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TABLE OF CONTENTS
Table of Contents
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. )
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Filed by the Registrant ý |
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 under §240.14a-12
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Hawaiian Electric Industries, Inc. |
(Name of Registrant as Specified In Its Charter) |
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(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 computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Title of each class of securities to which transaction applies:
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Aggregate number of securities to which transaction applies:
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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Proposed maximum aggregate value of transaction:
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Total fee paid:
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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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Amount Previously Paid:
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Form, Schedule or Registration Statement No.:
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Filing Party:
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Date Filed:
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Cover photo: © Jake Marote Photography
Table of Contents
March 28,
2018
Dear
Fellow Shareholder:
On
behalf of the Board of Directors of Hawaiian Electric Industries, Inc. (HEI), it is my pleasure to invite you to attend the 2018 Annual Meeting of Shareholders (2018 Annual Meeting) of HEI.
The meeting will be held on Thursday, May 10, 2018, at 10:00 a.m., Hawaii time at HEI's premises in Room 805 on the eighth floor of the American Savings Bank Tower, located at
1001 Bishop Street, Honolulu, Hawaii 96813. A map showing the location of the meeting site appears on the last page of the enclosed Proxy Statement.
The
Notice of Annual Meeting of Shareholders and Proxy Statement that accompany this letter describe the business to be conducted during the 2018 Annual Meeting.
Your vote is very important. Whether or not you attend the meeting in person, and no matter how many shares you own, it is important that your views be
represented. Please vote by signing and returning your proxy card or by using telephone or internet voting. Instructions on how to vote are on pages 66-67 of the Proxy
Statement.
The
Board of Directors and management team of HEI would like to express our appreciation to you for your confidence and support. I look forward to seeing you at the 2018 Annual Meeting in Honolulu.
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Sincerely,
Constance H. Lau
President and Chief Executive Officer |
Table of Contents
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NOTICE OF 2018 ANNUAL
MEETING OF SHAREHOLDERS
Hawaiian Electric Industries, Inc.
1001 Bishop Street, Suite 2900
Honolulu, Hawaii 96813 |
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When: |
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Thursday, May 10, 2018, at 10:00 a.m., Hawaii Time. |
Where: |
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American Savings Bank Tower, 1001 Bishop Street, 8th Floor, Room 805, Honolulu, Hawaii 96813 |
Items of Business: |
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Proposal 1 Election of three Class I directors to serve for a three-year term expiring at the 2021 Annual Meeting of Shareholders |
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Proposal 2 Advisory vote to approve compensation for HEI's named executive officers |
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Proposal 3 Ratification of the appointment of Deloitte & Touche LLP as HEI's independent registered public accountant for 2018 |
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To transact such other business as may properly come before the 2018 Annual Meeting. |
Record Date: |
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March 6, 2018 |
Annual Report: |
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The 2017 Annual Report to Shareholders, which is not part of the proxy solicitation materials, has been mailed or made available electronically to shareholders, along with this Notice of 2018 Annual Meeting of Shareholders and accompanying Proxy
Statement. |
Who Can Attend: |
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Only shareholders of record as of the record date are entitled to receive notice of, attend and vote at the 2018 Annual Meeting. To attend, you must bring government-issued photo identification. If your shares are held in street name, you must also
bring evidence of ownership on the record date (such as a brokerage account statement). If you represent an entity that is a shareholder, you will also need proof of authority for representation. |
Date of Mailing: |
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On or about March 28, 2018, these proxy materials and annual report are being mailed or made available to shareholders. |
How To Vote Your Shares
Your vote is important. Please vote as soon as possible by one of the methods shown below. Make sure to have your proxy card, voting
instruction form, or notice of Internet availability in hand and follow the instructions. Shareholders of record may appoint proxies and vote their shares in one of four ways:
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By Telephone: You can vote your shares by calling 1-888-693-8683 |
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By Internet: You can vote your shares online at www.cesvote.com. |
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By Mail: You can vote by mail by marking, dating, and signing your proxy card or voting instruction form and returning it in the postage-paid envelope. |
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In Person: Attend our annual meeting and vote by ballot. |
Shareholders
whose shares are held by a bank, broker or other financial intermediary (i.e., in "street name") should follow the voting instruction card provided by such intermediary.
Any
proxy may be revoked in the manner described on page 68 in the accompanying Proxy Statement.
It
is important that you vote your shares. To ensure that your shares are voted, please follow the instructions on the proxy card to either complete and return the proxy card or vote by telephone or
over the internet. Mailing your proxy card or voting by telephone or over the internet does not preclude you from changing your vote in person at the 2018 Annual Meeting of Shareholders (the 2018
Annual Meeting).
Important Notice Regarding the Internet Availability of Proxy Materials for the 2018 Annual Meeting of Shareholders to be held on May 10,
2018
The accompanying Proxy Statement, 2017 Annual Report to Shareholders and 2017 Annual Report on Form 10-K are available at http://www.hei.com
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By Order of the HEI Board of Directors, |
Kurt K. Murao
Vice President Legal & Administration and
Corporate Secretary |
March 28, 2018
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Table of Contents
Table of Contents
PROXY SUMMARY
PROXY SUMMARY
This summary contains highlights about our Company and the upcoming 2018 Annual Meeting of Shareholders. This summary
does not contain all of the information that you should consider. Please read the entire Proxy Statement carefully prior to voting.
VOTING MATTERS
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Management Proposals |
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Board Vote Recommendation |
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Page |
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1. Election of Three Class I Directors |
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FOR Each Nominee |
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1 |
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2. Advisory Vote to Approve the Compensation of HEI's Named Executive Officers |
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FOR |
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23 |
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3. Ratification of Appointment of Independent Auditor for 2018 |
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FOR |
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64 |
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ELECTION OF DIRECTORS
The following table provides summary information about the nominees for election to the Board of Directors (Board) three
Class I Directors of Hawaiian Electric Industries, Inc. (HEI or the Company). Additional information about all directors, including the nominees, may be found beginning on page 2.
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Name |
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Age |
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Director
Since |
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Primary Occupation |
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Independent |
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Committee
Membership |
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Other
Public
Boards |
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Class I Directors |
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Richard J. Dahl |
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66 |
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2017 |
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Chairman, James Campbell Co., LLC |
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AC |
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2 |
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Constance H. Lau |
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66 |
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2006 |
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President & Chief Executive Officer, HEI |
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EC |
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1 |
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James K. Scott, Ed.D. |
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66 |
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1995 |
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President, Punahou School |
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NCGC |
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AC - Audit Committee
EC - Executive Committee
NCGC - Nominating and Corporate Governance Committee
GOVERNANCE HIGHLIGHTS
HEI's governance is guided by the principle that shareholder value for our Company is linked to the value we bring to the customers and
communities we serve. Highlights of our governance include:
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BOARD OF DIRECTORS |
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Independent Chairman of the Board |
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YES |
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Number of Independent Directors |
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8 of 9 |
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Percentage of Directors who are women or from diverse ethnic backgrounds |
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65%* |
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All Audit, Compensation and Nominating & Corporate Governance Committee members are independent |
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YES |
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Executive session of independent directors held at each Board meeting |
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YES |
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All directors attended at least 90% of meetings of the Board and Board committees on which they served in 2017 |
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YES |
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Policy limitation on membership on other public company boards |
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YES |
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Annual Board and committee self-evaluations and periodic director self and peer review |
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YES |
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Directors required to submit resignation for Board consideration upon the end of their term after reaching age 75 or in event of a significant change in
their employment |
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YES |
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Share ownership and retention requirements for directors and executives |
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YES |
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i
Table of Contents
PROXY SUMMARY
SHAREHOLDER INTERESTS
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- In an uncontested director election, a director who is elected but does not receive the support of a majority of votes cast must submit his or
her resignation for Board consideration
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- No shareholder rights plan
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- Input from shareholder outreach incorporated in executive compensation program
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- Prohibition on hedging and pledging of HEI stock
2017 BUSINESS HIGHLIGHTS
FINANCIAL RESULTS
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Net Income1 |
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Diluted Earnings per Share (EPS)1 |
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Return on Average Common Equity1 |
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2017 |
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$165M (179) |
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$1.52 (1.65) |
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7.9% (8.6%) |
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2016 |
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$248M (190) |
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$2.29 (1.75) |
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12.4% (9.5%) |
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2015 |
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$160M (176) |
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$1.50 (1.65) |
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8.6% (9.4%) |
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1 Numbers in parentheses are non-GAAP measures, which exclude tax reform and related adjustments for 2017, and after-tax merger and spin-off related expenses and income for 2016 and expenses for 2015.
See Exhibit A for a reconciliation of GAAP to non-GAAP measures.
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Total Shareholder Return (%) |
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HEI |
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S&P 500 Index |
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Edison Electric
Institute Index |
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KBW Regional
Banking Index |
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2017 |
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13.4 |
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21.8 |
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11.7 |
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1.8 |
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3-year |
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21.3 |
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38.3 |
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26.1 |
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49.8 |
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5-year |
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77.2 |
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108.1 |
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83.7 |
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125.3 |
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10-year |
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156.6 |
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126.0 |
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97.5 |
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84.8 |
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Source: S&P Global Inc.
BUSINESS ACCOMPLISHMENTS
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- HEI continues to move forward as an independent consolidated enterprise following the termination in 2016 of a proposed merger involving our
utility and companion spin off of our bank. In 2017 we expanded our family of companies to include Pacific Current, a newly established subsidiary company of HEI. Pacific Current is part of HEI's
strategy to develop and invest in opportunities that serve as catalysts for a better Hawaii.
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- In 2017, our utilities, Hawaiian Electric Company (Hawaiian Electric), Maui Electric Company (Maui Electric) and Hawaii Electric Light Company
(Hawaii Electric Light), continued to work toward Hawaii's goal of 100% renewable energy by 2045. The Hawaii Public Utilities Commission accepted our proposed near-term actions under our Power Supply
Improvement Plan, the roadmap to achieving that goal, and approved our grid modernization strategy, which sets forth a framework for using the latest technology to build more resilient and
renewable-ready island grids. In 2017, nearly 27% of the electricity on our grids came from renewable sources. Hawaii Island led the state at 57%, with Maui County and Oahu reaching 34% and 21%,
respectively. We introduced new customer programs for private rooftop solar and battery storage and new tools to make it easier for customers to apply to connect their systems to the grid. Our
regulators approved the Community Based Renewable Energy program to allow more customers, such as renters, condo owners and small businesses, to benefit from renewable energy. Our transformation is
entering its next phase with several key initiatives underway in 2018, including a strategic plan for electrification of transportation and creation of new departments to promote our products and
services, develop new offerings to provide greater value and convenience to customers and leverage existing assets to help build a "smart communities" network, driving new business and improving
public services.
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- Our bank, American Savings Bank, F.S.B. (ASB), achieved an important objective in its effort to improve efficiency and strengthen teammate
engagement with the successful ground breaking for its new 166,000-square-foot headquarters in Honolulu. The new headquarters will bring together over 600 employees from five locations at one
of the most innovative, collaborative and modern worksites in the State. Once it's completed in late 2018 it is expected to provide a significant boost to the bank's already excellent workplace
culture for which it continues to receive recognition, including being named one of Hawaii Business Magazine's "Best Places to Work" for the 9th consecutive year. Leveraging the strength of its
company culture and its focus on providing an excellent customer experience, the bank continues to improve financial performance. In 2017, solid deposit growth and improved asset quality continued to
fuel the bank's broad profitability improvement with strong results in net income of $67.0 million and return on assets of 1.02%.
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Table of Contents
PROXY SUMMARY
EXECUTIVE COMPENSATION HIGHLIGHTS PAYING FOR PERFORMANCE
The compensation program for our named executive officers is comprised of four primary elements base salary,
performance-based annual and long-term incentives, and restricted stock units vesting in equal annual installments over four years. We emphasize variable pay over fixed pay, with the majority of the
total compensation opportunity at target for each named executive officer linked to the Company's financial, market and operational results. The compensation program also balances the importance of
achieving long-term strategic priorities and critical short-term goals linked to long-term objectives.
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2017 Named Executive Officer (NEO) Pay Opportunity |
Variable Over Fixed Pay
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Balance of Short- and Long-Term Pay
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VARIABLE PAY REFLECTS PERFORMANCE
Under
our pay-for-performance design, incentive payouts to named executive officers are aligned with results. The following graphs show the performance-based payouts to the HEI Chief Executive Officer
(CEO) for net income and for total shareholder return (TSR) relative to the Edison Electric Institute (EEI) Index (Relative TSR). HEI CEO annual incentive pay is linked to HEI's adjusted annual net
income, as well as subsidiary performance. Long-term incentive pay over the respective three-year periods tracked our Relative TSR results.
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Annual Net Income and CEO Performance-
Based Annual Incentive Payouts |
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3-year Relative TSR Results and Performance-
Based Long-Term Incentive Payouts |
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SUMMARY COMPENSATION TABLE
Due
to the NextEra Energy merger that was pending at the time the 2015-17 and 2016-18 long-term incentive plans (LTIPs) were established, these LTIPs were denominated in cash rather than in stock.
This is because the Compensation Committee had determined that while the merger was pending, HEI's stock price might be affected at least in part by merger considerations that were unrelated to HEI's
true operating performance and that, as a result, the compensatory goals of the LTIP would be better served without such merger impact. Since the merger agreement between HEI and NextEra Energy was
terminated in July 2016, HEI returned to exclusively equity-based LTIPs in 2017, which impacts the comparative compensation amounts disclosed in the 2017 Summary Compensation Table (SCT). Although our
LTIP programs and practices have not changed (i.e., one 3-year LTIP is granted each year), due to the disclosure timing differences between cash-based and equity-based LTIPs, the reported compensation
amounts in the Summary Compensation Table for 2017 are notably higher than, and not comparable to, the reported amounts for 2015 and 2016, and are not reflective of the target compensation provided to
our NEOs for 2017. Due to SEC disclosure rules, the 2017 compensation amounts in the SCT include both the 2015-2017 LTIP cash payouts and the 2017-2019 equity-based LTIP. By
contrast, the 2015 and 2016 compensation amounts in the SCT do not include any LTIP amounts. Please see page 47 under "Summary Compensation Table".
iii
Table of Contents
PROXY SUMMARY
COMPENSATION COMMITTEE DECISION-MAKING
The
Compensation Committee, all of whose members are independent directors, establishes pay programs and reviews performance results to ensure that executive officer compensation aligns with
shareholder interests. In addition, the Compensation Committee is advised by an independent compensation consultant with respect to the design of the plans, performance results and reasonableness of
pay decisions.
The
Compensation Committee believes that executive officer compensation reflects favorably on the Company's pay-for-performance objective, is aligned with shareholder interests and compares well
relative to the Company's peers.
iv
Table of Contents
PROPOSAL NO. 1: ELECTION OF THREE CLASS I DIRECTORS
PROPOSAL NO. 1: ELECTION OF THREE CLASS I DIRECTORS
In
accordance with HEI's Bylaws, the Board has fixed the size of the Board at nine directors, divided equally into three classes with staggered terms. The Board proposes that the following nominees be
elected at the 2018 Annual Meeting:
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Class I directors to serve until the 2021 Annual Meeting of Shareholders, or until his or her respective successor shall be duly elected and qualified: |
Richard
J. Dahl
Constance H. Lau
James K. Scott, Ed.D.
Mr. Dahl,
Ms. Lau and Dr. Scott are all incumbent Class I directors of HEI. The Board has determined that Mr. Dahl and Dr. Scott are independent under the
applicable standards for director independence, as discussed below under "Board of Directors Independent Directors." Ms. Lau currently serves as the President and Chief
Executive Officer of HEI and is therefore not independent. Each nominee has consented to serve for the new three-year term expiring at the 2021 Annual Meeting if elected. If a nominee is unable to
stand for election at the time of the 2018 Annual Meeting, the proxy holders listed in the proxy card may vote in their discretion for a suitable substitute.
Information
regarding the business experience and certain other directorships for each Class I director nominee and for each continuing Class II and III director, is provided on pages
2-8 below, together with a description of the experience, qualifications, attributes and skills that led to the Board's conclusion at the time of this Proxy Statement that each of the nominees and
directors should serve on the Board in light of HEI's current business and structure.
ü
FOR
The
Board recommends that you vote FOR each nominee listed above to serve as a Class I Director.
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DIRECTOR NOMINEES FOR ELECTION
CLASS I DIRECTOR NOMINEES FOR ELECTION
Nominees for Class I Directors whose terms expire at the 2021 Annual Meeting of Shareholders
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Richard J. Dahl
Director since 2017
Age 66
Audit Committee Member |
Mr. Dahl adds to the Board a wealth of experience in leadership, strategy, audit and risk-management and board governance. The perspective he brings to the Board is informed by his experiences working in Hawaii and on the U.S. mainland, as a
senior executive for several private and publicly traded companies, and as a public company director and audit committee chair. In addition, his management experience in banking and board service in the electric utility industry further deepen the
Board's knowledge of the two industries in which HEI operates.
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Professional Experience
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- Non-executive Chairman since March 2017, DineEquity, Inc.(NYSE: DIN), Lead Independent Director 2010-17, Interim CEO 3/2017 to 9/2017,
Audit Committee member and former Audit Committee chair, director since 2004.
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- Non-executive Chairman since 2017, James Campbell Company LLC (privately held real estate investment and development company), Chairman,
President and CEO 2010-16.
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- Director and Audit Committee Member, Hawaiian Electric (HEI subsidiary), since 2017
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- Director since 2008, Audit Committee Chair and Executive Committee Member, IDACORP, Inc. (NYSE: IDA)/Idaho Power Company
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- Non-executive Chairman, International Rectifier Corporation, 2008-15
Relevant Skills & Qualifications
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- Broad leadership and strategic and operational management experience from serving as a senior executive for private and publicly traded
companies, including as Chairman, President and CEO of James Campbell Company, LLC, President, Chief Operating Officer and Director of Dole Food Company, Inc. and President, Chief
Operating Officer and Director of Bank of Hawaii Corporation.
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- In-depth understanding of the two industries in which HEI operates from his senior executive roles at Bank of Hawaii Corporation and his current
service as a director of IDACORP, Inc. and its principal subsidiary, Idaho Power Company.
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- Audit, risk management and financial expertise from his chairmanship of the IDACORP, Inc. audit committee, prior chairmanship of the
DineEquity, Inc. audit committee, previous work experience with accounting firm Ernst & Young, and prior licensure as a Certified Public Accountant and Certified Bank Auditor.
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- Substantial governance and board leadership experience from his public company board service, including his prior role as Lead Independent
Director of DineEquity, Inc. and through leading the International Rectifier, Inc. board through a successful corporate turnaround.
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DIRECTOR NOMINEES FOR ELECTION
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Constance H. Lau
Director 2001-04 and since 2006
Age 66
Executive Committee Member |
As HEI's President and CEO since 2006, Ms. Lau has extensive senior management experience and thorough knowledge of the Company's operations. Prior to becoming CEO, Ms. Lau served in leadership capacities spanning several functions across
HEI and its subsidiaries. Over her more than 30 years of service with the Company, Ms. Lau has acquired significant expertise with respect to the utility and banking industries. Further, having been exposed to virtually all aspects of HEI's
operations, Ms. Lau brings a unique and comprehensive perspective to the Board. Ms. Lau's expertise and leadership have been recognized nationally, leading her to be named chair of the National Infrastructure Advisory Council, and to serve
on the boards of leading national utility industry organizations. As a result, Ms. Lau brings to the Board a national perspective, as well as valuable insights regarding physical and cyber infrastructure security.
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Professional Experience
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- President and CEO and Director, HEI, since 2006
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- Chairman of the Board, Hawaiian Electric (HEI subsidiary), since 2006
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- Director, ASB Hawaii (HEI subsidiary), since 2006
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- Chairman of the Board since 2006, Risk Committee Member since 2012 and Director since 1999, ASB (HEI subsidiary)
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- CEO 2001-10, President 2001-08 and Senior Executive Vice President and Chief Operating Officer 1999-2001, ASB
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- Financial Vice President and Treasurer 1997-99, HEI Power Corp. (former HEI subsidiary)
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- Treasurer 1989-99 and Assistant Treasurer 1987-89, HEI
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- Treasurer 1987-89 and Assistant Corporate Counsel 1984-87, Hawaiian Electric
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- Director, Audit Committee Chair and Nominating and Corporate Governance Committee Member, Matson, Inc.(NYSE: MATX), since 2012
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- Director and Audit Committee Member, Alexander & Baldwin, Inc., 2004-12
Relevant Skills & Qualifications
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- Intimate understanding of the Company from serving in various chief executive, chief operating and other executive, finance and legal positions
at HEI and its subsidiaries for more than 30 years.
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- Corporate governance experience from her service as a director, Audit Committee Chair and Nominating and Corporate Governance Committee member
for Matson, Inc., as a former director of Alexander & Baldwin, Inc. and as a director and Underwriting Committee Chair of AEGIS Insurance Services, Inc.
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- Experience with financial oversight and expansive knowledge of the local communities that comprise the Company's customer bases from serving as
a director for various local industry, business development, educational and nonprofit organizations.
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- Utility and banking industry knowledge from her current or prior service as a director or task force member of the Hawaii Bankers Association,
the American Bankers Association, the Edison Electric Institute and the Electric Power Research Institute and as a member of the federal Electricity Subsector Coordinating Council.
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- Nationally recognized leader in the fields of critical infrastructure, resilience and physical and cyber security, banking and energy,
demonstrated by her chairmanship of the National Infrastructure Advisory Council, membership on the federal Electricity Subsector Coordinating Council, her prior service on the Federal Reserve Board
of San Francisco's 12th District Community Depository Institutions Advisory Council, and her being named as a C3E Clean Energy Ambassador by the U.S. Department of Energy.
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DIRECTOR NOMINEES FOR ELECTION
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James K. Scott, Ed.D.
Director since 1995
Age 66
Nominating and Corporate Governance Committee Member |
Dr. Scott has considerable management experience as an executive leader in Hawaii. While Dr. Scott has earned the reputation of being one of the nation's leading education administrators, his unique value to the Company derives from his
extensive knowledge, contacts and relationships within Hawaii's business community, nonprofit community and local governmental agencies. Dr. Scott's participation on the Board has contributed significantly to the Board's understanding of
Hawaii's unique cultural and business environment. With the success under his leadership of one of the country's most prominent college preparatory schools, and because of his commitment to a wide array of charitable and civic causes, Dr. Scott
is a well-respected leader in the state of Hawaii and nationally.
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Professional Experience
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- President, Punahou School (K-12 independent school), since 1994
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- Director, ASB (HEI subsidiary), since 2008
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- HEI Audit Committee member, 1997-2011
Relevant Skills & Qualifications
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- Recognized leadership and executive management skills as President of Punahou School.
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- More than three decades of experience developing and executing strategic plans as the chief executive of two independent schools, including
overseeing fundraising programs and admissions/marketing and finance functions.
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- Keen understanding of Hawaii's communities and governance and board leadership experience from his current positions as director and former
Chair of the Hawaii Association of Independent Schools, trustee of the Barstow Foundation, member of the Advisory Board of the Klingenstein Center of Teachers College at Columbia University and
trustee of the National Association of Independent Schools.
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CONTINUING DIRECTORS
Continuing Class II Directors whose terms expire at the 2019 Annual Meeting of Shareholders
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Thomas B. Fargo
Director since 2005
Age 69
Compensation Committee Chair
Nominating and Corporate Governance Committee Member |
Admiral Fargo brings invaluable leadership skills to the Board. Admiral Fargo's experience leading complex organizations, both in Hawaii and on the U.S. mainland, provides the Board with significant management expertise. He has extensive knowledge
of the U.S. military (a major customer of HEI's utility subsidiary and a key driver of Hawaii's economy) having served as Commander of the U.S. Pacific Command from 2002-05. Admiral Fargo's leadership, strategic planning and risk assessment skills
have proven to be a valuable resource to management and other Board members.
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Relevant Professional Experience
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- Chairman of the Board and Governance Committee Member, Huntington Ingalls Industries (military shipbuilder) (NYSE: HII), since 2011
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- Owner, Fargo Associates, LLC (defense and homeland/national security consultancy), since 2005
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- Director and Compensation and Nominating and Corporate Governance Committee member since 2015, Compensation Committee Chair, since 2016, The
Greenbrier Companies (NYSE: GBX)
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- Director and Audit Committee Member, Matson, Inc. (NYSE: MATX), since 2012
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- Director, Alexander & Baldwin, Inc., 2011-12
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- Director, Northrop Grumman Corporation (NYSE: NOC), 2008-11
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- Director, Hawaiian Electric (HEI subsidiary), 2005-16
Relevant Skills & Qualifications
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- Extensive knowledge of the U.S. military, a major customer of HEI's electric utility subsidiary and a key driver of Hawaii's economy.
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- Leadership, strategic planning and financial and nonfinancial risk assessment skills developed over 40 years of leading
9 organizations ranging in size from 130 to 300,000 people and managing budgets up to $8 billion.
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- Experience with corporate governance, including audit, compensation and governance committees, from service on several private and publicly
traded company boards, including as chairman of Huntington Ingalls Industries.
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Kelvin H. Taketa
Director since 1993
Age 63
Nominating and Corporate Governance Committee Chair |
Mr. Taketa has considerable management experience as an executive leader in Hawaii. Mr. Taketa is one of Hawaii's leading nonprofit administrators and has extensive relationships within Hawaii's business and nonprofit communities. He has
contributed significantly to the Board's understanding of Hawaii's distinctive cultural and business environment. Additionally, Mr. Taketa brings the unique ability to build bridges and connect people and organizations, which has made him a
well-respected leader throughout the state of Hawaii.
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Professional Experience
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- Senior Fellow, Hawaii Community Foundation (statewide charitable foundation), since July 2017
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- CEO, Hawaii Community Foundation, 2016-2017
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- President and CEO, Hawaii Community Foundation, 1998-2015
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- Director, Hawaiian Electric (HEI subsidiary), since 2004
Relevant Skills & Qualifications
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- Executive management experience with responsibility for overseeing more than $500 million in charitable assets through his leadership of
the Hawaii Community Foundation.
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- Proficiency in risk assessment, strategic planning and organizational leadership as well as marketing and public relations from his current
position at the Hawaii Community Foundation and his prior experience as Vice President and Executive Director of the Asia/Pacific Region for The Nature Conservancy and as Founder, Managing Partner and
Director of Sunrise Capital Inc.
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- Knowledge of corporate and nonprofit governance issues gained from his prior service as a director for Grove Farm Company, Inc. and the
Independent Sector, his current service on the boards of Feeding America, the Stupski Foundation and the Hawaii Leadership Forum, and through publishing articles and lecturing on governance of
tax-exempt organizations.
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CONTINUING DIRECTORS
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Jeffrey N. Watanabe
Director since 1987
Age 75
Chairman of the Board since 2006
Executive Committee Chair
Compensation Committee Member |
Mr. Watanabe has been one of the most influential figures in Hawaii's business community over the past four decades. His strategic counsel is widely sought by Hawaii's business, political and nonprofit leaders, as well as by global businesses
seeking to do business in Hawaii. As Chairman since 2006, Mr. Watanabe has successfully led HEI through his strategic vision, willingness to make tough decisions and strong consensus-building skills.
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Professional Experience
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- Lead Director, Nominating and Corporate Governance Committee Chair and Compensation Committee Member, Matson, Inc. (NYSE: MATX), since
2012
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- Director since 1988 and Executive and Risk Committee Member, ASB (HEI subsidiary)
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- Lead Independent Director, 2012-15, and director 2003-15, Alexander & Baldwin, Inc. (A&B)
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- Director, Hawaiian Electric (HEI subsidiary), 1999-2006, 2008-11 and since 2016
Relevant Skills & Qualifications
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- Broad business, legal, corporate governance and leadership experience from serving as Managing Partner of the law firm (Watanabe Ing &
Komeiji LLP) he helped found in 1972 until his retirement in 2007, advising clients on a variety of business and legal matters for 35 years and from serving on more than a dozen public
and private company and nonprofit boards and committees, including his current service on the Matson Nominating and Corporate Governance and Compensation Committees and past service on the A&B
Nominating & Corporate Governance Committee.
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- Specific experience with strategic planning from providing strategic counsel to local business clients and prospective investors from the
continental United States and the Asia Pacific region for 25 years of his law practice.
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- Recognized by a number of organizations for his accomplishments, including by the Financial Times-Outstanding Directors Exchange, which selected
him as a 2013 Outstanding Director.
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CONTINUING DIRECTORS
Continuing Class III Directors whose terms expire at the 2020 Annual Meeting of Shareholders
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Peggy Y. Fowler
Director since 2011
Age 66
Compensation Committee Member |
Ms. Fowler brings a combination of utility and banking knowledge and experience to HEI. Ms. Fowler's prior position as chief executive officer of a NYSE-listed public utility company imparts significant leadership and management expertise
to the Board. Additionally, Ms. Fowler's more recent experience leading the board of a publicly traded bank holding company strengthens the Board's capabilities in overseeing HEI's bank subsidiary.
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Professional Experience
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- Co-CEO, Portland General Electric Company (PGE) (NYSE: POR), 2009
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- President and CEO, PGE, 2000-08
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- Lead Independent Director since 2017, Chairman of the Board 2012-16, Chair of the Risk and Governance and Executive Committees and director
since 2009, Umpqua Holdings Corp. (publicly traded bank holding company) (NASDAQ: UMPQ)
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- Director and Audit Committee Member, Hawaiian Electric (HEI subsidiary), 2009-16
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- Director, PGE, 1998-2012
Relevant Skills & Qualifications
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- 36 years of executive leadership, financial oversight and utility operations experience from serving at PGE in senior officer positions,
including Chief Operating Officer, President and CEO.
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- Environmental and renewable energy expertise from managing PGE's environmental department, overseeing initiatives that improved fish passage on
multiple Oregon rivers, supervising the construction and integration into PGE's grid of wind and solar projects, and leading PGE to be ranked #1 by the National Renewable Energy Laboratory for selling
more renewable power to residential customers than any other utility in the U.S. for several years during her tenure as PGE's CEO.
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- Proven management, leadership and analytical skills, including crisis management, risk assessment, strategic planning and public relations
skills.
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- Expertise in financial oversight, regulatory compliance and corporate governance gained from serving as President (1997-2000), CEO (2000-08) and
Chair (2001-04) of PGE, as a past director for the Portland Branch of the Federal Reserve Bank of San Francisco, and as a director and committee member for several private and public companies,
including Umpqua Holdings Corporation, where she previously served as Chairman and currently serves as Lead Independent Director, and Cambia Health Solutions, a not-for-profit BlueCross BlueShield
health insurer, where she chairs the investment committee and serves on the audit, governance and executive committees.
