DEF 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
NRG Energy, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form or Schedule and the date of its
filing. |
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March 16,
2007
Dear Stockholder:
We are pleased to invite you to attend NRG Energy, Inc.s
Annual Meeting of Stockholders, which will be held on Wednesday,
April 25, 2007, at 9:30 a.m. Eastern Time at
Hotel du Pont, 11th and Market Streets, Wilmington,
Delaware. Details regarding admission to the meeting and the
business to be conducted are more fully described in the
accompanying Notice of Annual Meeting and Proxy Statement. A
report on Company operations and a discussion of our plans will
be made at the meeting and there will be time for your questions
and comments.
Your vote is important. Whether or not you plan to attend the
Annual Meeting, we hope you will vote as soon as possible. You
may vote by completing and mailing a proxy card as set forth in
the accompanying Notice of Annual Meeting and Proxy Statement.
Thank you for your ongoing interest and investment in NRG
Energy, Inc.
Sincerely,
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Howard
E. Cosgrove
Chairman of the
Board
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David
Crane
President and Chief
Executive Officer
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THIS PROXY STATEMENT AND PROXY CARD ARE
BEING DISTRIBUTED ON OR ABOUT MARCH 16, 2007.
2007
ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF
ANNUAL MEETING AND PROXY STATEMENT
TABLE OF
CONTENTS
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ii
NRG
Energy, Inc.
211 Carnegie Center, Princeton, New Jersey 08540
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
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TIME AND DATE |
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9:30 a.m. Eastern Time on Wednesday, April 25, 2007 |
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PLACE |
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Hotel du Pont
11th and Market Streets
Wilmington, Delaware |
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ITEMS OF BUSINESS |
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(1) To elect four Class I directors.
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(2) To ratify the appointment of KPMG LLP as NRGs
independent registered public accounting firm. |
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(3) To transact such other business as may properly come
before the Annual Meeting and any adjournment or postponement. |
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RECORD DATE |
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You are entitled to vote if you were a stockholder of record at
the close of business on Monday, March 12, 2007. |
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ANNUAL REPORT |
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Our 2006 Annual Report, which is not part of the proxy
soliciting materials, is enclosed. |
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PROXY VOTING |
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Please submit a proxy as soon as possible so that your shares
can be voted at the meeting in accordance with your
instructions. You may submit your proxy by mail. |
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For specific instructions, please refer to the information on
page 2 of this Proxy Statement and the voting instructions
on the proxy card. |
By Order of the Board of Directors
Tanuja M. Dehne
Corporate Secretary
iii
PROXY
STATEMENT
The Board of Directors (the Board) of NRG Energy,
Inc. (NRG or the Company) is soliciting
proxies for the Annual Meeting of Stockholders. You are
receiving a Proxy Statement because you own shares of NRGs
Common Stock, par value $.01 per share (the Common
Stock or Common Shares)
and/or
shares of NRGs 4% Convertible Perpetual Preferred
Stock (the 4% Preferred Stock or 4% Preferred
Shares) that entitle you to vote at the meeting. Holders
of NRGs 3.625% Convertible Perpetual Preferred Stock
and NRGs 5.75% Mandatory Convertible Preferred Stock are
not entitled to vote at the Annual Meeting. By use of a proxy,
you can vote whether or not you attend the meeting. The Proxy
Statement describes the matters we would like you to vote on and
provides information on those matters.
Purpose
of the Annual Meeting
The purpose of the Annual Meeting is to elect directors, to
ratify the appointment of KPMG LLP as NRGs independent
registered public accounting firm, and to conduct such other
business as may properly come before the Annual Meeting. Other
than the proposals described in this Proxy Statement, the Board
is not aware of any other matters to be presented for a vote at
the Annual Meeting. If you grant a proxy, either of the persons
named as proxy holders David Crane and Tanuja M.
Dehne will have the discretion to vote your shares
on any additional matters properly presented for a vote at the
meeting.
Annual
Meeting Admission
Stockholders of NRG may attend the Annual Meeting. However, only
stockholders who owned Common Stock or 4% Preferred Stock at the
close of business on March 12, 2007, the record date, or
their duly appointed proxies, are entitled to vote at the
meeting. Proof of ownership of NRG stock, along with personal
identification, must be presented in order to be admitted to the
Annual Meeting. If your shares are held in the name of a bank,
broker or other holder of record, you must bring a brokerage
statement or other proof of ownership with you to the Annual
Meeting.
No cameras, recording equipment, electronic devices, large bags,
briefcases, or packages will be permitted in the Annual Meeting.
Quorum
A quorum is the minimum number of shares required to hold a
meeting. Under NRGs Bylaws, to have a quorum, a majority
of the outstanding shares of stock entitled to vote at a meeting
must be represented in person or by proxy at the meeting. Both
abstentions and broker nonvotes, if any, are counted as present
for determining the presence of a quorum. Generally, broker
nonvotes occur when shares held by a broker for a beneficial
owner are not voted with respect to a particular proposal
because (a) the broker has not received voting instructions
from the beneficial owner and (b) the broker lacks
discretionary voting power to vote such shares. Brokers who do
not receive instructions are entitled to vote on the election of
directors and the ratification of the appointment of the
independent auditors.
Stockholders
Entitled to Vote
Only stockholders of record at the close of business on
March 12, 2007 are entitled to vote at the Annual Meeting.
As of the record date, 137,391,492 shares of Common Stock
and 420,000 shares of 4% Preferred Stock were issued and
outstanding. Each holder of NRGs Common Stock and 4%
Preferred Stock is entitled to one vote per share.
1
Many NRG stockholders hold their shares through a stockbroker,
bank, trustee, or other nominee rather than directly in their
own name. As summarized below, there are some distinctions
between shares held of record and those owned beneficially:
* Stockholder of Record If your shares are
registered directly in your name with NRGs transfer agent,
Bank of New York, N.A., you are considered the stockholder of
record of those shares and these proxy materials are being sent
to you by NRG. As the stockholder of record, you have the right
to grant your voting proxy directly to NRG or to vote in person
at the meeting.
* Beneficial Owner If your shares are held in
a stock brokerage account, or by a bank, trustee, or other
nominee, you are considered the beneficial owner of shares held
in street name and these proxy materials are being forwarded to
you by your broker, trustee, or nominee, who is considered the
stockholder of record of those shares. As the beneficial owner,
you have the right to direct your broker, trustee or nominee on
how to vote and are also invited to attend the meeting. However,
since you are not the stockholder of record, you may not vote
these shares in person at the meeting. Your broker, trustee, or
nominee is obligated to provide you with a voting instruction
card for you to use.
Required
Vote
Director Nominees The nominees for election as
directors at the Annual Meeting will be elected by a plurality
of the votes cast at the meeting. This means that the director
nominee with the most votes for a particular slot is elected for
that slot. Votes withheld from a director nominee will have no
effect on the election of the director from whom votes are
withheld. Broker nonvotes, if any, will not be counted as having
been voted and, thus, will have no effect on the outcome of the
vote on the election of directors.
Ratification of the Appointment of the Independent
Auditors This proposal requires the affirmative
FOR vote of a majority of those shares present in
person or represented by proxy at the Annual Meeting and
entitled to vote on the proposal. Abstentions will be counted
toward the tabulation of votes cast on this proposal and will
have the same effect as a vote against this proposal. Broker
nonvotes, if any, will have no effect on the outcome of the vote
on this proposal.
Voting
Methods
If you hold shares directly as the stockholder of record, you
may vote by granting a proxy or, if you hold shares beneficially
in street name, by submitting voting instructions to your
broker, trustee, or nominee. Please refer to the summary
instructions below and those included on your proxy card or, for
shares held in street name, the voting instruction card included
by your broker, trustee, or nominee.
You may vote by mail by signing your proxy card or, for shares
held in street name, the voting instruction card included by
your broker, trustee, or nominee, and mailing it in the
enclosed, postage-paid, addressed envelope. If you provide
specific voting instructions, your shares will be voted as you
instruct. If you sign, but do not provide instructions, your
shares will be voted as the Board recommended. Mark, sign, and
date your proxy card and return it in the postage-paid envelope
provided as soon as possible so that it is received by
April 25, 2007, the meeting date.
All shares that have been properly voted and not revoked will be
voted at the Annual Meeting.
Changing
Your Vote
You may change your proxy instructions or revoke your proxy at
any time prior to the vote at the Annual Meeting. For shares
held directly in your name, you may accomplish this by granting
a new proxy or by voting in person at the Annual Meeting. For
shares held beneficially by you, you may change your vote by
submitting new voting instructions to your broker, trustee, or
nominee.
2
Counting
the Vote
In the election of directors, you may vote FOR all
of the nominees or your vote may be WITHHELD from
one or more of the nominees. For the other proposal, you may
vote FOR, AGAINST, or
ABSTAIN. If you ABSTAIN, it has the same
effect as a vote AGAINST. If you sign your proxy
card or broker voting instruction card with no further
instructions, your shares will be voted in accordance with the
recommendations of the Board. Representatives of Bank of New
York, N.A., NRGs transfer agent, will tabulate the votes
and act as the inspectors of election.
Confidentiality
Stockholder proxies, ballots, and tabulations that identify
stockholders are confidential. They will not be available for
examination, nor will the identity or vote of any stockholder be
disclosed, except as necessary to meet legal requirements and
allow the inspectors of election to certify the results of the
stockholder vote. Occasionally, stockholders provide written
comments on their proxy card that may be forwarded to
NRG management.
List of
Stockholders
The names of stockholders of record entitled to vote at the
Annual Meeting will be available at the Annual Meeting and for
10 days prior to the meeting for any purpose germane to the
meeting, between the hours of 8:45 a.m. and 4:30 p.m.
(Eastern Time), at our principal executive offices at 211
Carnegie Center, Princeton, New Jersey 08540, by contacting the
Corporate Secretary.
Cost of
Proxy Solicitation
NRG will pay for the cost of preparing, assembling, printing,
mailing, and distributing these proxy materials. In addition to
mailing these proxy materials, the solicitation of proxies or
votes may be made in person, by telephone, or by electronic
communication by our directors, officers, and employees, who do
not receive any additional compensation for these solicitation
activities. We will also reimburse brokerage houses and other
custodians, nominees, and fiduciaries for their reasonable
out-of-pocket
expenses for forwarding proxy and other solicitation materials
to beneficial owners of stock.
Transfer
Agent
Our transfer agent is The Bank of New York. All communications
concerning stockholder inquires can be handled by contacting The
Bank of New York, Investor Services Department, P.O.
Box 11258, New York, NY
10286-1258,
1-800-524-4458.
Outside the U.S. and Canada 1-212-815-3700 and Hearing
Impaired TTY
Phone 1-888-269-5221.
E-mail
address is: shareowners@bankofny.com. Website is:
https://www.stockbny.com.
Send certificates for transfer and address changes to: Receive
and Deliver Department, P.O. Box 11002, New York, NY
10286-1002.
3
GOVERNANCE
OF THE COMPANY
Corporate
Governance Guidelines
The Board has adopted Corporate Governance Guidelines that,
along with the Amended and Restated Certificate of
Incorporation, the Bylaws and the charters of the Board
committees, provide the framework for the governance of the
Company. The Boards Governance and Nominating Committee is
responsible for periodically reviewing the Guidelines and
recommending any proposed changes to the Board for approval. The
Corporate Governance Guidelines are available on our website at
http://www.nrgenergy.com/investor/corpgov/.htm, along
with the charters of our Audit, Compensation, and Governance and
Nominating committees and our Code of Conduct. The Corporate
Governance Guidelines, the charters of all of our Board
committees and our Code of Conduct are available in print to any
stockholder who requests them.
Director
Independence
The Board is made up of a majority of independent directors. An
independent director is a director who meets the
criteria for independence as required by the applicable law and
the New York Stock Exchange (NYSE) listing standards
and is affirmatively determined to be independent by
the Board. The Board has determined that each of the current
directors is independent under the listing standards of the
NYSE, with the exception of David Crane, President and Chief
Executive Officer, and Paul Hobby, whose
sister-in-law
is a current partner at KPMG LLP, the Companys independent
registered public accounting firm. William Hantke serves as
director of Process Energy Solutions, which is one of many
advisors to the Company on development projects; Maureen
Miskovic serves as a director of State Street Corporation, a
shareholder of NRG; and Thomas Weidemeyer serves as a director
of Waste Management, Inc., a service provider to the Company as
part of the ordinary course of business. The Board has evaluated
the business relationships between the Company and each of these
companies and has concluded that each business relationship is
immaterial and does not interfere with Mr. Hantkes,
Ms. Miskovics or Mr. Weidemeyers exercise
of independent judgment on the Board or on the Audit Committee,
in the case of Mr. Hantke. Each of the Audit, Compensation,
and Governance and Nominating Committees is made up solely of
independent directors. In accordance with the Companys
Corporate Governance Guidelines (available on the Companys
website) and the NYSE listing standards, all members of the
Audit Committee meet additional independence standards
applicable to audit committee members.
4
Board
Structure and Committee Membership
The Board is set at 12 directors. The Board is divided into
three classes, approximately equal in number, serving staggered
three-year terms.
The Board presently has the following five Committees: Audit,
Compensation, Governance and Nominating, Commercial Operations
Oversight and Nuclear Oversight, which includes the Nuclear
Oversight Subcommittee. The membership and the functions of each
Committee are described below.
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Governance
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Commercial
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and
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Operations
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Nuclear
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Name of Director
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Audit
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Nominating
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Compensation
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Oversight
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Oversight
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Howard E.
Cosgrove(1)
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John F. Chlebowski
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(2)
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Lawrence S. Coben
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David Crane
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Stephen L. Cropper
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William E. Hantke
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Paul W. Hobby
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Maureen Miskovic
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Anne C. Schaumburg
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Herbert H. Tate
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Thomas H. Weidemeyer
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Walter R. Young
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X = Committee Member
(1) Chairman of the Board
(2) Committee Chair
(3) Chair of the Nuclear Oversight Subcommittee
Board
Meetings
During 2006, the Board held 13 meetings. During 2006, no
director attended less than 75% of the total of the Board
meetings and the meetings of the committees upon which he or she
served. In calendar year 2007, the Board has held one meeting
through March 12, 2007.
The Companys Corporate Governance Guidelines provide that
the nonmanagement directors meet in executive session
periodically following Board meetings. The Companys
nonexecutive Chairman, Howard Cosgrove, presides at these
sessions.
Directors are encouraged to attend the Annual Meetings of
Stockholders. All of the directors, except Lawrence Coben and
Stephen Cropper, attended the 2006 Annual Meeting of
Stockholders.
Audit
Committee
The Audit Committee represents and provides assistance to the
Board with respect to matters involving the accounting,
auditing, financial reporting, internal controls, and legal
compliance functions of the Company and its subsidiaries,
including assisting the Board in its oversight of the integrity
of the Companys financial statements, compliance with
legal and regulatory requirements, the qualifications,
independence, and performance of the Companys independent
auditors, the performance of the Companys internal audit
function, and effectiveness of the Companys financial risk
management. Among other things, the Committee:
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Appoints, retains, oversees, evaluates, and compensates the
independent auditors;
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Reviews the annual audited and quarterly consolidated financial
statements;
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Reviews major issues regarding accounting principles and
financial statement presentations;
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Reviews earnings press releases and earnings guidance provided
to analysts and rating agencies;
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Reviews with the independent auditors the scope of the annual
audit, and approves all audit and permitted nonaudit services
provided by the independent auditors;
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Considers the adequacy and effectiveness of the Companys
internal control and reporting system;
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Discusses policies with respect to risk assessment and risk
management, including the Companys major financial risk
exposures and the effectiveness of the Companys system for
monitoring compliance with laws and regulations, and reviews the
Companys tax policies and findings of regulatory agencies
and independent auditors;
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Reports regularly to the Board regarding its activities and
prepares and publishes required annual committee reports;
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Establishes procedures for the receipt, retention, and treatment
of complaints and concerns regarding accounting, internal
accounting controls, or auditing matters; and
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Annually evaluates the performance of the Audit Committee and
the adequacy of its charter.
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The Board has determined that all Audit Committee members are
independent under the New York Stock Exchange definition of
independence for directors and audit committee members, and that
all members of the Audit Committee are financially literate. In
addition, the Board has determined that John Chlebowski and
William Hantke qualify as audit committee financial
experts within the meaning of Securities and Exchange
Commission (SEC) regulations. In calendar year 2006,
the Audit Committee held eight meetings. In calendar year 2007,
the Audit Committee has held two meetings through March 12,
2007.
