DEF 14A 1 a2020definitiveproxystatem.htm DEF 14A Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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Definitive Proxy Statement
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THE AES CORPORATION

 
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Table of Contents
LETTER TO STOCKHOLDERS
NOTICE OF 2020 ANNUAL MEETING OF STOCKHOLDERS
IMPORTANT INFORMATION ABOUT AES’ VIRTUAL ANNUAL MEETING
PROXY STATEMENT
Proxy Statement Summary
CORPORATE GOVERNANCE AT AES
 
Corporate Governance Practices
AES Governance Documents
Environmental, Social and Governance (ESG) Oversight and Activities
Related Person Policies and Procedures
Communications with the Board or Its Committees
Additional Governance Information
BOARD AND COMMITTEE GOVERNANCE
 
Board Leadership Structure
Director Independence
Director Attendance
Board Committees
The Board’s Role in Risk Management
Board and Committee Evaluations
Director Characteristics and Succession Planning
Director Nominations by Stockholders
Board of Directors - Biographies
DIRECTOR COMPENSATION
 
Director Compensation Program
Director Compensation
EXECUTIVE COMPENSATION
 
Compensation Discussion and Analysis
Executive Summary
Our Executive Compensation Process
Overview of AES Total Compensation
2019 Compensation Determinations
Other Relevant Compensation Elements and Policies
Summary Compensation Table
Grants of Plan-Based Awards Table
Narrative Disclosure Relative to the Summary Compensation Table and the Grants of Plan-Based Awards Table
Outstanding Equity Awards at Fiscal Year-End
Option Exercises and Stock Vested
Non-Qualified Deferred Compensation
Narrative Disclosure Relative to the Non-Qualified Deferred Compensation Table
Potential Payments Upon Termination or Change-in-Control
Additional Information Relating to Potential Payments Upon Termination of Employment or Change-in-Control
 
Payment of Long-Term Compensation Awards in the Event of Termination or Change-in-Control as Determined by the Provisions Set Forth in the 2003 Long-Term Compensation Plan
CEO Pay Ratio
Report of the Compensation Committee
Risk Assessment
AUDIT MATTERS
 
Report of the Financial Audit Committee
Information Regarding the Independent Registered Public Accounting Firm
STOCK OWNERSHIP
 
Security Ownership of Certain Beneficial Owners, Directors and Executive Officers
ANNUAL MEETING PROPOSALS
 
Proposal 1: Election of Directors
Proposal 2: To Approve, on an Advisory Basis, The Company’s Executive Compensation
Proposal 3: Ratification of the Appointment of EY as the Independent Auditor of the Company for Fiscal Year 2020
Proposal 4: Non-Binding Stockholder Proposal, to Adopt a By-Law to Subject Approval of any By-Law and Charter Amendments to a Stockholder Vote
QUESTIONS AND ANSWERS REGARDING OUR PROXY STATEMENT AND 2020 ANNUAL MEETING



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March 6, 2020

Dear Fellow Stockholders,

It is my pleasure to invite you to participate in the 2020 Annual Meeting of Stockholders which will be conducted virtually via live webcast on Thursday, April 23, 2020, starting at 8:30 a.m. EDT. The Board has implemented a virtual meeting format this year to enable increased Stockholder participation and access, improve efficiency and reduce costs. A virtual meeting is also environmentally friendly and is in line with our commitment to sustainable business practices. Stockholders will be able to listen, vote, and submit questions from their home or any location with internet connectivity. Additional information on how to participate in the 2020 Annual Meeting can be found on page 3.

At the 2020 Annual Meeting we will ask you to: (i) elect our Board of Directors to serve until the Annual Meeting in 2021, (ii) approve our executive compensation, (iii) ratify the appointment of Ernst & Young as our independent auditor for 2020, and (iv) vote on a matter submitted by a Stockholder. These proposals are described in more detail in the attached Notice of 2020 Annual Meeting of Stockholders and beginning on page 2 of this Proxy Statement.

In 2019, we achieved our strategic and financial goals, laying the foundation for strong growth in the coming decade, including:

Sustainable Growth - as of December 31, 2019 AES’ backlog of 6.1 GW was 3 GW under construction and coming on-line through 2021 and 3.1 GW of renewables signed under long-term Power Purchase Agreements, but not yet under construction;

Innovative Solutions - delivering innovative energy solutions through Fluence, Uplight, and a strategic alliance with Google; and

Superior Results - after reducing Parent debt by nearly half, AES’ credit rating was upgraded to investment grade by Fitch.

As further described in Board and Committee Governance beginning on page 15 of this Proxy Statement the Board undertook a number of governance initiatives during 2019. We are continually reviewing and improving our governance practices and this year, the Board hired a consultant to conduct an in depth Board evaluation and effectiveness review. We found the involvement of a third party in our evaluations to be beneficial and plan to continue this practice every few years to supplement our annual self-evaluations. In addition, we have worked to implement a Board succession and recruitment plan that aligns with AES’ strategy so the Board is better prepared to advise the Company as it continues to evolve.

Your Vote is Important. Stockholder attendance at our annual meetings helps maintain communications between the Company and our Stockholders and can improve Stockholders’ understanding of our business. We hope you will be able to join us. Whether or not you plan on attending the 2020 Annual Meeting, you can ensure that your shares are represented at the meeting by promptly voting and submitting your proxy by telephone, by internet or by returning your Proxy Card. Additional information on how to vote can be found in the Proxy Statement Summary and on the enclosed Proxy Card.


Sincerely,


 
 
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John B. Morse, Jr.
Chairman and Lead Independent Director


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Notice of 2020 Annual Meeting of Stockholders

Date & Time
 
Location
8:30 a.m. EDT
April 23, 2020
 
www.meetingcenter.io/296708897
 
 
 
Record Date
Stockholders of record at the close of business on March 3, 2020 are entitled to notice of, and to vote at, the 2020 Annual Meeting.
 
 
 
Items of business
1. To elect ten members to the Company’s Board of Directors (the “Board”)
2. To approve, on an advisory basis, the company’s executive compensation;
3. To ratify the appointment of Ernst & Young LLP (“EY” or the “Independent Registered Public Accounting Firm”) as the independent auditors of the Company for fiscal year 2020;
4. To vote on a non-binding Stockholder proposal seeking to adopt a By-Law to subject approval of any By-Law and Charter Amendments to a Stockholder vote; and
5. To transact such other business as may properly come before the Annual Meeting.
 
 
 
Proxy Voting
Your vote is important. Please vote your shares promptly to ensure the presence of a quorum during the 2020 Annual Meeting. You may vote your shares via the internet, by telephone, or by signing, dating, and returning your Proxy Card. For specific voting instructions, please refer to the information provided in the following Proxy Statement or the voting instructions you receive that are provided via the internet or mail.
 
 
 
Important notice regarding the availability of proxy materials for the Annual Meeting to be held on Thursday, April 23, 2020: the Proxy Statement, Annual Report on Form 10-K and related proxy materials are available free of charge at www.edocumentview.com/aes.


By Order of the Board of Directors,


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Paul L. Freedman
Senior Vice President, General Counsel and Corporate Secretary
March 6, 2020



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Important Information about AES’ Virtual Annual Meeting

AES’ 2020 Annual Meeting will be a conducted online only, via a live webcast. If you were a holder of record on the close of business on March 3, 2020, you are entitled to participate in the 2020 Annual Meeting on April 23, 2020. Below are answers to some frequently asked questions about the virtual annual meeting format.

Why did the Board decide to adopt a virtual format for the 2020 Annual Meeting?
 
The Board decided to hold a virtual meeting this year to facilitate and increase Stockholder attendance and participation by providing equal meeting access to all of our Stockholders - not just those Stockholders who have the time and means to travel to an in-person meeting. Over the last five years, we have had limited attendance at our in-person annual meetings. By moving to a virtual meeting, Stockholders will be able to participate in the 2020 Annual Meeting from any location in the world and our Stockholders who do not have an internet connection or computer access will be able to listen to the meeting through a toll-free telephone number. We believe this virtual format better serves the needs of our diverse and global Stockholder base. A virtual meeting will also provide an additional opportunity for Stockholders to communicate with the Board by submitting questions before and during the meeting through the virtual meeting portal and it eliminates many of the costs associated with hosting a physical meeting, which will benefit both our Stockholders and AES.

How can I view and participate in the 2020 Annual Meeting?

To participate, visit www.meetingcenter.io/296708897 and login with the control number included in your proxy materials and the password AES2020. If you hold your shares through an intermediary, such as a bank or broker, you must register in advance using the instructions below.

How do I register to attend the 2020 Annual Meeting?

If you are a registered Stockholder (i.e., you hold your shares through our transfer agent, Computershare), you do not need to register to attend the 2020 Annual Meeting. Please follow the instructions on the Notice or Proxy Card that you received.

If you hold your shares through an intermediary, such as a bank or broker, you must register in advance to attend the 2020 Annual Meeting.

To register to attend the 2020 Annual Meeting you must submit proof of your proxy power (legal proxy) reflecting your AES holdings along with your name and email address to Computershare. Requests for registration must be labeled as “Legal Proxy” and be received no later than 5:00 p.m. EDT, on April 20, 2020. You will receive a confirmation of your registration by email after Computershare receives your registration materials.

Requests for registration should be directed to Computershare at the following:

By email:
Forward the email from your broker, or attach an image of your legal proxy, to legalproxy@computershare.com

By mail:     Computershare
AES Legal Proxy
P.O. Box 43001
Providence, RI 02940-3001

When can I join the virtual Annual Meeting?

You may log into the meeting platform beginning at 8:15 a.m. EDT on April 23, 2020. The meeting will begin promptly at 8:30 a.m. EDT.



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How can I ask questions and vote?

We encourage you to submit your questions and vote in advance of the meeting by visiting www.meetingcenter.io/296708897. If you wish to submit a question before the meeting, then beginning at 8:00 a.m. EDT on April 20, 2020 you may log in to www.meetingcenter.io/296708897 with your control number and the password AES2020. Once past the login screen, click on the “messages” icon at the top of the screen to submit your question. Stockholders may also vote and submit questions during the meeting by visiting www.meetingcenter.io/296708897 and typing questions using the “messages” icon at the top of the screen. Questions pertinent to meeting matters will be answered during the meeting, subject to time constraints.

What if I lost my control number?

You will be able to log in as a guest. To view the meeting webcast visit www.meetingcenter.io/296708897 and register as a guest. However, if you log in as a guest, you will not be able to vote your shares or submit questions during the meeting.

What if I don’t have internet access?

Please call (855) 982-6680 or (614) 999-9469 and use the Conference ID 5595021 to listen to the meeting via telephone. If you participate via telephone, you will not be able to vote your shares or ask questions during the meeting.

What if I have technical or logistical difficulties?

We will have technicians ready to assist you with any technical difficulties you may have accessing the meeting. If you encounter any difficulties accessing the meeting during the check-in or meeting time, please call (877) 373-6374 or (781) 575-2879 for assistance. Technical support will be available starting at 8:00 a.m. EDT on April 23, 2020 and will remain available until thirty minutes after the meeting has finished.

Where can I find additional information?

Additional information regarding the ability of Stockholders to ask questions during the 2020 Annual Meeting, related rules of conduct, and procedures for posting appropriate questions received during the 2020 Annual Meeting will be available at www.meetingcenter.io/296708897 two weeks prior to the 2020 Annual Meeting. Similarly, matters addressing technical and logistical issues, including accessing the 2020 Annual Meeting’s virtual meeting platform, will be available on our investor relations page one week prior to the 2020 Annual meeting at https://www.aes.com/investors/.

What if I have additional questions?

You may contact AES Investor Relations at inquires@aes.com or call (703) 682-6491.

Our Commitment to Transparency
If there are questions pertinent to meeting matters that cannot be answered during the Annual Meeting, management will post answers to a representative set of such questions on the Investor Relations page of the Company’s website (www.aes.com/investors). The questions and answers and a replay of the meeting will be available as soon as practicable after the meeting and will remain available for two weeks after posting.

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Proxy Statement


The AES Corporation
4300 Wilson Blvd.
Arlington, VA 22203, USA
www.aes.com

March 6, 2020

The Board of Directors (the “Board”) of The AES Corporation (the “Company” or “AES”) is soliciting proxies to be voted on the Stockholders’ behalf at the 2020 Annual Meeting of Stockholders (the “Annual Meeting”).
The Annual Meeting will commence at 8:30 a.m. EDT on Thursday, April 23, 2020. The Annual Meeting will be held virtually via live webcast and Stockholders of record as of March 3, 2020 may join the meeting at www.meetingcenter.io/296708897.
This Proxy Statement provides information regarding the matters to be voted on at the Annual Meeting, as well as other information that may be useful to you. In accordance with rules adopted by the United States Securities and Exchange Commission (the “SEC”), instead of mailing a printed copy of our proxy materials to each Stockholder of record, we are furnishing proxy materials to our Stockholders on the internet. If you received a Notice of Internet Availability of Proxy Materials (the “Notice”) by mail, you will not receive a printed copy of the proxy materials other than as described below. Instead, the Notice will instruct you as to how you may access and review all of the important information contained in the proxy materials. The Notice also instructs you as to how you may submit your Proxy over the internet. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the Notice.
This Proxy Statement, Annual Report on Form 10-K for the year ended December 31, 2019 (the “AES Form 10-K”) and related proxy materials will first be given and/or made available to Stockholders on or about March 10, 2020. These materials will be available at www.envisionreports.com/aes for registered holders of AES stock and, at www.edocumentview.com/aes for beneficial holders of AES stock. In accordance with SEC rules, each of these websites provides complete anonymity with respect to a Stockholder accessing the websites.
At the close of business on March 3, 2020, there were 664,768,164 shares of common stock outstanding. Each share of common stock is entitled to one vote.






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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Proxy Statement contains forward-looking statements as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is subject to the safe harbors created therein. The forward-looking statements contained herein are generally identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on the beliefs and assumptions of our management and on currently available information. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in the AES Form 10-K. We undertake no responsibility to publicly update or revise any forward-looking statement.

