian Compensation Partners, LLC (Meridian), evaluates on an annual basis the competitiveness of the Company’s non-employee director compensation program and the form and amount of each element of that program (annual retainers, equity compensation, committee chair compensation, and Lead Director compensation) in comparison to the companies in the peer group used for executive compensation and to a group of other industrial companies that are comparable in size to AEP. The Board reviews the recommendations of the Corporate Governance Committee and determines the form and amount of Director compensation.

At its meeting held in September 2019, the Corporate Governance Committee reviewed and discussed an analysis of non-employee director compensation prepared by Meridian. Meridian’s report reviewed the design and competitiveness of our non-employee director compensation program. In September 2019, upon the recommendation of the Corporate Governance Committee and taking into account comparative data from Meridian, the Board made the following changes to director compensation, effective January 1, 2020:

The amount of the annual cash retainer increased from $120,500 to $125,000.

The amount of the annual stock unit award increased from $157,500 to $163,000.

The annual retainer paid to the HR Committee Chair increased from $20,000 to $25,000.

The annual retainer paid to the Lead Director increased from $30,000 to $35,000.

We use a combination of cash and AEP stock units to attract and retain qualified candidates to serve on our Board of Directors. In setting director compensation, our Board considers the significant amount of time that directors expend on fulfilling their duties to our Company. Additional amounts are paid to committee chairs in recognition of the substantial responsibilities of the chair.


25


Expenses.    Directors are reimbursed for expenses incurred in attending Board, committee and shareholder meetings. Directors are also reimbursed for reasonable expenses associated with other business activities that benefit the Company, including participation in director education programs. Spouses may occasionally join directors on Company aircraft when a director is traveling to or from Board meetings or other business activities. The Company generally provides for, or reimburses the expenses of, the directors and their spouses for attendance at such meetings. Our Directors do not receive any tax gross-ups.

Retainer Deferral Plan.    The Retainer Deferral Plan for Non-Employee Directors is a non-qualified deferred compensation plan that permits non-employee directors to choose to defer up to 100 percent of their annual cash payments into a variety of investment fund options, all with market-based returns, including an AEP stock fund. The Plan permits the non-employee directors to defer receipt until termination of service or for a period that results in payment commencing not later than five years after termination of service.

Insurance.    AEP maintains a group travel accident insurance policy to provide a $1,000,000 accidental death benefit for each director, $100,000 for each spouse of a director and $50,000 for all dependent children. The current policy, effective January 1, 2020 to January 1, 2023, has a premium of $24,994.

Stock Ownership.    Non-employee directors are required by our Principles to own AEP common stock or AEP stock units worth five times their annual equity award. This is met within the first five years of a non-employee director’s term by requiring the director to hold the AEP stock units awarded under the Stock Unit Accumulation Plan until termination of service.

After five years of service on the Board, non-employee directors receive contributions to an AEP stock fund under the Stock Unit Accumulation Plan. During open trading windows they may subsequently transfer those amounts into other investment fund options, similar to those in the Retainer Deferral Plan.

Matching Gifts Program.    Directors may participate in our Matching Gifts Program on the same terms as AEP employees. Under the program, AEP will match between $250 and $1,000 per higher education institution each year in charitable contributions from a director.


26


2019 Director Compensation Table

The following table presents the compensation provided by the Company in 2019 to our non-employee directors.
Name
 
Fees Earned Or Paid in Cash ($)
 
Stock Awards ($) (1)(2)
 
All Other Compensation ($)(3)
 
Total ($)
David. J. Anderson
 
135,500

 
157,500

 
872

 
293,872

J. Barnie Beasley, Jr.
 
138,000

 
157,500

 
1,872

 
297,372

Ralph D. Crosby, Jr.
 
140,500

 
157,500

 
872

 
298,872

Art A. Garcia
 
40,167

 
52,500

 
872

 
93,539

Linda A. Goodspeed
 
120,500

 
157,500

 
872

 
278,872

Thomas E. Hoaglin
 
165,500

 
157,500

 
872

 
323,872

Sandra Beach Lin
 
120,500

 
157,500

 
872

 
278,872

Margaret M. McCarthy
 
90,375

 
118,125

 
872

 
209,372

Richard C. Notebaert
 
120,500

 
157,500

 
872

 
278,872

Lionel L. Nowell III
 
145,500

 
157,500

 
872

 
303,872

Stephen S. Rasmussen
 
120,500

 
157,500

 
872

 
278,872

Oliver G. Richard III
 
125,500

 
157,500

 
2,872

 
285,872

Sara M. Tucker
 
120,500

 
157,500

 
872

 
278,872

 
 
(1)
The dollar amounts reported represent the grant date fair value calculated in accordance with FASB ASC Topic 718 of AEP stock units granted under the Stock Unit Accumulation Plan for Non-Employee Directors, without taking into account estimated forfeitures. AEP stock units are credited to directors quarterly.
(2)
Each non-employee director who served the full year received 1,754.42 AEP stock units in 2019. Due to their service for less than a full year, Ms. McCarthy received 1,284.27 units and Mr. Garcia received 556.71 units in 2019. Directors had the following aggregate number of AEP stock units, including dividend equivalents, at 2019 year-end, all of which are fully vested: Mr. Anderson 27,118, Mr. Beasley 15,301, Mr. Crosby 51,816, Mr. Garcia 558, Ms. Goodspeed 52,773, Mr. Hoaglin 44,696, Ms. Lin 21,431, Ms. McCarthy 1,294, Mr. Notebaert 27,118, Mr. Nowell 48,092, Mr. Rasmussen 20,778, Mr. Richard 19,414 and Ms. Tucker 39,662.
(3)
The amounts reported in All Other Compensation consists of the (a) Company-paid premium of $872 for accidental death insurance policy and (b) matching gift contributions of $1,000 for Mr. Beasley and $2,000 for Mr. Richard.

Insurance

AEP and the AEP System Companies and their directors and officers are insured, subject to certain exclusions and retentions, against losses resulting from any claim or claims made against them while acting in their capacities as directors and officers. Such insurance, effective May 1, 2019 to May 1, 2020, is provided by: Associated Electric & Gas Insurance Services Limited (AEGIS), Energy Insurance Mutual Limited (EIM), Zurich American Insurance Company, U.S. Specialty Insurance Company (Tokio Marine HCC), XL Specialty Insurance Company, Arch Insurance Company, Travelers Casualty and Surety Company of America, Westchester Fire Insurance Company (Chubb), Berkley Insurance Company, RSUI Indemnity Company, Markel American Insurance Company, Freedom Specialty Insurance Company (Nationwide), Arch Reinsurance Ltd., Illinois National Insurance Company (AIG), Allianz Global Risks US Insurance Company, Illinois National Insurance Company (AIG), U.S. Specialty Insurance Company (Tokio Marine HCC), Travelers Casualty and Surety Company of America, Endurance American Insurance Company (Sompo International), and XL Specialty Insurance Company. The total cost of this insurance is $2,208,182.
 Fiduciary liability insurance provides coverage, subject to certain exclusions and retentions, for AEP System companies and their affiliated trusts, their directors and officers, and any employee deemed to be a fiduciary or trustee, for breach of fiduciary responsibility, obligation, or duties as imposed under the Employee Retirement Income Security Act of 1974. Such insurance, effective May 1, 2019 to May 1, 2020, is provided by Associated Electric & Gas Insurance Services Limited (AEGIS), U.S. Specialty Insurance Company (Tokio Marine HCC), Energy Insurance Mutual Limited (EIM), and Freedom Specialty Insurance Company (Nationwide). The total cost of this insurance is $356,397. 

27


Item 2. Proposal to Ratify Appointment of Independent Registered Public Accounting Firm

The Audit Committee is responsible for the appointment, fee negotiations and oversight of the Company’s independent registered public accounting firm. The Audit Committee has appointed the firm of PricewaterhouseCoopers LLP, or PwC, as the Company’s independent registered public accounting firm for 2020. PwC has served as our independent registered public accounting firm starting with the audit for the year ended December 31, 2017. The Audit Committee reviews and assesses annually the qualifications and performance of the independent registered public accounting firm and considers, as appropriate, the rotation of the independent registered public accounting firm. Additionally, the Audit Committee is involved in the selection and mandated rotation of the lead engagement partner from PwC. The Audit Committee believes that the continued retention of PwC as our independent registered public accounting firm is in the best interest of the Company and our shareholders, and we are asking our shareholders to ratify, in a non-binding vote, the appointment of PwC as our independent registered public accounting firm for 2020.

Although action by the shareholders in this matter is not required, the Audit Committee believes that it is appropriate to seek shareholder ratification of this appointment in light of the critical role played by the independent registered public accounting firm in maintaining the integrity of the Company’s financial controls and reporting and will seriously consider shareholder input on this issue. Whether or not the appointment of PwC is ratified by the shareholders, the Audit Committee may, in its discretion, change the appointment at any time during the year if it determines that such change would be in the best interest of the Company and its shareholders.
Representatives of PwC are expected to be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.

