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Section 1: PRE 14A (PRE 14A)

fe-pre14a_20200521.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant  

Filed by a Party other than the Registrant  

Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to §240.14a-12

 

FirstEnergy Corp.

(Name of Registrant as Specified In Its Charter)

         

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

 

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Preliminary Copy

In accordance with Rule 14a-6(d) under Regulation 14A of the Securities Exchange Act of 1934, please be advised that FirstEnergy Corp. intends to release definitive copies of this Proxy Statement to security holders on April 1, 2020.

 


 

 

 


 

 

 

 

Message to Our
Shareholders

 

Dear Fellow Shareholders:

April [1], 2020

 

Thank you for your confidence in FirstEnergy. On behalf of your Board of Directors and management, we cordially invite you to attend our 2020 Annual Meeting of Shareholders on May 19, 2020. The attached Notice of the 2020 Annual Meeting of Shareholders and Proxy Statement contains information about the business to be conducted at the Meeting. To make key information easier to find, we are also offering a new interactive proxy statement with enhanced navigation, available at [www.FirstEnergyCorp.com/AnnualMeeting].

In 2019, FirstEnergy successfully executed our customer-focused growth strategies and met our commitments as we continued our transformation into a high-performance, pure-play regulated utility. We also took important steps on proactive initiatives designed to meet the future energy needs of customers, drive shareholder value and engagement, improve safety, and build a more innovative, diverse and sustainable corporate culture. These efforts are guided by our mission to be a forward-thinking electric utility powered by a diverse team of employees committed to making customers’ lives brighter, the environment better and our communities stronger. Our accompanying proxy statement demonstrates our ongoing commitment to our values, including:

 

1

 

Executing on Strategy

 

In 2019, we continued executing our strategy for long-term, sustainable growth that benefits our customers, shareholders, communities and employees. Through our multi-billion-dollar, long-term capital investment program, we are focused on strengthening and modernizing our distribution and transmission systems and enhancing service reliability for our 6 million customers. In 2019, our utilities received approval for infrastructure investment initiatives in Ohio, Pennsylvania, New Jersey and Maryland that will help ensure continued reliability while preparing for the distribution grid of the future.

As we transformed our Company, we continued to focus on execution, financial discipline and operational excellence. We’ve built a strong record of consistently meeting our commitments to investors, including five consecutive years of achieving the guidance we provided to the financial community. Our Board also declared a 3% increase for our most recent quarterly dividend payment, marking the second increase in a year. We’re proud of our progress and remain committed to meeting customers’ needs for years to come as we drive stable and predictable financial performance and create value for investors.

 2

Focus on Environmental, Social & Governance (“ESG”) and Corporate Responsibility

 

We are committed to carrying out our vision of providing energy and improving lives safely and responsibly. Our Board believes that our focus on ESG and corporate responsibility demonstrates our Company’s Core Values, Behaviors, and mission statement, and drives value for the Company and our stakeholders. In 2019, the Company informed and engaged stakeholders on ESG-related topics through the publication of our Climate Report and Corporate Responsibility Report, along with increased engagement with rating and ranking entities. In 2020, we’re driving continued accountability and transparency, particularly related to ESG risks, opportunities, goal setting and strategies. To reinforce and align our executives with these objectives, a portion of our annual incentive cash program is tied to ESG related goals, including Diversity & Inclusion, environmental and safety.

 

 3

Engaging with Shareholders

 

We continued our investor outreach in 2019 to discuss our strategy, governance practices, executive compensation and corporate responsibility. The input we received continues to be incorporated into your Board’s deliberations and decision making. We highly value this dialogue and as a Board, we discuss and consider the feedback shared. We look forward to continuing this engagement with our shareholders in 2020.

 

 

We encourage you to read more about your Board, our corporate governance practices, and our executive compensation programs in the accompanying proxy statement. We’re grateful for your support and thank you in advance for voting promptly.

 

Sincerely,

 

 

 

 

 

 

Charles E. Jones

 

Donald T. Misheff

President and Chief Executive Officer

 

Board Chairman

 


 

Notice of Annual Meeting of Shareholders

 

 

Please carefully review this Notice, the Company’s Annual Report to Shareholders for the year ended December 31, 2019 (the “2019 Annual Report”) and the accompanying proxy statement and vote your shares by following the instructions on your proxy card/voting instruction form or Notice of Internet Availability of Proxy Materials to ensure your representation at the Annual Meeting.

 

Date and Time

 

Tuesday, May 19, 2020 8:00 a.m. EST

Location

 

John S. Knight Center

77 E. Mill Street

Akron, OH 44308

 

If you plan to attend the Annual Meeting, you must register in advance. See the “Attending the Annual Meeting” section of the “Questions and Answers about the Annual Meeting” in the accompanying proxy statement for instructions on how to register.

Agenda

 

     Elect the 11 nominees named in the accompanying proxy statement to the Board of Directors to hold office until the 2021 Annual Meeting of Shareholders and until their successors shall have been elected;

     Ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2020;

     Approve, on an advisory basis, named executive officer compensation;

     Approve the FirstEnergy Corp. 2020 Incentive Compensation Plan;

     Approve a management proposal to amend the Company’s Amended and Restated Code of Regulations to authorize the Board of Directors to make certain future amendments to the Company’s Amended and Restated Code of Regulations;

     Vote on one shareholder proposal, if properly presented at the Annual Meeting; and

     Take action on other business that may come properly before the Annual Meeting and any adjournment or postponement thereof

Record Date

 

March 20, 2020

 

Only shareholders of record as of the close of business on March 20, 2020, or their proxy holders, may vote at the Annual Meeting.

 

On behalf of the Board of Directors,

 

 

 

 

 

Ebony L. Yeboah-Amankwah

Vice President, Deputy General Counsel,

Corporate Secretary & Chief Ethics Officer

 

Akron, Ohio

This Notice and accompanying Proxy Statement are being mailed or made available to shareholders on or about April [1], 2020.

 

 

Important Notice Regarding Availability of Proxy Materials

 

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on May 19, 2020. The accompanying proxy statement and the 2019 Annual Report are available at [www.FirstEnergyCorp.com/AnnualMeeting].

 

 

 



 

 

Table of Contents

 

 

 

 

 

 

 

Proxy Statement Summary

 

i

Environmental, Social & Governance (“ESG”) Overview

 

v

Human Capital Management Overview

vi

 

 

 

 

1

Corporate Governance & Board of Directors 

 

Corporate Governance and Board of Directors Information

1

Audit Committee Report

10

Matters Relating to the Independent Registered Public Accounting Firm

11

Director Compensation in Fiscal Year 2019

12

Director Qualifications

15

Biographical Information and Qualifications of Nominees for Election as Directors

18

 

 

2

Items to Be Voted On 

Items to Be Voted On

 

25

 

 

 

3

Executive Compensation

Executive Compensation

42

Compensation Committee Report

42

Compensation Discussion and Analysis

42

Executive Summary

44

Compensation Tables

 

 

 

70

 

 

 

 

4

Security Ownership & Other Important Matters 

 

Security Ownership of Management

89

Security Ownership of Certain Beneficial Owners

90

Compensation Committee Interlocks and Insider Participation

91

 

 

Certain Relationships and Related Person Transactions

91

 

 

5

Questions and Answers About the Annual Meeting

 

Questions and Answers about the Annual Meeting

93

Proxy Materials

93

Voting Matters

95

How You Can Vote

97

Attending the Annual Meeting

98

Proposals and Business by Shareholders

100

Obtaining Additional Information

 

101

  Appendices

 

 

FirstEnergy Corp. 2020 Incentive Compensation Plan

A-1

 

Proposed Amendment to Amended and Restated Code of Regulations to Authorize the Board of Directors to make certain future amendments to the Amended and Restated Code of Regulations.

B-1

 

 

 

 

 


 

 

    Proxy Statement Summary   

 

 

 

2020 Annual Meeting of Shareholders (the “Annual Meeting” or the “Meeting”)

 

 

Time and Date: 8:00 a.m. EST on Tuesday, May 19, 2020

 

Location: John S. Knight Center, 77 E. Mill Street, Akron, Ohio

 

Record Date: March 20, 2020

 

Voting: Shareholders of record of FirstEnergy Corp. (“FirstEnergy”, the “Company”, “we”, “us” or “our”) common stock as of the Record Date are entitled to receive the Notice of Annual Meeting of Shareholders and they or their proxy holders may vote their shares at the Annual Meeting.

 

Admission: If you plan to attend the Annual Meeting, you must register in advance. For instructions on how to register, see the “Attending the Annual Meeting” section of the “Questions and Answers about the Annual Meeting” below.

Voting Matters

 

 

Item

 

1

 

Elect the 11 nominees named in this proxy statement to the Board of Directors. Refer to page [25] for more detail.

 

Your Board recommends you vote FOR this item.

Item

 

2

 

Ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2020. Refer to page [26] for more detail.

 

Your Board recommends you vote FOR this item.

 

 

 

 

 

Item

 

3

 

Approve, on an advisory basis, named executive officer compensation. Refer to page [27] for more detail.

 

Your Board recommends you vote FOR this item.

Item

 

4

 

Approve the FirstEnergy Corp. 2020 Incentive Compensation Plan. Refer to page [28] for more detail.

 

Your Board recommends you vote FOR this item.

 

 

 

 

 

 

 

 

Item

 

5

 

Approve a management proposal to authorize the Board to make certain future amendments to the Amended and Restated Code of Regulations. Refer to page [38] for more detail.

 

Your Board recommends you vote FOR this proposal.

Item

 

6

 

Shareholder Proposal Requesting Removal of Aggregation Limit for Proxy Access Groups.  Refer to page [40] for more detail.

 

X Your Board recommends you vote AGAINST this shareholder proposal.

 

 


i


 

 

How to Cast Your Vote

 

Your vote is important! Even if you plan to attend our Annual Meeting in person, please cast your vote as soon as possible by:

 

 

 

Do you hold shares directly with FirstEnergy or in the FirstEnergy Corp. Savings Plan?

 

 

 

Use the internet at
[www.cesvote.com]

 

Call toll-free at
1-888-693-8683

 

Mail by returning your proxy
card/voting instruction form
(1)

 

 

Do you hold shares through a bank, broker or other institution (beneficial ownership)? (2)

 

 

 

Use the internet at
[www.proxyvote.com]

 

Call toll-free at
1-800-454-8683

 

Mail by returning your proxy
card/voting instruction form

 

(1)    If your envelope is misplaced, send your proxy card to Corporate Election Services, Inc., the Company’s independent proxy tabulator and Inspector of Election. The address is FirstEnergy Corp., c/o Corporate Election Services, P.O. Box 3230, Pittsburgh, PA 15230.

(2)    Not all beneficial owners may be able vote at the web address and phone number provided above. If your control number is not recognized, please refer to your voting instruction form for specific voting instructions.

Please follow the instructions provided on your proxy card/voting instruction form (the “proxy card”), Notice of Internet Availability of Proxy Materials, or electronic or other communications included with your proxy materials. Also refer to the “How You Can Vote” section of the “Questions and Answers about the Annual Meeting” below for more details. All shareholders of record may vote in person at the annual meeting. Beneficial owners may vote in person at the meeting as described in response to questions 2 and 13 of the “Questions and Answers about the Annual Meeting” below.

You may have multiple accounts and therefore receive more than one proxy card or voting instruction form and related materials. Please vote each proxy card and voting instruction form that you receive.

Board Nominees

 

The following table provides summary information about each member of your Board of Directors (your “Board”) standing for election to your Board. Each member stands for election annually.

 

 

 

 

 

 

 

 

Committee Memberships

 

Name

Age

Director

Since

Independent

Audit

Compensation

Corporate

Governance

and Corporate

Responsibility

Finance

Operations, Safety and Nuclear Oversight

Number

of Other

Public

Company

Boards(1)

 

 

 

 

 

 

 

 

 

 

 

 

Michael J. Anderson

68

 

2007

 

Yes

Chair

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

Steven J. Demetriou

61

 

2017

 

Yes

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

Julia L. Johnson

57

 

2011

 

Yes

 

 

Chair

 

3

 

 

 

 

 

 

 

 

 

 

 

 

Charles E. Jones

64

 

2015

 

No

 

 

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

Donald T. Misheff

63

 

2012

 

Yes

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

Thomas N. Mitchell

64

 

2016

 

Yes

 

 

 

Chair

0

 

 

 

 

 

 

 

 

 

 

 

 

James F. O’Neil III

61

 

2017

 

Yes

 

Chair

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

Christopher D. Pappas

64

 

2011

 

Yes

 

 

Chair

 

2

 

 

 

 

 

 

 

 

 

 

 

 

Sandra Pianalto

65

 

2018

 

Yes

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

Luis A. Reyes

68

 

2013

 

Yes

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

Leslie M. Turner

62

 

2018

 

Yes

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

  

(1) 

As defined under New York Stock Exchange Listed Company Manual Section 303A Corporate Governance Standards Frequently Asked Questions.


ii


 

 

Key Facts About Your Board

 

We seek to maintain a well-rounded and diverse Board representing a wide breadth of experience and perspectives that balances the institutional knowledge of longer-tenured directors with the fresh perspectives brought by newer directors. Below are highlights regarding our 11 director nominees standing for election to your Board.

 

 

Corporate Governance Highlights

 

The Company is committed to strong corporate governance, which we believe is important to the success of our business and in advancing shareholder interests. Highlights include:

 

 

 

 

  Independent Oversight

 

  Board & Committee Oversight

      Separate Board Chairman and Chief Executive Officer (our “CEO”)

      Independent Board Chairman

      All directors are independent, other than the CEO

      Board committees are comprised entirely of independent directors

      Independent directors regularly hold executive sessions without management at Board and committee meetings

 

      Enterprise risk oversight by full Board and its committees

      Corporate Governance and Corporate Responsibility Committee oversees corporate citizenship practices including ESG and sustainability initiatives

      Audit Committee oversees risks related to cybersecurity, in addition to matters related to financial statements and compliance

      Compensation Committee ensures alignment between pay and performance

 

 

 

 

 

 

 

  Shareholder Rights & Accountability

 

  Board Practices

      Annual election of all directors

      Shareholders of 25 percent or more shares outstanding and entitled to vote may call a special meeting

      Clear, effective process for shareholders to raise concerns to your Board

      Majority voting standard for uncontested director elections (approved by shareholders in 2019), with an accompanying Director Resignation Policy

      General majority voting power threshold (approved by shareholders in 2019)

      Direct investor relations and governance engagement and outreach to shareholders

      Advisory vote on named executive officer compensation is held on an annual basis, consistent with the shareholder advisory vote on frequency

      Shareholders may nominate directors through proxy access (approved by shareholders in 2019)

 

      Consideration of your Board’s ethnic and gender diversity, age, experience and skills and other attributes when evaluating nominees for your Board

      A robust annual evaluation process: full Board evaluation including third-party interviews, Board committee evaluations and individual director evaluations

      Mandatory director retirement age of 72 pursuant to our Corporate Governance Policies

      Policy to consider diversity for director candidates

      Goal to maintain at least 30% diverse members (by race, ethnicity and gender combined) for the foreseeable future

      Corporate Governance and Corporate Responsibility Committee and full Board engage in rigorous director succession planning

      Comprehensive director orientation and continuing education

      Robust stock ownership guidelines

      Anti-Hedging and Anti-Pledging Policies

      No poison pill

 

 

 

 

Our corporate governance practices are described in greater detail in the “Corporate Governance and Board of Directors Information” section beginning on page 1.


iii


 

 

Executive Compensation Highlights

 

Under our compensation design, the percentage of pay that is based on performance increases as a Named Executive Officer’s (“NEO”) responsibilities increase. As shown in the charts below, of base salary, 2019 FE Short-term Incentive Program (“FE STIP”) and Long-term Incentive Program (“FE LTIP”) awards, approximately 87% of the CEO’s total target pay and 74% of our other NEOs’ average target pay is variable and could be reduced to zero if performance metrics are not met at a minimum of threshold level.

 

CEO 2019 Pay Mix at Target

Other NEOs 2019 Pay Mix at Target

 

 

 

We believe what we do and don’t do with respect to executive compensation aligns with the long-term interests of our shareholders and with commonly viewed best practices in the market.

 

 

 

What We Do

What We Don’t Do

 

       Pay-for-performance

•     FE LTIP is 100% at risk, with no solely time-based vesting requirements

•     FE STIP is 100% at risk

 

      Threshold and caps on incentive awards:

 

•     Threshold financial performance hurdle for Operating Earnings must be achieved before any FE STIP award is paid

 

 

•      Individual FE STIP awards capped at 150% (vs. industry caps at 200%)

 

•      Individual FE LTIP awards capped at 200% (consistent with the industry) and capped at 100% if absolute Total Shareholder Return (“TSR”) over the performance period is negative

 

       Non-overlapping financial performance measures in our short- and long-term incentive plans

 

       Combination of absolute and relative performance goals

 

       Robust stock ownership guidelines

 

       Enhanced Clawback policy applicable to financial and reputational harm, and other Detrimental Activity

 

       Mitigate undue risk through compensation design, corporate policies, and effective governance

 

       Annual Say-on-Pay vote

 

       Double-trigger change in control (“CIC”) provisions

 

       Independent compensation consultant for the Compensation Committee with only independent directors

 

 

      No executive hedging or pledging is permitted

 

      No employment agreements

 

      No tax gross-ups for our NEOs

 

      No repricing of underwater stock options without shareholder approval

 

      No excessive perquisites

 

      No payment of dividend equivalents on unearned awards

 

      No new entrants in the Supplemental Executive Retirement Plan (“SERP”) – SERP closed since 2014

 

Our executive compensation practices are described in greater detail in the “Executive Compensation” section beginning on page [42].

iv


 

 

    ESG Overview    

 

 

 

FirstEnergy’s Corporate Responsibility efforts are guided by Environmental, Social, and Governance, or ESG principles. These ESG principles reinforce our commitment to our Mission Statement.  The Company is dedicated to accountability, and transparency of ESG related issues, as well as demonstrating the value that these initiatives present to the Company and our stakeholders.  