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Keith P. Russell
Director since 2011
Age 72
Audit Committee Member |
Mr. Russell has extensive senior management experience in the banking industry. Mr. Russell's many years of executive leadership experience in managing and overseeing bank operations contribute invaluable expertise to the Board. In
addition, his prior service as chief risk officer of a large financial institution significantly strengthens the Board's capabilities in overseeing and managing risk within the organization. Mr. Russell's knowledge and experience from his prior
service as an officer of a major lender to the electric utility industry strengthens the Board's oversight of HEI's utility operations.
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Professional Experience
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- President, Russell Financial, Inc. (strategic and financial consulting firm), since 2001
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- Vice Chair/Chief Risk Officer, Mellon Financial Corp., then Chairman, Mellon West, 1991-2001
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- Senior Executive Vice President, then Director, President and Chief Operating Officer, GLENFED/Glendale Federal Bank, 1983-91
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- Director, ASB Hawaii (HEI subsidiary), 2014-16
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- Director and Audit Committee Member since 2010 and Risk Committee Chair since 2012, ASB (HEI subsidiary)
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- Director since 2004, Audit Committee Chair since 2011 and Nominating Committee Member 2003-11 and since 2015, Sunstone Hotel Investors (NYSE:
SHO)
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- Director, Nationwide Health Properties (NYSE: NHP), 2002-11
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- Director, Audit Committee Chair and Conflicts Committee Member, KBS Growth and Income REIT, since 2016
Relevant Skills & Qualifications
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- Ten years of executive leadership, financial oversight, risk management and strategic planning experience from serving as Vice Chairman/Chief
Risk Officer for Mellon Financial Corporation and Chairman of Mellon's West Coast operations. Mellon was a major lender and capital provider to the electric utility industry.
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- Eight years of executive and corporate governance experience from serving as Director, President and Chief Operating Officer of GLENFED/Glendale
Federal Bank.
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- Nine years of banking industry experience serving as Senior Vice President and Deputy Administrator for Security Pacific National Bank, with
direct responsibility for a wide breadth of operations, including leasing, consumer and commercial finance, mortgage banking, venture capital, cash management and trust business.
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CONTINUING DIRECTORS
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Barry K. Taniguchi
Director since 2004
Age 70
Audit Committee Chair
Executive Committee Member |
Mr. Taniguchi brings to the Board considerable experience as a proven business leader in Hawaii, with extensive knowledge of the business climate and significant contacts and relationships within the business community and local governmental
agencies. With the successes of his own businesses, and because of his commitment to a wide array of charitable causes, Mr. Taniguchi is one of the most well-respected businesspersons in Hawaii.
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Professional Experience
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- Chairman and CEO since 2014 and President and CEO 1989-2014, KTA Super Stores (largest grocery store chain on island of Hawaii)
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- President and Director, K. Taniguchi Ltd. (real estate lessor), since 1989
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- Director, ASB Hawaii (HEI subsidiary), 2015-16
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- Director since 2002 and Audit Committee Chair, ASB (HEI subsidiary)
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- Director, 2001-11 and Audit Committee Chair, Hawaiian Electric (HEI subsidiary)
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- Director, Maui Electric Company, Limited (Hawaiian Electric subsidiary), 2006-09
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- Director, Hawaii Electric Light Company, Inc. (Hawaiian Electric subsidiary), 1997-2009
Relevant Skills & Qualifications
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- Current knowledge of and experience with the business community on the island of Hawaii, which is served by one of HEI's utility subsidiaries,
Hawaii Electric Light Company, Inc., from his chief executive roles for the last 28 years.
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- Accounting and auditing knowledge and experience gained from obtaining a public accounting certification and from his prior work as an auditor
and as a controller.
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- Extensive corporate and nonprofit board and leadership experience, including service as a director and former chair of the Hawaii Island
Economic Development Board, and from having served as a director of Hawaii Community Foundation and as a former director and chair of both the Hawaii Island Chamber of Commerce and the Chamber of
Commerce of Hawaii.
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CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
HEI's governance policies and guidelines
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HEI's
Board and management review and monitor corporate governance trends and best practices on an ongoing basis, including for purposes of reviewing HEI's corporate governance documents and complying
with the corporate governance requirements of the New York Stock Exchange (NYSE), rules and regulations of the Securities and Exchange Commission (SEC) and rules and regulations of the Board of
Governors of the Federal Reserve (Federal Reserve) applicable to HEI as a savings and loan holding company. HEI's corporate governance documents (such as the charters for the Audit, Compensation,
Nominating and Corporate Governance and Executive Committees, Corporate Governance Guidelines and Corporate Code of Conduct, as well as other governance documents) are available on HEI's website at www.hei.com/govdocs.
The Board's leadership structure
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Since
2006, Mr. Watanabe has served as the nonexecutive Chairman of the Board and Ms. Lau has served as HEI's President and CEO. Since that time, Ms. Lau has also been the only
employee director on the Board.
Mr. Watanabe
has served on the Board since 1987, and has never been employed by HEI or any HEI subsidiary. The Board has determined that he is independent. Among the many skills and
qualifications that Mr. Watanabe brings to the Board, the Board considered: (i) his extensive experience in corporate and nonprofit governance from serving on other public company,
private company and nonprofit boards; (ii) his reputation for effective consensus and relationship building and business and community leadership, including leadership of his former law firm;
(iii) his willingness to spend time advising and mentoring members of HEI's senior management; and (iv) his dedication to committing the hard work and time necessary to successfully lead
the Board.
As
HEI's Chairman, Mr. Watanabe's key responsibilities are to:
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- lead Board and shareholder meetings and executive sessions of the independent directors, including executive sessions at which the performance
of the CEO is evaluated by the Board;
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- attend all meetings of the Audit and Nominating and Corporate Governance Committees of the Board as an observer and the Executive Committee of
the Board as its chair. Mr. Watanabe also currently attends meetings of the Compensation Committee as a member;
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- work closely with the Nominating and Corporate Governance Committee in periodically evaluating board and committee structures, as well as
advise with respect to succession planning for the Board;
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- serve on and/or advise the boards of HEI's primary operating subsidiaries, Hawaiian Electric and ASB, chair joint executive sessions of the
independent directors of HEI and these subsidiary boards and attend meetings of subsidiary board committees;
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- work closely with management to develop meeting agendas and materials for the Board and subsidiary boards;
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- be available to other Board and subsidiary board members and management for questions and consultation; and
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- ensure and facilitate communications among Board members and Board committees and between the Board and management.
The
Board's Corporate Governance Guidelines provide that if the Chairman and CEO positions are held by the same person, or if the Board determines that the Chairman is not independent, the independent
directors should designate an independent director to serve as "Lead Director." If a Lead Director is designated, the Lead Director's responsibilities are to: (i) preside at Board and
shareholder meetings when the Chairman is not present, (ii) preside at executive sessions of the independent directors, (iii) facilitate communication
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CORPORATE GOVERNANCE
between
the independent directors and the Chairman or the Board as a whole, (iv) call meetings of the non-management or independent directors in executive session, (v) participate in
approving meeting agendas, schedules and materials for the Board and (vi) perform other functions described in the Corporate Governance Guidelines or as determined by the Board from time to
time.
The
Board believes that its current leadership structure, which provides for an independent nonemployee Chairman, or an independent Lead Director if the Chairman is not independent, is appropriate and
effective in light of HEI's current operations, strategic plans and overall corporate governance structure. Several reasons support this conclusion. First, the Board believes that having an
independent Chairman or Lead Director has been important in establishing a tone at the top for both the Board and the Company that encourages
constructive expression of views that may differ from those of senior management. Second, the Board believes that the presence of an independent Chairman or Lead Director demonstrates to the Company's
regulators and shareholders that the Board is committed to serving the best interests of the Company and its shareholders and not the best interests of management. Third, the Board recognizes that HEI
has an uncommon corporate governance structure in that the boards of its two primary operating subsidiaries are also composed mostly of nonemployee directors and that the HEI Chairman plays an
important leadership role at these subsidiary boards. For instance, in addition to chairing executive sessions of the nonemployee directors and attending meetings of the committees of these subsidiary
boards, the Chairman leads each subsidiary board in conducting its annual performance self-evaluation and facilitates communications between the Board and each of these boards and management of the
respective subsidiary company.
The Board's role in risk oversight
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HEI
is a holding company that operates principally through its electric public utility and bank subsidiaries. At the holding company and subsidiary levels, the Company faces a variety of risks,
including operational risks,
regulatory (including environmental regulations) and legal compliance risks, credit and interest rate risks, competitive risks, liquidity risks, cybersecurity risks and strategic and reputational
risks. Developing and implementing strategies to manage these risks is the responsibility of management, and that responsibility is carried out by assignments of responsibility to various officers and
other employees of the Company under the direction of HEI's Chief Financial Officer, who also serves as HEI's chief risk officer. The role of the Board is to oversee the management of these risks.
The
Board's specific risk oversight functions are as follows:
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- The Board has approved a consolidated enterprise risk management (ERM) system recommended by management. The system is designed to identify and
assess risks across the HEI enterprise so that information regarding the Company's risks can be reported to the Board, along with proposed strategies for mitigating these risks. The structure of the
ERM system is decentralized, with separate chief risk officers at each of Hawaiian Electric and ASB in addition to HEI's chief risk officer. The chief risk officer of Hawaiian Electric is also
responsible for identifying, assessing and reporting risks at HEI's other electric utility subsidiaries that operate on the neighbor islands of Hawaii, Maui, Molokai and Lanai. Each subsidiary chief
risk officer reports directly to the respective subsidiary President and functionally to HEI's chief risk officer, who reviews such risks on a consolidated basis. The Board believes that this
decentralized risk management structure is appropriate and effective for the Company's diverse operations and holding company structure, because it allows for industry-specific risk identification and
management at the subsidiary levels while also ensuring an integrated and consolidated view of risk at the holding company level by HEI's chief risk officer. In connection with approving this ERM
system, the Board reviewed a catalog of risks and management's assessment of those risks. As part of the Board's ongoing risk oversight, HEI's chief risk officer is responsible for providing regular
reports to the Board and Audit Committee on the status of those risks, any changes to the risk catalog or management's assessment of those risks, and any other risk management matters that the Board
may request from time to time. The Board and Audit Committee also receive reports from HEI's internal auditor evaluating the effectiveness of management's implementation of the approved ERM system.
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CORPORATE GOVERNANCE
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- The Board has assigned to the Audit Committee the responsibility of assisting in the oversight of the overall risk management strategy of the
Company. In providing such assistance, the Audit Committee is specifically required to discuss policies with respect to risk assessment and risk management, including the guidelines and policies
governing the process by which risk assessment and risk management are undertaken at the Company, and to report to the Board the committee's discussion and findings so that the entire Board can
consider changes (if any) in the Company's risk profile.
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- The Board has also assigned to the Audit Committee the specific risk oversight responsibilities of (i) reviewing the Company's major
financial risk exposures and the steps management has taken to monitor and control such exposures, (ii) overseeing HEI's Code of Conduct compliance program and (iii) establishing
procedures for direct reporting of potential accounting and auditing issues to the Audit Committee. The Audit Committee reports to the Board each quarter regarding these matters.
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- The Board has assigned to the Compensation Committee the specific risk oversight responsibility of reviewing whether the compensation policies
or practices of HEI or its subsidiaries encourage employees to take risks that are reasonably likely to have a material adverse effect on such entities and of recommending new or revised policies and
practices to address any such identified risks. Included in this oversight responsibility is the Compensation Committee's review and evaluation of ASB's compensation practices for compliance with
regulatory guidance on sound incentive compensation plans. The Compensation Committee reports the results of its review and any recommendations to the Board. The results of the review are also
communicated to the Audit Committee through HEI's chief risk officer. Both the Audit and Compensation Committees are composed entirely of independent directors.
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- In addition to overall risk oversight by the HEI Board, the boards of HEI's primary operating subsidiaries, Hawaiian Electric and ASB, are
responsible for overseeing risks at their respective companies. The Hawaiian Electric Board has assigned responsibility for ongoing oversight of risk management to its Audit Committee and the ASB
Board has assigned such responsibility to its Risk Committee. Under the decentralized ERM structure discussed above, risk management activities at the subsidiary level are reported to these committees
and to the subsidiary boards through the subsidiary chief risk officers. The HEI Board and/or Audit Committee may also be invited to participate in risk oversight discussions by these subsidiary
boards and/or committees. The information from these subsidiary board and committee sessions are reported, on at least a quarterly basis, to the HEI Board by the subsidiary chief risk officers (or
their representatives), who functionally report to HEI's chief risk officer on risk management matters. These subsidiary boards are composed primarily of nonemployee directors. The subsidiary audit
committees are composed primarily of nonemployee directors who meet the independence requirements for audit committee members of companies listed on the NYSE, and with regard to the ASB Audit
Committee, comply with FDIC regulations.
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- At least annually, the Board conducts a strategic planning and risk review. As part of this review, the Board reviews fundamental financial and
business strategies and assesses the major risks facing the Company and options to mitigate those risks. To facilitate strategic planning through constructive dialogue among management and Board
members, members of management who are not directors are invited to participate in the review. Based on the review, the Board and senior management, including the HEI chief risk officer, identify key
issues to be addressed during the course of the next calendar year.
The
Board believes that, for risk oversight, it is especially important to have an independent Chairman or Lead Director in order to ensure that differing views from those of management are expressed.
Since the HEI Chairman attends the meetings of the Board, the subsidiary boards and their respective committees, the HEI Chairman is also in a unique position to assist with communications regarding
risk oversight and risk management among the Board and its committees, between the subsidiary boards and their respective committees and between directors and management.
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CORPORATE GOVERNANCE
Selection of nominees for the Board
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The
Board believes that there are skill sets, qualities and attributes that should be represented on the Board as a whole but do not necessarily need to be possessed by each director. The Nominating
and Corporate Governance Committee and the Board thus consider the qualifications and attributes of incumbent directors and director candidates both individually and in the aggregate in light of the
current and future needs of HEI and its subsidiaries.
The
Nominating and Corporate Governance Committee assists the Board in identifying and evaluating persons for nomination or re-nomination for Board service or to fill a vacancy on the Board. To
identify qualified candidates for HEI Board membership, the Committee may consider persons who are serving on its subsidiary boards as well as persons suggested by Board members, management and
shareholders or may retain a third-party search firm to help identify qualified candidates. The Committee's evaluation process does not vary based on whether a candidate is recommended by a
shareholder, a Board member, a member of management or self-nomination.
Once
a person is identified as a potential director candidate, the committee may review publicly available information to assess whether the candidate should be further considered. If so, a committee
member or designated representative for the committee will contact the person. If the person is willing to be considered for nomination, the person is asked to provide additional information regarding
his or her background, his or her specific skills, experience and qualifications for Board service, and any direct or indirect relationships with the Company. In addition, one or more interviews may
be conducted with committee and Board members, and committee members may contact one or more references provided by the candidate or others who would have first-hand knowledge of the candidate's
qualifications and attributes.
In
evaluating the qualifications and attributes of each potential candidate (including incumbent directors) for nomination or re-nomination or appointment to fill a vacancy, the committee
considers:
-
- the candidate's qualifications, consisting of his/her knowledge (including relevant industry knowledge), understanding of the Company's
businesses and the environment within which the Company operates, experience, skills, substantive areas of expertise, financial literacy, innovative thinking, business judgment, achievements and other
factors required to be considered under applicable laws, rules or regulations;
-
- the candidate's attributes, comprising independence, personal and professional integrity, character, reputation, ability to represent the
interests of all shareholders, time availability in light of other commitments, dedication, absence of conflicts of interest, diversity, appreciation of multiple cultures, commitment to deal
responsibly with social issues and other stakeholder concerns and other factors that the committee considers appropriate in the context of the needs of the Board;
-
- familiarity with and respect for corporate governance requirements and practices;
-
- with respect to incumbent directors, the self-evaluation of the individual director, his or her current qualifications and his or her
contributions to the Board;
-
- the current composition of the Board and its committees; and
-
- intangible qualities of the candidate including the ability to ask difficult questions and, simultaneously, to work collegially with members of
the Board, as well as to work effectively with management.
The
Board considers the recommendations of the Nominating and Corporate Governance Committee and then makes the final decision whether to renominate incumbent directors and whether to approve and
extend an invitation to a candidate to join the Board upon appointment or election, subject to any approvals required by law, rule or regulation.
Diversity in identifying nominees for the Board
|
In
assisting the Board in identifying qualified director candidates, the Nominating and Corporate Governance Committee considers whether the candidate would contribute to the expertise, skills and
professional
12
Table of Contents
CORPORATE GOVERNANCE
experience,
as well as to the diversity of the Board in terms of race, ethnicity, gender, age, geography and cultural background. The Board believes it functions most effectively with members who
collectively possess a range of substantive expertise, skills and experience in areas that are relevant to leading HEI in accordance with the Board's fiduciary responsibilities. The Board also
believes that having a board composed of members who
can collectively contribute a range of perspectives, including perspectives that may arise from a person's gender or ethnicity, improves the quality of the Board's deliberations and decisions because
it enables the Board to view issues from a variety of perspectives and, thus, more thoroughly and completely. As the Company's operations and strategic plans and the Board's composition may evolve
over time, the Nominating and Corporate Governance Committee is charged with identifying and assessing the appropriate mix of knowledge areas, qualifications and personal attributes contributed by
Board members that will bring the most strategic and decision-making advantage to HEI.
With
operations almost exclusively in the State of Hawaii, it is advantageous that our Board be composed largely of members who live and work in the state and have firsthand knowledge of and
experience with our customer base and the political and regulatory environment. Since a large pool of potential candidates for Board membership come from Hawaii, the Board benefits from the unique
racial diversity that exists in this state. If the shareholders vote to elect the three director nominees proposed by the Board for election at the 2018 Annual Meeting, the resulting composition of
the Board would be as follows: four directors (or 44.4%) who are Caucasian, four directors (or 44.4%) who are Asian American and one director (or 11.1%) who is Caucasian, Asian American and native
Hawaiian. Two (or 22.2%) of the nine directors are female.
The
Board also recognizes that, due to Hawaii's geographic isolation from the continental United States and the comparatively small number of publicly-traded companies, banks and regulated utilities
based in Hawaii, the Board also benefits from having among its members directors who have gained business experience at companies located in other states; those Board members contribute valuable
information about experiences they have had working at or serving on the boards of other public companies and companies in similar industries, which also contributes to the breadth of perspectives on
the Board.
Director resignation policies
|
Through
its Corporate Governance Guidelines, the Board requires its members to submit a letter of resignation for consideration by the Board in certain circumstances. A director must tender his or her
resignation in the event of a significant change in the director's principal employment and at the end of the term during which the director reaches age 75. In addition to the evaluation process
discussed on page 16, requiring a director to submit a letter of resignation in these two circumstances ensures that the Board examines whether a director's skills, expertise and attributes
continue to provide value over time.
A
director must also submit his or her resignation for consideration by the Board if the director is elected under the plurality vote standard (described on page 68) but does not receive the
support of the majority of votes cast. In such an event, the Board will evaluate the reasons for the voting result and determine how best to address the shareholder concerns underlying that result. In
some cases, the Board may decide that the best approach is to accept the director's resignation. In other cases, the Board may discover that a shareholder concern that was the cause of the vote
outcome may more appropriately be addressed by taking other action.
The Board's role in management succession planning
|
The
Board, led by its Nominating and Corporate Governance Committee, is actively engaged in succession planning and talent development, with a focus on the CEO and senior management of HEI and its
operating subsidiaries. The Board and the Nominating and Corporate Governance Committee consider talent development programs and succession candidates through the lens of Company strategy and
anticipated future opportunities and challenges. At its meetings throughout the year, the Nominating and Corporate
13
Table of Contents
CORPORATE GOVERNANCE
Governance
Committee reviews progress of talent development and succession programs and discusses internal and external succession candidates, including their capabilities, accomplishments, goals and
development plans. The full Board also reviews and discusses talent strategy and evaluations of potential succession candidates at an annual Board retreat. In addition, potential leaders are given
frequent exposure to the Board through formal presentations and informal events. These reviews, presentations and other interactions familiarize the Board with the Company's talent pool to enable the
Board to select successors for the senior executive positions when appropriate.
Shareholder communication with the directors
|
Interested
parties, including shareholders, desiring to communicate with the Board, any individual director or the independent directors as a group regarding matters pertaining to the business or
operations of HEI may address their correspondence in care of the Corporate Secretary, Hawaiian Electric Industries, Inc., P.O. Box 730, Honolulu, HI 96808-0730. The HEI Corporate
Secretary may review, sort and summarize all such correspondence in order to facilitate communications to the Board. In addition, the HEI Corporate Secretary has the authority and discretion to handle
any director communication that is an ordinary course of business matter, including routine questions, complaints, comments and related communications that can appropriately be handled by management.
Directors may at any time request copies of all correspondence addressed to them. The charter of the HEI Audit Committee, which is available for review at www.hei.com/govdocs, sets forth procedures for
submitting complaints or concerns regarding financial statement disclosures, accounting, internal
accounting controls or auditing matters on a confidential, anonymous basis.
14
Table of Contents
BOARD OF DIRECTORS
BOARD OF DIRECTORS
Under
HEI's Corporate Governance Guidelines, a majority of Board members must qualify as independent under the listing standards of the NYSE and any additional requirements as determined by the Board
from time to time.
-
- For a director to be considered independent under NYSE listing standards, the Board must determine that the director does not have any direct
or indirect material relationship with HEI or its subsidiaries apart from his or her service as a director. The NYSE listing standards also specify circumstances under which a director may not be
considered independent, such as when the director has been an employee of the Company within the last three fiscal years, if the director has had certain relationships with the Company's external or
internal auditor within the last three fiscal years or when the Company has made or received payments for goods or services to entities with which the director or an immediate family member of the
director has specified affiliations and the aggregate amount of such payments in any year within the last three fiscal years exceeds the greater of $1 million or 2% of such entity's
consolidated gross revenues for the fiscal year.
-
- The Board has also adopted Categorical Standards for Director Independence (HEI Categorical Standards), which are available for review on HEI's
website at www.hei.com/govdocs. The HEI Categorical Standards specify circumstances under which a director may not be considered independent. In
addition to the circumstances that would preclude independence under the NYSE listing standards, the HEI Categorical Standards provide that a director is not independent if HEI and its subsidiaries
have made charitable contributions to a nonprofit organization for which the director serves as an executive officer and the aggregate amount of such contributions in any single fiscal year of the
nonprofit organization within the last three fiscal years exceeds the greater of $1 million or 2% of such organization's consolidated gross revenues for the fiscal year.
The
Nominating and Corporate Governance Committee and the Board considered the relationships described below in assessing the independence of Board members. Based on its consideration of such
relationships and the recommendations of the Nominating and Corporate Governance Committee, the Board determined that all of the nonemployee directors of HEI (Messrs. Dahl, Fargo, Russell,
Scott, Taketa, Taniguchi and Watanabe and Ms. Fowler) are independent. The remaining director, Ms. Lau, is an employee director of HEI and therefore is not independent.
Relationships considered in determining director independence:
With respect to Messrs. Scott, Taketa, Taniguchi and Watanabe, the Board considered amounts paid in the last three fiscal years to
purchase electricity from HEI subsidiaries Hawaiian Electric or Hawaii Electric Light (the sole public utilities providing electricity to the islands of Oahu and Hawaii, respectively) by entities
employing these directors or where a family member of the director was an executive officer. None of the amounts paid by these entities for electricity (excluding pass-through charges for fuel,
purchased power and Hawaii state revenue taxes) exceeded the thresholds in the NYSE listing standards or HEI Categorical Standards that would automatically result in a director not being independent.
Since Hawaiian Electric and Hawaii Electric Light are the sole sources of electric power on the islands of Oahu and Hawaii, respectively, the rates they charge for electricity are fixed by state
regulatory authority and purchasers of
electricity from these public utilities have no choice as to supplier and no ability to negotiate rates or other terms, the Board determined that these relationships do not impair the independence of
these directors.
With
respect to Dr. Scott, the Board considered charitable contributions in the last three fiscal years from HEI and its subsidiaries to the nonprofit organization where he serves as an
executive officer. None of the contributions exceeded the threshold in the HEI Categorical Standards that would automatically result in Dr. Scott not being independent. In determining that
these donations did not impair the independence of Dr. Scott, the Board also considered the fact that Company policy requires that charitable contributions from HEI or its subsidiaries to
entities where an HEI director serves as an executive officer, and where the
15
Table of Contents
BOARD OF DIRECTORS
director
has a direct or indirect material interest, and the aggregate amount donated by HEI and its subsidiaries to such organization would exceed $120,000 in any single fiscal year, be preapproved
by the Nominating and Corporate Governance Committee.
With
respect to Messrs. Fargo, Scott, Taniguchi and Watanabe, the Board considered other director or officer positions held by those directors at entities for which an HEI executive officer
serves as a director or trustee and determined that none of these relationships affected the independence of these directors. None of these relationships resulted in a compensation committee interlock
or would automatically preclude independence under the NYSE listing standards or HEI Categorical Standards.
In
2017, there were seven regular meetings and one special meeting of the Board. All directors who served on the Board in 2017 attended at least 90% of the combined total number of meetings of the
Board and Board committees on which they served during the year.
Executive sessions of the Board
|
The
nonemployee directors meet regularly in executive sessions without management present. In 2017, these sessions were chaired by Mr. Watanabe, who is the Chairman of the Board and an
independent nonemployee director. Mr. Watanabe may request from time to time that another independent director chair the executive sessions.
Board attendance at annual meetings
|
All
of HEI's incumbent directors who served on the Board in 2017 attended the 2017 Annual Meeting of Shareholders. HEI encourages all directors to attend each year's Annual Meeting.
The
Board conducts annual evaluations to determine whether it and its committees are functioning effectively. As part of the evaluation process, each member of the Audit, Compensation and Nominating
and Corporate Governance Committees annually evaluates the performance of each committee on which he or she serves.
Each
director up for reelection also evaluates his or her own performance. The nonemployee directors also periodically complete peer evaluations of the other nonemployee directors. The evaluation
process is overseen by the Nominating and Corporate Governance Committee, in consultation with the Chairman.
16
Table of Contents
COMMITTEES OF THE BOARD
COMMITTEES OF THE BOARD
Board committee composition and meetings
|
The
Board has four standing committees: Audit, Compensation, Executive and Nominating and Corporate Governance. Members of these committees are appointed annually by the Board, taking into
consideration the recommendations of the Nominating and Corporate Governance Committee. The table below shows the current members of each such committee and the number of meetings each committee held
in 2017.
|
|
|
|
|
|
|
|
|
Name
|
|
Audit
|
|
Compensation
|
|
Executive
|
|
Nominating
and
Corporate
Governance
|
|
|
|
|
|
|
|
|
|
Richard J. Dahl |
|
|
|
|
|
|
|
|
Thomas B. Fargo |
|
|
|
|
|
|
|
|
Peggy Y. Fowler |
|
|
|
|
|
|
|
|
Constance H. Lau1 |
|
|
|
|
|
|
|
|
Keith P. Russell |
|
|
|
|
|
|
|
|
James K. Scott |
|
|
|
|
|
|
|
|
Kelvin H. Taketa |
|
|
|
|
|
|
|
|
Barry K. Taniguchi |
|
|
|
|
|
|
|
|
Jeffrey N. Watanabe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of meetings in 2017 |
|
8 |
|
7 |
|
0 |
|
4 |
|
|
|
|
|
|
|
|
|
- 1
- Ms. Lau is an employee director. All other directors have been determined to be independent. See "Board of Directors Independent Directors"
above.
Functions of the Board's standing committees
|
The
primary functions of HEI's standing committees are described below. Each committee operates and acts under written charters that are approved by the Board and available for review on HEI's website
at www.hei.com/govdocs. Each of the Audit, Compensation and Nominating and Corporate Governance Committees may form subcommittees of its members and delegate authority to its subcommittees.
Audit Committee
The Audit Committee is responsible for overseeing (i) HEI's financial reporting processes and internal controls, (ii) the
performance of HEI's internal auditor, (iii) risk assessment and risk management policies set by management and (iv) the Corporate Code of Conduct compliance program for HEI and its
subsidiaries. In addition, this committee is directly responsible for the appointment, compensation and oversight of the independent registered public accounting firm that audits HEI's consolidated
financial statements. The Audit Committee operates and acts under a written charter, which was adopted and approved by the Board and is available for review at www.hei.com/govdocs. The Audit Committee
also maintains procedures for receiving and reviewing confidential reports of potential accounting and auditing concerns. See "Audit Committee Report" below for additional information about the Audit
Committee.
All
Audit Committee members are independent and qualified to serve on the committee pursuant to NYSE and SEC requirements and the Audit Committee meets the other applicable requirements of the
Securities Exchange Act of 1934.
Mr. Dahl
currently serves on the audit committees of DineEquity (NYSE: DIN), IDACORP, Inc. (NYSE: IDA), IDACORP's wholly-owned subsidiary, Idaho Power Company, and HEI's wholly-owned
subsidiary Hawaiian
Electric. The HEI Board has determined that Mr. Dahl's simultaneous service on the other audit committees would not impair his ability to effectively serve on its
17
Table of Contents
COMMITTEES OF THE BOARD
Audit
Committee. None of the other Audit Committee members serve on the audit committees of more than two other public companies.
Compensation Committee
The responsibilities of the Compensation Committee include (i) overseeing the compensation plans and programs for employees, executives
and nonemployee directors of HEI and its subsidiaries, including equity and incentive plans; (ii) reviewing the extent to which risks that may arise from the Company's compensation policies and
practices, if any, may have a material adverse effect on the Company and recommending changes to address any such risks; (iii) evaluating the compliance of ASB's incentive compensation
practices under the principles for sound incentive compensation plans for banking organizations and (iv) assessing the independence of any compensation consultant involved in determining or
recommending director or executive compensation. See "Compensation Discussion and Analysis How We Make Compensation Decisions" and "Compensation Committee Interlocks and Insider
Participation" below for additional information about the Compensation Committee.
The
Compensation Committee operates and acts under a written charter, which was adopted and approved by the Board and is available for review at www.hei.com/govdocs. All Compensation Committee members
are independent and qualified to serve on this committee pursuant to NYSE requirements and also qualify as "outside directors" within the meaning of Section 162(m) of the Internal Revenue Code
and as "nonemployee directors" as defined in Rule 16b-3 promulgated under the Securities Exchange Act of 1934. An independent member of the board of directors of each of Hawaiian Electric and
ASB attends meetings of the Compensation Committee as a nonvoting representative of such director's subsidiary board.
