<PAGE>
NEW ENGLAND ELECTRIC SYSTEM
25 RESEARCH DRIVE
WESTBOROUGH, MASSACHUSETTS 01582
March 10, 1994
To Our Shareholders:
The directors and officers of New England Electric System
invite you to attend the Annual Meeting of shareholders to be held
on Tuesday, April 26, 1994, at 10:30 A.M. at Mechanics Hall at 321
Main Street in Worcester, Massachusetts.
The business part of the meeting is fully described in the
accompanying Notice of Annual Meeting and Proxy Statement.
We would appreciate your voting, signing, and dating the
proxy and mailing it promptly in the enclosed postage-paid
envelope. Please enclose a note if you would like to receive
directions to the meeting.
Sincerely,
(Facsimile Signature) (Facsimile Signature)
JOAN T. BOK JOHN W. ROWE
Chairman President and
of the Board Chief Executive Officer
<PAGE>
NEW ENGLAND ELECTRIC SYSTEM
25 RESEARCH DRIVE
WESTBOROUGH, MASSACHUSETTS 01582
NOTICE OF ANNUAL MEETING
------------------------
The 1994 Annual Meeting of the shareholders of New England
Electric System will be held at Mechanics Hall at 321 Main Street
in Worcester, Massachusetts, on Tuesday, April 26, 1994, at 10:30
A.M., E.D.S.T., for the following purposes, all as set forth in
the accompanying proxy statement:
1. To fix the number of directors;
2. To elect directors;
3. To approve the Director Share Plan;
4. To consider and vote on a shareholder proposal
if presented at the meeting; and
5. To transact such other business as may properly
come before the meeting or any adjournment
thereof.
Shareholders of record at the close of business on March 8,
1994, will be entitled to vote at the meeting.
By order of the Board of Directors,
(Facsimile Signature)
Frederic E. Greenman,
Secretary
March 10, 1994
<PAGE>
PROXY STATEMENT
NEW ENGLAND ELECTRIC SYSTEM
25 RESEARCH DRIVE
WESTBOROUGH, MASSACHUSETTS 01582
ANNUAL MEETING OF SHAREHOLDERS, APRIL 26, 1994
----------------------------------------------
The Board of Directors of New England Electric System is
soliciting proxies in the accompanying form. Proxies may be
revoked at any time prior to being used by completing a new proxy,
by notifying the Company in writing of such revocation, or by
voting in person at the Annual Meeting. All shares represented by
properly executed proxies will be voted at the Annual Meeting or
any adjournment thereof as specified in such proxies.
The Company's annual report for 1993, which includes
financial statements and a summary of important developments
during 1993, was mailed to shareholders on or about March 7, 1994.
The approximate date on which the proxy statement and form of
proxy are first being sent is March 15, 1994.
Holders of common shares of record at the close of business
on March 8, 1994, are entitled to vote at the Annual Meeting. At
that date there are 64,969,652 common shares outstanding and each
share is entitled to one vote.
An affirmative vote of a majority of the shares present in
person or represented by proxy at the meeting and entitled to
vote is required for approval of each of the items being submitted
to the shareholders for their consideration. Votes for directors
will be counted by the Company as (i) For and (ii) Withhold
Authority; abstentions have the same effect as "Withhold
Authority" votes. Votes concerning other matters will be counted
by the Company as (i) For, (ii) Against, or (iii) Abstain;
abstentions are counted separately, but have the same effect as
"Against" votes. Broker non-votes (shares held by brokers or
nominees as to which instructions have not been received from the
beneficial owners and the broker or nominee does not have
discretionary voting power on a particular matter) are counted as
not represented at the meeting for all matters.
1. FIXING THE NUMBER OF DIRECTORS
The Board of Directors recommends a vote IN FAVOR of this
proposal.
The persons named on the accompanying proxy will vote,
unless otherwise directed, to fix the number of directors at
thirteen. The Company's Agreement and Declaration of Trust
provides that the Board may fix the number of directors at a
number between eleven and sixteen until the next annual meeting of
shareholders.
2. ELECTION OF DIRECTORS
The persons named on the accompanying proxy will vote,
unless otherwise directed, for the election of the thirteen
nominees listed below as directors of the Company. All of the
elected directors will hold office until the next annual meeting
of shareholders or the special meeting held in lieu thereof and
until their respective successors are chosen and qualified.
<PAGE>
The Company knows of no reason why any of the nominees would
be unable to act as a director, but, if any of them should become
unavailable to serve, the persons named on the accompanying proxy
have the authority to vote for any other person nominated and
recommended by the Executive Committee. If an alternative nominee
is not recommended by the Executive Committee, the number of
directors will be reduced.
Certain information regarding each nominee for director is
given below. This information has been furnished to the Company by
the respective nominees.
Joan T. Bok Director since 1979
Chairman of the Board of the Company. Mrs. Bok, 64 years of
age, was elected Chairman in 1984. From July 26, 1988 until
February 13, 1989, she served as Chairman, President, and
Chief Executive Officer. Mrs. Bok is a director of a number
of the Company's subsidiaries, including Massachusetts
Electric Company, The Narragansett Electric Company, and New
England Power Company. She is also a director of Avery
Dennison Corporation, John Hancock Mutual Life Insurance
Company, Monsanto Company, and the Federal Reserve Bank of
Boston, and is a Trustee of the Boston Athenaeum.