Accountability

Accountability for Corporate Responsibility at the Company spans the entire organization and starts at the top with the Board’s Corporate Governance and Corporate Responsibility committee. In addition, we have a dedicated team of full-time Corporate Responsibility employees that sits within our Strategy organization and is guided by our Senior Vice President, Strategy, and an executive, cross-functional Steering Committee.  Together, these teams guide the development of internal and external initiatives to improve long-term sustainability of the Company. To drive accountability in this critical area, our annual cash incentive program includes metrics related to ESG, such as Diversity & Inclusion, environmental matters and safety goals.

Transparency

The Company recognizes that transparency on ESG related issues is a critical component of Corporate Responsibility.  In 2019, we focused on increasing our ESG disclosures and transparency.  Key examples include:

 

Climate Report

 

Corporate Responsibility Report and dedicated website at http://www.fecorporateresponsibility.com/

 

Increased engagement with rating and ranking entities, resulting in increased scores from entities such as RobecoSAM and ISS  

Demonstrating Value

In 2020, the Company is focusing on demonstrating the value Corporate Responsibility and ESG initiatives deliver to all our stakeholders.  These efforts include:

 

Goal setting and policy development driven by the results of a materiality assessment

 

Increased alignment with reporting frameworks such as the Task Force for Climate Related Disclosures (TCFD), Global Reporting Initiative (GRI), and the Sustainable Accounting Standards Board (SASB)  

 

Cross-department projects that demonstrate our commitment to our Mission Statement

Promoting Strong ESG Policies through Board-level oversight

A key driver and component of our success is a strong foundation of Corporate Governance practices and policies that promote transparency, accountability and engagement exemplified by your Board.  As further discussed earlier in the Proxy Statement Summary and in the Corporate Governance and Board of Directors Information section below, your Board has:

 

Since 2015, elected six new directors and continued to increase your Board’s ethnic and gender diversity.

 

Added responsibilities to the Corporate Governance and Corporate Responsibility Committee to reflect efforts on sustainability and corporate responsibility, specifically including ESG topics.

 

v


 

 

 

 Human Capital Management Overview 

 

 

FirstEnergy strives to be the employer of choice in our operating areas, known for our diverse team, our culture of inclusion and our dedication to assisting our employees in reaching their full potential. We believe our culture empowers employees to support our mission, build satisfying careers at FirstEnergy and drive our success.

Built upon our Core Values and Behaviors, our talent management and total rewards processes are designed to attract, retain, reward and develop a diverse and qualified workforce of high-performing employees and teams. All employees are responsible for demonstrating our Core Values & Behaviors and adhering to the FirstEnergy Code of Conduct.

Safety

Safety is a Core Value of the Company. Together, FirstEnergy employees have the power and responsibility to keep each other safe and eliminate life changing events. Safety metrics are also a key part of the Key Performance Indicators (KPIs) that drive our short-term incentive program. For more information, refer to the Compensation Discussion and Analysis (“CD&A”).

To achieve a world-class safety culture, we are working with a leading safety consultant to shift our focus from incident prevention to exposure reduction with the goal of eliminating life-changing events, injuries that have life changing impacts or fatal results. This comprehensive initiative along with our multifaceted public safety outreach – which extends to contractors, first responders and members of the communities – highlights our steadfast commitment to striving for a safe environment.

Diversity and Inclusion

We believe a diverse and inclusive work environment drives better service for customers, strong operational performance, innovation and a rewarding work experience for employees. This is why Diversity and Inclusion (D&I) is a Core Value, as well as a corporate objective. We are focused on expanding the diversity of our workforce and creating an inclusive workplace where employees feel valued, motivated and empowered to drive FirstEnergy’s success.

 

Under our CEO’s leadership over the last several years, we moved our D&I efforts forward by building within our culture:

 

 

A 12-member Executive Diversity & Inclusion Council – sponsored by our CEO – that aims to enhance workforce diversity, create an inclusive work environment and provide oversight and guidance for FirstEnergy’s integrated D&I strategy;

 

A D&I Working Group to develop action plans and oversee D&I activities across the organization;

 

D&I Implementation Teams in each business unit to effectively implement actions;

 

Employee Business Resources Groups (EBRGs) consisting of more than 1,500 members to help celebrate our differences and support our common goals;

 

Regularly surveying employees about inclusion at FirstEnergy, soliciting their ideas and engaging them in actions to improve it;

 

Ongoing training and education on a variety of D&I topics for employees and leaders;

 

An independent third party pay equity analysis to support FirstEnergy’s long-standing internal processes that drive equitable pay decisions;

 

Job recruiting processes to increase the number of diverse candidates considered for open positions and expand the diversity of teams interviewing those candidates; and

 

Partnerships to open new doors for candidates from local organizations and schools.

To track our progress and drive leadership accountability for efforts to enhance our culture and expand the diversity of our team, we introduced a D&I Index KPI in our 2018 short-term incentive compensation program for managers and above. In 2019, we increased the weight of this KPI to further advance this business imperative. For more information, refer to the CD&A.

Our D&I initiatives begin with our Board of Directors. We believe it is in our shareholders’ best interest to have a diverse Board representing a wide breadth of experiences and perspectives. Accordingly, our Board has set a goal that it will maintain at least 30% diverse members (by race, ethnicity and gender combined) for the foreseeable future.

We are also focused on building our diverse supplier pipeline through our Supplier Diversity Program. Supplier diversity is intended to provide value to our customers and strengthen the economic health of communities across our service area. Having an inclusive supplier diversity strategy is important when sourcing products and services, selecting suppliers, and managing supplier and contractor relationships. Maintaining a proactive Supplier Diversity Program is an extension of our commitment to promote diversity at every level of our company.

vi


 

For more than a century, FirstEnergy and its predecessor companies have worked to improve the quality of life in the places where our customers and employees live and work. As part of our D&I initiatives, our goal is to increase the FirstEnergy Foundation’s support of community organizations that have a D&I focus.  

Employee Growth and Development

We are committed to preparing our high-performing workforce for the future and helping employees reach their full potential. We are working with employees to develop their skills and competencies and preparing our emerging leaders for future management responsibilities. We believe understanding our rapidly changing industry and our company strategy is key to our employees’ abilities to support our mission and meet our customers’ evolving needs. Toward that end, we are actively engaged in the following initiatives:

Talent Management – We have robust processes to support recruiting, career management, succession planning, and employee and leadership development. In 2019, we launched an effort to provide greater transparency into these talent management processes. This transparency fosters a more robust exchange of information and feedback between employees and leaders and promotes a clearer understanding of career management and development opportunities. Employees continue to learn about available tools throughout the talent management process and are empowered to take ownership of their careers. Meaningful conversations between leaders and their employees builds trust and leads to a more inclusive workplace.

Mentoring Program – Implemented as a pilot program in 2019, our mentoring program enhances learning, teamwork and collaboration throughout FirstEnergy. It cultivates an environment for professional growth and encourages leaders to guide and prepare colleagues. We believe our mentoring program will support the development of our employees, retain our top talent, increase job satisfaction for mentees and mentors, and facilitate skills and knowledge-sharing across the company. We are expanding the program to reach broader audiences in 2020.

Experienced Leader Program – Piloted during the first quarter of 2020, this new program bridges the development gap between new supervisors and managers and senior executives. By providing a development path for experienced directors and managers, we equip our leadership with the right tools to coach and support their teams and ultimately drive FirstEnergy’s long-term success.

Power Systems Institute – We are focused on increasing the number of candidates in our Power Systems Institute (PSI), an award-winning program for recruiting and developing the next generation of highly trained, dedicated and motivated line and substation workers. Upon completion of the 21-month program, students receive an associate degree and are eligible to be hired by FirstEnergy. Since the PSI program’s inception, we have hired more than 2,000 graduates across our service territory. Over the next five years, we plan to enhance our PSI recruitment efforts by building and expanding partnerships with community organizations in each of our service areas.


vii


 

 

 

 

Note About Forward-Looking Statements

 

Forward-Looking Statements: This proxy statement includes forward-looking statements based on information currently available to management. Such statements are subject to certain risks and uncertainties. These statements include declarations regarding management’s intents, beliefs and current expectations. These statements typically contain, but are not limited to, the terms “anticipate,” “potential,” “expect,” “forecast,” “target,” “will,” “intend,” “believe,” “project,” “estimate,” “plan” and similar words. Forward-looking statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, which may include the following: the ability to successfully execute an exit from commodity-based generation, including, without limitation, mitigating exposure for remedial activities associated with formerly owned generation assets; the ability to accomplish or realize anticipated benefits from strategic and financial goals, including, but not limited to, our strategy to operate and grow as a fully regulated business, to execute our transmission and distribution investment plans, to continue to reduce costs, and to improve our credit metrics, strengthen our balance sheet and grow earnings; legislative and regulatory developments, including, but not limited to, matters related to rates, compliance and enforcement activity; economic and weather conditions affecting future operating results, such as significant weather events and other natural disasters, and associated regulatory events or actions; changes in assumptions regarding economic conditions within our territories, the reliability of our transmission and distribution system, or the availability of capital or other resources supporting identified transmission and distribution investment opportunities; changes in customers’ demand for power, including, but not limited to, the impact of climate change or energy efficiency and peak demand reduction mandates; changes in national and regional economic conditions affecting us and/or our major industrial and commercial customers or others with which we do business; the risks associated with cyber-attacks and other disruptions to our information technology system, which may compromise our operations, and data security breaches of sensitive data, intellectual property and proprietary or personally identifiable information; the ability to comply with applicable reliability standards and energy efficiency and peak demand reduction mandates; changes to environmental laws and regulations, including, but not limited to, those related to climate change; changing market conditions affecting the measurement of certain liabilities and the value of assets held in our pension trusts and other trust funds, or causing us to make contributions sooner, or in amounts that are larger, than currently anticipated; the risks associated with the decommissioning of our retired and former nuclear facilities; the risks and uncertainties associated with litigation, arbitration, mediation and like proceedings; labor disruptions by our unionized workforce; changes to significant accounting policies; any changes in tax laws or regulations, or adverse tax audit results or rulings; the ability to access the public securities and other capital and credit markets in accordance with our financial plans, the cost of such capital and overall condition of the capital and credit markets affecting us, including the increasing number of financial institutions evaluating the impact of climate change on their investment decisions; actions that may be taken by credit rating agencies that could negatively affect either our access to or terms of financing or our financial condition and liquidity; the risks and other factors discussed from time to time in our Securities and Exchange Commission, or SEC, filings and other similar factors. Dividends declared from time to time on FirstEnergy Corp.’s common stock during any period may in the aggregate vary from prior periods due to circumstances considered by FirstEnergy Corp.’s Board of Directors at the time of the actual declarations. A security rating is not a recommendation to buy or hold securities and is subject to revision or withdrawal at any time by the assigning rating agency. Each rating should be evaluated independently of any other rating. The foregoing factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and risks that are included in our filings with the SEC, including but not limited to the most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. The foregoing review of factors also should not be construed as exhaustive. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor assess the impact of any such factor on FirstEnergy Corp.’s business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements. FirstEnergy expressly disclaims any current intention to update or revise, except as required by law, any forward-looking statements contained herein as a result of new information, future events or otherwise.

 

 

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Items to Be
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Executive Compensation

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Security Ownership & Other Important Information

5

Q&A about
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Corporate Governance and Board of Directors Information

 

Board Leadership Structure

The positions of CEO and Chairman of the Board are separated. Our Amended and Restated Code of Regulations and Corporate Governance Policies do not require that your Chairman of the Board and CEO positions be separate, and your Board has not adopted a specific policy or philosophy on whether the role of the CEO and Chairman of the Board should remain separate. However, having a separate Chairman of the Board and CEO has allowed your CEO to focus more time on our day-to-day operations and, in your Board’s judgement, is appropriate at this time.

Your Board schedules regular executive sessions for your independent directors to meet without management participation. Because an independent director is required to preside over each such executive session of independent directors, we believe it is efficient and appropriate to have your independent Chairman of the Board preside over such meetings.

Board Composition and Refreshment

Your Board is comprised of individuals who are highly-qualified, diverse, and independent (other than Mr. Jones, who is not considered independent because of employment with the Company). Your Board’s succession planning takes into account the importance of Board refreshment and having an appropriate balance of experience and perspectives on your Board. As further discussed in the “Director Qualifications” section of this proxy statement, your Board and the Corporate Governance and Corporate Responsibility Committee recognizes that the racial, ethnic and gender diversity of your Board, as well as diversity of thought, background and experiences, are an important part of its analysis as to whether your Board possesses a variety of complementary skills and experiences. Accordingly, your Board has set a goal that it will maintain at least 30% diverse members (by race, ethnicity and gender combined) for the foreseeable future.

We have regularly added directors who we believe infuse diversity, new ideas and fresh perspectives into the boardroom. Since the beginning of 2015, your Board has added six new Board members.  The result is more than half of your Board’s director nominees have tenure of five years or less. During this time, your Board added three directors that increased its diversity profile, two of whom are currently on the Board and standing for election.

Board Oversight

Risk Management

The Company faces a variety of risks and recognizes that the effective management of those risks contributes to the overall success of the Company. The Company has implemented a process to identify, prioritize, report, monitor, manage, and mitigate its significant risks. A management Risk Policy Committee, consisting of the Chief Risk Officer and senior executive officers, provides oversight and monitoring to ensure that appropriate risk policies are established and carried out and processes are executed in accordance with selected limits and approval levels. Other management committees exist to address topical risk issues. Timely reports on significant risk issues are provided as appropriate to employees, management, senior executive officers, respective Board committees, and the full Board. The Vice President, Risk also prepares enterprise-wide risk management reports that are presented to the Audit Committee, the Finance Committee and your Board.

Your Board administers its risk oversight function through the full Board, as well as through the various Board committees. Specifically, your Board considers risks applicable to the Company at each meeting in connection with its consideration of significant business and financial developments of the Company. Also, the Audit Committee Charter requires the Audit Committee to oversee, assess, discuss, and generally review the Company’s policies with respect to the assessment and management of risks, including risks related to the financial statements and financial reporting process of the Company, credit risk, liquidity and commodity market risks, and risks related to cybersecurity. The Audit Committee also reviews and discusses with management the steps taken to monitor, control, and mitigate such exposures. Through this oversight process, your Board obtains an understanding of significant risk issues on a timely basis, including the risks inherent in the Company’s strategy. In addition, while the Company’s Chief Risk Officer administratively reports to your Chief Financial Officer (your “CFO”), he also has full access to the Audit Committee and Finance Committee and is scheduled to attend each of their committee meetings.

In addition to the Audit Committee’s role in risk oversight, our other Board committees also play a role in risk oversight within each of their areas of responsibility. Specifically, the Compensation Committee reviews, discusses, and assesses risks related to compensation programs, including incentive compensation and equity-based plans, as well as the relationship between our risk management policies and practices and compensation. See also, “Risk Assessment of Compensation Programs” found in the CD&A section in this proxy statement. The Corporate Governance and Corporate Responsibility Committee considers risks

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related to corporate governance, including Board and committee membership, Board effectiveness, related person transactions, and the Company’s corporate citizenship practices. The Finance Committee evaluates risks relating to financial resources and strategies, including capital structure policies, financial forecasts, budgets and financial transactions, commitments, expenditures, long and short-term debt levels, dividend policy, issuance of securities, exposure to fluctuation in interest rates, share repurchase programs and other financial matters deemed appropriate by your Board. The Operations, Safety and Nuclear Oversight Committee considers risks associated with the safety, reliability, and quality relating to the Company’s electric power generation, and distribution and transmission facilities and a retired nuclear unit . Further, day-to-day risk oversight is conducted by our Corporate Risk department and our senior management and is shared with your Board or Board committees, as appropriate. We believe that your Board’s role in risk oversight is consistent with and complemented by your Board’s leadership structure. In addition, the section in this proxy statement entitled “Board Leadership Structure” provides information relating to our separation of the Chairman of the Board and CEO positions.

Cybersecurity

FirstEnergy is committed to protecting its employees, customers, facilities, and the ongoing reliability of its electric system. We work closely with state and federal agencies and our peers in the electric utility industry to identify physical and cyber security risks, exchange information, and put safeguards in place to comply with strict reliability and security standards. From a security standpoint, no other industry – including gas pipelines – is as heavily regulated as the electric utility sector. We have comprehensive cyber and physical security plans in place, but we don’t publicly disclose details about these measures that could aid those who want to harm our customers and our employees.

Your Board has identified cybersecurity as a key enterprise risk. Your Board receives cybersecurity updates from the Chief Information Officer at regularly scheduled meetings. The Audit Committee reviews our cybersecurity risk management practices and performance, primarily through reports provided by management. The Audit Committee also reviews and discusses with management the steps taken to monitor, control, and mitigate such exposure. Among other things, these reports have focused on incident response management and recent cyber risk and cybersecurity developments.