PROXY STATEMENT SUMMARY

This summary highlights information contained elsewhere in this Proxy Statement. Please refer to the complete Proxy Statement and the AES Form 10-K before you vote.
MEETING INFORMATION
2020 Annual Meeting of Stockholders
 
 
 
 
Date and Time: 
 
Your Vote is Important!
You may vote online before the Annual Meeting by submitting a proxy over the internet or by telephone. If you requested a paper copy of the proxy materials and received a paper copy of the Proxy Card you may vote by mail.
April 23, 2020, 8:30 a.m. EDT
 
 
 
Record Date:
 
March 3, 2020
 
 
 
Location:
 
www.meetingcenter.io/296708897
 
 
 
 
 
 
Online
 
By Phone
 
By Mail
Registered Holders: www.envisionreports.com/aes

Beneficial Holders: www.edocumentview.com/aes
 
Call the phone number located on the top of your Proxy Card
 
Complete, sign, date and return your Proxy Card in the envelope provided
Voting Matters
Board of Directors’ Recommendations
1. Election of Ten Director Nominees
FOR all Director Nominees
2. Advisory Approval of Executive Compensation
FOR
3. Ratification of Appointment of EY as the Independent Auditor of the Company for Fiscal Year 2020
FOR
 4. Non-binding Stockholder proposal seeking to adopt a By-Law to subject approval of any By-Law and Charter amendments to a Stockholder vote
AGAINST




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Corporate Governance
Our Corporate Governance Policies Reflect Best Practices
Annual Election of All Directors
 
91% Average Attendance of Incumbent Directors at Board and Committee Meetings
 
 
 
Non-Executive, Independent Chair of the Board Since 2003
 
Audit, Compensation and Governance Committee Members Are All Independent
 
 
 
Nine of Ten Director Nominees Are Independent
 
Directors Are Subject to Rigorous Stock Ownership Requirements
 
 
 
Annual Board and Committee Self-Evaluations and Review of Director Qualifications
 
Director Compensation Reviewed Annually
 
 
 
Executive Sessions of Independent Directors Held at Each Regularly Scheduled Board Meeting, and Directors Meet Periodically Throughout the Year with Individual Members of Management
 
Financial Audit Committee Members Are All Financially Literate and Four of Five Are Audit Committee Financial Experts
 
 
 
Directors Subject to Term Limits, Average Tenure of Our Directors is Less than Seven Years
 
No Increase in Director Compensation Since 2012


Director Nominee Facts. The following charts highlight some of the characteristics of our Director nominees. Further discussion on the qualifications and experience of Director nominees is included in the Director Characteristics and Succession Planning section of this Proxy Statement.
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2019 Stockholder Engagement Program

We place great value on Stockholder outreach, and engage regularly with our investors to gain insight into the governance issues about which they care most. We seek a collaborative and mutually beneficial approach to issues of importance to investors that affect our business and aim to ensure that our corporate governance practices are informed by, and generally are in line with, our Stockholders’ expectations. In 2019, we engaged with Stockholders to discuss topics, including, but not limited to, Environmental, Social and Governance (“ESG”) matters, including climate related disclosures, and diversity and inclusion efforts.

Executive Compensation

AES’ executive compensation philosophy emphasizes pay-for-performance. Our philosophy is to provide executive compensation opportunities that approximate the 50th percentile of survey data based on our revenue size and industry. Our incentive plans are designed to reward strong performance, with greater compensation paid when performance exceeds expectations and less compensation paid when performance falls below expectations. Thus, the actual compensation realized by our Named Executive Officers (“NEOs”) will be commensurate with the Company’s actual performance.
AES’ Compensation Committee has a practice of reviewing executive compensation program components, targets and payouts on an annual basis to ensure the strength of our pay-for-performance alignment. Our performance is evaluated against both short-term goals, which support AES’ business strategy, and long-term goals, which measure the creation of sustainable Stockholder value.
Compensation and Benefits Best Practices
Target Total Compensation at 50th Percentile
 
Director and Executive Officer Stock Ownership Guidelines
 
 
 
Independent Consultant Retained by the Compensation Committee
 
Executive Compensation Clawback Policy
 
 
 
Double-Trigger Change-in-Control for Long Term Compensation Awards
 
No Change-in-Control Excise Tax Gross Ups
 
 
 
No Perquisites for our Executive Officers, Except for Relocation Benefits
 
No Backdating or Option Repricing
 
 
 
All AES Employees Prohibited from Hedging or Pledging of AES Common Stock
 
Annual Review of Risk Related to Compensation Programs
 
 
 
No Special Retirement Benefit Formulas for Executive Officers
 
Relative Pay-for-Performance Alignment
 
 
 
Mix of AES-Specific and Relative Performance Goals
 
Caps on Annual and Long-Term Incentive Payouts
In 2019, AES again received strong support for its executive compensation programs, with approximately 94% of votes cast approving, on an advisory basis, our executive compensation. In 2019, as in prior years, the Compensation Committee considered input from our Stockholders and other stakeholders as part of its annual review of AES’ executive compensation program.
Please see the Compensation Discussion and Analysis section in this Proxy Statement for a detailed description of our executive compensation programs.

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Corporate Governance at AES

Corporate Governance Practices

AES is committed to best practices in corporate governance. Highlights for our corporate governance practices are described below:


Independent Board. Nine out of ten Director nominees are independent.

Separation of the Roles of CEO and Chairman. These roles are separate and our Chairman is an independent Director.

Annual Elections of Directors by Majority Vote. All of our Directors are accountable to Stockholders through an annual election with a majority vote standard.

No Supermajority Voting Provisions. Neither our Sixth Restated Certificate of Incorporation (“Charter”) or our Amended and Restated By-Laws (“By-Laws”) contain any supermajority voting provisions.

Proxy Access. Stockholders may nominate Directors through proxy access.

Stockholder Right to Call a Special Meeting. Stockholders holding 25% of the outstanding shares of the Company’s stock have the right to call special meetings of Stockholders.

Stockholder Right to Act by Written Consent. Stockholders have the right to act by a written consent signed by Stockholders holding no less than the minimum number of votes necessary to authorize an action at a meeting.

Rigorous Director Stock Ownership Requirements. Non-employee Directors are expected to hold equity ownership in the Company of at least five times the Director’s annual Board retainer within five years after election to the Board.

Communication with the Board. Stockholders may communicate with any individual Director, any Board committee, or the full Board.

Director Engagement. Our Directors attended an average of 91% of Board and committee meetings in 2019.

Annual Say on Pay Vote. The Company’s Say on Pay approval rating exceeded 94% at each of the last eight annual meetings.

Annual Board and Committee Self-Evaluations. Through this process, the Board annually reviews the qualifications, experiences, and contributions of its Directors to provide for a Board that is comprised of the right mix to achieve AES’ strategic goals.

Limit on Director Tenure to Ensure Fresh Board Perspectives. Under our Corporate Governance Guidelines, we expect that Directors will serve for at least four consecutive one-year terms but no more than 15 cumulative one-year terms.

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Our Corporate Governance Documents
Certificate of Incorporation
 
Financial Audit Committee Charter
By-Laws
 
Compensation Committee Charter
Code of Conduct
 
Governance Committee Charter
Corporate Governance Guidelines
 
Innovation and Technology Committee Charter
Our Corporate Governance documents are available their entirety on the Company’s website (https://www.aes.com). Copies of the documents are available in print without charge by making a written request to: Office of the Corporate Secretary, The AES Corporation, 4300 Wilson Boulevard, Arlington, VA 22203.

Environmental, Social and Governance Oversight and Activities
AES is dedicated to improving lives and making a lasting difference in the communities in which our businesses operate. We are committed to a wide range of ESG initiatives that will improve the lives of our employees, customers and their communities; protect the environments in which we operate; empower our people and businesses; and improve long-term returns to our investors.
We have received numerous recognitions for our ESG practices, some of which are highlighted below:
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AES’ Sustainability Report

On an annual basis AES produces a comprehensive sustainability report. Included in that report are additional details on the the Company’s ESG practices, as well as additional topics related to Our People, Financial Excellence, Operational Excellence, Environmental Performance, and Stakeholder Engagement. The full report can be found on AES’ website, https://www.aes.com/sustainability/sustainability-overview/default.aspx.

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In addition to the governance practices discussed in this Proxy Statement, the Company has a number of environmental and social initiatives described in further detail below.
Environment
 
The core of our corporate sustainability efforts centers on understanding the environments in which we operate and committing to the development of environmentally responsible energy solutions. Environmental stewardship and leadership are a key part of our business.
 
 
Environmental Policy
AES’ environmental policy seeks to:
Ÿ Meet or exceed the requirements of environmental rules and regulations imposed by local, regional, and national governments and by participating financial institutions.
Ÿ Meet or exceed our environmental standards set forth in our programs and policies.
Ÿ Plan and budget for investments that achieve sustainable environmental results by taking into account the local, regional and global environment where the term "environment" is broadly defined as the external surroundings or conditions within which people live - including ecological, economic, social and all other factors that determine quality of life and standard of living.
Ÿ Strive to continually improve the environmental performance at every business.
 
 
Sustainability
We are committed to a corporate strategy that aims to lower our greenhouse gas emissions and create a clean energy future by shifting our portfolio towards less carbon-intensive sources of generation with an emphasis on zero-carbon technologies like wind and solar.
The AES Climate Scenario Report, released in November 2018, is intended to provide stakeholders with an understanding of the strength and resilience of our portfolio under various climate change scenarios applying the TCFD recommendations. The AES Climate Scenario Report also includes a discussion about our strategy for managing risks and opportunities related to climate change. A copy of the AES Climate Scenario Report is available on our website under the “Sustainability” tab.

Targeting a reduction of coal-fired generation to below 30% of total Mwh by year-end 2020 and to less than 10% by 2030.

Social
 
As a leading sustainable power company with operations in multiple markets, stakeholder engagement is integrated into our global strategy and we strive to develop strong, proactive and consistent relationships with all our stakeholders. AES has many stakeholders, including our people, customers, investors, communities, creditors, governments, partners, regulatory agencies and trade associations among others.
 
 
Safety
Ensuring safe operations at our facilities around the world, so each person can return home safely, is the cornerstone of our daily activities and decisions.
We always put safety first, and we measure our successes by how safely we achieve our goals.
 
 

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Stakeholder Engagement
AES businesses have directly engaged with their local communities and foster programs that can make a community stronger economically, socially or environmentally.

We encourage our businesses to custom-tailor community engagement programs to ensure the most effective and beneficial local contribution.
AES businesses engage in partnerships with various stakeholders to maximize the benefits of the programs and make a long-term, positive impact for their communities. Partners include government agencies, development agencies, municipalities, NGOs, universities and technical institutions, business partners and subcontractors.
 
 
Human Rights
We believe it is our duty and responsibility to conduct business with the highest level of integrity, ethics and compliance in all situations.
AES has a Human Rights Policy that formalizes our long-standing commitment to uphold and respect human rights.

Our People
 
We recognize that our people are our greatest asset, and they set the foundation of our ability to achieve our strategic objectives. The success we have achieved would not be possible without the leadership, motivation, knowledge and skills that our people bring to work every day.
 
 
Talent Management
We have a comprehensive approach to managing our talent and our developing leaders in order to ensure our people have the right skills for today and tomorrow, whether that requires us to build new business models or leverage leading technologies.
 
 
Global Diversity and Inclusion
At AES, we believe that our individual differences make us stronger. We see our Diversity and Inclusion Program as an enabler, complementing who we are by reinforcing our values and supporting our mission and strategy.
Our Diversity and Inclusion Program targets the following achievements:
Ÿ Create a common language and understanding about diversity and inclusion;
Ÿ Take actions to reduce unconscious bias to increase inclusivity;
Ÿ Foster culture of diversity and inclusivity; and
Ÿ Track our program’s results leveraging a balanced scorecard approach, which considers tracking gender balance in talent pools and leadership positions, training participation, and community engagements, amongst other metrics.
 
 
Our Culture
In 2019, several AES businesses received “Great Place to Work” designations by the Great Place to Work Institute in the following countries:
Ÿ Argentina
Ÿ   Chile
Ÿ Colombia
Ÿ Panama
Ÿ Puerto Rico
Ÿ El Salvador
Ÿ Dominican Republic
Ÿ Mexico

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Related Person Policies and Procedures

Our Governance Committee has adopted a written Related Person Transaction Policy, which sets forth the procedures for the review, approval or ratification of any transaction involving an amount in excess of $120,000 in which the Company participates and any Director or Executive Officer of the Company, any Director nominee, any person who is the beneficial owner of more than 5% of the Company’s common stock, or any immediate family members of the foregoing (each, a “Related Person”), has a material interest as contemplated by Item 404(a) of Regulation S-K (“Related Person Transactions”). Under this policy, prior to entering into, or amending, a potential Related Person Transaction, the Related Person or applicable business unit leader must notify the General Counsel who will assess whether the transaction is a Related Person Transaction. If the General Counsel determines that a transaction is a Related Person Transaction, the details of the transaction will be submitted to the Financial Audit Committee (the “Audit Committee”) for review. The Audit Committee will either approve or reject it after taking into account factors including, but not limited to, the following:

the benefits to the Company;
the materiality and character of the Related Person’s direct or indirect interest, and the actual or apparent conflict of interest of the Related Person;
the impact on a Director’s independence in the event the Related Person is a Director or a Director nominee, an immediate family member of a Director or a Director nominee or an entity in which a Director or a Director nominee is an Executive Officer, partner, or principal;
the commercial reasonableness of the Related Person Transaction and the availability of other sources for comparable products or services;
the terms of the Related Person Transaction;
the terms available to unrelated third parties or to employees generally;
any reputational risk the Related Person Transaction may pose to the Company; and
any other relevant information.
In the event that the General Counsel determines that the Related Person Transaction should be reviewed prior to the next Audit Committee meeting, the details of the Related Person Transaction may be submitted to a member of the Audit Committee who has been designated to act on behalf of the Audit Committee between Audit Committee meetings with respect to the review and approval of these transactions. In addition, Related Person Transactions that are not pre-approved pursuant to the procedures set forth above may be subsequently ratified, amended or terminated by the Audit Committee or its designee. If the Audit Committee or its designee determines that the Related Person Transaction should not or cannot be ratified, the Audit Committee shall evaluate its options both with regard to the Related Person Transaction (e.g. termination, amendment, etc.) and the individuals involved in the Related Person Transaction, if necessary. At the Audit Committee’s first meeting of each fiscal year, the Audit Committee shall review any previously approved or ratified Related Person Transactions that remain ongoing to evaluate their continues appropriateness.

There were no Related Person Transactions in 2019.