Your Board of Directors recommends a vote FOR this Item 2.
 
Audit and Non-Audit Fees

The following table presents fees for professional audit services rendered by PricewaterhouseCoopers LLP for the audit of the Company’s annual financial statements for the years ended December 31, 2019 and December 31, 2018, and fees billed for other services rendered by PricewaterhouseCoopers LLP during those periods. 
Audit & Non-Audit Fees
 
2019
 
2018
Audit Fees (1)
 
$
11,544,000

 
$
11,062,885

Audit-Related Fees (2)
 
868,500

 
226,000

Tax Fees (3)
 
265,000

 
329,128

All Other Fees (4)
 

 
195,000

TOTAL
 
$
12,677,500

 
$
11,813,013

 
(1)
Audit fees in 2018 and 2019 consisted primarily of fees related to the audit of the Company’s annual consolidated financial statements, including each registrant subsidiary. Audit fees also included auditing procedures performed in accordance with Sarbanes-Oxley Act Section 404 and the related Public Company Accounting Oversight Board Auditing Standard Number 5 regarding the Company’s internal control over financial reporting. This category also includes work generally only the independent registered public accounting firm can reasonably be expected to provide.
(2)
Audit-related fees consisted principally of regulatory, statutory and employee benefit plan audits.
(3)
Tax fees consisted principally of advisory services. Tax services are rendered based upon facts already in existence, transactions that have already occurred, as well as tax consequences of proposed transactions.
(4)
These are fees for permissible work performed by PricewaterhouseCoopers LLP that do not meet the above categories.


28


Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Registered Public Accounting Firm

The Audit Committee’s policy is to pre-approve all services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is provided for up to one year, and any pre-approval is detailed as to the particular service or category of services and is subject to a specific limitation. The independent registered public accounting firm and management are required to report to the Audit Committee at each regular meeting regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval policy, and the fees for the services performed to date. The Audit Committee Chairman may also pre-approve particular services on a case-by-case basis. In 2019, all PricewaterhouseCoopers LLP services were pre-approved by the Audit Committee in accordance with this policy.
 
Audit Committee Report

The Audit Committee reviews AEP’s financial reporting process as well as the internal control over financial reporting on behalf of the Board. Management has the primary responsibility for the financial statements and the reporting process, including the system of internal control over financial reporting.

The Audit Committee met seven times during the year and held discussions, some of which were in private, with management, the internal auditor, and the independent registered public accounting firm. Management represented to the Audit Committee that AEP’s consolidated financial statements were prepared in accordance with generally accepted accounting principles. Management has also concluded that the Company’s internal control over financial reporting was effective as of December 31, 2019. The Audit Committee has reviewed and discussed the audited consolidated financial statements and internal control over financial reporting with management, the internal auditor and the independent registered public accounting firm. The Audit Committee discussed with the independent registered public accounting firm the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (PCAOB) and the SEC.

In addition, during 2019 the Audit Committee held discussions on emerging accounting, compliance or other matters, including, but not limited to:

Reviewed and discussed AEP’s quarterly earnings releases, financial statements and quarterly filings with the SEC.

Reviewed and discussed the audit scopes and plans for both the internal auditor and the independent auditor.

Discussed enterprise risk management and management’s plans to mitigate identified risks.

Reviewed and discussed instances of compliance concerns and/or fraud events as it relates to the financial statements and management.

Reviewed legal and regulatory matters that may have a material impact on the consolidated financial statements with the Company’s General Counsel.

Reviewed cyber and physical security strategy and mitigation of identified risks with the Company’s Chief Security Officer.

Reviewed and discussed the Critical Audit Matters included in the opinion of the independent auditor.

In addition, the Audit Committee had discussions with and received written communications from the independent registered public accounting firm regarding its independence as required by the PCAOB. The Audit Committee has also received written communication regarding the results of the independent registered public accounting firm’s internal quality control reviews and procedures and other matters, as required by the New York Stock Exchange listing standards.

29


In reliance on the reviews, communications and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in AEP’s Annual Report on Form 10-K for the year ended December 31, 2019, for filing with the SEC.

Audit Committee Members
David J. Anderson, Chair
Art A. Garcia
Linda A. Goodspeed
Thomas E. Hoaglin
Sandra Beach Lin
Margaret M. McCarthy


30


Item 3. Advisory Vote on Executive Compensation

This non-binding advisory vote, commonly known as a "say-on-pay" proposal, provides an opportunity for shareholders to vote on the resolution below regarding the compensation paid to our named executive officers as disclosed in this proxy statement.

As described under the heading “Compensation Discussion and Analysis,” our executive compensation programs are designed to attract, motivate, and retain our named executive officers who are critical to our success. Under these programs, our named executive officers are rewarded for the achievement of annual and long-term goals.

The HR Committee continually reviews the compensation for our named executive officers to ensure it aligns with our shareholders’ interests and current market practices. As a result of its review process, the HR Committee maintains the following executive compensation practices:
 
Emphasizing long-term incentive compensation to promote the longer-term interests of the Company and encourage management to make decisions that are aligned with shareholders’ interests;

In 2019, tying the value of a substantial portion (75 percent) of this long-term compensation to two robust measures of shareholder value:

3 year total shareholder return compared to the Company’s executive compensation peer group and

3 year cumulative operating earnings per share compared to a Board-approved target;

Maintaining a “no fault” clawback policy that allows the Board to recoup excess incentive compensation paid to our named executive officers if the results on which such compensation was based are materially restated or corrected.

We are asking our shareholders to indicate their support for our named executive officer compensation as described in this proxy statement. This “say-on-pay” proposal, gives our shareholders the opportunity to express their views on our named executive officers’ compensation. This advisory vote is not intended to address any specific item of compensation, but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this proxy statement. Accordingly, we ask our shareholders to vote “FOR” the following resolution at the Annual Meeting:

“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in the Company’s Proxy Statement for the 2020 Annual Meeting of Shareholders pursuant to rules of the SEC, including the Compensation Discussion and Analysis, compensation tables and related narrative disclosure is hereby APPROVED.”

While the Board will carefully consider the results of this vote, the say-on-pay vote is advisory only, and therefore will not be binding on the Company or our Board of Directors.

Your Board of Directors recommends a vote FOR this Item 3. 

Other Business

The Board of Directors does not intend to present to the meeting any business other than the election of directors, the ratification of the appointment of the independent registered public accounting firm and the advisory vote on the compensation of the named executive officers as disclosed in this proxy statement.

If any other business not described herein should properly come before the meeting for action by the shareholders, the persons named as proxies on the proxy card or their substitutes will vote the shares represented by them in accordance with their best judgment. At the time this proxy statement was printed, the Board of Directors was not aware of any other matters that might be presented.

31


Compensation Discussion and Analysis

This section explains AEP’s compensation philosophy, summarizes its compensation programs and reviews compensation decisions for the following named executive officers: 
Name
  
Title
Mr. Akins
  
Chairman, Chief Executive Officer and President
Mr. Tierney
  
Executive Vice President and Chief Financial Officer
Mr. Feinberg
  
Executive Vice President, General Counsel and Secretary
Ms. Barton
  
Executive Vice President - Utilities
Ms. Hillebrand
  
Executive Vice President and Chief Administrative Officer
 
Executive Summary

2019 Business Performance Highlights 

In 2019 we continued on our path to reposition the Company as the next premier regulated energy company. We continued our capital investment in core utility operations to support operating earnings growth of 5 to 7 percent. Those investments will provide enhanced reliability for our customers along with stable, positive returns for our shareholders.

Our 2019 non-GAAP operating earnings were $4.24 per share, which was above the top end of our original operating earnings guidance for the year of $4.00 to $4.20 per share. Throughout this CD&A, we refer to operating earnings, which is a non-GAAP financial measure. For 2019, GAAP earnings per share were $3.89, which is $0.35 per share lower than operating earnings, which is used as a metric when awarding executive compensation. The difference between 2019 GAAP earnings and operating earnings was largely due to expensing of previously retired coal generation assets, the Texas rate base case, the Conesville Plant impairment, severance charges primarily related to announced plant closures and transaction fees for the Sempra wind assets acquisition. Exhibit A to this proxy statement contains a full reconciliation of GAAP earnings per share to non-GAAP operating earnings per share for 2019.

In 2019, our Transmission Holding Company business continued to grow and contributed $1.05 per share to operating earnings, an increase of 30 cents from 2018. Investments in our Transmission Holding Company business continue to support our earnings growth. Net plant assets for that business grew by $1.5 billion in 2019, an increase of 18 percent. We benefited from our investments in contracted renewable generation, including our acquisition of Sempra Renewables' wind projects. We also completed successful regulatory proceedings in several states, and we continued our efforts to reduce expenses.