Security enhancements are also a key component of FirstEnergy’s Energizing the Future transmission investment program. The Company invests heavily in layered security measures that use both technology and hard defenses to protect critical transmission facilities and our digital communications networks.

Corporate Responsibility

Social responsibility is a core value of your Company.  In 2018, responsibilities related to the review of corporate citizenship practices were added to the Corporate Governance and Corporate Responsibility committee’s charter to continue to ensure transparency and accountability of these important topics.  

The Company remains focused on delivering strong financial results and providing top-tier reliability to our customers, and we are committed to doing so in a way that respects our employees, customers, communities and the environment.  In 2019 we demonstrated that through the issuance of a Climate Report, a Corporate Responsibility Report and dedicated website, increased scores from rating and ranking agencies, and instituted various internal initiatives aimed at informing and engaging our employees on ESG-related responsibilities.

Public Policy and Engagement

We have decision-making and oversight processes in place for political contributions and expenditures. Our Corporate Political Activity Policy available on our website describes the criteria for certain political contributions and ballot initiative expenditures and the process for approving such contributions and expenditures. Also, your Board’s Corporate Governance and Corporate Responsibility Committee periodically reviews this policy and related practices as well as dues and/or contributions to industry groups and trade associations.

 

Based on feedback from our shareholder engagement and outreach, we expanded our website disclosure to include reports on federal and state level lobbying, as well as, the lobbying portion of certain trade association dues.

 

 

Evaluating Board Effectiveness

Your Board is committed to a rigorous evaluation process. For 2019 your Board conducted an annual evaluation process, as further described below, that was coordinated by the Corporate Governance and Corporate Responsibility Committee: a full Board evaluation that included third-party director interviews; committee evaluations; and individual director evaluations.

 

 

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Board Evaluations:  A Multi-Step Process

Annual Process

is Initiated

Your Board’s Corporate Governance and Corporate Responsibility Committee initiates the annual Board, committee and individual director evaluation process and presents the proposed approach to your Board for comment.

Third-Party

Board & Committee

Assessment Surveys

Your Board engaged a third-party to conduct assessment surveys to solicit each independent director’s opinion regarding your Board’s and committees’ effectiveness relating to topics such as ethics and accountability, Board composition and culture, succession planning, and shareholder and stakeholder involvement.

Third-Party

Director

Interviews

Your Board engaged a third-party to conduct interviews with your directors. Interviews include follow-up conversations regarding answers to Board and Committee assessment surveys.

Individual Director

Evaluations

& Director

Self-Assessments

Your Board Chairman, in consultation with the Chair of the Corporate Governance and Corporate Responsibility Committee, reviews individual performance and qualifications of each director. In addition, prior to accepting a nomination, each director is to conduct a self-assessment as to whether he or she satisfies the criteria set forth in the Company’s Corporate Governance Policies and the Corporate Governance and Corporate Responsibility Committee Charter.

Presentation
of Findings

Your Corporate Governance and Corporate Responsibility Committee presents its findings to your Board, assessing the contributions of your Board and its committees and discussing any areas in which your Board believes improvement is recommended. Input about the findings is sought from your Board.

Feedback
Incorporated

Results requiring consideration are addressed at subsequent Board and committee meetings and reported back to the full Board, where appropriate. For example, in 2019, feedback included indications that your Board should stay focused on diversity and inclusion, Board and employee engagement and the Company’s strategic initiatives.

 

Shareholder Outreach and Engagement Program

We Have a Robust Shareholder Outreach and Engagement Program

We believe it is important for us to engage regularly with our shareholders. We maintain an active shareholder outreach and engagement program to understand our investors’ perspective on certain topics, including, among others, ESG policies and executive compensation. With support from your Board, the Company’s CEO and the management team, including members of the Corporate Secretary’s office and departments of Corporate Responsibility, Investor Relations and Human Resources, focus significant efforts on engaging with our major shareholders and the broader investment community. Shareholder feedback and suggestions we receive are reported to the Compensation Committee, Corporate Governance and Corporate Responsibility Committee and, as needed, your Board or various committees of your Board for consideration. We also conduct ongoing governance reviews (for example, assessing governance trends). This process enables your Board and management to understand and consider the topics that matter most to our shareholders so we can plan to address them effectively.

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Outreach and Engagement Program Shareholder Feedback

As part of our commitment to continue to understand our investors’ perspectives through and as part of our corporate governance shareholder engagement program, we appreciate the opportunity to engage with our shareholders, and we continue to find our meetings to be enlightening and productive. Shareholders we meet with often express appreciation for our proactive interest in their views, and we certainly appreciate the time they took to share their thoughts with us. During these meetings, participants included members from management and your Board, where appropriate. Collectively, our discussions during 2019 primarily centered around the following topics:

 

ESG and Executive Compensation

 

Highly Skilled &
Diverse Board

 

Corporate Responsibility

 

Corporate
Governance  Best
Practices

 

Strategic  Plan

 

Diversity and
Inclusion

 

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Based on the results of our outreach and engagement efforts, your Board has taken the following steps:

 

Maintained Design of Executive Compensation Program: Applying the feedback we received from shareholders, your Compensation Committee maintained, in 2019, the design changes to the executive compensation program implemented in 2018. For further insight on our outreach related to executive compensation, see the “Shareholder Engagement and Say-on-Pay Results” section below in the CD&A.

 

Enhanced our Environmental & Corporate Responsibility Related Disclosures: We regularly evaluate our risk and related disclosures, and recently we published a climate report and our Corporate Responsibility Report.

 

Enhanced our Proxy Statement Disclosures: We continue to enhance our disclosures throughout this proxy statement regarding Board composition, director skills and executive compensation. We also expanded the use of charts and illustrations in this proxy statement to help better explain our corporate governance and executive compensation programs and objectives.

 

Governance-Related Management Proposals: Your Board is pleased to report that the following management proposals discussed during prior outreach and engagement efforts and approved at our 2019 Annual Meeting of Shareholders have all been implemented:  general majority voting, majority voting for uncontested director elections and proxy access.  The Company’s implementation of general majority voting also addressed the simple majority vote shareholder proposal presented at our 2019 Annual Meeting of Shareholders.  On a related matter, your Board is seeking shareholder approval of a management proposal at the Meeting to authorize your Board to make certain future amendments to the Company’s Amended and Restated Code of Regulations (Item 5).  

Communications with your Board of Directors

Your Board provides a process for shareholders and interested parties to send communications to your Board and non-management directors, including our Chairman of the Board. As set forth in the Company’s Corporate Governance Policies, shareholders and interested parties may send written communications to your Board or a specified individual director, including our Chairman of the Board, by mailing any such communications to the FirstEnergy Board of Directors at the Company’s principal executive office, c/o Corporate Secretary, FirstEnergy Corp., 76 South Main Street, Akron, OH 44308-1890. Our Corporate Governance Policies can be viewed by visiting our website at www.firstenergycorp.com/charters.

The Corporate Secretary or a member of her staff reviews all such communications promptly and relays them directly to a Board member, provided that such communications: (i) bear relevance to the Company and the interests of the shareholder, (ii) are capable of being implemented by your Board, (iii) do not contain any obscene or offensive remarks, (iv) are of a reasonable length, and (v) are not from a shareholder who already has sent two such communications to your Board in the last year. Your Board may modify procedures for sorting shareholders’ and interested parties’ communications or adopt any additional procedures, provided they are approved by a majority of the independent directors.

Other Governance Practices and Policies

Attendance at Board Meetings, Committee Meetings and the Annual Meeting of Shareholders

Our Corporate Governance Policies provide that directors are expected to attend all scheduled Board and applicable committee meetings and the Company’s annual meetings of shareholders. Your Board held 12 meetings during 2019. All directors attended at least 75 percent of the meetings of your Board and of the committees on which they served. Also, all of our directors who were directors at the time of the 2019 year’s Annual Meeting attended the 2019 annual meeting. During 2019, Board members also participated in site visits to the Company’s operating locations.

 

Non-management directors, who are all independent directors, are required to meet as a group in executive sessions without the CEO or any other non-independent director or management at least six times in each calendar year, and our independent Chairman of the Board presided over all executive sessions. During 2019, the non-management directors met 9 times in executive sessions.


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Security Ownership & Other Important Information

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Q&A about
the Annual Meeting

 

Codes of Business Conduct

The Company’s Code of Business Conduct applies to all Company personnel, including the CEO, CFO and Chief Accounting Officer. In addition, your Board has implemented a separate Board of Directors Code of Ethics and Business Conduct.  Any substantive amendments to, or waivers of, the provisions of these documents will be disclosed and made available on our website, as permitted by the SEC and as disclosed in our most recent Annual Report. Both codes are available, without charge, upon written request to the Corporate Secretary, FirstEnergy Corp., 76 South Main Street, Akron, Ohio 44308-1890 or may be viewed on our website at https://www.firstenergycorp.com/investor/corporate_governance/responsibility.html.

Corporate Governance Documents

Your Board believes that the Company’s policies and practices should enhance your Board’s ability to represent your interests as shareholders. Your Board established Corporate Governance Policies which, together with Board committee charters, serve as a framework for meeting your Board’s duties and responsibilities with respect to the governance of the Company. Our Corporate Governance Policies and Board committee charters can be viewed by visiting our website at www.firstenergycorp.com/charters. Any amendments to these documents will promptly be made available on our website.

Director Orientation and Continuing Education

Your Board recognizes the importance of its members to keep current on Company, industry and governance issues and their responsibilities as directors. All new directors participate in orientation soon after being elected to your Board. Also, your Board makes available and encourages continuing education programs for Board members, which include internal strategy meetings, internally developed materials such as on-line presentations, third-party presentations and external programs.

Other Public Company Board Membership

Our Corporate Governance Policies provide that directors will not, without your Board’s approval, serve on a total of more than four public company board of directors. Further, without your Board’s approval, no director who serves as an executive officer of any public company may serve on a total of more than two public company boards of directors.

 

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Executive Compensation

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Security Ownership & Other Important Information

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Q&A about
the Annual Meeting

 

 

Committees of your Board

Your Board established the standing committees listed below. All committees are comprised solely of independent directors as determined by your Board in accordance with our Corporate Governance Policies, which incorporate the New York Stock Exchange (“NYSE”) listing standards and applicable Securities and Exchange Commission (“SEC”) rules, including the members of  the Audit Committee, Compensation Committee and the Corporate Governance and Corporate Responsibility Committee. Mr. Jones, your only director who is not considered independent because of his employment with the Company, does not serve on any Board committee.

 

 

 

 

  Audit Committee 

 

 

8 meetings in fiscal year 2019        

 

 

 

 

Michael J. Anderson (Chair) *

    Donald T. Misheff *

    Sandra Pianalto *

    Leslie M. Turner

 

    * Financial Experts

 

The Audit Committee is primarily responsible for assisting your Board with oversight of:

 

     the integrity of the Company’s financial statements;

     compliance with legal, risk management and regulatory requirements;

     independent auditor’s qualifications and independence;

     performance of the Company’s internal audit function and independent auditor;

     systems of internal control with respect to the accuracy of financial records, adherence to Company policies and compliance with legal and regulatory requirements; and

     major financial risk exposures, including risks related to cybersecurity.

 

The Audit Committee is also directly responsible for the appointment, compensation and retention of, and the oversight of the work and pre-approval of all services provided by the Company’s independent registered public accounting firm. For a complete list of responsibilities and other information, please refer to the Audit Committee Charter available on our website at www.firstenergycorp.com/charters.

Your Board appoints at least one member of the Audit Committee who, in your Board’s business judgment, is an “Audit Committee Financial Expert,” as such term is defined by the SEC. Your Board determined that Messrs. Anderson, Misheff and Ms. Pianalto meet this definition. All members of the Audit Committee are financially literate. As required by the applicable NYSE listing standards, to the extent any member of the Company’s Audit Committee simultaneously serves on the audit committee of more than three public companies, the Company will disclose on its website (www.firstenergycorp.com under the tab “Investors”, “Governance” and “Board of Directors”) your Board’s determination whether such simultaneous service impairs the ability of that individual to serve effectively on the Company’s Audit Committee. See the Audit Committee Report in this proxy statement for additional information regarding the Audit Committee.

In May 2019, Mr. O’Neil transitioned off of the Audit Committee, Ms. Pianalto was appointed to the Audit Committee and Mr. Anderson was appointed Chair.

 

 

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  Compensation Committee

 

 

5 meetings in fiscal year 2019        

 

 

 

 

James F. O’Neil III (Chair)

     Christopher D. Pappas

     Sandra Pianalto

     Leslie M. Turner

 

The Compensation Committee is primarily responsible for:

 

     discharging the responsibilities of your Board relating to compensation of certain executive officers of the Company, including our CEO;

     endorsing a compensation philosophy and objectives that support competitive pay for performance and are consistent with our corporate strategy;

     establishing the appropriate incentive compensation and equity-based plans for our senior-level officers;

     reviewing and discussing with our management the disclosures in the CD&A below and making a recommendation to your Board whether these disclosures should be included in the Company’s Annual Report on Form 10-K and this proxy statement; and

     producing the Compensation Committee Report to be included in the Company’s Annual Report on Form 10-K and this proxy statement.

 

The Compensation Committee also reviews and, if appropriate, makes recommendations to your Board regarding the compensation and benefits of our non-employee directors. To the extent permitted under NYSE listing standards and applicable law, the Compensation Committee is authorized to delegate to one or more subcommittees. For information regarding the role of executive officers and our independent compensation consultant in determining or recommending the amount or form of executive and director compensation, see the CD&A section below. For a complete list of responsibilities and other information, refer to the Compensation Committee Charter available on our website at www.firstenergycorp.com/charters.

Mr. O’Neil was appointed Chair of the Compensation Committee in May 2019.

 

 

 

 

 

 

  Corporate Governance and Corporate Responsibility Committee

 

 

5 meetings in fiscal year 2019

 

 

 

 

Julia L. Johnson (Chair)

  Donald T. Misheff

Thomas N. Mitchell

Luis A. Reyes

 

The Corporate Governance and Corporate Responsibility Committee is primarily responsible for:

 

     Board succession, including ensuring the appropriate balance of diversity of attributes, experience, skills, ethnicity and gender of our directors;

     recommending Director nominees (also refer to the “Director Qualifications” section below for more details); and

     developing and periodically reviewing our corporate governance policies.

 

The Committee is also directly responsible for oversight of our (i) political activities and practices and (ii) our corporate citizenship practices, including sustainability, environmental and corporate social responsibility initiatives. For a complete list of responsibilities and other information, refer to the Corporate Governance and Corporate Responsibility Committee Charter available on our website at www.firstenergycorp.com/charters.

Ms. Johnson was appointed Chair of the Corporate Governance and Corporate Responsibility and Mr. Anderson transitioned off of the Corporate Governance and Corporate Responsibility Committee in May 2019.

 

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  Finance Committee

 

 

5 meetings in fiscal year 2019        

 

 

 

 

Christopher D. Pappas (Chair)

Michael J. Anderson

  Steven J. Demetriou

  Julia L. Johnson

 

 

The Finance Committee is primarily responsible for monitoring and overseeing the Company’s financial resources and strategies, with emphasis on those issues that are long-term in nature. For a complete list of responsibilities and other information, refer to the Finance Committee Charter available on website at www.firstenergycorp.com/charters.

 

Mr. Pappas was appointed Chair of the Finance Committee and Ms. Pianalto transitioned off of the Finance Committee in May 2019.

 

 

 

 Operations, Safety and Nuclear Oversight Committee                                                  5 meetings in fiscal year 2019       

 

 

 

 

Thomas N. Mitchell (Chair)

    Steven J. Demetriou

    James F. O’Neil III    

    Luis A. Reyes

 

The Operations, Safety and Nuclear Oversight Committee is primarily responsible for monitoring and overseeing the Company’s significant operating matters relating to the Company’s electric power generation, and distribution and transmission facilities together with the safety matters relating to such operations. The Committee is also responsible for monitoring and overseeing a retired nuclear unit owned and operated by certain Company subsidiaries.  For a complete list of responsibilities and other information, refer to the Operations, Safety and Nuclear Oversight Committee Charter available on our website at www.firstenergycorp.com/charters.

 

Mr. Demetriou was appointed to the Operations, Safety and Nuclear Oversight Committee and Ms. Johnson transitioned off of the Operations, Safety and Nuclear Oversight Committee in May 2019.

 


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Audit Committee Report

 

The Audit Committee of your Board is charged with assisting your full Board in fulfilling its oversight responsibility with respect to the quality and integrity of the accounting, auditing, and financial reporting practices of the Company. The Audit Committee acts under a written charter that is reviewed annually, revised as necessary, and is approved by your Board. The charter specifies that the Audit Committee is directly responsible for the appointment, compensation and retention of, and the oversight of the work and pre-approval of all services provided by the Company’s independent registered public accounting firm, which was PricewaterhouseCoopers LLP during 2019. In connection with the Audit Committee’s approval of any non-audit services, the Audit Committee considers whether the independent registered public accounting firm’s performance of any non-audit services is compatible with the independent auditor’s independence.