Executive Committee
The Executive Committee may exercise the power and authority of the Board when it appears to its members that action is necessary and a
meeting of the full Board is impractical. It may also consider other matters concerning HEI that may arise from time to time between Board meetings. The Executive Committee is currently composed of
the Chairman of the Board, who chairs the Executive Committee, the Audit Committee Chair and the HEI President and CEO. The Executive Committee operates and acts under a written charter, which was
adopted and approved by the Board and is available for review at www.hei.com/govdocs.
Nominating and Corporate Governance Committee
The functions of the Nominating and Corporate Governance Committee include (i) evaluating the background and qualifications of
potential nominees for the Board and for the boards of HEI's subsidiaries, (ii) recommending to the Board the director nominees to be submitted to shareholders for election at the next Annual
Meeting, (iii) assessing the independence of directors and nominees, (iv) recommending the slate of executive officers to be appointed by the Board and subsidiary boards,
(v) advising the Board with respect to matters of Board and committee composition and procedures, (vi) overseeing the annual evaluation of the Board, its committees and director
nominees, (vii) overseeing talent development and succession planning for senior executive positions and (viii) making recommendations to the Board and the boards of HEI's subsidiaries
regarding corporate governance and board succession planning matters. The Nominating and Corporate Governance Committee operates and acts under a written charter, which was adopted and approved by the
Board and is available for review at www.hei.com/govdocs. See "Corporate Governance" above for additional information regarding the activities of the Nominating and Corporate Governance Committee.
18
Table of Contents
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION
How director compensation is determined
|
The
Board believes that a competitive compensation package is necessary to attract and retain individuals with the experience, skills and qualifications needed to serve as a director of a publicly
traded company with a unique blend of highly regulated industries. Nonemployee director compensation is composed of a mix of cash and HEI Common Stock to align the interests of directors with those of
HEI shareholders. Only nonemployee directors are compensated for their service as directors. Ms. Lau, the only employee director of HEI, does not receive separate or additional compensation for
serving as a director. Although Ms. Lau is a member of the HEI Board, neither she nor any other executive officer participates in the determination of nonemployee director compensation.
The
Compensation Committee reviews nonemployee director compensation at least once every three years and recommends changes to the Board. In 2016, the HEI Compensation Committee asked its independent
compensation consultant, Frederic W. Cook & Co., Inc. (FW Cook), to conduct an evaluation of HEI's nonemployee director compensation practices. FW Cook assessed the
structure of HEI's nonemployee director compensation program and its value compared to competitive market practices of utility peer companies, similar to the assessments used in its executive
compensation review. The 2016 analysis took into consideration the duties and scope of responsibilities of directors. The HEI Compensation Committee reviewed the analysis in determining its
recommendations concerning the appropriate nonemployee director compensation, including cash retainers, stock awards and meeting fees for HEI directors.
The
Compensation Committee recommended approval to the Board and at its December 12, 2016 meeting, the Board approved the recommendation by FW Cook to increase the HEI director cash retainer by
$10,000 to $75,000 and annual equity by $25,000 to $100,000 in common stock in order to position HEI's director compensation near the competitive median. The increase was effective January 1,
2017.
Components of director compensation
|
Cash retainer. HEI nonemployee directors received the cash amounts shown below as retainer for their 2017 HEI Board service and
for their 2017 service on HEI and subsidiary board committees. Typically, no separate fees are paid to HEI directors for service on subsidiary company boards. Cash retainers were paid in quarterly
installments.
|
|
|
Position*
|
|
2017 Annual Retainer
|
|
|
|
HEI Nonexecutive Chairman of the Board |
|
$250,000 |
HEI Director |
|
75,000 |
HEI Audit Committee Chair |
|
15,000 |
HEI Compensation Committee Chair |
|
15,000 |
HEI Nominating and Corporate Governance Committee Chair |
|
10,000 |
HEI Audit Committee Member |
|
6,000 |
HEI Compensation Committee Member |
|
6,000 |
HEI Nominating and Corporate Governance Committee Member |
|
4,000 |
Hawaiian Electric Audit Committee Chair |
|
10,000 |
Hawaiian Electric Audit Committee Member |
|
4,000 |
ASB Audit Committee Chair |
|
10,000 |
ASB Audit Committee Member |
|
4,000 |
ASB Risk Committee Chair |
|
10,000 |
ASB Risk Committee Member |
|
4,000 |
|
|
|
- *
- No additional retainer is paid for service on the HEI Executive Committee.
19
Table of Contents
DIRECTOR COMPENSATION
Extra meeting fees. Nonemployee directors are also entitled to meeting fees for each board or committee meeting attended (as
member or chair) after the number of meetings specified below.
|
|
|
HEI Board |
|
$1,500 per meeting after 8 meetings |
HEI Audit Committee |
|
$1,500 per meeting after 10 meetings |
HEI Compensation Committee |
|
$1,500 per meeting after 6 meetings |
HEI Nominating and Corporate Governance Committee |
|
$1,500 per meeting after 6 meetings |
Hawaiian Electric Audit Committee |
|
$1,000 per meeting after 6 meetings |
ASB Audit Committee |
|
$1,000 per meeting after 10 meetings |
ASB Risk Committee |
|
$1,000 per meeting after 6 meetings |
Stock awards. On June 30, 2017, each HEI nonemployee director received shares of HEI Common Stock with a value equal to
$100,000 as an annual grant under HEI's 2011 Nonemployee Director Stock Plan (2011 Director Plan), which was approved by HEI shareholders on May 10, 2011, for the purpose of further aligning
directors' and shareholders' interests. The number of shares issued to each HEI nonemployee director was determined based on the closing sales price of HEI Common Stock on the NYSE on June 30,
2017. Stock grants to nonemployee directors under the 2011 Director Plan are made annually on the last business day in June.
Retirement benefit. HEI's Nonemployee Director Retirement Plan, which provided retirement benefits to nonemployee directors,
was terminated in 1996. Directors who were retired from their primary occupation at that time remained eligible to receive benefits under the plan based on years of service as a director at the time
of the plan's termination. All benefits payable under the plan cease upon the death of the nonemployee director.
Deferred compensation. Nonemployee directors may participate in the HEI Deferred Compensation Plan implemented in 2011 (2011
Deferred Compensation Plan) and described under "Compensation Discussion and Analysis Benefits Deferred Compensation Plans" below. Under the plan, deferred
amounts are credited with gains/losses of deemed investments chosen by the participant from a list of publicly traded mutual funds and other investment offerings. Earnings are not above-market or
preferential. Participants may elect the timing upon which distributions are to begin following separation from service (including retirement) and may choose to receive such distributions in a lump
sum or
in installments over a period of up to fifteen years. Lump sum benefits are payable in the event of disability or death. Mr. Taketa participated in this plan in 2017, but no other nonemployee
director did so. Nonemployee directors are also eligible to participate in the prior HEI Nonemployee Directors' Deferred Compensation Plan, as amended January 1, 2009, although no nonemployee
director deferred compensation under such plan in 2017.
Health benefits. Nonemployee directors may participate, at their election and at their cost, in the group employee medical,
vision and dental plans generally made available to HEI, Hawaiian Electric or ASB employees. No nonemployee director participated in such plans in 2017.
20
Table of Contents
DIRECTOR COMPENSATION
2017 DIRECTOR COMPENSATION TABLE
The table below shows the compensation paid to HEI nonemployee directors for 2017.
|
|
|
|
|
|
|
|
|
|
|
Name*
|
|
Fees Earned
or Paid in Cash
($)3
|
|
Award Paid
in Shares of
Stock
($)4
|
|
Changes in
Pension
Value &
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
Richard J. Dahl |
|
87,000 |
|
125,479 |
|
|
|
|
|
212,479 |
Thomas B. Fargo |
|
95,500 |
|
100,000 |
|
|
|
|
|
195,500 |
Peggy Y. Fowler |
|
82,500 |
|
100,000 |
|
|
|
|
|
182,500 |
Keith P. Russell |
|
95,000 |
|
100,000 |
|
|
|
|
|
195,000 |
James K. Scott |
|
79,000 |
|
100,000 |
|
|
|
|
|
179,000 |
Kelvin H. Taketa1 |
|
85,000 |
|
100,000 |
|
|
|
|
|
185,000 |
Barry K. Taniguchi |
|
100,000 |
|
100,000 |
|
|
|
|
|
200,000 |
Jeffrey N. Watanabe, Chairman2 |
|
336,500 |
|
100,000 |
|
|
|
|
|
436,500 |
|
|
|
|
|
|
|
|
|
|
|
- 1
- In 2017, Mr. Taketa elected to defer $68,000 of his fees under the 2011 Deferred Compensation Plan. Mr. Taketa did not have above-market or preferential
earnings on nonqualified deferred compensation in 2017.
- 2
- Mr. Watanabe's fees were for service as director and Chairman of the HEI Board
and as a member of the Compensation Committee. He also served on the HEI
Executive Committee and the ASB Board and Executive Committee, as well as the Hawaiian Electric Board and ASB Risk Committee. Mr. Watanabe's HEI Chairman responsibilities are described above
under "Corporate Governance The Board's leadership structure."
- 3
- Represents cash retainers for board and committee service (as
detailed below). See detail of cash retainers for Board and committee service
below.
- 4
- For all HEI nonemployee directors other than Mr. Dahl, this amount represents an HEI stock award in the value of $100,000, as
described above under "Stock
awards." Due to Mr. Dahl's January 1, 2017 appointment, he also received a new director stock grant pro-rated to cover the period from the date of his appointment to the 2017 annual
meeting.
The
table below shows the detail of cash retainers paid to HEI nonemployee directors for Board and committee service (including subsidiary committee service) in 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name*
|
|
HEI
Board
Retainer
($)
|
|
HEI
Committee
Retainer
($)
|
|
HEI
Chairman
Retainer
($)
|
|
HEI
Extra
Meeting
Fees1
($)
|
|
HECO
Audit
Committee
Retainer
($)
|
|
HECO
Extra
Meeting
Fees
($)
|
|
ASB
Audit
Committee
Retainer
($)
|
|
ASB
Risk
Committee
Retainer
($)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard J. Dahl |
|
75,000 |
|
6,000 |
|
|
|
|
|
4,000 |
|
2,000 |
|
|
|
|
|
87,000 |
Thomas B. Fargo |
|
75,000 |
|
19,000 |
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
95,500 |
Peggy Y. Fowler |
|
75,000 |
|
6,000 |
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
82,500 |
Keith P. Russell |
|
75,000 |
|
6,000 |
|
|
|
|
|
|
|
|
|
4,000 |
|
10,000 |
|
95,000 |
James K. Scott |
|
75,000 |
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
79,000 |
Kelvin H. Taketa |
|
75,000 |
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
85,000 |
Barry K. Taniguchi |
|
75,000 |
|
15,000 |
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
100,000 |
Jeffrey N. Watanabe, HEI Chairman |
|
75,000 |
|
6,000 |
|
250,000 |
|
1,500 |
|
|
|
|
|
|
|
4,000 |
|
336,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 1
- Represents extra meeting fees earned for attending committee meetings in excess of the number of meetings specified on page 20.
21
Table of Contents
DIRECTOR COMPENSATION
Director stock ownership and retention
HEI directors are required to own and retain HEI Common Stock throughout their service with the Company. Each director has until his or her
compliance date (January 1 of the year following the fifth anniversary of the later of (i) amendment to his or her required level of stock ownership or (ii) first becoming subject
to the requirements) to reach the following ownership levels: Chairman of the Board 2x annual cash retainer; other HEI directors 5x annual cash retainer. As
of January 1, 2017, each director who had reached his or her compliance date had achieved his or her stock ownership target.
Until
reaching the applicable stock ownership target, directors must retain all shares received under their annual stock retainer. The Compensation Committee has the authority to approve hardship
exceptions to these retention requirements.
22
Table of Contents
PROPOSAL NO. 2: ADVISORY VOTE TO APPROVE THE COMPENSATION OF HEI'S NAMED EXECUTIVE OFFICERS
PROPOSAL NO. 2: ADVISORY VOTE TO APPROVE THE COMPENSATION OF HEI'S NAMED EXECUTIVE OFFICERS
We
are asking for your advisory vote on the compensation of our named executive officers as described in this Proxy Statement. This proposal, commonly known as a "say-on-pay" proposal, gives
shareholders the opportunity to express their views on the overall compensation of our named executive officers and the policies and practices described in this Proxy Statement.
The
Compensation Committee and Board believe that HEI's executive compensation is effective in achieving our goals of promoting long-term value for shareholders and attracting, motivating and
retaining the talent necessary to create such value. Accordingly, the Board recommends that you vote FOR the following resolution:
Resolved, that the shareholders approve, in an advisory vote, the compensation of HEI's named executive officers as disclosed in the Compensation Discussion and Analysis and
Executive Compensation Tables sections of the Proxy Statement for the 2018 Annual Meeting of Shareholders.
Please
read the Compensation Discussion and Analysis and Executive Compensation Tables portions of this Proxy Statement. These sections describe the Company's executive compensation policies and
practices and the compensation of our named executive officers.
While
the say-on-pay vote is advisory and is therefore nonbinding, the Compensation Committee and Board consider the vote results when making future decisions regarding HEI's executive compensation.
ü
FOR
Your
Board recommends that you vote FOR the advisory resolution approving the compensation of HEI's named executive officers as disclosed in this Proxy Statement.
23
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
COMPENSATION DISCUSSION AND ANALYSIS
This
section describes our executive compensation program and the compensation decisions made for our 2017 named executive officers. For 2017, we have five named executive officers, our Chief
Executive Officer, the two
individuals who served as our Chief Financial Officer for some portion of the year, and our two other executive officers during 2017, the chief executives at Hawaiian Electric (our electric utility
subsidiary) and ASB (our bank subsidiary), respectively:
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Name
|
|
Title
|
|
Entity
|
|
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|
|
|
Constance H. Lau |
|
HEI President & CEO |
|
Holding company |
Gregory C. Hazelton |
|
HEI Executive Vice President & Chief Financial Officer |
|
Holding company |
Alan M. Oshima |
|
Hawaiian Electric President & CEO |
|
Electric utility subsidiary |
Richard F. Wacker |
|
ASB President & CEO |
|
Bank subsidiary |
James A. Ajello* |
|
Former HEI Executive Vice President & Chief Financial Officer |
|
Holding company |
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|
|
|
|
- *
- Mr. Ajello retired effective April 2, 2017.
Our guiding principles shape our program design and pay decisions
In designing HEI's executive compensation program and making pay decisions, the Compensation Committee follows these guiding principles:
-
- pay should reflect Company performance, particularly over the long-term,
-
- compensation programs should align executives' interests with those of our shareholders and other stakeholders,
-
- programs should be designed to attract, motivate and retain talented executives who can drive the Company's success, and
-
- the cost of programs should be reasonable while maintaining their purpose and benefit.
Key design features
-
- Straight-forward design. The compensation program for our named executive officers comprises four primary
elements base salary, performance-based annual incentives, performance-based long-term incentives earned over three years and time-based restricted stock units (RSUs) that vest in
equal annual installments over four years.
-
- Emphasis on variable (performance-based) pay. Through the target compensation mix, we emphasize variable
pay over fixed pay, with the majority of the target compensation opportunity for each named executive officer linked to the Company's financial, market and operating results.
-
- Balance between short- and long-term components. The compensation program also balances the importance of
achieving long-term strategic priorities and critical short-term goals that support long-term objectives.
24
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
Our compensation practices demonstrate our commitment to sound governance
The tables below summarize our current executive compensation practices both what we do (to drive performance and manage
risk) and what we don't do:
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What We Do |
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ü |
|
Link pay to performance |
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ü |
|
Utilize rigorous performance conditions that encourage long-term value creation |
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ü |
|
Balance short- and long-term compensation to promote sustained performance over time |
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ü |
|
Grant majority of long-term incentives in the form of performance-based awards |
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ü |
|
Use the competitive median as a reference point in setting compensation levels |
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ü |
|
Review tally sheets when making compensation decisions |
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ü |
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Mitigate undue risk in compensation programs |
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ü |
|
Utilize "double-trigger" change-in-control agreements |
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ü |
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Maintain clawback policy for performance-based compensation |
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ü |
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Require stock ownership and retention by named executive officers; CEO must own five times her base salary |
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ü |
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Prohibit pledging of Company stock and transactions designed to hedge the risk of stock ownership |
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ü |
|
Utilize an independent compensation consultant to advise the Compensation Committee |
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What We Don't Do |
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No employment contracts |
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No tax gross ups, except under the Executive Death Benefit Plan frozen in 2009 |
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No compensation programs that are reasonably likely to create material risk to the Company |
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No significant perquisites |
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No dividends or dividend equivalents on unearned performance shares |
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2017 say-on-pay results, shareholder outreach and 2018 program
At
our 2017 Annual Meeting of Shareholders, 94% of votes cast approved our executive compensation program through the advisory say-on-pay vote. In addition, in 2018, we invited shareholders who
collectively held more than 25% of HEI's outstanding shares and key proxy advisory organizations to discuss our executive compensation program. From such outreach, we learned that there was general
approval of our program.
The
executive compensation program in place in 2015 and 2016 reflected the fact that HEI's proposed merger with NextEra Energy was pending at that time. In early 2015 and 2016, respectively, the
Compensation Committee had provided for the 2015-17 and 2016-18 LTIP to be settled in cash rather than in equity as in prior years, and for relative total shareholder return (TSR) to be replaced by
earnings per share (EPS) growth as one of the LTIP metrics. These changes were implemented because the Compensation Committee had determined that while the merger was pending the Company's stock price
might be affected at least in part by merger considerations that were unrelated to the Company's true operating performance and that, as a result, the compensatory goals of the LTIP would be better
served without such merger impact. Since the merger agreement between HEI and NextEra Energy was terminated in July 2016, and consistent with the feedback we received from stakeholders during our
outreach at that time, the Compensation Committee determined that the 2017-19 and 2018-20 LTIPs would return to being settled in equity and include relative TSR as one of the performance metrics.
25
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
How we make compensation decisions
Our roles in determining compensation are well-defined
|
Role of the Compensation Committee
The Compensation Committee oversees the design and implementation of our executive compensation program. On an annual basis, the Compensation
Committee engages in a rigorous process to arrive at compensation decisions regarding the named executive officers. In the course of this process, the Compensation Committee:
-
- Engages in extensive deliberations in meetings held over several months
-
- Consults with its independent compensation consultant during and outside of meetings
-
- Focuses on the Company's long-term strategy and nearer-term goals to achieve such strategy in setting performance metrics and goals
-
- Reviews tally sheets for each named executive officer to understand how the elements of compensation relate to each other and to the
compensation package as a whole (the tally sheets include fixed and variable compensation, minimal perquisites and change in pension value for current and past periods)
-
- Examines data and analyses prepared by its independent compensation consultant concerning peer group selection, comparative compensation data
and evolving best practices
-
- Reviews Company performance and discusses assessments of the individual performance of senior members of management
-
- Analyzes the reasonableness of incentive payouts in light of the long-term benefits to shareholders
-
- Considers trends in payouts to determine whether incentive programs are working effectively
-
- Reviews risk assessments to determine whether compensation programs and practices carry undue risk
Early
each year, the Compensation Committee determines payouts under incentive plans ending in the prior year, establishes performance metrics and goals for incentive plans beginning that year and
recommends to the Board and subsidiary boards the level of compensation and mix of pay elements for each named executive officer.
Role of the independent directors as a whole
The
independent directors evaluate the CEO's performance, consider Compensation Committee recommendations concerning her pay and determine her compensation. The Board and subsidiary boards also review
the performance of and Compensation Committee recommendations concerning the other named executive officers and approve their compensation.
Role of executive officers
The
CEO, who is also an HEI director, assesses and reports on the performance of the other named executive officers and makes recommendations to the Compensation Committee with respect to their levels
of compensation and mix of pay elements. She also participates in Board deliberations regarding the Compensation Committee's recommendations on the other named executive officers. She does not
participate in the deliberations of the Compensation Committee to recommend, or of the Board to determine, her own compensation.
Management
supports the Compensation Committee in executing its responsibilities by providing materials for Compensation Committee meetings (including tally sheets and recommendations regarding
performance metrics, goals and pay mix); by attending portions of Compensation Committee meetings as appropriate to provide perspective and expertise relevant to agenda items; and by supplying data
and information as requested by the Compensation Committee and/or its independent compensation consultant.
26
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
Compensation consultant & consultant independence
The
Compensation Committee's independent compensation consultant, Frederic W. Cook & Co., Inc. (FW Cook), is retained by, and reports directly to, the Compensation Committee. FW
Cook provides the Compensation Committee with independent expertise on market practices and developments in executive compensation, compensation program design, peer group composition and competitive
pay levels, and provides related research, data and analysis. FW Cook also advises the Compensation Committee regarding analyses and proposals presented by management related to executive
compensation. A representative of FW Cook generally attends Compensation Committee meetings, participates in Compensation Committee executive sessions and communicates directly with the Compensation
Committee.
In
early 2018, as in prior years, the Compensation Committee evaluated FW Cook's independence, taking into account all relevant factors, including the factors specified in the NYSE listing standards
and the absence of other relationships between FW Cook and the Company, its directors or executive officers. Based on such factors and FW Cook's independence policy, which was shared with the
Compensation Committee, the Compensation Committee concluded that FW Cook is independent and that the work of FW Cook has not raised any conflict of interest.
We use comparative market data as a reference point for compensation
Compensation benchmarking
|
The
Compensation Committee considers comparative market compensation as a reference in determining pay levels and mix of pay components. While the Compensation Committee seeks to position named
executive officer target compensation opportunity (comprised of base salary, target performance-based annual incentive, target performance-based long-term incentive and time-vested RSUs) at
approximately the comparative market median, the Compensation Committee may decide that an executive's pay opportunity should be higher or lower based on internal equity or the executive's level of
responsibility, experience, expertise, performance, retention and succession considerations.
Information
from public company proxy statements for peer group companies was used to provide comparative market data in setting 2017 compensation for all named executive officers. Data from the
Willis Towers Watson Energy Services Survey, which consists of compensation data for 111 companies, was also used in establishing
2017 compensation. The data was regressed based on revenues of $2.7 billion for appropriate size comparison for each of HEI and Hawaiian Electric.
Compensation peers
The
Compensation Committee annually reviews the peer groups used in benchmarking for HEI and subsidiary executive compensation, with analysis and recommendations provided by FW Cook. For 2017
compensation, the Compensation Committee determined, with input from FW Cook, that ALLETTE, Black Hills, IdaCorp, and Northwestern Corp should be added to the peer group and that Integrys Energy,
Pepco Holdings, TECO Energy, UIL Holdings, and Wisconsin Energy should be removed from the peer group. The selection criteria and resulting 2017 peer groups are set forth below.
27
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
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HEI 2017 Peer Group (applies to Ms. Lau, Mr. Hazelton and Mr. Ajello) |
|
|
|
Utility Subsidiary 2017 Peer Group (applies to Mr. Oshima) |
|
|
|
Bank Subsidiary 2017 Peer Group (applies to Mr. Wacker) |
|
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Selection Criteria |
|
|
|
Electric and multi-utility companies
Revenue balanced in a range of approximately 0.5x to 2x HEI's revenue
Market cap and location as secondary considerations |
|
|
|
Subset of electric and multi-utility companies from HEI's peer group
Revenue balanced in a range of approximately 0.5x to 2x Hawaiian Electric's revenue |
|
|
|
Regional banks and thrifts
Total assets balanced in a range of approximately 0.5x to 2x ASB's total assets
Proportion of loan portfolio comprised of 1-4 family loans similar to ASB |
|
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|
Peer Group for 2017 Compensation |
|
|
|
ALLETTE
Alliant Energy
Ameren
Avista
Black Hills
CenterPoint Energy
CMS Energy
Eversource Energy
Great Plains Energy
IdaCorp
MDU Resources
NiSource
Northwestern Corp
OGE Energy
Pinnacle West
PNM Resources
Portland General
SCANA
Vectren
WEC Energy
Westar Energy* |
|
|
|
ALLETTE
Alliant Energy
Avista
Black Hills
Great Plains Energy
IdaCorp
MDU Resources
NiSource
Northwestern Corp
OGE Energy
Pinnacle West
PNM Resources
Portland General
SCANA
Vectren
Westar Energy* |
|
|
|
Ameris Bancorp
Beneficial Bankcorp
Berkshire Hills Bancorp
Central Pacific Financial
Community Bank System
CVB Financial
First Busey
First Financial Bank
HomeStreet
Independent Bank
Opus Bank
Park National
Republic Bancorp
Renasant Corp
Sandy Spring Bancorp
Seacoast Banking
South State
Tomkins Financial
TriCo Bancshares
United Financial
Westamerica Bancorp |
|
|
|
|
|
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|
|
|
|
* Acquired by another corporation after peer data was used in setting 2017 compensation.
Performance peers
In
addition to the peer companies used for benchmarking executive compensation, certain of the performance metrics used in the long-term incentive plans (described below under "Long-term incentives")
are based on performance relative to performance peers. HEI's Relative TSR performance is based on HEI's performance compared to the utilities in the Edison Electric Institute (EEI) Index and ASB's
Relative Return on Assets (ROA) performance metric is based on ASB's performance compared to that of all U.S. banks with assets of $3.5 billion to $8 billion. See note 4 to the
"2015-17 Long-Term Incentive Performance Metrics & Why We Use Them" table on page 38 for an explanation of ASB's Relative ROA metric. The performance peers for ASB's Relative ROA metric are set
forth below.
2015 Bank Performance Peer Group for Long-Term Incentive Plan Relative ROA Metric
The performance peer group for ASB's 2015-17 long-term incentive plan Relative ROA metric includes all publicly traded banks and thrifts with
total assets between $3.5 billion and $8 billion. The specific banks and thrifts in the Relative ROA peer group in one year may differ from the banks and thrifts in the group in the next
year, as total assets
28
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
for
a given institution may change from year to year. The following list identifies the companies in ASB's Performance Peer Group for 2015:
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|
1st Source Corporation
Ameris Bancorp
BancFirst Corporation
Bancorp, Inc.
Bank of the Ozarks, Inc.
Banner Corporation
BBCN Bancorp, Inc.
Berkshire Hills Bancorp, Inc.
BNC Bancorp
Boston Private Financial Holdings, Inc.
Brookline Bancorp, Inc.
Capital Bank Financial Corporation
CenterState Banks, Inc.
Central Pacific Financial Corporation
Century Bancorp, Inc.
Chemical Financial Corporation
Community Bank System, Inc.
Community Trust Bancorp, Inc.
Customers Bancorp, Inc.
CVB Financial Corp.
Dime Community Bancshares, Inc.
Eagle Bancorp, Inc. |
|
|
|
Farmers & Merchants Bank of Long Beach
FCB Financial Holdings, Inc.
First Busey Corporation
First Commonwealth Financial Corporation
First Financial Bancorp.
First Financial Bankshares, Inc.
First Merchants Corporation
Flushing Financial Corporation
Great Southern Bancorp, Inc.
Heartland Financial USA, Inc.
Home BancShares, Inc.
HomeStreet, Inc.
Independent Bank Corporation
Kearney Financial Corp. (MHC)
Lakeland Bancorp, Inc.
Legacy Texas Financial Group, Inc.
National Bank Holdings Corporation
NBT Bancorp Inc.
Northwest Bancshares, Inc.
OFG Bancorp
Opus Bank
Park National Corporation |
|
|
|
Pinnacle Financial Partners, Inc.
Renasant Corporation
Republic Bancorp, Inc.
S&T Bancorp, Inc.
Sandy Spring Bancorp, Inc.
ServiceFirst Bancshares, Inc.
Simmons First National Corporation
South State Corporation
Sterling Bancorp
Tompkins Financial Corporation
TriCo Bancshares
TrustCo Bank Corp NY
Union Bankshares Corporation
United Community Banks, Inc.
United Financial Bancorp, Inc.
Washington Trust Bancorp, Inc.
WesBanco, Inc.
Westamerica Bancorporation
Willshire Bancorp, Inc.
WSFS Financial Corporation
Yadkin Financial Corporation |
|
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|
|
|
|
|
|
See
note 3 to the "2017-19 Long-Term Incentive Performance Metrics & Why We Use Them" table on page 36 for an explanation of HEI's Relative TSR metric. The performance peers for HEI's
Relative TSR metric are set forth below.
2017 Edison Electric Institute Index (EEI) Peers for HEI Long-Term Incentive Plan Relative TSR Metric
The EEI is an association of U.S. shareholder-owned electric companies that are representative of comparable investment alternatives to HEI.
The EEI's members serve virtually all of the ultimate customers in the shareholder-owned segment of the industry. The following companies comprise the 2017 EEI Index used for HEI's Relative TSR
metric:
|
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|
ALLETTE, Inc.
Alliant Energy Corp.
Ameren Corp.
American Electric Power Co.
Avangrid
Avista Corp.
Black Hills Corp.
Centerpoint Energy Inc.
CMS Energy Corp.
Consolidated Edison Inc.
Dominion Resources Inc. |
|
|
|
DTE Energy Co.
Duke Energy Corp.
Edison International
El Paso Electric Co.
Empire District Electric Co.
Entergy Corp.
Eversource Energy
Exelon Corp.
FirstEnergy Corp.
Great Plains Energy Inc.
IDACORP Inc. |
|
|
|
MDU Resources Group Inc. MGE Energy Inc.
NextEra Energy Inc.
NiSource Inc.
Northwestern Corp.
OGE Energy Corp.
Otter Tail Corp.
PG&E Corp.
Pinnacle West Capital Corp.
PNM Resources Inc.
Portland General Electric |
|
|
|
PPL Corp.
Public Service Enterprise Group Inc.
SCANA Corp.
Sempra Energy
Southern Co.
Unitil Corp.
Vectren Corp.
WEC Energy Group Inc.
Westar Energy Inc.