Paul L. Joskow Director since 1987
Professor of Economics and Management, Massachusetts
Institute of Technology, Cambridge, Massachusetts. Professor
Joskow, 46 years of age, teaches and conducts research in
the fields of industrial organization, government
regulation, antitrust law and economics, and energy
economics. Professor Joskow is a director of State Farm
Indemnity Company and the Whitehead Institute for Biomedical
Research. He is also President of the Yale University
Council and a Special Consultant to National Economic
Research Associates, Inc.
John M. Kucharski Director since 1989
Chairman, President, and Chief Executive Officer of EG&G,
Inc., Wellesley, Massachusetts. Mr. Kucharski, 58 years of
age, is a director of State Street Boston Corporation,
Nashua Corporation, Eagle Industry Co., Ltd., and
Massachusetts High Technology Council, Inc. He also serves
as Trustee of the National Security Industrial Association,
George Washington University, and Marquette University.
Edward H. Ladd Director since 1974
Chairman of Standish, Ayer & Wood, Inc. (investment
counselors), Boston, Massachusetts. Mr. Ladd, 56 years of
age, is a director of Harvard Management Company and the
Federal Reserve Bank of Boston. He is also Chairman of the
Board of Trustees of Wheelock College.
<PAGE>
Joshua A. McClure Director since 1978
Former President of American Custom Kitchens, Inc.,
Providence, Rhode Island. Mr. McClure, 62 years of age, is
a member of the Westerly Substance Abuse Task Force, the
State Planning Council, the Westerly Housing Authority Task
Force, and the Washington County Housing Authority.
Malcolm McLane Director since 1978
Director of Orr and Reno, P.A. (attorneys), Concord, New
Hampshire. Mr. McLane, 69 years of age, served as Vice
President of Orr and Reno, P.A. from 1987 to 1992.
Felix A. Mirando, Jr. Director since 1979
Private Investor, Osterville, Massachusetts. Mr. Mirando, 69
years of age, served as President of Imperial Knife
Associated Companies, Inc. until 1983. He is a director of
Fleet National Bank.
John W. Rowe Director since 1989
President and Chief Executive Officer of the Company. Mr.
Rowe, 48 years of age, served as President and Chief
Executive Officer of Central Maine Power Company from 1984
until joining the Company in February, 1989. He is a
director of a number of the Company's subsidiaries,
including Massachusetts Electric Company, The Narragansett
Electric Company, and New England Power Company. Mr. Rowe
is also a director of Bank of Boston Corporation and UNUM
Corporation. He is Vice Chairman of the Massachusetts
Business Roundtable and serves as a director of Jobs for
Massachusetts, Inc., the Alliance to Save Energy, and the
Electric Power Research Institute.
George M. Sage Director since 1975
President and Treasurer of Bonanza Bus Lines, Inc.,
Providence, Rhode Island. Mr. Sage, 62 years of age, is a
director of Collette Travel Inc. and Business Development of
Rhode Island. Mr. Sage also serves as a director of United
Way International and United Way of Southeastern New
England.
Charles E. Soule Director since 1994
President and Chief Executive Office of Paul Revere
Insurance Group, Worcester, Massachusetts. The Paul Revere
Insurance Group is a subsidiary of Textron Inc. Mr. Soule,
59 years of age, serves as a director of the Paul Revere
Investment Management Company. He was a member of the
Massachusetts Electric Company Board of Directors from 1991
to 1993. He is a director of the Worcester Business
Development Corporation and a Trustee of the Westborough
Savings Bank.
<PAGE>
Anne Wexler Director since 1981
Chairman of The Wexler Group (management consultants),
Washington, D.C. The Wexler Group is a subsidiary of Hill
and Knowlton. Ms. Wexler, 64 years of age, served as
Assistant to the President of the United States from 1978 to
1981 with responsibility for liaison with the business
community and other major interest groups. She is a
director of American Cyanamid Company, Comcast Corporation,
Continental Corporation, and The Dreyfus Index Funds.
James Q. Wilson Director since 1982
Professor of Management at The University of California at
Los Angeles, Los Angeles, California. Professor Wilson is
62 years of age. Prior to 1986, Professor Wilson was
Professor of Government at Harvard University. He is a
Trustee of the American Enterprise Institute, the RAND
Corporation, and the Randolph Foundation and a Governor of
the Smith Richardson Foundation.
James R. Winoker Director since 1991
President of B. B. Greenberg Co. (jewelry manufacturers),
Providence, Rhode Island. Mr. Winoker, 62 years of age, is
also Treasurer of Belvoir Properties, Inc. (real estate
investment). A receiver has been appointed for B.B.
Greenberg Co. Mr. Winoker served as a director of The
Narragansett Electric Company from 1990 to 1991. He is also
director of Original Bradford Soap Works Inc.
BOARD STRUCTURE AND COMPENSATION
The Company has an Executive Committee, an Audit Committee,
a Compensation Committee, and a Corporate Responsibility
Committee. The Executive Committee acts as a nominating
committee. The committee memberships listed below are as of
January 1, 1994.
The members of the Executive Committee are Mrs. Bok, Mr.
Ladd, Mr. Rowe, Mr. Sage, and Ms. Wexler. Mrs. Bok serves as the
Chairman of this Committee. During the intervals between meetings
of the Board of Directors, the Executive Committee has all the
powers of the Board that may be delegated. This Committee also
considers written recommendations from shareholders for nominees
to the Board.
The members of the Audit Committee are Messrs. Joskow,
McLane, Soule, and Winoker. Mr. Joskow serves as the Chairman of
this Committee. The Audit Committee reviews with the independent
public accountants the scope of their audit and management's
financial stewardship for the current and prior years. This
Committee also selects and recommends, subject to the Board of
Directors' approval, the independent public accountants to be
engaged for the coming year.