In October 2019, the Company increased its quarterly dividend by 4.5 percent, the tenth consecutive yearly increase. As shown in the chart below, AEP’s shareholders received a 30.5 percent total shareholder return in 2019, which was above the total shareholder return for the S&P 500 Electric Utilities Index of 27.5 percent and just below the total shareholder return for the S&P 500 Index of 31.5 percent. AEP’s shareholders received a 66.4 percent cumulative total shareholder return for the 3 year period ended December 31, 2019 and an 85.6 cumulative percent total shareholder return for the 5 year period ended December 31, 2019, outperforming the S&P 500 Electric Utilities Index and the S&P 500 over the last 3 and 5 years.

32


chart-fac737f3fa38b3561ed.jpg
 
2019 Goals for Incentive Compensation Plans

With respect to our 2019 annual incentive compensation, the HR Committee:
 
Set the operating earnings per share target at $4.10, which was the midpoint of the Company’s annual operating earnings guidance of $4.00-$4.20 per share at the time the HR Committee set the goal.

Set the operating earnings per share needed for a maximum payout at $4.25 per share, which was $0.05 above the top of the Company's original operating earnings guidance range.

With respect to the 2019-2021 performance share awards under the Company's long-term incentive plan, the HR Committee:
 
Set the target for the 3 year cumulative operating earnings per share based on the same $4.10 target used for the annual incentive plan for 2019, with a six percent growth rate in operating earnings from 2019 for both 2020 and 2021.

2019 Earned Annual Incentive Plan Awards

With respect to earned awards under the annual incentive plan, the HR Committee certified the following results and pay outcomes:
 
2019 operating earnings per share of $4.24, which was above the top end of our original operating earnings guidance for the year, produced a score of 195.5 percent of target.

Including consideration of safety and compliance objectives and strategic initiatives, produced an overall score of 172.3 percent of target.


33


2017-2019 Earned Long-Term Performance Awards

With respect to the long-term incentive performance share award, the HR Committee certified the following results and pay outcomes:
 
Cumulative total shareholder return (TSR) of 62.67%, which placed the Company at the 67th percentile relative to the companies in AEP's Compensation Peer Group and resulted in a score of 155.3 percent of target.

Cumulative operating earnings per share was above the target set for this performance period and produced a score of 110.0 percent of target.

These combined equally weighted scores resulted in a payout of 132.7 percent of target for this performance period.

Compensation Governance Best Practices

Underlying our executive compensation program is an emphasis on good corporate governance practices. 
What We Have
 
What We Don't Have
ü
Significant stock ownership requirements for executive officers, including a stock ownership requirement for the CEO of six times base salary
 
û
No reimbursement or tax gross-up for excise taxes triggered under change in control agreements
 
 
 
 
 
ü
A substantial portion of the compensation for executive officers is tied to annual and long-term performance
 
û
No excessive benefits or perquisites for executives
 
 
 
 
 
ü
A recoupment policy that allows the Company to claw back incentive compensation whether or not the executive’s actions involve misconduct
 
û
No income tax gross-ups for executives, other than for relocations
 
 
 
 
 
ü
An insider trading policy that prohibits our executives and directors from hedging their AEP stock holdings and from pledging AEP stock
 
 
 
 
 
 
 
 
ü
If there is a change in control, long-term incentive awards have double trigger vesting that results in accelerated vesting of these awards only if the change in control is followed by an involuntary or constructive separation from service
 
 
 

Results of 2019 Advisory Vote to Approve Executive Compensation

At the Company’s annual meeting of shareholders held in April 2019, approximately 96 percent of the votes cast on the Company’s say-on-pay proposal voted in favor of the proposal. After consideration of this vote, the HR Committee continued to apply the same principles and philosophy it has used in previous years in determining executive compensation. The HR Committee will continue to consider the outcome of the Company’s say-on-pay vote and other sources of stakeholder feedback when establishing compensation programs and making compensation decisions for the named executive officers.


34


Overview

Principles

The HR Committee oversees and determines AEP’s executive compensation (other than that of the CEO). In the case of the CEO, the HR Committee makes recommendations to the independent members of the board of directors about the compensation of the CEO, and the independent board members approve the CEO’s compensation.

AEP’s executive compensation program is designed to:
 
Attract, retain, motivate and reward an outstanding leadership team with market competitive compensation and benefits to achieve both excellent team and individual performance;

Reflect AEP’s financial and operational size and the complexity of its multi-state operations;

Provide a substantial portion of executive officers’ total compensation opportunity in the form of short-term and long-term performance-based incentive compensation;

Align the interests of the Company’s named executive officers with those of AEP’s shareholders by:

Providing a majority of the compensation opportunity for the named executive officers in the form of stock-based compensation with a value that is linked to the total return on AEP’s common stock; and

Maintaining significant stock ownership requirements for executives;

Support the implementation of the Company’s business strategy by tying annual incentive awards to operating earnings per share and the achievement of specific strategic and safety objectives; and

Promote the stability of the management team by creating strong retention incentives with multi-year vesting schedules for long-term incentive compensation.

The HR Committee’s independent compensation consultant, Meridian Compensation Partners, LLC (Meridian), participates in HR Committee meetings, assists the HR Committee in developing the compensation program and regularly meets with the HR Committee in executive session without management present.

Opportunity vs. Performance

AEP’s executive compensation program generally targets each named executive officer’s total direct compensation opportunity (base salary, target annual incentive and grant date value of long-term incentives) at the median of AEP’s Compensation Peer Group, which consists of 18 companies that operate in our industry. The ultimate value realized from the annual and long-term incentives are dependent on the Company’s annual and long-term performance.

Compensation and Benefits Design

The compensation for our named executive officers includes base salary, annual incentive compensation, long-term incentive compensation and a comprehensive benefits program. The Company aims to provide a balance of annual and long-term incentive compensation that is consistent with the compensation mix provided by AEP’s Compensation Peer Group.


35


For annual incentive compensation, the HR Committee balances meeting AEP’s operating earnings per share target with strategic and safety objectives. For 2019 annual incentive compensation, operating earnings per share had a 70 percent weight of the overall award opportunity, and the remaining 30 percent weight was tied to strategic and safety goals.

The long-term incentive compensation awarded in 2019 consisted of: 75 percent performance shares with a 3 year performance and vesting period and 25 percent time-vesting restricted stock units (RSUs). The performance shares are tied to:
 
(1)AEP’s total shareholder return relative to the companies in AEP’s Compensation Peer Group; and

(2)AEP’s 3 year cumulative operating earnings per share relative to a Board-approved target.

The performance shares are subject to a 3 year vesting period from their January 1, 2019 effective date. The RSUs vest over 40 months from their January 1, 2019 effective date.

As illustrated in the charts below, in 2019, performance-based compensation (target annual incentive compensation and grant date value of performance shares) comprised 71 percent of the target total direct compensation for the CEO and 61 percent of the average target total direct compensation for the other named executive officers (excluding retention awards). An additional 17 percent of the CEO’s target total direct compensation and an additional 13 percent on average of target total direct compensation for the other named executive officers was provided in the form of time-vesting RSUs (grant date value) which are tied to AEP’s stock price. 

chart-fccd63bd29004834f3b.jpg chart-c8daabad5467ef9c893.jpg

chart-566fba85165918982db.jpg chart-e3cc22cc79e8f113224.jpg


36


2019 Compensation Peer Group 

The HR Committee, supported by Meridian, annually reviews AEP’s executive compensation relative to a peer group of companies that represent the talent markets where we compete to attract and retain executives. In September 2018, the following 18 companies were chosen from electric utility companies that were comparable in size in terms of revenues and market capitalization. AEP’s Compensation Peer Group for 2019, which was unchanged from 2018, consisted of the 18 electric utility companies shown below. 
AES Corporation
Eversource Energy
Centerpoint Energy, Inc.
FirstEnergy Corp.
Consolidated Edison Inc.
NextEra Energy, Inc.
Dominion Energy, Inc.
PG&E Corporation
DTE Energy Company
PPL Corporation
Duke Energy Corporation
Public Service Enterprise Group Inc.
Edison International
Sempra Energy
Entergy Corporation
Southern Company
Exelon Corporation
Xcel Energy Inc.
 
The table below shows that, at the time the Compensation Peer Group data was collected, AEP’s revenue and market capitalization were near the 75th percentile of the Compensation Peer Group. To partially reflect this variance in company revenues, market values are based on size-adjusted 50th percentile using regression analysis (a common statistical convention) to calibrate the market value of the various pay elements comprising target total direct compensation.
Compensation Peer Group
 
Revenue(1)
($ million)
 
Market Cap(1)
($ million)
25th Percentile
 
$
10,752

 
$
19,363

50th Percentile
 
12,220

 
23,067

75th Percentile
 
16,020

 
38,628

AEP
 
$
15,540

 
$
35,067

Percentile Rank
 
74th

 
73rd

 
(1)
The HR Committee selected the 2019 Compensation Peer Group in September 2018 based on each company’s fiscal year-end 2017 revenue and market capitalization as of July 31, 2018.