Xcel Energy Inc. |
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29
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
What we pay and why: Compensation elements and 2017 pay decisions
Each element of compensation supports important objectives
|
The
total compensation program for named executive officers is made up of the five standard components summarized below. Each component fulfills important objectives that reflect our focus on pay for
performance, competitive programs to attract and retain talented executives and aligning executive decisions with the interests of the Company and our shareholders. These elements are described in
further detail in the pages that follow.
|
|
|
|
|
Compensation Element
|
|
Summary
|
|
Objectives
|
|
|
|
|
|
Base Salary* |
|
Fixed level of cash compensation set in reference to peer group median (may vary based on performance, experience, responsibilities and other factors). |
|
Attract and retain talented executives by providing competitive fixed cash compensation. |
Annual Performance-Based Incentives |
|
Variable cash award based on achievement of pre-set performance goals for the year. Award opportunity is a percentage of base salary. Performance below threshold levels yields no incentive payment. |
|
Drive achievement of key business results linked to short-term and long-term strategy and reward executives for their contributions to such results. Balance compensation cost and return by paying awards based on
performance. |
Long-Term Performance-Based Incentives |
|
Variable equity award based on meeting pre-set performance objectives over a 3-year period. Award opportunity is a percentage of base salary. Performance below threshold levels yields no incentive payment. |
|
Motivate executives and align their interests with those of shareholders by promoting long-term value growth and by paying awards in the form of equity. Balance compensation cost and return by paying awards based on performance. |
Annual RSU Grant |
|
Annual equity grants in the form of RSUs that vest in equal installments over 4 years. Amount of grant is a percentage of base salary. |
|
Promote alignment of executive and shareholder interests by ensuring executives have significant ownership of HEI stock. Retain talented leaders through multi-year vesting. |
Benefits |
|
Includes defined benefit pension plans and retirement savings plan (for HEI/utility employees) and defined contribution plan (for bank employees); deferred compensation plans; double-trigger change-in-control agreements; minimal perquisites; and an
executive death benefit plan (frozen since 2009). |
|
Enhance total compensation with meaningful and competitive benefits that promote retention, peace of mind and contribute to financial security. Double-trigger change-in-control agreements encourage focused attention of executives during major
corporate transitions. |
|
|
|
|
|
- *
- For all NEOs other than Mr. Wacker, beginning in 2017, approved base salaries became effective as of March 1, 2017. For 2015 and 2016, base salaries were
effective retroactively to January 1 and covered the entire calendar year. Accordingly, unless otherwise indicated, amounts referenced as 2017 base salary throughout this "Compensation
Discussion and Analysis" section is comprised of a prorated amount representing two months of 2016 base salary and 10 months of 2017 base salary.
Changes to elements in 2017
|
On
an annual basis, the Compensation Committee reviews and recommends each named executive officer's target compensation opportunity, which is composed of: base salary, target annual incentive
opportunity and target
30
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
long-term
equity value. Target bonus and equity values are established as a percentage of base salary. The Compensation Committee made changes to base salary for 2017, as shown in the chart below.
|
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|
Base Salary
($) |
|
Performance-based
Annual Incentive
(Target Opportunity1
as % of
Base Salary) |
|
Performance-based
Long-term Incentive
(Target Opportunity1
as % of
Base Salary) |
|
RSUs
(Value as % of
Base Salary) |
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Name |
|
2016 |
|
2017 |
|
2016 |
|
2017 |
|
2016-18 |
|
2017-19 |
|
2016 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constance H. Lau |
|
864,700 |
|
893,533 |
|
100 |
|
same |
|
160 |
|
same |
|
75 |
|
same |
Gregory C. Hazelton2 |
|
450,000 |
|
487,500 |
|
60 |
|
Same |
|
80 |
|
Same |
|
Replacement award |
|
50 |
Alan M. Oshima |
|
583,500 |
|
655,583 |
|
75 |
|
same |
|
95 |
|
same |
|
65 |
|
same |
Richard F. Wacker |
|
640,800 |
|
660,000 |
|
80 |
|
same |
|
80 |
|
same |
|
20 |
|
same |
James A. Ajello3 |
|
576,800 |
|
591,217 |
|
60 |
|
same |
|
80 |
|
same |
|
50 |
|
same |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 1
- The threshold and maximum opportunities are 0.5 times target and 2 times target, respectively.
- 2
- Mr. Hazelton became HEI's Senior Vice President, Finance on October 24, 2016. His full 2016 annualized base salary of $450,000 for 2016 is shown above
but he only received $84,836 for the number of days he worked for HEI during the year. Mr. Hazelton was promoted to HEI Executive Vice President and CFO on April 2, 2017.
Mr. Hazelton's pro-rated salary for 2017 was $487,500, which is reflected in the "2017 Summary Compensation Table" on page 48. In returning to HEI, Mr. Hazelton forfeited cash and equity
compensation he would have received if he had stayed at his prior employer, including annual incentive pay for 2016, pro-rata portions of long term incentive pay for 2015-17 and 2016-18, and unvested
portions of RSUs granted by his prior employer in 2015 and 2016. To encourage Mr. Hazelton to return to HEI, the Compensation Committee deemed it appropriate to replace such forfeited
compensation.
- 3
- Mr. Ajello retired effective April 2, 2017.
Base
salaries for our named executive officers are reviewed and determined annually. In establishing base salaries for the year, the Compensation Committee considers competitive market data, internal
equity and each executive's level of responsibility, experience, expertise, performance and retention and succession considerations. The Compensation Committee considers the competitive median in
setting base salaries, but may determine that the foregoing factors compel a higher or lower salary.
For
2017, in order to recognize their performance and maintain the market competitiveness of their pay, Ms. Lau received a base salary increase of 3.3%, Mr. Hazelton received a base
salary increase of 8.3%, Mr. Oshima received a base salary increase of 12.4%, Mr. Wacker received a base salary increase of 3% and Mr. Ajello received a base salary increase of
2.5%. The resulting 2017 base salaries for the named executive officers are shown in the table above. As noted above under the "Compensation Elements" table, for all named executive officers other
than Mr. Wacker, base salary increases for 2017 became effective as of March 1, 2017 (as opposed
to retroactive to January 1, as was the case in 2015 and 2016). Accordingly, unless otherwise indicated, amounts referenced as 2017 base salary are prorated amounts as described above.
31
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
HEI
named executive officers and other executives are eligible to earn an annual cash incentive award under HEI's Executive Incentive Compensation Plan (EICP) based on the achievement of performance
goals for the
year. Each year, the Compensation Committee determines the target annual incentive opportunity for each executive, performance metrics and the applicable goals.
2017 target annual incentive opportunity
The
target annual incentive opportunity is a percentage of base salary, with the threshold and maximum opportunities equal to 0.5 times and 2 times target, respectively. In establishing the target
percentage for each executive, the Compensation Committee takes into account the mix of pay elements, competitive market data, internal equity, prior performance and other factors described above
under "Base salary."
The
2017 target annual incentive opportunities for the named executive officers are shown in the table above. For 2017, the Compensation Committee recommended, and the Board approved, keeping the
target opportunity (as a percentage of base salary) the same as the 2016 target opportunity for each of our named executive officers.
2017 performance metrics, goals, results & payouts
The
performance metrics for annual incentives are chosen because they connect directly to the Company's strategic priorities and correlate with creating shareholder value. The 2017 performance metrics
for Ms. Lau,
Mr. Hazelton and Mr. Ajello related to the holding company and its subsidiaries, while the metrics for Mr. Oshima related to the utility and the metrics for Mr. Wacker
related to the bank. The rationale for each metric is shown in the chart below.
In
addition to selecting performance metrics, the Compensation Committee determines the level of achievement required to attain the threshold, target and maximum goal for each metric. The level of
difficulty of the goals reflects the Compensation Committee's belief that incentive pay should be motivational that is, the goals should be challenging but
achievable and that such pay should be balanced with reinvestment in the Company and return to shareholders. Consistent with this approach, the Compensation Committee believes the
threshold should represent solid performance with positive financial/operating results, target should denote achievable goals that include a stretch factor and maximum should signify truly exceptional
performance.
The
target level for financial goals, such as net income and ROA, is generally set at the level of the Board-approved budget, which represents the level of accomplishment the Company seeks to achieve
for the year. In setting the threshold and maximum levels, the Compensation Committee considers whether the risks to accomplishing the budget weigh more heavily toward the downside and how challenging
it would be to achieve incremental improvements over the target level.
The
chart below identifies the 2017 annual incentive metrics, the objective each measure serves, the level of achievement required to attain the threshold, target and maximum levels for each metric,
the results for 2017 and the percentage of target achieved.
32
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goals |
|
|
|
% of
Target
Achieved
|
2017 Annual Incentive Performance
Metrics & Why We Use Them
|
|
|
|
|
|
Weighting
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Result
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lau, Hazelton and Ajello |
|
|
|
|
|
|
|
|
|
|
|
|
HEI Consolidated Adjusted Net Income1 focuses on fundamental earnings, which correlates to shareholder value |
|
60% |
|
$161.3M |
|
$179.2M |
|
$191.7M |
|
$179.5M |
|
|
Utility Operations2 supports effective utility operations for all stakeholders |
|
25% |
|
See note 2 below |
|
See note 2 below |
|
See note 2 below |
|
See note 2 below |
|
112% |
ASB Return on Assets (ROA)7 measures how efficiently the bank deploys its assets by comparing return to total assets |
|
15% |
|
0.85% |
|
0.90% |
|
0.95% |
|
1.00% |
|
|
Oshima |
|
|
|
|
|
|
|
|
|
|
|
|
Utility Consolidated Adjusted Net Income1 focuses on fundamental earnings, which correlates to shareholder value |
|
45% |
|
$128.3M |
|
$135.0M |
|
$148.5M |
|
$129.1M |
|
|
Utility Consolidated Operation and Maintenance Expense3 measures operational efficiency |
|
15% |
|
$437M |
|
$426M |
|
N/A |
|
$414M |
|
|
Utility Consolidated System Average Interruption Duration Index (SAIDI)4 promotes system reliability for customers |
|
10% |
|
105 minutes |
|
102 minutes |
|
99 minutes |
|
112 minutes |
|
70% |
Utility Consolidated Customer Satisfaction5 focuses on improving the customer experience through all points of contact with the utility |
|
5% |
|
Consolidated score of 66 in 2 of 4 quarters |
|
Consolidated score of 66 in 3 of 4 quarters |
|
Consolidated score of 66 in 4 of 4 quarters |
|
Consolidated score of 66 in 4 of 4 quarters |
|
|
Utility Consolidated Safety6 rewards improvements in workplace safety, promoting employee well-being and reducing expense |
|
5% |
|
1.25 TCIR |
|
1.03 TCIR |
|
0.92 TCIR |
|
1.84 TCIR |
|
|
Transformation Metrics promote achievement of utility transformation initiatives |
|
20% |
|
Threshold |
|
Target |
|
Maximum |
|
Target |
|
|
Wacker |
|
|
|
|
|
|
|
|
|
|
|
|
ASB ROA7 |
|
40% |
|
0.85% |
|
0.90% |
|
0.95% |
|
1.00% |
|
|
ASB Adjusted Net Income1 focuses on fundamental earnings, which correlates to shareholder value |
|
60% |
|
$54.0M |
|
$60.0M |
|
$65.0M |
|
$66M |
|
200%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 1
- HEI Consolidated, Utility Consolidated and ASB Adjusted Net Income represent HEI consolidated, Utility consolidated and ASB GAAP net income for 2017 adjusted for the
item described further below, respectively. These Adjusted Net Income metrics are non-GAAP measure. For a reconciliation of the GAAP and non-GAAP results, see "Reconciliation of GAAP to Non-GAAP
Measures: Incentive Compensation Adjustments" attached as Exhibit B.
- 2
- Utility Operations is a composite of five utility operational
goals weighted in the same proportion for which they are weighted for utility executives. Utility
Operations includes the five operational goals that applied to Mr. Oshima in 2017 (Utility Consolidated Operation and Maintenance Expense, Utility Consolidated SAIDI, Utility Consolidated
Customer Satisfaction, Utility Consolidated Safety and Utility Transformation Metrics, which applied to HEI executives and to utility executives. Utility Transformation Metrics focuses on achievement
of the utility's transformation goals. Mr. Oshima approves the Transformation milestones under this metric and determines the aggregate performance at the end of the performance period. For
2017, the Utility Transformation milestones focused on the areas of culture transformation, customer experience, distribution circuit reliability, electrification of transportation and communication.
The Utility Transformation goal was achieved at target for 2017, meaning that all milestones were achieved. For HEI executives the weightings of the components of Utility Operations were as follows:
Utility Consolidated Operation and Maintenance Expense 6.82%, Utility Consolidated SAIDI 4.55%, Utility Consolidated Customer
Satisfaction 2.27%, Utility Consolidated Safety 2.27%, and Utility Transformation 9.09%.
- 3
- Utility
Consolidated Operation and Maintenance Expense represents non-fuel expenses of the consolidated utilities excluding expenses covered by surcharges or that are
otherwise neutral to net income.
- 4
- Utility Consolidated SAIDI is measured by the average outage duration for each customer served, exclusive
of catastrophic events and outages caused by independent
power producers, over whose plant maintenance and reliability the utility has limited real-time control.
- 5
- Utility Consolidated Customer
Satisfaction is based on quarterly results of customer surveys conducted by an outside vendor.
- 6
- Utility Consolidated Safety is measured by
Total Cases Incident Rate (TCIR), a standard measure of employee safety. TCIR equals the number of Occupational Safety and
Health Administration recordable cases as of 12/31/17 × 200,000 productive hours divided by productive hours for the year. The lower the TCIR the
better.
- 7
- ASB ROA is ASB's adjusted net income divided by its average total assets for the period. Average total assets is calculated by
averaging the total assets for each day
in the period.
33
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
Non-GAAP Net Income Metrics 2017 Annual Incentive
HEI
Consolidated's, Utility Consolidated's and ASB's Adjusted Net Income metrics for 2017 annual incentive compensation were calculated on a non-GAAP basis because the Compensation Committee
determined that the impacts associated with the recently enacted tax reform legislation should not be considered in determining
performance under those metrics. The Compensation Committee deemed this to be appropriate since such amounts were for extraordinary events unrelated to HEI, Hawaiian Electric or ASB managements'
actions regarding ongoing business operations and taking such factors into account thus would be inconsistent with the original intent and nature of the award.
Due
to the exclusion of such amounts, for purposes of the 2017 EICP $14.2 million, $9.2 million and $(1.0 million) was added to HEI Consolidated's, Utility Consolidated's and
ASB's 2017 GAAP net income, respectively, to determine HEI Consolidated's, Utility Consolidated's and ASB's Adjusted Net Income. See "Reconciliation of GAAP to Non-GAAP Measures: Incentive
Compensation Adjustments," attached as Exhibit B.
The
following chart shows how % of Target Achieved from the table above is converted into a dollar value for each named executive officer. The payout amounts are also shown in the "Nonequity Incentive
Plan Compensation" column of the "2017 Summary Compensation Table" on page 48. The range of possible annual incentive payouts for 2017 is shown in the "2017 Grants of Plan-Based Awards" table on page
50.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Target
Opportunity
(% of base
salary)
|
|
|
|
Base
Salary
($)
|
|
|
|
Target
Opportunity
($)
|
|
|
|
Total
Achieved as a
% of Target
Opportunity
(%)
|
|
|
|
2017
Actual
Annual
Incentive
Payout
($)1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constance H. Lau |
|
|
100 |
|
× |
|
|
893,533 |
|
= |
|
|
893,533 |
|
× |
|
|
112 |
|
= |
|
|
999,774 |
|
Gregory C. Hazelton |
|
|
60 |
|
× |
|
|
487,500 |
|
= |
|
|
292,500 |
|
× |
|
|
112 |
|
= |
|
|
327,163 |
|
Alan M. Oshima |
|
|
75 |
|
× |
|
|
655,583 |
|
= |
|
|
491,687 |
|
× |
|
|
70 |
|
= |
|
|
345,164 |
|
Richard F. Wacker |
|
|
80 |
|
× |
|
|
660,000 |
|
= |
|
|
528,000 |
|
× |
|
|
200 |
|
= |
|
|
1,056,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 1
- Figures may not calculate to the amount shown in 2017 Actual Annual Incentive Payout due to rounding of the Total Achieved as a % of Target. Total Achieved as a % of
Target was rounded for ease of presentation.
Long-term
incentives include performance-based opportunities under HEI's LTIP, which is based on achievement of performance goals over rolling three-year periods, and time-vested RSUs, which vest over
a four-year period. The performance-based LTIP represents the majority of each named executive officer's long-term incentive opportunity. These incentives are designed to directly tie executive
interests with those of shareholders by rewarding executives for long-term value growth.
Long-term performance-based incentives
|
The
three-year performance periods foster a long-term perspective and provide balance with the shorter-term focus of the annual incentive program. In addition, the overlapping three-year performance
periods encourage sustained high levels of performance because at any one time three separate potential awards are affected by current performance.
Similar
to the annual incentives, in developing long-term incentives, the Compensation Committee determines the target incentive opportunity for each executive, performance metrics and goals for the
three-year period.
34
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
2017-19 target long-term incentive opportunity
As
with the annual incentives, the target long-term incentive opportunity is a percentage of base salary, with the threshold and maximum opportunities equal to 0.5 times and 2 times target,
respectively. In establishing the target percentage for each executive, the Compensation Committee considers the mix of pay elements, competitive market data, internal equity, performance and other
factors described above under "Base salary."
For
the 2017-19 period, the Compensation Committee made no changes to the target incentive opportunities as a percentage of base salary for Ms. Lau, and Messrs. Hazelton, Oshima, Wacker
and Ajello, as it determined that their target long-term incentive opportunities from the prior performance period remained appropriate at 160%, 80%, 95%, 80% and 80%, respectively. See table on page
31.
2017-19 performance metrics and goals
The
performance metrics for long-term incentives are chosen for their direct relation to creating long-term value for shareholders.
In
addition to selecting performance metrics, the Compensation Committee determines the level of achievement required to attain threshold, target and maximum performance for each metric. The same
principles the Compensation Committee applies to annual incentive goals apply to long-term incentive goals. As such, the level of difficulty of the goals reflects the Compensation Committee's belief
that incentive pay should be motivational that is, the goals should be challenging but achievable and that such pay should be balanced with reinvestment in
the Company and return to shareholders. Consistent with this approach, the Compensation Committee believes threshold should represent solid performance with positive financial/operating results,
target should denote achievable goals that include a stretch factor and maximum should signify truly exceptional performance.
The
target level for financial goals, such as total shareholder return relative to the EEI (Relative TSR) three-year average annual earnings per share (EPS) growth and three-year return on average
common equity (ROACE), relate to the levels the Company seeks to achieve over the performance period. In setting the threshold and maximum levels, the Compensation Committee considers whether the
risks to accomplishing those levels weigh more heavily toward the downside and how challenging it would be to achieve incremental improvements over the target result. For the 2017-19 period, the
Compensation Committee chose the metrics and goals in the following chart to encourage long-term achievement of earnings and growth in shareholder value.
35
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
|
|
|
|
|
|
|
|
|
|
|
|
|
Goals |
2017-19 Long-Term Incentive
Performance Metrics & Why We Use Them
|
|
|
|
Weighting
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
Lau, Hazelton and Ajello |
|
|
|
|
|
|
|
|
HEI 3-year Average Annual EPS Growth1 promotes shareholder value by focusing on EPS growth over a three-year period. |
|
30% |
|
1.0% |
|
3.0% |
|
5.0% |
HEI ROACE2 measures profitability based on net income returned as a % of average common equity. |
|
50% |
|
8.5% |
|
9.4% |
|
10.1% |
HEI Relative TSR3 compares the value created for HEI shareholders to that created by other investor-owned electric companies (EEI Index). |
|
20% |
|
30th
percentile |
|
50th
percentile |
|
75th
percentile |
Oshima |
|
|
|
|
|
|
|
|
Utility 3-year Average Annual EPS Growth4 promotes shareholder value by focusing on EPS growth over a three-year period. |
|
30% |
|
1.0% |
|
3.0% |
|
5.0% |
Utility 3-year ROACE as a % of Allowed Return5 measures the performance of the utility and its subsidiaries in attaining the level of ROACE they are permitted to earn
by their regulator. The focus on ROACE encourages improved return compared to the cost of capital. |
|
50% |
|
70% |
|
80% |
|
90% |
HEI Relative TSR3 compares the value created for HEI shareholders to that created by other investor-owned electric companies (EEI Index). |
|
20% |
|
30th
percentile |
|
50th
percentile |
|
75th
percentile |
Wacker |
|
|
|
|
|
|
|
|
ASB Return on Equity6 is ASB's adjusted net income divided by its average equity for the period. |
|
40% |
|
9.0% |
|
10.0% |
|
11.0% |
ASB Efficiency Ratio, for Year-End 20197 promotes expense control. |
|
40% |
|
63% |
|
60% |
|
58.5% |
HEI Relative TSR3 compares the value created for HEI shareholders to that created by other investor-owned electric companies (EEI Index). |
|
20% |
|
30th
percentile |
|
50th
percentile |
|
75th
percentile |
|
|
|
|
|
|
|
|
|
- 1
- HEI 3-year Average Annual EPS Growth is calculated by taking the sum of each full calendar year's (2017, 2018 and 2019, respectively) EPS percentage growth over the
EPS of the prior year and dividing that sum by 3.
- 2
- HEI ROACE is calculated as the simple average of HEI 3-year ROACE calculated on an annual
basis (2017, 2018 and 2019), with net income and common equity adjusted for
exclusions the Compensation Committee allows.
- 3
- HEI Relative TSR compares HEI's TSR to that of the companies in the EEI Index. For LTIP
purposes, TSR is the sum of the growth in price per share of HEI common stock
as measured at the beginning of the performance period to the end, calculated using the share price on the last trading day of December at the end of the performance period, plus dividends during the
period, assuming reinvestment, divided by the share price on the last trading day of December immediately prior to the beginning of the performance period.
- 4
- Utility 3-year Average Annual EPS Growth is calculated by taking the sum of each full calendar year's (2017, 2018 and 2019, respectively) EPS percentage growth over
the EPS of the prior year and dividing that sum by three. For purposes of this goal, Utility EPS is calculated using Utility net income divided by weighted average HEI Common Stock
outstanding.
- 5
- Utility 3-year ROACE as a % of Allowed Return is the utility's consolidated average ROACE for the performance period compared
to the weighted average of the allowed
ROACE for the utility and its subsidiaries as determined by the Hawaii Public Utilities Commission for the same period.
- 6
- ASB adjusted net
income and average equity are averages over the performance period of ASB's GAAP information, adjusted for exclusions allowed by the Compensation
Committee.
- 7
- ASB Efficiency Ratio for 2019 is equal to ASB's total noninterest expense for year ended December 31, 2019 divided by the
sum of net interest income and
noninterest income for the year ended December 31, 2019.
Customers,
employees and shareholders all benefit when the above goals are met. Achievement of these goals makes HEI, the utility and the bank stronger financially, enabling HEI to raise capital at
favorable rates for reinvestment in the operating companies and supporting dividends to shareholders. From a historical perspective, long-term incentive payouts are not easy to achieve, nor are they
guaranteed. HEI and its utility and bank subsidiaries face significant external challenges in the 2017-19 period. Extraordinary leadership on the part of the named executive officers will be needed to
achieve the long-term objectives required for them to earn the incentive payouts.
2015-17 Long-Term Incentive Plan. The HEI Board and HEI Compensation Committee established the 2015-17 long-term incentive opportunities, performance metrics and
goals in February 2015. Those decisions were described in the 2016 HEI Proxy Statement and are summarized again below to provide context for the results and payouts for the 2015-17 period.
36
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
2015-17 target long-term incentive opportunity
In February 2015, the Compensation Committee established the following 2015-17 target incentive opportunities as a percentage of named
executive officer base salary.
|
|
|
|
|
Name1
|
|
2015-17 Target Opportunity
(as % of Base Salary)
|
|
2015-17 Target Opportunity
(in dollars)
|
|
|
|
|
|
Constance H. Lau |
|
160% |
|
1,343,120 |
Alan M. Oshima |
|
90% |
|
509,850 |
Richard F. Wacker |
|
80% |
|
497,680 |
James A. Ajello |
|
80% |
|
336,000 |
|
|
|
|
|
- 1
- Mr. Hazelton left HEI as VP Finance, Treasurer and Controller on June, 2015, and therefore forfeited his participation in the 2015-17 LTIP. Accordingly,
Mr. Hazelton did not receive compensation under the 2015-2017 LTIP. Mr. Hazelton subsequently returned to HEI as Senior Vice President- Finance on October 24, 2016 and became
Executive Vice President and Chief Financial Officer on April 2, 2017.
2015-17 performance metrics, goals, results & payouts
The
Compensation Committee established the 2015-17 performance metrics and goals below in February 2015. The Compensation Committee selected the metrics for their correlation with long-term
shareholder value and alignment with the multi-year strategic plans of HEI and its utility and bank subsidiaries. The chart below identifies the 2015-17 LTIP metrics, the objective each measure
serves, the level of achievement required to attain the threshold, target and maximum levels for each metric, the results for 2015-17 and the corresponding payout as a percentage of target.
The
results shown below incorporate the Compensation Committee's decision to exclude the impact of the unusual events that affected HEI, Hawaiian Electric and ASB during the 2015-17 period. These
adjustments are described below under "Adjustments for unusual events 2015-17 LTIP."
|
|
|
|
|
|
|
|
|
|
|
|
|
2015-17 Long-Term Incentive
Performance Metrics & Why We
Use Them
|
|
|
|
Goals |
|
|
|
|
|
|
|
|
|
% of Target
Achieved
|
|
Weighting
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Result
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lau and Ajello* |
|
|
|
|
|
|
|
|
|
|
|
|
HEI 3-year Average Annual EPS Growth1 promotes shareholder value by focusing on EPS growth over a three-year period. |
|
50% |
|
2.2% |
|
3.5% |
|
4.5% |
|
2.9% |
|
|
Weighted Composite of Utility (2/3) and ASB (1/3) 3-year ROACE2 measures profitability based on net income returned as
a % of average common equity. |
|
50% |
|
8.0% |
|
8.9% |
|
9.8% |
|
9.1% |
|
100% |
Oshima |
|
|
|
|
|
|
|
|
|
|
|
|
HEI 3-year Average Annual EPS Growth1 promotes shareholder value by focusing on EPS growth over a three-year period. |
|
50% |
|
2.2% |
|
3.5% |
|
4.5% |
|
2.9% |
|
|
Utility 3-year ROACE as a % of Allowed Return3 measures the performance of the utility and its subsidiaries in attaining the level of ROACE they are permitted to earn by
their regulator. The focus on ROACE encourages improved return compared to the cost of capital. |
|
50% |
|
73% |
|
83% |
|
93% |
|
85% |
|
98% |
Wacker |
|
|
|
|
|
|
|
|
|
|
|
|
ASB Relative ROA4 compares how efficiently ASB deploys its assets compared to its performance peers (Bank Performance Peers). |
|
50% |
|
40th
percentile |
|
50th
percentile |
|
60th
percentile |
|
45th
percentile |
|
|
ASB 3-year Average Net Income5 focuses on fundamental earnings growth, which correlates to shareholder value. |
|
50% |
|
$53.7M |
|
$56.9M |
|
$60.3M |
|
$59.8M |
|
129% |
|
|
|
|
|
|
|
|
|
|
|
|
|
- *
- Mr. Hazelton did not receive compensation under the 2015-17 LTIP.
37
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COMPENSATION DISCUSSION AND ANALYSIS
- 1
- HEI 3-year Average Annual EPS Growth is calculated by taking the sum of each full calendar year's (2015, 2016 and 2017, respectively) EPS percentage growth over the
EPS of the prior year and dividing that sum by 3. Non-GAAP adjusted net income, upon which EPS used for LTIP purposes is calculated, differs from what is reported under GAAP because it excludes the
impact of the unusual events in 2014 through 2017 described below under "Adjustments for unusual events 2015-17 LTIP." For a reconciliation of the GAAP and non-GAAP results, see
"Reconciliation of GAAP to Non-GAAP Measures: Incentive Compensation Adjustments" attached as Exhibit B.
- 2
- Weighted Composite of Utility
and ASB 3-year ROACE is the weighted composite of the utility's and ASB's ROACE, which calculation is average net income divided by
average common equity for the period, with net income and common equity of Hawaiian Electric and ASB adjusted for exclusions the Compensation Committee allows for utility and ASB results. For purposes
of this metric, the utility is weighted two-thirds (2/3) and ASB is weighted one-third (1/3). Non-GAAP adjusted net income used in the computation of ROACE differs from
what is reported under GAAP because it excludes the impact of the unusual events in 2015 through 2017 described below under "Adjustments for unusual events 2015-17 LTIP." For a
reconciliation of the GAAP and non-GAAP results, see "Reconciliation of GAAP to Non-GAAP Measures: Incentive Compensation Adjustments" attached as
Exhibit B.
- 3
- Utility 3-year ROACE as a % of Allowed Return is the utility's consolidated average ROACE for the performance period
compared to the weighted average of the allowed
ROACE for the utility and its subsidiaries as determined by the Hawaii Public Utilities Commission for the same period. Non-GAAP adjusted net income used in the computation of ROACE differs from what
is reported under GAAP because it excludes the impact of the unusual events in 2015 through 2017 described below under "Adjustments for unusual events 2015-17 LTIP." For a
reconciliation of the GAAP and non-GAAP results, see "Reconciliation of GAAP to Non-GAAP Measures: Incentive Compensation Adjustments" attached as
Exhibit B.
- 4
- ASB Relative ROA represents how ASB's ROA compared to the ROA of the Bank Performance Peers during the performance period.
The result is obtained by
(i) comparing ASB's ROA to the ROA of the Bank Performance Peers for each year in the period, resulting in a percentile ranking and (ii) taking the average of ASB's ranking for the three
years. ROA is ASB's non-GAAP adjusted net income divided by average total assets for the year, with ASB's net income adjusted for exclusions allowed by the Compensation Committee. Average total assets
is determined by averaging the daily total assets for each day of the year. Non-GAAP adjusted net income differs from what is reported under GAAP because it excludes the impact of the unusual events
in 2015 through 2017 described below under "Adjustments for unusual events 2015-17 LTIP." For a reconciliation of the GAAP and non-GAAP results, see "Reconciliation of GAAP to
Non-GAAP Measures: Incentive Compensation Adjustments" attached as Exhibit B.
- 5
- ASB 3-year Average Net Income is the average of ASB's
adjusted net income for 2015 through 2017. Non-GAAP adjusted net income differs from what is reported under GAAP
because it excludes the impact of the unusual events in 2015 through 2017 described below under "Adjustments for unusual events 2015-17 LTIP." For a reconciliation of the GAAP and
non-GAAP results, see "Reconciliation of GAAP to Non-GAAP Measures: Incentive Compensation Adjustments" attached as
Exhibit B.