Compensation
Committee
The Compensation Committee oversees the Companys overall
compensation structure, policies, and programs. Among other
things, the Committee:
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Reviews and recommends to the Board annual and long-term goals
and objectives relevant to the compensation of the President and
the Chief Executive Officer, evaluates the performance of the
President and Chief Executive Officer in light of those goals
and objectives, and either as a committee or together with the
other independent directors, determines and approves the
President and the Chief Executive Officers compensation;
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Reports to the Board the review of annual and long-term goals
and objectives relevant to the compensation of the Chief
Financial Officer, the Executive Vice Presidents and any other
officer designated by the Board, the evaluation of those
officers performance in light of those goals and
objectives, the determination and approval of compensation
levels based on such evaluations and the review and approval of
employment arrangements, severance arrangements and benefits
plans;
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Reviews and recommends to the Board the compensation,
incentive-compensation and equity-based plans that are subject
to Board approval;
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Reviews and approves stock option and other stock incentive
awards for executive officers other than for the President and
Chief Executive Officer;
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Makes recommendations regarding, and monitors compliance by
officers and directors with, the Companys stock ownership
guidelines;
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Reviews the compensation of directors for service on the Board
and its committees;
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Reviews and approves employment agreements and severance
arrangements, benefits plans not otherwise subject to Board
approval, and corporate goals and objectives for officers other
than for the President and Chief Executive Officer;
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Reviews and discusses with management the Compensation
Discussion and Analysis, or the CD&A, to be included in the
Companys proxy statement or annual report on
Form 10-K
and based on such review and discussions recommends to the Board
that the CD&A be included in the Companys proxy
statement or annual report on Form
10-K.
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Reviews and oversees the Companys overall compensation
strategy, structure, policies and programs, and assesses the
compensation structures establishment of appropriate
incentives for management and employees; and
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Annually evaluates the performance of the Compensation Committee
and the adequacy of its charter.
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The Compensation Committee may delegate to one or more
subcommittees such power and authority as the Compensation
Committee deems appropriate. No subcommittee shall consist of
fewer than two members, and the Compensation Committee shall not
delegate to a subcommittee any power or authority that is
required by any law, regulation or listing standard to be
exercised by the Compensation Committee as a whole.
The Compensation Committee has retained Mercer Human Resources
Consulting, referred to as Mercer, to provide it with market
information, analysis and guidance in the development and
assessment of NRGs executive compensation program. For a
more detailed discussion of the Compensation Committees
processes and procedures for the consideration and determination
of executive officer and director compensation, including the
role of the executive officers and Mercer in determining and
recommending the amount or form of compensation, please see the
CD&A included in this Proxy Statement.
The Board has determined that all Compensation Committee members
are independent under the listing standards of the New York
Stock Exchange, and that they are nonemployee
directors for purposes of
Rule 16b-3
under the Securities Exchange Act of 1934 (the Exchange
Act), as amended, and outside directors for
purposes of Section 162(m) of the Internal Revenue Code
(the Code). In calendar year 2006, the Compensation
Committee held seven meetings. In calendar year 2007, the
Compensation Committee has held one meeting through
March 12, 2007.
Governance
and Nominating Committee
The Governance and Nominating Committee recommends director
candidates to the Board for election at the Annual Meeting of
Stockholders, and periodically reviews the Companys
Corporate Governance Guidelines and recommends changes to the
Board. Among other things, the Committee also:
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Identifies and reviews the qualifications of potential nominees
to the Board consistent with criteria approved by the Board, and
assesses the contributions and independence of incumbent
directors in determining whether to recommend them for
re-election;
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Establishes and reviews procedures for the consideration of
Board candidates recommended by the Companys stockholders;
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Makes recommendations to the Board concerning the structure,
composition, and functioning of the Board and its committees;
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Reviews and assesses the channels through which the Board
receives information, and the quality and timeliness of
information received;
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Reviews and recommends to the Board retirement and other tenure
policies for directors;
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Reviews and approves Company policies applicable to the Board,
the directors and officers subject to Section 16 of the
Exchange Act;
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Reviews and reports to the Board regarding potential conflicts
of interests of directors;
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Recommends to the Board director candidates for the annual
meeting of stockholders, and candidates to be elected by the
Board as necessary to fill vacancies and newly created
directorships;
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Oversees the evaluation of the Board, its committees and
management and annually reviews the Companys senior
management succession plans;
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Monitors directorships in other public companies held by
directors and senior officers of the Company; and
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Annually evaluates the performance of the Governance and
Nominating Committee and the appropriateness of its charter.
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The Board has determined that all Governance and Nominating
Committee members are independent under the listing standards of
the New York Stock Exchange. In calendar year 2006, the
Governance and Nominating Committee held six meetings. In
calendar year 2007, the Governance and Nominating Committee has
held one meeting through March 12, 2007. The Board and each
of the Audit Committee, Compensation Committee, Commercial
Operations Oversight Committee, and Nuclear Oversight
Subcommittee conduct annual self-evaluations to assess their
effectiveness and review their Charters. Individual directors
are also evaluated by the Board. The Governance and Nominating
Committee coordinates the annual evaluations.
The Governance and Nominating Committee is responsible for
identifying individuals that the Committee believes are
qualified to become Board members in accordance with criteria
set forth in the Companys Corporate Governance Guidelines.
These criteria include an individuals business experience
and skills, independence, judgment, integrity, and ability to
commit sufficient time and attention to the activities of the
Board. The Guidelines provide that the Committee will consider
these criteria in the context of the perceived needs of the
Board as a whole and seek to achieve a diversity of backgrounds
and perspectives on the Board. The Governance and Nominating
Committees process for identifying and evaluating director
nominees also includes consultation with all directors,
solicitation of proposed nominees from all directors, the
engagement of one or more professional search firms, if deemed
appropriate, interviews with prospective nominees by the
Committee (and other directors, if deemed appropriate) and
recommendations regarding qualified candidates to the full Board.
The Committee will consider nominations by stockholders who
recommend candidates for election to the Board. A stockholder
seeking to recommend a prospective candidate for the
Committees consideration may do so by writing to the
Corporate Secretary, NRG Energy, Inc., 211 Carnegie Center,
Princeton, New Jersey 08540. Recommendations submitted for
consideration by the Committee in preparation for the 2008
Annual Meeting of Stockholders must be received by
November 15, 2007 and must contain the following
information: (a) the name and address of the stockholder;
(b) the name and address of the person to be nominated;
(c) a representation that the stockholder is a holder
of the Companys stock entitled to vote at the meeting;
(d) a statement in support of the stockholders
recommendation, including a description of the candidates
qualifications; (e) information regarding the candidate
that would be required to be included in a proxy statement filed
in accordance with the rules of the SEC; and (f) the
candidates written, signed consent to serve if elected.
The Governance and Nominating Committee will follow the process
described above in considering nominees proposed by stockholders
in accordance with the foregoing requirements.
Alternatively, as discussed under Requirements for
Submission of Stockholder Proposals for Next Years Annual
Meeting, stockholders intending to appear at the 2008
Annual Meeting of Stockholders in order to nominate a candidate
for election by the stockholders at the meeting (in cases where
the Board does not intend to nominate the candidate or where the
Governance and Nominating Committee was not requested to
consider his or her candidacy) must comply with the procedures
in the Companys Bylaws, a copy of which is available upon
request to our Corporate Secretary.
8
Commercial
Operations Oversight Committee
The Commercial Operations Oversight Committee assists the Board
in fulfilling its responsibilities with respect to the oversight
of trading, power marketing and risk management issues at the
Company. The Commercial Operations Oversight Committee consists
of at least three directors, a majority of which must be
independent, as defined under the listing standards of the New
York Stock Exchange and as affirmatively determined to be
independent by the Board. No member of the
Commercial Operations Oversight Committee may be removed except
by majority vote of the independent directors then in office.
The Commercial Operations Oversight Committees duties and
responsibilities consist of the following:
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Providing Board oversight of the trading and power marketing of
the Company;
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Reviewing, advising and consulting with management and the Audit
Committee regarding the Companys risk management policies,
practices and procedures;
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Approving as appropriate, the Companys power marketing and
trading transactions, limits, policies, practices and
procedures, and counterparty credit limit and policies, and
approving exceptions to policies, as necessary;
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Annually evaluating the performance of the Committee and the
appropriateness of the Committees charter; and
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Performing such other responsibilities as may be delegated to it
by the Board from time to time that are consistent with its
purpose.
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In calendar year 2006, the Commercial Operations Oversight
Committee held six meetings. In calendar year 2007, the
Commercial Operations Oversight Committee has held one meeting
through March 12, 2007.
Nuclear
Oversight Committee
The Nuclear Oversight Committee assists the Board in fulfilling
its responsibilities with respect to the oversight of the
Companys ownership and operation, directly or indirectly,
of its undivided interests in nuclear power plant facilities as
the Company may hold from time to time. The Nuclear Oversight
Committee consists of all of the members of the Board who are
citizens of the United States of America and who otherwise meet
the requirements of applicable law to serve on the Committee, a
majority of which shall be independent, as defined under the
listing standards of the New York Stock Exchange and as
affirmatively determined to be independent by the
Board. The Nuclear Oversight Committee formed the Nuclear
Oversight Subcommittee in April 2006 to review and report to the
Board and the Nuclear Oversight Committee on matters not
expressly reserved for review by the Board. The Nuclear
Oversight Subcommittee consists of Herbert Tate (Chair of the
subcommittee), Paul Hobby and Anne Schaumburg.
In calendar year 2006, the Nuclear Oversight Committee held one
meeting. In calendar year 2007, the Nuclear Oversight Committee
has held one meeting through March 12, 2007. In calendar
year 2006, the Nuclear Oversight Subcommittee held three
meetings. In calendar year 2007, the Nuclear Oversight
Subcommittee has held one meeting through March 12, 2007.
The Board has adopted written policies and procedures to address
potential or actual conflicts of interest and the appearance
that decisions are based on considerations other than the best
interests of NRG that may arise in connection with transactions
with certain persons or entities (the Policy). The
Policy operates in conjunction with NRGs Code of Conduct
and is applicable to all transactions, arrangements or
relationships in which: (a) the aggregate amount involved
will or may be expected to exceed $50,000 in any calendar year;
(b) the Company is a participant; and (c) any Related
Person (as that term is defined in Item 404 under
Regulation S-K
of the Securities Act of 1933, as amended) has or will have a
direct or indirect interest (a Related Person
Transaction).
9
A Related Person Transaction is subject to review and approval
or ratification by the Governance and Nominating Committee. If
the aggregate amount involved is expected to be less than
$500,000, the transaction may be approved or ratified by the
Chair of the Committee. As part of its review of each Related
Person Transaction, the Governance and Nominating Committee will
take into account, among other factors it deems appropriate,
whether the transaction is on terms no less favorable than the
terms generally available to an unaffiliated third-party under
the same or similar circumstances and the extent of the Related
Persons interest in the transaction. This Policy also
provides that certain transactions, based on their nature
and/or
monetary amount, are deemed to be pre-approved or ratified by
the Committee and do not require separate approval or
ratification.
Transactions involving ongoing relationships with a Related
Person will be reviewed and assessed at least annually by the
Committee to ensure that such Related Person Transactions remain
appropriate and in compliance with the Committees
guidelines. The Committees activities with respect to the
review and approval or ratification of all Related Person
Transactions are reported periodically to the Board of Directors.
There were no Related Person Transactions for the year ended
December 31, 2006.
Communication
with Directors
Stockholders and other interested parties may communicate with
the Board by writing to the Corporate Secretary, NRG Energy,
Inc., 211 Carnegie Center, Princeton, New Jersey 08540.
Communications intended for a specific director or directors
should be addressed to their attention to the Corporate
Secretary at the address provided above. Communications received
from stockholders are forwarded directly to Board members as
part of the materials mailed in advance of the next scheduled
Board meeting following receipt of the communications. The Board
has authorized the Corporate Secretary, in his or her
discretion, to forward communications on a more expedited basis
if circumstances warrant or to exclude a communication if it is
illegal, unduly hostile or threatening, or similarly
inappropriate. Advertisements, solicitations for periodical or
other subscriptions, and other similar communications generally
will not be forwarded to the directors.
10
PROPOSALS TO
BE VOTED ON
ELECTION OF DIRECTORS
The Board is divided into three classes serving staggered
three-year terms. Directors for each class are elected at the
Annual Meeting of Stockholders held in the year in which the
term for their class expires.
The terms of the four Class I directors will expire at the
2007 Annual Meeting. The Class I directors elected at the
2007 Annual Meeting will hold office for a three-year term
expiring at the Annual Meeting in 2010 (or until their
respective successors are elected and qualified, or until their
earlier death, resignation, or removal). There are no family
relationships among the Companys executive officers and
directors.
Each of the nominees for director have been recommended and
nominated by the Governance and Nominating Committee. The
persons named as proxies intend to vote the proxies for the
election of the nominees to the Board. If any of the nominees
should be unavailable to serve as a director, an event which is
not anticipated, the persons named as proxies will vote your
proxy for another candidate or candidates as may be nominated by
the Board.
Nominees
for Director (Class I Directors)
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David Crane Age 48 Nuclear Oversight Committee
Mr. Crane has served as the President, Chief Executive Officer and a director of NRG since December 2003. Prior to joining NRG, Mr. Crane served as Chief Executive Officer of International Power plc, a UK-domiciled wholesale power generation company,
from January 2003 to November 2003, and as Chief Operating Officer from March 2000 through December 2002. Mr. Crane was Senior Vice President Global Power New York at Lehman Brothers Inc., an investment banking firm, from January 1999 to February 2000, and was Senior Vice President Global Power Group, Asia (Hong Kong) at Lehman Brothers from June 1996 to January 1999.
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Stephen L. Cropper Age 57 Commercial Operations Oversight Committee (Chair) Nuclear Oversight Committee
Mr. Cropper has been a director of NRG since December 2003, pursuant to the NRG plan of reorganization. Mr. Cropper spent 25 years with The Williams Companies Inc., an energy company, before retiring
in 1998 as President and Chief Executive Officer of Williams Energy Services. Mr. Cropper is a director of Berry Petroleum Company, Sunoco Logistics Partners L.P., Rental Car Finance Corporation, a subsidiary of Dollar Thrifty Automotive Group, Inc., Wawa, Inc. and QuikTrip Corporation.
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Maureen Miskovic Age 49 Commercial Operations Oversight Committee
Ms. Miskovic has been a director of NRG since September 2005. She currently serves as Chairman of Eurasia Group, a research and consulting firm focusing on political-risk analysis and industry research for global markets, where she oversees
the firms continued expansion and serves as chief advisor for the companys political risk services. Ms. Miskovic joined Eurasia Group in September 2002 after six years with Lehman Brothers, where she was Managing Director and Chief Global Risk Officer. Prior to joining Lehman Brothers, Ms. Miskovic was Treasurer at Morgan Stanley in London and before that she held various positions with
SG Warburg and Company, also in London. Ms. Miskovic is a director of State Street Corporation.
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Thomas H. Weidemeyer Age 59 Compensation Committee Governance and Nominating Committee Nuclear Oversight Committee
Mr. Weidemeyer has been a director of NRG since December 2003, pursuant to the NRG plan of reorganization. Until his retirement in December 2003, Mr. Weidemeyer served as Director, Senior
Vice President and Chief Operating Officer of United Parcel Service, Inc., the worlds largest transportation company and President of UPS Airlines. Mr. Weidemeyer became Manager of the Americas International Operation in 1989, and in that capacity directed the development of the UPS delivery network throughout Central and South America. In 1990, Mr. Weidemeyer became Vice President and Airline
Manager of UPS Airlines and, in 1994, was elected its President and Chief Operating Officer. Mr. Weidemeyer became Senior Vice President and a member of the Management Committee of United Parcel Service, Inc. that same year, and he became Chief Operating Officer of United Parcel Service, Inc. in January 2001. Mr. Weidemeyer also serves as a director of The Goodyear Tire & Rubber Co. and Waste Management, Inc.
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The Board
recommends a vote FOR the election to the Board of
each of the foregoing nominees. Proxies solicited by the Board
will be voted FOR each of the nominees unless a
contrary vote is specified.
Directors
Continuing in Office
Information regarding NRGs directors continuing in office
is provided below.
Class II
Directors (Terms expire in 2008)
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Lawrence S. Coben Age 48 Compensation Committee (Chair) Nuclear Oversight Committee
Mr. Coben has been a director of NRG since December 2003, pursuant to the NRG plan of reorganization. He is currently Chief Executive Officer of Tremisis Energy Acquisition Corporation II, a privately held company since
June 2006, and Tremisis Energy LLC. He was Chairman and Chief Executive Officer of Tremisis Energy Acquisition Corporation from February 2004 to May 2006. From January 2001 to January 2004, he was a Senior Principal of Sunrise Capital Partners L.P., a private equity firm. From 1997 to January 2001, Mr. Coben was an independent consultant. From 1994 to 1996, Mr. Coben was Chief Executive Officer of
Bolivian Power Company.