Annual Market Analysis

Meridian annually provides the HR Committee with an executive compensation study covering each named executive officer position based on compensation survey information for the Compensation Peer Group. The Meridian study benchmarks each of our named executive officer’s total direct compensation, and each component of this compensation, against the median components of target compensation provided by the Compensation Peer Group to officers serving in similar capacities if sufficient data is available. For the General Counsel position, the HR Committee similarly considered a size-adjusted market benchmark based on AEP’s revenue using regression analysis. Adequate peer group information was not available to provide compensation benchmarks for either the EVP-Utilities or the EVP and Chief Administrative Officer positions so broader samples were used to provide benchmarks. For the EVP-Utilities position, the HR Committee used the median for similar positions of all companies in the Willis Towers Watson 2018 CDB Energy Services Executive Compensation Survey - U.S. For the EVP and Chief Administrative Officer position, the HR Committee used similar positions in the Equilar Top 25 Survey and size adjusted this information.
 

37


Executive Compensation Program Detail

Summary of Executive Compensation Components.    The following table summarizes the major components of the Company’s executive compensation program. 
Component
 
Purpose
Base Salary
 
To provide a market-competitive and consistent minimum level of compensation that is paid throughout the year.
Annual Incentive
Compensation
 

To focus and align executive officers' efforts with the Company's objectives for the year.
For 2019, the HR Committee approved the following performance metrics:

 
 
 
Operating Earnings Per Share (70 percent weight)
 
 
 
Safety and Compliance (10 percent weight), and
 
 
 
Strategic Initiatives (20 percent weight).
Long-Term
Incentive
Compensation
 
To motivate AEP management to create sustainable shareholder value by linking a substantial portion of their potential compensation directly to longer-term shareholder returns.
 
 
To help ensure that Company management remains focused on longer-term results, which the HR Committee considers essential given the large amount of long-term investment in physical assets required in our business.
 
 
To reduce executive turnover and maintain management consistency.

Base Salary.    The HR Committee determines base salary increases for our named executive officers based on the following factors:

The performance of the executive during the previous year;

The market competitiveness of the executive’s base salary, total cash compensation and total compensation;

The Company’s salary increase budget;

The current scope and responsibilities of the position;

Internal comparisons; and

The experience and potential of each executive.

The base salary increases for 2019 were 4.3 percent for the CEO and an average of 3.2 percent for the other named executive officers.

Annual Incentive Compensation

Target Opportunity.    The HR Committee establishes the annual incentive target opportunities for each executive officer based, in part, on market competitive compensation as shown in Meridian’s annual executive compensation survey. Other factors include performance in role and internal equity. For 2019, the HR Committee established the following annual incentive target opportunities:
 
135 percent of base earnings for the Chairman, President & Chief Executive Officer (Mr. Akins);

80 percent of base earnings for the EVP & Chief Financial Officer (Mr. Tierney) and for the EVP - Utilities (Ms. Barton); and

75 percent of base earnings for the EVP, General Counsel and Secretary (Mr. Feinberg) and for the EVP & Chief Administrative Officer (Ms. Hillebrand).

38


    
Performance Metrics.    The HR Committee approved a balanced scorecard that tied annual incentive awards to the Company’s operating earnings, safety and strategic objectives for the year. For 2019, the HR Committee approved the following performance measures:

Operating Earnings per Share (70 Percent).    The HR Committee chose operating earnings per share for 2019 because the metric best reflects management’s performance operating the Company and is a strong driver of shareholder returns. In addition, operating earnings per share is the primary measure by which the Company communicates its actual and expected future financial performance to the investment community and employees. Management and the HR Committee believe that sustainable operating earnings per share growth is the primary means to create long-term shareholder value. The full Board approves the Company's annual budget, and the HR Committee establishes an operating earnings per share target based on that budget. In 2019, the HR Committee established an operating earnings per share target of $4.10, which was the midpoint of our operating earnings guidance of $4.00 to $4.20 per share at the beginning of the year.

Safety and Compliance (10 Percent).    Safety is an AEP core value and maintaining the safety of AEP employees, contractors and the public is always a primary consideration. The 2019 safety metrics consisted of the following:

5 percent for employee and contractor DART Rate improvement. DART is an acronym for Days Away, Restricted or Job Transfer and is an industry accepted measure that focuses on more serious injuries.

3 percent for employee Severity Rate improvement. This measure was based on improvement in the severity rate for employees that is measured by the number of lost or restricted duty days.

In addition, for 2019 the HR Committee put a Zero Harm cap in place. If a fatal employee or contractor incident occurred in 2019, as was the case, all safety scores would be capped at their target score (100% payout).

The 2019 compliance metrics consisted of the following:

1 percent for Environmental Stewardship. This measure was based on the number of significant environmental enforcement actions during the year (those resolved with a fine exceeding $1,000).

1 percent for North American Electric Reliability Corporation (NERC) Compliance. NERC establishes the reliability standards for planning and operating the North American bulk electric power system. This metric was based on the reduction in the number of repeat NERC violations and it encouraged violation detection and self-reporting by employees.

Strategic Initiatives (20 Percent).    The 2019 strategic initiatives consisted of:

4 percent for Cost Control. This consisted of a measure to achieve sustainable reductions in the Company's operations and maintenance expenses compared to budget, excluding approved incremental spending and other specified items.

9 percent for Infrastructure Investment. This consisted of measures of the Plant in Service and Capital Investment in our transmission business, developing a multi-state regulated renewable project, contracted renewable power project investment in our competitive subsidiaries and efforts to develop regulated renewables or distributed generation for large customers.

4 percent for Customer Experience and Quality of Service. This consisted of measures based on the reliability of our wires assets, completion of project plans in each jurisdiction to reduce the frequency and duration of power outages, residential customer satisfaction survey results and efforts to improve new service completion time for customers.

3 percent for Culture and Workforce of the Future. This consisted of measures of improvement in our employee culture survey score, improvement in female and minority representation rates in the Company’s employee population, and cost and time savings resulting from automation and digitization work.

39


The chart below shows the weightings for each performance measure as a percentage of the total award opportunity, the threshold, target and maximum performance goals, 2019 actual results and related weighted scores.
 
Weight
Threshold
Target
Maximum
Actual
Performance
Result
Actual
Award
Score
(as a percent
of target
opportunity)
Weighted
Score
Operating Earnings Per Share (70%)
70%
$3.95
$4.10
$4.25
$4.24
195.5%
1.369
Safety and Compliance (10%)
Improvement in DART Rate, an industry measure focused on serious injuries
5%
0 percent Improvement
10 percent Improvement
20 percent Improvement
1 percent Improvement
9.9%
0.005
Severity Rate - Improvement in severity rate for employee
3%
0 percent Improvement
10 percent Improvement
20 percent Improvement
No Improvement
0.0%
0.000
Environmental Stewardship – Number of significant enforcement actions
1%
4
2
0
0 Enforcements
200.0%
0.020
NERC Compliance – Reduction in repeat NERC violations
1%
0% Reduction
25% Reduction
50% Reduction
No Reduction
0.0%
0.000
Strategic Initiatives (20%)
Cost Control (4%)
Sustainable Efficiency Gains
4%
40% of target savings achieved
100% of target savings achieved
120% of target savings achieved
Savings exceeded 120%
200.0%
0.080
Infrastructure Investment (9%)
Contracted Renewables Portfolio Growth (measured by contract commitments)
2%
$175 million
$250 million
$325 million
$1.28 billion
200.0%
0.040
Regulated Renewables - North Central Wind Project (measured by the extent of regulatory applications filed)
2%
0 Megawatts
900 Megawatts
1500 Megawatts
1485 Megawatts
198.0%
0.040
Customer Targeted Regulated Renewables - (based on the extent of regulatory applications filed)
1%
No applications filed
Application filed in 1 Operating Company
Applications filed in 2 Operating Companies
1 Application filed
100.0%
0.010
Transmission Infrastructure Investment - Plant in Service
2%
$3.460 billion
$3.681 billion
$3.820 billion
$3.765 billion
160.4%
0.032
Transmission Infrastructure Investment - Capital Investment
2%
$3.313 billion
$3.562 billion
$3.776 billion
$3.563 billion
100.5%
0.020
Customer Experience and Quality of Service (4%)
Wires Reliability- Measured by a customer weighted average of SAIDI (System Average Incident Duration Index) scores of AEP operating companies
1%
Generally 80% percent of target
Regulatory targets or a glide path to the regional peer group average
Generally 120 percent of target
91.5% Average Operating Company Score
91.5%
0.009
Customer Satisfaction – Measured by a weighted average of J.D. Power Residential Customer Satisfaction Index scores for AEP operating companies
1%
711
728
745
728
101.0%
0.010
Proactive SAIDI Improvement - percent of proactive, reliability driven projects completed
1%
50%
75%
100%
All objectives accomplished
200.0%
0.020
Easy to Do Business With - Reaching milestones to improve service connection completion time
1%
Less than 100% of milestones
All milestones completed
All milestones completed in first six months
All milestones completed, but one not on time
171.4%
0.017
Culture and Workforce of the Future (3%)
Employee Culture Survey – Measured by improvement in average overall score of employee survey
1%
0.02 improvement
0.06 improvement
0.10 improvement
0.11 Improvement
200.0%
0.020
Employee Diversity – Measured by increased representation of women and minorities in EEO (Equal Employment Opportunity) categories
1%
0 percent attrition plus hiring at 80 percent of availability
0 percent attrition plus hiring at 100 percent of availability
0 percent attrition plus hiring at 120 percent of availability
Female Representation Score: 159.6% Minority Representation Score: 93.8%
112.2%
0.011
Future of Work - Extent of savings achieved by automation and digitization
1%
$10 Million
$20 Million
$30 Million
Savings exceeded $30M
200.0%
0.020
Total Score
1.723