The
following chart shows how % of Target Achieved from the chart above is converted into a dollar value for each named executive officer. The payout amounts are also shown in the "Nonequity Incentive
Plan Compensation" column of the "2017 Summary Compensation Table" on page 48.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name*
|
|
Target
Opportunity
(% of 2015
base
salary)
|
|
|
|
2015
Base
Salary
($)
|
|
|
|
Target
Opportunity
($)
|
|
|
|
Total
Achieved as a
% of Target
(%)
|
|
|
|
2015-17
Incentive
Payout
($)1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constance H. Lau |
|
|
160 |
|
× |
|
|
839,450 |
|
= |
|
|
1,343,120 |
|
× |
|
|
100 |
|
= |
|
|
1,337,381 |
|
Alan M. Oshima |
|
|
90 |
|
× |
|
|
566,500 |
|
= |
|
|
509,850 |
|
× |
|
|
98 |
|
= |
|
|
502,006 |
|
Richard F. Wacker |
|
|
80 |
|
× |
|
|
622,100 |
|
= |
|
|
497,680 |
|
× |
|
|
129 |
|
= |
|
|
643,252 |
|
James A. Ajello2 |
|
|
80 |
|
× |
|
|
420,000 |
|
= |
|
|
336,000 |
|
× |
|
|
100 |
|
= |
|
|
334,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- *
- Mr. Hazelton did not receive compensation under the 2015-17 LTIP.
- 1
- Figures may
not calculate to the amount shown in 2015-17 Incentive Payout column due to rounding of the Total Achieved as a % of Target. Total Achieved as a % of
Target was rounded for ease of presentation.
- 2
- Mr. Ajello's base salary shown at 75% as he was eligible for 27 months out of
36 months 2015-2017
LTIP.
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COMPENSATION DISCUSSION AND ANALYSIS
Adjustments for unusual events 2015-17 LTIP
The
Compensation Committee considers adjustments to performance results with caution and only in circumstances that are unforeseen and/or unique or extraordinary. The Compensation Committee recognizes
that the two operating subsidiaries are heavily regulated and external forces can impact incentive plans significantly. The Compensation Committee is mindful of only considering adjustments that are
warranted and will also serve the long-term interests of shareholders.
HEI. In determining HEI consolidated net income for 2014, 2015, 2016 and 2017 for purposes of calculating HEI 3-year
EPS growth under the 2015-17 LTIP, the Compensation Committee considered the impact of the 2017 tax reform legislation. In addition to the 2017 tax reform impacts at ASB and Hawaiian Electric (see
below), 2017 tax reform had a $6.0 million negative impact on HEI results. The Compensation Committee deemed it appropriate to exclude the impact of the 2017 tax reform legislation because such
impact was for extraordinary events unrelated to management's actions regarding ongoing business operations. The adjustments described on page 39 of HEI's 2017 Proxy Statement with respect to
HEI's 2016 results for purposes of the 2016 EICP were applied in calculating HEI 3-year EPS growth, as the positive impact of $58.2 million of income related to the terminated merger with
NextEra Energy and cancelled spin-off of ASB Hawaii, Inc., along with the merger-related expenses incurred by HEI of $15.2 million in 2015 and $4.9 million in 2014, should not be
considered in determining performance under the metrics. These merger-and spin-off related income and expense were for an extraordinary event unrelated to HEI or Hawaiian Electric managements' actions
regarding ongoing business operations. See below under ASB and Hawaiian Electric for all other items impacting HEI consolidated net income.
ASB. In determining ASB's 2015, 2016 and 2017 net income and ROA performance and the ASB portion of the Weighted
Composite of Utility (2/3) and ASB (1/3) 3-year ROACE ("Weighted Composite ROACE") for purposes of the 2015-17 LTIP, the Compensation Committee considered the impact of
the 2017 tax reform legislation and the effect of ASB's initiative to eliminate risk associated with the pension liability and volatility of pension expense for its frozen pension plan through a
process called "defeasement," which matches asset and liability movements. Because the Company calculates net periodic
pension cost using a market-related value of plan assets, the favorable accounting impact of the defeasement is diminished. Pension defeasement had a negative impact on ASB's net income of
$0.4 million, $0.3 million and $0.7 million for 2015, 2016 and 2017, respectively. The Compensation Committee deemed it appropriate to exclude defeasement amounts for purposes of
determining ASB's net income for the 2015-17 LTIP because the Company's consolidated asset valuation method diminished the positive accounting impacts of the defeasement. Over time the defeasement is
expected to benefit shareholder value by reducing ASB's need to provide additional funds to satisfy its pension obligations. The tax reform and related net positive impact amounted to
$1.0 million for 2017 and was excluded in the calculation of the 2015-17 3-year annual EPS growth.
Hawaiian Electric. In determining Hawaiian Electric's 2015, 2016 and 2017 net income and common equity for the ROACE
as a % of Allowed Return and the utility portion of the Weighted Composite ROACE for purposes of the 2015-17 LTIP, the Compensation Committee considered the impacts of the 2017 tax reform legislation
and the effect of reversion of RAM to the lagged method of revenue recognition. The tax reform and the reversion of RAM to the lagged method of revenue recognition had negative impacts on Hawaiian
Electric's 2017 net income of $9.2 million and $13.9 million, respectively, and were excluded for purposes of the ROACE as a % of Allowed Return and utility portion of the Weighted
Composite ROACE calculation. The Compensation Committee deemed it appropriate to exclude the impact of the 2017 tax reform legislation because such impacts were for extraordinary events unrelated to
management's actions regarding ongoing business operations and the reversion of RAM to the lagged method of revenue recognition because of its nature as a regulatory policy change that was not
anticipated or foreseen at the time the performance goals were established.
The
adjustments described on pages 42-43 of HEI's 2016 Proxy Statement with respect to Hawaiian Electric's 2015 results for purposes of the 2013-15 LTIP were applied in each of 2015, 2016 and
2017 in calculating the 2015-17 LTIP Weighted Composite ROACE, as the events leading to those adjustments were not contemplated at the time the 2015-17 LTIP goals were established and were unrelated
to Hawaiian Electric management's decisions and actions.
39
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
The
adjustments described on page 44 of HEI's 2017 Proxy Statement with respect to Hawaiian Electric's 2016 results for purposes of the 2014-16 LTIP were applied in calculating the 2015-17 LTIP
Weighted Composite ROACE, as the events leading to those adjustments were not contemplated at the time the 2015-17 LTIP goals were established and were unrelated to Hawaiian Electric management's
decisions and actions. In addition, $0.5 million in merger integration expenses incurred by Hawaiian Electric in 2015, $2.2 million of merger-related expenses after-tax incurred by
Hawaiian Electric in 2016, including costs related to Hawaiian Electric's terminated LNG contract, which was conditioned on PUC approval of the merger should not be considered. The Compensation
Committee deemed the exclusion of these expenses to be appropriate in light of the termination of the merger agreement and the associated cessation of LNG efforts and because such amounts were for
extraordinary events unrelated to HEI or Hawaiian Electric managements' actions regarding ongoing business operations.
See
"Reconciliation of GAAP to Non-GAAP Measures: Incentive Compensation Adjustments," attached as Exhibit B.
2016-18 Long-Term Incentive Plan. HEI's 2016-18 long-term incentive plan was described on pages 39-41 of the 2017 Proxy Statement.
HEI
named executive officers are eligible to receive annual equity-based grants in the form of RSUs that vest over a four-year period. RSUs offer executives the opportunity to receive shares of HEI
Common Stock when the restrictions lapse, generally subject to continued employment with the Company through vesting.
The
value of the annual RSU grant is a percentage of the executive's base salary as shown on page 31. These awards are designed to focus executives on creating long-term value for the Company's
stakeholders. Since they take four years to fully vest, the RSUs also promote retention. The RSUs vest and convert to shares of HEI Common Stock in four equal annual installments beginning one year
from the date of grant (plus compounded dividend equivalent shares on the installment that vested in such year).
The
2017 RSU grants are set forth in the "2017 Grants of Plan-Based Awards" table on page 50.
Retirement and savings plans
HEI,
Hawaiian Electric and ASB provide retirement benefits to the named executive officers to promote financial security in recognition of years of service and to attract and retain high-quality
leaders.
HEI
and Hawaiian Electric employees (including each named executive officer employed by HEI or Hawaiian Electric), but not ASB employees, are eligible to participate in the HEI Retirement Plan, which
is a tax-qualified defined benefit pension plan, and to save for retirement on a tax-deferred basis through HEI's Retirement Savings Plan, a tax-qualified defined contribution 401(k) plan, which does
not provide non-elective employer contributions for any participants and does not provide matching contributions for participants who joined participating employer before May 1, 2011. In 2011,
HEI amended the HEI Retirement Plan and HEI Retirement Savings Plan to create a new benefit structure for employees hired on or after May 1, 2011. Employees covered by the new benefit structure
receive a reduced pension benefit under the HEI Retirement Plan, but are eligible for limited matching contributions under the HEI Retirement Savings Plan. These changes were intended to lower the
cost of pension benefits over the long term. Messrs. Hazelton and Oshima each joined the Company after May 1, 2011 and are eligible to receive matching contributions under the amended
HEI Retirement Savings Plan. Ms. Lau and Mr. Ajello were not eligible for and did not receive matching contributions under that plan, since they joined the Company prior to May 1,
2011.
40
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
Additional
retirement benefits that cannot be paid from the HEI Retirement Plan due to Internal Revenue Code limits are provided to named executive officers and other executives employed by HEI and
Hawaiian Electric through the nonqualified HEI Excess Pay Plan. Benefits under the HEI Excess Pay Plan are determined using the same formula as the HEI Retirement Plan, but are not subject to the
Internal Revenue Code limits on the amount of annual compensation that can be used for calculating benefits under qualified retirement plans and on the amount of annual benefits that can be paid from
qualified retirement plans. This allows those participating in the HEI Excess Pay Plan a total retirement benefit at the same general percentage of final average pay afforded to other employees under
the HEI Retirement Plan.
ASB's
employees, including its president and CEO (who is a named executive officer), may participate in the ASB 401(k) Plan, a tax-qualified defined contribution 401(k) plan. After an employee has
completed one year
of service, ASB matches the employee's contributions on a dollar-for-dollar basis up to 4% of eligible compensation deferred. In 2017, eligible compensation was capped at $270,000. ASB also provides
discretionary, nonelective profit sharing contributions to the accounts of employees who are employed on the last day of the plan year or terminate employment during the plan year because of
retirement, death or disability. Mr. Wacker received matching contributions and a profit sharing contribution under the plan in 2017, in each case limited to the amount permitted based on
eligible compensation.
Retirement
benefits are discussed in further detail in the "2017 Pension Benefits" table and related notes on pages 53-54.
Deferred compensation plans
HEI
provides named executive officers and other executives the opportunity to participate in plans that allow them to defer compensation and the resulting tax liability.
Executives
of HEI and Hawaiian Electric and directors of HEI, Hawaiian Electric and ASB may participate in the HEI Deferred Compensation Plan, a nonqualified deferred compensation plan implemented in
2011 that allows the deferral of portions of the participants' cash compensation, with certain limitations, and provides investment opportunities that are substantially similar to those available
under HEI's Retirement Savings Plan. There are no matching or other employer contributions under this plan. Mr. Ajello deferred compensation in the HEI Deferred Compensation Plan in 2017. HEI
and Hawaiian Electric executives were also eligible to defer payment of annual and long-term incentive awards and the resulting tax liability under a prior nonqualified deferred compensation plan,
although no named executive officer deferred compensation in that plan in 2017.
The
American Savings Bank Select Deferred Compensation Plan (ASB Deferred Compensation Plan) is a nonqualified deferred compensation plan that allows senior members of ASB management to defer up to
100% of current salary, annual bonus and commissions. Pursuant to a 2009 amendment, the plan provides for employer matching contributions and profit sharing contributions. These matching and profit
sharing contributions take into account compensation which is excluded from consideration under the ASB 401(k) Plan, including on account of being contributed to the Select Deferred Compensation Plan
or being in excess of limits on eligible compensation imposed by the Internal Revenue Code. Ms. Lau participated in the ASB Select Deferred Compensation Plan during her employment with ASB.
Mr. Wacker did not elect to defer compensation under such plan in 2017, but did receive a profit sharing contribution to his account under the plan for the amount that could not be contributed
to his 401(k) Plan account due to Internal Revenue Code limits on
eligible compensation. Such profit sharing contribution is included in the "All Other Compensation" column of the "2017 Summary Compensation Table" on page 48.
Deferred
compensation benefits are discussed in further detail in the "2017 Nonqualified Deferred Compensation" table and related notes on page 55.
Executive Death Benefit Plan (frozen since 2009)
In
September 2009, HEI froze the Executive Death Benefit Plan of HEI and Participating Subsidiaries, which provides death benefits to an executive's beneficiaries following the executive's death while
employed or after retirement. As part of the freeze, HEI closed the plan to new participants and ceased all benefit accruals for current participants (i.e., there will be no increase in death
benefits due to salary increases after
41
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
September 9,
2009). Under contracts with plan participants in effect before September 9, 2009, the death benefits were grossed up for tax purposes. This treatment was considered
appropriate because the executive death benefit is a form of life insurance and traditionally life insurance proceeds have been excluded from income for federal tax purposes. Ms. Lau and
Mr. Ajello are covered under the Executive Death Benefit Plan. Messrs. Hazelton and Oshima are not covered under the plan because they joined HEI after the plan was frozen.
Mr. Wacker also joined ASB after the plan was frozen, and ASB was not a participating employer in the plan in any event. Death benefits are discussed in further detail in the "2017 Pension
Benefits" table and related notes on pages 53-54.
Double-trigger change-in-control agreements
The
Compensation Committee and Board consider change-in-control agreements to be an appropriate tool to recruit executives as an expected part of their compensation package, to encourage the continued
attention of key executives to the performance of their duties without distraction in the event of a potential change in control and to assist in retaining key executives. Change-in-control agreements
can protect against executive flight during a transaction when key executives might, in the absence of the agreement, leave the Company and accept employment elsewhere. As of December 31, 2017,
Ms. Lau and Messrs. Hazelton and Wacker each had a change-in-control agreement.
All
of the change-in-control agreements are double trigger, which means that they provide for cash severance and other benefits only upon a qualifying termination of the executives' employment
following a change in control. In determining the amount an executive is eligible to receive in such an event, the Compensation Committee takes into account the executive's expected role in a
potential transaction, value to the organization and internal equity. The agreements approved by the Compensation Committee provide for a cash lump sum payment of three times base salary plus annual
incentive for Ms. Lau and two times base salary plus annual incentive for Messrs. Hazelton and Wacker. The annual incentive pay used in calculating the severance payment is the greater
of the current annual incentive target or the largest actual annual incentive payout during the preceding three fiscal years. Aggregate payments under these agreements are limited to the maximum
amount deductible under Section 280G of the Internal Revenue Code and there are no tax gross ups with respect to payments under these agreements. Payment of the severance benefits is
conditioned on the Company receiving a release of claims by the executive.
The
change-in-control agreements have initial terms of two years and automatically renew for an additional year on each anniversary unless 90 days' notice of nonrenewal is provided by either
party, so that the protected period is at least one year upon nonrenewal. The agreements remain in effect for two years following a change in control. The agreements define a change in control as a
change in ownership of HEI, a substantial change in the voting power of HEI's securities or a change in the majority of the composition of the Board following consummation of a merger, tender offer or
similar transaction. The agreement for Mr. Wacker also defines a change in control as a change in ownership of ASB. Change-in-control benefits are discussed in further detail in the "Potential
Payments Upon Termination or Change in Control" section and related notes on pages 56-57.
Minimal perquisites
HEI
provides minimal other compensation to the named executive officers in the form of perquisites because such items are commonly provided to business executives in Hawaii, such as club memberships
primarily for the purpose of business entertainment, or are necessary to recruit executives, such as relocation expenses or extra weeks of vacation. In 2017, each named executive officer had a
Company-paid club membership for the primary purpose of business entertainment expected of executives in their positions. Mr. Hazelton received four weeks of vacation in 2017, which was more
than other employees with similar length of service typically receive. Mr. Wacker received 28 days of paid time off in 2017, which is more than ASB employees with similar length of
service below the senior vice president level receive.
42
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
No new tax gross ups
HEI
has eliminated nearly all tax gross ups. There are no tax gross ups on club membership initiation fees or membership dues, or in the change-in-control agreements for the named executive officers
who have such agreements. As discussed under "Executive Death Benefit Plan," tax gross ups of death benefits only apply to executives who participated in the Executive Death Benefit Plan before it was
frozen in 2009.
Additional policies and information
Our programs are designed to guard against excessive risk
|
HEI's
compensation policies and practices are designed to encourage executives to build value for all stakeholders, including shareholders, customers and employees, and to discourage decisions that
introduce inappropriate risks.
HEI's
Enterprise Risk Management (ERM) function is principally responsible for identifying and monitoring risk at the holding company and its subsidiaries, and for reporting on high risk areas to the
Board and designated Board committees. As a result, all HEI directors, including those who serve on the Compensation Committee, are apprised of risks that could have a material adverse effect on HEI.
Risk assessment. On an annual basis, the Compensation Committee and its independent compensation consultant review a risk
assessment of compensation programs in place at HEI and its subsidiaries for all employees, which is updated annually by the Company's ERM function. Based on its review of the risk assessment of
compensation programs in place in 2017 and consultation with FW Cook, the Compensation Committee believes that the Company's compensation plans do not encourage risk taking that is reasonably likely
to have a material adverse effect on the Company.
Risk mitigation features of our programs. Our compensation programs incorporate the following features to promote prudent
decision-making and guard against excessive risk:
-
- Financial performance objectives for the annual incentive program are linked to Board-approved budget guidelines, and nonfinancial measures
(such as customer satisfaction, reliability and safety) are aligned with the interests of all HEI stakeholders.
-
- An executive compensation recovery policy ("clawback policy") permits recoupment of performance-based compensation paid to executives found
personally responsible for fraud, gross negligence or intentional misconduct that causes a significant restatement of HEI's financial statements.
-
- Annual and long-term incentive awards are capped at maximum performance levels.
-
- Financial opportunities under long-term incentives are greater than those under annual incentives, emphasizing the importance of long-term
outcomes.
-
- Share ownership and retention guidelines, requiring named executive officers to hold significant amounts of HEI stock, promote a shared
interest in HEI's long-term performance.
-
- In typical circumstances long-term incentive payouts have been 100% equity-based, so executives share in the same upside potential and downside
risk as all shareholders. In light of the then-pending merger with NextEra Energy, however, the Compensation Committee decided to provide for the 2015-17 and 2016-18 LTIPs to be settled in cash in
lieu of HEI common stock. The Compensation Committee determined that the Company's stock price might be affected at least in part by merger considerations unrelated to the Company's true operating
performance and that, as a result, the compensatory goals of the LTIPs would be better served by a cash settlement. Since the merger did not occur and the merger agreement between HEI and NextEra
Energy was terminated in July 2016, the Compensation Committee determined that the 2017-19 LTIP would be granted 100% in HEI common stock.
-
- Annual grants of RSUs and long-term incentives vest over a period of years to encourage sustained performance and executive retention.
-
- Performance-based plans use a variety of financial metrics (e.g., net income, ROACE) and nonfinancial performance metrics that correlate
with long-term
43
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
-
- The Compensation Committee and Board continuously monitor risks faced by the enterprise, including through management presentations at
quarterly meetings and through periodic written reports from management.
Share ownership and retention are required throughout employment with the Company
|
HEI
named executive officers are required to own and retain HEI stock throughout employment with the Company. Each officer subject to the requirements has until January 1 of the year following
the fifth anniversary
of the later of (i) amendment to his or her required level of stock ownership or (ii) first becoming subject to the requirements (compliance date) to reach the following ownership
levels:
|
|
|
Position
|
|
Value of Stock to be Owned
|
|
|
|
HEI President & CEO |
|
5x base salary |
Other Named Executive Officers |
|
2x base salary |
|
|
|
The
compliance dates were January 1, 2015 for Ms. Lau, and January 1, 2016 for Messrs. Ajello and Wacker, and are January 1, 2020 for Mr. Oshima and
January 1, 2022 for Mr. Hazelton. Ms. Lau and Messrs. Ajello and Wacker exceeded the specified level of stock ownership for their positions by the time of their respective
compliance dates.
Until
reaching the applicable stock ownership target, officers subject to the requirements must retain all shares received in payout under the LTIP and 20% of shares received through the vesting of
restricted stock or RSUs. The Compensation Committee has the authority to approve hardship exceptions to these retention requirements.
Hedging and pledging are prohibited
|
The
Company's Insider Trading Policy, among other prohibitions, prohibits all directors, officers and employees of HEI and its subsidiaries (as well as the spouses, minor children, adult family
members sharing the same household and any other person for whom the director, officer or employee exercises substantial control over such person's securities trading decisions) from trading in
options, warrants, puts, calls or similar instruments on Company securities, making short sales in Company securities, holding Company securities in margin accounts or pledging Company securities.
Clawback policy applies to performance-based pay
|
HEI
has a formal executive compensation clawback policy that applies to any performance-based compensation awarded to an executive officer. Under that policy, in the event the financial statements of
HEI or any of its subsidiaries are significantly restated, the Compensation Committee and Board will review the circumstances that caused the need for the restatement and determine whether fraud,
gross negligence or intentional misconduct were involved. If so, the Board may direct the Company to recover all or a portion of any performance-based award from the executive officer(s) found
personally responsible. The SEC has issued proposed rules concerning clawback policies pursuant to the Dodd-Frank Act. HEI will amend its clawback policy to ensure it is consistent with the final
rules as and when required.
44
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Committee considers tax and accounting impacts on compensation
|
In
designing compensation programs, the Compensation Committee considers tax and accounting implications of its decisions, along with other factors described in this Proxy Statement.
Tax matters. Section 162(m) of the Internal Revenue Code generally limits to $1 million annually the federal
income tax deduction that a publicly held corporation may claim for
compensation payable to certain of its current executive officers, but that deduction limitation historically did not apply to performance-based compensation that met certain requirements. As part of
the tax reform legislation passed in December 2017, Section 162(m) was amended, effective for taxable years beginning after December 31, 2017, to expand the group of executive officers
subject to the deduction limitation by including former covered executive officers and also to eliminate the performance-based compensation exception, though the exception generally continues to be
available on a "grandfathered" basis to compensation payable under a written binding contract in effect on November 2, 2017.
In
determining compensation for our executive officers, the Compensation Committee considers the extent to which the compensation is deductible, including the effect of Section 162(m). In prior
years, the Compensation Committee generally sought to structure our executive incentive compensation awards so that they qualified as performance-based compensation exempt from the
Section 162(m) deduction limitation where doing so was consistent with the company's compensation objectives, but it reserved the right to award nondeductible compensation. The Compensation
Committee continues to evaluate the changes to Section 162(m) and their significance to the company's compensation programs, but in any event its primary focus in its compensation decisions
will remain on most productively furthering the company's business objectives and not on whether the compensation is deductible.
Another
tax consideration factored into the design of the Company's compensation programs is compliance with the requirements of Section 409A of the Internal Revenue Code, for which
noncompliance can result in additional taxes on participants in deferred compensation arrangements. The new tax reform law did not change the requirements of Section 409A.
Accounting matters. In establishing performance goals for equity compensation, the Compensation Committee considers the impact
of accounting rules, including relevant plan provisions that govern how discretion may be used. Accounting rules also prescribe the way in which compensation is expensed. For example, under GAAP,
compensation is generally expensed when earned. Financial Accounting Standards Board Accounting Standards Codification Topic 718 generally requires that equity compensation awards be accounted for
based on their grant date fair value and recognized over the relevant service periods. The Compensation Committee also has discretion in determining the level of achievement for the award and may
determine that there should not be any incentive payout that would result solely from the adoption of a new accounting principle that affects a financial measure or vice versa.
45
Table of Contents
COMPENSATION DISCUSSION AND ANALYSIS
COMPENSATION COMMITTEE REPORT
The
Compensation Committee, which is composed solely of independent directors, has reviewed and discussed with management the foregoing Compensation Discussion and Analysis. Based on such review and
discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and incorporated by reference into HEI's Annual Report
on Form 10-K for the year ended December 31, 2017 ("HEI's 2017 Form 10-K").
Compensation Committee
Thomas B. Fargo, Chairperson
Peggy Y. Fowler
Jeffrey N. Watanabe
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The
Compensation Committee consists of the three independent directors listed above under "Compensation Committee Report." No member of the Compensation Committee during 2017 was an employee or former
employee of HEI. During 2017, no member of the Compensation Committee had a relationship that must be described under SEC rules regarding disclosure of related person transactions. In 2017, none of
HEI's executive officers served on the compensation committee (or its equivalent) or board of directors of another entity, excluding tax-exempt organizations, where an executive officer of such an
entity served on HEI's Compensation Committee or Board of Directors.
46
Table of Contents
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION TABLES
Summary Compensation Table
The
table on the following page shows total compensation for 2015-17 for named executive officers (NEOs) other than Mr. Hazelton and for 2016-17 for Mr. Hazelton (who was not a named
executive officer in 2015).
-
- Cash compensation earned for the applicable year is reported in the "Salary," "Nonequity Incentive Plan Compensation" and "All Other
Compensation" columns (except see explanation in the following paragraph regarding the 2015-17 LTIP awards). For Mr. Hazelton, additional cash compensation is shown in the "Bonus" column, which
represents the replacement of amounts he would have earned from his previous employer had he not rejoined HEI in October 2016. The Compensation Committee deemed payment of these amounts to be
appropriate to recruit Mr. Hazelton.
-
- For 2017, the "Stock Awards" column reflects: (i) the opportunity to earn shares of HEI common stock under the 2017-19 LTIP if
performance metrics are achieved and (ii) RSUs that vest over 2017-20 and may be forfeited in whole or in part if the executive leaves before the vesting period ends.
-
- For 2015 and 2016, the "Stock Awards" column reflects only RSUs granted in 2015 and 2016 since the 2015-17 and 2016-18 LTIPs were denominated
in cash rather than in stock; this was due to the NextEra merger that was pending when the applicable award opportunities were established. HEI's return to exclusively equity-based long-term incentive
compensation in 2017 impacts the amounts in the 2017 Summary Compensation Table. SEC rules require the 2015-17 LTIP cash payouts to be included in the table in 2017, the last year of the performance
period (not the year in which awards are granted as is the case with equity-based awards). As a result, the 2017 amounts in the table include both the
2015-17 LTIP cash payouts and the 2017-19 equity-based LTIP and RSU awards granted in 2017, which is not reflective of 2017 target NEO compensation. By contrast, the 2015 and 2016 compensation amounts
do not include any LTIP amounts because there were no LTIP cash payouts or equity-based LTIP awards granted in 2015 and 2016. Our LTIP programs and practices have not changed (i.e., one LTIP award
covering a 3-year performance period is granted each year), however, due to the disclosure timing differences between cash and equity-based LTIPs, the amounts in the Summary Compensation Table for
2017 are notably higher than, and not comparable to, the reported amounts for 2015 and 2016, and are not reflective of 2017 NEO target compensation.
For
the following selected NEOs, the total compensation amounts for 2017 without the 2015-17 "cash" LTIP payout and only including the 2017-19 "equity" LTIP award are as follows:
|
|
|
|
|
Name
|
|
2017 Total Compensation
Without 2015-17
"cash" LTIP
|
|
|
|
|
|
|
Constance H. Lau |
|
$
|
4,576,365 |
|
Gregory C. Hazelton |
|
$ |
1,538,175 |
|
Alan M. Oshima |
|
$
|
2,272,842 |
|
Richard F. Wacker |
|
$ |
2,447,840 |
|
|
|
|
|
|
-
- The "Change in Pension Value and Nonqualified Deferred Compensation Earnings" column sets forth the change in value of pension and executive
death benefits, which can fluctuate significantly from year-to-year based on changes in discount rates and other actuarial assumptions and do not necessarily reflect the benefit to be received by the
executive. "Total Without Change in Pension Value" shows total compensation as determined under SEC rules minus the change in pension value and executive death benefits.
The
following chart shows 2017 "Total Without Change in Pension Value" excluding the 2015-17 "cash" LTIP and only including the 2017-19 "equity" LTIP award:
|
|
|
|
|
Name
|
|
2017 "Total Without
Change in Pension Value"
Without 2015-17
"cash" LTIP
|
|
|
|
|
|
|
Constance H. Lau |
|
$
|
4,044,602 |
|
Gregory C. Hazelton |
|
$ |
1,451,726 |
|
Alan M. Oshima |
|
$
|
2,085,336 |
|
Richard F. Wacker |
|
$ |
2,447,840 |
|
|
|
|
|
|
47
Table of Contents
EXECUTIVE COMPENSATION
2017 SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and 2017
Principal Positions
|
|
Year
|
|
Salary
($)1
|
|
Bonus
($)2
|
|
Stock
Awards
($)3
|
|
Nonequity
Incentive Plan
Compensation
($)4
|
|
Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings
($)5
|
|
All Other
Compensation
($)6
|
|
Total
Without
Change
in Pension
Value
($)7
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constance H. Lau |
|
|
2017 |
|
|
893,533 |
|
|
|
|
|
2,151,295 |
|
|
2,337,155 |
|
|
531,763 |
|
|
|
|
|
5,381,983 |
|
|
5,913,746 |
|
HEI President & CEO |
|
|
2016 |
|
|
864,700 |
|
|
|
|
|
648,531 |
|
|
1,182,753 |
|
|
364,325 |
|
|
|
|
|
2,695,984 |
|
|
3,060,309 |
|
ASB Chair |
|
|
2015 |
|
|
839,450 |
|
|
|
|
|
629,588 |
|
|
1,246,773 |
|
|
|
|
|
|
|
|
2,715,811 |
|
|
2,715,811 |
|
Hawaiian Electric Chair |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory C. Hazelton* |
|
|
2017 |
|
|
487,500 |
|
|
|
|
|
597,967 |
|
|
327,163 |
|
|
86,449 |
|
|
39,096 |
|
|
1,451,726 |
|
|
1,538,175 |
|
HEI Executive Vice |
|
|
2016 |
|
|
84,836 |
|
|
256,670 |
|
|
508,320 |
|
|
70,169 |
|
|
16,711 |
|
|
115,210 |
|
|
1,035,205 |
|
|
1,051,916 |
|
President & CFO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan M. Oshima |
|
|
2017 |
|
|
655,583 |
|
|
|
|
|
1,071,359 |
|
|
847,170 |
|
|
187,506 |
|
|
13,230 |
|
|
2,587,342 |
|
|
2,774,848 |
|
Hawaiian Electric |
|
|
2016 |
|
|
583,500 |
|
|
|
|
|
379,282 |
|
|
445,939 |
|
|
153,231 |
|
|
21,296 |
|
|
1,430,017 |
|
|
1,583,248 |
|
President & CEO |
|
|
2015 |
|
|
566,500 |
|
|
|
|
|
283,247 |
|
|
427,168 |
|
|
111,620 |
|
|
23,632 |
|
|
1,300,547 |
|
|
1,412,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard F. Wacker |
|
|
2017 |
|
|
660,000 |
|
|
|
|
|
679,044 |
|
|
1,699,252 |
|
|
|
|
|
52,796 |
|
|
3,091,092 |
|
|
3,091,092 |
|
ASB President & CEO |
|
|
2016 |
|
|
640,800 |
|
|
|
|
|
128,151 |
|
|
693,012 |
|
|
|
|
|
47,281 |
|
|
1,509,244 |
|
|
1,509,244 |
|
|
|
|
2015 |
|
|
622,100 |
|
|
|
|
|
124,433 |
|
|
627,503 |
|
|
|
|
|
48,634 |
|
|
1,422,670 |
|
|
1,422,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James A. Ajello* |
|
|
2017 |
|
|
145,642 |
|
|
|
|
|
785,602 |
|
|
344,564 |
|
|
235,893 |
|
|
|
|
|
1,265,808 |
|
|
1,501,701 |
|
Former HEI Executive Vice |
|
|
2016 |
|
|
576,800 |
|
|
|
|
|
288,386 |
|
|
473,375 |
|
|
252,377 |
|
|
16,092 |
|
|
1,354,653 |
|
|
1,607,030 |
|
President & CFO |
|
|
2015 |
|
|
560,000 |
|
|
|
|
|
280,008 |
|
|
499,037 |
|
|
106,029 |
|
|
15,224 |
|
|
1,354,269 |
|
|
1,460,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- *
- Mr. Hazelton joined HEI as Senior Vice President, Finance on October 24, 2016 and was promoted to HEI Executive Vice President & CFO on
April 2, 2017. Mr. Ajello retired on April 2, 2017.