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Paul W. Hobby Age 46 Commercial Operations Oversight Committee Nuclear Oversight Committee and Nuclear Oversight Subcommittee
Mr. Hobby has been a director of NRG since March 8, 2006. Mr. Hobby is the Managing Partner of Genesis Park, L.P., a Houston-based private equity business specializing in technology
and communications investments which he helped to form in 2000. In that capacity, he serves as the Chief Executive Officer of Alpheus Communications, Inc., a Texas wholesale telecommunications provider, and as Former Chairman of CapRock Services Corp., the largest provider of satellite services to the global energy business. From November 1992 until January 2001, he served as Chairman and Chief Executive
Officer of Hobby Media Services and was Chairman of Columbine JDS Systems, Inc. from 1995 until 1997. He was an Assistant U.S. Attorney for the Southern District of Texas from 1989 to 1992, Chief of Staff to the Lieutenant Governor of Texas, Bob Bullock, in 1991 and an Associate at Fulbright & Jaworski from 1986 to 1989. Mr. Hobby is also a director of EGL, Inc. and Stewart Information Services
Corporation (Stewart Title).
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Herbert H. Tate Age 54 Governance and Nominating Committee Nuclear Oversight Committee and Nuclear Oversight Subcommittee (Chair)
Mr. Tate has been a director of NRG since December 2003, pursuant to the NRG plan of reorganization. Mr. Tate was Corporate Vice President, Regulatory Strategy of NiSource,
Inc. from July 2004 to April 2006. He was Of Counsel of Wolf & Samson P.C., a law firm, from September 2002 to July 2004. Mr. Tate was Research Professor of Energy Policy Studies at the New Jersey Institute of Technology from April 2001 to September 2002 and President of New Jersey Board of Public Utilities from 1994 to March 2001. Mr. Tate is also a director of IDT Capital, Inc. and IDT Spectrum,
Inc. Previously, Mr. Tate was a member of the Board of Directors for Central Vermont Public Service from April 2001 to June 2004, where he was a member of the Audit Committee. He has also been on the Board of Directors of the Environmental Law Institute since 2002.
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Walter R. Young Age 62 Governance and Nominating (Chair) Compensation Committee Nuclear Oversight Committee
Mr. Young has been a director of NRG since December 2003, pursuant to the NRG plan of reorganization. From May 1990 to June 2003, Mr. Young was Chairman, Chief Executive Officer and President of
Champion Enterprises, Inc., an assembler and manufacturer of manufactured homes. Mr. Young has held senior management positions with The Henley Group, The Budd Company and BFGoodrich.
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Class III
Directors (Terms expire in 2009)
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John F. Chlebowski Age 61 Audit Committee (Chair) Nuclear Oversight Committee
Mr. Chlebowski has been a director of NRG since December 2003, pursuant to the NRG plan of reorganization. Mr. Chlebowski served as the President and Chief Executive Officer of Lakeshore Operating Partners, LLC, a bulk liquid
distribution firm, from March 2000 until his retirement in December 2004. From July 1999 until March 2000, Mr. Chlebowski was a senior executive and cofounder of Lakeshore Liquids Operating Partners, LLC, a private venture firm in the bulk liquid distribution and logistics business, and from January 1998 until July 1999, he was a private investor and consultant in bulk liquid distribution. Prior
to that, he was employed by GATX Terminals Corporation, a subsidiary of GATX Corporation, as President and Chief Executive Officer from 1994 until 1997. Mr. Chlebowski is a director of Laidlaw International Inc.
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Howard E. Cosgrove Age 63 Chairman of the Board Nuclear Oversight Committee
Mr. Cosgrove has been a director of NRG since December 2003, pursuant to the NRG plan of reorganization, and Chairman of the Board since December 2003. He was Chairman and Chief Executive Officer of Conectiv and its predecessor
Delmarva Power and Light Company from December 1992 to August 2002. Prior to December 1992, Mr. Cosgrove held various positions with Delmarva Power and Light including Chief Operating Officer and Chief Financial Officer. Mr. Cosgrove serves as Chairman of the Board of Trustees at the University of Delaware.
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William E. Hantke Age 59 Audit Committee Nuclear Oversight Committee
Mr. Hantke has been a director of NRG since March 8, 2006. Mr. Hantke served as Executive Vice President and Chief Financial Officer of Premcor, Inc., a refining company, from February 2002 until December 2005. Mr. Hantke was Corporate
Vice President of Development of Tosco Corporation, a refining and marketing company, from September 1999 until September 2001, and he also served as Corporate Controller from December 1993 until September 1999. Prior to that position, he was employed by Coopers & Lybrand as Senior Manager, Mergers and Acquisitions from 1989 until 1990. He also held various positions from 1975 until 1988 with AMAX,
Inc., including Corporate Vice President, Operations Analysis and Senior Vice President, Finance and Administration, Metals and Mining. He was employed by Arthur Young from 1970 to 1975 as Staff/Senior Accountant. Mr. Hantke is on the Board of NTR Acquisition Co. and Process Energy Solutions, a non-public alternative energy company.
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Anne C. Schaumburg Age 57 Audit Committee Nuclear Oversight Committee and Nuclear Oversight Subcommittee
Ms. Schaumburg has been a director of NRG since April 2005. From 1984 until her retirement in January 2002, she was at Credit Suisse First Boston in the Global Energy Group, where she last served as
Managing Director. From 1979 to 1984, she was in the Utilities Group at Dean Witter Financial Services Group, where she last served as Managing Director. From 1971 to 1978, she was at The First Boston Corporation in the Public Utilities Group.
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PROPOSAL NO. 2
RATIFICATION
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee appointed the firm of KPMG LLP, independent
registered public accounting firm, to audit the consolidated
financial statements of the Company and its subsidiaries for the
year 2007 at a meeting held in late April. If the stockholders
do not ratify the appointment of KPMG LLP, the Audit Committee
will reconsider its selection. Representatives of KPMG LLP are
expected to attend the Annual Meeting where they will be
available to respond to questions and, if they desire, to make a
statement.
The Audit Committee first engaged KPMG LLP as the Companys
independent registered public accounting firm on May 24,
2004.
The Board
recommends a vote FOR the ratification of the
appointment of KPMG LLP as the Companys independent
registered public accounting firm. Proxies solicited by the
Board will be voted FOR ratification unless a
contrary vote is specified.
14
EXECUTIVE
OFFICERS
Our executive officers are elected by the Board annually to hold
office until their successors are elected and qualified.
David Crane
Age 48
President and Chief Executive Officer
For biographical information for David Crane, see Nominees
for Director.
Robert C. Flexon
Age 48
Executive Vice President and Chief Financial Officer
Mr. Flexon has been Executive Vice President and Chief
Financial Officer of NRG since March 2004. In this capacity, he
manages NRGs corporate finance, accounting, tax, risk
management, and overall internal control program. Prior to
joining NRG, from June 2000 to March 2004, Mr. Flexon was
Vice President, Corporate Development & Work Process
and Vice President, Business Analysis and Controller of
Hercules, Inc. Mr. Flexon also held various financial
management positions from 1987 to June 2000, including General
Auditor, Franchise Manager and Controller, during his
13 years with Atlantic Richfield Company. Mr. Flexon
began his career with the former Coopers & Lybrand
public accounting firm.
Jeffrey M. Baudier
Age 39
Senior Vice President and Regional President, South Central
Region
Mr. Baudier was named Senior Vice President and Regional
President, South Central Region in December 2006. He manages the
asset portfolio for this region and most recently served as its
General Counsel, a position he held since April 2005. Prior to
joining NRG, Mr. Baudier was a Special Counsel and Partner
from March 2001 to March 2005 with the New Orleans-based law
firm Jones Walker. In private practice he represented public and
closely-held companies in transactions and dispute resolution
related to various aspects of the energy industry.
Mr. Baudier also served from May 1993 to October 1998 and
again from March 2000 to March 2001 as a Senior Attorney at
Texaco, Inc., focusing on oil and gas exploration and
development projects both domestically and abroad. From November
1998 to February 2000, he practiced with the Lafayette,
Louisiana law firm of Caffery, Oubre, Dugas and Campbell.
John P. Brewster
Age: 53
Executive Vice President, Development Engineering, Procurement
and Construction
Mr. Brewster has been Executive Vice President, Development
Engineering, Procurement and Construction for NRG since December
2006. Prior to this position he served as Executive Vice
President, International Operations and President South Central
Region, a position he held since March 2004. Previously, he
served as Vice President, Worldwide Operations of NRG, Vice
President, North American Operations of NRG and Vice President
of Production for NRG Louisiana Generating, Inc. Prior to
joining NRG, Mr. Brewster spent 22 years with Cajun
Electric Power Cooperative, where he served as Vice President of
Production, Manager of Power System Operations and Assistant
Plant Manager.
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Carolyn J. Burke
Age: 39
Vice President and Controller
Ms. Burke has been Vice President and Controller of NRG
since August 2006. She is responsible for directing NRGs
financial accounting and reporting activities, as well as
ensuring NRGs Sarbanes-Oxley compliance. Ms. Burke
joined NRG in May 2004 as Executive Director, Financial Planning
and Analysis, and oversaw NRGs budget, forecasting, and
long-term planning process. Prior to joining NRG, Ms. Burke
served as Controller and Executive Director of Finance at the
University of Pennsylvanias School of Arts and Sciences,
where she was responsible for financial accounting and reporting
systems and federal reporting compliance. Prior to her tenure at
Penn, Carolyn served as the Executive Director of Financial
Administration at Yale University and in various finance
positions during her four years at the Atlantic Richfield
Corporation (ARCO).
John B. (Thad) Hill, III
Age: 39
Executive Vice President and Regional President, Texas
Thad Hill has been Executive Vice President and Regional
President of NRG Texas since December 2006. Most recently,
Mr. Hill served as NRGs Executive Vice President,
Corporate Business Development and Strategic Planning, as well
as head of Environmental and New Business. Prior to joining NRG,
he was Executive Vice President of Strategy & Business
Development at Texas Genco LLC, a position he held until in
February 2006, when NRG acquired Texas Genco LLC. Mr. Hill
also served as Vice President and Director of The Boston
Consulting Group, Inc., where he led the North American energy
practice, serving companies in the power and gas sector with a
focus on commercial and strategic issues. Mr. Hill joined
The Boston Consulting Group, Inc. in 1995, was appointed an
officer in 2001 and began leadership of the North American
energy practice in 2003
M. Stephen Hoffmann
Age: 53
Senior Vice President and President, West Region
Mr. Hoffmann has been Senior Vice President and President
of NRGs West Region since May 2006. He is responsible for
leading the management and development activities for the West
Region. Prior to that, he led the West Regions business
development and origination efforts. Mr. Hoffmann joined
NRG in 2001 as General Manager of San Diego Energy Center,
following 28 years in key business development and
industrial sales roles with such power and gas companies as
Energy Masters International, Planergy International, Reliant
Energy and Utilicorp.
Kevin T. Howell
Age: 49
Executive Vice President, Commercial Operations
Mr. Howell has been Executive Vice President, Commercial
Operations since August 2005 and is responsible for the
commercial management of the North America asset portfolio.
Prior to joining NRG, he served as President of Dominion Energy
Clearinghouse since 2001. From 1995 to 2001, Mr. Howell
held various positions within Duke Energy companies including
Senior Vice President of Duke Energy Trading and Marketing,
Senior Vice President of Duke Energy International, and most
recently, Executive Vice President of Duke Energy Merchants
where he managed a global trading group dealing in refined
products, LNG and coal. Prior to his five years at Duke,
Mr. Howell worked in a variety of trading, marketing and
operations functions at MG Natural Gas Corp., Associated Natural
Gas and Panhandle Eastern Pipeline L.P.
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Christine A. Jacobs
Age 54
Senior Vice President, Plant Operations
Christine Jacobs was named Senior Vice President, Plant
Operations in August 2006. She previously served as Vice
President, Plant Operations, a position she held since September
2004. She is responsible for domestic plant operations,
including safety, physical security, and application of best
operating practices. Ms. Jacobs has more than 30 years
of diverse operating and commercial management experience. Prior
to joining NRG, she served as Executive Vice President, Facility
Services/Healthcare Management for Aramark Corporation from 2003
to 2004. Additionally, Ms. Jacobs served as Senior Vice
President, Exelon Generation, and President, Exelon Power from
2000 to 2002.
J. Andrew Murphy
Age 46
Executive Vice President and General Counsel
Drew Murphy was appointed Executive Vice President and General
Counsel effective December 18, 2006. Prior to joining NRG,
Mr. Murphy as a partner in charge of the energy practice at
the law firm of Hunton & Williams. Mr. Murphy has
more than 15 years of experience representing issuers,
developers, investors and lenders in a wide variety of US and
cross-border energy projects and structured financings. His
legal expertise includes supporting various development projects
and financings including coal- and gas-fired power plants,
transmission lines, gas storage facilities,
waste-to-energy
facilities, water treatment facilities and renewable energy
projects. Mr. Murphy has a bachelor of arts degree from
Harvard College and a law degree from George Washington
University.
John W. Ragan
Age 47
Executive Vice President and Regional President, Northeast
John Ragan was appointed, effective December 18, 2006,
Executive Vice President and Regional President, Northeast.
Prior to joining, Mr. Ragan was Vice President of Trading,
Transmission, and Operations at FPL Energy. Prior to this role,
he served as Vice President of Business Management for
FPLEs Northeast Region. Ragan has more than 20 years
of experience in the energy industry, including serving as
Senior VP and Chief Executive Officer of Mirants
International Group where he led operations in five countries
and managed 3,450 MW of generation and integrated utility
assets. Prior to working internationally, he served in various
domestic roles during his eight years at Mirant/Southern Energy,
including Senior Vice President of Commercial Operations for the
companys North American trading and asset portfolio.
Mr. Ragan has a bachelors and masters degree in
of science from West Virginia University. He also holds a
masters degree in business administration from Tulane
University, AB Freeman School of Business.
Denise M. Wilson
Age: 47
Executive Vice President and Chief Administrative Officer
As Executive Vice President and Chief Administrative Officer,
Ms. Wilson oversees Information Technology (IT), Human
Resources, Regulatory & Government Affairs, and Office
Services. Prior to her current position, which she has held
since August 2006, she served as the Companys Vice
President, Human Resources. Ms. Wilson joined NRG as
Principal Consultant/Executive Director, International and
Domestic Compensation, Benefits, Retirement, HRMS in September
2000. Prior to joining NRG, she served as Vice President, Human
Resources Operations with Metris Companies Inc. and Director,
Human Resources with General Electric ITS.
17
Steven C. Winn
Age: 41
Executive Vice President, Strategy and Environmental and New
Business
Mr. Winn has been Executive Vice President, Strategy, and
Environmental and New Business since December 2006. In this
role, he is responsible for identifying opportunities to enhance
NRGs competitive position in the energy industry and
increase revenue growth through synergistic acquisitions and
business alliances. Winn also will continue to oversee
NRGs nuclear development efforts for South Texas Project
(STP) units 3 and 4. Most recently, Mr. Winn served as
Executive Vice President and Regional President for NRG Texas
following NRGs acquisition of Texas Genco LLC since
February 2006. He served as Vice President, Mergers and
Acquisitions from April 2005 to December 2005 and as Director,
Mergers and Acquisitions from November 2004, when he joined NRG,
to April 2005. Prior to joining NRG, Mr. Winn worked in
Power and Energy Investment Banking at Lehman Brothers and
Salomon Brothers.
18
VOTING
STOCK OWNERSHIP OF DIRECTORS, NAMED EXECUTIVE OFFICERS,
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information concerning beneficial
ownership of the Companys Common Stock as of
March 12, 2007, for: (a) each director and the
nominees for director; (b) named executive officers set
forth in the Summary Compensation Table; (c) the directors
and executive officers as a group; and (d) each person
known to the Company to own more than 5 percent of the
Companys Common Stock. None of the directors, nominees for
director or named executive officers own any of the
Companys preferred stock, and the Company is not aware of
any person who owns more than 5 percent of the
Companys preferred stock. Unless otherwise indicated, each
person has sole investment and voting power with respect to the
shares set forth in the following table.