40


2019 Individual Award Calculations.    Based on the performance results described in the scorecard above, the HR Committee approved a weighted score of 172.3 percent of each NEO's annual incentive target opportunity. The HR Committee then subjectively evaluated the individual performance of each named executive officer to determine the actual award payouts.
Name
 
2019 Base
Earnings*
 
Annual
Incentive
Target %
 
Total
Score Under
Scorecard
 
Calculated
Annual
Incentive
Opportunity
 
2019
Actual
Payouts
Mr. Akins
 
$1,467,462
x
135%
x
172.3
%
=
$
3,413,390

 
$
3,600,000

Mr. Tierney
 
$789,112
x
80%
x
172.3
%
=
$
1,087,712

 
$
1,088,000

Mr. Feinberg
 
$673,858
x
75%
x
172.3
%
=
$
870,793

 
$
865,000

Ms. Barton
 
$585,281
x
80%
x
172.3
%
=
$
806,751

 
$
825,000

Ms. Hillebrand
 
$612,238
x
75%
x
172.3
%
=
$
791,165

 
$
800,000

 

*
Based on salary paid in 2019, which is slightly different than the salary earned for 2019 shown in the Summary Compensation Table.

Long-Term Incentive Compensation 

The HR Committee grants long-term incentive compensation to executive officers on an annual award cycle. The HR Committee establishes target long-term incentive award opportunities for each named executive officer based on market data provided in the annual Meridian market compensation study. For 2019 the HR Committee approved the following mix of long-term incentive awards:
 
75 percent of the target value was awarded as 3 year performance shares, and

25 percent of the target value was awarded as time-vesting restricted stock units (RSUs).

2019 Long-Term Incentive Awards 
Name
 
Target
Value (1)
 
Total
Number of
Units Granted (2)
 
Number of
Performance
Shares Granted
(at Target)
 
Number of
RSUs
Granted
Mr. Akins
 
$
8,500,000

 
107,228

 
80,421

 
26,807

Mr. Tierney
 
$
2,000,000

 
25,230

 
18,923

 
6,307

Mr. Feinberg
 
$
1,400,000

 
17,661

 
13,246

 
4,415

Ms. Barton
 
$
1,200,000

 
15,138

 
11,354

 
3,784

Ms. Hillebrand
 
$
1,100,000

 
13,877

 
10,408

 
3,469

 
(1)
The Target Value differs from the Grant Date Fair Value shown in the Stock Award column in the Summary Compensation Table because the performance shares contain a market condition (the relative TSR measure) which results in a Grant Date Fair Value for financial accounting purposes that differs from the target value the HR Committee used to determine the awards. See footnote 2 to the Summary Compensation Table for a description of the Grant Date Fair Value.
(2)
The total number of units granted was determined by dividing the Target Value by the closing price of AEP common stock on the grant date ($79.27) and rounding to the nearest whole number.

Performance Shares.    In 2019, the HR Committee approved the grant to each executive officer of performance shares, which are subject to a 3 year performance and vesting period that ends on December 31, 2021. Dividends declared during the 3 year period are reinvested in additional performance shares that are subject to the same performance measures and vesting requirements as the underlying performance shares on which they were granted. The number of performance shares earned at the end of the performance period is based on achieved performance against two equally weighted performance metrics: (i) 3 year cumulative operating earnings per share and (ii) 3 year total shareholder return relative to the companies in the Compensation Peer Group. The number of earned performance shares will be paid in shares of AEP common stock.


41


The HR Committee approved the following 2019-2021 performance goals:

Performance Measures for 20192021 Performance Shares 
Performance Measure
 
Weight
 
Threshold
Performance
 
Target
Performance
 
Maximum
Payout
Performance
3 Year Cumulative Operating Earnings Per Share
 
50%
 
$12.407
(25% payout)
 
$13.060
(100% payout)
 
$13.713
(200% payout)
 
 
 
 
 
 
 
 
 
3 Year Total Shareholder Return of AEP vs. AEP’s Compensation Peer Group
 
50%
 
20th Percentile
(0% payout)
 
50th Percentile
(100% payout)
 
80th Percentile
(200% payout)

The HR Committee selected a measure of cumulative operating earnings to ensure that earnings for all three years contribute equally to the award calculation. The HR Committee set the target for the 3 year cumulative operating earnings per share based on the same $4.10 target used for the annual incentive plan for 2019, with a six percent growth rate in operating earnings from 2019 for both 2020 and 2021. The HR Committee also selected a total shareholder return measure for these awards to provide an external performance comparison that reflects the effectiveness of management’s strategic decisions and actions over the 3 year performance period relative to the performance of the 18 utilities in the Company's Compensation Peer Group.

For the 2020-2022 performance shares, the HR Committee added a third 3 year performance measure. Cumulative operating earnings per share (EPS) was retained with a 50% weight. Relative Total Shareholder Return (TSR) was retained as a measure, but with a reduced 40% weight. This allowed the HR Committee to add a new strategic non-emitting generation capacity measure with a 10% weight. Non-emitting generation capacity includes nuclear, hydro, wind, solar, demand-side management and storage. This new performance factor will measure the increase in the Company’s non-emitting generation capacity as a percentage of total generation capacity from January 1, 2020 to December 31, 2022. The new factor was chosen to align with the Company’s strategy to commit substantial investments that reduce greenhouse gas emissions.

Restricted Stock Units.    In 2019, the HR Committee approved the grant of time-based RSUs that vest in three approximately equal installments over a forty-month period that began on January 1, 2019, the effective date of the grant. Dividends are reinvested in additional RSUs and are subject to the same vesting requirements applicable to the underlying RSUs on which they were granted. Upon each vesting date, the number of RSUs that vests are paid in shares of AEP common stock.

In addition, the HR Committee granted a special equity award to our CFO and our EVP-Utilities in February 2019. The HR Committee awarded one-time RSU retention awards under the Company’s Long-Term Incentive Plan (LTIP) to Mr. Tierney and Ms. Barton as part of a retention strategy. The retention awards were granted with the regular cycle LTIP awards in February 2019. These retention awards provided $2,000,000 in RSUs to each executive that will vest, subject to their continuous AEP employment, over a 40-month period, with 25% of the awards vesting on May 1, 2020, 37.5% of the awards vesting on May 1, 2021 and 37.5% of the awards vesting on May 1, 2022. The retention awards have no value to the executive unless he or she remains employed with the Company through the above vesting dates, and will be forfeited if the executive’s employment with the Company terminates. In determining the award amount, the HR Committee considered several factors including the Company’s retention strategy and a review of Mr. Tierney’s and Ms. Barton’s individual performance. The HR Committee believes that these retention awards are in the best interests of the Company and its shareholders and will further align the interests of these executives with those of shareholders.


42


Retirement, Health and Welfare Benefits

Health and Welfare Benefits.    AEP generally provides the same health and welfare benefits to named executive officers as it provides to other employees. AEP also provides the named executive officers with either four or five weeks of paid vacation, depending on their length of service and position.

Retirement Benefits. The named executive officers participate in the same tax-qualified defined benefit pension plan and defined contribution savings plan as other eligible employees. They also participate in the Company’s non-qualified retirement benefit plans, which provide these executives with benefits that would otherwise be provided through the tax-qualified plans but for IRS limits. This allows the named executive officers to accumulate replacement income for their retirement based on the same benefit formulas as the tax qualified plans but without the limitations that are imposed by the Internal Revenue Code on the tax-qualified plans.

The HR Committee believes that executives generally should be entitled to the same retirement benefits, as a percentage of their eligible pay, as the Company’s other employees. Non-qualified retirement benefit plans are also prevalent among large employers both within our industry and other large U.S. industrial companies. The Company provides these benefits as part of a market competitive total rewards package.

The Company limits the types of compensation that are included in the qualified and non-qualified retirement plans because the HR Committee and AEP management believe that certain types of compensation should not be further enhanced by including them in retirement benefit calculations. Therefore, long-term incentive compensation is not included in the calculations that determine retirement and other benefits under AEP’s benefit plans.