The members of the Compensation Committee are Messrs.
Kucharski, Mirando, Sage, and Winoker. Mr. Sage serves as the
Chairman of this Committee. The Compensation Committee is
responsible for executive compensation, including the
administration of certain of the Company's incentive compensation
plans.
<PAGE>
The members of the Corporate Responsibility Committee are
Mrs. Bok, Mr. McClure, Mr. Rowe, Ms. Wexler, and Mr. Wilson. Mr.
Wilson serves as the Chairman of this Committee. The Corporate
Responsibility Committee is responsible for reviewing compliance
with laws and regulations, offering guidance in considering public
policy issues, and helping to assure ethical conduct.
The Chairman of the Executive Committee receives an annual
retainer of $7,000. Other members of the Executive Committee,
except Mr. Rowe, receive an annual retainer of $5,000. The
Chairman of the Audit, Compensation, and Corporate Responsibility
Committees each receives an annual retainer of $6,000. Other
members of these Committees, except Mr. Rowe, receive annual
retainers of $4,000. All directors, except Mr. Rowe,
participating in a Committee meeting, receive a meeting fee of
$850 plus expenses.
Members of the Board of Directors, except Mr. Rowe, receive
annually a retainer of $14,000 and 200 common shares of the
Company, and a meeting fee of $850 plus expenses.
The Company permits directors to defer all or a portion of
any retainers and meeting fees under a deferred compensation plan.
Under the plan, at retirement directors may elect to receive lump
sum payments of all amounts deferred with interest, or either
lifetime annuities or ten year annuities, depending upon the
specific deferral arrangement. A special account is maintained on
the Company's books showing the amounts deferred and the interest
accrued thereon. This plan also provides certain death and
disability benefits. Group life insurance of $72,000 is provided
to each member of the Board of Directors.
The Board of Directors held 7 meetings in 1993. The
Executive, Audit, Compensation, and Corporate Responsibility
Committees held 2, 4, 4, and 3 meetings, respectively, in 1993.
All directors attended at least 75% of the aggregate number of
meetings of the Board of Directors and the committees of which
they were members, with the exception of Mr. Kucharski who
attended 64%.
During 1993, Orr and Reno was retained by subsidiaries of
the Company.
During 1993, Mr. Joskow did consulting work for the Company
or subsidiaries of the Company under a separate consulting
contract for which he was paid $30,000. These consulting services
were not related to his duties as a Board member. The Company and
its subsidiaries retain from time to time National Economic
Research Associates, Inc., with which Mr. Joskow is associated.
Mrs. Bok retired as an employee of the Company (remaining
Chairman of the Board) on January 1, 1994. She became a
consultant to the Company on that date. Under the terms of her
contract, she will receive an annual retainer of $100,000. As a
non-employee director, she will receive the normal retainers and
fees described above. Mrs. Bok also serves as director for
Company subsidiaries. She has agreed to waive the normal fees and
annual retainers otherwise payable for services by non-employees
on these boards and will receive in lieu thereof a single annual
stipend of $60,000. No payments were made in 1993 pursuant to
these arrangements.
<PAGE>
TOTAL COMMON EQUITY BASED HOLDINGS
The following table lists the holdings of Company common
shares by the Company's directors, the executive officers named in
the Summary Compensation Table, and for directors and all
executive officers as a group. The information as to common share
ownership includes all whole shares beneficially owned, directly
or indirectly, as of March 10, 1994.
Shares
Beneficially
Name Owned
- ---- ------------
Joan T. Bok 25,162 (a)
Frederic E. Greenman 10,632 (a)
Alfred D. Houston 10,953 (a)
Paul L. Joskow 1,657
John M. Kucharski 1,800
Edward H. Ladd 4,030
Joshua A. McClure 987
Malcolm McLane 1,300
Felix A. Mirando, Jr. 4,637
John W. Rowe 20,419 (a)
George M. Sage 1,700
Charles E. Soule 404
Jeffrey D. Tranen 6,604 (a)
Anne Wexler 1,122
James Q. Wilson 1,597
James R. Winoker 600
All of the above and other
executive officers, as
a group (19 persons) 113,504 (a),(b)
(a) Includes allocated shares in employee benefit plans.
(b) Amount is less than 1% of the total number of shares of the
Company outstanding.
Listed below is the only person or group known to the Company
as of March 10, 1994 to beneficially own 5% or more of the
Company's common shares. However, T. Rowe Price Trust Company
disclaims beneficial ownership of all such shares. The quantity
of shares listed below is as of December 31, 1993.
<PAGE>
Amount and Nature
Name and Address of of Beneficial Percent of Common
Beneficial Owner Ownership Shares
- ------------------- ----------------- -----------------
T. Rowe Price Trust 4,998,089 shares 7.7 %
Company as trustee for
100 East Pratt Street Company employee
Baltimore, MD benefit plans,
including those
discussed herein.
EXECUTIVE COMPENSATION
The following table gives information with respect to all
compensation for services in all capacities for the Company and
its subsidiaries for the years 1991 through 1993 to or for the
benefit of the Chief Executive Officer and the four other most
highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
Long Term
Compen-
Annual Compensation (b) sation
------------------------ ----------
Name and Other Restricted
Principal Annual Share All Other
Position (a) Year Salary Bonus Compensa- Awards Compensa-
($) ($)(c) tion ($)(d) ($)(e) tion ($)(f)
- ----------- ---- ------ ------ ---------- ---------- ----------
John W. Rowe
President
and 1993 433,908 268,323 5,548 129,873 5,711 (g)
Chief Execu- 1992 433,908 162,728 5,451 132,804 5,503
tive Officer 1991 384,306 162,207 5,248 140,081 22,541
Joan T. Bok
Chairman 1993 358,656 215,818 7,715 107,376 7,996 (h)
1992 358,656 134,885 6,593 109,785 7,565
1991 332,106 141,066 6,701 121,072 11,467
Alfred D.