Except as noted below, the address of the beneficial owners is
NRG Energy, Inc., 211 Carnegie Center, Princeton, New Jersey
08540.
|
|
|
|
|
|
|
|
|
Percent of
|
|
|
Name of Beneficial Owner
|
|
Class
|
|
Common
Stock(1)
|
|
David Crane
|
|
*
|
|
|
785,895
|
(2)
|
Robert C. Flexon
|
|
*
|
|
|
144,467
|
(3)
|
Kevin T. Howell
|
|
*
|
|
|
18,194
|
(4)
|
Steven C. Winn
|
|
*
|
|
|
25,721
|
(5)
|
John P. Brewster
|
|
*
|
|
|
43,392
|
(6)
|
Howard E. Cosgrove
|
|
*
|
|
|
35,863
|
(7)
|
John F. Chlebowski
|
|
*
|
|
|
12,982
|
(8)
|
Lawrence S. Coben
|
|
*
|
|
|
15,702
|
(9)
|
Stephen L. Cropper
|
|
*
|
|
|
12,820
|
(10)
|
William E. Hantke
|
|
*
|
|
|
507
|
(11)
|
Paul W. Hobby
|
|
*
|
|
|
2,088
|
(12)
|
Maureen Miskovic
|
|
*
|
|
|
6,134
|
(8)
|
Anne C. Schaumburg
|
|
*
|
|
|
5,309
|
(8)
|
Herbert H. Tate
|
|
*
|
|
|
5,420
|
(13)
|
Thomas H. Weidemeyer
|
|
*
|
|
|
10,121
|
(14)
|
Walter R. Young
|
|
*
|
|
|
20,615
|
|
All Directors and Executive
Officers
|
|
*
|
|
|
1,206,061
|
(15)
|
Janus Capital Management LLC
|
|
7.3%
|
|
|
8,898,539
|
(16)
|
151 Detroit Street
Denver, Colorado 80206
|
|
|
|
|
|
|
Massachusetts Financial Services
Company
|
|
6.0%
|
|
|
7,312,114
|
(17)
|
500 Boylston Street
Boston, Massachusetts 02116
|
|
|
|
|
|
|
Orbis Investment Management Limited
|
|
6.1%
|
|
|
7,472,777
|
(18)
|
901 Marquette Avenue,
Suite 2300
Minneapolis, Minnesota 55402
|
|
|
|
|
|
|
Prudential Financial, Inc.
|
|
6.9%
|
|
|
8,401,697
|
(19)
|
751 Broad Street
Newark, New Jersey
07102-3777
|
|
|
|
|
|
|
|
|
|
* |
|
Less than one percent of outstanding Common Stock. |
19
|
|
|
(1) |
|
The number of shares beneficially owned by each person or entity
is determined under the rules of the SEC, and the information is
not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, each person or entity is considered
the beneficial owner of any: (a) shares to which such
person or entity has sole or shared voting power or investment
power and (b) shares that such person or entity has the
right to acquire within 60 days through the exercise of
stock options or similar rights. Unless otherwise indicated,
each person or entity has sole investment and voting power (or
such person shares such powers with his or her spouse) with
respect to the shares set forth in the table above. |
|
(2) |
|
Includes 680,370 shares that may be acquired at or within
60 days of March 12, 2007, pursuant to the exercise of
options. Mr. Crane also owns 19,071 deferred stock units.
Each deferred stock unit is equivalent in value to one share of
NRGs Common Stock. Mr. Crane will receive one such
share of Common Stock for each deferred stock unit he owns six
months from the date of his termination of employment with NRG. |
|
(3) |
|
Includes 111,167 shares that may be acquired at or within
60 days of March 12, 2007, pursuant to the exercise of
options. Mr. Flexon also owns 5,680 DSUs. Each
deferred stock unit is equivalent in value to one share of
NRGs Common Stock. Mr. Flexon will receive one such
share of Common Stock for each deferred stock unit he owns six
months from the date of his termination of employment with NRG. |
|
(4) |
|
Includes 5,966 shares that may be acquired at or within
60 days of March 12, 2007, pursuant to the exercise of
options. |
|
(5) |
|
Includes 25,721 shares that may be acquired at or within
60 days of March 12, 2007, pursuant to the exercise of
options. Mr. Winn also owns 230 DSUs. Each deferred
stock unit is equivalent in value to one share of NRGs
Common Stock. Mr. Winn will receive one such share of
Common Stock for each deferred stock unit he owns six months
from the date of his termination of employment with NRG. |
|
(6) |
|
Includes 35,399 shares that may be acquired at or within
60 days of March 12, 2007, pursuant to the exercise of
options. Mr. Brewster also owns 2,362 DSUs. Each
deferred stock unit is equivalent in value to one share of
NRGs Common Stock. Mr. Brewster will receive one such
share of Common Stock for each deferred stock unit he owns six
months from the date of his termination of employment with NRG. |
|
(7) |
|
Includes 10,000 shares held by Mr. Cosgroves
spouse and 25,863 DSUs. Each deferred stock unit is
equivalent in value to one share of NRGs Common Stock,
payable in the event Mr. Cosgrove ceases to be a member of
the Board. |
|
(8) |
|
Represents DSUs. Each deferred stock unit is equivalent in
value to one share of NRGs Common Stock, payable in the
event the director ceases to be a member of the Board. |
|
(9) |
|
Includes 14,476 DSUs. Each deferred stock unit is
equivalent in value to one share of NRGs Common Stock,
payable in the event Mr. Coben ceases to be a member of the
Board. |
|
(10) |
|
Includes 9,320 DSUs. Each deferred stock unit is
equivalent in value to one share of NRGs Common Stock,
payable in the event Mr. Cropper ceases to be a member of
the Board. |
|
(11) |
|
Mr. Hantke also owns 3,012 DSUs. Each deferred stock
unit is equivalent in value to one share of NRGs Common
Stock. The 3,012 DSUs issued to him will be exchanged for
such Common Stock on a
one-to-one
basis on the following schedule: (i) 373 on June 1,
2007; (ii) 507 on March 1, 2008; (iii) 373 on
June 1, 2008; (iv) 507 on March 31, 2009;
(v) 373 on June 1, 2009; (vi) 506 on
March 1, 2010; and (vii) 373 on June 1, 2010. |
|
(12) |
|
Mr. Hobby also owns 2,027 DSUs. Each deferred stock
unit is equivalent in value to one share of NRGs Common
Stock. The 2,027 DSUs issued to him will be exchanged for
such Common Stock on a
one-to-one
basis on January 1, 2008. |
|
(13) |
|
Includes 1,591 DSUs. Each deferred stock unit is
equivalent in value to one share of NRGs Common Stock,
payable in the event Mr. Tate ceases to be a member of the
Board. Mr. Tate also owns 2,455 DSUs that will be
exchanged for such Common Stock on a
one-to-one
basis on the following schedule: (i) 1,930 on
January 1, 2008 and (ii) 525 on January 1, 2009. |
|
(14) |
|
Includes 9,121 DSUs payable in the event
Mr. Weidemeyer ceases to be a member of the Board. |
20
|
|
|
(15) |
|
Consists of the total holdings of directors, named executive
officers, and all other executive officers as a group. Includes
53,797 shares that may be acquired at or within
60 days of March 12, 2006, pursuant to the exercise of
options and 215 shares that may be acquired at or within
60 days of March 12, 2006, pursuant to the exchange of
DSUs. Each deferred stock unit is equivalent in value to
one share of NRGs Common Stock. |
|
(16) |
|
Based on information set forth in Schedule 13G filed on
February 14, 2007 by Janus Capital Management LLC
(Janus). Janus has an indirect ownership interest in
Enhanced Investment Technologies LLC and Perkins, Wolf,
McDonnell and Company, LLC. Due to this ownership structure,
Janus may be deemed the beneficial owner of
8,898,539 shares. |
|
(17) |
|
Based upon information set forth in the Schedule 13G filed
on February 9, 2007 by Massachusetts Financial Services
Company (MFS), which includes shares beneficially
owned by other non-reporting entities as well as MFS. |
|
(18) |
|
Based on information set forth in Schedule 13G filed
jointly on October 27, 2006 by Orbis Investment Management
Limited (OIMl) and Orbis Asset Management Limited
(OAML) with respect to the shares beneficially owned
by each. OIML is the beneficial owner of 7,114,377 shares
and OAML is beneficial owner of 58,000 shares. |
|
(19) |
|
Based upon information set forth in the Schedule 13G filed
on February 9, 2007 by Prudential Financial, Inc.
(Prudential). Prudential, through its beneficial
ownership of the Prudential Insurance Company of America
(PICOA), may be deemed to hold 61,200 shares of
Common Stock for the benefit of PICOAs general account.
Prudential may also be deemed the beneficial owner of securities
beneficially owned by certain other entities and may have direct
or indirect voting
and/or
investment discretion over 8,340,497 shares which are held
for its own benefit or for the benefit of
Prudentials clients by its separate accounts, externally
managed accounts, registered investment companies, subsidiaries
and/or other
affiliates, which includes 7,558,705 shares held by
Jennison Associates LLC who also filed a Schedule 13G on
February 14, 2007. Prudential has reported the combined
holdings of these entities. |
SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires our directors and executive officers to file with the
SEC reports regarding their ownership and changes in ownership
of our stock. Based on a review of these reports and the written
representations of its directors and executive officers, NRG
believes that during 2006, its directors and executive officers
complied with all Section 16(a) filing requirements, except
for late Section 16 filings filed on behalf of David Crane
and Curtis Morgan.
COMPENSATION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has reviewed and discussed the
Compensation Discussion and Analysis included in this Proxy
Statement required by Item 402(b) of
Regulation S-K
with management and, based upon such review and discussion, the
Compensation Committee has recommended to the Board that the
Compensation Discussion and Analysis be included in this Proxy
Statement.
Compensation Committee:
Lawrence S. Coben, Chair
Thomas H. Weidemeyer
Walter R. Young
21
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
The following discussion and analysis is focused on our
executive compensation program as it relates to NRGs Named
Executive Officers, or NEOs. The NEOs are the Chief Executive
Officer, the Chief Financial Officer and the three most highly
compensated executive officers other than the Chief Executive
Officer and Chief Financial Officer serving as executive
officers at the end of the 2006 fiscal year. Our analysis is
based on the following outline:
|
|
|
|
|
the objectives of the executive compensation program at NRG;
|
|
|
|
what the executive compensation program is designed to reward;
|
|
|
|
all elements of compensation provided under the program,
including:
|
|
|
|
|
-
|
the reasons why these elements of compensation have been
selected;
|
|
|
-
|
how the amounts of each element are determined; and
|
|
|
-
|
how each element and decision fits into NRGs overall
objectives.
|
Objectives
of NRGs executive compensation program
The Compensation Committee of the Board, referred to as the
Committee for purposes of this CD&A, is responsible for the
development and implementation of NRGs executive
compensation program. The objectives of this program flow from
the Committees philosophy that executive compensation
should be aligned with shareholder value and improvements in
corporate performance.
These objectives include elements of both short- and long-term
values, therefore the program strives to effectively utilize
elements of compensation under a total reward philosophy that
combines annual and multi-year reward opportunities. The intent
is to develop a compensation program that rewards the annual
accomplishment of the Companys goals and objectives while
supporting the Companys long-term business strategy.
What is
NRGs executive compensation program designed to
reward
Shareholder value and corporate performance are realized through
the Companys ongoing business strategy to consistently
optimize the value of our generation assets while using that
asset base as a platform for enhanced financial performance.
This is attained by maintaining and enhancing the Companys
position as a leading wholesale independent power generation
company in a cost effective and risk-mitigating manner. This
strategy consists of:
|
|
|
|
|
pursuing additional growth opportunities at existing sites;
|
|
|
|
increasing value from existing assets;
|
|
|
|
maintaining financial strength and flexibility;
|
|
|
|
reducing the volatility of cash flows through asset-based
commodity hedging activities; and
|
|
|
|
participating in continued industry consolidation.
|
Our
executive compensation program promotes this strategy by:
|
|
|
|
|
attracting, retaining and rewarding top executive talent;
|
|
|
|
encouraging performance that results in enhanced shareholder
value over the long-term and attainment of our business goals
and objectives, both financial and non-financial; and
|
|
|
|
rewarding strong individual performance.
|
22
Elements
of compensation provided under NRGs executive compensation
program
To assist in selecting and determining amounts for NRGs
executive compensation program, the Committee has retained
Mercer Human Resources Consulting, or Mercer, a compensation
consultant, to provide it with market information, analysis and
guidance in the development and assessment of NRGs
executive compensation program. In this capacity, Mercer is
retained by, and is directly accountable to, the Committee. The
Committee pursuant to its Charter has the authority to retain,
at the expense of the Company, compensation experts, and other
advisors as it deems appropriate to assist the Committee in the
full performance of its functions, including sole authority to
retain and terminate any compensation consultant used to assist
the Committee in the evaluation of director, Chief Executive
Officer or executive compensation, and to approve the
consultants fees and other retention terms. The
Committees Charter authorizes the Committee to engage a
compensation consultant to provide independent advice, support,
and expertise to support the Committee in overseeing, and
reviewing, the Companys overall compensation strategy,
structure, policies and programs, and to assess whether the
Companys compensation structure establishes appropriate
incentives for management and employees.
Annually, the Committee reviews all elements of executive
compensation individually and in the aggregate against market
data for companies with which NRG competes for executive talent.
Mercer works with NRGs Human Resources Department in
formulating recommendations for the Committees
consideration to determine the levels and components of
compensation to be provided for any fiscal year. The Committee
evaluates NRGs executive compensation based on competitive
market information developed by Mercer via the development of a
peer group targeting publicly-traded, independent
power producers and utilities with power generation operations
based on criteria targeting companies with:
|
|
|
|
|
Revenue of approximately 50% to 200% of NRGs projected
revenue; and
|
|
|
|
Similar generation capacity as NRG.
|
In February 2006, NRG completed the acquisition of Texas Genco
LLC. This transaction substantially increased the size of NRG
and increased its annual revenues from approximately
$2.7 billion to approximately $5.6 billion for the
year ended December 31, 2006. In anticipation of the close
of the Texas Genco acquisition, the Committee asked Mercer to
develop a peer group for compensation review purposes more
representative of the Company after the transaction.
The peer group for 2006 included the following companies:
Constellation Energy Group Inc. (NYSE: CEG),
AES Corporation (NYSE: AES), TXU Corporation (NYSE: TXU),
Calpine Corporation (OTC: CPNLQ), Reliant Energy, Inc. (NYSE:
RRI), DTE Energy Company (NYSE: DTE), Dynegy Inc. (NYSE: DYN),
El Paso Corporation (NYSE: EP), PPL Corporation (NYSE:
PPL), CMS Energy Corporation (OTC: CMSRL), Mirant Corporation
(NYSE: MIR), and Allegheny Energy, Inc.(NYSE: AYE).
The peer group for 2005 prior to the Texas Genco acquisition
consisted of the following companies:
AES Corporation (NYSE: AES), Dynegy, Inc. (NYSE: DYN)
Calpine Corporation (OTC: CPNLQ), Mirant Corporation (NYSE:
MIR), Reliant Energy, Inc. (NYSE: RRI), Edison Mission Energy
(NYSE: EME), and Covanta (NYSE: CVA).
The various elements of NRGs executive compensation
program for 2006 were benchmarked relative to the compensation
provided to executives of this peer group, as well as other
published survey data. For the survey analysis, Mercer
benchmarked NRGs NEOs to survey data based on functional
job responsibility, using energy data where available and
supplementing it with general industry data. NRGs plan
design, plan features, and level of participation were also
considered during the benchmarking exercise.
For each element, and in the aggregate, NRG targeted the peer
group median for its NEO population for both total cash
compensation (base salary plus annual cash incentives) and the
median for total direct compensation (total cash compensation
plus expected value of long-term incentives). The Committee aims
to emphasize performance-based pay balancing short- and
long-term results through the use of an effective mix of cash,
equity and other benefits.
23
Based on Mercers analysis of NRGs peer group and in
conjunction with the objectives determined above, the Committee
established the following six components of NRGs executive
compensation program:
|
|
|
|
|
Base salary;
|
|
|
|
Annual incentive compensation;
|
|
|
|
Long-term incentive compensation;
|
|
|
|
Benefits;
|
|
|
|
Discretionary payments; and
|
|
|
|
Severance and change in control benefits.
|
The foundation for NRGs total reward philosophy is to
align the short- and long-term interests of the Company with
that of its shareholders, business goals and objectives, and to
foster improvements in corporate performance. To fulfill this
philosophy, we have selected various tools to address this
strategic desire viewing reward in the aggregate with respect to
base salary, annual incentives, equity, and benefits, with each
serving a different function.
Base
Salary
Base salary Annual base salary is designed to
compensate NEOs for their level of experience and continued
expectation of superior performance. Base salary is expected to
increase
year-on-year
in relation to market competitiveness and individual performance.
For the fiscal year 2006, annual base salaries for NEOs were
reviewed relative to the median base salary levels for each
executives position based on NRGs peer group. In
alignment with the Companys
pay-for-performance
approach to total compensation, levels of base salary are
targeted at the market median. The base salary recommendations
also incorporate the NEO individual performance, the general
contributions of the NEO to overall corporate performance and
the level of responsibility of the NEO with respect to their
specific position. In general, in January 2006, base salary
levels for NEOs were increased between 3.5% to 5.5% to reflect
the above mentioned criteria. We expect merit increases to
remain within this range in the future, subject to actual
performance, business conditions, and market performance. On
occasion, it may become necessary to make adjustments to the
salary of a NEO based on exceptional individual performance or
due to a change in the competitive market.
Annual
Incentive Compensation
Overview
Annual incentive compensation is designed to compensate NEOs for
meeting specific individual and Company goals, and is determined
as a percentage of each NEOs annual base salary. Annual
incentives are designed to reward individuals for meeting
financial and non-financial goals and objectives established as
part of the Companys annual business plan. Incentive plan
design is mindful of best practices and market competitiveness
as benchmarked with NRGs peer group.