Communications with the Board or Its Committees
The Board offers several e-mail addresses, as set forth below, for Stockholders and interested parties to send communications through the Office of the Corporate Secretary of the Company to the Board as a whole, to individual non-management Directors and/or to the following committees of the Board:
AES Board of Directors:
 
Governance Committee:
 
Compensation Committee:
AESDirectors@aes.com
 
NomGovCommitteeChair@aes.com
 
CompCommitteeChair@aes.com
 
 
 
 
 
Financial Audit Committee:
 
Innovation and Technology Committee:
 
 
AuditCommitteeChair@aes.com
 
InnovationCommitteeChair@aes.com
 
 

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A member of the Corporate Secretary’s Office will forward to the relevant party all communications that, in his or her judgment, are appropriate for consideration by such party. Examples of communications that would not be considered as appropriate for consideration by the the full Board or individual Directors include commercial solicitations, requests for employment and matters not relevant to Stockholders, the functioning of the Board or the affairs of the Company.

Additional Governance Information

Delinquent Section 16(a) Reports

Section 16(a) of the Exchange Act requires that certain of our officers, our Directors and persons who beneficially own more than 10% of a registered class of our equity securities file reports of ownership and changes in ownership with the SEC. The SEC has established specific due dates for these reports and we are required to disclose in this Proxy Statement any known late filings or failures to file. Based solely on our review of Section 16 reports filed electronically with the SEC and written representations from certain reporting persons, we believe that all Section 16(a) filing requirements applicable to those officers, Directors and 10% Stockholders were satisfied, except that (i) one Form 3 filing and one Form 4 filing reporting one transaction for Janet Davidson relating to a grant of Director Deferred Units were filed late on March 12, 2019 and (ii) one Form 4 filing reporting one transaction for Andres Gluski relating to the exercise of an option and related withholding of shares was filed one day late on January 30, 2020, due to administrative errors.

AES Code of Business Conduct and Corporate Governance Guidelines

Our Code of Conduct and Corporate Governance Guidelines have been adopted by the Board. The Code of Conduct is intended to govern as a requirement of employment the actions of everyone who works at AES, including employees of AES’ subsidiaries and affiliates and our Directors. The Code of Conduct and Corporate Governance Guidelines are available their entirety on the Company’s website (https://www.aes.com). Copies of the documents are available in print without charge by making a written request to: Office of the Corporate Secretary, The AES Corporation, 4300 Wilson Boulevard, Arlington, VA 22203. If any amendments to, or waivers from, the Code of Conduct are made, we will disclose such amendments or waivers on our website (https://www.aes.com).

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Board and Committee Governance

Board Leadership Structure

Our Corporate Governance Guidelines require the separation of the offices of the Chairman of the Board (“Chairman”) and CEO. Whenever possible if the Chairman is independent, he or she will also serve as Lead Independent Director. The Lead Independent Director’s duties include coordinating the activities of the independent Directors, coordinating the agenda for and moderating sessions of the Board’s independent Directors, and facilitating communications among the other members of the Board. We believe this structure provides strong leadership for our Board, while positioning our CEO as the leader of the Company for our investors, counterparties, employees and other stakeholders.

Our Board determines the best leadership structure for the Company. As part of our annual Board self-evaluation process, the Board evaluates issues such as independence of the Board, communication between Directors and Management, the relationship between the CEO and Chairman, and other matters that may be relevant to our leadership structure. The Company recognizes that in the event that circumstances facing the Company change, a different leadership structure may be in the best interests of the Company and its Stockholders.

Director Independence

Our Board currently has nine independent members. We have three Board Committees comprised solely of independent Directors, each with a different independent Director serving as Chair of the Committee.

We are required to have a majority of independent Directors serving on our Board and may only have independent Directors serving on each of our (i) Audit Committee, (ii) Compensation Committee and (iii) Governance Committee pursuant to the rules of the New York Stock Exchange (the “NYSE”) and, with respect to our Audit Committee, the rules and regulations under the Exchange Act.

Under the NYSE rules, no Director qualifies as “independent” unless the Board affirmatively determines that the Director has no material relationship with the Company (directly, or as a partner, Stockholder, or officer of an organization that has a relationship with the Company).  The Board makes independence determinations based on all relevant facts and circumstances when assessing the materiality of any relationship between the Company and a Director or a Director’s affiliation with other businesses or entities that have a relationship with the Company.

Our Board undertook an annual review of Director independence in February 2020. As part of this review, the Board considered not only the criteria for independence set forth in the listing standards of the NYSE but also any other relevant facts and circumstances that may have come to the Board’s attention, after inquiry, relating to transactions, relationships or arrangements between a Director or any member of their immediate family (or any entity of which a Director or an immediate family member is an Executive Officer, general partner or significant equity holder) on the one hand, and AES or any of its subsidiaries or affiliates, on the other hand, that might signal potential conflicts of interest, or that might influence the Director’s relationship with AES or any of its subsidiaries. As described in the preceding sentence, the Board considered the independence issue not merely from the standpoint of the Director, but also from that of the persons or organizations with which the Director or Director nominee is affiliated.

Based on its review, our Board determined that Messrs. Harrington, Miller, Monié, Morse, Ubben, Mmes. Davidson, Koeppel and Laulis, and Drs. Khanna and Naím each qualify as independent under the independence standards existing under the NYSE rules. Our Board also determined that Messrs. Harrington, Miller, Monié, and Ubben and Ms. Davidson qualify as independent under the independence standards for audit committee members under the Exchange Act.

Director Attendance

Under our Corporate Governance Guidelines, Directors are expected to attend Board meetings and meetings of Committees on which they serve in person or by telephone conference, and Directors are encouraged to attend the Annual Meeting.

In 2019, our Board convened five times and our Board Committees convened for the number of meetings specified in the chart below, and no Director attended less than 75% of the aggregate of all meetings of the Board and the Committees on which they then served. Non-management Directors met in executive session after each of the five meetings of the Board

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in 2019, with Mr. Morse presiding as Chairman and Lead Independent Director . All Directors serving at the time of the 2019 Annual Meeting of Stockholders on April 18, 2019 attended such meeting.

Board Committees

In 2019, the Board maintained four standing Committees:

Compensation Committee;
Financial Audit Committee;
Governance Committee; and
Innovation and Technology Committee.    
Each standing committee operates under a written charter that has been approved by the Board. Committee charters are available on our website (www.aes.com). The table below shows the Directors who are currently members or chairs of each of the standing Board Committees and the number of meetings each committee held in 2019.
Director
 
Audit
 
Compensation
 
Governance
 
Innovation and Technology
Andrés R. Gluski
 
 
 
 
 
 
 
l
Janet G. Davidson(2)
 
l
 
l
 
 
 
l
Charles L. Harrington (1)(2)
 
Chair
 
l
 
 
 
l
Tarun Khanna
 
 
 
 
 
l
 
Chair
Holly Koeppel
 
 
 
 
 
Chair
 
l
James H. Miller (1)(2)
 
l
 
Chair
 
 
 
l
Alain Monié (1)(2)
 
l
 
 
 
l
 
l
John B. Morse Jr. (3)
 
 
 
 
 
 
 
 
Moisés Naím
 
 
 
 
 
l
 
l
Jeffrey W. Ubben(1)(2)
 
l
 
l
 
 
 
l
Number of Meetings in 2019
 
8
 
7
 
6
 
4

(1) Designated as an “audit committee financial expert” as defined by the rules and regulations of the SEC.
(2) Designated as “financially literate” as required by the NYSE rules.
(3) Chairman and Lead Independent Director, serves as an ex-officio member of each committee (with no voting authority as to such committees).

Compensation Committee. The primary functions of the Compensation Committee are to:

review and evaluate at least annually the performance of the CEO and other executive officers of the Company, including setting goals and objectives, and to set executive compensation, including incentive awards and related performance goals;
provide oversight of the Company’s executive compensation and benefit plans and practices;
make recommendations to the Board to modify AES’ executive compensation and benefit programs to align with the Company’s compensation goals;
review, discuss and make recommendations to the Board on say on pay and say on frequency matters and Stockholder engagement;
assess the stock ownership guidelines for executive officers;
review Management’s succession planning; and

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prepare the compensation committee report included in the Company’s proxy statement.
The Board determined that all Compensation Committee members are independent within the meaning of SEC rules and current listing standards of the NYSE. In addition, each member of the Compensation Committee is a “Non-Employee Director” as defined in Rule 16b-3 under the Exchange Act.

At the commencement of each year, AES’ NEOs (other than the CEO) discuss their position-specific goals and objectives for the upcoming year with the CEO. In the first quarter of the following year, the CEO performs an assessment of each NEO’s performance against his or her stated goals and, in the case of our CEO, our Compensation Committee reviews and assesses his performance against his stated goals and objectives.

Based on our CEO’s performance, the Compensation Committee provides an evaluation, approves and recommends that the Board approves the CEO’s compensation. The Compensation Committee reviews and approves, and then recommends the Board approves, the compensation recommendations submitted by the CEO as to the other NEOs.

Additionally, the Compensation Committee makes recommendations to the Board to modify AES’ compensation and benefit programs if it believes that such programs are not consistent with the Company’s executive compensation goals or could otherwise be improved. Under the Compensation Committee’s Charter, it may form subcommittees and delegate to such subcommittees, other Board members and Officers, such power and authority, as the Compensation Committee deems appropriate in accordance with the Compensation Committee Charter. The Compensation Committee has also delegated to the CEO, subject to review by the Compensation Committee and the Board, the power to set compensation for non-Executive Officers. Under the 2003 Long Term Compensation Plan, the Compensation Committee is also permitted to delegate its authority, responsibilities and powers to any person selected by it and has expressly authorized our CEO to make equity grants to non-Executive Officers in compliance with law. Under such delegation, our CEO may grant equity awards to non-Executive Officer employees up to 250,000 shares annually with a total cap of 1.25 million shares over the life of the delegation.

The Compensation Committee retains the services of its own independent outside consultant to assist it in reviewing and/or advising the amount and/or form of executive compensation. Meridian Compensation Partners, LLC (“Meridian”) is the firm retained by the Compensation Committee for these purposes and is precluded from providing other non-Board related services to AES. The Compensation Committee has the sole authority to hire and dismiss its consultant. Meridian provided objective input and analysis to the Compensation Committee throughout the year with reference to market data trends, regulatory initiatives, governance best practices and emerging governance norms. For further information concerning the independent outside consultant’s role in relation to NEO compensation, please refer to the Role of the Compensation Committee, Independent Consultant and Management section in the Compensation Discussion and Analysis (“CD&A”) of this Proxy Statement.

Management regularly obtains market survey data based on comparable companies from Willis Towers Watson. Meridian reviews the market survey data prior to it being shared with the Compensation Committee to ensure the data sources are appropriate for purposes of comparing our NEOs’ compensation to comparable executives at similarly-sized general industry and power industry companies.

The Compensation Committee has instructed the Senior Vice President and Chief Human Resources Officer (“CHRO”) to provide information to the Compensation Committee that is required for developing compensation programs and determining executive compensation. The CHRO works directly with the Compensation Committee’s independent consultant in the preparation of the background material for the Compensation Committee. For further information regarding our executive compensation practices refer to the CD&A of this Proxy Statement.

The compensation of our Directors is established by the Governance Committee. See Director Compensation in this Proxy Statement for a description of our Governance Committee’s processes and procedures for determining Director compensation.

Financial Audit Committee. The primary functions of the Audit Committee are to assist the Board in the oversight of:

the integrity of the financial statements of the Company and its subsidiaries;
the effectiveness of the Company’s internal controls over financial reporting;
the Company’s compliance with legal and regulatory requirements;
the qualifications, independence and performance of the Company’s independent registered public accounting firm (the “Independent Auditor”);

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the performance of the Company’s internal audit function; and
the preparation of the audit committee report included in the Company’s annual Proxy Statement.
All members of the Audit Committee are independent within the meaning of the SEC rules and under the listing standards of the NYSE. The Board has also determined that each member of the Audit Committee is “financially literate” as required by the NYSE rules, and that each of Messrs. Harrington, Miller, Monié and Ubben are Audit Committee Financial Experts pursuant to SEC rules based on, among other things, the experience of such member, as described under the Board of Directors - Biographies section of this Proxy Statement.

Governance Committee. The principal functions of the Governance Committee are to:

identify and provide recommendations for potential Director nominees for election to the Board;
advise the Board with respect to Board composition, procedures and committees;
develop and recommend to the Board corporate governance guidelines (and any amendments thereto) applicable to the Company;
establish and administer programs for evaluating the performance of Board members;
review the fees paid to outside directors for their services on the Board and its Committees;
consider governance and social responsibility issues relating to the Company;
review the Company’s contributions to trade associations, including any amounts related to political activities and lobbying expenses, and review of other political contributions or expenditures, if any, by the Company;
provide oversight of the Company’s environmental, safety and cyber security programs and related issues; and
provide oversight of the Company’s dispute resolution, operations, construction, insurance and regulatory programs and related issues.
The Governance Committee operates under the charter of the Governance Committee adopted and approved by the Board. Consistent with the requirements of the Charter, the Board determined that all Governance Committee members are independent within the meaning of the listing standards of the NYSE.

Innovation and Technology Committee. The Innovation and Technology Committee is responsible for the oversight and evaluation of:

the Company’s efforts to foster growth through innovation;
the Company’s efforts to identify and assess risks and opportunities in the power industry and adjacent industries arising from emerging or competing technologies; and
the Company’s approach to replication of innovative solutions across businesses.

Board’s Role in Risk Management

Management is responsible for the management and assessment of risk at the Company, including communication of the most material risks to the Board and its Committees. The Board provides oversight over the risk management practices implemented by Management, except for the oversight of risks that have been specifically delegated to a Committee of the Board. Even when the oversight of a specific area of risk has been delegated to a Committee, the full Board maintains oversight over such risks through the receipt of reports from the Committee Chairs to the full Board at each regularly-scheduled full Board meeting. In addition, if a particular risk is material or where otherwise appropriate, the full Board may assume oversight over a particular risk, even if the risk was initially overseen by a Committee. The Board and Committee reviews occur principally through the receipt of regular reports from Management to the Board on these areas of risk, and discussions with Management regarding risk assessment and risk management as follows:






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Risk Management Oversight Structure

Responsible Party
 
Area of Risk Oversight
Board
 
Oversees all operational, financial, strategic, brand and reputational risk with the oversight of specific risks undertaken within the Committee structure.
 
The Company’s Chief Financial Officer provides a report on the Company’s financial performance and outlook, which may include an analysis of key external and internal drivers of performance, prospective sources and uses of funds, and the implications to the Company’s debt covenants and credit rating, if any.
 
Receives a report from the Company’s Chief Risk Officer, which explains the Company’s primary risk exposures, including currency, commodity, hydrology, and interest rate risk.
 
In addition to the regular reports from Committee Chairs, the Board receives reports on specific areas of risk from time to time, such as regulatory, geopolitical, cyclical, or other risks.
 