As part of the Audit Committee’s annual auditor engagement process, the Audit Committee considers whether to rotate the independent registered public accounting firm. The Audit Committee also participates in the selection of and ensures the regular rotation of the lead audit partner and concurring partner of the Company’s independent registered public accounting firm every five years. PricewaterhouseCoopers LLP has been the Company’s independent auditor since 2002. The Audit Committee currently believes that there are benefits to having an independent auditor with an extensive history with the Company.  In connection with its auditor engagement process, the Audit Committee considers the continued independence of PricewaterhouseCoopers LLP and considers the benefits including: quality audit work and accounting advice due to PricewaterhouseCoopers LLP’s institutional knowledge of our business and operations, accounting policies and financial systems, and internal control framework; knowledge of the utility industry; and operational efficiencies and a resulting lower fee structure because of PricewaterhouseCoopers LLP’s history and familiarity with our business. Using a framework developed by management, the Audit Committee also assesses the appropriateness and reasonableness of PricewaterhouseCoopers LLP’s fees relative to the Company’s business needs and as compared to fees incurred by peer companies of comparable financial statement risk, size and complexity of business and related internal control environment.

In fulfilling its oversight responsibilities, the Audit Committee reviewed and discussed with management the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. In performing its review, the Audit Committee discussed the propriety of the application of accounting principles by the Company, the reasonableness of significant judgments and estimates used in the preparation of the financial statements, and the clarity of disclosures in the financial statements.

The Audit Committee reviewed and discussed with the Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, their opinion on the conformity of the audited financial statements with accounting principles generally accepted in the United States. This discussion covered the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC.

The Audit Committee received the written disclosures and the letter from the independent registered public accounting firm regarding their independence from the Company as required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence and discussed with the independent registered public accounting firm such firm’s independence.

The Audit Committee discussed with the Company’s internal auditors and independent registered public accounting firm the overall scope, plans, and results of their respective audits. The Audit Committee met with the internal auditors and independent registered public accounting firm, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting process.

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

Audit Committee Members: Michael J. Anderson (chair), Donald T. Misheff, Sandra Pianalto and Leslie M. Turner.


10  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

Matters Relating to the Independent Registered Public Accounting Firm

 

Audit Fees

The following is a summary of the fees paid by the Company to its independent registered public accounting firm, PricewaterhouseCoopers LLP, for services provided to the Company and its reporting subsidiaries during the years 2019 and 2018.

PricewaterhouseCoopers LLP billed the Company an aggregate of $6,958,580 in 2019 and $7,634,500 in 2018 in fees for professional services rendered for the audit of the Company’s annual financial statements and the review of the financial statements included in each of the Company’s Quarterly Reports on Form 10-Q, services that are normally provided in connection with statutory and regulatory filings or engagements, audit-related services and non-audit-related services as noted below.

 

 

Fees for Audit Year 2019

Fees for Audit Year 2018

 

 

 

 

  Audit Fees(1)

$6,951,855

$7,345,000

 

 

 

 

 

  Audit Related Fees(2)

$0

$163,200

 

 

 

 

 

  Tax Fees(3)

$0

$120,000

 

 

 

 

 

  All Other Fees(4)

$6,725

$6,300

 

 

 

 

 

  Total

$6,958,580

$7,634,500

 

(1)

Professional services rendered for the audits of the Company’s and certain of its subsidiaries’ annual financial statements and reviews of unaudited financial statements included in the Company’s and its SEC reporting subsidiary’s (in 2018) Quarterly Reports on Form 10-Q and for services in connection with statutory and regulatory filings or engagements, including comfort letters, agreed upon procedures and consents for financings and filings made with the SEC.

(2)

Professional services rendered in 2018 related primarily to the attestation of the Penn Power Company’s Net Earnings certificate.

(3)

Professional services rendered in 2018 in connection with the Foreign Investment in Real Property Tax Act.

(4)

Non-audit-related software subscription fees to PricewaterhouseCoopers LLP.

The Audit Committee has considered whether any non-audit services rendered by the independent registered public accounting firm are compatible with maintaining its independence. The Audit Committee, in accordance with its charter and in compliance with all applicable legal and regulatory requirements promulgated from time to time by the NYSE and SEC, has a policy under which the independent registered public accounting firm cannot be engaged to perform non-audit services that are prohibited by these requirements. The charter further states that any engagement of the independent registered public accounting firm to perform other audit-related or any non-audit services must have approval in advance by the Chair of the Audit Committee upon the recommendation of the Vice President, Controller and Chief Accounting Officer. Such approved engagement is then presented to the Audit Committee at its next regularly scheduled meeting. All audit and non-audit services provided by PricewaterhouseCoopers LLP in 2019 and 2018 were pre-approved.


11  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

Director Compensation in Fiscal Year 2019

 

 

  Name(1)

Fees Earned

or Paid

in Cash ($)(2)

Stock

Awards

($)(3)

 

Change in

Pension Value

and

Nonqualified

Deferred

Compensation

Earnings ($)(4)

 

All Other

Compensation

($)(5)

Total

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Paul T. Addison(6)

$44,863

$58,476

 

$4,233

 

$0

$107,572

 

 

 

 

 

 

 

 

  Michael J. Anderson

$121,099

$149,898

 

$2,732

 

$0

$273,729

 

 

 

 

 

 

 

 

  Steven J. Demetriou

$100,000

$149,898

 

$0

 

$0

$249,898

 

 

 

 

 

 

 

 

  Julia L. Johnson

$109,148

$149,898

 

$0

 

$0

$259,046

 

 

 

 

 

 

 

 

  Donald T. Misheff

$250,000

$149,898

 

$0

 

$0

$399,898

 

 

 

 

 

 

 

 

  Thomas N. Mitchell

$114,773

$149,898

 

$743

 

$0

$265,414

 

 

 

 

 

 

 

 

  James F. O’Neil III

$121,705

$149,898

 

$0

 

$0

$271,603

 

 

 

 

 

 

 

 

  Christopher D. Pappas

$116,951

$149,898

 

$0

 

$3,000

$269,849

 

 

 

 

 

 

 

 

  Sandra Pianalto

$100,000

$149,898

 

$0

 

$5,000

$254,898

 

 

 

 

 

 

 

 

  Luis A. Reyes

$100,000

$149,898

 

$0

 

$0

$249,898

 

 

 

 

 

 

 

 

  Dr. Jerry Sue Thornton(6)

$38,943

$58,476

 

$0

 

$5,000

$102,419

 

 

 

 

 

 

 

 

  Leslie M. Turner

$100,000

$149,898

 

$0

 

$0

$249,898

(1)

Charles E. Jones, President and CEO, is not included in this table for 2019 because he was an employee of the Company and therefore received no additional compensation for his service as director. The compensation received by Mr. Jones for 2019 is shown in the 2019 Summary Compensation Table (“SCT”) below.

(2)

The amounts set forth in the Fees Earned or Paid in Cash column consist of fees earned in cash whether paid in cash, deferred into the FirstEnergy Corp. Deferred Compensation Plan for Outside Directors (“DDCP”) or elected to be received in stock in lieu of cash.

(3)

The amounts set forth in the Stock Awards column represent the equity retainer received under the FirstEnergy Corp. 2015 Incentive Compensation Plan, as amended, (“2015 Incentive Plan”) in the form of shares of common stock. Each amount constitutes the aggregate grant date fair value of stock awards for fiscal 2019 calculated in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718. The equity retainer is typically paid in quarterly installments. The fair value on the grant dates for each director listed in the table was $40.385 on February 22, 2019; $41.485 on April 26, 2019; $43.955 on July 26, 2019; and $47.1800 on November 6, 2019. Share amounts are rounded down. There were no option awards or stock awards outstanding as of December 31, 2019.

(4)

The amounts set forth in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column reflect only the above-market earnings on nonqualified deferred compensation. There are no pension values for directors. The formula used to determine the above market earnings equals 2019 total interest multiplied by the difference between 120 percent of the Applicable Federal Rate for long-term rates (AFR) and the plan rate and divided by the plan rate.

(5)

The amounts set forth in the All Other Compensation column include compensation not required to be included in any other column. Charitable matching contributions made on behalf of our directors represent the entire amount in the column. Charitable matching contributions were $3,000 for Mr. Pappas, $5,000 for Ms. Pianalto and $5,000 for Dr. Thornton. The FirstEnergy Foundation supports the charitable matching contributions under its Matching Gifts Program.

(6)

Mr. Addison and Dr. Thornton retired effective May 21, 2019.


12  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

Compensation of Directors

We use a combination of cash and equity-based incentive compensation in order to attract and retain qualified candidates to serve on your Board. Equity compensation provides incentives to directors linking their personal interests to our long-term financial success and to increases in shareholder value. In setting director compensation, we take into consideration the significant amount of time that directors spend in fulfilling their duties to us as well as the skill level required of members of your Board. A review is performed every other year to ensure competitiveness of non-employee director compensation. Only non-employee directors receive the compensation described below for their service on your Board. Since Mr. Jones was an employee, he was not eligible to receive additional compensation for his service on your Board in 2019.

Fee Structure

For 2019, each non-employee director received a cash retainer of $100,000 and an equity retainer valued at approximately $150,000 and paid in the form of our common stock. The Chairs of the Corporate Governance and Corporate Responsibility, Finance, and Operations, Safety and Nuclear Oversight Committees each received an additional $15,000 cash retainer in 2019 for serving as a committee chairperson. The Chair of the Audit Committee received an additional $25,000 cash retainer in 2019, and the Chair of the Compensation Committee received an additional $20,000. The amounts paid to directors for 2019 were prorated accordingly based on the duration of their service. Mr. Misheff, the non-executive Chairman of the Board, received an additional $150,000 cash retainer in 2019 for serving in that capacity. Ms. Turner currently directs the Company to pay her cash retainer to her wholly owned limited liability company, therefore, her cash retainer is not eligible for deferral as described below. The total annual compensation of each non-employee director shall not exceed the value of $750,000 in the aggregate of all cash compensation and the value of the applicable equity retainer.

Equity and cash retainers and chairperson retainers were paid in quarterly installments. Any equity compensation and any compensation deferred into equity was granted under the 2015 Incentive Plan. Directors are responsible for paying all taxes associated with cash and equity retainers. We do not gross up equity grants to directors to cover tax obligations.

We believe it is critical that the interests of directors and shareholders be clearly aligned. As such, similar to the NEOs identified in the CD&A, directors are also subject to share ownership guidelines. Within 90 days of their election to your Board, a director must beneficially own a minimum of 100 shares of our common stock. Within five years of joining your Board, each director is required to own shares of our common stock with an aggregate value of at least six times the annual cash retainer (currently $600,000 in common stock). Each director has either attained the required share ownership guideline or is expected to attain the required share ownership guideline within the allotted amount of time. The share ownership guidelines are reviewed by the Compensation Committee for competitiveness on an annual basis and were last reviewed at the Compensation Committee’s July 2019 meeting.

For 2019, the following directly and indirectly held shares were included in determining whether a non-employee director met his/her ownership guidelines:

 

Shares directly or jointly owned in certificate form or in a stock investment plan;

 

Shares held individually or jointly by a broker, or, in certain circumstances, held in trust, or in an individual retirement account (“IRA”), shares held by a spouse, or other beneficially owned shares, to the extent known by the Company; and

 

All units held in the DDCP, discussed below, and units held in the Allegheny Energy, Inc. Non-Employee Director Stock Plan (“AYE Director’s Plan”) or the Allegheny Energy Inc. Amended and Restated Revised Plan for Deferral of Compensation of Directors (“AYE DCD”), which units are payable in shares.


13  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

Deferred Compensation Plan for Outside Directors

The DDCP is a nonqualified deferred compensation plan that provides directors the opportunity to defer compensation. Directors may defer up to 100 percent of their cash retainer into cash or stock accounts. Deferrals into the cash account can be invested in one of nine funds, similar to the investment funds available to all of our employees through the FirstEnergy Corp. Savings Plan, or in a Company-paid annually adjusted fixed income account. The Company paid interest at an annual rate of 5.02% on funds deferred into cash accounts beginning in 2013 and 7.02% on funds deferred into cash accounts prior to 2013. The interest rate received by the directors is the same rate received by all participants under the FirstEnergy Corp. Amended and Restated Executive Deferred Compensation Plan (“EDCP”), as discussed further in the CD&A below.

For stock accounts, dividend equivalent units are accrued quarterly and applied to the directors’ accounts on each dividend payment date using the closing price of our common stock on that date. Payments made with respect to any dividend equivalent units that accrue after January 21, 2014, will be paid in cash.

Other Payments or Benefits Received by Directors

The corporate aircraft is available, when appropriate, for transportation to and from Board and committee meetings and training seminars. Mr. Misheff had the use of an office and administrative support with respect to carrying out his duties as non-executive Chairman of the Board during his time serving in such role in 2019. We pay all fees associated with director and officer insurance and business travel insurance for our directors. In 2019, our directors were eligible to receive perquisites including limited personal use of the corporate aircraft, matching charitable contributions and gifts, the collective value of which was less than $10,000 for each director. Directors are responsible for paying all taxes associated with perquisites and personal benefits.

All directors have entered into written indemnification agreements, which are intended to secure the protection for our directors contemplated by our Amended and Restated Code of Regulations and Ohio law. Each indemnification agreement provides, among other things, that we will, subject to the agreement terms, indemnify a director if by reason of their corporate status as a director, the person incurs losses, liabilities, judgments, fines, penalties, or amounts paid in settlement in connection with any threatened, pending, or completed proceeding, whether of a civil, criminal, administrative, or investigative nature. In addition, each indemnification agreement provides for the advancement of expenses incurred by a director, subject to certain exceptions, in connection with proceedings covered by the indemnification agreement. As a director and officer, the agreement for Mr. Jones addresses indemnity in both roles.


14  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

Director Qualifications

 

The Corporate Governance and Corporate Responsibility Committee recommends Board candidates by identifying qualified individuals in a manner that is consistent with criteria approved by your Board. In consultation with the CEO, the Chairman of the Board and the full Board, the Corporate Governance and Corporate Responsibility Committee searches for, recruits, screens, interviews and recommends prospective directors to provide an appropriate balance of knowledge, experience, diversity attributes and capability on your Board. Suggestions for potential Board candidates come to the Corporate Governance and Corporate Responsibility Committee from a number of sources, including incumbent directors, officers and others. The Corporate Governance and Corporate Responsibility Committee has sole authority to retain and engage a third-party search firm to identify a candidate or candidates.

The Committee has actively engaged in director succession planning and regularly evaluates the addition of a director or directors with particular attributes with an appropriate mix of long-, medium-, and short-term tenured directors in its succession planning. Your Board has been able to attract high quality diverse candidates and has not used a third-party to assist with the identification of potential nominees but would consider using a third-party in the future, if needed or desired.

The Corporate Governance and Corporate Responsibility Committee considers suggestions for candidates for membership on your Board, including candidates recommended by shareholders for your Board. Provided that shareholders suggesting director candidates have complied with the procedural requirements set forth in the Corporate Governance and Corporate Responsibility Committee Charter and Amended and Restated Code of Regulations, the Corporate Governance and Corporate Responsibility Committee applies the same criteria and employs substantially similar procedures for evaluating candidates suggested by shareholders for your Board as it would for evaluating any other Board candidate. The Corporate Governance and Corporate Responsibility Committee will give due consideration to all recommended candidates that are submitted in writing to the Corporate Governance and Corporate Responsibility Committee, in care of the Corporate Secretary, FirstEnergy Corp., 76 South Main Street, Akron, Ohio 44308-1890, received at least 120 days before the publication of the Company’s annual proxy statement from a shareholder or group of shareholders owning one half of one percent (0.5 percent) or more of the Company’s voting stock for at least one year, and accompanied by a description of the proposed nominee’s qualifications and other relevant biographical information, together with the written consent of the proposed nominee to be named in the proxy statement and to serve on your Board.

Also refer to the “Proposals and Business by Shareholders” section of the “Questions and Answers about the Annual Meeting” below for information regarding nominations under the Company’s Amended and Restated Code of Regulations.

Attributes, Experience, Qualifications and Skills of your Board

In recruiting and selecting Board candidates, the Corporate Governance and Corporate Responsibility Committee takes into account the size of your Board and considers a “skills matrix” to determine whether those skills and/or other attributes qualify candidates for service on your Board. The attributes, experiences, qualifications and skills considered in accordance with Corporate Governance Policies and the Corporate Governance and Corporate Responsibility Committee charter for each director nominee led your Board to conclude that the nominee is qualified to serve on your Board.


15  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

The high-level overview below depicts some of the attributes, experiences, qualifications and skills of our director nominees the committee takes into account. It is not intended to be an exhaustive list of each director nominee’s skills or contributions to your Board. Also, additional biographical information and qualifications for each nominee is provided in the “Biographical Information and Qualifications of Nominees for Election as Directors” section below and contains information regarding the person’s service as a director, principal occupation, business experience along with key attributes, experience and skills. Each of the nominees brings a strong and unique background and skill set to your Board, giving your Board, as a whole, competence and experience in a wide variety of areas necessary to oversee the operations of the Company.

 

 

The Company is committed to a policy of inclusiveness and believes that well assembled boards consist of a diverse group of individuals who possess a variety of complementary skills and experiences. The Corporate Governance and Corporate Responsibility Committee regularly assesses the size and composition of your Board in light of the current operating requirements of the Company and the current needs of your Board, and is also committed to actively seeking out highly qualified women and minority candidates, as well as candidates with diverse backgrounds, skills and experience, to include in the pool from which Board nominees are chosen. Accordingly, your Board has set a goal that it will maintain at least 30% diverse members (by race, ethnicity and gender combined) for the foreseeable future. The Corporate Governance and Corporate Responsibility Committee also considers differences in point of view, professional experience, education, and other individual skills, qualities, and attributes that contribute to the optimal functioning of your Board as a whole. Also, our Corporate Governance Policies provide that your Board will not nominate for election a non-employee director following his or her 72nd birthday.