Life Insurance Benefits. AEP provides group term life insurance benefits to all employees, including the named executive officers, in the amount of two times their base salary.

Relocation Assistance. For all employees, including executives, whom the Company asks to relocate, AEP offers relocation assistance to offset their moving expenses. This allows AEP to obtain high quality new hires and to relocate internal job candidates.

Perquisites.    The HR Committee annually reviews the perquisites provided by the Company. AEP provides independent financial counseling and tax preparation services to assist executives with financial planning and tax filings. Income is imputed to executives and taxes are withheld for these services.

The HR Committee generally prohibits personal use of corporate aircraft that has an incremental cost to the Company. The Company allows personal travel on business trips using the corporate aircraft if there is no incremental cost to the Company. Income is imputed and taxes are withheld on the value of personal travel on corporate aircraft in accordance with IRS guidelines.

Mr. Akins has entered into an Aircraft Time Sharing Agreement that allows him to use our corporate aircraft for personal use up to 40 hours each year, not including hours associated with repositioning the aircraft. The Aircraft Time Sharing Agreement requires him to reimburse the Company for the cost of his personal use of corporate aircraft in accordance with limits set forth in Federal Aviation Administration regulations for non-commercial aircraft operators. Mr. Akins has reimbursed AEP for personal use flights in an amount equal to or exceeding the aggregate incremental costs of such flights during 2019. See footnote 5 to the Summary Compensation Table for further information.

Severance Arrangements

Change In Control Agreements.    The HR Committee provides Change In Control agreements to all the named executive officers. While the HR Committee believes these agreements are consistent with the practices of its peer companies, the most important reason for these agreements is to protect the Company and the interests of shareholders in the event of an anticipated or actual change in control. During such transitions, retaining and continuing to motivate the Company’s key executives would be critical to protecting shareholder value. In a change of control situation,

43


outside competitors are more likely to try to recruit key employees away from the Company, and our executive officers may consider other opportunities when faced with uncertainty about retaining their positions. The HR Committee limits participation to those executives whose full support and sustained contributions would be needed during a lengthy and complex corporate transaction.

The Board has adopted a policy that requires shareholder approval of executive severance agreements that provide benefits generally exceeding 2.99 times the sum of the named executive officer’s salary plus annual incentive compensation. The HR Committee periodically reviews change in control agreement practices of companies in our Compensation Peer Group. The HR Committee has approved change in control multiples of 2.99 times base salary and annual incentive compensation for each of the named executive officers. Each agreement includes a “double trigger,” which means that severance payments and benefits would be provided to the covered executive officer only upon a change in control accompanied by an involuntary termination or constructive termination within two years after the change in control.

The Company’s Change In Control agreements do not provide a tax gross-up for excise taxes.

Long-term incentive compensation may also vest in connection with a change in control. All outstanding performance shares and RSU awards have a double trigger change in control provision. In the event an executive’s employment is terminated within one year after a change in control under qualifying conditions, such as by the Company without cause or by the executive for good reason, then all of the executive’s outstanding performance shares and RSUs will vest. Performance shares would be paid at the target performance score.

Other compensation and benefits provided to executive officers in the event their employment is terminated as a result of a change in control are consistent with that provided in the event an executive’s employment is terminated due to a consolidation, restructuring or downsizing as described below.

Other Employment Separations. The Company has an Executive Severance Plan that provides severance benefits to selected senior officers of the Company, including the named executive officers, who have agreed to its terms, which include confidentiality, non-solicitation, cooperation and non-disparagement obligations. Executives remain eligible for benefits under the general severance plan described below; however, any benefits provided under the Executive Severance Plan would be reduced by any amount provided under the general severance plan. The trigger for Executive Severance Plan benefits is a good reason resignation or an involuntary termination. The benefits for our named executive officers under the Executive Severance Plan include pay continuation of two times their base salary and target annual incentive award payable over two years and are conditioned on the executive officer’s agreement to release claims against the Company and not to compete with the Company for two years.

AEP also maintains a broad-based severance plan that provides two weeks of base pay per year of service to all employees, including named executive officers, if their employment is terminated due to a consolidation, restructuring or downsizing, subject to the employee’s agreement to waive claims against AEP. In addition, our severance benefits for all employees include outplacement services and access to health benefits at active employee rates for up to 18 months and then at Company-subsidized retiree rates thereafter until age 65 for employees who are at least age 50 with 10 years of service at the time their employment is terminated and who are not retirement-eligible under the terms of the general health plans (currently, available to employees who are at least age 55 with 10 years of service at termination).

Named executive officers remain eligible for an annual incentive award reflecting the portion of the year they worked, if they separate from service after March 31, due to their retirement (on or after age 55 with at least ten years of service) or severance as part of a voluntary or involuntary severance program. In the event of a participant’s death, annual incentive compensation is paid to the participant’s estate.

A prorated portion of outstanding performance shares that are at least 6 months into their performance period vest if a participant retires, which is defined as an employment termination, other than for cause, after the executive reaches age 55 with ten years of service or if a participant is severed. A prorated portion of outstanding performance

44


shares and all outstanding RSUs would also vest to a participant’s heirs in the event of the participant’s death. The pro-rated performance shares would not be payable until the end of the performance period and would remain subject to all of the performance objectives.

Executive officers are also entitled to 12 months of continued financial counseling service in the event they are severed from service as the result of a restructuring, consolidation or downsizing or they retire (after age 55 and 5 years of AEP service). In the event of their death, their spouse or the executor of their estate would be eligible for this benefit.

Other Compensation Information

Stock Ownership Requirements.    The HR Committee believes that linking a significant portion of the named executive officers’ financial rewards to the Company’s long-term success gives them a stake similar to that of the Company’s shareholders and encourages management strategies that benefit shareholders. Therefore, the HR Committee requires certain officers (57 executives as of January 1, 2020) to accumulate and hold a specific amount of AEP common stock or stock equivalents. The CEO’s stock ownership requirement is six times his base salary, and the other named executive officers’ targets are three times their respective base salaries. Each named executive officer met his or her stock ownership requirement as of February 1, 2020.

Equity Retention (Holding Period).    At any time an executive officers fails to meet his or her stock ownership requirement, performance shares awarded under the LTIP are mandatorily deferred into AEP Career Shares to the extent necessary to meet his or her stock ownership requirement. AEP Career Shares are not paid to executives until after their employment with AEP ends. If an executive has not met his or her stock ownership requirement within five years of the date it became effective or subsequently falls below it, the HR Committee may also require the executive to defer a portion of his or her annual incentive compensation award into AEP Career Shares.

Recoupment of Incentive Compensation. The Company’s Policy on Recouping Incentive Compensation, commonly referred to as a “clawback” policy, provides that our executive officers and certain other senior executives are subject to a ‘no fault’ clawback. The Board may recover incentive compensation whether or not the executive’s actions involve misconduct. The Board believes, subject to the exercise of its discretion based on the facts and circumstances of a particular case, that incentive compensation should be reimbursed to the Company if, in the Board’s determination:

Such incentive compensation was received by an executive where the payment or the award was predicated upon the achievement of financial or other results that were subsequently materially restated or corrected, and

Such incentive compensation would have been materially lower had the achievement been calculated on such restated or corrected financial or other results.

The HR Committee has directed the Company to design and administer all of its incentive compensation programs in a manner that provides for the Company’s ability to obtain such reimbursement. AEP may also retain any deferred compensation previously credited to an executive. This right to reimbursement is in addition to, and not in substitution for, any and all other rights AEP might have to pursue reimbursement or such other remedies against an executive for misconduct.

Role of the CEO and Compensation Consultant in Determining Executive Compensation.    The HR Committee invites the CEO to attend HR Committee meetings. The HR Committee regularly holds executive sessions without management present.

The CEO has assigned AEP’s Executive Vice President & Chief Administrative Officer and AEP’s Director - Compensation and Executive Benefits to support the HR Committee. These individuals work closely with the HR Committee Chairman, the CEO and Meridian to research and develop requested information, prepare meeting materials, implement the HR Committee’s actions and administer the Company’s executive compensation and benefit programs

45


consistent with the objectives established by the HR Committee. Meetings are held with the CEO, the HR Committee Chairman and Meridian prior to HR Committee meetings to review and finalize the agenda and meeting materials.

The CEO regularly discusses his strategic vision and direction for the Company during HR Committee meetings with Meridian in attendance. Likewise, Meridian regularly discusses compensation strategy alternatives, in light of the CEO’s strategic vision and direction, during HR Committee meetings with the CEO in attendance. The HR Committee believes that this open dialogue and exchange of ideas is important to the development and implementation of a successful executive compensation strategy.

The CEO discusses the individual performance of the other named executive officers with the HR Committee and recommends their compensation to the HR Committee. The CEO has substantial input into salary budgets and changes to incentive targets. The CEO also has substantial input into the development of employment offers for outside candidates for executive positions, although the HR Committee must approve all employment offers for executive officers.