 
 
Audit Committee
 
Oversees risk related to integrity of the Company’s financial statements, internal controls over financial reporting and disclosure controls and procedures (including the performance of the Company’s internal audit function).
 
Oversees the performance of the Independent Auditor.
 
Oversees the effectiveness of the Company’s Ethics and Compliance Program.
 
 
 
Governance Committee
 
Oversees risk related to environmental compliance, safety and cyber security risks.
 
Oversees operational and construction risks including risks related to tariffs, efficiency at our subsidiaries’ plants, performance of our subsidiaries’ distribution businesses, progress of construction and risks that may cause delays or increases in costs and related matters.
 
Oversees risks related to dispute resolution and receives a privileged dispute resolution report from the General Counsel, which provides information regarding the status of the Company’s litigation and related matters.
 
 
 
Compensation Committee
 
Oversees risk related to compensation practices, including practices related to hiring and retention, succession planning, and training of employees.
 
 
 
Innovation and Technology Committee
 
Oversees risk related to technologies and innovations deployed by the Company for use in its businesses.




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Board and Committee Evaluations

The Company recognizes that a strong and constructive evaluation process is an essential component of good corporate governance and Board effectiveness. Through this process, Directors provide feedback and assess Board, Committee and Director performance. The process is managed by the Office of the Corporate Secretary with oversight by the Governance Committee. Our annual evaluation process is focused on three areas: (1) the Board, (2) Board Committees and (3) individual Directors. The Governance Committee annually reviews the format of the evaluation process, including whether to utilize a third-party facilitator. In 2019 the evaluation process was conducted by an independent consultant and included the steps described below. In addition to participation in a full Board evaluation, each Committee completes an annual evaluation to identify any potential modifications to the Committee.

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Director Characteristics and Succession Planning

Under the leadership of the Governance Committee, in 2019 the Board enhanced refreshment and succession strategy in light of the Company’s strategic direction and business context. The Board established a framework that:
Defined and assessed culture and dynamics;
Enhanced annual assessments of the Board and individual Directors; and
Established a multi-year view of the Board’s refreshment rotation and recruitment strategy to strategically plant for board openings.
As discussed in Board and Committee Evaluations above, the Board engaged an independent consultant to conduct an assessment to evaluate Board performance. In addition to evaluating the Board and Committees, the Board identified the attributes, competences and experiences needed now and in the future in light of the Company’s strategy, changing business needs and the future of the business. The performance and skills assessments are considered a fundamental element of the Board’s multi-year succession planning. The Governance Committee does not have specific minimum qualifications that must be met for a prospective Director candidate to be considered as a Director nominee. When considering director nominees, including incumbent directors eligible for re-election, nominees to fill vacancies on the Board, and nominees recommended by Stockholders, the Governance Committee focuses on the development of a Board composed of directors that are aligned with the AES business strategy and measures against a set of 16 leadership attributes, competencies and experiences. These characteristics are grouped and summarized below:
Global mindset, including stakeholder influence and understanding;
Transformational leadership and mission driven alignment;
Business agility, including customer centricity and data driven decision making;

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Operations management, including experience as a public company business leader;
Finance and investment experience, including financial strategies and US corporate governance experience;
Innovation and technology, including disruptive technologies and digital understanding;
Strategic leadership, including business acumen, people and organizational dynamics and talent management; and
Diversity along a variety of dimensions, including the candidate’s professional and personal experience, background, perspective and viewpoint as well as the candidate’s gender and ethnicity.
The table below summarizes some of the experience, qualifications, attributes and skills of our director nominees. This high-level summary is not intended to be an exhaustive list of each of our director nominee’s skills or contributions to the Board. Further information on each director nominee, including their relevant experience, qualifications, attributes or competencies is set forth in the Director biographies beginning on page of the 22 Proxy Statement.
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Director Nominations by Stockholders

The Governance Committee also considers potential nominations for Director provided by Stockholders and submits any such suggested nominations, when appropriate, to the Board for approval. The evaluation process for nominees recommended by Stockholders does not differ from the process described above for other nominees. Stockholders wishing to recommend persons for consideration by the Governance Committee as nominees for election to the Board can do so by writing to the Office of the Corporate Secretary, The AES Corporation, 4300 Wilson Boulevard, Arlington, Virginia 22203 and providing the information and following the additional procedures set forth in our By-Laws. See Questions and Answers Regarding the Proxy Statement and Annual Meeting for more information.

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Board of Directors - Biographies

The Board has nominated ten Directors (the “Nominees”) for election at the 2020 Annual Meeting to each serve a one-year term expiring at the Annual Meeting in 2021. The Nominees’ biographies describe each candidate’s background, relevant experience and committee service.

janetdavidson.jpg
 
Janet G. Davidson

Age: 63

Director since February 2019
 
 
 
 
 
 
Board Committees
 
Financial Audit Committee
Compensation Committee
Innovation and Technology Committee
 
 
 
 
 
Other Current Public Directorships
 
 
ST Microelectronics, N.V.
Millicom International Cellular
 
 
 
 
 
 
 
Other Public Directorships Within the Last Five Years
 
 
None
 
 
 
 
 
 
 
Qualifications and Experience:
 
 
Ms. Davidson brings to the AES Board a deep knowledge of technology, global business operations, customer care and sales, and corporate strategy. Ms. Davidson began her career in 1979 as a member of the Technical Staff of Bell Laboratories, Lucent Technologies (as of 2006 Alcatel Lucent), a communications and infrastructure solutions company, and served from 1979 through her retirement in 2011 in several key positions including, most recently as Group President Internetworking Systems (2001 to 2005), Chief Strategy Officer (2005 to 2006), Chief Compliance Officer (2006 to 2008) and Executive Vice President, Quality & Customer Care (2008 to 2011).

















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Andrés R. Gluski

Age: 62

Director since September 2011
 
 
 
 
 
 
Board Committees
 
Innovation and Technology Committee
 
 
 
 
 
Other Current Public Directorships
 
 
Waste Management, Inc.
 
 
 
 
 
 
 
Other Public Directorships Within the Last Five Years
 
 
AES Gener, S.A.
 
 
 
 
 
 
 
Qualifications and Experience:
 
 
As the Chief Executive Officer (“CEO”) of AES, Mr. Gluski provides our Board with in-depth knowledge about the Company’s business, the electric industry and international markets. Under his leadership, AES has become a world leader in implementing clean technologies, including energy storage, renewables and LNG. He also initiated a quarterly dividend, which has grown at an 8% annual rate, and increased the credit rating by multiple notches to achieve an investment grade rating. Mr. Gluski currently serves on the US-India CEO Forum and the U.S. Brazil CEO Forum and since 2015, Mr. Gluski has served as Chairman of the Council of the Americas/Americas Society. Prior to his appointment as CEO in September 2011, Mr. Gluski served in several senior roles at AES, including as Chief Operating Officer of the Company. Before joining AES in 2000, Mr. Gluski held senior positions in banking, telecommunications, the International Monetary Fund and the public sector.
























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Tarun Khanna

Age: 53

Director since April 2019
 
 
 
 
 
 
 
Board Committees
 
Governance Committee
Innovation and Technology Committee, Chair
 
 
 
 
 
Other Current Public Directorships
 
 
None
 
 
 
 
 
 
 
Other Public Directorships Within the Last Five Years
 
 
Bharat Financial Inclusion Limited
 
 
 
 
 
 
 
Qualifications and Experience:
 
 
Dr. Khanna is the Jorge Paulo Lemann Professor at the Harvard Business School, where he joined the faculty in 1993. He brings substantial expertise regarding global business, emerging markets and corporate strategy to the Board. Dr. Khanna’s scholarly work has been published in a range of economics, management and foreign policy journals. He has written several books on entrepreneurship in emerging markets, most recently, Trust: Creating the Foundation for Entrepreneurship in Developing Countries (2018), and is a co-founder of several science-based startups across the developing world. He was appointed a Young Global Leader by the World Economic Forum in 2007, elected Fellow of the Academy of International Business in 2009, appointed Director of Harvard University’s Lakshmi Mittal and Family South Asia Institute in 2010, appointed Chairman of the Government of India’s Expert Commission on Innovation & Entrepreneurship in 2015, and honored for lifetime scholarly achievement by the Academy of Management in 2015.





















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Holly K. Koeppel

Age: 61

Director since April 2015
 
 
 
 
 
 
 
Board Committees
 
Governance Committee, Chair
Innovation and Technology Committee
 
 
 
 
 
Other Current Public Directorships
 
 
British American Tobacco
Vesuvius plc
Arch Coal, Inc.
 
 
 
 
 
 
 
Other Public Directorships Within the Last Five Years
 
 
Reynolds American Inc.
Integrys Energy Group, Inc.
 
 
 
 
 
 
 
Qualifications and Experience:
 
 
Ms. Koeppel, a senior operating and financial executive, has served for over thirty years in the energy industry. Her knowledge of global energy-related commodity markets and infrastructure industries offers valuable insights to the Board. From 2010 to until her retirement in January 2017, Ms. Koeppel was Partner and Global Head of Citi Infrastructure Investors, a division of Citigroup, which was later managed by Corsair Infrastructure Management. Prior to her service at Citi Infrastructure Investors, Ms. Koeppel served as Executive Vice President and Chief Financial Officer for American Electric Power Corporation (“AEP”) from 2006 to 2009 and in several additional executive positions at AEP (from 2000 to 2006).























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Julia M. Laulis
 
Age: 57
 
Director Nominee
 
 
 
 
 
 
 
Board Committees
 
None
 
 
 
 
 
Other Current Public Directorships
 
 
Cable One, Inc.
 
 
 
 
 
 
 
Other Public Directorships Within the Last Five Years
 
 
None
 
 
 
 
 
 
 
Qualifications and Experience:
 
 
Ms. Laulis brings to the AES Board a deep knowledge of business strategy, operations, customer care, technology and transformational leadership. Ms. Laulis joined Cable One in 1999 as Director of Marketing - Northwest Division. In 2001, she was named Vice President of Operations for the Southwest Division. In 2004, she accepted the additional responsibility for starting up Cable One’s Phoenix Customer Care Center. In 2008, she was named Chief Operations Officer, responsible for the company’s three operation divisions and two call centers. In 2012, she was named Chief Operating Officer of Cable One, adding sales, marketing and technology to her responsibilities. In January 2015, she was promoted to President and Chief Operating Officer of Cable One. Prior to joining Cable One, Ms. Laulis served in various management positions with Jones Communications in the Washington, DC and Denver, CO areas. Ms. Laulis began her career in the cable industry over 35 years ago with Hauser Communications.
























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James H. Miller

Age: 71

Director since June 2013
 
 
 
 
 
 
 
Board Committees
 
Compensation Committee, Chair
Financial Audit Committee
Innovation and Technology Committee
 
 
 
 
 
Other Current Public Directorships
 
 
Crown Holdings, Incorporated
McDermott Inc.
 
 
 
 
 
 
 
Other Public Directorships Within the Last Five Years
 
 
Rayonier Advanced Materials
Chicago Bridge & Iron Company N.V.
 
 
 
 
 
 
 
Qualifications and Experience:
 
 
Mr. Miller brings to the AES Board his substantial experience in the energy industry both in the US and internationally, including experience in regulated utilities and competitive power markets. With more than 35 years of experience in the energy industry, Mr. Miller served as Chairman of PPL Corporation from 2006 until his retirement in March 2012. He joined PPL as President of its US generation businesses in 2001. Previously, he was Executive Vice President of USEC Inc. and President of two ABB Group subsidiaries: ABB Environmental Systems and ABB Resource Recovery Systems. He began his career at the former Delmarva Power & Light Co.























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Alain Monié

Age: 69

Director since: July 2017
 
 
 
 
 
 
 
Board Committees
 
Governance Committee
Financial Audit Committee
Innovation and Technology Committee
 
 
 
 
 
Other Current Public Directorships
 
 
Ingram Micro Inc.
Expeditors
 
 
 
 
 
 
 
Other Public Directorships Within the Last Five Years
 
 
Amazon.com, Inc.
 
 
 
 
 
 
 
Qualifications and Experience:
 
 
Mr. Monié has served as the chief executive officer of Ingram Micro Inc. (“Ingram Micro”), a leader in delivering the full spectrum of global technology and supply chain solutions to businesses around the world, since January 2012. Mr. Monié joined Ingram Micro in 2003 and was appointed President of the Asia Pacific region in 2004. From 2007 to 2010, he served as President and Chief Operating Officer of Ingram Micro. Following one year as Chief Executive Officer of Singapore-based Asia Pacific Resources International Limited, he returned to Ingram Micro as Chief Operating Officer in late 2011 and became Chief Executive Officer in January 2012. Prior to joining Ingram Micro, Mr. Monié held senior international leadership positions with AlliedSignal Inc. (“AlliedSignal”) and, subsequently, Honeywell International (“Honeywell”) after the two companies merged. Mr. Monié played a key role in AlliedSignal’s 1999 merger with Honeywell and, from 2000 to 2002, he served as Honeywell’s president of Latin America and head of the Industrial and Building Automation group for that region. Before joining AlliedSignal, Mr. Monié held general management positions with French aerospace company Sogitec Inc. and, prior to that time, he was a controller with Renault. He started his career as an engineer in Mexico while in military service.












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John B. Morse Jr.

Age: 73

Director since December 2018
 
 
 
 
 
 
 
Board Committees
 
Chairman of the Board and Lead Independent Director
 
 
 
 
 
Other Current Public Directorships
 
 
Host Hotels & Resorts Corporation
 
 
 
 
 
 
 
Other Public Directorships Within the Last Five Years
 
 
HSN, Inc.
 
 
 
 
 
 
 
Qualifications and Experience:
 
 
Mr. Morse brings substantial executive experience to the Board, including board, investment and other finance expertise. Prior to his appointment as Chairman of the Board and Lead Independent Director in April 2018, Mr. Morse served as the Chairman of the Financial Audit Committee beginning in April 2013 and was a member of the Strategy and Investment Committee of the Board. Before his retirement in December 2008, Mr. Morse served as the Senior Vice President, Finance and Chief Financial Officer of The Washington Post Company (the “Post”), now Graham Holdings Co., a diversified education and media company whose principal operations include educational services, newspaper and magazine print and online publishing, television broadcasting and cable television systems recording over $4.4 billion in annual operating revenues. During Mr. Morse’s 19 year tenure, the Post’s leadership made more than 100 investments in both domestic and international companies and included new endeavors in emerging markets. Prior to joining the Post, Mr. Morse was a partner at Price Waterhouse (now PricewaterhouseCoopers), where he worked with publishing/media companies and multilateral lending institutions for more than 17 years.