Houston
Executive 1993 212,904 152,939 3,522 44,465 5,082 (i)
Vice 1992 212,904 82,816 3,494 44,607 5,029
President 1991 184,536 60,736 3,486 33,144 4,389
Frederic E.
Greenman
Senior Vice 1993 212,904 129,239 3,670 39,276 5,355 (j)
President 1992 203,112 76,624 3,599 41,103 5,028
and Secre- 1991 175,752 61,473 3,531 33,734 4,414
tary
Jeffrey D.
Tranen 1993 175,330 122,896 3,260 35,906 3,906 (k)
Vice 1992 157,890 68,316 2,684 31,007 3,818
President 1991 134,550 57,536 2,324 21,750 3,457
(a) Officers of the Company also hold various positions with
subsidiary companies. Compensation for these positions is
included in this table.
<PAGE>
(b) Includes deferred compensation in category and year earned.
(c) The bonus figure represents cash bonuses under an incentive
compensation plan, special bonuses, the goals program award,
and the variable portion of the incentive thrift plan match
by the Company. See description under Plan Summaries.
(d) Includes amounts reimbursed by the Company for the payment
of taxes.
(e) These shares receive the same dividends as the other common
shares of the Company. The shares become unrestricted after
five years. See also Payments Upon a Change in Control
below. As of December 31, 1993, the following executive
officers held the amount of restricted shares with the value
indicated: Mr. Rowe 11,807 shares, $461,949 value; Mrs. Bok
10,241 shares, $400,679 value; Mr. Houston 3,251 shares,
$127,195 value; Mr. Greenman 3,220 shares, $125,983 value;
and Mr. Tranen 2,173 shares, $85,019 value. The value was
calculated by multiplying the closing market price on
December 31, 1993 by the number of shares.
(f) Includes Company contributions to life insurance and the
incentive thrift plan that are not bonus contributions. See
description under Plan Summaries. The life insurance
contribution is calculated based on the value of term life
insurance for the named individuals. The premium costs for
most of these policies have been or will be recovered by the
Company.
(g) For Mr. Rowe, the type and amount of compensation in 1993 is
as follows: $4,497 for contributions to the thrift plan and
$1,214 for life insurance.
(h) For Mrs. Bok, the type and amount of compensation in 1993 is
as follows: $4,497 for contributions to the thrift plan and
$3,499 for life insurance.
(i) For Mr. Houston, the type and amount of compensation in 1993
is as follows: $4,258 for contributions to the thrift plan
and $824 for life insurance.
(j) For Mr. Greenman, the type and amount of compensation in
1993 is as follows: $4,258 for contributions to the thrift
plan and $1,097 for life insurance.
(k) For Mr. Tranen, the type and amount of compensation in 1993
is as follows: $3,506 for contributions to the thrift plan
and $400 for life insurance.
PAYMENTS UPON A CHANGE OF CONTROL
The incentive compensation plans would provide a payment of
40% of base compensation in the event of a "change in control" as
defined in the plans. This payout would be made in lieu of any
cash bonuses under the plans for the year in which the "change in
control" occurs. A similar payment is provided for the previous
plan year if awards for that year had not yet been distributed.
A "change in control" is defined, generally, as an occurrence of
certain events that either evidence a merger or acquisition of the
Company or cause a significant change in the makeup of the
Company's board of directors over a short period of time.
<PAGE>
Upon the occurrence of a "change in control," restrictions
on all shares issued to participants under the incentive share
plan would cease and the participants would receive an award of
shares for that year, determined in the usual manner, based upon
the cash awards described in the preceding paragraph.
PLAN SUMMARIES
A brief description of the various plans through which
compensation and benefits are provided to the named executive
officers is presented below to better enable shareholders to
understand the information presented in the tables shown earlier.
The general provisions of the incentive compensation plans are
described in the report of the Compensation Committee. The
amounts of compensation and benefits provided to the named
executive officers under the plans described below are presented
in the Summary Compensation Table.
Goals Program
The goals program covers all employees who have completed
one year of service with the Company's subsidiaries. Goals are
established annually. For 1993, these goals related to earnings
per share, customer costs, safety, absenteeism, conservation,
generating station availability, transmission reliability,
environmental and OSHA compliance, and customer favorability
attitudes. Some goals apply to all employees, while others apply
to particular functional groups. Depending upon the number of
goals met, and provided the minimum goal for earnings per share is
met, employees may earn a cash bonus of 1% to 4-1/2% of their
compensation.
Incentive Thrift Plan
The incentive thrift plan (a 401(k) program) provides for a
match of one-half of up to the first 4% of base compensation
contributed to the Company's incentive thrift plan (shown under
All Other Compensation in the Summary Compensation Table) and,
based on an incentive formula tied to earnings per share, may
fully match the first 4% of base compensation contributed (the
additional amount, if any, is shown under Bonus in the Summary
Compensation Table). Under Federal law, contributions to these
plans are restricted. In 1993, the contribution amount was
limited to $8,994.
Life Insurance
The Company has established for certain senior executives
life insurance plans funded by individual policies. The combined
death benefit under these insurance plans is three times the
participant's annual salary.
