corporate incentive plan design s/2019spring/paytoncor… · neither centerpoint energy, inc., nor...

CORPORATE INCENTIVE PLAN DESIGN

AL M. PAYTON, DIRECTOR, SAFETYCENTERPOINT ENERGY

APRIL 30, 2019

PROPRIETARY AND CONFIDENTIAL INFORMATION •

CAUTIONARY STATEMENT

• This presentation and the oral statements made in connection herewith may contain statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future operations, events, financial position, earnings, growth, revenues costs, prospects, objectives, capital investments or performance and underlying assumptions and other statements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You should not place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or implied by these statements. You can generally identify our forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goal,” “project,” “intend,” “may,” “objective,” “plan,” “potential,” “predict,” “projection,” “should,” “will,” or other similar words. The absence of these words, however, does not mean that the statements are not forward-looking.

• Forward-looking statements in this presentation include statements about the utility and grid of the future, emerging technologies and market environments. We have based our forward-looking statements on our management's beliefs and assumptions based on information currently available to our management at the time the statements are made. We caution you that assumptions, beliefs, expectations, intentions, and projections about future events may and often do vary materially from actual results. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements.

• Some of the factors that could cause actual results to differ from those expressed or implied by our forward-looking statements include but are not limited to the timing and impact of future regulatory, legislative and IRS decisions, financial market conditions, future market conditions, economic and employment conditions, customer growth and other factors described in CenterPoint Energy, Inc.’s Form 10-K for the period ended December 31, 2015 under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Certain Factors Affecting Future Earnings,” in CenterPoint Energy’s Form 10-Q and in other filings with the SEC by CenterPoint Energy, which can be found at www.centerpointenergy.com on the Investor Relations page or on the SEC’s website at www.sec.gov.

• Some of the information in this presentation is unaudited and may be subject to change. This presentation is being provided for informational purposes only and does not purport to be comprehensive. Neither CenterPoint Energy, Inc., together with its subsidiaries and affiliates (the “Company”), nor its employees or representatives, make any representation or warranty (express or implied) relating to this information. By reviewing this presentation, you agree that the Company will not have any liability related to this information or any omissions or misstatements contained herein. You are encouraged to perform your own independent evaluation and analysis.

• This presentation contains time sensitive information that is dated. We undertake no obligation to update the information presented herein except as required by law. This presentation is being provided for informational purposes only. Neither CenterPoint Energy, Inc., nor its employees or representatives, make any representation or warranty (express or implied) relating to this information. You are encouraged to perform your own independent evaluation and analysis.

• Investors and others should note that we may announce material information using SEC filings, press releases, public conference calls, webcasts and the Investors page of our website. In the future, we will continue to use these channels to distribute material information about the Company and to communicate important information about the Company, key personnel, corporate initiatives, regulatory updates and other matters. Information that we post on our website could be deemed material; therefore, we encourage investors, the media, our customers, business partners and others interested in our Company to review the information we post on our website.

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PROPRIETARY AND CONFIDENTIAL INFORMATION •PROPRIETARY AND CONFIDENTIAL INFORMATION •

HISTORICAL PLAN DESIGN

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CenterPoint Energy’s focus had primarily focused on injury and vehicle collision

reduction when it came to the corporate incentive plan

There were 3 elements including Recordable Injury Rate (RIR), Lost Time

Injury Rate (LTIR), and Preventable Vehicle Incident Rate (PVIR).

In 2014, LTIR was changed to Days Away, Restricted Duty or Transfer

(DART).

Goals were set based on safety performance from previous years.

Electric and Gas Division goals were separate.


EXAMPLE OF THE SAFETY GOAL PRE-2017

STI Metric (Board Goals)

3 YEAR AVERAGE 2016THRESHOLD

2016TARGET

2016MAX

PVIR 2.52 2.22 (38) 105% 2.11 (36) 100% 1.90 (33) 90%

RIR 1.49 1.61 (42) 105% 1.53 (40) 100% 1.38 (36) 90%

DART 1.07 1.21 (31) 105% 1.15 (30) 100% 1.04 (27) 90%

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A FACTOR, BUT NOT THE MAIN DRIVER

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OSHA published a final rule on May 12, 2016 that amended 29 CFR 1904.35

Among other things it added a provision prohibiting employers from retaliating against employees for reporting work-related injuries or illnesses.