Director Independence

Your Board annually reviews the independence of each of its members to make the affirmative determination of independence that is called for by our Corporate Governance Policies and required by the SEC and NYSE listing standards, including certain independence requirements of Board members serving on the Audit Committee, the Compensation Committee and the Corporate Governance and Corporate Responsibility Committee.

Your Board adheres to the definition of an “independent” director as established by the NYSE and the SEC. The definition used by your Board to determine independence is included in our Corporate Governance Policies and can be viewed by visiting our website at www.firstenergycorp.com/charters. All non-employee directors who served during any part of 2019 were independent under applicable standards, including Mr. Paul Addison and Dr. Jerry Sue Thornton, who are no longer members of your Board and who are not standing for election.


16  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

Each year, our directors complete a questionnaire to assist your Board in assessing whether each director meets the applicable independence standards and the related provisions in the Company’s Corporate Governance Policies. The Company facilitates this review by examining its financial records to determine if amounts paid to or received from entities in which each non-employee director or immediate family member has a relationship based on responses to the questionnaires. Subject to the categorical standards approved by your Board and described below, a list of the relevant entities and the amounts the Company paid to or received from those entities is provided to your Board. Utilizing this information, the Corporate Governance and Corporate Responsibility Committee presents to your Board (i) an evaluation, with regard to each director, whether the director has any material relationship with the Company or any of its subsidiaries; (ii) a recommendation of whether the amount of any payments between the Company and relevant entities could interfere with a director’s ability to exercise independent judgment; and (iii) a review of any other relevant facts and circumstances regarding the nature of these relationships, to determine whether other factors, regardless of the categorical standards your Board has adopted or under the NYSE’s independence standards, might impede a director’s independence. Based on a review of information concerning each of its non-employee directors and the recommendation of the Corporate Governance and Corporate Responsibility Committee, your Board will affirmatively determine whether a director may be considered “independent.”

Your Board recognizes that in the ordinary course of business, relationships and transactions may occur between the Company and its subsidiaries and entities with which some of our directors are or have been affiliated. Our Corporate Governance Policies provide categorical standards to assist your Board in determining what does not constitute a material relationship for purposes of determining a director’s independence. Accordingly, the following commercial and charitable relationships will not be considered to be a material relationship that would impair a director’s independence: (i) if the director, an immediate family member or a person or organization with which the director has an affiliation purchases electricity or related products or services from the Company or its subsidiaries in the ordinary course of business and the rates or charges involved in the transaction are fixed in conformity with law or governmental authority or otherwise meet the requirements of Regulation S-K Item 404(a) Instruction 7, (ii) the aggregate charitable contributions made by the Company to an organization with which a director, an immediate family member or a person or organization with which the director has an affiliation were less than $100,000 in each of the last three fiscal years, or (iii) the aggregate of other payments made by the Company to another entity or organization with which the director, an immediate family member or a person with which the director has an affiliation, or received by the Company from that other entity or organization, were less than the greater of $1 million or 2% of the affiliated company’s revenues in each of the last three fiscal years.  Your Board does not typically consider such immaterial relationships in making independence determinations.  Notwithstanding the foregoing, your Board will not treat a director’s relationship with the Company as categorically immaterial if the relationship otherwise conflicts with the NYSE corporate governance listing standards or is required to be disclosed by the Company pursuant to Item 404 of Regulation S-K.  

Based on the March 2020 independence review, your Board affirmatively determined that [all] non-employee director nominees – [Michael J. Anderson, Steven J. Demetriou, Julia L. Johnson, Donald T. Misheff, Thomas N. Mitchell, James F. O’Neil III, Christopher D. Pappas, Sandra Pianalto, Luis A. Reyes and Leslie M. Turner] – are independent pursuant to our Corporate Governance Polices, the rules and regulations of the SEC and the listing standards of the NYSE. In [all] cases, your Board determined that the nature of the business conducted and any interest of the applicable director in that business were immaterial both to the Company and to the director. Outside of their service as a Company director, none of the Company’s independent directors currently provide professional or other services to the Company, its affiliates or any officer of the Company and none of the Company’s directors are related to any executive officer of the Company. Additionally, Mr. Jones is not considered an independent director because of his employment with the Company.

The Corporate Governance and Corporate Responsibility Committee also determined that [none] of the relationships described above constituted a related person transaction requiring disclosure under the heading “Certain Relationships and Related Person Transactions” in this proxy statement. Also, in each case where the director is a current executive officer of another company, any transactions constituted less than one percent of the Company’s and the other company’s consolidated gross revenues in each of the last three completed fiscal years.

 


17  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

Biographical Information and

Qualifications of Nominees for Election as Directors

 

The following provides information about each director nominee as of the date of this proxy statement. The information presented below includes each nominee’s specific experiences, qualifications, attributes, and skills that contributed to the conclusion by the Corporate Governance and Corporate Responsibility Committee and your Board that he/she should serve as a director of the Company.

 

 

Michael J. Anderson

 

Position, Principal Occupation and Business Experience: Chairman of the board of directors of The Andersons, Inc., a diversified public company with interests in the grain, ethanol and plant nutrient sectors of U.S. agriculture, as well as in railcar leasing and repair and turf products production, since 2016. He also served as CEO and chairman of the board of directors from 2009 to 2015 and chief executive officer from 1999 to 2015, of The Andersons, Inc.

 

Key Attributes, Experience and Skills: Mr. Anderson received an M.B.A. in Finance and Accounting from the Northwestern University Kellogg Graduate School of Management and was a Certified Public Accountant. He participated in the Harvard Advanced Management Program. Mr. Anderson was an auditor for Arthur Young & Co. In 1996, he became president and chief operating officer of The Andersons, Inc.,
and he is currently its chairman. Mr. Anderson’s experience in the accounting and executive management areas are invaluable assets for your Board.

 

 

Age 68

 

FirstEnergy

Director since 2007

 

Committees:

Audit

(Chair); Finance

 

 

Steven J. Demetriou

  

Position, Principal Occupation and Business Experience: Chairman, chief executive officer and director of Jacobs Engineering Group Inc., a provider of technical professional and construction services, since August 2015. Chairman and chief executive officer (from 2004 to 2015) of Aleris Corporation (“Aleris”), a manufacturer of aluminum rolled products. Mr. Demetriou was chairman and chief executive officer of Aleris when it filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in 2009 and when it successfully emerged from those proceedings in June 2010. He served as a director of the OM Group (from 2005 to 2015); and director of Kraton Corporation (from 2009 to 2017).

 

Key Attributes, Experience and Skills: Mr. Demetriou received his Bachelor of Science degree in chemical engineering from Tufts University. He has extensive experience in leadership and senior management roles, including the role of chief executive officer. In addition, he brings experience in a variety of industries, including engineering, construction and oil and gas. His extensive executive and board experience has equipped him with leadership skills and the knowledge of board processes and functions. This experience qualifies him to serve as a member of your Board.

 

 

Age 61

 

FirstEnergy

Director since 2017

 

Committees:

Finance;

Operations, Safety

and Nuclear

Oversight

 


18  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

 

Julia L. Johnson

 

Position, Principal Occupation and Business Experience: President of NetCommunications, LLC, a national regulatory and public affairs firm focusing primarily on energy, telecommunications and broadcast regulation, since 2000. She serves as a director of the following three other public companies: American Water Works Company, Inc., MasTec, Inc., and NorthWestern Corporation.

 

Key Attributes, Experience and Skills: Ms. Johnson received her law degree from the University of Florida College of Law after graduating from the University of Florida with a Bachelor of Science in business administration. She is a former chairman and commissioner of the Florida Public Service Commission, which provides her with valuable insight into the electric utility industry. In her current position as president of NetCommunications, LLC, she develops strategies for achieving objectives through advocacy directed at critical decision makers. She previously served as senior vice president of Communications and Marketing at Milcom Technologies and also has additional public company board experience. Ms. Johnson’s extensive regulatory background, legal experience and additional board experience qualify her to serve as a member of your Board.

 

 

 

Age 57

 

FirstEnergy

Director since 2011

 

Committees:

Corporate

Governance and
Corporate
Responsibility (Chair);

Finance

 

 

Charles E. Jones

  

Position, Principal Occupation and Business Experience: President, CEO and director of the Company since 2015. He was Executive Vice President and President, FirstEnergy Utilities throughout 2014, Senior Vice President and President, FirstEnergy Utilities from 2010 to 2011, and also served as President of the Company’s utility subsidiaries from 2010 through 2014. He also serves as a director of many other subsidiaries of the Company, and served as a director and executive officer of FirstEnergy Solutions Corp. (“FES”) and certain of its subsidiaries from 2015 to 2016. From 2015 to 2017, Mr. Jones was chief executive officer of FirstEnergy Nuclear Operating Company (“FENOC”). FES, its subsidiaries and FENOC filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in March 2018.

 

Key Attributes, Experience and Skills: Mr. Jones received an undergraduate degree in electrical engineering from The University of Akron. He also attended the United States Naval Academy and was a member of the Institute of Electrical and Electronics Engineers. He completed the Reactor Technology Course for Utility Executives at the Massachusetts Institute of Technology and the Public Utility Executive Program at the University of Michigan. He has had an extensive career, at Ohio Edison Company and later FirstEnergy Corp., and has held various executive leadership positions, most recently Executive Vice President and President of FirstEnergy Utilities, and currently President and CEO of the Company. With this vast experience, Mr. Jones brings to your Board an extraordinary understanding of the inner workings of the public utilities industry and FirstEnergy.

 

 

Age 64

 

FirstEnergy

Director since 2015


19  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

 

Donald T. Misheff

 

Position, Principal Occupation and Business Experience: Non-executive Chairman of the Board since May 2018. Retired in 2011 as managing partner (position held since 2003) of the Northeast Ohio offices of Ernst & Young LLP, a public accounting firm. He serves as a director of the following two other public companies: TimkenSteel Corp. and Trinseo S.A. He served as a director of Aleris Corporation, whose common stock is privately held (from 2015 to 2018).

 

Key Attributes, Experience and Skills: Mr. Misheff graduated from The University of Akron with a major in accounting and is a Certified Public Accountant. As the managing partner of the Northeast Ohio offices of Ernst & Young LLP from 2003 until his retirement in 2011, he advised many of the region’s largest companies on financial and corporate governance issues. He began his career with Ernst & Young LLP in 1978 as part of the audit staff and later joined the tax practice, specializing in accounting/financial reporting for income taxes, purchase accounting, and mergers and acquisitions. He has extensive experience performing, reviewing, and overseeing the audits of financial statements of a wide range of public companies. Mr. Misheff’s vast financial and corporate governance experience, together with his extensive experience with a wide range of public companies provides an excellent background for his current position as our non-executive Chairman of the Board.

 

 

 

Age 63

 

FirstEnergy

Director since 2012

 

Committees:

Audit, Corporate

Governance and
Corporate
Responsibility

 

 

Thomas N. Mitchell

  

Position, Principal Occupation and Business Experience: Chairman of the World Association of Nuclear Operators, an independent, nonprofit organization established to promote the highest standards of nuclear safety, since 2019. Retired in 2015 as the president, chief executive officer and director (positions held since 2009) of Ontario Power Generation Inc. (“OPG”), an Ontario-based electricity generation company. He is also a former director and member of the leadership and compensation committee of the Electric Power Research Institute, an independent, nonprofit organization for public interest energy and environmental research.

 

Key Attributes, Experience and Skills: Mr. Mitchell received his undergraduate degree in Engineering (Nuclear and Thermal Sciences) from Cornell University, his Master of Science degree in Mechanical Engineering from George Washington University and his LLD (Hon) from University of Ontario Institute of Technology, which is an honorary degree. He has extensive experience as a senior utility executive in the operation, modification and construction of nuclear, hydroelectric and thermal power stations. Prior to his most recent executive position at OPG, he held progressively more responsible leadership roles before being named the site vice president at the Peach Bottom Atomic Power Station and Pickering Nuclear Generating Station, where he was responsible for the safe and reliable operations of the stations. He also served as a vice president for the Institute of Nuclear Power Operations and as a Lieutenant (Naval Reactors) in the US Navy. Mr. Mitchell’s engineering, environmental, regulatory, safety and industry experience, along with his broad leadership and business skills, are essential to your Board.

 

 

Age 64

 

FirstEnergy

Director since 2016

 

Committees:

Operations, Safety

and Nuclear

Oversight (Chair),
Corporate

Governance and
Corporate
Responsibility

20  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

James F. O’Neil III

 

Position, Principal Occupation and Business Experience: Chief executive officer and vice chairman of CUI Global Inc., a company focused on acquisition and development of innovative companies to create a diversified energy services platform.  Principal owner of Forefront Solutions, LLC, which provides consulting services primarily to the energy infrastructure industry, since October 2017. Former president, chief executive officer and director of Quanta Services, Inc., a provider of specialty contracting services to the electric power and oil and gas industries (from 2011 to 2016). He also serves as a director of the following public company: Hennessy Capital Acquisition Corp IV (“Hennessy Capital”).  He served as a director of NRC Group Holdings (from 2017 to 2019) and Spark Power Group Inc. (from 2018 to 2019).

 

Key Attributes, Experience and Skills: Mr. O’Neil received his Bachelor of Science degree in civil engineering from Tulane University. He has extensive leadership and senior management experience, including the role of chief executive officer, chief operating officer and senior vice president of operations integration and audit. His extensive executive and board experience has equipped him with leadership skills and the knowledge of board processes and functions. Additionally, Mr. O’Neil’s audit, general corporate decision-making and engineering experience makes him a valuable member to your Board.

 

Other Information: In assessing whether directors and director nominees have sufficient time to devote to board duties and responsibilities, the Corporate Governance and Corporate Responsibility Committee and the Board of Directors consider, among other things, whether such directors may be “overboarded,” which refers to the situation where a director sits on an excessive number of boards. [Your Board believes that each of our directors, including director nominees, has demonstrated the ability to devote sufficient time and attention to Board and Committee duties, and otherwise fulfill the responsibilities required of directors.] However, we understand that certain stakeholders may deem Mr. O’Neil “overboarded” due to his recent appointment as chief executive officer of CUI Global Inc. (effective as of October 1, 2019), in addition to serving as a director of the Company and as a director of Hennessy Capital.  

 

Hennessy Capital is a special purpose acquisition company where Mr. O’Neil serves as a director, but does not serve on either of its two board committees. In its quarterly report on Form 10-Q, filed with the SEC on November 8, 2019 (the “Hennessy 10-Q”), Hennessy Capital disclosed that it was incorporated on August 6, 2018, “for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (“Business Combination”)”. The Hennessy 10-Q also disclosed that if Hennessy Capital has not completed its Business Combination by September 5, 2020, it will, among other matters, “cease all operations except for the purposes of winding up.” As a result, the Board intends to evaluate Mr. O’Neil’s roles and responsibilities with respect to your Board as soon as practicable after this September 5, 2020 deadline, or sooner if applicable.

 

Mr. O’Neil manages the demands on his time effectively in many ways:

 

his complementary experience and specialized knowledge of the electric utility industry (both the Company and CUI Global Inc. operate in the electric utility industry) creates efficiencies which have enhanced his performance in serving your Company and the Board effectively;

he is a seasoned director where his prior experience as chief executive officer at Quanta Services, Inc, one of the largest providers of specialty contracting services to electric utilities, and as chief executive officer at CUI Global Inc., creates additional efficiencies for Mr. O‘Neil in fulfilling his roles at your Company;

Mr. O’Neil’s contributions to discussions and decision making as a member of the Board, as well as on the Compensation Committee and Operations, Safety and Nuclear Oversight Committee, are valuable based on his chief executive experience; and

differences in the number and duration of board meetings at the three companies facilitates his attendance and performance as further discussed below.

 

Further, Mr. O’Neil is a highly engaged member of your Board and actively participates in Board and committee matters. Since becoming a director of your Company in 2017, Mr. O’Neil has attended 100% of regularly scheduled Board and respective committee meetings, including all meetings held in 2019. Mr. O’Neil is always well prepared for Board and committee meetings and is widely respected by fellow Board members for making informed and meaningful contributions to the decision-making process at these meetings.

 

 

Age 61

 

FirstEnergy

Director since 2017

 

Committees:

Compensation (Chair);
Operations, Safety and Nuclear Oversight

 

21  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

 

 

Christopher D. Pappas

 

Position, Principal Occupation and Business Experience: Retired in May 2019 from Trinseo S.A., a producer of plastics, latex and rubber, after serving as president and chief executive officer (from 2010 to 2019) and special adviser (2019). He serves as a director of two public companies: Trinseo S.A. and Univar Inc. (lead independent director), a chemical distributor and provider.

 

Key Attributes, Experience and Skills: Mr. Pappas received an M.B.A. from the Wharton School, University of Pennsylvania and an undergraduate degree in Civil Engineering from the Georgia Institute of Technology. He served in various leadership capacities at NOVA Chemicals Corporation, Dow Chemical, and DuPont Dow Elastomers. His extensive executive and board experience has equipped him with leadership skills and the knowledge of board processes and functions. Additionally, Mr. Pappas’ general corporate decision-making and senior executive experience with a commodity-based business provides a useful background for understanding the operations of the Company.