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Moisés Naím

Age: 67

Director since April 2013
 
 
 
 
 
 
 
Board Committees
 
Governance Committee
Innovation and Technology Committee
 
 
 
 
 
Other Current Public Directorships
 
 
FEMSA
 
 
 
 
 
 
 
Other Public Directorships Within the Last Five Years
 
 
Cementos Pacasmayo
 
 
 
 
 
 
 
Qualifications and Experience:
 
 
Dr. Naím is a Distinguished Fellow at the Carnegie Endowment for International Peace and has served in that role since June 2010. For fourteen years (1996 to 2010), Dr. Naím was Editor in Chief of Foreign Policy magazine (first, at The Carnegie Endowment for International Peace and subsequently, at The Washington Post Company). He has written extensively on international economics and global politics, economic development and the consequences of globalization, and is the chief international columnist for El País and La Repubblica, which are high circulation daily newspapers in Spain and Italy, respectively. His columns are syndicated worldwide.  Dr. Naím is also the host and producer of Efecto Naím, a Spanish language news and analysis weekly program that airs in the US and Latin America. Dr. Naím brings substantial international economics and political expertise to AES through his tenure as Venezuela’s Minister of Industry and Trade and Director of Venezuela’s Central Bank in the early 1990s and as an Executive Director of the World Bank also in the early 1990s. He is the author of many scholarly articles and more than ten books on economics and politics and has broad experience as a consultant to corporations, governments and non-governmental organizations.




















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Jeffrey W. Ubben

Age: 58

Director since January 2018
 
 
 
 
 
 
 
Board Committees
 
Financial Audit Committee
Compensation Committee
Innovation and Technology Committee
 
 
 
 
 
Other Current Public Directorships
 
 
None
 
 
 
 
 
 
 
Other Public Directorships Within the Last Five Years
 
 
Twenty-First Century Fox
Willis Towers Watson plc
Willis Group Holdings plc
Valeant Pharmaceuticals International, Inc.
Misys, plc
 
 
 
 
 
 
 
Qualifications and Experience:
 
 
Mr. Ubben is a Founder and the Chairman of ValueAct Capital. He is currently Portfolio Manager of the ValueAct Spring Fund and is a member of the firm’s Management Committee. Mr. Ubben served as the Chief Executive Officer of ValueAct Capital from July 2017 through 2019 and served as the Chief Investment Officer of ValueAct Capital prior to that. With more than 30 years of experience in the investment management business, Mr. Ubben has an extensive background in sophisticated financial matters and strategic planning. In addition to his investment expertise, Mr. Ubben brings to the Board strong leadership skills gained through his experience on the Boards of other public companies.





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Director Compensation

Director Compensation Program

The Governance Committee annually reviews the level and form of compensation paid to Directors, including our Director compensation program’s underlying principles. Under the Corporate Governance Guidelines, a Director who is also an Officer of AES is not permitted to receive additional compensation for service as a Director. Any proposed changes to the Director compensation program are recommended by the Governance Committee to the Board for consideration and approval.

Independent Committee Consultant

The Governance Committee retained Meridian to assist with the Committee’s review of Director compensation practices for 2019. Meridian reports directly to the Governance Committee and the Governance Committee can replace Meridian or hire additional consultants at any time.

The scope of Meridian’s engagement regarding Director compensation in 2019 included:

Comparing how Director compensation relates and compares to that of similarly-sized general industry and power companies;

Reviewing the elements of Director compensation (e.g., annual retainers, committee compensation and deferred compensation grants);

Evaluating the mix of cash compensation and equity/deferred compensation that makes up total Director compensation; and

Providing an evaluation of the Director compensation program design, including alternative recommendations for consideration.

Director Compensation for 2019

The Board reviews the Board compensation structure on an annual basis. In 2019, on its own initiative, the Board determined that it would not increase Board compensation for the 2019-2020 Board Year. The Board has not increased its compensation since 2012.

Board compensation is intended to meet the following goals:

promote the recruitment of talented and experienced Directors to the AES Board;
compensate outside Directors for the increased workload inherent in a public board Director position; and
retain a strong financial incentive for Directors to maintain and promote the long-term health and viability of the Company. 

The Governance Committee of the Board consulted various materials regarding current trends and best practices for determining compensation for boards of directors, as described above.

Annual Retainer. For 2019, Directors elected at the annual meeting of Stockholders received an $80,000 annual retainer with a requirement that at least 34% of such retainer be deferred in the form of stock units. Directors may elect (but are not required) to defer more than the mandatory 34% deferral. Any portion of the annual retainer that is deferred above the mandatory deferral was credited to the Director in stock units equivalent to 1.3 times the elected deferral amount. The Board also determined that the Chairman would receive compensation at an amount equal to 1.9 times the 2019 annual retainer of other AES Board members, and that such amount would be inclusive of all Board responsibilities.


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Committee Compensation. Committee chairpersons and members received compensation for their Committee service as outlined below. In 2019, all Directors, other than our Chairman, served on the Innovation and Technology Committee and the Board determined that the annual retainer was sufficient compensation and no additional committee member fees would be paid for such service by the other Directors. The Innovation and Technology Committee Chair received compensation for his service as chairman to reflect the duties and responsibilities of the committee chairman.
Audit Committee Chair
 
$30,000
Compensation Committee Chair
 
$25,000
Governance Committee Chair
 
$22,250
Innovation and Technology Committee Chair
 
$15,000
Audit Committee Member
 
$15,000
Compensation Committee Member
 
$15,000
Governance Committee Member
 
$15,000

Deferred Incentive Compensation Grant. Directors received an annual Deferred Incentive Compensation Grant valued at $150,000 in the form of stock units or stock options. The Board also determined that the Chairman would receive such a grant in an amount equal to 1.9 times the Deferred Incentive Compensation Grant of other AES Board members.

New Directors. Newly elected Directors receive an initial grant consisting of deferred stock units and/or stock options valued at $40,000 and an Annual Retainer, Committee Fees, and Deferred Incentive Compensation Grant pro-rated for the service provided until the next annual meeting of Stockholders.

Non-Employee Director Stock Ownership Guidelines. The Board adopted stock ownership guidelines for Directors that provide for non-employee Directors to accumulate and maintain equity ownership in AES having a value of no less than five times the annual retainer within five years of the date of the Director’s appointment to the Board. All stock and equity interests of a Director are taken into consideration for purposes of considering compliance with the policy, including Director stock units.


Director Compensation (2019)* 
The following table contains information concerning the compensation of our non-Management Directors during 2019.  
 
Name(1)
Fees Earned or
Paid in Cash
(2)
Stock
Awards
(3)
Option
Awards
(4)
Total
 
Janet G. Davidson (5)
$96,408
$251,700
$0
$348,108
 
Charles L. Harrington
Chair—Financial Audit Committee
$97,800
$193,040
$0
$290,840
 
 
Kristina M. Johnson (6)
$0
$0
$0
$0
 
Tarun Khanna
Chair—Innovation and Technology Committee
$82,800
$181,040
$0
$263,840
 
 
Holly K. Koeppel
Chair—Governance Committee
$90,050
$193,040
$0
$283,090
 
 
James H. Miller
Chair—Compensation Committee
$92,800
$177,200
$0
$270,000
 
 
Alain Monié
$82,800
$118,040
$75,000
$275,840
 
John B. Morse, Jr.
Chairman, Lead Independent Director
$100,320
$366,776
$0
$467,096
 
 
Moisés Naím
$77,800
$193,040
$0
$270,840

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Name(1)
Fees Earned or
Paid in Cash
(2)
Stock
Awards
(3)
Option
Awards
(4)
Total
Jeffrey W. Ubben
$82,800
$177,200
$0
$260,000


* Table excludes the Non-Equity Incentive Plan Compensation, Change in Pension Value and Nonqualified Deferred Compensation Earnings, and All Other Compensation columns, which are not applicable.
NOTES:
(1)
Mr. Gluski, our President and CEO, is also a member of our Board. His compensation is reported in the Summary Compensation Table and the other tables set forth in this Proxy Statement. In accordance with our Corporate Governance Guidelines, Management Directors do not receive any additional compensation in connection with service on the Board.

(2)
Directors elected at the 2019 Annual Meeting of Stockholders received an $80,000 Annual Retainer with a requirement that at least 34% of such retainer be deferred in the form of stock units, with each Director having the right to elect to defer additional amounts as further described above. Directors may also elect to defer Committee fees in the form of stock units.

The mandatory deferral portion of the Annual Retainer is included in the “Stock Awards” column above, while the “Fees Earned or Paid in Cash” column includes amounts from the Annual Retainer and Committee fees that Directors elected to defer (above the mandatory deferral) into stock units except that the additional incremental value resulting from the 1.3 multiplier or 1.9 multiplier, as applicable, applied to elective deferrals of the Annual Retainer is included in the “Stock Awards” column, as noted in footnote 3. The elective deferral amounts were as follows:
 
 
Annual Elective
Retainer Deferred
 
Committee
Retainer Deferred
Janet Davidson
 
$31,548
 
$0
Charles L. Harrington
 
$52,800
 
$45,000
Tarun Khanna
 
$12,800
 
$0
Holly K. Koeppel
 
$52,800
 
$0
John B. Morse, Jr.
 
$100,320
 
$0
Alain Monié
 
$52,800
 
$30,000
Moisés Naím
 
$52,800
 
$25,000

(3)
This column includes the aggregate grant date fair value of Director stock unit awards granted in 2019 pursuant to (i) the 34% mandatory annual retainer deferral into stock units, (ii) as further described in Director Compensation above, the additional incremental value resulting from Directors electing to defer more than 34% of their annual retainer and being credited with 1.3 or 1.9 times, as applicable, of the elective deferral amount, and (iii) the annual Deferred Incentive Compensation Grant. The aggregate grant date fair values were computed in accordance with FASB ASC Topic 718. A discussion of the relevant assumptions made in these valuations may be found in footnote 16 to the financial statements contained in the AES Form 10-K.
As of December 31, 2019, Directors or former Director had the following total number of stock units credited to their accounts under the 2003 Long Term Compensation Plan: Janet G. Davidson 16,029; Charles L. Harrington - 140,636; Tarun Khanna - 210,971; Holly K. Koeppel - 102,302; James H. Miller - 110,453; Alain Monié - 46,291; John B. Morse, Jr. - 253,627 ; Moisés Naím - 125,174; and Jeffrey Ubben - 32,945 .

(4) This column reflects aggregate grant date fair value of each Director Stock Option granted in 2019. A discussion of relevant assumptions made in this valuation may be found in footnote 16 to the financial statements contained in the AES Form 10-K.    
No Directors held Options outstanding as of December 31, 2019, with the exception of James H. Miller - 19,280; and Alain Monié - 99,051.


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(5)
Ms. Davidson was elected to the Board on February 22, 2019 and accordingly was paid an initial grant of deferred stock units and an Annual Retainer, Committee Fees, and Deferred Compensation Grant pro-rated for the service provided until the April 18, 2019 Annual Meeting of Stockholders.

(6)
Ms. Johnson’s term ended April 18, 2019. She did not receive any compensation for the 2019-2020 Board Year.









[Remainder of Page Intentionally Left Blank]

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Compensation Discussion and Analysis (“CD&A”)

Executive Summary

The following points highlight the alignment of AES’ compensation plans and practices for our NEOs with performance and Stockholder value creation. Any non-GAAP measures discussed in this CD&A are reconciled to the nearest GAAP financial measure or described how such measure is calculated from the financial statements in the section titled “Non-GAAP Measures”.

2019 was a strong year for AES, demonstrated by its achievement of strategic and financial results, and continued share price appreciation. The Company continued to deliver on its commitments, including financial guidance, and hit key milestones on its strategy, positioning AES for long-term, sustainable growth. As a result of these efforts, the overall performance of the Company exceeded expectations and delivered a 42% annual return to its Stockholders in 2019. The Company’s compensation philosophy remains unchanged and the compensation earned by our NEOs demonstrates alignment between our executive compensation program design and value creation to Stockholders. In summary:

AES’ philosophy is to target total compensation opportunities at approximately the 50th percentile of companies similar in industry and size.
With over three-quarters of NEO compensation in variable incentives, actual compensation only exceeds the 50th percentile when AES exceeds performance goals and creates commensurate Stockholder value.
Annual incentive plan payouts were slightly above the target opportunity based on actual performance.
2019 long-term incentive payouts reflect strong performance and Total Shareholder Return of 92% over a three-year performance period (2017-2019).
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The Compensation Committee continues to align pay practices with Stockholder interests.
What AES Does
 
What AES Doesn’t Do
Pay-for-Performance Alignment - Annual review of AES Total Stockholder Return performance and its impact on realizable pay to ensure actual results are aligned to performance payouts
 
No “Single-Trigger” Vesting of Equity Awards with a Change in Control - All unvested, outstanding and future awards contain a “double-trigger” provision
Target Total Compensation at 50th Percentile - Based on similarly-sized companies’ target total compensation at the size-adjusted 50th percentile
 
No Special Retirement Benefit Formulas for NEOs - Our non-qualified retirement plan restores benefits capped under our broad-based plan due to statutory limits

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Heavy Weight on Performance Compensation - Majority of compensation is paid through annual incentive and long-term compensation plans
 
No Hedging or Pledging - Maintain a policy that prohibits all AES employees (including Officers) and Directors of AES from engaging in hedging activities or pledging AES stock
Stock Ownership Guidelines - Maintain market-competitive guidelines to align NEO and Stockholder interests
 
No Change-In-Control Excise Tax Gross-Ups - Completely discontinued this provision
Change-In-Control Severance - Our plan is competitive with market practice and all benefits are conditioned upon “double-trigger”
 
No Perquisites - No perquisites are provided to any NEOs, except for relocation benefits in connection with overseas assignments
“Clawback” Policy - Policy provides for recovery of certain previously-paid incentive awards under certain circumstances
 
No Backdating or Option Repricings 
Independent Consultant Retained by the Compensation Committee - Provides no other services to AES, other than Board services
 
No Payment of Dividends or Dividend Equivalents on Equity Awards Unless Earned and/or Vested

The Compensation Committee annually reviews AES’ performance and CEO compensation relative to power generation and utility companies from the S&P 500 Utilities Index to which investors may compare AES. For the 2016-2018, period the CEO’s realizable compensation was equivalent to the 53rd percentile while Total Stockholder Return was equivalent to the 80th percentile.
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The above chart reflects that the CEO’s compensation is highly aligned with value creation to AES Stockholders.
At the 2019 Annual Meeting, AES received over 94% support for its NEO compensation based on the shares voted in favor of the 2019 Say on Pay proposal.