Insider Trading, Hedging and Pledging.    The Company’s insider trading policy prohibits directors, executive officers and all employees from hedging their AEP stock holdings through short sales and the use of options, warrants, puts and calls or similar instruments. The policy also prohibits directors and executive officers from pledging AEP stock as collateral for any loan.

Tax Deductibility of Compensation. While the HR Committee continues to consider the deductibility of compensation, the primary goals of our executive compensation program are to attract, retain, motivate and reward key employees and align pay with performance. Accordingly, the HR Committee retains the ability to provide compensation that exceeds deductibility limits as it determines appropriate.
 
Human Resources Committee Report

Membership and Independence.    The Board has determined that each member of the HR Committee is an independent director, as defined by NYSE listing standards. Each member of the HR Committee is also a “non-employee director” for purposes of SEC Rule 16b-3. Members of the HR Committee attend professional development training that addresses topics of specific relevance to public company compensation committees.

Functions and Process. In carrying out its responsibilities, the HR Committee addressed many aspects of AEP’s human resource and executive compensation programs and practices in 2019, including:

Establishing annual and long-term performance objectives for executive officers;

Assessing the performance of the CEO, other executive officers and the Company relative to those established performance objectives;

Conducting an evaluation of the CEO based on written comments from board members, senior AEP management, and the audit firm partner overseeing AEP’s external audit;

Determining the mix of base salary, annual incentive compensation and long-term equity-based compensation for executive officers;

Assessing the competitiveness of 2019 and proposed 2020 target compensation for all named executive officers and other executive positions relative to AEP’s Compensation Peer Group or other applicable benchmarks;

Reviewing and approving the base salaries, target annual and long-term incentive award opportunities, annual incentive award payouts and long-term incentive award payouts for the named executive officers, except for the CEO, which are reviewed and approved by the independent directors;


46


Reviewing the senior management succession and talent development plans;

Assessing compensation and other human capital risks;

Reviewing and approving change in control agreements;

Reviewing the Company's diversity programs and results;

Reviewing the Company’s workforce safety efforts and results; and

Reviewing AEP’s culture and employee engagement through employee survey results.

In establishing performance objectives, the HR Committee considers the interests of other major AEP stakeholders; such as AEP’s customers, employees, the communities in which we operate, and debt holders; in addition to those of AEP’s shareholders.

The HR Committee’s Independent Compensation Consultant.    The HR Committee engaged Meridian to provide recommendations regarding AEP’s executive compensation and benefit programs and practices. The HR Committee can retain and terminate consultants and advisors without management approval and has the sole authority to approve their fees. Among other assignments, Meridian provides an annual executive compensation study and reports on current executive compensation and benefits trends within the electric utility industry and U.S. industry in general.

The HR Committee annually assesses and discusses the independence of its executive compensation consultant. Meridian did not provide any services to AEP other than the work it performed for the HR Committee and the work it performed for the Corporate Governance Committee on director compensation. The HR Committee concluded that Meridian was independent and the work provided by Meridian did not raise any conflicts of interest.

The HR Committee also annually assesses the performance and objectivity of its executive compensation consultant. The HR Committee regularly holds executive sessions with Meridian to help ensure that they receive full and independent advice.

In fulfilling its oversight responsibilities, the HR Committee reviewed and discussed with management the Compensation Discussion and Analysis set forth in this proxy statement. Based on its review and these discussions, the HR Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

Human Resources Committee Members
Ralph D. Crosby, Jr., Chair
J. Barnie Beasley, Jr.
Richard C. Notebaert
Stephen S. Rasmussen
Oliver G. Richard, III
Sara Martinez Tucker 

47


Executive Compensation

Summary Compensation Table

The following table provides summary information concerning compensation earned by our Chief Executive Officer, our Chief Financial Officer and the three other most highly compensated executive officers, to whom we refer collectively as the named executive officers. 
Name and Principal
Position
 
Year
 
Salary ($)(1)
 
Bonus ($)
 
Stock Awards
($)(2)
 
Non-Equity
Incentive
Plan
Compensation
($)(3)
 
Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings
($)(4)
 
All Other
Compensation
($)(5)
 
Total ($)
Nicholas K. Akins—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Chairman of the Board and Chief Executive Officer
 
2019
 
1,475,654

 

 
8,775,003

 
3,600,000

 
530,151

 
111,628

 
14,492,436

 
2018
 
1,415,423

 

 
7,564,313

 
2,900,000

 
207,401

 
114,891

 
12,202,028

 
2017
 
1,375,000

 

 
7,983,420

 
1,700,000

 
361,001

 
111,040

 
11,530,461

Brian X. Tierney—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Executive Vice President and Chief Financial Officer
 
2019
 
793,039

 

 
4,064,681

 
1,088,000

 
470,138

 
95,560

 
6,511,418

 
2018
 
771,958

 

 
1,945,785

 
890,000

 

 
59,547

 
3,667,290

 
2017
 
750,000

 

 
2,128,899

 
555,000

 
462,223

 
98,262

 
3,994,384

David M. Feinberg—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Executive Vice President, General Counsel and Secretary
 
2019
 
677,596

 

 
1,445,289

 
865,000

 
173,983

 
73,436

 
3,235,304

 
2018
 
650,492

 

 
1,362,082

 
655,000

 
25,724

 
48,106

 
2,741,404

 
2017
 
632,000

 

 
1,277,372

 
406,000

 
104,619

 
73,347

 
2,493,338

Lisa M. Barton—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Executive Vice President- Utilities
 
2019
 
588,254

 

 
3,238,802

 
825,000

 
173,781

 
67,799

 
4,893,636

 
2018
 
571,189

 

 
1,167,470

 
575,000

 
40,845

 
55,264

 
2,409,768

 
2017
 
550,000

 

 
1,277,372

 
356,000

 
110,304

 
67,724

 
2,361,400

Lana L. Hillebrand—
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Executive Vice President- Chief Administrative Officer
 
2019
 
615,358

 

 
1,135,625

 
800,000

 
221,245

 
74,831

 
2,847,059

 
2018
 
597,289

 

 
972,924

 
600,000

 
47,656

 
57,530

 
2,275,399

 
2017
 
577,000

 

 
1,011,219

 
375,000

 
193,929

 
69,817

 
2,226,965

 
(1)
Amounts in the salary column are composed of executive salaries earned for the year shown, which include 261 days of pay for 2019. This is one day more than the standard 260 calendar work days and holidays in a year.
(2)
The amounts reported in this column reflect the aggregate grant date fair value calculated in accordance with FASB ASC Topic 718 of the performance shares and restricted stock units (RSUs) granted under our Long-Term Incentive Plan. See Note 15 to the Consolidated Financial Statements included in our Form 10-K for the year ended December 31, 2019 for a discussion of the relevant assumptions used in calculating these amounts. The number of shares realized and the value of these performance shares, if any, will depend on the Company’s performance during a 3 year performance period. The potential payout can range from 0 percent to 200 percent of the target number of performance shares, plus any dividend equivalents. The value of the 2018 and 2019 performance shares will be based on two equally weighted measures: a Board approved cumulative operating earnings per share measure (Cumulative EPS) and a total shareholder return measure (Relative TSR). The grant date fair value of the 2018 and 2019 performance shares that are based on Cumulative EPS was computed in accordance with FASB ASC Topic 718 and was measured based on the closing price of AEP’s common stock on the date of grant. The maximum amount payable for the 2019 performance shares that are based on Cumulative EPS is equal to $6,374,973 for Mr. Akins; $1,500,026 for Mr. Tierney; $1,050,010 for Mr. Feinberg; $900,032 for Ms. Barton and $825,042 for Ms. Hillebrand. The grant date fair value of the 2019 performance shares that are based on Relative TSR is calculated using a Monte-Carlo model as of the date of grant, in accordance with FASB ASC Topic 718. Because the performance shares that are based on Relative TSR are subject to market conditions as defined under FASB ASC Topic 718, they did not have a maximum value on the grant date that differed from the grant date fair values presented in the table. Instead, the maximum value is factored into the calculation of the grant date fair value. The values realized from the 2017 performance shares are included in the Option Exercises and Stock Vested for 2019 table.    
(3)
The amounts shown in this column reflect annual incentive compensation paid for the year shown.
(4)
The amounts shown in this column are attributable to the increase in the actuarial values of each of the named executive officer’s combined benefits under AEP’s qualified and non-qualified defined benefit pension plans determined using interest rate and mortality assumptions consistent with those used in the Company’s financial statements. See the Pension Benefits for 2019 table and related footnotes for additional information. See Note 8 to the Consolidated Financial Statements included in our Form 10-K for the year ended December 31, 2019 for a discussion of the relevant assumptions. None of the named executive officers received preferential or above-market earnings on deferred compensation. No value is shown for Mr. Tierney in 2018 because the actual change in pension value was a negative amount.
(5)
Amounts shown in the All Other Compensation column for 2019 include: (a) Company matching contributions to the Company’s Retirement Savings Plan, (b) Company matching contributions to the Company’s Supplemental Retirement Savings Plan and (c) perquisites. The amounts are listed in the following table:

48


Type
 
Nicholas K.
Akins
 
Brian X.
Tierney
 
David M.
Feinberg
 
Lisa M.
Barton
 
Lana L.
Hillebrand
Retirement Savings Plan Match
 
$
12,600

 
$
12,600

 
$
12,600

 
$
12,600

 
$
12,600

Supplemental Retirement Savings Plan Match
 
77,400

 
62,960

 
47,199

 
39,613

 
41,951

Perquisites
 
21,628

 
20,000

 
13,637

 
15,586

 
20,280

Total
 
$
111,628

 
$
95,560

 
$
73,436

 
$
67,799

 
$
74,831

 
Perquisites provided in 2019 included: financial counseling and tax preparation services, and, for Mr. Akins, director’s group travel accident insurance premium. Executive officers may also have the occasional personal use of event tickets when such tickets are not being used for business purposes, however, there is no associated incremental cost. From time to time executive officers may receive customary gifts from third parties that sponsor events (subject to our policies on conflicts of interest).