The Annual Incentive Plan, or AIP, is calculated using actual
performance results from a weighted percentage of performance
criteria. These criteria are chosen to align NEOs clear
line-of-sight
responsibility to available quantitative financial measures as
well as to qualitative measures that NRG values in the
leadership of the business, which includes safety, budget
control, staff development, and individual performance compared
to the Companys goals. Annually, quantitative and
qualitative performance goals are recommended by the NRG Senior
Management Team for approval by the Committee. These criteria
were chosen as they are the primary short-term benchmarks to the
strategies chosen for attaining the Companys business
objectives of increasing shareholder value and the improvement
in corporate performance.
24
2006
AIP
Range of AIP The Chief Executive Officer is
accountable for developing the goals for all other NEOs, while
the Committee, with input from the Chief Executive Officer,
determines the goals for the Chief Executive Officer. These
goals are established at the beginning of each fiscal year. For
the fiscal year 2006, these goals were reviewed and approved by
the Committee on January 24, 2006. For the fiscal year
2006, the target annual incentive opportunity for NEOs ranged
from 75 percent to 100 percent of base salary. An
additional maximum opportunity was established for each NEO
ranging from 37.5 percent to 100 percent of base
salary above the target opportunity. Mercer has reported that
the AIP plan design, as displayed in the table below, is
consistent with market practice both in terms of target
percentages and range of opportunity.
The threshold, target and maximum incentive opportunities for
the NEOs for 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
David Crane
|
|
|
50
|
%
|
|
|
100
|
%
|
|
|
200
|
%
|
President and Chief Executive
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert C. Flexon
|
|
|
37.5
|
%
|
|
|
75
|
%
|
|
|
150
|
%
|
Executive Vice President and Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin T. Howell
|
|
|
37.5
|
%
|
|
|
75
|
%
|
|
|
112.5
|
%
|
Executive Vice President,
Commercial Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven C.
Winn(1)
|
|
|
37.5
|
%
|
|
|
75
|
%
|
|
|
112.5
|
%
|
Executive Vice President, Strategy
and Environmental and New Business
|
|
|
|
|
|
|
|
|
|
|
|
|
John P.
Brewster(2)
|
|
|
37.5
|
%
|
|
|
75
|
%
|
|
|
112.5
|
%
|
Executive Vice President,
Development Engineering, Procurement and Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Mr. Winn was the Executive Vice President and Regional
President, Texas Region until December 2006. |
|
(2) |
|
Mr. Brewster was the Executive Vice President and Regional
President, South Central Region until November 2006. |
25
AIP Performance Criteria The following table
provides the 2006 performance criteria established for the NEOs.
|
|
|
Performance Criteria
|
|
Definition
|
|
Free Cash Flow
|
|
Cash Flow from Operations less
Capital Expenditures as calculated from NRGs
Statement of Cash Flows as found in Item 15
Consolidated Financial Statements to the Companys Annual
Report on
Form 10-K
filed on February 28, 2007, or the 2006
Form 10-K
|
|
|
|
Consolidated Adjusted EBITDA
|
|
Net Income before Income Tax,
Depreciation, and Amortization as calculated from
NRGs Statement of Operations as found in
Item 15 Consolidated Financial Statements to
NRGs 2006
Form 10-K
and as further adjusted for certain non-recurring items
|
|
|
|
Safety
|
|
Applied preventative safety
practices in force at plant and office locations
|
|
|
|
Budget Expense Improvement
|
|
Departmental financial performance
versus
budgeted expectation
|
|
|
|
Environmental
|
|
Qualitative
and/or
quantitative assessment of environment quality and initiatives
|
|
|
|
FORNRG Expense
Reduction
|
|
Continuous improvement initiative
to maximize return on invested capital and improve profitability
|
|
|
|
Strategic
Development/Implementation
|
|
Exploration and implementation of
business opportunities achievable at value and in support of
long-term efficiencies
|
|
|
|
Individual Performance/Goal
Achievement
|
|
Individual Performance versus
mutually
agreed-upon
annual goals
|
|
|
|
Staff Development
|
|
Identify succession plan
opportunities, including identification of critical positions,
assessment of skills and corresponding developmental plans
|
AIP Calculation Payment of the AIP is
contingent on attaining the AIP Threshold, as described below.
If the AIP Threshold is met or exceeded, the annual incentive
payment is calculated in two steps: as a percentage up to the
AIP Target and as a percentage above the AIP Target. The first
step calculates each of the performance criteria for performance
between the AIP Threshold and the AIP Target amounts. Then, if
the AIP Target is exceeded, a second calculation is performed to
compute the portion of the incentive payment attributable to
performance between the AIP Target and the AIP Maximum. The sum
of the two pieces (the AIP Threshold-the AIP Target components +
the AIP Target-the AIP Maximum components) equals the NEO
incentive earned under the AIP.
AIP Threshold For fiscal year 2006, the AIP
Threshold was set at a level appropriate for a minimally
acceptable level of Company financial performance
$1,076M of Consolidated Free Cash Flow for 2006. Thus, if the
AIP Threshold gate has been opened, then each
performance criteria of the AIP is eligible for payment, per
actual performance compared to goals. If the AIP Threshold goal
is not achieved, no annual incentives would have been paid for
2006 performance.
AIP Target For fiscal year 2006, AIP
incentives for NEOs are based on the achievement of a
combination of pre-established, quantitative Company financial
and qualitative performance goals. The 2006 Company financial
goals included Free Cash Flow and Consolidated Adjusted EBITDA
criteria and were established to equal the Companys
internally approved budget. Qualitative goals may include up to
all of the following components for an individual NEO: Staff
Development, Environmental, Safety, Budget Control, Strategic
Development, and Individual Performance compared to the
Companys goals. Both the budget and the qualitative goals
have been chosen as the criteria for AIP payments because they
best represent the Companys primary short-term benchmarks
for attaining the Companys strategy.
26
For performance between the AIP Threshold and AIP Target, AIP
payments are based on the weight of each performance criterion.
If the AIP Threshold for Free Cash Flow is achieved, each
criterion will be used on a weighted average to calculate the
AIP payment, per the percentages set forth below. The table
below sets forth the 2006 annual performance criteria for each
NEO and the weight given to each in determining the AIP for
performance between the AIP Threshold and the AIP Target.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Criteria
|
|
David Crane
|
|
|
Robert C. Flexon
|
|
|
Kevin T. Howell
|
|
|
Steven C. Winn
|
|
|
John P. Brewster
|
|
|
Free Cash Flow
|
|
|
30
|
%
|
|
|
20
|
%
|
|
|
20
|
%
|
|
|
10
|
%
|
|
|
10
|
%
|
Consolidated Adjusted EBITDA
|
|
|
30
|
%
|
|
|
20
|
%
|
|
|
20
|
%
|
|
|
10
|
%
|
|
|
10
|
%
|
Regional Safety
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
5
|
%
|
|
|
5
|
%
|
Environmental
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
5
|
%
|
|
|
5
|
%
|
Regional Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
%
|
|
|
20
|
%
|
FORNRG Expense
Reduction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
%
|
|
|
10
|
%
|
Budget Expense Improvement
|
|
|
|
|
|
|
10
|
%
|
|
|
40
|
%
|
|
|
|
|
|
|
|
|
Strategic
Development/Implementation
|
|
|
15
|
%
|
|
|
10
|
%
|
|
|
|
|
|
|
10
|
%
|
|
|
10
|
%
|
Staff Development
|
|
|
15
|
%
|
|
|
10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Performance/Goal
Achievement
|
|
|
|
|
|
|
20
|
%
|
|
|
20
|
%
|
|
|
30
|
%
|
|
|
30
|
%
|
AIP payments above the AIP Target will only be possible if the
Free Cash Flow
and/or the
Consolidated Adjusted EBITDA Targets are achieved. Continued
focus and delivery on these metrics best support the
Companys objectives of increasing shareholder value and
performance improvement and ensure continued access to capital
for growth, enhanced risk-adjusted returns, and flexibility in
executing the Companys business strategy to meet these
objectives.
The following table provides the Free Cash Flow and Consolidated
Adjusted EBITDA Thresholds and Targets:
|
|
|
|
|
|
|
|
|
|
|
Threshold
|
|
|
Target
|
|
|
|
(in millions)
|
|
|
Free Cash Flow
|
|
$
|
1,076
|
|
|
$
|
1,164
|
|
Consolidated Adjusted EBITDA
|
|
$
|
1,717
|
|
|
$
|
1,800
|
|
AIP Maximum For fiscal year 2006, the AIP
Maximum amounts can only be achieved if the Free Cash Flow and
Consolidated Adjusted EBITDA Targets are surpassed. In the event
that these financial performance criteria exceed maximum levels,
the NEO is still capped to the AIP Maximum. The AIP Maximum Free
Cash Flow and Consolidated Adjusted EBITDA are based on the
achievement of a number of financial, competitive, and strategic
goals over and above the Companys budget.
Results for 2006 AIP As defined, the
Companys AIP Threshold and AIP Target levels are based on
the Companys audited financial statements. The achievement
towards the threshold and targets described in the table above
is calculated beginning with the Companys audited
financial statements and is adjusted based on the impact of
non-recurring events that may impact Free Cash Flow
and/or
Consolidated Adjusted EBITDA, but have a positive impact on the
Companys business objectives of increasing shareholder
value and improving corporate performance. For example, the
Companys hedge reset program negatively impacted Free Cash
Flow by nearly $1.4 billion, while the sales of Resource
Recovery and the Flinders operation in Australia negatively
impacted Free Cash Flow and Consolidated Adjusted EBITDA by
$7 million and $69 million, respectively.
Additionally, transactions may occur throughout the year that
may impact Free Cash Flow
and/or
Consolidated Adjusted EBITDA positively or negatively but were
not due to direct Company management. In addition to the hedge
reset and sales of Resource Recovery and Flinders, the Committee
approved adjustments of ($61) million and $62 million
for the calculation of Free Cash Flow and Consolidated Adjusted
EBITDA criteria, respectively.
27
Based on the calculations above, both the Free Cash Flow and
Consolidated Adjusted EBITDA AIP Targets were exceeded for 2006.
The Chief Executive Officer provided documentation to the
Committee and the Board regarding the qualitative and
quantitative achievement for each NEO. The Committee evaluated
the performance of the Chief Executive Officer based on his
achievement compared to goals established for him for 2006.
Subsequently, the Committee reviewed and approved the annual
incentive awards for the NEOs based on individual performance
goals along with the Free Cash Flow and Consolidated Adjusted
EBITDA criteria. Bonus payments were paid after the release of
the Companys audited financial results for 2006. The
annual incentives awarded to each of the NEOs for 2006,
expressed as a percentage of base salary and in dollars, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
Percentage of
|
|
|
Named Executive Officer
|
|
Base Salary
|
|
Annual Incentive Payment ($)
|
|
David Crane
|
|
|
127
|
%
|
|
|
1,267,626
|
|
Robert C. Flexon
|
|
|
95
|
%
|
|
|
451,888
|
|
Kevin T. Howell
|
|
|
85
|
%
|
|
|
323,180
|
|
Steven C. Winn
|
|
|
70
|
%
|
|
|
245,063
|
|
John P. Brewster
|
|
|
72
|
%
|
|
|
231,416
|
|
Long-Term
Incentive Compensation
The Long-Term Incentive Plan, or LTIP, is developed to align
compensation of NEOs with the objective of increasing long-term
shareholder value. The value of the LTIP is solely related to
NRGs stock price as it is the primary indicator of
shareholder value. Long-term incentive compensation is made in
the form of equity awards to align the interests of management
with those of the Companys shareholders.
Types of Awards NRGs LTIP is comprised
of the following types of awards:
|
|
|
|
|
Non-qualified Stock Option, or NQSOs
Each NQSO represents the right to purchase one share of Common
Stock at a price equal to the fair market value of the Common
Stock determined on the date of grant. Options vest and become
exercisable equally over a three-year vesting schedule and have
a term of six years. For grants prior to August 1, 2005,
however, NRG utilized ten-year terms for NQSOs. Vesting
schedules and term lengths for new grants are reviewed from
time-to-time
by the Committee.
|
|
|
|
Performance Unit, or PUs Each PU
represents a right to receive a certain number of shares of
Common Stock after the completion of three years of service from
the date of grant, provided the price per share of the
Companys Common Stock equals or exceeds the target price
set under the award as of the date of vesting. The number of
shares of Common Stock to be paid as of the vesting date for
each performance unit is equal to: (i) one share of Common
Stock, if the target price is met; (ii) a prorated amount
in between one and two shares of Common Stock, if the target
price is exceeded but is less than the maximum price set under
the award, and (iii) two shares if the maximum price is met
or exceeded.
|
The design of PUs is intended to reward NEOs based on
total shareholder return over the three-year vesting period
relative to the Companys total cost of equity over this
period. The target price of the award is based on an annual
projected cost of equity established at the start of each
three-year vesting period. The Committee will approve a target
stock price based on a compounding share price growth factor
over the vesting period. The maximum price represents 150% of
the compounded target price. For fiscal year 2006, the annual
projected cost of equity used in determining the target price
was 12% for each year in the vesting period. For fiscal year
2006, the annual projected cost of equity used in determining
the maximum price was 18% for each year in the vesting period.
Accordingly, for PUs granted on January 3, 2006, the
target price was set at $66.37 per share and the maximum
price was set at $79.49 per share.
28
|
|
|
|
|
Restricted Stock Units, or RSUs Each
RSU represents the right to receive one share of Common Stock
after the completion of three years of service from the date of
grant. From
time-to-time,
the Committee will utilize alternate RSU holding periods outside
of the NRG standard of three years of service, but only on an
exception-basis, such as for a new-hire with a specific skill
set or to serve as an enhanced retention tool.
|
|
|
|
Deferred Stock Units, or DSUs Each
deferred stock unit represents the right of a participant to be
paid one share of Common Stock of the Company at the end of a
deferral period established under the award by the Committee or
elected by the participant under the terms of an award and the
tax rules applicable to nonqualified deferred compensation plans
under Section 409A of the Code. Unless otherwise provided
under an award, during the applicable deferral period, a
participant will not have any rights as a stockholder of the
Company. However, unless otherwise provided, once the deferral
period ends, the participant will be entitled to receive
accumulated dividends and distributions with respect to the
corresponding number of shares of Common Stock underlying each
deferred stock unit. Except in the case of death, disability or
retirement, a participant is required to remain employed or
engaged by the Company as of the end of the deferral period in
order to receive payment of a deferred stock unit.
|
Range of LTIP compensation The aggregate
expected value of equity awards granted to each NEO for the
fiscal year 2006 was based on a review of the expected value of
equity grants made to NEOs in NRGs peer group, expressed
as a multiple of base salary. Mercer provided equity benchmark
data for the peer group and provided recommendations as a
multiple of base salary to the Committee. For 2006, these
multiples were four times base salary for the Chief Executive
Officer, two times base salary for the Chief Financial Officer,
and one and a half times base salary for all other NEOs. The
Companys practice is to issue annual equity awards on the
first business day of the calendar year. For fiscal year 2006,
the grant date was January 3, 2006. The price per share of
the Companys stock on the grant date was $47.95 per
share.
Blended annual allocation A blended
allocation of award type was developed to further align NEO
interests with shareholders. NQSOs directly align the
NEOs interests with the performance of NRGs Common
Stock. PUs provide the NEOs an increased opportunity to
hold NRG stock for performance above the target price set under
the LTIP. Allocation of RSUs reflects market trends
favoring increased usage of restricted stock over stock options
used as a retention incentive.
A substantially higher percentage of total equity awards are
granted in the form of NQSOs and PUs to align with
the goal of enhancing shareholder value with executive
compensation. The allocation by equity type is reviewed annually
by the Committee based on the Companys overall strategy
and existing market best practices.
For fiscal year 2006, the Committee approved equity compensation
grants allocated among the types of awards as follows:
|
|
|
|
|
50 percent of the target expected value in the form of
NQSOs;
|
|
|
|
33 percent of the target expected value in the form of
PUs; and
|
|
|
|
17 percent of the target expected value in the form of
RSUs.
|
In December 2006, the following changes were made to the LTIP to
support NRGs commitment to increasing and maximizing
shareholder value.
|
|
|
|
|
Adoption of a policy to explicitly prohibit option repricing,
replacement, and option cash out without investor approval;
|
|
|
|
Limit the Committees discretion to waive restriction
periods to ten percent of the share reserve, except in cases of
death, disability, retirement, or change of control; and
|
29
|
|
|
|
|
Incorporation of a requirement of minimum vesting or deferral
periods of at least one year for performance-based awards and
three years for service-vested awards. The Committee maintains
discretion to waive this requirement for not more than ten
percent of the reserve.
|
The total dollar value, number and types of equity awards made
to the NEOs for 2006 are shown in the Grant of Plan-Based Awards
table below.
Benefits
Benefits Health benefits, life insurance, and
retirement programs add a significant value to the overall
reward package for NEOs. Company sponsorship (coupled with
competitive employee cost-sharing arrangements) of these plans
is critical to NRGs ability to attract and retain the
talent it needs to support the Companys business
objectives. NEOs participate in the same retirement, health and
welfare plans as other salaried employees of the Company. To
generally support more complicated financial planning and estate
planning matters, NEOs are provided personal financial services
up to $10,000 each year to assist with financial planning and
tax counseling. Survey data indicates that participation in this
form of benefit is consistent with market practice at the
executive level and that $10,000 is a reasonable level of
benefit for this type of service.