After termination of employment, participants in one of the
insurance plans may elect, commencing at age 55 or later, to
receive an annuity income equal to 40% of annual salary. In that
event, the life insurance is reduced over fifteen years to an
amount equal to the participant's final annual salary. Due to
changes in the tax law, this plan was closed to new participants,
and an alternative was established with only a life insurance
benefit. The individuals listed in the summary table are in one
or the other of these plans. These plans are structured so that,
over time, the Company should recover the cost of the insurance
premiums.
<PAGE>
Other
The Company does not have any share option plans.
RETIREMENT PLANS
The following chart shows estimated annual benefits payable
to executive officers under the qualified pension plan and the
supplemental retirement plan, assuming retirement at age 65 in
1994.
PENSION TABLE
FIVE-YEAR
AVERAGE 15 20 25 30 35 40
COMPENSA- YEARS YEARS YEARS YEARS YEARS YEARS
TION SERVICE SERVICE SERVICE SERVICE SERVICE SERVICE
- --------- ------- ------- ------- ------- ------- -------
$300,000 88,100 115,400 142,000 168,600 185,500 194,500
$400,000 118,100 154,800 190,500 226,200 249,000 261,000
$500,000 148,200 194,200 239,000 283,800 312,400 327,400
$600,000 178,200 233,600 287,500 341,400 375,900 393,900
$700,000 208,300 273,000 336,000 399,000 439,300 460,300
$800,000 238,300 312,400 384,500 456,600 502,800 526,800
$900,000 268,400 351,800 433,000 514,200 566,200 593,200
$1,000,000 298,400 391,200 481,500 571,800 629,700 659,700
For purposes of the retirement plans, Messrs. Rowe, Houston,
Greenman, and Tranen, currently have 16, 30, 30, and 24 credited
years of service, respectively. At the time she retired from the
Company, Mrs. Bok had 38 credited years of service and she
commenced receiving the described benefits under the pension plans
and the life insurance program. As a non-employee she no longer
accrues service credit or additional benefits under these plans.
Benefits under the pension plans are computed using formulae
based on percentages of highest average compensation computed over
five consecutive years. The compensation covered by the pension
plan includes salary, bonus, and restricted share awards. The
benefits listed in the pension table are not subject to deduction
for Social Security and are shown without any joint and survivor
benefits.
The Pension Table above does not include annuity payments to
be received in lieu of life insurance. The policies are described
above under Plan Summaries.
In February 1993, the Company announced a voluntary early
retirement program available to all non-union employees over age
55 with 10 or more years of service as of June 30, 1993. Mrs. Bok
accepted the offer. The program offered either an annuity or a
lump sum equal to the greater value of either one week's base pay
times the number of years of service plus two weeks base pay or an
additional five years of service and five years of age. In
accordance with the terms of the offer, Mrs. Bok received an
additional annuity of $12,611 from a supplemental pension plan and
a lump sum of $110,896 from the qualified plan.
Mrs. Bok had not been eligible for a bonus under the prior
incentive compensation plan. In lieu thereof she will receive a
limited cost of living (consumer price index) adjustment to her
benefits from the qualified pension plan and the supplemental
<PAGE>
retirement plan. Since this plan serves to adjust the pension
benefit only after retirement, there will be no supplement paid
under the plan until at least 1995.
Senior executives receive the same post-retirement health
benefits as those offered non-union employees who retire with a
combination of age and years of service equal to 85.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's total compensation package is designed to
attract and retain an array of superior managers whose experience
is not limited to our Company or industry. This package consists
of Base Salary, Incentive Compensation (performance based, at risk
compensation), and Benefits. The Company's general compensation
philosophy is that the Base Salary ranges should be competitive
with similarly sized electric utilities. A significant portion of
management compensation should be tied to achievement of corporate
goals in order to maintain a sharp focus on performance and to
consistently align the interest of management and the Company's
constituencies, i.e. shareholders, consumers, and employees. An
ever higher percentage of total compensation should be at risk as
one moves upward through management. The critical feature of the
Company's executive compensation program is that a system has been
employed in which the amount of such compensation is driven by the
Company's performance relative to that of other utilities. The
compensation of the CEO is based on the same considerations and
structure as that of the other executive officers. (Since the
total compensation for any of the Company's executive officers is
still significantly below the $1 million threshold at which tax
deductions are limited under the recent revisions to the Internal
Revenue Code, the Committee has not had to address issues related
thereto.)
The Board of Directors votes the compensation of Mr. Rowe
and Mrs. Bok, acting upon recommendations of the Compensation
Committee, described on page 4. The Board of Directors
unanimously accepted each of the recommendations made by the
Compensation Committee. The Compensation Committee votes the
compensation of all other Company executive officers.
Base Salary
- -----------
Base Salary levels are established after consideration of
the appropriate market to determine the average or mid-point of
the salary range for a position. Extensive salary survey analyses
are compiled and presented to the Committee for review. Salary
ranges are then defined using market salaries as the midpoints of
the ranges. Base salaries of Company executives are brought to
range mid-points in appropriate steps and then capped at the mid-
point. Salary ranges are reviewed annually to ensure
competitiveness with the market for utilities with comparable
revenues. (The utility group used for most salary range
valuations is different from that used for incentive compensation
plan comparisons and from that shown in the corporate performance
chart, which include utilities having different revenue profiles
than the Company.)
In November 1992, the Compensation Committee reviewed
marketplace surveys to evaluate whether or not salary ranges
should be moved for 1993. It was determined that the Company's
range structure was generally competitive with the marketplace,
and the Committee voted to retain the 1992 salary range structure.
This resulted in freezing the base salaries of the senior
<PAGE>
executives for 1993. Based upon the increased responsibility he
assumed following the corporate reorganization, the Committee
authorized an increase for Mr. Tranen.