OSHA discussed how the final rule could apply to action taken under workplace safety incentive programs in the preamble and post-promulgation interpretive documents.


WHY THE CHANGE?

• CNP had strategically planned to move toward leading indicators as part of our safety recognition and incentive programs.

• The new OSHA Recordkeeping rule further supports our approach to proactively improve our safety program.

• Leading indicators typically involve a greater level of engagement by employees which fosters an “Interdependent” culture.

• We needed to be careful of mandated participation which hampers advancement and moves us back to a “compliance” culture.

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2017 MOVE TOWARD LEADING INDICATORS

• Here is what we proposed:1. Total Safety Contacts (TSC)• For 2017, the TSC will be limited to total Observations• The monthly metric will be based on 1/12 of the annual goal in order to equalize and prevent end of year inundation

of submissions• The TSC definition can be expanded, in the future, to include additional forms of contact• TSC will remain voluntary and non-punitive and will be used as a surrogate to gauge the health of our safety culture

2. Safety Participation Rate (SPR)• SPR is needed to encourage individual employees to actively participate. Otherwise, TSC goal could be achieved by

a small population• Based on employees conducting two contacts per month

3. Preventable Vehicle Incident Rate (PVCIR) – No Change

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2017 COMPOSITE STI METRICS

Safety Composites Threshold Target Max

Total Safety Engagements (TSEs) 125000 132000 139000

Safety Participation Rate (SPR) 35% 40% 45%

DART 0.95 0.86 (3 yr. avg.) 0.82

Preventable Vehicle Incident Rate (PVIR) 1.64 1.56 (2016 actual) 1.48

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2017 STI PLAN DEFINITIONS

• Total Safety Engagements (TSEs) – Gas and Electric only

–TSEs = Total number of observations conducted per month x number of months year-to-date• Goal is for each eligible employee to complete at least two observations per month

• Safety Participation Rate (SPR) - Gas and Electric only– SPR = No. of participating employees at 2 or more TSEs per month

Total number of eligible employees

• Preventable Vehicle Incident Rate (PVIR) - Gas, Electric, & Corporate– PVIR = Number of preventable vehicle incidents x 1,000,000

Number of miles driven

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2017 STI PLAN DEFINITIONS

• DART – Days Away, Restricted Duty or Transfer Cases (per 100 employees)

• DART - DART Cases X 200,000 Hours / Hours Worked

• We will continue to exclude DART cases resulting from a non-preventable vehicle collisions from the STI metric

• A fatality will reduce the DART payout by 100% with the exception of a non preventable vehicle incident fatality

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SHORT-TERM INCENTIVE PLAN ELEMENTS

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55%35%

10%

Financial Performance Operational Performance Overall Safety Performance


NEW METRICS SUPPORT STRATEGIC VISION FOR SAFETY

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The addition of TSEs and SPR are representative of the discretionary effort we want to measure in our safety culture

A best-in-class safety culture cannot exist without employee involvement beyond basic compliance

These two metrics are directly linked to our division safety recognition programs which reward employees for active participation while ensuring they maintain expected performance levels

These metrics also set the foundation for planned additions that will require increased personal accountability


2017 STI PLAN WEIGHTINGS

• Safety Composite– Achievement levels are calculated using the following weightings:

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Total Safety Engagements (TSEs) 10%Safety Participation Rate (SPR) 20%Days Away, Restricted and Transfer Case Rate (DART) 25%

Preventable Vehicle Incident Rate (PVIR) 45%

A fatality will reduce DART payout by 100% with the exception of a non-preventable vehicle incident fatality.