Pursuant to the terms of his negotiated employment agreement
which allows for the continuation of previously awarded personal
life and disability insurance, in 2006, Mr. Crane received
additional benefits in the form of a $12,000 life insurance
premium reimbursement and $10,120 disability insurance premium
reimbursement. NRG also reimbursed Mr. Crane for the tax
gross-up of
these amounts totaling $16,995. Such arrangements do not exist
for other NEOs.
Discretionary
Payments
From
time-to-time,
the Committee will make off-cycle cash
and/or
equity awards to reward executives for reasons such as
extraordinary performance, the hiring of a new executive,
promotion, or recognition. Review and approval for any
discretionary payment is subject to approval by the Chief
Executive Officer. In cases of discretionary payments for
designated officers, both Chief Executive Officer and Committee
approval is required.
Potential
Severance and Change in Control Benefits
Mr. Crane, pursuant to his employment agreement, and the
other NEOs, pursuant to the Companys Executive and Key
Management
Change-in-Control
and General Severance Plan, also referred to as the CIC Plan,
are entitled to severance payments and benefits in the event of
termination of employment under certain circumstances, including
following a
change-in-control.
NRG chooses to pay severance and
change-in-control
benefits to assist with career transitions of executives and the
Company as well as to create an environment that provides for
adequate business transition and knowledge transfer during times
of change. The level of this severance protection is established
to be competitive with market best practices.
Change-in-control
agreements are considered market practice among publicly-held
companies. Most often, agreements are utilized to encourage
executives to remain with the Company during a period that is
otherwise filled with job uncertainty and questions about the
future. In order to enable a smooth transition during the
interim period,
change-in-control
agreements provide a defined level of security for the
executive, and the Company, to follow through on the elements of
a particular acquisition, asset sale/purchase,
and integration.
For a more detailed discussion, including the quantification of
potential payments, please see the section entitled
Severance and
Change-in-Control
following the executive compensation tables below.
30
Stock
Ownership Guidelines
The Committee and the Board continue to require the Chief
Executive Officer to hold Company stock with a value equal to
five times his base salary until termination from the Company.
Other NEOs are encouraged to hold equity instruments with a
value equal to two times their base salary until termination
from the Company. Only vested shares count towards the ownership
multiple. As NRG has experienced a limited number of LTIP grant
opportunities many NEOs have not yet achieved expected stock
ownership multiples. It is anticipated, however, that NEOs will
achieve expected ownership multiple thresholds over the course
of a series of upcoming LTIP grants. The current stock ownership
for NEOs as of December 31, 2006 is shown below:
|
|
|
|
|
|
|
Ownership
|
Named Executive Officer
|
|
Multiple
|
|
David Crane
|
|
|
19.3
|
|
Robert C. Flexon
|
|
|
4.1
|
|
Kevin T. Howell
|
|
|
2.0
|
|
Steven C. Winn
|
|
|
0.3
|
|
John P. Brewster
|
|
|
1.7
|
|
Dilution
concerns and other limitations
NRG and the Committee work to ensure that NRGs equity
awards balance both the interests of shareholders in controlling
dilution and NRGs business need to attract, motivate, and
retain the level of executive talent needed to execute its
business strategy. Observing established dilution rates help
shareholders preserve anticipated share ownership percentages in
NRG. The dilution interests are tracked by way of:
|
|
|
|
|
Dilution rate NQSOs already awarded plus
additional shares reserved for potential
distribution divided by Shares outstanding; and
|
|
|
|
Run rate amount of NQSOs and RSUs
actually distributed in 2006.
|
The Committee remains focused on maintaining market prevailing
dilution rates of less than 15 percent, as well as a
three-year average run rate at or below two percent. NRGs
potential dilution rate at the end of 2006 was approximately
6.3 percent, with an actual dilution rate of three percent
reflecting shares granted at year-end. The run rate was less
than one percent. These rates are well within the recommended
guidelines provided by Mercer.
Tax and
Accounting Considerations
The Committee has considered the implications of
Section 162(m) of the Code, which precludes the Company (as
a public company) from taking a tax deduction for individual
compensation in excess of $1 million for any of the NEOs,
subject to certain exemptions. The Committee has also considered
the exemptions to such limitation, which are also provided in
Section 162(m) and specifically the exemption for
compensation that is performance based within the
meaning of section 162(m). The Committee believes tax
deductibility of compensation is an important consideration and,
where possible and considered appropriate, intends to preserve
the deductibility of compensation to NEOs under
Section 162(m). However, the Committee also believes that
it is important to retain flexibility in designing compensation
programs, and as a result, has not adopted a policy that any
particular amount of compensation must be deductible to NRG
under Section 162(m). The Committee also takes into account
tax consequences to NEOs in designing the various elements of
the Companys compensation program, such as designing the
terms of awards to defer immediate income recognition in
accordance with Code Section 409A of the Code. The
Committee remains informed of the accounting implications of its
compensation programs, however, approves programs based on their
total alignment with the Companys strategy and long-term
goals.
31
Summary
Compensation Table
Fiscal Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
Incentive Plan
|
|
Compensation
|
|
All Other
|
|
|
Name and
|
|
|
|
Salary
|
|
Bonus
|
|
Awards
|
|
Option
|
|
Compensation
|
|
Earnings
|
|
Compensation
|
|
Total
|
Principal Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)(1)
|
|
Grants(1)
|
|
($)(20)
|
|
($)
|
|
($)
|
|
($)
|
|
David Crane
|
|
|
2006
|
|
|
|
998,131
|
|
|
|
0
|
|
|
|
1,673,862
|
(2)
|
|
|
1,520,360
|
(3)
|
|
|
1,267,626
|
|
|
|
16,561
|
(4)
|
|
|
51,990
|
(5)
|
|
|
5,528,530
|
|
President, Chief Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert C. Flexon
|
|
|
2006
|
|
|
|
474,423
|
|
|
|
0
|
|
|
|
431,604
|
(6)
|
|
|
407,057
|
(7)
|
|
|
451,888
|
|
|
|
|
|
|
|
65,168
|
(8)
|
|
|
1,830,140
|
|
Executive Vice President
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin T. Howell
|
|
|
2006
|
|
|
|
379,653
|
|
|
|
0
|
|
|
|
2,350,625
|
(9)
|
|
|
84,132
|
(10)
|
|
|
323,180
|
|
|
|
|
|
|
|
20,300
|
(11)
|
|
|
3,157,890
|
|
Executive Vice President,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven C. Winn
|
|
|
2006
|
|
|
|
350,000
|
|
|
|
165,000
|
(12)
|
|
|
313,721
|
(13)
|
|
|
324,451
|
(14)
|
|
|
245,063
|
|
|
|
|
|
|
|
21,261
|
(15)
|
|
|
1,419,496
|
|
Executive Vice President, Strategy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and Environmental and New Business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John P. Brewster
|
|
|
2006
|
|
|
|
319,746
|
|
|
|
0
|
|
|
|
179,880
|
(16)
|
|
|
169,301
|
(17)
|
|
|
231,416
|
|
|
|
21,202
|
(18)
|
|
|
10,786
|
(19)
|
|
|
932,331
|
|
Executive Vice President,
Development Engineering,
Procurement and Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The assumptions made in these
valuations are discussed in the Companys 2006
Form 10-K
in Item 15 Consolidated Financial Statements.
|
|
(2)
|
|
This amount represents compensation
expense recorded in the income statement for fiscal year 2006 as
described in Statement of Financial Accounting Standard
No. 123 (revised 2004), Share-Based Payment, or
FAS 123R, for 190,394 RSUs and 33,000 PUs.
|
|
(3)
|
|
This amount represents compensation
expense recorded in the income statement for fiscal year 2006 as
described in FAS 123R for 775,608 NQSOs.
|
|
(4)
|
|
This amount represents the
estimated increase in actuarial value in pension benefits.
|
|
(5)
|
|
This amount represents $12,000
payable for life insurance reimbursement, $9,220 payable for the
gross up on life insurance premium reimbursement, $10,120
payable for disability insurance, $7,775 payable for the gross
up on disability insurance, $8,335 for financial advisor
services, and $4,540 payable as an employer matching
contribution under the Companys 401(k) plan.
|
|
(6)
|
|
This amount represents compensation
expense recorded in the income statement for fiscal year 2006 as
described in FAS 123R for 32,700 RSUs and 13,300
PUs.
|
|
(7)
|
|
This amount represents compensation
expense recorded in the income statement for fiscal year 2006 as
described in FAS 123R for 143,500 NQSOs.
|
|
(8)
|
|
This amount represents $8,335
payable for financial advisor services, $35,433 payable for
total grossed up relocation expenses, $8,800 payable as an
employer matching contribution under the Companys 401(k)
plan, and $12,600 payable as a Company discretionary
contribution.
|
|
(9)
|
|
This amount represents compensation
expense recorded in the income statement for fiscal year 2006 as
described in FAS 123R for 165,200 RSUs and 4,500
PUs.
|
|
(10)
|
|
This amount represents compensation
expense recorded in the income statement for fiscal year 2006 as
described in FAS 123R for 17,900 NQSOs.
|
|
(11)
|
|
This amount represents $7,700
payable for an employer matching contribution under the
Companys 401(k) plan, and $12,600 payable as a Company
discretionary contribution.
|
|
(12)
|
|
This amount represents a Project
Completion bonus.
|
|
(13)
|
|
This amount represents compensation
expense recorded in the income statement for fiscal year 2006 as
described in FAS 123R for 11,289 RSUs and 14,432
PUs.
|
|
(14)
|
|
This amount represents compensation
expense recorded in the income statement for fiscal year 2006 as
described in FAS 123R for 69,164 NQSOs.
|
|
(15)
|
|
This amount represents $8,661
payable as an employer matching contribution under the
Companys 401(k) plan, and $12,600 payable as a Company
discretionary contribution.
|
|
(16)
|
|
This amount represents compensation
expense recorded in the income statement for fiscal year 2006 as
described in FAS 123R for 11,400 RSUs and 6,800
PUs.
|
32
|
|
|
(17)
|
|
This amount represents compensation
expense recorded in the income statement for fiscal year 2006 as
described in FAS 123R for 52,200 NQSOs.
|
|
(18)
|
|
This amount represents the
estimated increase in actuarial value in pension benefits.
|
|
(19)
|
|
This amount represents $8,335
payable for financial advisor services and $2,451 payable as an
employer matching contribution under the Companys 401(k)
plan.
|
|
(20)
|
|
This column represents individual
amounts paid under the 2006 Annual Incentive Plan.
|
The Summary Compensation Table reflects the elements of
compensation earned by the NEOs under NRGs executive
compensation programs for the 2006 fiscal year.
Salary ($): Values shown represent the base salary earnings
of the NEO for 2006.
Bonus ($): Values reflect Discretionary Awards, as
described earlier in the Elements of Compensations in the
CD&A above. Mr. Winn was awarded a Discretionary Award
of $165,000 for his leadership efforts in successfully
negotiating the acquisition of Texas Genco.
Stock Awards ($): This column represents compensation
expense recorded in NRGs income statement for fiscal year
2006 as determined in accordance with FAS 123R and
discussed in Item 15 Note 19,
Stock-Based Compensation, to the Consolidated Financial
Statements in NRGs 2006
Form 10-K.
Option Grants ($): This column represents compensation
expense recorded in NRGs income statement for fiscal year
2006 as determined in accordance with FAS 123R and
discussed in Item 15 Note 19,
Stock-Based Compensation, to the Consolidated Financial
Statements in NRGs 2006
Form 10-K.
Non-Equity Incentive Plan Compensation ($): Represent
values earned under NRGs 2006 AIP payable in March 2007.
NEOs were provided the opportunity to earn a cash incentive
payment based on the attainment of certain pre-established
Company and individual goals for fiscal year 2006. The
performance criteria and weight given to each NEO are described
in detail earlier in the CD&A above. The dollar amounts in
the Table represent payouts for actual 2006 Company performance.
Change in Pension Value ($): Two NEOs participate in the
NRG Pension Plan, which was closed to new employees hired on, or
after, December 5, 2003. The value shown represents the
2006 year-on-year
increase in the value of the defined benefit pension plan.
All Other Compensation ($): This value collectively
captures the additional benefits payable by NRG including the
employer match under the 401(k) plan, relocation expenses (if
applicable), financial counseling services up to $10,000, and
the amount payable under NRGs all-employee discretionary
match to the 401(k) plan.
Employment
Agreements
Mr. Crane serves as the President and Chief Executive
Officer of the Company pursuant to the terms of an employment
agreement with the Company that was amended and restated,
effective March 3, 2006. The initial term of the amended
and restated employment agreement will end on December 1,
2008, however, the agreement will be renewed automatically for
successive one-year terms on the same terms and conditions
unless either party provides the other with notice to the
contrary at least 90 days prior to the end of the initial
term or any subsequent one-year term.
Effective March 3, 2006 through December 31, 2006, the
amended and restated employment agreement provides for an annual
base salary of $1,000,000. For each one-year period thereafter,
Mr. Cranes base salary will be reviewed and may be
increased by the Board. Beginning with the 2006 fiscal year,
Mr. Crane is entitled to an annual bonus with a target
amount of up to 100 percent of his base salary, based upon
the achievement of criteria determined at the beginning of the
fiscal year by the Board, with input from Mr. Crane, for
that fiscal year. In addition, beginning with the 2006 fiscal
year, Mr. Crane is also entitled to a maximum annual bonus
up to an additional 100 percent of his base salary, based
upon the achievement of Free Cash Flow and Adjusted EBITDA
criteria for that fiscal year.
33
In addition to salary and bonuses, the employment agreement
provides that Mr. Crane is eligible to participate in the
Companys LTIP in accordance with its terms. Mr. Crane
is also entitled to health, welfare and retirement benefits,
term life insurance of $7.75 million, five weeks paid
vacation, and coverage under the Companys director and
officer liability insurance coverage, in addition to
reimbursement of reasonable business expenses and reimbursement
of reasonable expenses for financial planning.
Mr. Cranes employment agreement also entitles him to
certain severance payments and benefits in the event his
employment terminates under certain circumstances. These
severance payment and benefits are described and quantified
under the section Severance and
Change-in-Control
below.
The Company has not entered into employment agreements with NEOs
other than Mr. Crane.
Grants of
Plan-Based Awards
Fiscal Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Awards:
|
|
Exercise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under
|
|
Awards:
|
|
Number of
|
|
or Base
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive
|
|
Number of
|
|
Securities
|
|
Price of
|
|
Fair Value
|
|
|
|
|
|
|
|
|
Estimated Possible Payouts Under Non-Equity Incentive Plan
Awards(1)
|
|
Plan
Awards(2)
|
|
Shares of
|
|
Underlying
|
|
Option
|
|
of Stock
|
|
|
|
|
Grant
|
|
Approval
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Target
|
|
Maximum
|
|
Stock or
|
|
Options
|
|
Awards
|
|
and Option
|
|
|
Name
|
|
Date
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
Units
(#)(3)
|
|
(#)(4)
|
|
($/Sh)
|
|
Awards(5)
|
|
|
|
David Crane
|
|
|
|
|
|
|
|
|
|
|
499,066
|
|
|
|
998,131
|
|
|
|
1,996,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/3/2006
|
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
142,857
|
|
|
|
47.95
|
|
|
|
2,014,284
|
|
|
|
|
|
|
|
|
1/3/2006
|
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,000
|
|
|
|
|
|
|
|
|
|
|
|
815,150
|
|
|
|
|
|
|
|
|
1/3/2006
|
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,000
|
|
|
|
66,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,146,750
|
|
|
|
|
|
Robert C. Flexon
|
|
|
|
|
|
|
|
|
|
|
177,909
|
|
|
|
355,817
|
|
|
|
711,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/3/2006
|
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,500
|
|
|
|
47.95
|
|
|
|
415,950
|
|
|
|
|
|
|
|
|
1/3/2006
|
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,700
|
|
|
|
|
|
|
|
|
|
|
|
177,415
|
|
|
|
|
|
|
|
|
1/3/2006
|
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,300
|
|
|
|
14,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253,675
|
|
|
|
|
|
Kevin T. Howell
|
|
|
|
|
|
|
|
|
|
|
142,370
|
|
|
|
284,740
|
|
|
|
427,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/3/2006
|
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,900
|
|
|
|
47.95
|
|
|
|
252,390
|
|
|
|
|
|
|
|
|
1/3/2006
|
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,200
|
|
|
|
|
|
|
|
|
|
|
|
105,490
|
|
|
|
|
|
|
|
|
1/3/2006
|
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,500
|
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156,375
|
|
|
|
|
|
Steven C. Winn
|
|
|
|
|
|
|
|
|
|
|
131,250
|
|
|
|
262,500
|
|
|
|
393,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/3/2006
|
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,200
|
|
|
|
47.95
|
|
|
|
595,020
|
|
|
|
|
|
|
|
|
1/3/2006
|
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,933
|
|
|
|
|
|
|
|
|
|
|
|
236,537
|
|
|
|
|
|
|
|
|
1/3/2006
|
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,800
|
|
|
|
19,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340,550
|
|
|
|
|
|
|
|
|
2/3/2006
|
(6)
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,964
|
|
|
|
47.27
|
|
|
|
167,496
|
|
|
|
|
|
|
|
|
2/3/2006
|
(6)
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,356
|
|
|
|
|
|
|
|
|
|
|
|
64,139
|
|
|
|
|
|
|
|
|
2/3/2006
|
(6)
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,632
|
|
|
|
5,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,699
|
|
|
|
|
|
John P.