Performance Based Incentive Compensation
- ----------------------------------------
Performance Based Incentive Compensation (at risk
compensation or bonus) is designed to deliver rewards above base
salary, if the Company and the individual executives perform well.
The incentive components of the compensation plans are based
on formulae with difficult threshold targets. In order for any
incentive compensation to be awarded under the formulae, the
Company must achieve a return on equity that places the Company in
the top 45% (50% commencing in 1994) of the approximately 90
electric utilities listed in the Duff & Phelps Utility Group (the
National Grouping) or in the top 50% of the New England/New York
regional utilities (the Regional Grouping). See the Return on
Equity graph, below. The Board of Directors, in response to
extraordinary events, may enhance or curtail the actual return on
equity used to determine whether the Company met the targets.
They did not do so for 1993.
For the maximum incentive to be awarded, the Company must
achieve a return on equity in the top 25% of both the National and
Regional Groupings and the Company's cost per kilowatthour must be
the lowest or next to lowest of a selected New England electric
utility group. In 1993, if only one of the minimum targets had
been met, Mr. Rowe would have received a bonus (cash and incentive
shares as described below) of 19% of base pay. If the maximum
targets had been achieved, his formula bonus (cash and shares)
would have been 76% of base pay.
No bonus awards are made if earnings after bonuses are not
sufficient to cover dividends, even if the return on equity
targets are met. This insures that shareholders will receive an
adequate return, before any incentive compensation awards are
made.
Mr. Rowe's (and Mrs. Bok's for 1993) bonus under the plan is
directly related to achievement of the above described corporate
targets. The incentive compensation plan bonuses of the other
executives are additionally dependent upon the achievement of
individual goals.
Based upon information available at the time of determining
bonus amounts, in 1993 the Company placed in the 68th and the 75th
percentiles in return on shareholder equity of the National and
Regional Groupings, respectively. The Company placed in the
lowest one-third of the Regional Grouping with respect to customer
cost per kilowatthour in 1993. The Committee considered the
superior returns on equity, the success of the corporate
reorganization, the improvements in customer service, and the
improvement in the Company's safety record. The Committee
determined that the extraordinary efforts applied in 1993 by Mr.
Rowe and Mrs. Bok (as well as contributions of other officers) to
make these achievements possible were not adequately reflected in
the incentive compensation plan formula awards and merited
additional cash awards for 1993.
The cash portions of the incentive compensation formulae are
driven by annual measurements of the shareholder return on equity
and customer cost of electricity. In order to provide a long-term
component which is reflective of the shareholder total return, the
<PAGE>
participants in the incentive compensation plans are awarded
common shares of the Company under an incentive share plan,
approved by the shareholders in 1990. The shares are generally
restricted against sale for five years. Shares are only awarded
against incentive compensation plan cash awards generated by the
formulae. No discretion is exercised by the Committee in the
awarding of these restricted shares. An individual's award of
shares under the incentive share plan is a fixed percentage of her
or his cash award for that year from the incentive compensation
plan in which she or he participates. For Mr. Rowe, the
percentage was 90% for 1993. (In response to changes in the
federal tax law, the incentive compensation plans and the
incentive share plan were amended to provide fewer shares and more
cash commencing in 1994. Therefore, for 1994 that percentage will
be 60%.) If no cash award is made, no shares are distributed.
Further, total awards of shares in any calendar year cannot exceed
one-half of one percent (0.5%) of the number of outstanding shares
at the end of the previous calendar year. (The incentive shares
awarded for 1993 were 0.06% of the number of outstanding shares.)
On February 3 and 21, the Compensation Committee approved
the bonuses reflected in the chart on pages 7 - 8. Mr. Rowe's and
Mrs. Bok's bonuses, as recommended by the Committee, were voted by
the Board on February 22, 1994.
Benefits
- --------
The executive benefits are designed both to provide a
competitive package and to retain Company flexibility in staffing
management to meet changing conditions. See Plan Summaries and
Retirement Plans, above.
New England Electric System Compensation Committee
John M. Kucharski Felix A. Mirando, Jr.
George M. Sage James R. Winoker
CORPORATE PERFORMANCE
Total Return
The following graph shows total shareholder return for the
Company (capital appreciation plus reinvested dividends) for the
years 1988 through 1993 as compared to the Standard & Poor's 500
Index and the Edison Electric Institute (EEI) Index of 100
investor-owned electric companies assuming the investment of $100
on December 31, 1988.
NEES S&P 500 EEI Index
---- ------- ---------
1988 100.00 100.00 100.00
1989 130.05 131.69 129.92
1990 121.55 127.61 131.52
1991 168.94 166.49 169.39
1992 215.97 179.18 182.09
1993 231.63 197.24 202.82
Note: The share price performance shown on the graph above is not
necessarily indicative of future price performance.
<PAGE>
Return on Equity
The following graph shows the return on equity of Company
common shares for the years 1988 through 1993 compared to a
national grouping of approximately 90 electric utilities (those
utilities listed in the Duff & Phelps Utility Group) and a
regional grouping of utilities in the New York and New England
area. As discussed in the report of the Compensation Committee,
return on equity is a key driver of the Company's incentive
compensation program.
National Regional
NEES Grouping Grouping
---- -------- --------
1989 12.62% 12.75% 11.80%
1990 20.52% 12.04% 11.82%
1991 12.64% 12.13% 11.30%
1992 12.58% 11.32% 11.84%
1993 12.64% 11.90% 11.41%
Note: The return on equity is the median of the groupings shown
at the date of incentive compensation determination.