- 1
- Salary. This column
represents cash base salary received for the year. Mr. Hazelton's annualized 2016
salary of $450,000 was pro-rated based on the number of days he worked for HEI in 2016.
- 2
- Bonus. This column represents non-salary cash payments that are not awarded under a nonequity incentive
plan. In recruiting Mr. Hazelton to return to HEI, the Compensation Committee deemed it appropriate to provide replacement compensation for cash amounts Mr. Hazelton had to forfeit upon
leaving his prior employer to rejoin HEI. The amount shown replaced annual incentive pay for 2016 and long-term incentive pay for 2015-17 and 2016-18 that Mr. Hazelton lost when leaving his
prior employer.
- 3
- Stock Awards. These amounts represent the aggregate grant date fair value of
stock awards granted in the
years shown computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (FASB ASC Topic 718). For 2017, these amounts are composed of: (i) the
opportunity (based on probable outcome of performance conditions (in this case, target) as of the grant date) to earn shares of HEI Common Stock in the future pursuant to the 2017-19 LTIP if
pre-established performance goals are achieved and (ii) RSUs vesting in installments over a four-year period, and excludes the value of the 2015-17 and 2016-18 LTIP granted in those years. For
2015 and 2016, these amounts were comprised of RSUs granted in the year shown and vesting in installments over a four-year period (except in the case of Mr. Hazelton's 2016 RSUs). Since the
2015-17 LTIP is denominated in cash rather than in stock, in accordance with SEC rules, the cash payout, is reported in the "Nonequity Incentive Plan Compensation" column in this Summary Compensation
Table in 2017. Since the 2016-18 LTIP is denominated in cash rather than in stock, in accordance with SEC rules, the cash payout (if any), will be reported in the "Nonequity Incentive Plan
Compensation" column in the 2018 Summary Compensation Table. See the 2017 Grants of Plan-Based Awards table below for the portion of the amount in the Stock Awards column above that is composed of
2017 grants of RSUs and performance award opportunities under the 2017-19 LTIP. Assuming achievement of the highest level of performance conditions, the maximum value of the performance awards payable
in 2020 under the 2017-19 LTIP would be: Ms. Lau $2,962,291; Mr. Hazelton $745,923; Mr. Oshima $1,290,493; Mr. Wacker $1,094,030; and in the case of Mr. Ajello,
would have been $980,019 had he not retired from the Company in April 2017.
- For a discussion of the assumptions underlying the amounts set out for the RSUs and
2017-2019 LTIP, see Note 9 to the Consolidated Financial
Statements in HEI's 2017 Form 10-K.
- 4
- Nonequity Incentive Plan Compensation. These amounts
represent cash payouts to named executive officers
under the annual incentive plan, the EICP, earned for the years shown. For 2017, the amount in this column also included the cash payout from the 2015-17 LTIP. Mr. Hazelton's 2016 EICP payout
represents a pro-rata amount for the number of days he worked for HEI in 2016.
- 5
- Change in Pension Value and Nonqualified Deferred
Compensation Earnings. These amounts represent the change
in present value of the accrued pension and executive death benefits from beginning of year to end of year for 2015, 2016 and 2017. These amounts are not current payments; pension and executive death
benefits are only paid after retirement or death, as applicable. The amounts in this column depend heavily on changes in actuarial assumptions, such as discount rates. The increase in 2017 present
value of pensions (and, for Ms. Lau and Mr. Ajello, executive death benefits) from 2016 was magnified by the decrease in discount rate and was partially offset by lower expected rates of
improvement in the mortality tables based on Scale MP-2017 published by the Society of Actuaries. The 2016 present value of pensions (and, for Ms. Lau and Mr. Ajello, executive death
benefits) increased from 2015 due to a lower discount rate and lower expected rates of improvement in the mortality tables based on Scale MP-2016 published by the Society of Actuaries. In 2015, the
present value of Ms. Lau's pension and executive death benefit declined by $666,228; in accordance with SEC rules, this negative change in value is shown as no change in the chart above. For a
further discussion of the applicable plans, see the 2017 Pension Benefits table and related notes below. No named executive officer had above-market or preferential earnings on nonqualified deferred
compensation for the periods covered in the table above.
48
Table of Contents
EXECUTIVE COMPENSATION
- 6
- All Other Compensation. The following table summarizes the components of "All Other Compensation" with
respect to 2017:
|
|
|
|
|
|
|
|
|
Name
|
|
Contributions
to Defined
Contribution
Plans
($)a
|
|
Other ($)b
|
|
Total All
Other
Compensation
($)
|
|
|
|
|
|
|
|
|
|
Constance H. Lau* |
|
|
|
|
|
|
|
Gregory C. Hazelton |
|
8,100 |
|
30,996 |
|
39,096 |
|
Alan M. Oshima |
|
8,100 |
|
5,130 |
|
13,230 |
|
Richard F. Wacker |
|
21,600 |
|
31,196 |
|
52,796 |
|
James A. Ajello* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- a
- Mr. Wacker received matching contributions to his account in the ASB 401(k) Plan up to the amount permitted based on eligible compensation ($270,000 in 2017)
and the portion of his 2017 profit sharing contribution based on eligible compensation. Messrs. Hazelton and Oshima received matching contributions to their accounts in the HEI Retirement
Savings Plan up to the amount permitted based on eligible compensation ($270,000 in 2017).
- b
- Mr. Hazelton received club membership dues,
had two more weeks of vacation than employees with similar length of service would usually receive and received
relocation expense reimbursements. Mr. Oshima received club membership dues. Mr. Wacker received club membership dues, three more days of paid time off than ASB employees with similar
length of service below the Senior Vice President level receive, and a profit sharing contribution to his account under the ASB Select Deferred Compensation Plan in the amount of his profit sharing
contribution that could not be included in his ASB 401(k) Plan account due to limits on eligible compensation.
- *
- The total value of
perquisites and other personal benefits for Ms. Lau and Mr. Ajello was less than $10,000 for 2017 and is therefore not included in the
table above.
- 7
- Total Without Change in Pension Value. Total Without Change in Pension Value represents total compensation
as determined under SEC rules, minus the change in pension value and executive death benefits amount reported in the Change in Pension Value and Nonqualified Deferred Compensation Earnings column. We
include this column because the magnitude of the change in pension value and death benefits in a given year is largely determined by actuarial assumptions, such as discount rates and mortality
assumptions set by the Society of Actuaries, and does not reflect decisions made by the Compensation Committee for that year or the actual benefit necessarily to be received by the recipient. The
amounts reported in the Total Without Change in Pension Value column may differ substantially from the amounts reported in the Total column and are not a substitute for the Total
column.
Additional
narrative disclosure about salary, bonus, stock awards, nonequity incentive plan compensation, change in pension benefits and nonqualified deferred compensation earnings and all other
compensation can be found in the Compensation Discussion and Analysis above.
49
Table of Contents
EXECUTIVE COMPENSATION
Grants of Plan-Based Awards
The table below shows cash performance award opportunities under the 2017 EICP, equity-based performance award opportunities granted under the
LTIP for performance over the 2017-19 period and payable in 2020 and RSUs granted in 2017 and vesting in installments over four years.
2017 GRANTS OF PLAN-BASED AWARDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
Stock
Awards:
Number of
Shares of
Stock or Units
(#)3
|
|
|
|
|
|
|
|
Estimated Future Payouts
Under Nonequity Incentive
Plan Awards1 |
|
Estimated Future Payouts
Under Equity Incentive Plan
Awards2 |
|
|
|
|
|
|
|
Grant Date
Fair Value
of Stock
Awards
($)4
|
|
Name
|
|
Grant Date
|
|
Threshold
($)
|
|
Target
($)
|
|
Maximum
($)
|
|
Threshold
(#)
|
|
Target
(#)
|
|
Maximum
(#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constance H. |
|
1/31/17 EICP |
|
|
446,767 |
|
|
893,533 |
|
|
1,787,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lau |
|
1/31/17 LTIP |
|
|
|
|
|
|
|
|
|
|
|
21,351 |
|
|
42,702 |
|
|
85,403 |
|
|
|
|
|
1,481,159 |
|
|
|
1/31/17 RSU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,016 |
|
|
670,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory C. |
|
1/31/17 EICP |
|
|
146,250 |
|
|
292,500 |
|
|
585,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hazelton |
|
1/31/17 LTIP |
|
|
|
|
|
|
|
|
|
|
|
5,376 |
|
|
10,753 |
|
|
21,505 |
|
|
|
|
|
372,981 |
|
|
|
1/31/17 RSU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,720 |
|
|
224,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan M. |
|
1/31/17 EICP |
|
|
245,844 |
|
|
491,687 |
|
|
983,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oshima |
|
1/31/17 LTIP |
|
|
|
|
|
|
|
|
|
|
|
9,301 |
|
|
18,602 |
|
|
37,205 |
|
|
|
|
|
645,226 |
|
|
|
1/31/17 RSU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,728 |
|
|
426,133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard F. |
|
1/31/17 EICP |
|
|
264,000 |
|
|
528,000 |
|
|
1,056,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wacker |
|
1/31/17 LTIP |
|
|
|
|
|
|
|
|
|
|
|
7,885 |
|
|
15,771 |
|
|
31,541 |
|
|
|
|
|
547,032 |
|
|
|
1/31/17 RSU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,943 |
|
|
132,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James A. |
|
1/31/17 EICP |
|
|
177,365 |
|
|
354,730 |
|
|
709,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ajello |
|
1/31/17 LTIP |
|
|
|
|
|
|
|
|
|
|
|
7,064 |
|
|
14,127 |
|
|
28,254 |
|
|
|
|
|
490,007 |
|
|
|
1/31/17 RSU |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,829 |
|
|
295,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EICP Executive Incentive Compensation Plan (annual incentive)
LTIP Long-Term Incentive Plan (2017-19 period)
RSU Restricted stock units
- 1
- Estimated Future Payouts Under Nonequity Incentive Plan Awards. Shows possible cash payouts under the 2017
EICP based on meeting performance goals set in January 2017 at threshold, target and maximum levels. Actual payouts for the 2017 EICP are reported in the 2017 Summary Compensation Table
above.
- 2
- Estimated Future Payouts Under Equity Incentive Plan Awards. Represents number of shares
of stock that may
be issued under the 2017-19 LTIP based upon the achievement of performance goals set in January 2017 at threshold, target and maximum levels and vesting at the end of the three-year performance
period. LTIP awards are forfeited for terminations of employment during the vesting period, except for terminations due to death, disability or retirement, which allow for pro-rata participation based
upon completed months of service after a minimum number of months of service in the performance period. Dividend equivalent shares, not included in the chart, are compounded over the period at the
actual dividend rate and are paid at the end of the performance period based on actual shares earned. The share amounts listed for Mr. Ajello represent amounts he would have been eligible to
receive, subject to achievement of the applicable performance goals, had he remained with the Company through the end of 2019. However, since he retired in April 2017, he is not eligible to receive
2017-19 LTIP share payout since he did not meet the minimum number of months of service in the performance period.
- 3
- All Other Stock Awards:
Number of Shares of Stock or Units. Represents number of RSUs awarded in 2017 that
will vest and be issued as unrestricted stock in four equal annual installments on the grant date anniversaries. Unvested awards are forfeited for terminations of employment during the vesting period,
except for terminations due to death, disability or retirement, which allow for pro-rata vesting up to the date of termination. Receipt of RSU awards is generally subject to continued employment and
expiration of the applicable vesting period. Dividend equivalent shares, not included in the chart, compound over the period at the actual dividend rate and are paid in HEI stock on RSUs vesting in a
given year. The share amount listed for Mr. Ajello represents amounts he would have been eligible to receive, had he remained with the Company through the end of the applicable vesting
period.
- 4
- Grant Date Fair Value of Stock Awards. Grant date fair value for shares under the
2017-19 LTIP is estimated
in accordance with the fair-value based measurement of accounting, as described in FASB ASC Topic 718 based upon the probable (in this case, target) outcome of the performance conditions as of the
grant date. For a discussion of the assumptions and methodologies used to calculate the amounts reported, see the discussion of performance awards contained in Note 9 (Share-based compensation)
to the Consolidated Financial Statements in HEI's 2017 Form 10-K. Grant date fair value for RSUs is based on the closing price of HEI Common Stock on the NYSE on the date of the grant of the
award.
50
Table of Contents
EXECUTIVE COMPENSATION
Outstanding Equity Awards at 2017 Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards |
|
|
|
|
|
|
|
|
|
Equity Incentive Plan Awards |
|
|
|
|
|
Shares or Units of
Stock That Have
Not Vested1 |
|
Number of
Unearned
Shares,
Units or Other
Rights That
Have Not
Vested (#)3
|
|
Market or
Payout Value of
Unearned Shares,
Units or Other
Rights That
Have Not
Vested ($)
|
|
Name
|
|
Grant
Year
|
|
Number
(#)
|
|
Market
Value
($)2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constance H. Lau |
|
|
2014 |
|
|
6,065 |
|
|
219,250 |
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
9,330 |
|
|
337,280 |
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
16,267 |
|
|
588,052 |
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
20,016 |
|
|
723,578 |
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
|
|
|
|
|
42,702 |
|
|
1,543,677 |
|
|
|
|
Total |
|
|
51,678 |
|
|
1,868,160 |
|
|
42,702 |
|
|
1,543,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory C. Hazelton |
|
|
2016 |
|
|
12,069 |
|
|
436,294 |
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
6,720 |
|
|
242,928 |
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
|
|
|
|
|
10,753 |
|
|
388,721 |
|
|
|
|
Total |
|
|
18,789 |
|
|
679,222 |
|
|
10,753 |
|
|
388,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan M. Oshima |
|
|
2014 |
|
|
1,479 |
|
|
53,466 |
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
4,197 |
|
|
151,722 |
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
9,514 |
|
|
343,931 |
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
12,728 |
|
|
460,117 |
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
|
|
|
|
|
18,602 |
|
|
672,462 |
|
|
|
|
Total |
|
|
27,918 |
|
|
1,009,236 |
|
|
18,602 |
|
|
672,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard F. Wacker |
|
|
2014 |
|
|
1,199 |
|
|
43,344 |
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
1,844 |
|
|
66,661 |
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
3,214 |
|
|
116,186 |
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
3,943 |
|
|
142,539 |
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
|
|
|
|
|
15,771 |
|
|
570,122 |
|
|
|
|
Total |
|
|
10,200 |
|
|
368,730 |
|
|
15,771 |
|
|
570,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 1
- Shares or Units of Stock That Have Not Vested. The remaining installments of the 2014 RSUs vested on
February 5, 2018. Of the remaining installments of the 2015 RSUs, one installment vested on February 6, 2018 and the remainder will vest on February 6, 2019. Of the remaining
installments of the 2016 RSUs for Ms. Lau and Messrs. Oshima and Wacker, one installment vested on February 5, 2018 and the remainder will vest in equal annual installments on
February 5, 2019 and 2020. For the 2017 RSUs, one installment vested on January 31, 2018 and the remainder will vest in equal annual installments on January 31, 2019, 2020 and
2021. For Mr. Hazelton's HEI RSUs granted to replace the unvested portion of his NW Natural RSUs granted in 2015, one installment vested on February 6, 2018, and the remainder will vest
on February 6, 2019. For Mr. Hazelton's HEI RSUs granted to replace the unvested portion of his NW Natural RSUs granted in 2016, one installment vested on February 5, 2018, and
the remainder will vest in equal annual installments on February 5, 2019 and 2020.
- 2
- Market Value. Market value is based upon the closing per-share trading price of HEI Common Stock on the NYSE
of $36.15 as of December 29, 2017.
- 3
- Number of Unearned Shares, Units or Other Rights That Have Not Vested. Represents number of shares of HEI
Common Stock that would be issued under the 2017-19 LTIP if performance goals are met at the target level at the end of the three-year performance
period.
51
Table of Contents
EXECUTIVE COMPENSATION
2017 Option Exercises and Stock Vested
|
|
|
|
|
|
|
|
|
|
Stock Awards |
|
Name
|
|
Number of Shares
Acquired on Vesting
(#)
|
|
Value Realized
on Vesting
($)
|
|
|
|
|
|
|
|
|
|
Constance H. Lau |
|
|
24,362 |
1
|
|
822,948 |
|
|
|
|
|
|
|
|
|
Gregory C. Hazelton |
|
|
6,009 |
1 |
|
202,984 |
|
|
|
|
|
|
|
|
|
Alan M. Oshima |
|
|
8,868 |
1
|
|
299,561 |
|
|
|
|
|
|
|
|
|
Richard F. Wacker |
|
|
4,787 |
1 |
|
161,705 |
|
|
|
|
|
|
|
|
|
James A. Ajello |
|
|
12,620 |
1
|
|
426,116 |
|
|
|
|
|
|
|
|
|
- 1
- Represents the number of shares acquired (and dividend equivalents paid in stock based on number of shares vested) upon the February 2017 vesting of installments of
RSUs granted on February 4, 2013, February 5, 2014, February 6, 2015, February 5, 2016 and October 24, 2016. Also, for Mr. Ajello who retired effective
April 2, 2017, represents the number of shares acquired (and dividend equivalents paid in stock based on number of shares vested) upon the April 2017 vesting of installments of RSUs granted on
February 5, 2014, February 6, 2015, February 5, 2016 and January 31, 2017. Value realized on vesting includes dividend equivalents.
|
|
|
|
|
|
|
|
|
Name
|
|
Number of Shares
Acquired on Vesting
|
|
Compounded
Dividend
Equivalents
|
|
Total Shares
Acquired on
Vesting
|
|
|
|
|
|
|
|
|
|
Constance H. Lau |
|
21,837 |
|
2,525 |
|
24,362 |
|
Gregory C. Hazelton |
|
5,581 |
|
428 |
|
6,009 |
|
Alan M. Oshima |
|
8,104 |
|
764 |
|
8,868 |
|
Richard F. Wacker |
|
4,293 |
|
494 |
|
4,787 |
|
James A. Ajello |
|
11,387 |
|
1,233 |
|
12,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
Table of Contents
EXECUTIVE COMPENSATION
Pension Benefits
The table below shows the present value as of December 31, 2017 of accumulated benefits for each of the named executive officers and
the number of years of service credited to each executive under the applicable pension plan and executive death benefit plan, determined using the interest rate, mortality table and other assumptions
described below, which are consistent with those used in HEI's financial statements (see Note 8 to the Consolidated Financial Statements in HEI's 2017 Form 10-K):
2017 PENSION BENEFITS
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Plan Name
|
|
Number of
Years of
Credited Service
(#)
|
|
Present Value of
Accumulated
Benefit ($)6
|
|
Payments
During the
Last
Fiscal
Year ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constance H. Lau |
|
HEI Retirement Plan1 |
|
|
26.8 |
|
|
2,439,492 |
|
|
|
|
|
|
ASB Retirement Plan2 |
|
|
6.4 |
|
|
286,615 |
|
|
|
|
|
|
HEI Supplemental Executive Retirement Plan3 |
|
|
24.3 |
|
|
8,371,332 |
|
|
|
|
|
|
HEI Excess Pay Plan4 |
|
|
8.6 |
|
|
1,725,600 |
|
|
|
|
|
|
HEI Executive Death Benefit5 |
|
|
|
|
|
703,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory C. Hazelton |
|
HEI Retirement Plan1 |
|
|
3.1 |
|
|
123,887 |
|
|
|
|
|
|
HEI Excess Pay Plan4 |
|
|
3.1 |
|
|
41,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan M. Oshima |
|
HEI Retirement Plan1 |
|
|
6.2 |
|
|
306,686 |
|
|
|
|
|
|
HEI Excess Pay Plan4 |
|
|
6.2 |
|
|
386,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard F. Wacker7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James A. Ajello |
|
HEI Retirement Plan1 |
|
|
8.2 |
|
|
788,074 |
|
|
33,077 |
|
|
|
HEI Excess Pay Plan4 |
|
|
8.2 |
|
|
893,667 |
|
|
37,469 |
|
|
|
HEI Executive Death Benefit5 |
|
|
|
|
|
403,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 1
- The HEI Retirement Plan is the standard retirement plan for HEI and Hawaiian Electric employees. Normal retirement benefits under the HEI Retirement Plan for
management employees hired before May 1, 2011, including Ms. Lau and Mr. Ajello, are calculated based on a formula of 2.04% × Credited Service (maximum 67%)
× Final Average Compensation (average monthly base salary for highest thirty-six consecutive months out of the last ten years). Credited service is generally the same as the years of
service with HEI and other participating companies (Hawaiian Electric and its subsidiaries). Credited service is also provided for limited unused sick leave and for the period a vested participant is
on long-term disability. The normal form of benefit is a joint and 50% survivor annuity for married participants and a single life annuity for unmarried participants. Actuarially equivalent optional
forms of benefit are also available. Participants who qualify to receive retirement benefits immediately upon termination of employment may also elect a single sum distribution of up to $100,000 with
the remaining benefit payable as an annuity. Single sum distributions are not eligible for early retirement subsidies, and so may not be as valuable as an annuity at early retirement. Retirement
benefits are increased by an amount equal to approximately 1.4% of the initial benefit every twelve months following retirement. The plan provides benefits at early retirement (prior to age 65),
normal retirement (age 65), deferred retirement (over age 65) and death. Subsidized early retirement benefits are available for participants who meet certain age and service requirements at
ages 50-64. The accrued normal retirement benefit is reduced by an applicable percentage, which ranges from 30% for early retirement at age 50 with at least 15 years of service to 1% at age 59.
Accrued benefits are not reduced for eligible employees who retire at age 60 and above. The early retirement subsidies are not available to employees who terminate employment with vested benefits but
prior to satisfying the age and service requirements for the early retirement subsidies.
HEI and Hawaiian Electric nonunion employees who commenced employment on or after May 1, 2011, like Messrs. Hazelton and Oshima, receive reduced benefits under the HEI Retirement Plan
(e.g., reduced benefit formula, more stringent requirements for subsidized early retirement benefits, reduced early retirement subsidies and no post-retirement cost-of-living adjustment).
Normal retirement benefits for these employees are calculated based on a formula of 1.5% × Credited Service × Final Average Compensation (average monthly base salary for
highest thirty-six consecutive months out of the last ten years). These employees are eligible for a limited match under the HEI Retirement Savings Plan (50% match on the first 6% of compensation
deferred).
Ms. Lau and Messrs. Ajello and Oshima are eligible for retirement benefits under the HEI Retirement Plan. Mr. Ajello retired in April
2017.
- 2
- Ms. Lau is a participant in the ASB Retirement Plan. She is currently eligible to retire with full normal retirement benefits (limited to her years of credited
service) under the plan. No other named executive officer is a participant in the plan or entitled to benefits under the plan. At the time of Ms. Lau's promotion to HEI President and CEO on
May 2, 2006, her credited service under the plan was frozen and she resumed participation in the HEI Retirement Plan. Future benefit accruals for all participants under the plan were frozen
effective December 31, 2007. As a result, credited service and compensation after December 31, 2007 are not recognized in calculating retirement benefits under the plan. Normal
retirement benefits under the frozen plan are calculated based on a formula of 1.5% × Credited Service to December 31, 2007 (maximum 35 years) × Final Average
Compensation at December 31, 2007 (averaged over the highest paying five consecutive calendar years out of the last ten calendar years prior to 2008). Compensation is primarily gross earnings
but excludes commissions, stock options and other equity
53
Table of Contents
EXECUTIVE COMPENSATION
compensation, LTIP payments, deferrals to and distributions from the ASB Select Deferred Compensation Plan and other "fringe benefits" as defined in the plan. Early retirement benefits are available
for participants who retire after attaining age 55 with a minimum of ten years of service. Beginning at age 60 the benefits are subsidized. The accrued normal retirement benefit is reduced by an
applicable percentage which ranges from 59.8% for early retirement at age 55 to 2% at age 64. The early retirement subsidies are not available to employees who terminate employment with vested
benefits but prior to satisfying the age and service requirements for the early retirement subsidies.
- 3
- Ms. Lau is a participant in the HEI Supplemental Executive Retirement Plan, which was frozen effective December 31, 2008. She is currently eligible to
retire with full normal retirement benefits (limited to benefits accrued before 2009) under the plan. No other named executive officer is a participant in the plan or entitled to benefits under the
plan. Benefits under the plan are determined based on a formula of 2.04% × Credited Service to December 31, 2008 (maximum 60%) × Final Average Compensation at
December 31, 2008 (average monthly base salary plus annual incentive awards for the three highest calendar years out of the last sixty months prior to 2009). Credited service is based on actual
years of service through December 31, 2008 with any HEI-affiliated company, including ASB and Hawaiian Electric and its subsidiaries. Thus, although Ms. Lau has more than 30 years
of actual service with HEI-affiliated companies, she receives only 24.3 years of credited service for purposes of the HEI Supplemental Executive Retirement Plan. Benefits under the plan are
reduced by benefits accrued as of December 31, 2008 under the HEI Retirement Plan, ASB Retirement Plan and social security. Early retirement and death benefits similar to those available under
the HEI Retirement Plan are available under the plan.
- 4
- As of December 31, 2017, all of the named executive officers, except for
Mr. Wacker, were participants in the HEI Excess Pay Plan. Ms. Lau and
Messrs. Ajello and Oshima were eligible for retirement benefits under such plan. Mr. Ajello retired in April 2017. Benefits under the HEI Excess Pay Plan are determined using the same
formula as the HEI Retirement Plan, but are not subject to the Internal Revenue Code limits on the amount of annual compensation that can be used for calculating benefits under qualified retirement
plans ($270,000 in 2017 as indexed for inflation) and on the amount of annual benefits that can be paid from qualified retirement plans (the lesser of $215,000 in 2017 as indexed for inflation, or the
participant's highest average compensation over three consecutive calendar years). Benefits payable under the HEI Excess Pay Plan are reduced by the benefit payable from the HEI Retirement Plan. Early
retirement, death benefits and vesting provisions are similar to the HEI Retirement Plan.
- 5
- Ms. Lau and Mr. Ajello are covered by
the Executive Death Benefit Plan of HEI and Participating Subsidiaries. The plan was amended effective
September 9, 2009 to close participation to new participants and freeze the benefit for existing participants. Under the amendment, death benefits will be paid based on salaries as of
September 9, 2009. The plan provides death benefits equal to two times the executive's base salary as of September 9, 2009 if the executive dies while actively employed or, if disabled,
dies prior to age 65, and one times the executive's base salary as of September 9, 2009 if the executive dies following retirement. The amounts shown in the table above assume death following
retirement. Death benefits are grossed up by the amount necessary to pay income taxes on the grossed up benefit amount as an equivalent to the tax exclusion for death benefits paid from a life
insurance policy. Messrs. Hazelton, Oshima and Wacker were not employed by the companies at the time the plan was frozen and therefore are not entitled to any benefits under the
plan.
- 6
- The present value of accumulated benefits for the named executive officers included in the 2017 Pension Benefits table was determined
based on the
following:
Methodology: The present values are calculated as of December 31, 2017 based on the credited service and pay of the named executive
officer as of such date (or the date of benefit freeze, if earlier).
Assumptions:
- a.
- Discount Rate The discount rate is the interest rate used to discount future benefit payments in order to reflect the time value of money. The
discount rates used in the present value calculations are 3.74% for retirement benefits and 3.72% for executive death benefits as of December 31, 2017.
- b.
- Mortality Table The RP-2017 Mortality Table (separate male and female rates) with generational projection using scale MP-2017 is used to discount
future pension benefit payments in order to reflect the probability of survival to any given future date. For the calculation of the executive death benefit present values, the mortality table rates
are multiplied by the death benefit to capture the death benefit payments assumed to occur at all future dates. Mortality is applied post-retirement only.
- c.
- Retirement Age A named executive officer included in the table is assumed to remain in active employment until, and assumed to retire at, the
later of (a) the earliest age when unreduced pension benefits would be payable or (b) attained age as of December 31, 2017.
- d.
-
Pre-Retirement Decrements Pre-retirement decrements refer to events that could occur between the measurement date and the retirement age (such as
withdrawal, early retirement and death) that would impact the present value of benefits. No pre-retirement decrements are assumed in the calculation of pension benefit table present values.
Pre-retirement decrements are assumed for financial statement purposes.
- e.
- Unused Sick Leave Each named executive officer who
participates in the HEI Retirement Plan is assumed to have accumulated 1,160 unused sick leave
hours at retirement age.
- 7
- Mr. Wacker is not eligible to participate in any of the plans in the above 2017 Pension Benefits table because such plans either (i) are not open to
employees of ASB or (ii) were frozen to new participants before Mr. Wacker joined ASB.