2016 PERFORMANCE WAS USED TO SUPPORT THE RECOMMENDATION

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Total observations in 2016• 93K in Gas Division (Non-management)• 31K in Electric Division (Non-management)• 124K Total

Total participation rate in 2016• 43% for Gas Division• 22% for Electric Division• 34% Composite

PROPRIETARY AND CONFIDENTIAL INFORMATION •PROPRIETARY AND CONFIDENTIAL INFORMATION •15

2018 PLAN


2018 STI METRICS

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Days Away, Restricted and Transfer Case Rate (DART)

Will remain an element, but company must meet rate of 1 or below or payout is cut by 50%

Safety Participation Rate (SPR)

No Change

Preventable Vehicle Incident Rate (PVIR)

No change; metric stays as it was in 2017

Total Safety Engagements (TSEs)

Removed as an STI metric.

Will be tracked and is an element of SPR




DART =<1

Safety Participation Rate (SPR) 60% 65% 70%

Preventable Vehicle Incident Rate(PVIR) 1.64 1.56 1.48

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CHANGES IN SAFETY STI PLAN DRIVE STRATEGIC VISION FOR SAFETY

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The removal of TSEs from the plan represents our focus on engaging more employees.

Now that we know we can reach high numbers in observations, we want to drive more individual participation.

Employee participation is indicative of discretionary effort we want to measure in our safety culture

A best-in-class safety culture cannot exist without employee involvement beyond basic compliance


OSHA’S CLARIFICATION

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OSHA communicated a clarification on their position on workplace safety incentive programs on October 11, 2018

We did not make any changes in relation to this memorandum.

In fact, we have since added another leading indicator.

PROPRIETARY AND CONFIDENTIAL INFORMATION •PROPRIETARY AND CONFIDENTIAL INFORMATION •20

2019 STI PLAN




DART (Trigger) =<1.00

Employee Safety Participation Rate (ESPR) 60% 66% 70%

Leadership Safety Participation Rate (LSPR) 46% 51% 56%

Preventable Vehicle Collision Incident Rate (PVCIR) 1.68 (+10%) 1.53 1.45 (-5%)

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2019 SHORT TERM INCENTIVE PLAN WEIGHTINGS

• Safety Composite– DART rate under or equal to 1.00 funds safety portion

• DART rate higher than 1.00 results the safety portion of STI being reduced by 50%

– Achievement levels are calculated using the following weightings:

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Employee Safety Participation Rate (ESPR) 25%

Leadership Safety Participation Rate (LSPR) 25%

Preventable Vehicle Collision Incident Rate (PVIR) 50%

A fatality will reduce Safety portion of STI payout by 50% with the exception of a non-preventable vehicle incident fatality or an act of violence from the public.


EXAMPLE OF CNP SAFETY PERFORMANCE SCORECARD

• Weekly CNP Safety scorecard sent each Friday– Shows balanced scorecard of lagging and leading indicators

• Composite Employee Safety Participation (ESPR) = 60%

• Composite Leadership Participation (LSPR) = 46%– LSPR is made up of management (supervisors and above)– Credit is attained through an observation or a leadership engagement

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CenterPoint Energy Composite Safety Scorecard for 2018

YTD Total Safety Engagements

Employee Participation

Jan - Dec

Leadership Participation

Jan - Dec

YTD Recordable Incidents

YTD DART

Injuries

2018 Preventable

Collisions

Corporate 8,939 14% 12% 5 3 1

CES 3,284 47% 36% 0 0 0

Gas Division 168,394 86% 66% 56 33 53

Electric Division 88,177 54% 63% 32 22 43

CNP COMPOSITE 268,794 60% 46% 93 58 97


CNP SAFETY PERFORMANCE

0

50,000

100,000

150,000

200,000

250,000

300,000

0

0.5

1

1.5

2

2.5

3

3.5

4

2012 2013 2014 2015 2016 2017 2018

Recordable Injury Rate (RIR) DART Rate PVCIR Total Safety Engagements (TSE)

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QUESTIONS?

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