<PAGE>
3. DIRECTOR SHARE PLAN
(A Company Proposal)
The Board of Directors recommends a vote IN FAVOR of
this proposal.
The Company proposes that the shareholders ratify and
approve the Director Share Plan whereby each non-employee director
of the Company annually receives 200 common shares as part of
compensation for serving on the Board.
Since 1989, part of the Company's annual compensation
package for its non-employee directors has consisted of a grant of
Company common shares. Currently, the annual grant is for 200
common shares. Although the Board's power includes approving
compensation and the ability to continue this grant of shares, the
Board would like the program to be ratified by the shareholders.
The New York Stock Exchange policy encourages compensation
programs for directors to be approved by shareholders. In
addition, Securities Exchange Commission rules on share ownership
by insiders (such as directors) have become more complicated.
Shareholder approval would make technical violations of those
rules less likely.
Description and Purpose of Plan
Under the Plan, all non-employee directors of the
Company who are serving on May 1 are paid 200 common shares of the
Company as part of their annual compensation. The common shares
must be held by the director for at least six months before any
sale of the shares would be permitted. Currently, there are
twelve Directors who qualify for such payment. The size of the
Company's Board usually varies from 11-16 directors and one to two
of those directors have traditionally been employees who would not
qualify for the payment. Therefore, approximately 9-15 persons
would qualify for the payment in any given year.
The following table shows the estimated benefits for all
eligible directors as a group under the Plan in 1994:
PLAN BENEFITS
Name and Position Dollar Value ($) # of Units
----------------- --------------- ----------
Non-Executive $86,700* 2,400
Director Group
*Based upon the closing market price of Company common
shares on March 1, 1994.
The Company believes that the remuneration paid to its
directors for service on the board and committees is necessary to
attract outstanding individuals whose experience is valuable to
the System and is in line with payments to outside directors by
other utilities of comparable size. The time commitment these
outside directors make is considerable and their perspective is
needed. The purpose of the Plan is to round out the compensation
package paid to directors in a manner that further enhances the
common interest of director/shareholders and shareholders.
<PAGE>
Partially compensating directors in Company shares, rather than
cash, and increasing their share ownership furthers these
interests.
4. SHAREHOLDER PROPOSAL REGARDING A
SHAREHOLDER-DESIGNATED CHARITABLE CONTRIBUTIONS
PROGRAM.
Mr. John Jennings Crapo, P.O. Box 151, Cambridge,
Massachusetts 02140-0151, the owner of 70 common shares of the
Company, has stated that he intends to present a proposal
concerning charitable contributions for consideration by the
shareholders at the Annual Meeting.
The Board of Directors is opposed to Mr. Crapo's proposal.
The following are the text of the proposal and the
supporting statement supplied by Mr. Crapo:
Resolved:
That the shareholders recommend that the Board of Directors
of The New England Electric System ("NEES") publish in the
Proxy Statement of each Stockholder Annual Meeting an Annex
containing an item concerning the charitable donations
program of the NEES for the immediate past calendar year
which provides the following data: i) an explanation of at
least 500 words as to the standards and procedures governing
NEES's donations to IRS qualifying charities and IRS
approved private foundations--to include standards for
rejection of requests for said donations ii) a list of IRS
qualifying charities and IRS approved foundations which our
Board plans to donate to in the ensuing calendar year
included with each charity and foundation an explanation of
at least 25 words how it complies with the standards and
procedures enumerated in i).
Supporting Statement:
At the 1993 stockholder meeting a more inclusive proposal
was presented by proponent. According to Mr. Greenman, Esq., NEES
Secretary in his May 7, 1993 letter to proponent 5,853,893 shares
voted in favor or abstained out of 49,123,657 shares voting. Page
21 of the NEES 1992 Annual Report had December 31, 1992 an average
of 64,969,652 common shares outstanding; so many stockholders
haven't expressed themselves on this. Proponent's purpose in
abbreviating the proposal is so hopefully we may get a better idea
about the NEES charitable giving program specifics and then assist
proponent in deciding further at other dates whether to submit a
more comprehensive proposal similar to the one voted upon in 1993
or modified to be more acceptable to more stockholders. Proponent
thinks, too, enumerating contributions which NEES makes or might
make might minimize the prospect of some worthy recipients not
getting enough contributions. Some financial institutions--such
as banks may make donations--who are stockholders get proxy
statements. The 1993 Stockholder meeting was well attended and
proponent hopes there will be more discussion re: merits of this
proposal at 1994 stockholder meeting by more stockholders.
<PAGE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends a vote AGAINST the
proposal.
The Company believes the annex proposed to be added to the
Company's proxy statement on charitable contributions would be
lengthy, expensive to produce and mail, and of little utility to
most shareholders.
The first part of the proposal provides for an explanation
of at least 500 words of the standards and procedures the Company
uses in evaluating requests. The Company's policies with respect
to charitable giving are fairly standard in the business
community. The Company and its subsidiaries receive many requests
for giving and generally make contributions that support the
communities in and near the subsidiaries' service territories.
They generally give to non-profit organizations in the areas of
health and human services, civics, arts/culture, and education.
The Company does not believe that its proxy statement is the
proper forum for discussion of its charitable giving activities.
The second part of the proposal would require at least 25
words to be written on each charitable organization expected to
receive a donation from the Company in the following year. The
Company receives literally hundreds of requests for donations each
year. It is impossible to predict in advance which organizations
will apply for a contribution. Furthermore, the proposed annex to
the proxy statement would be extremely lengthy. Not including
contributions made through the Company's employee matching gifts
program, the Company made contributions to over 500 organizations
in 1993. Assuming a twenty-five word explanation for each
organization, this would add approximately 20 pages to the proxy
statement each year. The Company estimates that the additional
printing and postage would cost the Company approximately $50,000
each year.