 

 

 

 

Age 64

 

FirstEnergy

Director since 2011

 

Committees:

Compensation; Finance (Chair)

22  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

Sandra Pianalto

 

Position, Principal Occupation and Business Experience: Ms. Pianalto retired in May 2014 as president and chief executive officer of the Federal Reserve Bank of Cleveland, a position she held since 2003. Prior to retiring, Ms. Pianalto also chaired the Federal Reserve’s Financial Services Policy Committee, which is a committee of senior Federal Reserve Bank officials responsible for overall direction of financial services and related support functions for the Federal Reserve Banks and for leadership in the evolving U.S. payment system. Ms. Pianalto is an executive in residence at the University of Akron. She also serves as a director of the following three other public companies: Eaton Corporation plc, Prudential Financial, Inc. and The J.M. Smucker Company.

 

Key Attributes, Experience and Skills: Ms. Pianalto received a master’s degree in economics from The George Washington University and a bachelor’s degree in economics from the University of Akron. She is also a graduate of the Advanced Management Program at Duke University’s Fuqua School of Business. Ms. Pianalto has extensive experience in monetary policy and financial services, and brings wide-ranging leadership and operating skills through her former roles with the Federal Reserve Bank of Cleveland and experience serving as a director of other public companies. Ms. Pianalto joined the Federal Reserve Bank of Cleveland in 1983 as an economist in the research department and held progressively more responsible
leadership roles before being named president and chief executive officer. As president and chief executive officer of the Federal Reserve Bank of Cleveland, she developed expertise in economic research, supervision of financial institutions, and payment services to banks and the U.S. Treasury. In this role, Ms. Pianalto also managed approximately 950 employees. Ms. Pianalto’s comprehensive experience qualifies her to provide substantial guidance and oversight to your Board, particularly in overseeing the Company’s finances.

 

 

 

Age 65

 

FirstEnergy

Director since 2018

 

Committees:

Audit;

Compensation

 

Luis A. Reyes

 

Position, Principal Occupation and Business Experience: Retired in 2011 as a Regional Administrator (position held since 2008) of the U.S. Nuclear Regulatory Commission (the “NRC”), a federal regulatory agency.

 

Key Attributes, Experience and Skills: Reyes received his undergraduate degree in Electrical Engineering and his Master of Science degree in Nuclear Engineering from the University of Puerto Rico. He has extensive experience in the nuclear field and has held senior leadership positions with the NRC, an independent government agency that regulates commercial nuclear power plants and other uses of nuclear materials such as in nuclear medicine.  He joined the NRC in 1978 where he held progressively more responsible leadership roles before being named executive director of operations in 2004, where he managed the agency’s day-to-day operations relating to the safe use of radioactive materials for beneficial civilian purposes while protecting people and the environment. He also served as regional administrator for NRC Region II, overseeing all new commercial nuclear power plant construction in the United States as well as safety and operating plant inspections in the southeast United States. Reyes retired from the NRC in 2011 with 33 years of service. Reyes’ engineering, safety, environmental, regulatory and industry experience is essential to the FirstEnergy Board.

 

 

Age 68

 

FirstEnergy

Director since 2013

 

Committees:

Corporate

Governance and
Corporate
Responsibility;

Operations, Safety and Nuclear Oversight

 

 

 


23  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

 

Leslie M. Turner

 

Position, Principal Occupation and Business Experience: Retired in March 2018 as senior vice president, general counsel and corporate secretary (positions held since 2012) of The Hershey Company, a global confectionery company.

 

Key Attributes, Experience and Skills: Ms. Turner received her law degree from the Georgetown University Law Center after graduating from the New York University with a Bachelor of Science degree. She also received a Master of Laws in Law and Government from the American University, Washington College of Law. Ms. Turner has extensive and wide-ranging leadership, legal, governance and corporate strategy skills through her former roles with The Hershey Company and The Coca-Cola Company. Ms. Turner served as senior vice president, general counsel, and corporate secretary of The Hershey Company from 2012 until her retirement in March 2018. In this role, Ms. Turner was the leader of Hershey’s legal, government relations, corporate secretary, and corporate security functions. She also advised Hershey on M&A opportunities and other stakeholder considerations facing publicly traded companies. Prior to joining Hershey, Ms. Turner’s career included progressively more responsible leadership roles at Coca-Cola North America, Akin Gump Hauer & Feld, LLP and the senior executive service level of the federal government. Ms. Turner’s legal experience and additional regulatory experience qualify her to serve as a member of your Board.

 

 

Age 62

 

FirstEnergy

Director since 2018

 

Committees:

Audit;
Compensation

 

 

24  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

Items to Be Voted On

 

 

Item  1

Election of Directors

 

Your Board recommends that you vote FOR All Nominees.

You are being asked to vote for the following 11 nominees to serve on your Board for a term expiring at the annual meeting of shareholders in 2021 and until their successors shall have been elected: Michael J. Anderson, Steven J. Demetriou, Julia L. Johnson, Charles E. Jones, Donald T. Misheff, Thomas N. Mitchell, James F. O’Neil III, Christopher D. Pappas, Sandra Pianalto, Luis A. Reyes and Leslie M. Turner

The “Biographical Information and Qualifications of Nominees for Election as Directors” section of this proxy statement provides information for all nominees for election at the Meeting. The “Director Qualifications” section of this proxy statement provides information relating to your Board’s and Corporate Governance and Corporate Responsibility Committee’s review of nominees. Your Board has no reason to believe that the persons nominated will not be available to serve after being elected. If any of these nominees would not be available to serve for any reason, shares represented by the appointed proxies will be voted either for a lesser number of directors or for another person selected by your Board. However, if the inability to serve is believed to be temporary in nature, the shares represented by the appointed proxies will be voted for that person who, if elected, will serve when able to do so.

Pursuant to the Company’s Amended and Restated Code of Regulations, at any election of directors, a nominee shall be elected to your Board only if the vote “For” the candidate exceed the votes “Against” the nominee; abstentions and broker non-votes will have no effect. Our Corporate Governance Policies also provide that in an uncontested election of directors (i.e., an election where the only nominees are those recommended by your Board), any nominee for director who receives a greater number of votes “Against” his or her election than votes “For” his or her election will promptly tender his or her resignation to the Corporate Governance and Corporate Responsibility Committee following certification of the shareholder vote. The Corporate Governance and Corporate Responsibility Committee will promptly consider the tendered resignation and will recommend to your Board whether to accept or reject the tendered resignation no later than 60 days following the date of the shareholders’ meeting at which the election occurred. In considering whether to recommend acceptance or rejection of the tendered resignation, the Corporate Governance and Corporate Responsibility Committee will consider factors deemed relevant by the committee members, including the director’s length of service, the director’s particular qualifications and contributions to the Company, the reasons underlying the majority withheld vote, if known, and whether these reasons can be cured, and compliance with stock exchange listing standards and the Corporate Governance Policies. In considering the Corporate Governance and Corporate Responsibility Committee’s recommendation, your Board will consider the factors considered by the Corporate Governance and Corporate Responsibility Committee and any such additional information and factors your Board believes to be relevant. Your Board will act on the Corporate Governance and Corporate Responsibility Committee’s recommendation no later than at its next regularly scheduled Board meeting.

 

Your Board Recommends That You Vote “For” All Nominees in Item 1.


25  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

Item  2

 

Ratification of the Appointment of the Independent Registered Public Accounting Firm For 2020

 

Your Board recommends that you vote FOR Item 2.

 
You are being asked to ratify the Audit Committee’s appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm to examine the books and accounts of the Company for the fiscal year ending December 31, 2020. While our Amended and Restated Code of Regulations does not require shareholders to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm, we are submitting the proposal for ratification as a matter of good corporate governance. However, if shareholders do not ratify the appointment, the Audit Committee will reconsider retaining PricewaterhouseCoopers LLP. Even if the appointment is ratified, the Audit Committee, at its discretion, may change the appointment at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders. A representative of PricewaterhouseCoopers LLP is expected to attend the Annual Meeting and will be available to respond to appropriate questions and have an opportunity to make a statement if he or she wishes to do so. We refer you to the “Matters Relating to the Independent Registered Public Accounting Firm” section of this proxy statement for information regarding services performed by, and fees paid to, PricewaterhouseCoopers LLP during the years 2018 and 2019. Item 2 requires the affirmative vote of a majority of the votes cast and abstentions will have no effect. There can be no broker non-votes on Item 2 as it is considered a “routine” matter under applicable NYSE rules.

 

Your Board Recommends That You Vote “For” Item 2.


26  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

Item  3

Approve, on an Advisory Basis, Named Executive Officer Compensation

 

Your Board recommends that you vote FOR Item 3.

The following proposal provides shareholders the opportunity to cast an advisory, non-binding vote to approve the compensation of the NEOs (a “Say-on-Pay” vote) as further described in the CD&A and the related compensation tables and narrative disclosure. This resolution is required pursuant to Section 14A of the Securities Exchange Act of 1934. Currently, the advisory vote is held annually. The next advisory vote on NEO compensation is scheduled to occur at the Company’s 2021 Annual Meeting of Shareholders. Your Board strongly supports the Company’s executive pay practices and asks shareholders to support its executive compensation program by adopting the following resolution:

“RESOLVED, that the shareholders approve, on an advisory basis, the compensation of the FirstEnergy Corp. Named Executive Officers, as such compensation is disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables, and the other related narrative executive compensation disclosure contained in the proxy statement.”

The primary objectives of the Company’s executive compensation program are to attract, motivate, retain, and reward the talented executives, including the NEOs, who we believe can provide the performance and leadership to achieve success in the highly complex energy industry. Our executive compensation program is centered on a pay-for-performance philosophy. After robust benchmarking and shareholder outreach, the Compensation Committee and your Board approved a number of key changes effective in 2018, and maintained the executive compensation program for 2019, to better align executive pay with shareholder interests.

In deciding how to vote on this proposal, we encourage you to read the CD&A for a more detailed discussion of our executive compensation programs and practices applicable to the NEOs, beginning on page [42].

Your Board strongly believes that our compensation philosophy, in conjunction with continued shareholder outreach, is in the best interests of shareholders. We will continue to annually review and evaluate all compensation plans and programs with the goal of aligning such plans and programs with market practice and the best interests of our shareholders. Item 3 is an advisory proposal that requires the affirmative vote of a majority of the votes cast; abstentions and broker non-votes will have no effect.

Although this advisory vote is non-binding, your Board and the Compensation Committee value the views of our shareholders and expect to consider the voting results when considering future executive compensation practices for the NEOs.

 

Your Board Recommends That You Vote “For” Item 3.

 


27  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

 

Item  4

 

Approve the FirstEnergy Corp. 2020 Incentive Compensation Plan

Your Board recommends that you vote FOR Item 4.

Subject to shareholder approval, your Board has adopted the FirstEnergy Corp. 2020 Incentive Compensation Plan (later referred to as the Plan). The purpose of the Plan is to promote the success of your Company and its subsidiaries by providing incentives to certain employees and directors that are expected to help link their personal interests to the long-term financial success of your Company and its subsidiaries and to help increase shareholder value. By adopting the Plan, your Board believes your Company will continue to be able to attract, motivate and retain the employees and directors whose judgment, interest, efforts, and special skills will help enable your Company to succeed. The Plan provides for equity, equity-based and cash-based awards the Company intends to grant under its Short-Term Incentive Program or Long-Term Incentive Program. The Plan will be effective when it receives approval by the shareholders of your Company and will terminate on the 10th anniversary of the effective date (unless terminated earlier pursuant to its terms).

Purpose of the Proposal

You are being asked to approve the proposed Plan, including the authority to issue shares (as described below) for awards under the Plan. Based on the number of shares available under the current FirstEnergy Corp. 2015 Incentive Compensation Plan, including as amended, (referred to as the Predecessor Plan), and the Company’s historical grant practices, approval of the Plan is necessary in order to have sufficient shares available in the future for your Company’s customary annual incentive awards and other awards to attract, retain and motivate certain employees in specific situations. The affirmative vote of a majority of the votes cast is required to approve the Plan. Under NYSE requirements for the approval of equity plans, abstentions will be counted and have the same effect as “against” votes, and broker non-votes will have no effect. A summary of the principal features of the Plan is provided below, but is qualified in its entirety by reference to the full text of the Plan that is attached as Appendix A to this proxy.

Why We Believe You Should Vote for this Item

The Plan authorizes the Committee to provide stock options, stock appreciation rights (referred to below as SARs), restricted stock, restricted stock units (referred to below as RSUs), performance shares, other stock-based awards, cash-based awards and dividends and dividend equivalents for the purposes described above. Some of the key features of the Plan that reflect your Company’s commitment to effective management of equity and incentive compensation are set forth below.

Your Company believes its future success depends in part on its ability to attract, motivate, and retain high quality employees and directors and that the ability to provide equity-based and incentive-based awards under the Plan is critical to achieving this success. Your Company would be at a severe competitive disadvantage if it could not use share-based awards to recruit and compensate its employees and directors. The use of common stock as part of your Company’s compensation program is also important because equity-based awards are an essential component of its compensation program for certain employees, as they help link compensation with long-term shareholder value creation and reward participants based on service and/or performance.

As of March 9, 2020, [XX] shares of common stock remained available for issuance under the Predecessor Plan. If the Plan is not approved, your Company may be compelled to increase significantly the cash component of its employee and director compensation, which approach may not necessarily align employee and director compensation interests with the investment interests of your Company’s shareholders. Replacing equity awards with cash also would increase cash compensation expense and use cash that might be better utilized.

The following includes aggregated information regarding your Company’s view of the overhang and dilution associated with the Predecessor Plan and the potential dilution associated with the Plan. This information is as of March 9, 2020. As of that date, there were approximately [XX] shares of common stock outstanding:

 

Outstanding full-value awards (restricted stock, RSUs and performance shares, based on maximum performance): [XX] shares (approximately [XX]% of the outstanding common stock);

 

Outstanding stock options: [XX] shares (approximately [XX]% of the outstanding common stock) (outstanding stock options have a weighted average exercise price of $[XX] and a weighted average remaining term of [XX] years);

28  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

In summary, total common stock subject to outstanding awards, as described above (full-value awards and stock options): [XX] shares (approximately [XX]% of the outstanding common stock);

 

Total common stock available for future awards under the Predecessor Plan: [XX] shares (approximately [XX]% of the outstanding common stock) (however, as noted above, no further grants will be made under the Predecessor Plan upon the effective date of the Plan so your Company views these shares as “rolling into” the new Plan based on the design of the new Plan);

 

In summary, the total number of shares of common stock subject to outstanding awards ([XX] shares), plus the total number of shares of common stock available for future awards under the Predecessor Plan ([XX] shares), represents a current overhang percentage of [XX]% (in other words, the potential dilution of your Company’s shareholders represented by the Predecessor Plan);

 

Proposed common stock available for awards under the Plan: [XX] shares, assuming none of the [XX] shares remaining available under the Predecessor Plan are granted prior to effectiveness of the Plan (approximately [XX]% of the outstanding common stock – this percentage reflects the simple dilution of your Company’s shareholders that would occur if the Plan is approved); and

 

The total common stock subject to outstanding awards as of March 9, 2020 ([XX] shares), plus the proposed common stock available for future awards under the Plan ([XX] shares), represent a total overhang of [XX] shares ([XX]%) under the Plan.

Based on the closing price on the NYSE for your Company’s common stock on March 9, 2020 of $[XX] per share, the aggregate market value as of March 9, 2020 of the [XX] new shares of common stock requested under the Plan was $[XX].

In fiscal years 2017, 2018, and 2019, your Company granted awards under the Predecessor Plan covering approximately [XX] shares, [XX] shares, and [XX] shares, respectively. Based on your Company’s basic weighted average common stock outstanding for those three fiscal years of [XX], [XX], and [XX], respectively, for the three-fiscal-year period 2017-2019, the average burn rate, not taking into account forfeitures, was [XX]% (the individual years’ burn rates were [XX]% for fiscal 2017, [XX] % for fiscal 2018, and [XX]% for fiscal 2019).

In determining the number of shares to request for approval under the Plan, your Company’s management team worked with the Committee to evaluate a number of factors, including your Company’s recent share usage and criteria expected to be utilized by institutional proxy advisory firms in evaluating this proposal for the Plan.

If the Plan is approved, your Company intends to utilize the shares authorized under the Plan to continue its practice of incentivizing key individuals through equity grants. Your Company currently anticipates that the shares requested in connection with the approval of the Plan will last for about 5 years, based on your Company’s historic grant rates and the approximate current share price, but could last for a different period of time if actual practice does not match recent rates or the share price changes materially. As noted below, the Committee generally retains full discretion under the Plan to determine the number and amount of awards to be granted under the Plan, subject to the terms of the Plan, and future benefits that may be received by participants under the Plan may not be determinable at this time.

Your Company believes that it has demonstrated a commitment to sound equity compensation practices in recent years. Your Company recognizes that equity compensation awards dilute shareholders’ equity, so it has carefully managed its equity incentive compensation. Your Company’s equity compensation practices are intended to be competitive and consistent with market practices, and it believes its historical share usage has been responsible and mindful of shareholder interests, as described above.

In evaluating this proposal, you should consider all of the information in this proposal.

Material Features of the Plan

Plan Administration.   Generally, the Plan will be administered by the Compensation Committee of your Board (later referred to in this Item 4 as the Committee). However, the Plan is administered by the full Board or the Committee with respect to awards granted to non-employee directors. With respect to awards granted to employees, the Committee has the discretionary power to, among other things, determine the nature and terms of awards and interpret the terms of the Plan, any award agreement and any other agreement or document related to the Plan. In addition, the Committee is authorized to take any action it determines in its sole discretion to be appropriate subject only to the express limitations contained in the Plan, and no authorization in any Plan section or other provision of the Plan is intended or may be deemed to constitute a limitation on the authority of the Committee. With respect to awards granted to non-employee directors, your Board has the discretionary power to, among other things, interpret the terms of the Plan, any award agreement and any other agreement or document related to the Plan. The Committee also may adopt such rules, regulations, forms, instruments, and guidelines for administering the Plan as it deems necessary or proper. The Committee may under certain conditions delegate to an officer of your Company the authority to grant a certain

29  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

number of awards to employees or directors who are not deemed to be insiders for purposes of Section 16 of the Exchange Act. Actions taken and interpretations and determinations made by the Committee will be final and binding upon participants, your Company and all other individuals.