Brewster
|
|
|
|
|
|
|
|
|
|
|
119,905
|
|
|
|
239,810
|
|
|
|
359,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1/3/2006
|
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,200
|
|
|
|
47.95
|
|
|
|
214,320
|
|
|
|
|
|
|
|
|
1/3/2006
|
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,900
|
|
|
|
|
|
|
|
|
|
|
|
91,105
|
|
|
|
|
|
|
|
|
1/3/2006
|
|
|
|
12/7/05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,800
|
|
|
|
7,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,050
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents estimated payouts under
the AIP as discussed in the CD&A above.
|
|
(2)
|
|
Represents PUs issued under
the LTIP as discussed in the CD&A above.
|
|
(3)
|
|
Represents RSUs issued under
the LTIP as discussed in the CD&A above.
|
|
(4)
|
|
Represents NQSOs issued under
the LTIP as discussed in the CD&A above.
|
|
(5)
|
|
The assumptions made in these
valuations are discussed in the Companys 2006
Form 10-K
in Item 15 Consolidated Financial Statements.
|
|
(6)
|
|
On February 3, 2006,
Mr. Winn received an off-cycle grant of NQSOs and
RSUs to reward his efforts in the acquisition of Texas
Genco.
|
34
2006
Annual Incentive Plan
NEOs were provided the opportunity to earn an AIP payment based
on the attainment of certain pre-established Company and
individual goals for fiscal year 2006. The performance criteria
and weight given to each are described in detail in the CD&A
above. The dollar amount of the possible payouts for achieving
the threshold, target or maximum levels of performance during
2006 are shown in the above table.
2006
Long-Term Equity Incentives
For 2006, the NEOs were provided long-term incentives through
grants of the following types of equity awards as indicated in
the above table: (i) NQSOs; (ii) RSUs; and
(iii) PUs. Consistent with our policy, these awards
were granted to NEOs as of the first business day of the fiscal
year, i.e. January 3, 2006.
Each NQSO represents the right to purchase one share of Common
Stock at a price equal to the fair market value of the stock
determined as of the date of grant. NQSOs granted in 2006
have a term of six years and vest in equal annual installments
over a three year vesting schedule. Upon termination of service
by reason of death, the NQSO shall vest in full and shall be
exercisable by the executor or administrator of
participants estate (or any person to whom the NQSO is
transferred by will or the laws of descent and distribution)
until the earlier of the expiration date or 12 months after
the date of such termination of service, and thereafter the NQSO
shall terminate and cease to be exercisable. Upon termination of
service by reason of disability, the participant shall have the
right until the earlier of the expiration date or 12 months
after the date of such termination of service to exercise only
that portion of the NQSO that was exercisable as of the date of
such termination of service, and thereafter the option shall
terminate and cease to be exercisable.
Each RSU represents the right to receive one share of Common
Stock as of the vesting date for the award. RSUs granted
in 2006, will become 100% vested as of the third anniversary of
the date of grant provided the NEO is still employed with the
company as of that date. Upon termination of service by reason
of death, the RSU shall vest in full and the Common Stock
underlying the RSU shall be issued and delivered to the
participants legal representatives, heirs, legatees, or
distributees.
Each PU represents the right to receive a certain number of
shares of Common Stock after the completion of three years of
service from the date of grant, provided the price per share of
Common Stock as of the date of vesting equals or exceeds the
target price set under the award. The number of shares of Common
Stock to be paid as of the vesting date is equal to:
(i) one share if the target price is met; (ii) a pro
rata amount between one and two shares if the target price is
exceeded but the maximum price set under the award is not met;
and (iii) two shares if the maximum price is met or
exceeded. For PUs granted on January 3, 2006 the
target price is $67.37 and the maximum price is $79.49. For
PUs granted on February 3, 2006, the target price is
$66.42 and the maximum price is $77.67. Upon termination of
service by reason of death, the PU shall vest in full and the
Common Stock underlying the PU shall be issued and delivered to
the participants legal representatives, heirs, legatees,
or distributees.
35
Outstanding
Equity Awards at Fiscal Year-End
Fiscal Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
|
Market
|
|
|
|
|
|
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Number of
|
|
Value of
|
|
Equity Incentive Plan Awards
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Shares or
|
|
Shares or
|
|
Number of
|
|
Market Value
|
|
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Units of
|
|
Units of
|
|
Unearned
|
|
of Unearned
|
|
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
Option
|
|
Stock that
|
|
Stock that
|
|
Shares that
|
|
Shares that
|
|
|
|
|
Options (#)
|
|
Options (#)
|
|
Exercise
|
|
Expiration
|
|
Have Not
|
|
Have Not
|
|
Have Not
|
|
Have Not
|
|
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Price ($)
|
|
Date
|
|
Vested (#)
|
|
Vested ($)
|
|
Vested (#)
|
|
Vested ($)
|
|
|
|
David Crane
|
|
|
632,751
|
|
|
|
0
|
|
|
|
24.03
|
|
|
|
12/5/2013
|
|
|
|
17,000
|
(1)
|
|
$
|
952,170
|
|
|
|
33,000
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
142,857
|
(3)
|
|
|
47.95
|
|
|
|
1/3/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,071
|
(19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert C. Flexon
|
|
|
63,333
|
|
|
|
31,667
|
(4)
|
|
|
21.85
|
|
|
|
3/29/2014
|
|
|
|
32,700
|
(5)
|
|
$
|
1,831,527
|
|
|
|
13,300
|
(6)
|
|
$
|
417,441
|
|
|
|
|
|
|
|
|
6,333
|
|
|
|
12,667
|
(7)
|
|
|
38.80
|
|
|
|
8/1/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
29,500
|
(8)
|
|
|
47.95
|
|
|
|
1/3/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,680
|
(19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin T. Howell
|
|
|
0
|
|
|
|
17,900
|
(3)
|
|
|
47.95
|
|
|
|
1/3/2012
|
|
|
|
145,200
|
(9)
|
|
$
|
8,132,652
|
|
|
|
4,500
|
(10)
|
|
|
|
|
|
|
|
|
Steven C. Winn
|
|
|
5,333
|
|
|
|
2,667
|
(11)
|
|
|
31.48
|
|
|
|
11/19/2014
|
|
|
|
11,289
|
(12)
|
|
$
|
632,857
|
|
|
|
14,432
|
(13)
|
|
$
|
139,147
|
|
|
|
|
|
|
|
|
2,333
|
|
|
|
4,667
|
(14)
|
|
|
38.80
|
|
|
|
8/1/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
42,200
|
(3)
|
|
|
47.95
|
|
|
|
1/3/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,964
|
(15)
|
|
|
47.27
|
|
|
|
2/3/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
230
|
(19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John P. Brewster
|
|
|
18,000
|
|
|
|
9,000
|
(16)
|
|
|
19.90
|
|
|
|
3/2/2010
|
|
|
|
11,400(17
|
)
|
|
$
|
638,514
|
|
|
|
6,800(18
|
)
|
|
$
|
208,721
|
|
|
|
|
|
|
|
|
3,333
|
|
|
|
6,667
|
(14)
|
|
|
38.80
|
|
|
|
8/1/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
15,200
|
(3)
|
|
|
47.95
|
|
|
|
1/3/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,363
|
(19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
This amount represents 17,000
RSUs that will vest on January 3, 2009
|
|
(2)
|
|
This amount represents 33,000
PUs that will vest on January 3, 2009.
|
|
(3)
|
|
This amount represents NQSOs
that will vest in three equal annual installments beginning on
January 3, 2007.
|
|
(4)
|
|
This amount represents NQSOs
that began vesting in three equal annual installments beginning
on March 29, 2005.
|
|
(5)
|
|
This amount represents 26,000
RSUs that will vest on March 29, 2007, 3,000
RSUs that will vest on August 1, 2008, 3,700
RSUs that will vest on January 3, 2009.
|
|
(6)
|
|
This amount represents 6,000
PUs that will vest August 1, 2008 and 7,300 PUs
that will vest January 3, 2009.
|
|
(7)
|
|
This amount represents NQSOs
that began vesting in three equal annual installments beginning
on August 1, 2006.
|
|
(8)
|
|
This amount represents NQSOs
that will vest in three equal annual installments beginning on
January 3, 2007.
|
|
(9)
|
|
This amount represents 20,000
RSUs that will vest on August 1, 2007, 83,000
RSUs that will vest on August 1, 2008, 2,200
RSUs that will vest on January 3, 2009, 20,000
RSUs that will vest on August 1, 2009, 20,000
RSUs that will vest on August 1, 2010.
|
|
(10)
|
|
This amount represents 4,500
PUs that will vest January 3, 2009.
|
|
(11)
|
|
This amount represents NQSOs
that began vesting in three equal annual installments beginning
on November 19, 2005.
|
|
(12)
|
|
This amount represents 4,000
RSUs that will vest on November 19, 2007, 1,000
RSUs that will vest on August 1, 2008, 4,933
RSUs that will vest on January 3, 2009, 1,356
RSUs that will vest on February 3, 2009.
|
|
(13)
|
|
This amount represents 2,000
PUs that will vest on August 1, 2008, 9,800 PUs
that will vest on January 3, 2009, and 2,632 PUs that
will vest on February 3, 2009.
|
|
(14)
|
|
This amount represents NQSOs
that began vesting in three equal annual installments beginning
on August 1, 2006.
|
|
(15)
|
|
This amount represents NQSOs
that will vest in three annual installments beginning
February 3, 2007.
|
|
(16)
|
|
This amount represents NQSOs
that began vesting in three equal annual installments beginning
on March 2, 2005.
|
|
(17)
|
|
This amount represents 7,500
RSUs that will vest on March 2, 2007, 2,000
RSUs that will vest on August 1, 2008, and 1,900
RSUs that will vest on January 3, 2009.
|
|
(18)
|
|
This amount represents 3,000
PUs that will vest on August 1, 2008 and 3,800
PUs that will vest on January 3, 2009.
|
|
(19)
|
|
This amount represents DSUs
that are convertible to NRG Common Stock not earlier than
termination of employment from NRG. With regard to Mr. Winn
and Mr. Brewster, DSUs are convertible
six months after termination of employment, as per their
election.
|
36
The pay out value of unearned shares, or Units (i.e. PUs),
is based on the market price for NRG Common Stock as of the
balance sheet date of December 29, 2006. If a value is
shown in this column, the PU grant is considered in the
money, meaning the price of NRGs Common Stock
exceeds the target price of the PU grant. Where values do not
appear in this column, then that particular PU grant has not
exceeded the target price and no value is represented.
In 2006, the Audit Committee of the Board of Directors of NRG
requested the Companys Internal Audit Department to audit
NRGs LTIP granting procedures. The outcome of the review
concluded that all NQSOs issued to all NRG employees as
part of the LTIP were properly approved and recorded.
Option
Exercises and Stock Vested
Fiscal Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
Number of Shares
|
|
Value Realized
|
Name
|
|
Acquired on Vesting (#)
|
|
on Vesting ($)
|
|
David Crane
|
|
|
173,394
|
(1)
|
|
|
9,971,888
|
(2)
|
Robert C. Flexon
|
|
|
|
|
|
|
|
|
Kevin T. Howell
|
|
|
20,000
|
(3)
|
|
|
971,800
|
(4)
|
Steven C. Winn
|
|
|
|
|
|
|
|
|
John P. Brewster
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents RSUs granted on December 5, 2003 with 100%
vested on December 1, 2006. |
|
(2) |
|
Based on a share price of $57.51 on December 1, 2006. |
|
(3) |
|
Represents RSUs granted on August 1, 2005 with 20%
vesting each year for five years. |
|
(4) |
|
Based on a share price of $48.59 on August 1, 2006. |
Pension
Benefits
Fiscal Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Years
|
|
Present Value of
|
Name
|
|
Plan Name
|
|
Credited Service (#)
|
|
Accumulated Benefit ($)
|
|
David Crane
|
|
Pension Plan for
Non-Bargaining Employees
|
|
|
3.08
|
|
|
|
56,233
|
|
Robert C. Flexon
|
|
|
|
|
|
|
|
|
|
|
Kevin T. Howell
|
|
|
|
|
|
|
|
|
|
|
Steven C. Winn
|
|
|
|
|
|
|
|
|
|
|
John P. Brewster
|
|
Pension Plan for
Non-Bargaining Employees
|
|
|
5.17
|
|
|
|
56,694
|
|
37
The NRG Pension Plan for Non-Bargained Employees provides
qualified retirement income benefits to most NRG employees who
were hired prior to December 5, 2003. The plan was closed
to new employees not covered by a bargaining agreement on that
date as required by the creditors during the financial
restructuring of the Company. Mr. Crane and
Mr. Brewster are the only NEOs eligible to receive benefits
under this plan. They are both covered under the pension equity
formula under the plan which provides a lump sum benefit equal
to 10% of the participants four-year final average pay
times years of credited service. Annual pension earnings include
base pay and incentives but is capped by the Internal Revenue
Service, or IRS, qualified plan pay limit each year. For
example, the 2006 pay limit is $220,000. Pension benefits become
100% vested after five years of service and a participant may
retire as early as age 55. At termination or retirement,
the participant may receive his pension equity lump sum balance
as a one-time lump sum payment or as an actuarial equivalent
monthly annuity. Actuarial equivalent annuities are determined
using the
30-year
Treasury rate and an IRS mortality table. None of the NEOs are
covered by any non-qualified pension program.
Non-Qualified
Deferred Compensation
Fiscal Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
Aggregate Earnings
|
|
Aggregate Balance
|
Name
|
|
in Last FY ($)
|
|
at Last FYE ($)
|
|
David Crane
|
|
|
169,542
|
|
|
|
1,068,167
|
|
Robert C. Flexon
|
|
|
50,496
|
|
|
|
318,137
|
|
Kevin T. Howell
|
|
|
|
|
|
|
|
|
Steven C. Winn
|
|
|
2,045
|
|
|
|
12,882
|
|
John P. Brewster
|
|
|
20,999
|
|
|
|
132,296
|
|
Non-qualified deferred compensation reported in the above table
was awarded in 2005 in the form of DSUs. No additional
deferred compensation awards have been made since 2005. The
DSUs reflected above are fully vested and, in general,
will be paid in the form of stock six months following the
NEOs termination of employment. While no further
non-qualified deferred compensation awards are anticipated, the
Committee may choose to revisit this approach in the future.
Severance
and Change in Control
Mr. Crane, pursuant to his employment agreement, and the
other NEOs, pursuant to the Companys CIC Plan, are
entitled to certain severance payments and benefits in the event
of termination of employment under certain circumstances.
In the event Mr. Cranes employment with the Company
is terminated by the Company without cause or by
Mr. Crane for good reason (including a
reduction on his base salary), Mr. Crane will be entitled
to two times his base salary (without regard for any reduction
on base salary); 50 percent of the target annual bonus,
prorated for the number of days he was employed with the Company
in the year of termination; immediate vesting of all restricted
stock and stock options; continuing medical and dental coverage
for 18 months; and earned by unpaid base salary, bonuses,
deferred compensation, vacation pay, and
retirement benefits.
In the event Mr. Cranes employment with the Company
is terminated by the Company without cause or by
Mr. Crane for good reason, within
24 months of a
change-in-control,
in lieu of the above severance benefits, Mr. Crane will be
entitled to 2.99 times the sum of his base salary (without
regard for any reduction in base salary) plus his annual target
bonus for the year of termination. Mr. Crane will also be
entitled to a payment equal to his target annual bonus, prorated
for the number of days he was employed with the Company in the
year of termination; immediate vesting of all restricted stock
and stock options; continuing medical and dental coverage for
18 months; and earned but unpaid base salary, bonuses,
deferred compensation, vacation pay, and retirement benefits.
38
In the event Mr. Cranes employment with the Company
is terminated due to his death or disability, Mr. Crane (or
his estate) will be entitled to 50 percent of the target
annual bonus, prorated for the number of days he was employed
with the Company in the year of termination; pro rata vesting of
all restricted stock and stock options; and earned but unpaid
base salary, bonuses, deferred compensation, vacation pay and
retirement benefits.