Mr. Akins has entered into an Aircraft Time Sharing Agreement that allows him to use our corporate aircraft for personal use for a limited number of hours each year. The Aircraft Time Sharing Agreement requires Mr. Akins to reimburse the Company for the cost of his personal use of corporate aircraft in accordance with limits set forth in Federal Aviation Administration regulations. The incremental costs incurred in connection with personal flights for which Mr. Akins fully reimbursed the Company under the Aircraft Timesharing Agreement include fuel, oil, hangar costs, crew travel expenses, catering, landing fees and other incremental airport fees. Accordingly, no value is shown for these amounts in the Summary Compensation Table. If the aircraft flies empty before picking up or after dropping off Mr. Akins at a destination on a personal flight, the cost of the empty flight is included in the incremental cost for which Mr. Akins reimburses the Company. Since AEP aircraft are used predominantly for business purposes, we do not include fixed costs that do not change in amount based on usage, such as depreciation and pilot salaries.



49


Grants of Plan-Based Awards for 2019

The following table provides information on plan-based awards granted in 2019 to each of our named executive officers. 
 
 
 
 
Estimated Future
Payouts Under Non-Equity
Incentive Plan Awards(1)
 
Estimated Future
Payouts Under
Equity Incentive Plan
Awards(3)
 
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)(6)
 
Grant Date
Fair Value
of Stock
and Option
Awards
($)(7)
Name
 
Grant
Date
 
Threshold
($)
 
Target
($)
 
Maximum
($)(2)
 
Threshold
(#)(4)
 
Target
(#)
 
Maximum
(#)(5)
 
Nicholas K. Akins
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 Annual Incentive Compensation Plan
 
 
 

 
1,981,074

 
4,952,685

 
 
 
 
 
 
 
 
 
 
2019 - 2021 Performance Shares
 
2/18/19
 
 
 
 
 
 
 
10,053

 
80,421

 
160,842

 
 
 
6,650,012

2019 Restricted Stock Units
 
2/18/19
 
 
 
 
 
 
 
 
 
 
 
 
 
26,807

 
2,124,991

Brian X. Tierney
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 Annual Incentive Compensation Plan
 
 
 

 
631,290

 
1,578,225

 
 
 
 
 
 
 
 
 
 
2019 - 2021 Performance Shares
 
2/18/19
 
 
 
 
 
 
 
2,365

 
18,923

 
37,846

 
 
 
1,564,743

2019 Restricted Stock Units
 
2/18/19
 
 
 
 
 
 
 
 
 
 
 
 
 
6,307

 
499,956

Restricted Stock Units (8)
 
2/18/19
 
 
 
 
 
 
 
 
 
 
 
 
 
25,230

 
1,999,982

David M. Feinberg
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 Annual Incentive Compensation Plan
 
 
 

 
505,394

 
1,263,485

 
 
 
 
 
 
 
 
 
 
2019 - 2021 Performance Shares
 
2/18/19
 
 
 
 
 
 
 
1,656

 
13,246

 
26,492

 
 
 
1,095,312

2019 Restricted Stock Units
 
2/18/19
 
 
 
 
 
 
 
 
 
 
 
 
 
4,415

 
349,977

Lisa M. Barton
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 Annual Incentive Compensation Plan
 
 
 

 
468,225

 
1,170,563

 
 
 
 
 
 
 
 
 
 
2019 - 2021 Performance Shares
 
2/18/19
 
 
 
 
 
 
 
1,419

 
11,354

 
22,708

 
 
 
938,862

2019 Restricted Stock Units
 
2/18/19
 
 
 
 
 
 
 
 
 
 
 
 
 
3,784

 
299,958

Restricted Stock Units (8)
 
2/18/19
 
 
 
 
 
 
 
 
 
 
 
 
 
25,230

 
1,999,982

Lana L. Hillebrand
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019 Annual Incentive Compensation Plan
 
 
 

 
459,179

 
1,147,948

 
 
 
 
 
 
 
 
 
 
2019 - 2021 Performance Shares
 
2/18/19
 
 
 
 
 
 
 
1,301

 
10,408

 
20,816

 
 
 
860,637

2019 Restricted Stock Units
 
2/18/19
 
 
 
 
 
 
 
 
 
 
 
 
 
3,469

 
274,988

 
(1)
Represents potential payouts under the 2019 Annual Incentive Compensation Plan (ICP).
(2)
The amounts shown in this column represent 250 percent of the target award for each of the named executive officers, which is the maximum amount payable to any individual employee under the ICP for a year with a maximum 200% of target score.

50


(3)
Represents performance shares awarded under our Long-Term Incentive Plan for the 2019-2021 performance period. These awards generally vest at the end of the 3 year performance period based on our attainment of specified performance measures. The number of performance shares does not include additional shares that may accrue due to dividend credits.
(4)
The amounts shown in the Threshold column represent 12.5% of the target award for each of the named executive officers because the Operating Earnings per Share measure has a 25% payout for threshold performance, the Total Shareholder Return measure has a 0% payout for threshold performance and these measures are equally weighted. However, the Operating Earnings per Share threshold does not guarantee a minimum payout because the score would be 0% of target if threshold performance is not achieved.
(5)
The amounts shown in this column represent 200 percent of the target award for each of the named executive officers, which is the maximum overall score for the 2019-2021 performance shares.
(6)
Represents restricted stock units awarded under the Long-Term Incentive Plan. These awards generally vest in three equal installments on May 1, 2020, May 1, 2021 and May 1, 2022. The number of restricted stock units does not include additional units that may accrue due to dividend credits.
(7)
Amounts represent the grant date fair value of performance shares and restricted stock units measured in accordance with FASB ASC Topic 718, utilizing the assumptions discussed in Note 15 to our consolidated financial statements for the fiscal year ended December 31, 2019. The actual number of performance shares earned will depend on AEP’s performance over the 2019 through 2021 performance period, which could vary from 0 percent to 200 percent of the target award plus dividends. The value of the performance shares ultimately earned will be based on two equally weighted measures: a Board approved cumulative operating earnings per share measure (Cumulative EPS) and a relative total shareholder return measure (Relative TSR), as well as dividend credits and the value of AEP stock when the awards are paid.
(8)
The HR Committee awarded one-time restricted stock unit retention awards under the LTIP to Mr. Tierney and Ms. Barton as part of a retention strategy. The retention awards provided $2,000,000 in RSUs to each executive that will vest over a 40-month period, with 25% of the awards vesting on May 1, 2020, 37.5% of the awards vesting on May 1, 2021 and 37.5% of the awards vesting on May 1, 2022.


51


Outstanding Equity Awards at Fiscal Year-End for 2019

The following table provides information with respect to holdings of restricted stock units and performance shares by the named executive officers at December 31, 2019. The named executive officers do not have any outstanding stock options. 
Name
Stock Awards
Number of Shares or Units of Stock That Have Not Vested (#)
Market Value of Shares or Units of Stock That Have Not Vested ($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(1)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2)
Nicholas K. Akins
 
 
 
 
2018 - 2020 Performance Shares(3)
 
 
183,564

17,348,634

2019 - 2021 Performance Shares(3)
 
 
164,488

15,545,761

2017 Restricted Stock Units(4)
10,670

1,008,422

 
 
2018 Restricted Stock Units(5)
20,394

1,927,437

 
 
2019 Restricted Stock Units(6)
27,415

2,590,992

 
 
Brian X. Tierney
 
 
 
 
2018 - 2020 Performance Shares(3)
 
 
47,218

4,462,573

2019 - 2021 Performance Shares(3)
 
 
38,704

3,657,915

2017 Restricted Stock Units(4)
2,845

268,881

 
 
2018 Restricted Stock Units(5)
5,246

495,799

 
 
2019 Restricted Stock Units(6)
6,450