54
Table of Contents
EXECUTIVE COMPENSATION
2017 Nonqualified Deferred Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Executive
Contributions
in Last FY
($)
|
|
Registrant
Contributions
in Last FY
($)
|
|
Aggregate
Earnings/(Losses)
in Last FY
($)
|
|
Aggregate
Withdrawals/
Distributions
($)
|
|
Aggregate
Balance at
Last FYE
($)4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constance H. Lau1 |
|
|
|
|
|
|
|
|
90,194 |
|
|
|
|
|
499,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory C. Hazelton |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan M. Oshima2 |
|
|
|
|
|
|
|
|
139,801 |
|
|
|
|
|
772,831 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard F. Wacker3 |
|
|
|
|
|
11,416 |
|
|
13,560 |
|
|
|
|
|
92,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James A. Ajello2 |
|
|
75,000 |
|
|
|
|
|
35,750 |
|
|
111,950 |
|
|
224,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 1
- While employed by ASB, Ms. Lau was eligible to defer compensation under the ASB Select Deferred Compensation Plan (ASB Deferred Compensation Plan), a
contributory nonqualified deferred compensation plan. She elected to defer $100,000 each year from bonuses awarded to her in 2004 and 2005. These amounts are reflected in the "Aggregate Balance at
Last FYE" column of the table above and were previously reported as compensation to Ms. Lau in the 2004 and 2005 Summary Compensation Tables in the proxy statements for such years. Since 2008
she no longer earns any compensation from ASB that could be deferred to the plan. The ASB Deferred Compensation Plan allows select ASB employees to defer up to 100% of current salary, bonus and
commissions. Pursuant to a 2009 amendment, the plan provides for employer matching contributions and profit sharing contributions for plan years beginning January 1, 2010. These matching and
profit sharing contributions take into account compensation which is excluded from consideration under the ASB 401(k) Plan, including on account of being contributed to the ASB Deferred Compensation
Plan or being in excess of limits on eligible compensation imposed by the Internal Revenue Code. The deferred amounts are credited with gains/losses of deemed investments chosen by the participant
from a designated list of publicly traded mutual funds and other investment offerings. Earnings are not above-market or preferential and therefore are not included in the 2017 Summary Compensation
Table above. Under the plan, a participant may receive an interim distribution while employed, but no earlier than the first day of the fourth plan year following the effective date of the initial
election to defer. A participant may also request a withdrawal of a portion of his or her account to satisfy an unforeseeable emergency. The distribution of accounts from the plan is triggered by
disability, death or separation from service (including retirement) and will be delayed for a 6-month period to the extent necessary to comply with Internal Revenue Code Section 409A. A
participant may elect to receive such distributions in a lump sum or in substantially equal payments spread over a period not to exceed 15 years.
- 2
- Represents salary and incentive compensation deferrals under the HEI Deferred Compensation Plan, a contributory nonqualified deferred compensation plan implemented in
2011. The plan allows certain HEI and Hawaiian Electric executives to defer 100% of annual base salary in excess of the compensation limit set forth in Internal Revenue Code Section 401(a)(17)
($270,000 in 2017, as indexed for inflation) and up to 80% of any incentive compensation paid in cash. There are no matching or other employer contributions under the plan. The deferred amounts are
credited with gains/losses of deemed investments chosen by the participant from a designated list of publicly traded mutual funds and other investment offerings. Earnings are not above-market or
preferential and therefore are not included in the 2017 Summary Compensation Table above. The distribution of accounts from the plan is triggered by disability, death or separation from service
(including retirement) and will be delayed for a 6-month period to the extent necessary to comply with Internal Revenue Code Section 409A. A participant may elect to receive distributions
triggered by separation from service in a lump sum or in substantially equal payments spread over a period not to exceed 15 years. Lump sum benefits are payable in the event of disability or
death. Messrs. Ajello and Oshima participated in the HEI Deferred Compensation Plan in 2017. The amount listed in the "Executive Contributions in Last FY" column for Mr. Ajello is
reported as compensation in the 2017 Summary Compensation Table for the year 2016.
- 3
- Mr. Wacker has not deferred any amounts under the
ASB Deferred Compensation Plan. In 2017 he received a profit sharing contribution to his account under such
plan for the portion of his profit sharing contribution that could not be made to his ASB 401(k) Plan account due to Internal Revenue Code limits on eligible compensation for 401(k) plans. The amount
of such profit sharing contribution is included in the "All Other Compensation" column of the 2017 Summary Compensation Table for the year 2016.
- 4
- Amounts in this column include contributions reported in the Summary Compensation Table for each year in which each executive listed above was a named executive
officer.
55
Table of Contents
EXECUTIVE COMPENSATION
Potential Payments Upon Termination or Change in Control
The table below shows the potential payments to each named executive officer in the event of retirement, voluntary termination, termination
for cause, termination without cause and qualifying termination after change in control, assuming termination occurred on December 31, 2017. The amounts listed below are estimates; actual
amounts to be paid would depend on the actual date of termination and circumstances existing at that time.
2017 TERMINATION/CHANGE-IN-CONTROL PAYMENT TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name/
Benefit Plan or Program
|
|
Retirement
on 12/31/17
($)1
|
|
Voluntary
Termination
on 12/31/17
($)2
|
|
Termination
for Cause
on 12/31/17
($)3
|
|
Termination
without Cause
on 12/31/17
($)4
|
|
Qualifying
Termination after
Change in Control
on 12/31/17
($)5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constance H. Lau |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Incentive Compensation Plan6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentive Plan7 |
|
|
1,455,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units8 |
|
|
791,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change-in-Control Agreement5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,166,640 |
|
TOTAL |
|
|
2,247,825 |
|
|
|
|
|
|
|
|
|
|
|
10,166,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory C. Hazelton |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Incentive Compensation Plan6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentive Plan7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change-in-Control Agreement5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,111,556 |
|
TOTAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,111,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan M. Oshima* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Incentive Compensation Plan6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentive Plan7 |
|
|
601,976 |
|
|
|
|
|
|
|
|
|
|
|
601,976 |
|
Restricted Stock Units8 |
|
|
368,548 |
|
|
|
|
|
|
|
|
|
|
|
1,081,355 |
|
TOTAL |
|
|
970,524 |
|
|
|
|
|
|
|
|
|
|
|
1,683,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard F. Wacker |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive Incentive Compensation Plan6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Incentive Plan7 |
|
|
880,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units8 |
|
|
156,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change-in-Control Agreement5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,335,189 |
|
TOTAL |
|
|
1,036,952 |
|
|
|
|
|
|
|
|
|
|
|
4,335,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- *
- Mr. Oshima did not have a change-in-control agreement as of December 31, 2017.
Note: All stock-based award amounts were valued using the 2017 year-end closing price of HEI Common Stock on the
NYSE of $36.15 per share on December 29, 2017. Other benefits that are available to all salaried employees on a nondiscriminatory basis and perquisites aggregating less than $10,000 in value
have not been listed.
- 1
- Retirement Payments & Benefits. Only Mr. Hazelton was not eligible for retirement as of
December 31, 2017 and accordingly no amounts are shown in this column for him. Amounts in this column do not include amounts payable under the 2017 EICP and 2015-17 LTIP because those amounts
would have vested without regard to retirement since December 31, 2017 was the end of the applicable performance periods. In addition to the amounts shown in this column, retired executives are
entitled to receive their vested retirement plan and deferred compensation benefits under all termination scenarios. See the 2017 Pension Benefits and 2017 Nonqualified Deferred Compensation tables
above.
- 2
- Voluntary Termination Payments & Benefits. If the executive
voluntarily terminates employment, he or
she could lose any annual or long-term incentives based upon the Compensation Committee's right to amend, suspend or terminate any incentive award or any portion of it at any time. Voluntary
termination results in the forfeiture of unvested RSUs and participation in incentive plans. Amounts in this column do not include amounts payable under the 2017 EICP or the 2015-17 LTIP because those
amounts would have vested without regard to voluntary termination since December 31, 2017 was the end of the applicable performance periods. The executive's entitlement to rights under his or
her change-in-control agreement would also end.
- 3
- Termination for Cause Payments &
Benefits. If the executive is terminated for cause, he or she could
lose any annual or long-term incentives based upon the Compensation Committee's right to amend, suspend or terminate any incentive award or any portion of it at any time. "Cause" generally means a
violation of the HEI Corporate Code of Conduct or, for purposes of awards under the 2010 Equity and Incentive Plan, as amended (EIP), has the meaning set forth in such plans. Termination for cause
results in the forfeiture of all unvested RSUs, and participation in incentive plans. The executive's entitlement to rights under his or her change-in-control agreement would also
end.
56
Table of Contents
EXECUTIVE COMPENSATION
- 4
- Termination without Cause Payments & Benefits. If the executive is terminated without cause, he or
she could lose any annual or long-term incentives based upon the Compensation Committee's right to amend, suspend or terminate any incentive award or any portion of it at any time. Termination without
cause results in the forfeiture of unvested RSUs. As discussed in footnote 5 below, different benefits would be payable to the named executive officers if their termination without cause were to
follow a change in control under the terms of their change-in-control agreements.
- 5
- Qualifying Termination after Change-in-Control
Payments & Benefits. Ms. Lau and
Messrs. Hazelton and Wacker had change-in-control agreements as of December 31, 2017.
"Change in control" generally means a change in ownership of HEI, a substantial change in the voting power of HEI's securities or a change in the majority of the composition of the Board following the
consummation of a merger, tender offer or similar transaction. Mr. Wacker's change-in-control agreement defines "change in control" to also mean a sale of (or equivalent transaction involving)
ASB. The change-in-control agreements are double trigger, which means that they provide for cash severance and other benefits only upon a qualifying termination of the executives' employment following
a change in control. Ms. Lau has a lump sum severance multiplier of three times and Messrs. Hazelton and Wacker have a lump sum severance multiplier of two times, in each case applied to
the sum of the executive's base salary and annual incentive compensation (determined to be the greater of the current target or the largest actual annual incentive compensation during the preceding
three years).
In addition, under the change-in-control agreements executives would receive continued life, disability, dental, accident and health insurance benefits for the severance period (i.e., the
number of years equal to the applicable severance multiplier). Executives would receive a lump sum payment equal to the present value of the additional benefit the executives would have earned under
their respective retirement and savings plans during the severance period. Executives would also receive the greater of current target or actual projected EICP and LTIP compensation, pro-rated if
termination occurs during the first half of the applicable performance period and the full value if termination occurs in the second half of the applicable performance period. For RSUs, in the event
of a change in control either (i) the acquiring entity shall assume or substitute similar awards for all outstanding awards and such awards would vest in full upon a qualifying termination of
employment within two years following the change in control or (ii) all outstanding awards shall become fully vested. For the named executive officers who are eligible to participate in the HEI
Retirement Plan, additional age and service credit is received for the severance period for purposes of determining retiree welfare benefit eligibility. Executives would receive outplacement services,
capped at 15% of annual base salary. Payment would generally be delayed for six months following termination of employment to the extent required to avoid an additional tax under Section 409A
of the Internal Revenue Code. Interest would accrue during any six-month delay period at the prevailing six-month certificate of deposit rate and payments would be set aside during that period in a
grantor (rabbi) trust. There are no tax gross ups provided for in the agreements. All the foregoing benefit amounts are included in this column but the total severance amount shown is limited to the
maximum amount deductible under Section 280G of the Internal Revenue Code with respect to each named executive officer. Payment of the foregoing benefits is subject to a release of claims by
the applicable named executive officer.
- 6
- Executive Incentive Compensation Plan (EICP). Upon death, disability or retirement, executives continue to
participate in the EICP on a pro-rata basis if the executive has met applicable minimum service requirements, with lump sum payment to be made by the Company if the applicable performance goals are
achieved. The EIP provides that in the event of an involuntary termination following a change in control, the EICP award would be immediately paid out at target level, pro-rated for completed months
of service in the performance period. If there is no termination or a voluntary termination following a change in control, the EIP provides that (i) the acquiring entity shall assume all
outstanding EICP awards or substitute similar awards or (ii) to the extent the acquiring entity refuses to assume or substitute such awards, such awards shall become fully vested (with all
performance goals deemed achieved at 100% of target levels). Annual incentive compensation payments in the event of a change in control are described in footnote 5 above and quantified as part of the
Change-in-Control Agreement payment in the table above.
- 7
- Long-Term Incentive Plan (LTIP). Upon death, disability or retirement, executives continue to participate in
each ongoing LTIP cycle on a pro-rata basis if the executive has met applicable minimum service requirements, with lump sum payment to be made by the Company if performance goals are achieved. The
amounts shown are at target for goals deemed achievable (or at below the threshold, if deemed unachievable at the date of termination) for all applicable plan years, pro-rated based upon service
through December 31, 2017; actual payouts will depend upon performance achieved at the end of the plan cycle.. The EIP provides that in the event of an involuntary termination following a
change in control, the LTIP award would be immediately paid out at target level, pro-rated for completed months of service in the performance period. If there is no termination or a voluntary
termination following a change in control, the EIP provides that, (i) the acquiring entity shall assume all outstanding LTIP awards or substitute similar awards or (ii) to the extent the
acquiring entity refuses to assume or substitute such awards, such awards shall become fully vested (with all performance goals deemed achieved at 100% of target levels). Long-term incentive
compensation payments in the event of a change in control are described in footnote 5 above and quantified as part of the Change-in-Control Agreement payment in the table
above.
- 8
- Restricted Stock Units (RSUs). Termination for or without cause results in
the forfeiture of unvested RSUs.
Termination due to death, disability or retirement results in pro-rata vesting of RSUs. If there is a change in control, either (i) the acquiring entity shall assume all outstanding RSUs or
substitute similar awards and such awards would vest in full upon a qualifying termination of employment within two years following the change in control or (ii) to the extent the acquiring
entity refuses to assume or substitute such awards, such awards shall become fully vested. The vesting of RSUs in the event of a qualifying termination of employment following a change in control are
described in footnote 5 above and quantified as part of the Change-in-Control Agreement payment in the table above.
57
Table of Contents
EXECUTIVE COMPENSATION
CEO Pay Ratio
As
required by SEC rules, we are disclosing the ratio of our median employee's annual total compensation to the annual total compensation of our CEO.
In
accordance with Item 402(u) of Regulation S-K, we identified our median employee by evaluating 2016 Form W-2s for all individuals, excluding our CEO, who were employed by us on
October 1, 2017. We included all employees, whether employed on a full-time, part-time, or seasonal basis and assumed no compensation earned in 2016 for employees hired in 2017. We believe that
the use of Form W-2 compensation for all employees is an appropriate compensation measure for this purpose because it reasonably reflects annual compensation for our employees.
After
identifying the median employee based on Form W-2 compensation, we calculated annual total compensation for such employee using the same methodology we use for our CEO as set forth in the
2017 Summary Compensation Table above. The SEC rules allow for varying methodologies for companies to identify their median employee. Other companies may have different employment and compensation
practices and may utilize different methodologies, estimates and assumptions in calculating their own pay ratios. Therefore, the pay ratios reported by other companies are unlikely to be relevant for
purposes of comparison to our pay ratio.
|
|
|
|
|
|
|
|
CEO to Median Employee Pay Ratio
|
|
|
|
President &
CEO
|
|
Median
Employee
|
|
|
|
|
|
|
|
|
|
Base Salary |
|
$
|
893,533 |
|
$
|
88,864 |
|
Stock Awards |
|
|
2,151,295 |
|
|
|
|
Non-Equity Incentive Plan Compensation |
|
|
2,337,155 |
|
|
|
|
Change in Pension Value1 |
|
|
531,763 |
|
|
37,993 |
|
|
|
|
|
|
|
|
|
TOTAL |
|
$
|
5,913,746 |
|
$
|
126,857 |
|
|
|
|
|
|
|
|
|
CEO Pay to Median Employee Pay Ratio |
|
|
47:1 |
|
|
|
|
|
|
|
|
|
|
|
|
- 1
- These amounts are attributable to a change in the value of each individual's defined benefit pension account balance and do not represent earned or paid compensation.
Despite the fact that these amounts are not paid, they are required to be taken into account for purposes of calculating total annual compensation for SEC reporting purposes. Pension values fluctuate
over time they can rise or fall year-to-year and are dependent on many variables including market conditions, years of service, earnings, and actuarial assumptions such as
discount rates.
Due
to the NextEra Energy merger that was pending at the time the 2015-17 and 2016-18 long-term incentive plans (LTIPs) were established, these LTIPs were denominated in cash rather than in stock.
This is because the Compensation Committee had determined that while the merger was pending, HEI's stock price might be affected at least in part by merger considerations that were unrelated to HEI's
true operating performance and that, as a result, the compensatory goals of the LTIP would be better served without such merger impact. Since the merger agreement between HEI and NextEra Energy was
terminated in July 2016, HEI returned to exclusively equity-based LTIPs in 2017, which impacts the comparative compensation amounts disclosed in the 2017 Summary Compensation Table (SCT). Although our
LTIP programs and practices have not changed (i.e., one 3-year LTIP is granted each year), due to the disclosure timing differences between cash-based and equity-based LTIPs, the reported compensation
amounts in the Summary Compensation Table for 2017 are notably higher than, and not comparable to, the reported amounts for 2015 and 2016, and are not reflective of the target compensation provided to
our NEOs for 2017. Due to SEC disclosure rules, the 2017 compensation amounts in the SCT include both the 2015-17 LTIP cash payouts and the 2017-19 equity-based LTIP. By contrast, the 2015 and 2016
compensation amounts in the SCT do not include any LTIP amounts. Please see page 47 under "Summary Compensation Table".
The
following table shows our CEO's total compensation amount for 2017 (including change in pension value) without including the 2015-17 "cash" LTIP payout and only including the 2017-19 "equity "LTIP
award and the resulting pay ratio using such adjusted CEO pay.
|
|
|
|
|
|
|
|
|
|
President &
CEO
|
|
Median
Employee
|
|
|
|
|
|
|
|
|
|
TOTAL without 2015-2017 "cash" LTIP |
|
$
|
4,576,365 |
|
$
|
126,857 |
|
|
|
|
|
|
|
|
|
CEO Pay (adjusted) to Median Employee Pay Ratio |
|
|
36:1 |
|
|
|
|
|
|
|
|
|
|
|
|
58
Table of Contents
STOCK OWNERSHIP INFORMATION
STOCK OWNERSHIP INFORMATION
Security ownership of certain beneficial owners
|
The
table below shows the number of shares of HEI Common Stock beneficially owned as of February 22, 2018 (or such other date as indicated below) by (a) each person known by HEI to own
beneficially more than five percent of the outstanding shares of HEI Common Stock, (b) each director who is a current director or served as a director during any part of 2017 and each named
executive officer (as listed in the 2017 Summary Compensation Table above) and (c) all directors and executive officers as a group, based in part on information furnished by the respective
shareholders. No HEI directors, executive officers or named executive officers own any shares of Preferred Stock of HEI's wholly owned subsidiary, Hawaiian Electric.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP OF HEI COMMON STOCK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Individual or Group
|
|
Sole Voting or
Investment
Power1
|
|
Shared Voting or
Investment
Power2
|
|
Other Beneficial
Ownership3
|
|
Restricted
Stock Units4
|
|
Total
|
|
Percent
of Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BlackRock, Inc.5 |
|
|
9,101,455 |
|
|
|
|
|
|
|
|
|
|
|
9,101,455 |
|
8.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Vanguard Group, Inc.6 |
|
|
9,889,770 |
|
|
86,164 |
|
|
|
|
|
|
|
|
9,975,934 |
|
9.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonemployee directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard J. Dahl |
|
|
3,990 |
|
|
|
|
|
|
|
|
|
|
|
3,990 |
|
* |
Thomas B. Fargo |
|
|
|
|
|
29,262 |
|
|
|
|
|
|
|
|
29,262 |
|
* |
Peggy Y. Fowler |
|
|
1,398 |
|
|
30,727 |
|
|
|
|
|
|
|
|
32,125 |
|
* |
Keith P. Russell |
|
|
20,165 |
|
|
|
|
|
|
|
|
|
|
|
20,165 |
|
* |
James K. Scott |
|
|
53,438 |
|
|
|
|
|
|
|
|
|
|
|
53,438 |
|
* |
Kelvin H. Taketa |
|
|
37,487 |
|
|
|
|
|
|
|
|
|
|
|
37,487 |
|
* |
Barry K. Taniguchi |
|
|
|
|
|
35,876 |
|
|
|
|
|
|
|
|
35,876 |
|
* |
Jeffrey N. Watanabe |
|
|
51,721 |
|
|
|
|
|
5 |
|
|
|
|
|
51,726 |
|
* |
Employee director and Named Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Constance H. Lau |
|
|
527,313 |
|
|
|
|
|
|
|
|
4,450 |
|
|
531,763 |
|
* |
Other Named Executive Officers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James A. Ajello7 |
|
|
84,109 |
|
|
|
|
|
|
|
|
|
|
|
84,109 |
|
* |
Gregory C. Hazelton |
|
|
8,996 |
|
|
|
|
|
|
|
|
|
|
|
8,996 |
|
* |
Alan M. Oshima |
|
|
|
|
|
45,068 |
|
|
|
|
|
2,628 |
|
|
47,696 |
|
* |
Richard F. Wacker |
|
|
|
|
|
95,801 |
|
|
|
|
|
876 |
|
|
96,677 |
|
* |
All directors and executive officers as a group (12 persons) |
|
|
704,508 |
|
|
236,734 |
|
|
5 |
|
|
7,954 |
|
|
949,201 |
|
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 1
- Includes the following shares held as of February 22, 2018 in the form of stock units in the HEI Common Stock fund pursuant to the HEI Retirement Savings Plan:
approximately 113 shares for Ms. Lau and 113 shares for all directors and executive officers as a group. The value of a unit is measured by the closing price of HEI Common Stock on the
measurement date.
- 2
- For individuals, includes (i) shares registered in name of the individual and spouse and/or (ii) shares
registered in trust with the individual and
spouse serving as co-trustees.
- 3
- Shares owned by spouse, children or other relatives sharing the home of the director or officer in which the
director or officer disclaims beneficial
interest.
- 4
- Includes the number of shares that the individuals named above had a right to acquire as of or within 60 days after
February 22, 2018 pursuant to
Restricted Stock Units and related dividend equivalent rights thereon, including shares which retirement eligible individuals have a right to acquire upon retirement. These shares are included for
purposes of calculating the percentage ownership of each individual named above and all directors and executive officers as a group, but are not deemed to be outstanding as to any other
person.
59
Table of Contents
STOCK OWNERSHIP INFORMATION
- 5
- Based solely on information provided in a Schedule 13G report filed on January 25, 2018 by BlackRock, Inc., 55 East 52nd Street, New York,
NY 10055.
- 6
- Based solely on information provided in a Schedule 13G report filed on February 9, 2018 by The Vanguard Group, Inc.,
100 Vanguard Blvd., Malvern,
PA 19355.
- 7
- Mr. Ajello retired effective April 2, 2017.
- *
- As of February 22, 2018, the directors and executive officers of HEI as a group and each individual named above beneficially owned less than one percent of the
record number of outstanding shares of HEI Common Stock as of that date and no shares were pledged as security.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires HEI's executive officers, directors and persons who own more than ten
percent of a registered class of HEI's equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission (SEC). Such reporting persons are also
required by SEC regulations to furnish HEI with copies of all Section 16(a) forms they file. Based solely on its review of such forms provided to it, HEI believes that each of the persons
required to comply with the Section 16(a) reporting requirements with regard to HEI complied with such reporting requirements for 2017, except that on one occasion, a report for one transaction
for Mr. Dahl was inadvertently filed in an untimely fashion relating to the issuance of a nonemployee director stock grant. This report was subsequently filed.
60
Table of Contents
OTHER RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
OTHER RELATIONSHIPS AND RELATED
PERSON TRANSACTIONS
Related person transaction policy
|
The
Board has adopted a related person transaction policy that is included in HEI's Corporate Code of Conduct, which is available for review at www.hei.com/govdocs. The related person transaction
policy is specific to transactions between the Company and related persons such as executive officers and directors, their immediate family members or entities with which they are affiliated in which
the amount involved exceeds $120,000 and in which any related person had or will have a direct or indirect material interest. Under the policy, the Board, acting through the Nominating and Corporate
Governance Committee, may approve a related person transaction involving a director or an officer or other related person if the Board determines in advance that the transaction is not inconsistent
with the best interests of HEI and its shareholders and is not in violation of HEI's Corporate Code of Conduct.
Family relationships between any HEI executive officer, director and nominee for director
|
There
are no family relationships between any HEI executive officer, director or nominee for director.
Arrangements or understandings between any HEI executive, director or director nominee and another person pursuant to which such executive, director or director nominee was selected
|
There
are no arrangements or understandings between any executive officer, director or director nominee of HEI and any other person pursuant to which such executive officer, director or director
nominee was selected.
Related person transactions with HEI or its subsidiaries
|
ASB
has made loans and extensions of credit to directors and executive officers, members of their immediate families and affiliated entities in the ordinary course of business and on
substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and which did not involve more than the normal
risk of collectability or present other unfavorable features.
61
Table of Contents
AUDIT COMMITTEE REPORT
AUDIT COMMITTEE REPORT
The
Audit Committee is responsible for providing independent, objective oversight of HEI's accounting functions and internal controls. It operates and acts under a written charter, which was adopted
and approved by the Audit Committee and the Board and is available for review at www.hei.com/govdocs. The Board has determined that the three directors currently serving on the Audit Committee
(Messrs. Dahl, Russell and Taniguchi) meet the independence and other qualification requirements of the NYSE Listed Company Manual and applicable
securities laws. Messrs. Dahl, Russell and Taniguchi have also been determined by the Board to be "audit committee financial experts" on the Audit Committee. In addition, the Audit Committee
has authority to retain its own independent legal counsel and accounting advisers at HEI's expense.
The
Audit Committee assists the Board with its financial and risk oversight responsibilities. Management has the primary responsibility for HEI's consolidated financial statements and reporting
process, including the systems of internal control. The independent registered public accounting firm has the responsibility for expressing opinions on HEI's consolidated financial statements and on
the Company's internal control over financial reporting based on its integrated audits.
Independence of registered public accounting firm and recommendation to include financial statements in Form 10-K
In connection with its responsibilities, the Audit Committee held four regular meetings and four special meetings in 2017 with management and
Deloitte. In its meetings with management and Deloitte, the Audit Committee's review and discussion included the audited consolidated financial statements, audit plan and quality/adequacy of internal
controls. Discussions with Deloitte included the matters required by Auditing Standard No. 1301, "Communication with Audit Committees," such as the audit strategy and results of the audit.
Deloitte
provided the Audit Committee with written disclosures and a letter regarding its independence from management as required by professional standards and other regulatory requirements,
including applicable requirements of the Public Company Accounting Oversight Board. Based on its review of the disclosure statements and discussions with Deloitte, the Audit Committee satisfied itself
as to the independence of the external auditor.
Based
on its reviews and discussions with management and Deloitte described above and review of Deloitte's representations and disclosures, the Audit Committee recommended to the Board of Directors
that HEI's audited consolidated financial statements be included in HEI's 2017 Form 10-K.
|
|
|
|
|
Audit Committee
Barry K. Taniguchi, Chairperson
Richard J. Dahl
Keith P. Russell |
62
Table of Contents
INDEPENDENT ACCOUNTING FIRM
INDEPENDENT ACCOUNTING FIRM
Change in Registered Public Accounting Firm
|
As
reported in HEI's Form 8-K filed with the Securities and Exchange Commission (SEC) on March 3, 2017 (the Form 8-K), on February 27, 2017, the Audit
Committee approved the engagement of Deloitte as HEI's independent registered public accounting firm for the year ending December 31, 2017, effective upon the signing of an engagement letter
between HEI and Deloitte. Such engagement letter was executed on March 3, 2017. On February 27, 2017, the Audit Committee dismissed PwC as HEI's independent registered public accounting
firm.
Deloitte's
report on HEI's consolidated financial statements as of and for the fiscal year ended December 31, 2017, and PWC's reports on HEI's consolidated financial statements as of and for
the fiscal years ended December 31, 2016 and 2015, contained no adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting
principles.
The
audit report of Deloitte on the effectiveness of internal control over financial reporting as of December 31, 2017 did not contain an adverse opinion or disclaimer of opinion, nor were they
qualified as to uncertainty, audit scope or accounting principles.
During
the fiscal years ended December 31, 2016 and 2015 and the subsequent interim period through February 27, 2017, (i) there were no disagreements (as that term is defined in
Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between HEI and PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing
scope or procedures which disagreements if not resolved to the satisfaction of PwC would have caused PwC to make reference thereto in their reports on the financial statement for such years, and
(ii) there were no "reportable events" (as that term is defined in Item 304(a)(1)(v) of Regulation S-K), except as discussed below.
As
disclosed in HEI's Annual Report on Form 10-K for the fiscal year ended December 31, 2015, HEI did not maintain effective controls over the preparation and review of their
consolidated statement of cash flows. Specifically, controls were not designed to ensure that non-cash transactions were properly identified, evaluated and presented in the statement of cash flows,
and management's review process was not effective. The material weakness was remediated as of December 31, 2016.
PwC
discussed this matter with the Audit Committee. HEI authorized PwC to fully respond to the inquiries of Deloitte concerning this matter.
HEI
provided PwC with a copy of the Form 8-K containing substantially the same disclosures set forth above and requested that PwC furnish HEI with a letter addressed to the SEC stating whether
it agrees with the statements contained therein. A copy of PwC's letter, dated March 3, 2017, is filed as Exhibit 16 to the Form 8-K.
During
the fiscal years ended December 31, 2016 and 2015 and through February 27, 2017, the date of engagement of Deloitte, neither HEI nor any person on its behalf consulted with
Deloitte with respect to (i) either the application of accounting principles to a specified transaction, either completed or proposed, or the
type of audit opinion that might be rendered on HEI's consolidated financial statements, and no written report or oral advice was provided by Deloitte to HEI that Deloitte concluded was an important
factor considered by HEI in reaching a decision as to the accounting, auditing or financial reporting issue, or (ii) any matter that was the subject of either a disagreement as defined in
Item 304(a)(1)(iv) of the SEC's Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of the SEC's Regulation S-K.