In sum, the Company believes that it has a modest,
responsible charitable giving policy and practice that is in the
best interest of the shareholders and that most shareholders would
not be interested in receiving a lengthy report each year on the
subject. Further, management will respond openly to any specific
shareholder inquiries concerning charitable contributions.
OTHER MATTERS
The Company is not aware of any matter that may properly be
presented for action at the meeting other than the matters set
forth herein. If any other matter should be presented at the
meeting upon which a vote properly may be taken, the proxies in
the accompanying form confer upon the persons named therein, or
their substitutes, discretionary authority to vote in respect of
any such matter in accordance with their judgment.
The firm of Coopers & Lybrand is the independent certified
public accountant selected by the Board of Directors for the
Company for the current calendar year. Representatives of Coopers
& Lybrand are expected to be present at the Annual Meeting and
available to respond to appropriate questions on the financial
statements of the Company and may make a statement if they so
desire.
The expense of preparing and mailing this proxy statement
and other incidental expenses of solicitation will be paid by the
Company. Arrangements will be made with brokerage houses and
other custodians, nominees, and fiduciaries to send proxies and
<PAGE>
proxy material to their principals, and the Company will reimburse
them for the expense of doing so. Officers and regular employees
of a subsidiary of the Company may solicit proxies through the use
of the mails or by telephone, telegraph, or facsimile. Georgeson
& Company Inc., New York, New York has been retained to assist the
Company in the solicitation of proxies, primarily from brokers,
banks, and other nominees, at an estimated initial cost of $11,000
plus reimbursement of reasonable out-of-pocket expenses.
By completing the enclosed proxy you are voting the shares
of the Company held in your name and, in the event you are
participating therein, those held by you under the dividend
reinvestment and common share purchase plan and restricted shares
under the incentive share plan. In the event common shares are
held in trust for you as a participant in one or more thrift
plans, you will receive a separate form for instructing the
trustee how to vote those shares.
SHAREHOLDER PROPOSALS
From time to time shareholders present proposals which may
be proper subjects for inclusion in the proxy statement and for
consideration at the annual meeting. In order for a shareholder
proposal to be considered for inclusion in the proxy statement for
the Company's next regularly scheduled annual meeting of
shareholders, it must be received by the Company on or before
November 8, 1994. Please forward any proposal to the Secretary of
the Company.
The name "New England Electric System" means the trustee or
trustees for the time being (as trustee or trustees but not
personally) under an agreement and declaration of trust dated
January 2, 1926, as amended, which is hereby referred to, and a
copy of which as amended has been filed with the Secretary of The
Commonwealth of Massachusetts. Any agreement, obligation or
liability made, entered into or incurred by or on behalf of New
England Electric System binds only its trust estate, and no
shareholder, director, trustee, officer or agent thereof assumes
or shall be held to any liability therefor.
By order of the Board of
Directors,
(Facsimile Signature)
Frederic E. Greenman,
Secretary
March 10, 1994
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
NEW ENGLAND ELECTRIC SYSTEM
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS ON APRIL 26, 1994
The Shareholder(s) listed on the reverse side appoints JOAN
T. BOK, FREDERIC E. GREENMAN, and JOHN W. ROWE, and each of them,
Proxies, with full power of substitution, to represent the
Shareholder(s) at the above annual meeting, and at any and all
adjournments thereof, and to vote thereat the number of shares
which the Shareholder(s) would be entitled to vote if then
personally present, with all the powers the undersigned would then
possess, but especially, without limiting the foregoing, to vote
as specified herein on the proposals set forth in the proxy
statement:
Election of Directors--The thirteen nominees are J. T. Bok,
P. L. Joskow, J. M. Kucharski, E. H. Ladd, J. A. McClure,
M. McLane, F. A. Mirando, Jr., J. W. Rowe, G. M. Sage, C.E. Soule,
A. Wexler, J. Q. Wilson, and J. R. Winoker.
To withhold authority to vote for any nominee, write that
nominee's name in the space provided below:
(PLEASE SIGN and DATE ON REVERSE SIDE)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, AND 3
AND AGAINST ITEM 4
1. Fix the number of directors at 13.
FOR AGAINST ABSTAIN
/ / / / / /
2. Election of the nominees (except those I listed on the
reverse side).
FOR WITHHOLD AUTHORITY
/ / / /
3. To approve the Director Share Plan.
FOR AGAINST ABSTAIN
/ / / / / /
4. Shareholder Proposal regarding charitable
contributions.
FOR AGAINST ABSTAIN
/ / / / / /
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NOT SPECIFIED
ABOVE, THE PROXIES WILL VOTE "FOR" ITEMS 1, 2, AND 3, AND
"AGAINST" ITEM 4.
<PAGE>
A majority of the Proxies present and acting at the
meeting in person or by substitute (or, if only one
shall be so present, then that one) shall have and may
exercise all of the powers of said Proxies hereunder.
Dated: , 1994
(Sign exactly as name appears
to the left.)
When signing as attorney, executor, administrator, trustee, or
guardian, please give full title as such. If more than one name
is shown, including the case of joint tenants, each party should
sign.
IMPORTANT: WE URGE YOU TO VOTE, SIGN, DATE AND MAIL THIS PROXY
PROMPTLY TO ASSURE YOUR REPRESENTATION AT THE MEETING.