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Our Executive Compensation Process

The CD&A includes compensation details for our NEOs:
 
Name
 
Title
Mr. Andrés Gluski
 
President & Chief Executive Officer (“CEO”)
Mr. Gustavo Pimenta
 
   EVP & Chief Financial Officer (“CFO”)
Mr. Bernerd Da Santos
 
EVP & Chief Operating Officer (“COO”)
Mr. Julian Nebreda
 
SVP & President, South America Strategic Business Unit
Ms. Letitia Mendoza
 
SVP & Chief Human Resources Officer (“CHRO”)

Our Executive Compensation Philosophy

Our philosophy is to provide compensation opportunities that approximate the 50th percentile of survey data specific to our revenue size and industry. We then design our incentive plans to pay for performance with more compensation paid when performance exceeds expectations and less compensation paid when performance does not meet expectations. Thus, the actual compensation realized by an NEO will depend on our actual performance.

In applying this philosophy, survey data is used to assess the impact of any changes on the competitiveness of target total compensation opportunities relative to the 50th percentile. Our use of survey data is described further in the section titled “How We Use Survey Data in our Executive Compensation Process.”

The Compensation Committee considers additional factors in making its decisions on each NEO’s target total compensation opportunity. The specific factors include:

Individual performance against pre-set goals and objectives for the year, and Company performance;
An individual’s experience and expertise;
Position and scope of responsibilities;
An individual’s future prospects with the Company; and
The new total compensation that would result from any change and how the new total compensation compares to survey data.

In making its decisions, the Compensation Committee does not apply formulaic weighting to any of the above factors.

Role of the Compensation Committee, Independent Compensation Consultant, and Management
 
 
Compensation Committee
 
Independent Compensation Consultant
 
Management (CEO & CHRO)
Provide overall oversight of the Company’s compensation and benefit plans, including plans in which the NEOs participate
 
l
 
 
 
 
Annually review NEO compensation and, if appropriate, propose changes to target total compensation for Board of Directors’ approval
 
l
 
 
 
 
Approve performance goals for annual and long-term incentive plans within the first three months of the performance period
 
l
 
 
 
 
Based on an assessment of performance against pre-set goals, approve payouts to NEOs under incentive plans and propose for Board of Directors’ approval
 
l
 
 
 
 

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Compensation Committee
 
Independent Compensation Consultant
 
Management (CEO & CHRO)
Participate in all Compensation Committee meetings
 
l
 
l
 
l
Participate in executive sessions of the Compensation Committee
 
l
 
As requested
 
 
Prepare and summarize detailed information on the Company’s performance and, as applicable, performance of individual executives
 
 
 
 
 
l
Prepare and provide (in advance whenever possible) additional materials regarding our executive compensation plans for review and discussion by the Compensation Committee in its meetings
 
 
 
 
 
l
Based on business strategy, propose any changes to incentive plan designs
 
 
 
 
 
l
With the Compensation Committee’s knowledge, provide background information to the independent consultant required for the consultant to carry out its duties
 
 
 
 
 
l
Update the Compensation Committee on market trends, regulatory matters and governance best practices related to executive compensation
 
 
 
l
 
 
Review and provide the Compensation Committee with feedback on market competitiveness of any changes to target total compensation proposed by management
 
 
 
l
 
 
Review and provide the Compensation Committee with feedback on incentive plan changes proposed by management
 
 
 
l
 
 

In 2019, the Compensation Committee retained Meridian to serve as its Independent Compensation Consultant. The Compensation Committee has reviewed the independence of Meridian as required by the NYSE rules that relate to the engagement of its advisors. The Compensation Committee, after taking into consideration all relevant factors, determined Meridian to be independent, consistent with NYSE requirements. Other than services provided to the Compensation Committee and Governance Committee, Meridian did not provide any other services to AES in 2019.
How We Use Survey Data in our Executive Compensation Process

At the time it decides target total compensation opportunities, the Compensation Committee reviews survey data from Willis Towers Watson. The data enables the Compensation Committee to compare compensation for our NEOs to compensation provided by similarly-sized companies for executives in comparable positions to U.S.-based and internationally based NEOs. Specifically, in 2019 the Compensation Committee reviewed the following survey data:

The U.S. General Industry Database, which consisted of other companies with international operations with a total of 760 companies;
The U.S. Energy Industry Database, which consisted primarily of power generation and distribution companies, with a total of 116 companies; and
Country-specific compensation database for international data which consisted of companies similar to AES’ business, with a total of 320 companies in Chile.
From the survey data, regression analysis is then used to predict the compensation paid by those companies most similar to AES in size. At the time of the analysis, we used our then-current revenue estimate of $10.7B.

The survey data lag the year for which the compensation decision applies and therefore are aged at an annualized rate of 3% per year for the United States, and country-specific aging factors for international data, as provided by Willis Towers

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Watson. In determining companies comparable to AES in size, we use revenue because executive target total compensation more closely correlates with revenue than any other size indicator, in both general industry and the power industry.

For all U.S.-based NEOs, a blend of general industry and power industry data is appropriate based on the operational knowledge required of their positions and the international scope of their roles. For non-U.S.-based NEOs there are limitations in the survey samples and therefore market data in these countries only reflect a general industry sample.

NEO
 
General Industry Weighting
 
Power Industry Weighting
Mr. Gluski
 
50%
 
50%
Mr. Pimenta
 
50%
 
50%
Mr. Da Santos
 
50%
 
50%
Mr. Nebreda
 
100%
 
-
Ms. Mendoza
 
50%
 
50%

The Compensation Committee views the Willis Towers Watson survey data as an appropriate benchmark of compensation practices and levels of similarly-sized companies, including companies with international operations against whom we compete for talent.

Overview of AES Total Compensation

Elements of Compensation

The following table presents each element of compensation and explains (i) the objective of each element, (ii) what the element is designed to reward, and (iii) why we choose to pay each element.

Objective
 
What It Rewards
 
Why We Pay
Base Salary
Provide fixed cash compensation that reflects the individual’s experience, responsibility and expertise
 
Accomplishment of day-to-day job responsibilities, taking into account individual performance and retention considerations
 
Market competitiveness; attract and retain our NEOs
Performance Incentive Plan (our annual incentive plan)
Provide performance-based, short-term cash compensation relative to the achievement of pre-set objectives, and performance, based on a payout range of 0-200%
 
Achievement of specific pre-set performance thresholds related to safety, financial, operational and strategic objectives
 
Direct incentive to achieve the Company's safety, financial, operational and strategic objectives for the year
Long-Term Compensation (LTC)
Provide awards that align the interests of our executives with those of our Stockholders over the long term
 
Share price growth, dividend performance and attainment of long-term financial goals
 
Directly links NEOs’ interests with those of Stockholders and AES’ long-term financial performance
Retirement and Health and Welfare Benefits
Provide retirement and health and welfare benefits that are generally comparable to those provided to our broad-based U.S. employee population
 
Promote healthiness and financial readiness for retirement

 
Market competitiveness

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CEO Compensation Relative to other NEOs

Our CEO’s compensation is higher than the compensation paid to our other NEOs largely due to the scope of his position and his overall responsibility for the Company’s strategy and direction, as well as his overall influence on AES’ near-and long-term performance. When compared to our other NEOs, our CEO’s total compensation is more heavily weighted towards incentive compensation and his stock ownership guideline is higher. The higher compensation and higher percentage of compensation in the form of performance-based incentives for our CEO are consistent with the survey data.

Mix of Cash and Equity Compensation

The Company does not target a specific allocation of cash versus equity compensation, nor does it target a specific allocation between short- and long-term compensation. The charts below indicate the mix of cash and equity compensation, as well as short-term and long-term compensation for our CEO and all other NEOs.
    
mixofcashandequitycomp.jpg
In making compensation decisions, the Compensation Committee does not explicitly consider prior years’ awards or current equity holdings. The Compensation Committee does, however, on an ongoing basis ensure it has a detailed understanding of how its decisions on individual compensation elements affect other compensation elements and total compensation. The Committee reviews detailed information on:

Year-over-year changes in total compensation;
The value of outstanding long-term compensation awards under various share price and financial performance scenarios;
Payouts and realized gains from past long-term compensation awards; and
The value of benefits payable upon termination and change-in-control.

A discussion of how the Compensation Committee determined each element of compensation for 2019 is provided in the next section of this CD&A.

2019 Compensation Determinations

Base Salary

As explained in the section titled “Our Executive Compensation Process,” the Compensation Committee reviews the target total compensation, including base salaries, of our NEOs annually. In addition, the Compensation Committee will review the base salary of an Executive Officer if there is a promotion or in the case of a newly-hired Executive Officer.


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The following table shows the 2019 base salary and the percentage increase from 2018 for each NEO. Further details on the 2019 base salaries paid to our NEOs can be found in the Summary Compensation Table of this Proxy Statement.

NEO
 
2019 Base Salary
 
Percentage Increase from 2018
 
Rationale for Increase
Mr. Gluski
 
$1,218,888
 
2.6%
 
Maintain market competitiveness
Mr. Pimenta
 
$500,000
 
0%
 
N/A - Promoted in late 2018
Mr. Da Santos
 
$523,000
 
2.5%
 
Maintain market competitiveness
Mr. Nebreda
 
$397,000
 
0.1%
 
Maintain market competitiveness
Ms. Mendoza
 
$455,000
 
4.6%
 
Move closer to 50th percentile


2019 Performance Incentive Plan Payouts

2019 Company Performance Score Targets: Our NEOs are eligible for annual incentive awards under the Performance Incentive Plan, a Stockholder-approved plan. As detailed more fully below, in early 2019, the Compensation Committee established measures in three performance categories: Safety, Financial, and Strategic & Operational Objectives (which include the Green Growth, Customer Centricity, New Business Models, and Leading Technology metrics). In setting these performance measures, the Compensation Committee considered information provided by management about the Company’s financial budget for the year as well as strategic and operational objectives. The Compensation Committee approved performance measures and objectives across all three categories that it considered to be challenging.

In early 2020, the Compensation Committee approved, and recommended to the Board of Directors to approve, the annual incentive pay-outs for 2019. The Committee’s decision was based on AES’ 2019 corporate performance score, which reflected actual results against pre-established performance measures shown below.

The below table reflects the measures, weights, and targets approved by the Committee, as well as the 2019 results.     

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1The AES Corporate Performance score is rounded to the nearest whole number.

2Assuming the threshold financial requirement for each measure is met, the score ranges from 50% to 200%: 50% score corresponds to actual results at 90% of the target goal, and a 200% score corresponds to actual results at 110% of the target goal.



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Final 2019 Annual Incentive Payouts: The following table shows the final award for each of our NEOs under the 2019 Performance Incentive Plan. The Compensation Committee and the Board approved the annual incentive payout as a percent of the target for each of the NEOs below based on the AES Corporate Performance Score.

NEO
 
2019 Base Salary
 
2019 Target Annual Incentive
(% of base salary)
 
Actual 2019 Annual Incentive Award
 
Dollar Value*
% of Target Annual Incentive**
Mr. Gluski
 
$1,218,888
 
150%
 
$1,901,500
104%
Mr. Pimenta
 
$500,000
 
100%
 
$520,000
104%
Mr. Da Santos
 
$523,000
 
100%
 
$543,900
104%
Mr. Nebreda1
 
$397,000
 
80%
 
$330,300
104%
Ms. Mendoza
 
$455,000
 
80%
 
$378,600
104%

*Dollar values are rounded to the nearest hundred
**Actual percentage results above are rounded to the nearest whole number


Long-Term Compensation

2019 Long-term Compensation Mix: In 2019, we utilized the same overall long-term compensation vehicles as in prior years. The mix was based on the following:

Compensation philosophy which emphasizes alignment between executive compensation and Stockholder value creation;
Long-term strategic and financial objectives;
Goal of retaining our NEOs; and
Review of relevant market practices.


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Performance Stock Units Based on Proportional Free Cash Flow: Performance stock units represent the right to receive a single share of AES common stock subject to performance- and service-based vesting conditions. Performance stock units granted in 2019 are eligible to vest subject to our three-year cumulative Proportional Free Cash Flow performance. Proportional Free Cash Flow is a measure of long-term cash generation driven by increasing revenue, reducing costs, improving productivity and efficiently utilizing capital.


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The Proportional Free Cash Flow target is set for the three-year performance period and is subject to pre-defined, objective adjustments during the three-year performance period based on changes to the Company’s portfolio, such as an asset divestiture or sale of a portion of equity in a subsidiary.

The final value of the performance stock unit award depends upon the level of Proportional Free Cash Flow achieved over the three-year measurement period as well as our share price performance over the period since the award is stock-settled. If a threshold level of Proportional Free Cash Flow is achieved, units vest and are settled in the calendar year that immediately follows the end of the performance period.

The following table illustrates the vesting percentage at each Proportional Free Cash Flow level for targets set for the 2019-2021 performance period:
Performance Level
 
Vesting Percentage
75% of Performance Target or Below
 
0%
Equal to 87.5% of Performance Target
 
50%
Equal to 100% of Performance Target
 
100%
Equal to or Greater Than 125% of Performance Target
 
200%

Between the Proportional Free Cash Flow levels listed in the above table, straight-line interpolation is used to determine the vesting percentage for the award. The ability to earn performance stock units is also generally subject to the continued employment of the NEO. The Compensation Committee approved a Proportional Free Cash Flow target for the 2019 performance stock unit that is believed by the Compensation Committee to be challenging, but achievable.

Performance Cash Units Based on AES Total Stockholder Return: Performance cash units represent the right to receive a cash-based payment subject to performance- and service-based vesting conditions. Performance cash units granted in 2019 are eligible to vest subject to AES’ Total Stockholder Return from January 1, 2019 through December 31, 2021 relative to companies in three different indices. The indices and their weightings are as follows:

S&P 500 Utilities Index - 50%
S&P 500 Index - 25%
MSCI Emerging Markets Index - 25%

We use Total Stockholder Return as a performance measure to align our NEOs’ compensation with our Stockholders’ interests since the ability to earn the award is linked directly to stock price and dividend performance over a period of time.

Total Stockholder Return is defined as the appreciation in stock price and dividends paid over the performance period as a percentage of the beginning stock price. To determine share price appreciation, we use a 90-day average stock price for AES, the S&P 500 Utilities Index companies, the S&P 500 Index companies, and the MSCI Emerging Markets Index companies at the beginning and end of the three-year performance period. This avoids short-term volatility impacting the calculation.