Eligibility.   All employees of your Company and its subsidiaries, plus all non-employee directors of your Company, are eligible to participate in the Plan. The Plan authorizes the Committee to designate any employee of your Company and its subsidiaries as a participant in the Plan. Your Board may designate any non-employee director of your Company as a participant in the Plan. As of March 9, 2020, there were approximately [XX] employees of your Company, [XX] employees of your Company’s subsidiaries and [XX] non-employee directors of your Company eligible to participate in the Plan. The basis for participation in the Plan by eligible persons is the selection of such persons by the Committee or your Board (or their proper delegate) in its discretion. Our current expectation is that, in general, all regular employees (approximately [XX] as of the date of this proxy statement) of your Company and its subsidiaries may receive cash-based awards granted under the Plan under your Company’s short-term incentive programs and all executives of the organization (approximately [XX] as of the date of this proxy statement) may receive equity or equity-based awards granted under the Plan under your Company’s long-term incentive program.

Shares Available Under the Plan.   Subject to adjustment as described in the Plan and the share counting rules set forth in the Plan, the maximum number of shares of your Company’s common stock, par value $0.10 per share, available for awards granted under the Plan (including dividends or dividend equivalents paid in shares) is:

 

 

 

10,000,000 shares, plus

 

 

 

the total number of shares remaining available for grant under the Predecessor Plan as of the effective date of the Plan, plus

 

 

 

the total number of shares that are subject to awards currently outstanding under the FirstEnergy Corp. 2015 Incentive Compensation Plan, including as amended, that are not used due to the forfeiture, cancellation or expiration of such awards.

Assuming target level payouts, as of March 9, 2020, there are approximately [XX] million shares remaining available under the Predecessor Plan and approximately [XX] million shares underlying outstanding awards granted under the Predecessor Plan; assuming maximum level payouts, these amounts would be [XX] million shares and [XX] million shares, respectively. Actual results will not be determined until the end of each applicable performance period and may be adjusted upward or downward subject to the achievement of performance targets. In connection with the approval of the Plan, no further awards will be granted under the Predecessor Plan. Awards previously issued under the Predecessor Plan will continue to be governed in accordance with the terms of such plan. As of March 9, 2020, the closing price of a common share of your Company was $[XX]. Shares available for issuance under the Plan may be authorized and unissued shares, treasury shares or shares obtained on the open market.

If an award granted under the Plan (in whole or in part) is cancelled or forfeited, expires, is settled for cash, or is unearned, the shares subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, again be available under the aggregate share limit.  If, after the effective date, any shares subject to an award granted under the Predecessor Plan are forfeited, or an award granted under the Predecessor Plan (in whole or in part) is cancelled or forfeited, expires, is settled for cash, or is unearned, the shares subject to such award will, to the extent of such cancellation, forfeiture, expiration, cash settlement, or unearned amount, be available for awards under the Plan.  The maximum number of shares that may be issued under an award will be counted against the aggregate share limit at the time of grant and reserved for issuance, unless the award agreement provides that the award will be paid in cash.  Any award that is to be paid in cash pursuant to the applicable award agreement, whether or not the award is denominated in shares, will not result in any shares being counted against the aggregate share limit and reserved for issuance.  Any shares underlying dividend equivalents that are payable in shares shall be counted against the aggregate share limit when issued or credited, but shares underlying dividend equivalents that are forfeited or cancelled, expire, are paid in cash or are unearned, shall be available again under the Plan. Any dividends or dividend equivalents that are payable in cash under the applicable award agreement, whether or not such dividends or dividend equivalents are denominated in shares, shall not result in any shares being counted against the aggregate share limit.

Adjustments.   In the event of any corporate event or transaction (including a change in the shares of your Company or the capitalization of your Company) such as a merger, consolidation, reorganization, recapitalization, separation, partial or complete liquidation, stock dividend, stock split, reverse stock split, split up or split off, spinoff or spinout, other distribution of stock or property of your Company, combination of shares, exchange of shares, dividend in-kind or other like change in capital structure, number of outstanding shares or distribution (other than normal cash dividends) to shareholders of your Company, issuance of rights or warrants, or any similar corporate event or transaction, the Committee, in order to prevent dilution or enlargement of the participants’ rights under the Plan, will substitute or adjust, as applicable, the number and kind of shares that may be issued under the Plan or under particular forms of awards, the number and kind of shares subject to outstanding awards, the exercise price applicable to outstanding awards, other award terms, and other value determinations applicable to outstanding awards.  

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Items to Be
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Executive Compensation

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Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

Further, the Committee, in its sole discretion, may make appropriate adjustments in the terms of any awards under the Plan to reflect, or related to, the changes or distributions described above and to modify any other terms of outstanding awards, including modifications of performance goals and changes in the length of performance periods.

Subject to certain conditions as described in the Plan, the Committee may make adjustments in the terms and conditions of, and the criteria included in, awards, including in recognition of unusual or nonrecurring events affecting one or more participants, your Company or the financial statements of your Company or of changes in applicable laws, regulations or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.

Allowances for Conversion Awards and Assumed Plans. Shares issued or transferred under awards granted under the Plan in substitution for or conversion of, or in connection with an assumption of, stock options, SARs, restricted stock, RSUs, or other stock or stock-based awards held by awardees of an entity engaging in a corporate acquisition or merger transaction with your Company or any of its subsidiaries will not count against (or be added to) the aggregate share limit or other Plan limits. Additionally, shares available under certain plans that we or our subsidiaries may assume in connection with certain corporate transactions from another entity may be available for certain awards under the Plan, under circumstances further described in the Plan, but will not count against (or be added to) the aggregate share limit or other Plan limits.

No Liberal Share Counting Provisions.   The Plan prohibits “liberal share counting” by requiring that no shares tendered or otherwise used in payment of a stock option’s exercise price may be added back into the aggregate share limit. The Plan also provides that no shares withheld or otherwise used in satisfaction of tax withholding obligations may be added back into the aggregate share limit. The full number of shares covered by a SAR, to the extent that it is settled in shares, and whether or not all shares are actually issued to a participant upon exercise of the SAR, will be considered used and therefore may not be added back to the aggregate share limit. If your Company repurchases shares with stock option exercise proceeds, those shares will not be added to the aggregate plan limit. Lastly, if a participant has elected to give up the right to receive compensation in exchange for shares based on fair market value, such shares will not count against the aggregate plan limit.

Non-Employee Director Compensation Limit.   No non-employee director will be granted, in any one calendar year, compensation for such service having an aggregate maximum value (measured at the date of grant as applicable and calculating the value of any awards based on the grant date fair value for financial reporting purposes) in excess of $750,000.

Prohibition on Repricing of Options or SARs.   Subject to the adjustment provisions described above in the subsection titled “Adjustments”, in no event will the Committee or your Board, without first obtaining the approval of your Company’s shareholders, have the right to:

 

 

 

cancel outstanding stock options or SARs for the purpose of replacing or regranting such stock options or SARs with an exercise price that is less than the original exercise price of the stock option or SAR;

 

 

 

change the exercise price of a stock option or SAR to an exercise price that is less than the original exercise price; or

 

 

 

cancel an outstanding stock option or SAR with an exercise price that is more than the fair market value of a share on the date of cancellation in exchange for cash or another award.

 

Performance Measures.   Awards under the Plan may be conditioned upon the attainment of performance measures. Performance measures are the measurable performance objective or objectives established pursuant to the Plan for participants who have received performance-based awards. Any performance measure(s) may be used to measure the performance of your Company or any subsidiary as a whole or any business unit or segment of your Company or a subsidiary. Any performance measures may also be used as a comparison of the performance of your Company, a subsidiary or a division to the performance of a group of comparator companies, or a published or special index. The Committee may select a share price performance measure as compared to various stock market indices. The Committee also has the authority to provide for accelerated vesting of any award based on the achievement of performance goals pursuant to the performance measures. In establishing performance measures, the Committee may provide that any financial factor that in whole or in part comprises any performance measure will be determined in accordance with U.S. generally accepted accounting principles (later referred to as GAAP) or that any such financial factor may be non-GAAP (i.e., that such financial factor may be adjusted to exclude from its calculation one or more GAAP or non-GAAP items). If the Committee determines that a change in the business, operations, corporate structure or capital structure of your Company, or the manner in which it conducts its business, or other events or circumstances render the performance measures unsuitable, the Committee may in its discretion modify such performance measures or the goals or actual levels of achievement regarding the performance measures, in whole or in part, as the Committee deems appropriate and equitable.

 

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Corporate Governance
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Items to Be
Voted On

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Executive Compensation

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Security Ownership & Other Important Information

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Q&A about
the Annual Meeting

 

Performance goals and performance measures under the Plan may be selected by the Committee in its sole discretion. A non-exhaustive list of performance measures that could be used for performance-based awards under the Plan includes the following:  net earnings or net income (before or after taxes); income; retained earnings; earnings per share; net sales or revenue growth; net operating profit or income; operating earnings; return measures (including return on assets, capital, invested capital, equity, sales or revenue); cash flow (including operating cash flow, free cash flow, cash flow return on equity and cash flow return on investment); earnings before taxes, interest, depreciation and/or amortization (later referred to as EBITDA); adjusted EBITDA; gross or operating margins; productivity ratios; share price (including growth measures and total shareholder return); costs or cost control; margins; operating efficiency; operating and maintenance cost management; demand-side management (including conservation and load management); market share; service reliability; energy production availability performance; results of customer satisfaction or employee satisfaction surveys; aggregate product price and other product price measures; working capital; economic value added (later referred to as EVA®), which is net operating profit after tax minus the sum of capital multiplied by the cost of capital; management development; succession planning; shaping legislative and regulatory initiatives and outcomes; taxes; safety record; depreciation and amortization; total shareholder return; workforce hiring plan measures; air quality control project management; environmental; risk management; technology upgrade measures; financial contribution to earnings from special projects or initiatives; capital expenditures; generation output; power supply sourcing adequacy; results of asset acquisitions; results of asset divestitures; capitalization; credit metrics; credit ratings; compound growth rates (earnings, revenue, income from continuing operations, cash generation, etc.); generation outage duration; transmission outage duration; distribution outage duration; value creation; effective tax rate; financing flexibility; financing capability; and value returned to shareholders.

 

Types of Awards.   The Plan permits awards in the form of stock options, SARs, restricted stock, RSUs, performance shares, other stock-based awards, cash-based awards and dividends and dividend equivalents. Each award is evidenced by an agreement by which the Committee establishes its specific terms and conditions. An agreement, certificate, resolution or other type or form of writing or other evidence approved by the Committee or your Board (as applicable) that sets forth the terms and conditions of an award granted under the Plan will be considered the award agreement for such award.  An award agreement may be in an electronic medium, may be limited to notation on the books and records of your Company and, unless otherwise determined by the Committee your Board (as applicable), need not be signed by a representative of the Company or a participant. In addition, non-employee Directors are eligible to receive any type of award, which may or may not be subject to vesting requirements.

Stock Options.   Awards under the Plan may take the form of stock options that may be tax-favored incentive stock options or non-qualified stock options. If an award under the Plan is made in the form of stock options, in general, the exercise price of the option may not be less than the fair market value of the underlying shares on the date of grant (except with respect to stock options issued in substitution for, in conversion of, or in connection with certain corporate transactions as described above). The term of any stock option cannot exceed ten years. The Committee is entitled to set all terms in connection with a participant’s right to exercise an award and may impose such conditions as it determines. No participant may be awarded incentive stock options that are first exercisable during any calendar year which involve shares having a fair market value, determined at the time of grant, in excess of $100,000 (the stock options in excess of this amount will be treated as non-qualified stock options). The maximum number of shares that may be issued with respect to incentive stock options is 10 million shares. Options can be settled in shares or in cash, as determined by the Committee and provided in the applicable award agreement. Stock options (in whole or in part) may become exercisable upon certain events, including a participant’s death, disability, or termination of employment under certain circumstances, as determined by the Committee.  

Stock Appreciation Rights.   Awards under the Plan may take the form of a SAR, with terms as determined by the Committee. Each SAR allows the holder to realize the value of the difference between the exercise price set by the Committee and the market value of a share when the SAR is exercised. Except with respect to SARs issued in substitution for, in conversion of, or in connection with certain corporate transactions as described above, the exercise price set by the Committee may not be less than the fair market value of the underlying shares as of the date of grant. The term of a SAR cannot exceed ten years. If the value of the stock has not increased during its term, the SAR will have no value. SARs may be settled in cash, shares, or a combination of cash and shares, as determined by the Committee and provided in the applicable award agreement. SARs (in whole or in part) may become exercisable upon certain events, including a participant’s death, disability, or termination of employment under certain circumstances, as determined by the Committee.  

Restricted Stock.   Awards under the Plan may take the form of shares of restricted stock, with terms as determined by the Committee. Restricted stock involves the issuance to participants of shares subject to restrictions on transferability and any other conditions or restrictions the Committee may impose. The restrictions lapse if either the holder remains employed by your Company or its subsidiaries for a period of time established by the Committee under the applicable award agreement or satisfies other conditions or restrictions, including performance-based restrictions, during the period of time established by the Committee. Participants holding shares of restricted stock granted under the Plan may be granted the right to exercise full voting rights with respect to those shares prior to the lapse of the restrictions on the shares. Restricted stock (in whole or in part) may become nonforfeitable or vest upon certain events, including a participant’s death, disability, or termination of employment under certain circumstances, as determined by the Committee.

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Corporate Governance
& Board of Directors

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Items to Be
Voted On

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Executive Compensation

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Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

Restricted Stock Units.   Awards under the Plan may take the form of RSUs, with terms as determined by the Committee. An RSU is the right of the participant to receive one share of common stock, or its cash equivalent (or a combination of cash and shares), upon the satisfaction of restrictions or requirements set forth in the applicable award agreement. Requirements may consist of remaining in the employ of your Company or a subsidiary for a certain period of time or the achievement of performance goals. The participant will have no rights of ownership in the shares subject to the RSUs and shall have no right to vote such shares until the shares, if any, are issued to the participant upon satisfaction of the award’s underlying requirements. RSUs (in whole or in part) may become nonforfeitable or vest upon certain events, including a participant’s death, disability, or termination of employment under certain circumstances, as determined by the Committee.

Performance Shares.   Awards under the Plan may take the form of performance shares, with terms as determined by the Committee. The period of time during which performance goals are measured will be of such duration as the Committee shall determine. Performance shares are denominated in shares of common stock and may be settled in cash, shares, or a combination of cash and shares, as determined by the Committee. Performance shares (in whole or in part) may vest upon certain events, including a participant’s death, disability, or termination of employment under certain circumstances, as determined by the Committee.

Other Stock-Based Awards and Cash-Based Awards.   Other stock-based awards are awards of stock-based compensation (including unrestricted shares) that do not fit within the scope of the other specifically enumerated types of awards but are denominated in shares or based on the price of your Company’s common stock.  Terms of these awards will be determined by the Committee. The Committee may make cash-based awards with a range of payment levels. Cash-based awards are denominated in dollar amounts. Other stock-based awards and cash-based awards may be based upon the achievement of performance goals. Other stock-based awards and cash-based awards may be settled in cash, shares, or a combination of cash and shares, as determined by the Committee.  Cash-based awards or other stock-based awards (in whole or in part) may become nonforfeitable or vest upon certain events, including a participant’s death, disability, or termination of employment under certain circumstances, as determined by the Committee.

 

Awards to Non-Employee Directors.   Your Board or the Committee may, from time to time and upon such terms and conditions as it may determine, authorize the granting of any type of an award to non-employee directors of your Company. Each grant of an award to a non-employee director will be upon such terms and conditions as approved by your Board or the Committee and will be evidenced by an award agreement in such form as will be approved by your Board or the Committee. Each award agreement will specify in the case of a stock option and free-standing SAR, an exercise price per share, which (except with respect to stock options or SARs issued in substitution for, in conversion of, or in connection with certain corporate transactions as described above) will not be less than the fair market value per share on the date of grant. Each stock option and SAR granted under the Plan to a non-employee director will expire not more than 10 years from the date of grant. If a non-employee director subsequently becomes an employee of your Company or a subsidiary while remaining a member of your Board, any award held by such individual at the time of such commencement of employment will not be affected by such employment. Non-employee directors may be granted, or may be permitted to elect to receive, pursuant to procedures established by your Board or the Committee, all or any portion of their annual retainers, meeting fees or other fees in shares or restricted shares (or other awards) in lieu of cash.

 

Transferability of Awards.  Except as otherwise provided in an applicable award agreement or as determined by the Committee, no award granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution, and in no event may an award be transferred for value.

Dividends and Dividend Equivalents.   Awards of restricted stock, RSUs, performance shares, cash-based awards and other stock-based awards may provide for the issuance of dividends, dividend equivalents and/or other distributions with respect to the shares subject to the awards. Awards of stock options or SARs may not provide for the issuance of dividends, dividend equivalents or other distributions on either a current or deferred basis. With respect to any award of restricted stock, RSUs, performance shares, cash-based awards or other stock-based awards, any dividends, dividend equivalents and/or other distributions on such awards will be deferred until and paid contingent upon the vesting of such awards (including, if applicable, the achievement of the relevant performance goals).