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Table of Contents
PROPOSAL NO. 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PROPOSAL NO. 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2018
At
the 2018 Annual Meeting, the shareholders will be asked to ratify the appointment of Deloitte & Touche as HEI's independent registered public accounting firm for the year ending
December 31, 2018 and thereafter until its successor is appointed. Representatives of Deloitte & Touche are expected to be present at the 2018 Annual Meeting and will have the
opportunity to make statements if they desire to do so and to respond to appropriate questions. PwC, our independent registered public accounting firm for 2016, will not have a representative at the
2018 Annual Meeting.
Auditors' fees
The following table sets forth the fees paid or payable to Deloitte & Touche LLP (Deloitte), the Company's independent
registered public accounting firm for 2017, with comparative amounts for 2016 that were paid or payable to PricewaterhouseCoopers LLP (PwC), HEI's former independent registered public
accounting firm:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
2017 |
|
|
|
Fees
|
|
%
|
|
Fees
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit fees (principally consisted of fees associated with the audit of HEI, Hawaiian Electric and ASB consolidated financial statements and internal control over financial reporting (Sarbanes-Oxley Act of 2002, Section 404), quarterly reviews,
issuances of letters to underwriters, statutory audits, review of registration statements, issuance of consents and the bank's Form 10 in 2016) |
|
$
|
2,927,169 |
|
|
88 |
|
$
|
2,742,000 |
|
|
83 |
|
Audit-related fees (primarily consisted of fees associated with the audit of the financial statements of certain employee benefit plans in 2016, the audit of internal control over transfer agent and registrar duties and
agreed upon procedures in 2016 and 2017, and consultation on financial accounting and reporting standards and pre-implementation assessment of controls in 2017) |
|
|
242,513 |
|
|
7 |
|
|
523,000 |
|
|
16 |
|
Tax fees (consisted of review of income tax returns, generation repair studies and tax compliance and technical support) |
|
|
160,760 |
|
|
5 |
|
|
20,000 |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,330,442 |
|
|
100 |
|
$ |
3,285,000 |
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pursuant
to its charter, the Audit Committee preapproves all audit and permitted nonaudit services to be performed by the independent registered public accounting firm. The Audit Committee may
delegate this responsibility to one or more of its members, provided that such member or members report any such preapprovals to the full Audit Committee at its next regularly scheduled meeting. All
of the amounts set forth in the table above were preapproved. In addition, the Audit Committee reviewed the professional fees billed by Deloitte and determined that the provision of nonaudit services
was compatible with the maintenance of the auditor's independence.
In
the event the appointment of Deloitte & Touche is not ratified, the Audit Committee will reconsider its selection, but may decide to maintain the appointment of Deloitte & Touche.
Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if the
Audit Committee believes that such a change would be in the best interests of HEI's shareholders.
ü
FOR
Your
Audit Committee and Board recommend that you vote FOR the ratification of the appointment of Deloitte & Touche LLP as the independent registered public accounting firm for 2018.
64
Table of Contents
ABOUT THE MEETING
PROXY STATEMENT
HEI is soliciting proxies for the 2018 Annual Meeting of Shareholders scheduled for Thursday, May 10, 2018, at 10:00 a.m.,
Hawaii time, at the American Savings Bank Tower, 1001 Bishop Street, 8th floor, Room 805, Honolulu, Hawaii 96813. The mailing address of the principal executive offices of
HEI is P.O. Box 730, Honolulu, Hawaii 96808-0730.
The
approximate mailing date for this Proxy Statement, form of proxy and 2017 Annual Report to Shareholders is March 28, 2018. The 2017 Annual Report to Shareholders accompanying this Proxy
Statement is not considered part of the proxy soliciting material.
ABOUT THE 2018 ANNUAL MEETING
Attendance
will be limited to:
-
- shareholders of record (i.e., shareholders who own shares registered in their own name on the books of HEI) on the record date;
-
- beneficial owners of HEI Common Stock having evidence of ownership as of the record date and entitlement to vote at the meeting;
-
- authorized representatives of absent shareholders; and
-
- invited guests of HEI management.
If
you own shares of HEI Common Stock in the name of a bank, brokerage firm or other holder of record, you must show proof of ownership. This may be in the form of a letter from the holder of record
or a recent statement from the bank or broker showing ownership of HEI Common Stock.
If
you are representing an entity that is a shareholder, you must also present documentation showing your authority to attend and act on behalf of the entity (such as a power of attorney, written
proxy to vote, or letter of authorization on the entity's letterhead). Only one authorized representative may attend per absent shareholder.
In
order to be admitted to the 2018 Annual Meeting, you will need to present government-issued photo identification (such as a driver's license or passport) at registration.
To
ensure that we can accommodate the greatest number of shareholders at our 2018 Annual Meeting, we reserve the right to limit the number of authorized representatives for any shareholder who may
attend the meeting and to restrict the admission of guests or other attendees who are not shareholders.
No
cameras, recording equipment, large bags or packages will be permitted in the 2018 Annual Meeting. The use of cell phones, smart phones, tablets and other personal communication devices during the
2018 Annual Meeting is strictly prohibited.
65
Table of Contents
VOTING PROCEDURES
VOTING PROCEDURES
Electronic access to proxy materials
|
HEI
provides shareholders the option to access its proxy materials via the Internet. In keeping with our efforts to conserve natural resources, this method of delivery reduces the amount of paper
necessary to produce these materials and reduces the costs associated with the printing and mailing of these materials to shareholders. On March 28, 2018, a Notice of Internet Availability of
Proxy Materials (Notice) will be mailed to certain shareholders and our proxy materials will be posted on the website referenced in the Notice (www.ViewMaterial.com/HEI). As more fully described in
the Notice, shareholders may choose to access our proxy materials on the website referred to in the Notice or may request to receive a printed set of our proxy materials. The Notice and website will
provide information regarding how to request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis.
If
you currently receive HEI's proxy materials in printed form and would like to receive them electronically in the future, please so indicate on the enclosed proxy, if voting by mail, or by following
the instructions provided when using the telephone or Internet voting options described below.
Only
persons who own shares of HEI Common Stock as of the close of business on March 6, 2018 (the proxy record date) are entitled to vote.
Shares outstanding and entitled to vote
|
On
March 6, 2018, 108,841,157 shares of HEI Common Stock were outstanding. Each shareholder is entitled to one vote for each share held on the record date. The Bylaws of HEI do not provide for
cumulative voting rights in the election of directors.
A
quorum is needed to conduct business at the 2018 Annual Meeting. A majority of the shares of HEI Common Stock outstanding on March 6, 2018 and entitled to vote, and present in person or by
proxy at the 2018 Annual Meeting, constitutes a quorum. Abstentions and broker nonvotes of uninstructed shares on routine matters (such as ratification of the appointment of the independent registered
public accounting firm) will be counted in the number of shares present in person or by proxy for purposes of determining a quorum. A quorum established for one purpose will apply for all purposes at
the 2018 Annual Meeting.
Voting shares held directly with the Company
|
Whether
or not you plan to attend the Annual Meeting, please take the time to vote. You may vote via the Internet, by touchtone telephone or by mail before the Annual Meeting, or in person at the
Annual Meeting.
66
Table of Contents
VOTING PROCEDURES
The
Internet and telephone procedures are designed to authenticate your vote and confirm that your voting instructions are followed. If you vote via the Internet or by telephone, follow the
instructions on the Notice or
voting instruction card you received by mail. If you vote by telephone, you will receive additional recorded instructions; and if you vote via the Internet, you will receive additional instructions at
the Internet website.
You
will need to have available the control number on your Notice or proxy card, as applicable.
- 1.
- BY INTERNET: You may vote on-line by following the instructions in the Notice or by accessing the Internet at www.cesvote.com. Instructions regarding how to record and confirm your vote will be available on the website.
- 2.
- BY TELEPHONE: You may vote by touchtone telephone by following the instructions in the Notice or by calling 1-888-693-8683. Once
connected, you will be prompted to record and confirm your vote.
- 3.
- BY MAIL: Please mark your vote and sign, date and promptly return the proxy card in the postage-paid envelope provided. If you
return the signed proxy card but do not mark the boxes showing how you wish to vote, your votes will be cast following the Board's recommendations on all proposals. If you wish to have someone other
than the individuals listed on the enclosed proxy card vote your shares at the meeting, cross out all three names and insert the name of the person you designate as your proxy to vote your shares at
the meeting.
- 4.
- IN PERSON: You or your proxy may vote your shares by attending the 2018 Annual Meeting and voting in person.
Voting shares held in street name (e.g., through a broker, trustee or other holder of record)
|
If
your shares are held in "street name" (that is, through a broker, trustee or other holder of record), you will receive a voting instruction card or other information from your broker or other
holder of record seeking instruction from you as to how your shares should be voted. If you do not provide such instruction, your broker or nominee may vote your shares at its
discretion on your behalf on routine matters, but not on nonroutine matters. The ratification of the appointment of HEI's independent registered public accounting firm is
considered a routine matter. The election of directors and the advisory vote on executive compensation, are considered nonroutine matters. Please provide instructions to your
broker on how to vote your shares on all three proposals to ensure that your shares will be voted on all proposals in accordance with your wishes.
You
may not vote shares held in "street name" at the 2018 Annual Meeting unless you obtain a legal proxy from your broker or holder of record.
Voting shares held in the HEI Dividend Reinvestment and Stock Purchase Plan, the HEI Retirement Savings Plan or the American Savings Bank 401(k) Plan
|
If
you own shares held in the HEI Dividend Reinvestment and Stock Purchase Plan, the HEI Retirement Savings Plan (including shares previously received under the Tax Reduction Act Stock Ownership Plan
or the HEI Stock Ownership Plan) or the American Savings Bank 401(k) Plan (ASB 401(k) Plan), you will receive instructions explaining how to direct your vote. Your shares will be voted according to
your directions.
For
the HEI Dividend Reinvestment and Stock Purchase Plan, all shares of stock for which no voting instructions are given will be voted as our Board recommends. For the HEI Retirement Savings Plan and
the ASB 401(k) Plan,
all shares of HEI Common Stock for which no voting instructions are given will be voted in the same proportion as the shares for which voting instructions were given.
67
Table of Contents
VOTING PROCEDURES
If
you vote by any of the methods described above, you may revoke your proxy card or vote at any time before the 2018 Annual Meeting in one of three ways:
-
- submit a properly signed proxy card with a later date or vote again at a later time by telephone or Internet;
-
- notify the Corporate Secretary of HEI in writing; or
-
- vote in person at the 2018 Annual Meeting (if your shares are registered in your name on HEI's books or if your shares are held in "street
name" and you have a legal proxy from your broker or other holder of record).
If
a quorum is present at the 2018 Annual Meeting, then:
-
- Directors will be elected by a plurality of the votes cast. Plurality means that the persons receiving the highest number of votes are elected.
Your options are to vote either "FOR" or to "WITHHOLD" your vote for a nominee. Although the election of directors is considered a nonroutine matter, broker nonvotes (i.e., when your broker or
other holder of record does not vote your shares on a nonroutine matter because you have not provided instructions regarding how to vote on that matter) will not affect the outcome of this matter if a
quorum is present.
In
the event a director is elected under the plurality standard described above but does not receive the support of a majority of the votes cast, such director is required to submit his or her
resignation to the Board for consideration. The Board would then analyze the shareholder concerns that drove the vote result and determine the most appropriate way to address those concerns, possibly
by accepting the director's resignation.
-
- Since the vote on executive compensation is advisory only, no minimum number of votes cast is required for that item and the results will not
be binding on the Board.
However,
the Board and its Compensation Committee value input from shareholders and will consider the vote outcome when making future compensation decisions. Brokers may not vote on this proposal
without your instruction because the advisory vote on executive compensation is considered a nonroutine matter. For the proposal to adopt a resolution approving the compensation of HEI's named
executive officers, your options are to vote "FOR," "AGAINST" or "ABSTAIN."
-
- The appointment of HEI's independent registered public accounting firm will be ratified if more votes are cast in favor than against such
ratification. Abstentions and broker nonvotes will not affect the outcome of this matter if a quorum is present. For this proposal, your options are to vote "FOR," "AGAINST" or "ABSTAIN."
Counting the votes and confidentiality
|
Corporate
Election Services will act as tabulator for broker and bank proxies as well as for proxies of the other shareholders of record. Your identity and vote will not be disclosed to persons other
than those acting as tabulators except:
-
- as required by law;
-
- to verify the validity of proxies and vote results in the case of a contested proxy solicitation; or
-
- when you write a comment on the proxy card.
68
Table of Contents
VOTING PROCEDURES
Other matters to be decided at the 2018 Annual Meeting
|
HEI
has no business to be presented at the 2018 Annual Meeting other than the items set forth in this Proxy Statement. If other business is properly brought before the 2018 Annual Meeting, or any
adjournment or postponement thereof, the persons named on the enclosed proxy card will vote your stock in accordance with their best judgment, unless authority to do so is withheld by you in your
proxy card.
Postponement or adjournment of Annual Meeting
|
If
the 2018 Annual Meeting is postponed or adjourned, your proxy card will remain valid and may be voted at the postponed or adjourned meeting. You will still be able to change or revoke your proxy
card until it is voted at the 2018 Annual Meeting.
69
Table of Contents
OTHER INFORMATION
OTHER INFORMATION
Proxy solicitation and related cost
|
HEI
will solicit proxies by mail, telephone or other means of communication and will bear the cost of such solicitation. We have engaged D.F. King & Co. to assist in the distribution of
proxy materials and solicitation of proxies (including by telephone) from shareholders at a cost of $8,500 plus reasonable expenses. We will also reimburse brokers, fiduciaries and custodians for
their costs in forwarding proxy materials to beneficial owners of our Common Stock.
Deadline for submitting a proposal to be included in the proxy statement for next year's Annual Meeting
|
Shareholders
who want to have a proposal included in the proxy statement and form of proxy for the 2019 Annual Meeting of Shareholders (2019 Annual Meeting) must notify the Corporate Secretary in
writing. The proposal must be received by November 28, 2018.
Bringing business matters before the 2019 Annual Meeting
|
Shareholders
who wish to present business before the 2019 Annual Meeting must provide a written notice to the Corporate Secretary that is received no later than 60 days nor earlier than
90 days prior to the anniversary date of the preceding year's Annual Meeting of Shareholders.
To
be timely for the 2019 Annual Meeting, notice must be received by the Corporate Secretary no later than March 11, 2019 and no earlier than February 9, 2019. The notice must include,
as to each matter the shareholder proposes to bring before the 2019 Annual Meeting: (i) a brief description of the business desired to be brought before the 2019 Annual Meeting and the reasons
for conducting such business at the 2019 Annual Meeting, (ii) the name and record address of the shareholder, (iii) the number of shares of HEI Common Stock owned by the shareholder,
(iv) a description of all arrangements or understandings between the shareholder and any other person(s) (including their name(s)) in connection with the proposal of such business by the
shareholder and any material interest of the shareholder in such business and (v) a representation that the shareholder intends to appear in person or by proxy at the 2019 Annual Meeting to
bring such business before the meeting.
Recommend or propose persons as nominees to serve on the Board
|
Shareholders
may recommend any person to serve on the Board by writing to the Nominating and Corporate Governance Committee in care of the Corporate Secretary, Hawaiian Electric
Industries, Inc., P.O. Box 730, Honolulu, Hawaii 96808-0730. Recommendations must be received by November 28, 2018 for consideration by the Nominating and Corporate
Governance Committee for the 2018 Annual Meeting. The recommendation must include (a) a resume and other relevant biographical information regarding the person's skills and qualifications to
serve on the Board, (b) the nominee's consent to serve as a director and (c) the number of shares of HEI Common Stock owned by the shareholder.
Shareholders
may propose persons as nominees to serve on the Board by providing a written notice to the Corporate Secretary that is received no later than
70
Table of Contents
OTHER INFORMATION
March 11,
2019 and no earlier than February 9, 2019. The notice must include:
-
- as to each proposed nominee: (i) the name, age, business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the number of shares of HEI Common Stock that are owned by the person and (iv) any other information relating to the person that would be
required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities
Exchange Act of 1934 and the rules and regulations promulgated thereunder; and
-
- as to the shareholder: (i) the name and record address of the shareholder, (ii) the number of shares of HEI Common Stock that are
owned by the shareholder, (iii) a description of all arrangements or understandings between the shareholder and each proposed nominee and any other person or persons (including their names)
pursuant to which the nomination(s) are to be made by the shareholder, (iv) a representation that the shareholder intends to appear in person or by proxy at the meeting to nominate the proposed
nominee(s) and (v) any other information relating to the shareholder that would be required to be disclosed in a proxy statement or other filing required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder.
A
written consent of each proposed nominee to being a nominee and to serve as a director if elected must also accompany the notice.
"Householding" and provision of additional copies of proxy materials upon request
|
As
permitted by rules of the Securities and Exchange Commission, HEI has adopted a procedure referred to as "householding," under which only one annual report to shareholders will be delivered to
shareholders sharing the same address, unless contrary instructions are received. Householding reduces the volume of duplicate information received at your household, the cost to HEI of preparing and
mailing duplicate materials and the environmental burden of excess paper usage. Certain shareholder accounts at a householded address will continue to receive separate proxy statements and proxy
cards, and we will also deliver promptly upon your written or oral request a separate copy of the annual report, proxy statement or Notice of Internet Availability if you are a security holder at a
shared address to which a single copy of the requested documents was delivered. Dividend payments and account statements are not affected. Householding will continue until you are notified otherwise
or until you notify us that you wish to receive a separate annual report. You will be removed from the householding program within 30 days after receipt of your notice. If you wish to commence
or discontinue householding of the annual report to shareholders, you may notify us by calling us at (808) 532-5841 or toll free at (866) 672-5841 between 7:30 a.m. and
3:30 p.m., Hawaii Standard Time. You may also write to us at the following address: Hawaiian Electric Industries, Inc. Shareholder Services, P.O. Box 730, Honolulu, Hawaii
96808-0730, or e-mail us at invest@hei.com.
If
you hold your shares in "street name," please contact your bank, broker or other holder of record to request information about householding.
* * *
Please vote your proxy as soon as possible to ensure that your shares will be counted at the 2018 Annual Meeting.
March 28,
2018
71
Table of Contents
EXHIBIT A
EXHIBIT A
Reconciliation of GAAP1 to Non-GAAP Measures:
Reported Core Earnings and Other Financial Measures
HEI
uses certain non-GAAP measures to evaluate the performance of HEI and its subsidiaries. Management believes these non-GAAP measures provide useful information and are a better indicator of HEI's
core operating activities. Core earnings and other financial measures as presented here may not be comparable to similarly titled measures used by other companies. The accompanying tables provide a
reconciliation of reported GAAP earnings to non-GAAP core earnings and the adjusted return on average common equity (ROACE) for HEI consolidated.
The
reconciling adjustment from GAAP earnings to core earnings for 2015 is limited to the costs related to the previously proposed merger between HEI and NextEra Energy and spin-off of ASB
Hawaii, Inc. (ASB Hawaii). The merger agreement was terminated and the spin-off was cancelled in July of 2016. The reconciling adjustment from GAAP earnings to core earnings for 2016 includes
the merger termination fee received from NextEra Energy and merger- and spin-off-related expenses (net of reimbursements), including expenses related
to Hawaiian Electric's terminated liquefied natural gas (LNG) contract, which required PUC approval of the merger, and all merger- and spin-off-related tax impacts. The 2017 reconciling adjustments
from GAAP earnings to core earnings exclude the impact of the federal tax reform act due to the adjustment of the deferred tax balances and the $1,000 employee bonuses paid by the bank related to
federal tax reform. Management does not consider these items to be representative of the company's fundamental core earnings.
Hawaiian Electric Industries, Inc. and Subsidiaries (HEI)
Unaudited
($ in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
HEI CONSOLIDATED NET INCOME |
|
|
|
|
|
|
|
|
|
|
GAAP (as reported) |
|
$ |
165.3 |
|
$ |
248.3 |
|
$ |
159.9 |
|
Excluding special items (after-tax): |
|
|
|
|
|
|
|
|
|
|
(Income) expense related to terminated merger with NextEra Energy and cancelled spin-off of ASB Hawaii, Inc. |
|
|
|
|
|
(60.3 |
) |
|
15.8 |
|
Costs related to the terminated LNG contract2 |
|
|
|
|
|
2.1 |
|
|
|
|
Bonus related to enactment of federal tax reform3 |
|
|
0.7 |
|
|
|
|
|
|
|
Federal tax reform impacts4 |
|
|
13.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP (core) net income |
|
$ |
179.5 |
|
$ |
190.1 |
|
$ |
175.7 |
|
|
|
|
|
|
|
|
|
|
|
|
HEI CONSOLIDATED DILUTED EARNINGS PER SHARE |
|
|
|
|
|
|
|
|
|
|
GAAP (as reported) |
|
$ |
1.52 |
|
$ |
2.29 |
|
$ |
1.50 |
|
Excluding special items (after-tax): |
|
|
|
|
|
|
|
|
|
|
(Income) expense related to terminated merger with NextEra Energy and cancelled spin-off of ASB Hawaii, Inc. |
|
|
|
|
|
(0.56 |
) |
|
0.15 |
|
Costs related to the terminated LNG contract2 |
|
|
|
|
|
0.02 |
|
|
|
|
Bonus related to enactment of federal tax reform3 |
|
|
0.01 |
|
|
|
|
|
|
|
Federal tax reform impacts4 |
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP (core) diluted earnings per share |
|
$ |
1.65 |
|
$ |
1.75 |
|
$ |
1.65 |
|
|
|
|
|
|
|
|
|
|
|
|
HEI CONSOLIDATED RETURN ON AVERAGE COMMON EQUITY (ROACE) (simple average) |
|
|
|
|
|
|
|
|
|
|
Based on GAAP |
|
|
7.9% |
|
|
12.4% |
|
|
8.6% |
|
Based on non-GAAP (core)5 |
|
|
8.6% |
|
|
9.5% |
|
|
9.4% |
|
|
|
|
|
|
|
|
|
|
|
|
Note: Columns may not foot due to rounding
- 1
- Accounting principles generally accepted in the United States of America
A-1
Table of Contents
EXHIBIT A
- 2
- The LNG contract was terminated as it was conditioned on the merger with NextEra Energy closing
- 3
- Bonus paid by American Savings Bank related to enactment of federal tax reform
- 4
- Reflects the lower rates enacted by federal tax reform, primarily the adjustments to reduce the unregulated deferred tax net asset balances
- 5
- Calculated as core net income divided by average GAAP common equity
A-2
Table of Contents
EXHIBIT B
EXHIBIT B
Reconciliation of GAAP1 to Non-GAAP Measures:
Incentive Compensation Adjustments
Hawaiian Electric Industries, Inc. and Subsidiaries (HEI)
Unaudited
($ in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31 |
|
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEI CONSOLIDATED NET INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP (as reported) |
|
$ |
165.3 |
|
$ |
248.3 |
|
$ |
159.9 |
|
$ |
168.1 |
|
Excluding special items (after-tax) for EICP purposes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal tax reform and related impacts2 |
|
|
14.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP (adjusted) net income for 2017 EICP purposes |
|
|
179.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding special items (after-tax) for LTIP purposes only: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate adjustment mechanism reversion to lagged method3 |
|
|
13.9 |
|
|
|
|
|
|
|
|
|
|
(Income) expenses relating to terminated merger with NextEra Energy |
|
|
|
|
|
(60.3 |
) |
|
15.8 |
|
|
4.9 |
|
Costs related to the terminated LNG contract |
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
PUC decoupling order imposing changes in Hawaiian Electric's RAM |
|
|
7.7 |
|
|
7.7 |
|
|
7.7 |
|
|
|
|
ASB Pension defeasement |
|
|
0.7 |
|
|
0.3 |
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP (adjusted) net income for 2015-17 LTIP purposes |
|
$ |
201.7 |
|
$ |
198.0 |
|
$ |
183.8 |
|
$ |
173.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEI CONSOLIDATED BASIC EARNINGS PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on GAAP |
|
$ |
1.52 |
|
$ |
2.30 |
|
$ |
1.50 |
|
$ |
1.65 |
|
Based on non-GAAP (adjusted) for 2015-17 LTIP purposes |
|
|
1.85 |
|
|
1.83 |
|
|
1.73 |
|
|
1.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UTILITY NET INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP (as reported) |
|
$
|
120.0 |
|
$
|
142.3 |
|
$
|
135.7 |
|
|
|
|
Excluding special items (after-tax) for EICP and LTIP purposes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal tax reform impacts2 |
|
|
9.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP (adjusted) net income for 2017 EICP purposes |
|
|
129.1 |
|
|
|
|
|
|
|
|
|
|
Excluding special items (after-tax) for LTIP purposes only: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate adjustment mechanism reversion to lagged method3 |
|
|
13.9 |
|
|
|
|
|
|
|
|
|
|
Costs relating to terminated merger with NextEra Energy |
|
|
|
|
|
0.1 |
|
|
0.5 |
|
|
|
|
Costs related to the terminated LNG contract |
|
|
|
|
|
2.1 |
|
|
|
|
|
|
|
PUC decoupling order imposing changes in Hawaiian Electric's RAM |
|
|
7.7 |
|
|
7.7 |
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP (adjusted) net income for 2015-17 LTIP purposes |
|
$ |
150.7 |
|
$ |
152.2 |
|
$ |
143.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UTILITY Return on Average Common Equity (%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on GAAP |
|
|
6.6 |
|
|
8.1 |
|
|
8.0 |
|
|
|
|
Based on non-GAAP (adjusted) for 2015-17 LTIP purposes4 |
|
|
8.2 |
|
|
8.6 |
|
|
8.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASB CONSOLIDATED NET INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP (as reported) |
|
$
|
67.0 |
|
$
|
57.3 |
|
$
|
54.7 |
|
|
|
|
Excluding special items (after-tax) for EICP and LTIP purposes only: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal tax reform and related impacts2 |
|
|
(1.0 |
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP (as reported) for 2017 EICP purposes |
|
|
66.0 |
|
|
|
|
|
|
|
|
|
|
Excluding special items (after-tax) for LTIP purposes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension defeasement |
|
|
0.7 |
|
|
0.3 |
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP (adjusted) net income for 2015-2017 LTIP purposes |
|
$
|
66.7 |
|
$
|
57.6 |
|
$
|
55.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASB Return on Average Common Equity (%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on GAAP |
|
|
11.3 |
|
|
10.1 |
|
|
10.0 |
|
|
|
|
Based on non-GAAP (adjusted) for 2015-17 LTIP purposes4 |
|
|
11.3 |
|
|
10.1 |
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Columns may not foot due to rounding
- 1
- Accounting principles generally accepted in the United States of America
B-1
Table of Contents
EXHIBIT B
- 2
- Primarily reflects the impacts of lower rates enacted by federal tax reform on the deferred tax net asset balances
- 3
- Reflects reversion of RAM to the lagged method of revenue recognition
- 4
- Calculated as non-GAAP adjusted net income divided by average adjusted GAAP common equity
B-2
Table of Contents
|
|
V O T E B Y T E L E P H O N E
|
|
|
|
|
|
Have your proxy card available when you call the Toll-Free number 1-888-693-8683 using a touch-tone telephone and follow the simple instructions presented to record your vote. |
|
|
|
|
|
V O T E B Y I N T E R N E T
|
|
|
|
|
|
Have your proxy card available when you access the website www.cesvote.com and follow the simple instructions presented to record your vote. |
|
|
|
|
|
V O T E B Y M A I L
|
|
|
|
|
|
Please mark, sign and date your proxy card and return it in the postage-paid envelope provided or return it to: Corporate Election Services, PO Box 1150, Pittsburgh, PA 15230. |
|
|
|
|
|
Vote by Telephone |
|
Vote by Internet |
|
Vote by Mail |
Call Toll-Free using a |
|
Access the Website and |
|
Return your proxy card |
touch-tone telephone: |
|
cast your vote: |
|
in the postage-paid |
1-888-693-8683 |
|
www.cesvote.com |
|
envelope provided. |
|
|
|
|
|
|
|
|
|
|
Vote 24 hours a day, 7 days a week until May 9, 2018, 11:59 P.M. EST.
If you vote by telephone or Internet, please do not send your proxy by mail. |
|
|
|
Please fold and detach card at perforation before mailing.
|
|
HAWAIIAN ELECTRIC INDUSTRIES, INC. |
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 10, 2018, AT 10:00 A.M., IN THE AMERICAN SAVINGS BANK TOWER, 8TH FLOOR, ROOM 805, 1001 BISHOP STREET, HONOLULU, HAWAII 96813.
The undersigned hereby constitutes and appoints Constance H. Lau, Kurt K. Murao and Jeffrey N. Watanabe and each of them the proxy of the undersigned, with full power of substitution, to vote all the Common Stock of Hawaiian Electric Industries, Inc. which the undersigned may be entitled to vote at the Annual Meeting of Shareholders to be held on May 10, 2018, or at any adjournment or postponement thereof.
|
|
Date: |
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Signature(s) |
|
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|
Signature(s) |
|
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|
(Please sign your name exactly as it appears on this proxy. Joint owners should each sign personally. Attorney, Executor, Administrator, Trustee or Guardian should indicate full title. If address is incorrect, please provide the correct one.) |
|
|
|
Y O U R V O T E I S I M P O R T A N T
If you do not vote by telephone or Internet, please sign and date this proxy card and return it promptly in the enclosed postage-paid envelope, or otherwise to Corporate Election Services, PO Box 1150, Pittsburgh, PA 15230, so your shares may be represented at the Annual Meeting. If you vote by telephone or Internet, it is not necessary to return this proxy card.
|
|
Please fold and detach card at perforation before mailing.
|
|
HAWAIIAN ELECTRIC INDUSTRIES, INC. |
PROXY |
The proxies named on the reverse side of this card are instructed to vote as indicated below. If no direction is indicated, said proxies will vote FOR all Nominees in proposal 1, FOR proposals 2 and 3. Said proxies are also authorized to vote in their discretion with respect to any other matters that may come before the Annual Meeting or at any adjournment or postponement thereof.
The Board of Directors recommends a vote FOR all of the Nominees in proposal 1, FOR proposals 2 and 3.
1. Elect three Class I directors for a three-year term expiring at the 2021 Annual Meeting of Shareholders.
Class I Nominees: |
|
(1) Richard J. Dahl |
|
(2) Constance H. Lau |
|
(3) James K. Scott, Ed.D. |
q FOR all nominees listed above (except as marked to the contrary) |
|
q WITHHOLD authority to vote for all nominees listed above |
|
|
|
To withhold authority to vote for any individual nominee, strike a line through the nominees name above. |
2. Advisory vote to approve the compensation of HEIs named executive officers
q FOR |
q AGAINST |
q ABSTAIN |
3. Ratify the appointment of Deloitte & Touche LLP as HEIs independent registered public accounting firm for 2018
q FOR |
q AGAINST |
q ABSTAIN |
q Please check this box if you consent to access future Annual Reports and Proxy Statements via the Internet.
PROXY TO BE SIGNED AND DATED ON THE REVERSE SIDE
This regulatory filing also includes additional resources:
a2234646zdef14a.pdf
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