In the event that the payments under Mr. Cranes
employment agreement subject him to an excise tax under
Section 4999 of the Code, he will be entitled to a
gross-up
payment so that the net amount received by Mr. Crane
after imposition of the excise tax equals the amount he would
have received under the employment agreement absent the
imposition of the excise tax. In addition, under the employment
agreement, the Company has agreed to indemnify Mr. Crane
against any claims arising as a result of his position with the
Company to the maximum extent permitted by law.
Under the employment agreement, Mr. Crane agrees not to
divulge confidential information or, during and for a period of
one year after the termination of the employment agreement,
compete with, or solicit the customers or employees of the
Company.
Under the CIC Plan, the NEOs other than Mr. Crane are
entitled to a general severance benefit equal to 1.5 times base
salary in the event of involuntary termination without cause to
be paid out in equal installments over an eighteen month period.
The CIC Plan also provides a
change-in-control
benefit in the event that within twenty-four months following a
change-in-control,
NEO employment is either involuntarily terminated by the Company
without cause or voluntarily terminated by the executive for
good reason. This
change-in-control
benefit is equal to the executives base salary plus annual
target incentive times 2.99 to be paid out in equal installments
over a thirty-six month period.
In the event of a
change-in-control,
all equity granted to the NEOs will become fully vested,
consistent with market-competitive practices.
In general, under Mr. Cranes employment agreement and
the CIC Plan, a
change-in-control
occurs in the event of any transaction that results in a 50% or
more change in the ownership of our stock or the sale of
substantially all of our assets. An involuntary termination
without cause means the NEOs termination by
the Company for any reason other than the NEOs conviction
for a felony or other crime involving moral turpitude, willful
failure to perform his duties or willful negligence or gross
misconduct. A voluntary termination for good reason
means the resignation of the NEO in the event of a material
reduction in his compensation or benefits, a material diminution
in his title, authority, duties or responsibilities or the
failure of a successor to the Company to assume the CIC Plan or
in the case of Mr. Crane, his employment agreement. The
amount of compensation payable to each NEO in each circumstance
is shown in the table below, assuming that termination of
employment occurred as of December 31, 2006. The amounts
shown below do not include benefits payable under the NRG
Pension Plan, the NRG 401(k) plan or in respect of DSUs.
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Involuntary Not for
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Involuntary
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Voluntary
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Cause or Voluntary
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Termination Not
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Termination for
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for Good Reason following
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Death or
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Named Executive Officer
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for Cause ($)
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Good Reason ($)
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a
Change-in-Control
($)
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Disability ($)
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David Crane
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2,518,190
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2,518,190
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9,101,787
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500,000
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Robert C. Flexon
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733,152
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0
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8,238,937
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0
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Kevin T. Howell
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583,253
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0
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12,809,744
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0
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Steven C. Winn
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538,253
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0
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4,738,807
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0
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John P. Brewster
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493,547
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0
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4,338,032
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0
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39
Director
Compensation
Fiscal Year Ended December 31, 2006
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Fees Earned or
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Total
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Name
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Paid in Cash ($)
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Stock Awards ($)*
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($)
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John F. Chlebowski
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87,500
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87,522
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(1)
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175,022
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Lawrence S. Coben
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0
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160,055
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(2)
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160,055
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Howard E. Cosgrove
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142,500
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142,500
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(3)
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285,000
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Stephen L. Cropper
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80,000
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80,027
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(4)
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160,027
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William E. Hantke
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90,180
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163,081
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(5)
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253,261
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Paul W. Hobby
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50,180
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(6)
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193,058
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(6)
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243,238
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Maureen Miskovic
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0
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140,035
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(7)
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140,035
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Anne C. Schaumburg
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75,000
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75,048
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(8)
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150,048
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Herbert H. Tate
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80,000
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80,027
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(9)
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160,027
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Thomas H. Weidemeyer
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70,000
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70,018
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(10)
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140,018
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Walter R. Young
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80,000
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|
|
|
80,027
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|
|
|
160,027
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|
*
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|
Reflects the grant date fair value
of DSUs awarded in 2006 determined in accordance with
FAS 123R, the full amount of which is recorded as a
compensation expense in the income statement for fiscal
year 2006.
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(1)
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Mr. Chlebowski also is vested
in 11,242 DSUs payable upon his termination of service as
a Board member.
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(2)
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Mr. Coben elected to receive
the cash component of his compensation in DSUs.
Mr. Coben also is vested in 11,294 DSUs payable upon
his termination of service as a Board member and 613 DSUs
payable on January 1, 2007.
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(3)
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Mr. Cosgrove also is vested in
23,030 DSUs, 20,020 of which are payable upon his
termination of service as a Board member and 3,010 of which are
payable in the year following his termination of service as a
Board member.
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(4)
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Mr. Cropper also is vested in
7,729 DSUs payable upon his termination of service as a
Board member.
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(5)
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Mr. Hantke also is vested in
2,027 DSUs payable in accordance with the following
schedule: (i) 507 on March 1, 2007; (ii) 507 on
March 1, 2008; (iii) 507 on March 31, 2009; and
(iv) 506 on March 1, 2010.
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(6)
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Mr. Hobby elected to receive
50% of the cash component of his compensation in DSUs.
Mr. Hobby also is vested in 2,027 DSUs payable on
January 1, 2008.
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(7)
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Ms. Miskovic elected to
receive the cash component of her compensation in DSUs.
Ms. Miskovic also is vested in 3,350 DSUs payable
upon her termination of service as a Board member.
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(8)
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|
Ms. Schaumburg also owns 3,817
DSUs payable upon her termination of service as a Board
member.
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(9)
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Mr. Tate also is vested in
4,387 DSUs that will be payable in accordance with the
following schedule: (i) 1,932 on January 1, 2007;
(ii) 1,930 on January 1, 2008; and (iii) 525 on
January 1, 2009.
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(10)
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|
Mr. Weidemeyer also is vested
in 7,729 DSUs payable upon his termination of service as a
Board member.
|
Non-employee directors other than the Chairman, receive total
annual compensation of $140,000 for their service as a Board
member. Mr. Cosgrove, as Chairman, receives $285,000 in
total annual compensation. Additional annual compensation is
provided for certain Committee assignments and Chair
responsibilities. As members of the Audit Committee,
Mr. Hantke and Ms. Schaumburg receive an additional
$10,000 per year and Mr. Chlebowski, the Chair of the
Audit Committee, receives an additional $35,000 per year.
The Chairs of Board Committees other than ad hoc committees and
the Audit Committee, i.e., Mr. Coben (Compensation
Committee), Mr. Young (Governance and Nominating
Committee), Mr. Cropper (Commercial Operations and
Oversight Committee) and Mr. Tate (Nuclear Oversight
Subcommittee), receive an additional $20,000 per year.
Mr. Crane, as an employee director, does not receive
additional separate compensation for his Board service.
40
Unless otherwise elected by the director, directors receive
50 percent of their total annual compensation in the form
of cash and the remaining 50 percent in the form of vested
DSUs. Each DSU is equivalent in value to one share of
NRGs Common Stock and represents the right to receive one
such share of Common Stock payable at the time elected by the
director, or in the event the director does not make an election
with respect to payment, when the director ceases to be a member
of the Board. Similar to the competitive assessment performed by
Mercer on behalf of the NEO population, Mercer performed a
similar review of Director compensation. Results of the review
were shared with the Committee who made a recommendation to the
full Board for final approval. Competitive pay levels are
necessary in order for NRG to secure the desired Board-level
talent necessary to provide short- and long-term strategic
direction to the Company.
Directors are required to retain all stock received as
compensation for the duration of their service on the Board,
although they may sell shares as necessary to cover tax
liability associated with the conversion of DSUs to Common
Stock. Exceptions to these requirements may be made by the Board
under special circumstances.
41
AUDIT
COMMITTEE REPORT
The primary purpose of the Audit Committee is to assist the
Board in its general oversight of the Companys financial
reporting process. The Audit Committees function is more
fully described in its charter, which the Board has adopted. The
Audit Committee reviews the charter on an annual basis. The
Board annually reviews the New York Stock Exchange listing
standards definition of independence for audit committee
members and has determined that each member of the Audit
Committee meets that standard. The Board has also determined
that two of the three members of the Audit Committee, John F.
Chlebowski and William E. Hantke, meet the requirements of an
audit committee financial expert. The Board has
further determined that Anne C. Schaumburg meets the
financial literacy requirements sets forth in the
listing standards under the New York Stock Exchange.
Management is responsible for the preparation, presentation, and
integrity of the Companys financial statements, accounting
and financial reporting principles, internal controls, and
procedures designed to ensure compliance with accounting
standards, applicable laws, and regulations. The Companys
independent registered public accounting firm for the fiscal
year 2006, KPMG LLP, is responsible for performing an
independent audit of the consolidated financial statements and
expressing an opinion on the conformity of those financial
statements with Generally Accepted Accounting Principles.
The Audit Committee has reviewed and discussed the audited
financial statements of the Company for the fiscal year ended
December 31, 2006 with the Companys management and
has discussed with KPMG LLP the matters required to be discussed
by Statement on Auditing Standards Board Standard No. 61,
as amended, Communication with Audit Committees. In
addition, KPMG LLP has provided the Audit Committee with the
written disclosures and the letter required by the Independence
Standards Board Standard No. 1, Independence
Discussions with Audit Committees, and the Audit Committee
has discussed with KPMG LLP their independence. The Audit
Committee also reviewed, and discussed with management and KPMG
LLP, managements report and KPMG LLPs report and
attestation on internal control over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act of
2002.
Based on these reviews and discussions, the Audit Committee
recommended to the Board that the audited financial statements
be included in the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, for filing
with the SEC.
Audit Committee
John F. Chlebowski, Chair
William E. Hantke
Anne C. Schaumburg
42
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Audit and
Nonaudit Fees
The following table presents fees for professional services
rendered by KPMG LLP, our principal independent registered
public accounting firm, for the years ended December 31,
2005 and December 31, 2006.
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Year Ended
|
|
|
|
December 31
|
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|
|
(In thousands)
|
|
|
|
2006
|
|
|
2005
|
|
|
Audit Fees
|
|
$
|
8,576
|
|
|
$
|
6,916
|
|
Audit Related Fees
|
|
|
475
|
|
|
|
863
|
|
Tax Fees
|
|
|
1,184
|
|
|
|
1,597
|
|
All Other Fees
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,235
|
|
|
$
|
9,376
|
|
|
|
|
|
|
|
|
|
|
Audit
Fees
For 2006 and 2005 audit services, KPMG LLP billed us
approximately $8,576,000 and $6,916,000, respectively, for the
audit of our financial statements, which includes services
performed related to the audit of the effectiveness of our
internal control over financial reporting and the review of our
quarterly financial statements. In 2006, the fees also included
audit services related to purchase accounting for the
acquisitions of Texas Genco LLC on February 2, 2006 and
West Coast Power on March 31, 2006. All of the work was
performed by full-time, permanent employees of KPMG LLP.
Audit-Related
Fees
Audit-related fees in 2006 primarily consist of fees incurred
for financing transactions. In 2005, audit-related fees were
incurred primarily for the audits of our benefit plans,
consultations regarding the application of Generally Accepted
Accounting Principles to proposed transactions and for
accounting services related to financing transactions. For 2006
and 2005, audit-related fees billed to us by KPMG LLP totaled
approximately $475,000 and $863,000, respectively.
Tax
Fees
Tax fees relate to services provided for tax compliance, tax
planning and advice on both domestic and international matters.
In 2006, tax fees also were incurred in relation to purchase
accounting for Texas Genco. For 2006 and 2005 tax services, KPMG
LLP billed us approximately $1,184,000 and $1,597,000,
respectively.
Policy on
Audit Committee Pre-approval of Audit and Permissible Nonaudit
Services of Independent Registered Public Accounting
Firm
The Audit Committee is responsible for appointing, setting
compensation for, and overseeing the work of the independent
registered public accounting firm. The Audit Committee has
established a policy regarding pre-approval of all audit and
permissible nonaudit services provided by the independent
registered public accounting firm.
The Audit Committee will annually review and pre-approve
services that are expected to be provided by the independent
registered public accounting firm. The term of the pre-approval
will be 12 months from the date of the pre-approval, unless
the Audit Committee approves a shorter time period. The Audit
Committee may periodically amend
and/or
supplement the pre-approved services based on subsequent
determinations.
43
Unless the Audit Committee has pre-approved Audit Services or a
specified category of nonaudit services, any engagement to
provide such services must be pre-approved by the Audit
Committee if it is to be provided by the independent registered
public accounting firm. The Audit Committee must also
pre-approve any proposed services exceeding the pre-approved
budgeted fee levels for a specified type of service.
The Audit Committee has authorized its Chair to pre-approve
services in amounts up to $500,000 per engagement.
Engagements exceeding $500,000 must be approved by the full
Audit Committee. Engagements pre-approved by the Chair are
reported to the Audit Committee at its next scheduled meeting.
REQUIREMENTS
FOR SUBMISSION OF STOCKHOLDER PROPOSALS
FOR NEXT YEARS ANNUAL MEETING
The Company expects to hold its 2008 Annual Meeting of
Stockholders on May 15, 2008. Accordingly, in order for a
stockholder proposal to be considered for inclusion in
NRGs Proxy Statement for next years Annual Meeting,
our Corporate Secretary must receive the proposal no later than
November 15, 2007. Proposals must be sent via registered,
certified, or express mail (or other means that allows the
stockholder to determine when the proposal was received by the
Corporate Secretary) to the Corporate Secretary, NRG Energy,
Inc., 211 Carnegie Center, Princeton, New Jersey 08540.
Proposals must contain the information required under NRGs
Bylaws, a copy of which is available upon request to our
Corporate Secretary, and also must comply with the SECs
regulations regarding the inclusion of stockholder proposals in
Company sponsored proxy materials.
Alternatively, stockholders intending to present a proposal at
next years Annual Meeting without having it included in
the Companys Proxy Statement must comply with the
requirements set forth in the Companys Bylaws. Our Bylaws
require, among other things, that our Corporate Secretary
receive the proposal no earlier than the close of business on
the 120th day, and no later than the close of business on
the 90th day, prior to the first anniversary of the
preceding years Annual Meeting. Accordingly, for
NRGs 2008 Annual Meeting, our Corporate Secretary must
receive the proposal no earlier than December 6, 2007 and
no later than January 7, 2008. The proposal must contain
the information required by the Bylaws, a copy of which is
available upon request to our Corporate Secretary. If the
stockholder does not meet the applicable deadlines or comply
with the requirements of SEC
Rule 14a-4,
NRG may exercise discretionary voting authority under proxies we
solicit to vote, in accordance with our best judgment, on any
such proposal.
44
NRG ENERGY, INC.
211 Carnegie Center, Princeton, NJ 08540
PROXY
ANNUAL MEETING OF STOCKHOLDERS
Wednesday, April 25, 2007, 9:30 a.m. ET
Hotel du Pont, 11th and Market Streets, Wilmington, Delaware
This proxy is solicited by the Board of Directors for use at the Annual Meeting on April 25, 2007.
The shares of stock you hold in your account will be voted as you specify on the reverse side.
If no choice is specified, the proxy will be voted FOR items 1 and 2.
By signing the proxy, you revoke all prior proxies and appoint David Crane and Tanuja M. Dehne, and
each of them, with full power of substitution, to vote your shares on the matters shown on the
reverse side and any other matters which may come before the Annual Meeting and all adjournments.
PLEASE MARK, DATE, SIGN AND RETURN THIS
PROXY/VOTING INSTRUCTION CARD IN THE ENCLOSED ENVELOPE
(Continued and to be signed on the reverse side)
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NRG ENERGY, INC. |
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P.O. BOX 11293 |
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NEW YORK, NY 10203-0293 |
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ADDRESS CHANGE/COMMENTS |
To change your address, please mark this box.
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o |
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To include comments, please mark this box.
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49
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Please Sign, Date and Return
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x
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the Proxy Card Promptly
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Votes must be indicated
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Using the Enclosed Envelope
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(x) in Black or Blue ink. |
The Board of Directors recommends a vote FOR Items 1 and 2.
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FOR
ALL
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o
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WITHHOLD
FOR ALL
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o
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EXCEPTIONS*
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o |
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Nominees:
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01-David Crane, 02-Stephen L. Cropper,
03-Maureen Miskovic, 04-Thomas H. Weidemeyer |
*To withhold authority to vote for any individual nominee, mark the Exceptions box and write
that nominees name on the line below.
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FOR |
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AGAINST |
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ABSTAIN |
2.
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Ratification of
Independent
Registered Public
Accounting Firm
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3. |
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In their discretion, the proxies are authorized to
vote upon any other business that may properly
come before the Annual Meeting |
This proxy when properly executed will be voted as directed or, if no direction is given, will be voted for each proposal.
Please sign exactly as your name(s) appears on
Proxy. If held in joint tenancy, all persons must
sign. Trustees, administrators, etc., should include
title and authority. Corporations should provide
full name of corporation and title of authorized
officer signing the proxy.
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Date
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Share Owner sign here
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Co-Owner sign here |
50