The value of each performance cash unit is equal to $1.00, and the number of performance cash units that vest depend upon AES’ percentile rank against the companies in each of the indices. If AES’ Total Stockholder Return is above the threshold percentile rank established for the performance period, a percentage of the units vest and are settled in cash in the calendar year that immediately follows the end of the performance period. The following table illustrates the vesting percentage at each percentile rank for the 2019-2021 performance period:

AES 3-Year Total Stockholder Return Percentile Rank
 
Vesting Percentage
Below 30th percentile
 
0%
Equal to 30th percentile
 
50%
Equal to 50th percentile
 
100%
Equal to 70th percentile
 
150%
Equal to or Greater Than 90th percentile
 
200%

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Between the percentile ranks listed in the above table, straight-line interpolation is used to determine the vesting percentage for the award. The ability to earn these performance cash units is also generally subject to the continued employment of the NEO.

Restricted Stock Units: Restricted stock units represent the right to receive a single share of AES common stock subject to service-based vesting conditions. The Company grants restricted stock units to assist in retaining our NEOs and also to increase their ownership of AES common stock, which further aligns our NEOs’ interests with those of Stockholders. Restricted stock units vest based on continued service with the Company in three equal installments beginning on the first anniversary of the grant.

2019 Long-Term Compensation Grants: In February 2019, consistent with our practice in prior years, the Company granted long-term compensation to the NEOs. The target grant values below are based upon the grant date closing stock price per share of AES common stock for performance stock units and restricted stock units, and a per unit value of $1.00 for performance cash units.

NEO
 
February 2019 Long-Term Compensation Target Value
 
As % of Base Salary
Dollar Amount
Mr. Gluski
 
595%
$7,253,050
Mr. Pimenta
 
225%
$1,125,000
Mr. Da Santos
 
397%
$2,076,750
Mr. Nebreda
 
187.5%
$744,375
Ms. Mendoza
 
187.5%
$853,125


The values in the table above differ from the Stock Awards column in the Summary Compensation Table because the performance cash units contain a market condition which results in a fair market value, for financial accounting purposes, that differs from the $1 per unit value the Company uses to determine the grant.

Prior Year Performance Stock Units Vesting in 2019: All of the NEOs, with the exception of Mr. Pimenta, received a grant of performance stock units in February 2017 for the performance period January 1, 2017 through December 31, 2019. Performance was based on the Company’s Proportional Free Cash Flow performance during the three-year performance period.

The performance stock unit award paid out at 104.2% of the target number of shares based on our actual Proportional Free Cash Flow results of $3,960M, which was 101.05% of the target Proportional Free Cash Flow, and is based on the same performance scale as the 2019 performance stock units. The performance payout level is derived using straight-line interpolation: for every one percentage point performance is above the target goal, the payout is increased by approximately four percentage points.

NEO
 
Target Number of Units
 
% of Target Vested Based on Proportional Free Cash Flow
 
Final Shares Vested
Mr. Gluski
 
213,103
 
104.2%
 
222,053
Mr. Da Santos
 
38,474
 
104.2%
 
40,090
Mr. Nebreda
 
14,845
 
104.2%
 
15,468
Ms. Mendoza
 
21,878
 
104.2%
 
22,797


Prior Year Performance Cash Units Vesting in 2019: All of the NEOs, with the exception of Mr. Pimenta, received a grant of performance cash units in February 2017 for the performance period January 1, 2017 through December 31, 2019.

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Performance was based on the Company’s Total Stockholder Return relative to S&P 500 Utility Index companies (50% weight), S&P 500 Index (25% weight) and MSCI Emerging Markets Index (25% weight), and with the same performance scales for each index as the 2019 performance cash units.

Total Stockholder Return for the Company over the 2017-2019 performance period was 72%, which resulted in the Company meeting or exceeding the 75th percentile target of Total Stockholder Return for each index. As previously discussed, Total Stockholder Return for purposes of Performance Cash Units is calculated using a 90-day average stock price for AES, and each index, at the beginning and end of the three-year performance period. This avoids short-term volatility impacting the calculation.

The overall payout for the 2017 to 2019 Performance Cash Units was 176% of target. Actual results for each index and associated payouts are reflected below:

S&P 500 Utilities Index - 81st percentile of performance, resulting payout of 177%
S&P 500 Index - 75th percentile of performance, resulting payout of 163%
MSCI Emerging Markets Index - 85th percentile of performance, resulting payout of 187%

NEO
 
Target Number of Units
 
% of Target Vested Based on TSR
 
Resulting Cash Payout
Mr. Gluski
 
2,542,320
 
176%
 
$4,474,483
Mr. Da Santos
 
459,000
 
176%
 
$807,840
Mr. Nebreda
 
177,100
 
176%
 
$311,696
Ms. Mendoza
 
261,000
 
176%
 
$459,360
 

Prior Year Performance Units Vesting in 2019: Mr. Pimenta received a grant of performance units in February 2017 for the performance period January 1, 2017 through December 31, 2019. Performance was based on the Company’s Proportional Free Cash Flow performance during the three-year performance period. Performance units represent the right to receive cash subject to performance- and service-based vesting conditions. Each unit granted has a $1 target value. Threshold performance on this metric occurs for performance at 75% of target at which time 0% of the units vest. Maximum performance is attained at 125% of target which would trigger a vesting of 200% of the granted units.

The performance unit award paid out at 104.2% of the target number of units based on our actual Proportional Free Cash Flow results of $3,960M, which was 101.05% of the target Proportional Free Cash Flow, and is based on the same performance scale as the 2019 performance stock units. The performance payout level is derived using straight-line interpolation: for every one percentage point performance is above the target goal, the payout is increased by approximately four percentage points.

NEO
 
Target Number of Units
 
% of Target Vested Based on Proportional Free Cash Flow
 
Final Units Vested
Mr. Pimenta
 
121,263
 
104.2%
 
126,356

Further details on the 2017-2019 performance stock unit, performance cash unit, and performance unit payouts to our NEOs can be found in the Option Exercises and Stock Vested Table of this Proxy Statement.


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Other Relevant Compensation Elements and Policies

Perquisites

We do not provide perquisites to any of our Executive Officers, with the exception of relocation related expenses for international assignments.

Retirement Benefits

We cover our NEOs under the Restoration Supplemental Retirement Plan (“RSRP”) to restore benefits that are limited under our broad-based retirement plans due to statutory limits imposed by the Code. The RSRP’s objectives are consistent with our philosophy to provide competitive levels of retirement benefits and to retain talented executives. Additionally certain internationally-based employees are eligible to participate in the International Retirement Plan (“IRP”). Neither the RSRP nor the IRP contain any enhanced or special benefit formulas for our NEOs. Contributions to the RSRP and the IRP made in 2019 are included in the All Other Compensation column of the Summary Compensation Table of this Proxy Statement. Additional information regarding the RSRP and IRP is contained in the “Narrative Disclosure Relating to the Non-Qualified Deferred Compensation Table” of this Proxy Statement.

Stock Ownership Guidelines

Our Board of Directors, based upon our management’s and the Compensation Committee’s recommendations, adopted stock ownership guidelines in January 2011. These guidelines promote our objective of increasing Stockholder value by encouraging our NEOs to acquire and maintain a meaningful equity stake in the Company.

The guidelines were designed to maintain stock ownership at levels high enough to assure our Stockholders of our NEOs’ commitment to value creation. Under these guidelines, our NEOs are expected, over time, to acquire and hold shares of AES common stock equal in value to a multiple of their annual salaries. The Compensation Committee sets the ownership multiples based on market practice for each NEO’s position. The current ownership multiple for each NEO, who was serving as of fiscal year end 2019, is as follows:


NEO
 
Ownership Multiple of Base Salary
Mr. Gluski
 
5x
Mr. Pimenta
 
3x
Mr. Da Santos
 
3x
Mr. Nebreda
 
2x
Ms. Mendoza
 
2x

Shares owned directly and shares beneficially acquired under our retirement plans all count toward satisfying the guidelines. Unexercised stock options, unvested performance stock units and unvested restricted stock unit awards do not count towards satisfaction of the guidelines.

The Company requires that all net shares (net of option exercise price and/or withholding tax) acquired after the guideline effective date will be retained and cannot be liquidated until the guideline has been met.

Severance and Change-in-Control Arrangements

The Company maintains certain severance and change-in-control arrangements, including the Executive Severance Plan and change-in-control provisions in the long-term compensation award agreements.

Executive Severance Plan: The Compensation Committee has included all of the Company’s Executive Officers in a single Executive Severance Plan, the design of which is consistent with current market practices. Newly hired or promoted executives

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are included in this plan beginning on the first date of their executive appointment. The Executive Severance Plan does not contain any excise tax gross-ups and, thus, none of our NEOs are eligible for an excise tax gross-up.

The Company provides severance benefits for qualifying termination both related and unrelated to a change-in-control to enable the attraction and retention of key executive talent. Also, in the case of severance benefits upon a qualifying termination related to a change-in-control, the Company believes these benefits will help to align the NEOs’ interests with those of Stockholders by mitigating any uncertainties the NEOs may have about their ongoing employment if the change-in-control is pursued. The Company provides severance benefits after a change-in-control only if there is a qualifying termination of employment following the change-in-control (i.e., “double-trigger benefits”).

Further details on the Executive Severance Plan and qualifying termination events can be found in the section titled “Additional Information Relating to Potential Payments upon Termination of Employment or Change-in-Control” of this Proxy Statement.

Vesting of Long-term Compensation Awards upon Change-in-Control: Upon a change-in-control, the unvested portion of all outstanding awards will vest only upon a double-trigger (at target performance levels for performance awards). The double-trigger only allows for vesting if a qualifying termination occurs in connection with the change-in-control. All unvested, outstanding awards include a double- trigger vesting provision.

Clawback Policy

The Company has adopted a “clawback policy” that provides the Compensation Committee with the discretion to seek the reimbursement of any annual incentive payment or long-term compensation award, as defined under the policy, from key executives of the Company, including our NEOs, when:

The initial payment was calculated based upon achieving certain financial results that were subsequently the subject of a material restatement of the Company’s financial statements;
The Compensation Committee, in its discretion, determines that the executive engaged in fraud or willful misconduct that caused, or substantially caused, the need for the restatement; and
A lower payment would have been made to the executive based upon the restated financial results.
In each such instance, the Compensation Committee has the discretion to determine whether it will seek recovery from the individual executive and has discretion to determine the amount. The policy applies to annual incentive payments made in or after 2013 under the Performance Incentive Plan and performance cash unit and performance stock unit awards granted in or after 2012.
Prohibition Against Hedging and Pledging

The Company’s Securities Trading Policy prohibits AES’ employees (including officers) and Directors from engaging in hedging transactions with respect to AES’ equity securities including, without limitation, the purchase of financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds), or otherwise engaging in transactions, that hedge or speculate, or are designed to hedge or speculate, on any change in the market value of AES’ equity securities.

Non-GAAP Measures

In this CD&A, we reference certain Non-GAAP measures, including Adjusted EPS, which is reconciled to the nearest GAAP measure in the table below.
Reconciliation of Adjusted EPS
 
 
Year Ended
Dec. 31, 2019
Diluted earnings per share from continuing operations
 
$0.46
Unrealized derivative and equity security losses
 
$0.16
Unrealized foreign currency losses (gains)
 
$0.05
Disposition/ acquisition losses (gains)
 
$0.02
Impairment expense
 
$0.61

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Loss on extinguishment of debt
 
$0.18
Restructuring Costs
 
-
U.S. Tax Law Reform Impact
 
$(0.01)
Less: Net income tax expense (benefit)
 
$(0.11)
Adjusted EPS
 
$1.36

Additionally in this CD&A, we reference Proportional Free Cash Flow, Parent Free Cash Flow, and Parent FCF to Debt Ratio.

Proportional Free Cash Flow is defined as Net Cash from Operating Activities less Maintenance and Environmental Capital Expenditures, adjusted for AES ownership percentage.

Parent Free Cash Flow is Subsidiary Distributions less cash used for interest costs, development, general and administrative activities, and tax payments by the parent company. Subsidiary Distributions should not be construed as an alternative to Net Cash Provided by Operating Activities which is determined in accordance with GAAP. Subsidiary Distributions are important to the parent company because the parent company is a holding company that does not derive any significant direct revenues from its own activities but instead relies on its subsidiaries’ business activities and the resultant distributions to fund the debt service, investment and other cash needs of the holding company. The reconciliation of the difference between the Subsidiary Distributions and the Net Cash Provided by Operating Activities consists of cash generated from operating activities that is retained at the subsidiaries for a variety of reasons which are both discretionary and non-discretionary in nature. These factors include, but are not limited to, retention of cash to fund capital expenditures at the subsidiary, cash retention associated with non-recourse debt covenant restrictions and related debt service requirements at the subsidiaries, retention of cash related to sufficiency of local GAAP statutory retained earnings at the subsidiaries, retention of cash for working capital needs at the subsidiaries, and other similar timing differences between when the cash is generated at the subsidiaries and when it reaches the parent company and related holding companies.

Parent Free Cash Flow to Debt Ratio is defined using the aforementioned Parent Free Cash Flow definition, and Debt is defined as permanent parent debt held by AES.










[Remainder of Page Intentionally Left Blank]

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Executive Compensation Program Alignment with Stockholders Interests

Actual compensation earned by our NEOs reflects the alignment between our executive compensation program design and value creation for Stockholders.
Based on actual performance, the value of equity awards at vesting may decline, including both our AES relative Total Stockholder Return performance cash units and AES Proportional Free Cash Flow performance stock units.
For the 2017-2019 performance cash units, AES had a Total Stockholder Return of 72%, which exceeded the 75th percentile against all three indices to which it compares itself.
As a direct result of the performance-based nature of AES’ executive compensation program actual compensation earned by our NEOs has varied from Summary Compensation Table reported values for the last three years.
Approximately 83% of amounts included in the Summary Compensation Table Total column have been realized by our NEOs over the preceding three-year period.