Change in Control of the Company – Double Trigger Vesting Provision.   The following description of the treatment of awards in the event of a change in control of your Company shall apply unless otherwise determined by the Committee regarding an award (as reflected in the applicable award agreement). Upon a change in control of your Company, if a participant retains or is granted a “replacement award” (as described in the Plan) by the successor or acquiring entity, then such replacement award will remain subject to its vesting and/or conditions of exercise after the change in control. If, however, a participant’s employment (or service) is terminated by your Company (or successor entity) for any reason other than cause (generally, as described in the Plan or in the applicable award agreement) in connection with or during the two years after the

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Corporate Governance
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Items to Be
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Executive Compensation

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Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

change in control, then such replacement awards will become fully vested and/or exercisable and all stock options or SARs held by the participant as of the date of the change in control or that constitute replacement awards will remain exercisable until the earlier of one year following the termination of employment or service (unless the agreement provides for a longer term of exercisability after termination of employment or service) or the original termination date of the stock option or SAR. A “replacement award” under the Plan is an award related to publicly traded stock granted by the successor or acquiring entity that is of at least equal value and with no less favorable terms and conditions as the awards held by the participant as of the date of the change in control.

Upon a change in control, except to the extent a replacement award is retained by or provided to the participant to replace or continue an award, a stock option or SAR will immediately become fully vested and exercisable, and a then-outstanding award whose lapse of restrictions depends solely on service will vest in full and be free of restrictions. The treatment of any other award type will be as determined by the Committee and reflected in the applicable award agreement.  However, if, upon a change in control, a participant does not retain or is not granted a replacement award by the successor or acquiring entity, the Committee may:

 

 

 

determine that any or all outstanding awards granted under the Plan, whether or not exercisable, will be canceled and terminated and that in connection with such cancellation and termination the holder of such award may receive for each share of common stock subject to such awards a cash payment (or the delivery of shares of stock, other securities or a combination of cash, stock and securities equivalent to such cash payment) equal to the difference, if any, between the consideration received by shareholders of your Company in respect of a share of common stock in connection with such transaction and the purchase price per share, if any, under the award multiplied by the number of shares of common stock subject to such award (or if the exercise price of an award is greater than the value of the consideration received by shareholders, cancel such award without payment); or

 

 

 

provide that the period to exercise stock options or SARs granted under the Plan shall be extended (but not beyond the expiration of such stock options or SARs).

In general terms, subject to some additional considerations described in the Plan document, and except as may be otherwise set forth in an applicable award agreement, a “change in control” consists of: (1) the acquisition of twenty-five percent (25%) or more of the outstanding common stock or voting power of your Company; (2) the incumbent members of your Board cease to hold a majority, unless a majority of such incumbent members vote to approve the new members; (3) consummation of a reorganization, sale or other disposition of all or substantially all of the assets of your Company, where your Company’s shareholders hold less than 60% of the combined voting power of the surviving company or certain other control thresholds or requirements are not met; or (4) the approval by the shareholders of your Company of a complete liquidation or dissolution of your Company. A “change of control” is defined by reference to your Company (and not its subsidiaries and affiliates).

Withholding Taxes.  With respect to withholding required upon the lapse of restrictions, settlement or any other taxable event arising as a result of an award that is payable through the issuance and delivery of shares, unless the Committee determines otherwise, each participant will satisfy his or her withholding requirement by having the Company withhold a number of shares having a fair market value on the date the withholding amount is to be determined in an amount not to exceed the maximum rate for the participant in the applicable jurisdiction.

Recoupment.  The Plan and awards granted under the Plan will be subject to your Company’s Executive Compensation Recoupment Policy, as in effect from time to time.

Plan Amendment and Termination; Fractional Shares.   Subject to certain limitations, the Committee may, at any time and from time to time, alter, amend, modify, suspend or terminate the Plan and any award agreement in whole or in part. However, expect for certain changes permitted under the Plan, no termination, amendment, suspension or modification of the Plan or an award agreement will materially and adversely affect any award previously granted under the Plan without the written consent of the participant who received such award (except as permitted pursuant to the Plan’s adjustment provisions described above or in connection with amendments deemed advisable to conform the Plan or any award agreement to applicable laws, regulations and requirements or stock exchange rules). No fractional shares will be issued or delivered under the Plan, and the Committee will decide whether cash, awards or other property will be issued or paid in lieu of fractional shares (or whether fractional shares will be forfeited or otherwise eliminated for no consideration).

Tax Effects

The following is a brief summary of certain of the Federal income tax consequences of certain transactions under the Plan based on Federal income tax laws in effect. This summary, which is presented for the information of shareholders considering how to vote on this proposal and not for Plan participants, is not intended to be complete and does not describe Federal taxes other than income taxes (such as Medicare and Social Security taxes), or state, local or foreign tax consequences.

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Corporate Governance
& Board of Directors

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Items to Be
Voted On

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Executive Compensation

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Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

Tax Consequences to Participants.  

Restricted Stock. The recipient of restricted stock generally will be subject to tax at ordinary income rates on the fair market value of the restricted stock (reduced by any amount paid by the recipient for such restricted stock) at such time as the restricted stock is no longer subject to forfeiture or restrictions on transfer for purposes of Section 83 of the Code (“Restrictions”). However, a recipient who so elects under Section 83(b) of the Code within 30 days of the date of transfer of the shares will have taxable ordinary income on the date of transfer of the shares equal to the excess of the fair market value of such shares (determined without regard to the Restrictions) over the purchase price, if any, of such restricted stock. If a Section 83(b) election has not been made, any dividends received with respect to restricted stock that are subject to the Restrictions generally will be treated as compensation that is taxable as ordinary income to the recipient.

Performance Shares, Cash-Based Awards and Other Stock-Based Awards. No income generally will be recognized upon the grant of performance shares, cash-based awards or other stock-based awards. Upon payment in respect of the earn-out of performance shares, cash-based awards and other stock-based awards, the recipient generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and the fair market value of any unrestricted common stock received.

Nonqualified Stock Options. In general:

 

no income will be recognized by an optionee at the time a non-qualified stock option is granted;

 

at the time of exercise of a non-qualified stock option, ordinary income will be recognized by the optionee in an amount equal to the difference between the option price paid for the shares and the fair market value of the shares, if unrestricted, on the date of exercise; and

 

at the time of sale of shares acquired pursuant to the exercise of a non-qualified stock option, appreciation (or depreciation) in value of the shares after the date of exercise will be treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held.

Incentive Stock Options. No income generally will be recognized by an optionee upon the grant or exercise of an “incentive stock option” as defined in Section 422 of the Code. If common stock is issued to the optionee pursuant to the exercise of an incentive stock option, and if no disqualifying disposition of such shares is made by such optionee within two years after the date of grant or within one year after the transfer of such shares to the optionee, then upon sale of such shares, any amount realized in excess of the option price will be taxed to the optionee as a long-term capital gain and any loss sustained will be a long-term capital loss.

If common stock acquired upon the exercise of an incentive stock option is disposed of prior to the expiration of either holding period described above, the optionee generally will recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at the time of exercise (or, if less, the amount realized on the disposition of such shares if a sale or exchange) over the exercise price paid for such shares. Any further gain (or loss) realized by the participant generally will be taxed as short-term or long-term capital gain (or loss) depending on the holding period.

SARs. No income will be recognized by a participant in connection with the grant of a SAR. When the SAR is exercised, the participant normally will be required to include as taxable ordinary income in the year of exercise an amount equal to the amount of cash received and the fair market value of any unrestricted common stock received on the exercise.

RSUs. No income generally will be recognized upon the award of RSUs. The recipient of an RSU award generally will be subject to tax at ordinary income rates on the fair market value of unrestricted common stock on the date that such shares are transferred to the participant under the award (reduced by any amount paid by the participant for such RSUs), and the capital gains/loss holding period for such shares will also commence on such date.

Tax Consequences to Your Company or its Subsidiaries.  To the extent that a participant recognizes ordinary income in the circumstances described above, your Company or the subsidiary for which the participant performs services will be entitled to a corresponding deduction provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended from time to time (the “Code”) and is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Code.

 

Registration with the SEC

Your Company intends to file a Registration Statement on Form S-8 relating to the issuance of common stock under the Plan with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, as soon as practicable after approval of the Plan by your Company’s shareholders.

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Corporate Governance
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Voted On

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Executive Compensation

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Security Ownership & Other Important Information

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Q&A about
the Annual Meeting

 

New Plan Benefits

In general, it is not possible to determine the specific amounts and types of awards that may be awarded in the future under the Plan because the grant and actual settlement of awards under the Plan will be subject to the discretion of the plan administrator. However, our 2020 compensation program for our non-employee directors contemplates that non-employee directors will be awarded stock grants on a quarterly basis (referred to later in this proxy statement as the non-employee directors’ equity retainer) with a value of approximately $37,500 per director per quarter ($150,000 annually in the aggregate), of which one installment of approximately $37,500 per director ($375,000 in the aggregate) will have been granted under the Predecessor Plan. If the Plan is approved, we intend for the remaining non-employee director stock grants for 2020 to be paid under the Plan. The following table sets forth what each of the non-employee directors are expected to receive under the Plan for the remainder of 2020 (note, the information for this table for each of the NEOs, for all of your Company’s current executive officers as a group, and for all of your Company’s employees (including all current officers who are not executive officers), as a group, respectively, is zero, due to the discretionary nature of new grants under the Plan):

New Plan Benefits

FirstEnergy Corp. 2020 Incentive Compensation Plan

 

 

 

 

 

 

 

 

 

 

Name and Position

 

Dollar Value($)

 

 

Number of
Shares of
Common
Stock(2)

 

Non-Executive Director Group(1)

 

$

112,500

  

 

 

[XX]

  

 

(1)

The dollar value and number of shares of common stock are presented on a per person basis. There are currently [XX] non-employee directors that comprise the Non-Executive Director Group.

 

(2)

Reflects the number of shares to be awarded for the remainder of 2020 based on the closing price of $[XX] on March 9, 2020. Actual stock grants for the remaining payments to be paid in 2020 will be based on average high and low prices at the time the grants are made.

Equity Compensation Plan Information

The following table contains information as of December 31, 2019, regarding compensation plans for which shares of FE common stock may be issued.

Plan category

Number of securities to be issued upon exercise of outstanding options, warrants and rights

 

 

Weighted-average exercise price of outstanding options, warrants and rights

 

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

 

 

(a)

 

 

(b)

 

(c)

 

Equity compensation plans approved by security holders

4,316,337(1)

 

 

37.75(2)

 

3,947,410(3)

 

Equity compensation plans not approved by security holders(4)

0

 

 

0

 

0

 

Total

 

4,316,337

 

 

37.75

 

 

3,947,410

 

 

(1)

Represents shares of common stock that could be issued upon exercise of outstanding options granted under the FirstEnergy 2007 Incentive Compensation Plan (“2007 ICP”) and Predecessor Plan. This number also includes 1,930,139 shares subject to outstanding awards of stock based RSUs granted under the Predecessor Plan if paid at target for the three outstanding cycles, as well as 1,930,139 additional shares assuming maximum performance metrics are achieved for the 2017-2019, 2018-2020 and 2019-2021 cycles of stock based RSUs, 2,883 outstanding EDCP related shares to be paid in stock and 372,919 shares related to the FirstEnergy Deferred Compensation Plan for Outside Directors that will be paid in stock. Not reflected in the table are 21,282 shares related to the Allegheny Energy, Inc. Non-Employee Director Stock Plan (“AYE Director’s Plan”) and Allegheny Energy, Inc. Amended and Restated Revised Plan for Deferral of Compensation for Directors (“AYE DCD”) that will be paid in stock per the election of the recipient.

(2)

Only FirstEnergy options were included in the calculation for determining the weighted-average exercise price.

(3)

Represents shares available for issuance, assuming maximum performance metrics are achieved (or approximately 5,877,549 available assuming performance at target) for the 2017-2019, 2018-2020, and 2019-2021 cycles of stock-based RSUs, with respect to future awards under the Predecessor Plan and future accruals of dividends on awards outstanding under Predecessor Plan. Additional shares may become available under the Predecessor Plan due to cancellations, forfeitures, cash settlements or other similar circumstances with respect to outstanding awards. In addition, nominal amounts of shares may be issued in the future under the AYE Director's Plan and AYE DCD to cover future dividends that may accrue on amounts previously deferred and payable in stock, but new awards are no longer being granted under the AYE Director’s Plan, AYE DCD or the 2007 ICP.

(4)

All equity compensation plans have been approved by security holders.

 

36  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

Effectiveness and Vote Required

Approval of this proposal requires the affirmative vote of a majority of the votes cast. Under NYSE requirements for the approval of equity plans, abstentions will be counted and have the same effect as an “Against” vote, and broker non-votes will have no effect.  

 

 

Your Board Recommends That You Vote “For” Item 4.

 


37  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

 

Item  5

 

Approve a Management Proposal to Authorize Your Board to Make Certain Future Amendments to the Company’s Amended and Restated Code of Regulations

Your Board recommends that you vote FOR Item 5.

Your Board has determined it is in the best interests of the Company and its shareholders to seek shareholder approval of an amendment to the Company’s Amended and Restated Code of Regulations (the “Regulations”) to grant your Board authority to make certain future amendments to the Regulations. Even if this proposal is approved, our shareholders would continue to retain the power to adopt, amend, and repeal the Regulations without action by your Board.  Also, without shareholder approval, the Ohio Revised Code and the Regulations would still prohibit any amendments to the Company’s Regulations to effect changes in certain areas deemed by the Ohio legislature to be important substantive rights reserved to the shareholders as further described below.

Background and Governance Considerations

Many jurisdictions, such as Delaware, allow the board of directors of a corporation to amend its bylaws (which are the Delaware law counterpart to the Ohio code of regulations) without shareholder approval. In 2006, the Ohio Revised Code was amended to allow boards of directors of Ohio corporations to make certain amendments to their regulations without shareholder approval, if such authority is provided in or permitted by the articles or regulations, so long as such amendments do not divest or limit the shareholders’ power to adopt, amend, or repeal the regulations of the corporation. The amendment to the Ohio Revised Code was intended to provide Ohio corporations with the same flexibility afforded to companies in many other jurisdictions, permitting the board of directors to amend certain bylaw provisions without shareholder approval, and many publicly held Ohio corporations subsequently have revised their regulations to grant this authority to their boards of directors. The Company’s Regulations currently require that all amendments be approved and adopted by our shareholders.

Proposed Amendment

 

The Ohio Revised Code imposes limitations that prohibit directors from amending corporate regulations to modify certain substantive rights of shareholders.  Your Board does not seek to change any of these substantive rights of shareholders.  Accordingly, even if shareholders approve this proposal, your Board may not amend the Company’s Regulations to do any of the following:

 

specifying the percentage of shares a shareholder must hold in order to call a shareholders’ meeting;

 

specifying the length of the time period required for notice of a shareholders’ meeting;

 

specifying that shares that have not yet been fully paid can have voting rights;

 

specifying requirements for a quorum at a shareholders’ meeting;

 

prohibiting shareholder or director actions from being authorized or taken without a meeting;

 

defining terms of office for directors or providing for classification of directors;

 

requiring greater than a majority vote of shareholders to remove directors without cause;

 

establishing requirements for a quorum at directors’ meetings, or specifying the required vote for an action of the directors;

 

delegating authority to committees of the board to adopt, amend, or repeal regulations; and

 

removing the requirement that a control share acquisition of an issuing public corporation be approved by shareholders of the acquired corporation.

If this proposal is approved, our Regulations will be amended to allow your Board to amend the Regulations to the extent permitted by the Ohio Law. The proposed amendment will also allow your Board to more efficiently address evolving governing norms similarly to other publicly held companies. Accordingly, your Board would be able to make ministerial and other changes to the Regulations without the time-consuming and expensive process of seeking shareholder approval, which would continue to be required if this proposal is not approved.  Even if shareholders approve this proposal, shareholders will continue to retain the power to adopt, amend, and repeal the Regulations without action by your Board, and will therefore have the ability to override any amendments made by your Board should they determine that course to be appropriate.

We will be required to promptly notify our shareholders of any amendment that your Board makes to the Regulations by filing a current report on Form 8-K with the SEC.

38  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors

2

Items to Be
Voted On

3

Executive Compensation

4

Security Ownership & Other Important Information

5

Q&A about
the Annual Meeting

 

 

The full proposed amendments to the Regulations is set forth in Appendix B, with additions indicated by underlining. The summary above is qualified in its entirety by reference to the full text of the proposed amendments in Appendix B.

Effectiveness and Vote Required

 

Your Board has adopted resolutions approving and recommending that shareholders approve the amendment to the Regulations reflected in Appendix B, which is subject to the approval of the amendment by shareholders at the Annual Meeting, and authorizing the preparation and filing of any document necessary or advisable to implement such amendment. The amendment, if approved by the shareholders at the Annual Meeting, would become effective immediately. Approval of this proposal requires the affirmative vote of at least a majority of the voting power of the Company. Abstentions and broker non-votes will be counted and have the same effect as a vote “against” this item.

 

 

Your Board Recommends That You Vote “For” Item 5.

 


39  |  FirstEnergy Corp. 2020 Proxy Statement


1

Corporate Governance
& Board of Directors