Summary Compensation Table (2019, 2018 and 2017)* 
Year
 
Salary
($)(1)
 
Bonus
($)
 
Stock Awards
($)(2)
 
 Non-Equity Incentive Plan Compensation
($)(3)
 
All Other Compensation
($)(4)
 
 Total
($)
Andrés Gluski
President & Chief Executive Officer
2019
 
$1,218,888
 
$0
 
$7,406,808
 
$1,901,500
 
$300,690
 
$10,827,886
2018
 
$1,188,000
 
$0
 
$5,900,311
 
$2,388,000
 
$283,500
 
$9,759,811
2017
 
$1,188,000
 
$0
 
$5,818,612
 
$2,148,000
 
$200,071
 
$9,354,683
 
 
 
 
 
 
 
 
 
 
 
 
 
Gustavo Pimenta (5)
EVP & Chief Financial Officer
2019
 
$500,000
 
$0
 
$1,148,843
 
$646,356
 
$62,348
 
$2,357,547
 
 
 
 
 
 
 
 
 
 
 
 
 
Bernerd Da Santos
EVP & Chief Operating Officer
2019
 
$523,000
 
$0
 
$2,120,777
 
$543,900
 
$103,230
 
$3,290,907
2018
 
$510,000
 
$69,000
 
$1,065,259
 
$683,000
 
$90,000
 
$2,417,259
2017
 
$510,000
 
$0
 
$1,050,505
 
$632,000
 
$69,266
 
$2,261,771
 
 
 
 
 
 
 
 
 
 
 
 
 
Julian Nebreda (6)
SVP & President, South America Strategic Business Unit
2019
 
$397,000
 
$0
 
$760,160
 
$330,300
 
$838,835
 
$2,326,295
2018
 
$396,550
 
$113,000
 
$432,267
 
$378,000
 
$803,914
 
$2,123,731
 
 
 
 
 
 
 
 
 
 
 
 
 
Letitia Mendoza
SVP & Chief Human Resources Officer
2019
 
$455,000
 
$0
 
$871,212
 
$378,600
 
$78,750
 
$1,783,562
2018
 
$435,000
 
$0
 
$605,740
 
$560,000
 
$67,650
 
$1,668,390
2017
 
$435,000
 
$0
 
$597,358
 
$435,000
 
$51,966
 
$1,519,324
 
 
 
 
 
 
 
 
 
 
 
 
 
 

*
Table excludes the Option Awards and Change in Pension Value and Non-Qualified Deferred Compensation Earnings columns,
which are not applicable.

NOTES:
(1)
The base salary earned by each NEO during fiscal years 2019, 2018, and 2017, as applicable.

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(2)
Aggregate grant date fair value of performance stock units, performance cash units, and restricted stock units granted in the year which are computed in accordance with Financial Accounting Standards Board (“FASB”), Accounting Standards Codification (“ASC”) Topic 718, “Compensation-Stock Compensation” (“FASB ASC Topic 718”) disregarding any estimates of forfeitures related to service-based vesting conditions. A discussion of the relevant assumptions made in the valuation may be found in our financial statements, footnotes to the financial statements (footnote 19), or Management’s Discussion & Analysis, as appropriate, contained in the AES Form 10-K which also includes information for 2017 and 2018. Assuming the maximum market and financial performance conditions are achieved, and in the case of performance stock units the share price at grant, the maximum value of performance stock units and performance cash units granted in fiscal year 2019, and payable upon completion of the 2019-2021 performance period, is shown below.
Maximum Value of Performance Stock Units and Performance Cash Units
Granted in FY19 (payable after completion of 2019-2021 performance period)
Name
Performance Stock Units ($)
Performance Cash Units ($)
Total ($)
Andres Gluski
$5,802,430
$5,802,440
$11,604,870
Gustavo Pimenta
$899,990
$900,000
$1,799,990
Bernerd Da Santos
$1,661,388
$1,661,400
$3,322,788
Julian Nebreda
$595,494
$595,500
$1,190,994
Letitia Mendoza
$682,513
$682,500
$1,365,013

(3)
The value of non-equity incentive plan awards earned during the 2019 fiscal year and paid in 2020 under our Performance Incentive Plan (our annual incentive plan). For Mr. Pimenta, also includes the value of his award earned for the three-year performance period ended December 31, 2019, and paid in 2020 for cash-based performance units granted under the 2003 Long-Term Compensation Plan.
(4)
All Other Compensation includes Company contributions to both qualified and non-qualified defined contribution retirement plans. In the case of Mr. Nebreda, All Other Compensation also includes assignment related benefits. Mr. Nebreda receives assignment related benefits as a result of his role as SVP & President, South America Strategic Business Unit.
Name
 
AES Contributions
to Qualified 
Defined
Contribution Plans
 
AES Contributions to Non Qualified Defined Contribution Plans
 
Relocation and Assignment Benefits
 
Host Location Tax Payments
 
Total Other
Compensation
Andres Gluski
 
$25,200
 
$275,490
 
$0
 
$0
 
$300,690
Gustavo Pimenta
 
$25,200
 
$37,148
 
$0
 
$0
 
$62,348
Bernerd Da Santos
 
$25,200
 
$78,030
 
$0
 
$0
 
$103,230
Julian Nebreda (a)
 
$25,200
 
$48,071
 
$361,083
 
$404,481
 
$838,835
Letitia Mendoza
 
$25,200
 
$53,550
 
$0
 
$0
 
$78,750
(a) The Company provides various forms of compensation related to expatriate assignments that differ according to location and term of assignment, including: host housing allowances, cost of living differentials, assignment tax equalization, home leave and travel, relocation expense, and tax return and visa preparation. Among amounts included above, Mr. Nebreda received $295,000 in combined housing and cost of living allowance, and $52,083 in relocation benefits.
  
(5) Mr. Pimenta was not an NEO prior to 2019. Therefore, no compensation information appears for 2017 or 2018, in accordance with applicable SEC rules.
(6) Mr. Nebreda was not an NEO prior to 2018. Therefore, no compensation information appears for 2017, in accordance with applicable SEC rules.






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Grants of Plan-Based Awards (2019) *
 
Name
Grant
Date
Estimated Future Payouts
Under Non-Equity
 
Incentive Plan Awards (1)
Estimated Future Payouts
Under Equity
 
Incentive Plan Awards (2)
All Other Stock
Awards:
Number of Shares of Stock or Units
(#)(3)
Grant Date Fair Value of
Stock and
Option
Awards
($)
(4)
Threshold
($)
Target
($)
Maximum
($)
Threshold
(#)
Target
(#)
Maximum
(#)
Andres Gluski
 
 
$0
$1,828,332
$3,656,664
 
 
 
 
 
 
22-Feb-19
 
 
 
0
165,500
331,000
 
$2,901,215
 
22-Feb-19
 
 
 
1,450,610
2,901,220
5,802,440
 
$3,054,985
 
22-Feb-19
 
 
 
 
 
 
82,750
$1,450,608
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gustavo Pimenta
 
 
$0
$500,000
$1,000,000
 
 
 
 
 
 
22-Feb-19
 
 
 
0
25,670
51,340
 
$449,995
 
22-Feb-19
 
 
 
225,000
450,000
900,000
 
$473,850
 
22-Feb-19
 
 
 
 
 
 
12,835
$224,998
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bernerd Da Santos
 
 
$0
$523,000
$1,046,000
 
 
 
 
 
 
22-Feb-19
 
 
 
0
47,387
94,774
 
$830,694
 
22-Feb-19
 
 
 
415,350
830,700
1,661,400
 
$874,727
 
22-Feb-19
 
 
 
 
 
 
23,694
$415,356
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Julian Nebreda
 
 
$0
$317,600
$635,200
 
 
 
 
 
 
22-Feb-19
 
 
 
0
16,985
33,970
 
$297,747
 
22-Feb-19
 
 
 
148,875
297,750
595,500
 
$313,531
 
22-Feb-19
 
 
 
 
 
 
8,493
$148,882
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Letitia Mendoza
 
 
$0
$364,000
$728,000
 
 
 
 
 
 
22-Feb-19
 
 
 
0
19,467
38,934
 
$341,257
 
22-Feb-19
 
 
 
170,625
341,250
682,500
 
$359,336
 
22-Feb-19
 
 
 
 
 
 
9,733
$170,619
 
 
 
 
 
 
 
 
 
 
 

*
Table excludes the All Other Option Awards and Exercise or Base Price of Option Awards, as no Stock Options were granted in 2019.

NOTES:
(1)
Each NEO received an award under the Performance Incentive Plan (our annual incentive plan) in 2019. The first row of data for each NEO shows the threshold, target and maximum award under the Performance Incentive Plan. For the Performance Incentive Plan, the threshold award is 0% of the target award, and the maximum award is 200% of the target award. The extent to which awards are payable depends upon AES’ performance against goals established in the first quarter of the fiscal year. This award is payable in the first quarter of 2020.
(2)
Each NEO received performance stock units on February 22, 2019 awarded under the 2003 Long-Term Compensation Plan. These units vest based on the financial performance condition of Proportional Free Cash Flow for the three year period ending December

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31, 2021 (as more fully described in the “Long-Term Compensation” section of this Proxy Statement). The second row of data for each NEO shows the total number of AES shares at threshold, target, and maximum. At threshold, the vesting percentage is 0%. At maximum performance, the vesting percentage is 200%. Straight line interpolation is applied for performance between the threshold and target and between the target and maximum.
Each NEO also received performance cash units on February 22, 2019 awarded under the 2003 Long-Term Compensation Plan. These units vest based on AES’ Total Stockholder Return as compared to the Total Stockholder Return of the S&P 500 Utility Index companies, the S&P 500 Index companies, and the MSCI Emerging Markets Index companies for the three-year period ending December 31, 2021 (as more fully described in the CD&A of this Proxy Statement). The third row of data for each NEO shows the number of units at threshold, target, and maximum, where $1.00 is the per unit value. At threshold against each of the three indices, the vesting percentage is 50%. At maximum performance, the vesting percentage is 200%. Straight line interpolation is applied for performance between the threshold and target and between the target and maximum.
(3)
Each NEO received restricted stock units on February 22, 2019 awarded under the 2003 Long-Term Compensation Plan. These units vest on a service-based condition in which one-third of the restricted stock units vest on each of the first three anniversaries of the grant.
(4)
Aggregate grant date fair value of performance stock units, performance cash units, and restricted stock units granted in the year which are computed in accordance with FASB ASC Topic 718, disregarding any estimates of forfeitures related to service-based vesting conditions and, in the case of the performance stock units and performance cash units, assuming a target level of performance. A discussion of the relevant assumptions made in the valuation may be found in our financial statements, footnotes to the financial statements (footnote 19), or Management’s Discussion & Analysis, as appropriate, contained in the AES Form 10-K. Assuming the maximum market and financial performance conditions are achieved, and in the case of performance stock units the share price at grant, the maximum value of performance stock units and performance cash units granted in fiscal year 2019, and payable upon completion of the 2019-2021 performance period, is shown in footnote 2 to the Summary Compensation Table.

Narrative Disclosure Relating to the Summary Compensation Table and the Grants of Plan-Based Awards Table
Incentive Compensation Plans Applicable for All NEOs

Performance Incentive Plan

In early 2020, we expect to make cash payments to Messrs. Gluski, Pimenta, Da Santos, Nebreda and Ms. Mendoza under the Performance Incentive Plan for performance during 2019. The amount paid to each NEO is included in the amounts reported in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table for each NEO. A description of the Performance Incentive Plan and awards made thereunder is set forth in the CD&A of this Proxy Statement.

2003 Long Term Compensation Plan

The Summary Compensation Table and Grants of Plan-Based Awards Table include amounts relating to performance cash units, performance stock units, and restricted stock units granted under the 2003 Long-Term Compensation Plan.

The amount reported in the “Stock Awards” column of the Summary Compensation Table for each NEO is based upon the aggregate grant date fair value of restricted stock units, performance stock units, and performance cash units granted in the applicable year, which are computed in accordance with FASB ASC Topic 718 disregarding any estimates of forfeitures related to service-based vesting conditions. For a description of the terms of restricted stock unit awards, performance stock unit awards, and performance cash unit awards, see the CD&A of this Proxy Statement.

Effect of Termination of Employment or Change-in-Control

The vesting of performance stock units, restricted stock units, and performance cash units and the ability of the NEOs to receive payments under those awards are affected by the termination of their employment, including certain qualifying terminations in connection with a change-in-control. These events and the related payments and benefits are described in “Potential Payments Upon Termination or Change-in-Control” of this Proxy Statement.




2020 Proxy Statement | 53

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Outstanding Equity Awards at Fiscal Year-End (2019)*

The following table contains information concerning exercisable and unexercisable stock options and unvested stock awards granted to the NEOs which were outstanding on December 31, 2019.
 
Option Awards
 
Stock Awards
Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable
Option
Exercise
Price
($)
Option
Expiration
Date
(day/mo/year)
 
Number of
Shares or Units That Have Not
Vested
(#)
 
Market Value of Shares  or
Units That
Have Not
Vested
($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or  Other Rights That Have
Not Vested
(#)
 
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
Andrés Gluski
23,158
$12.180
19-Feb-20
 
 
 
 
 
 
 
107,807
$12.880
18-Feb-21
 
 
 
 
 
 
 
99,734
$9.760
30-Sep-21
 
 
 
 
 
 
 
245,665
$13.700
17-Feb-22
 
 
 
 
 
 
 
524,511
$11.170
15-Feb-23
 
 
 
 
 
 
 
446,053
$14.630
21-Feb-24
 
 
 
 
 
 
 
748,625
$11.890
20-Feb-25
 
 
 
 
 
 
 
(1)
 
 
 
178,858
(2)
$3,559,274
347,267
(3)
$6,910,613
 
 
 
 
 
 
 
12,793,820
(4)
$12,793,820
 
 
 
 

 

 
 
 
Gustavo Pimenta
 
 
 
 
24,804
(2)
$493,600
51,409
(3)
$1,023,039
 
 
 
 
 
 
 
1,440,000
(4)
$1,440,000
 
 
 
 
 
 
 
 
 
 
Bernerd Da Santos
21,211
$11.170
15-Feb-23
 
 
 
 
 
 
 
30,730
$14.630
21-Feb-24
 
 
 
 
 
 
 
66,250
$11.890
20-Feb-25
 
 
 
 
 
 
 
(1)
 
 
 
41,046
(2)
$
816,815

80,204
(3)
$1,596,060
 
 
 
 
 
 
 
2,923,650
(4)
$2,923,650
 
 
 
 
 
 
 
 
 
 
Julian Nebreda
16,800
$12.880
18-Feb-21
 
 
 
 
 
 
 
19,134
$13.700
17-Feb-22
 
 
 
 
 
 
 
33,317
$11.170
15-Feb-23
 
 
 
 
 
 
 
26,917
$14.630
21-Feb-24
 
 
 
 
 
 
 
46,092
$11.890
20-Feb-25
 
 
 
 
 
 
 
(1)
 
 
 
16,764
(2)
$333,604
34,374
(3)
$684,043
 
 
 
 
 
 
 
960,326
(4)
$960,326