<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
POTOMAC ELECTRIC POWER COMPANY
(Name of Registrant as Specified in Its Charter)
POTOMAC ELECTRIC POWER COMPANY
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / 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 registrations statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
- ---------------
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
(LOGO)
POTOMAC ELECTRIC POWER COMPANY
1900 PENNSYLVANIA AVENUE, N. W.
WASHINGTON, D. C. 20068
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
March 18, 1994
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Potomac
Electric Power Company will be held at 10:00 a.m. on Wednesday, April 27, 1994,
at the Washington Convention Center, 900 Ninth Street, N. W., Washington, D. C.
for the following purposes:
1. To elect four directors to serve for three years, and one director to serve
for one year ;
2. To consider and take action with respect to a shareholder proposal relating
to the election of directors, if such proposal is brought before the
meeting;
3. To consider and take action with respect to a shareholder proposal relating
to compensation of senior executives and directors, if such proposal is
brought before the meeting; and
4. To transact such other business as may properly be brought before the
meeting.
The holders of the Common Stock of the Company of record at the close of
business on Tuesday, March 8, 1994, will be entitled to vote on each of the
above matters.
By order of the Board of Directors,
BETTY K. CAULEY
Secretary
------------------
IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
EVEN IF YOU PLAN TO BE PRESENT, YOU ARE URGED TO SIGN, DATE AND MAIL THE
ENCLOSED PROXY PROMPTLY.
IF YOU ATTEND THE MEETING, YOU MAY VOTE EITHER IN PERSON OR BY YOUR PROXY.
<PAGE> 3
PLEASE DATE AND SIGN YOUR
PROXY AND RETURN IT IN
THE ENVELOPE PROVIDED
THANK YOU FOR ACTING PROMPTLY
<PAGE> 4
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
POTOMAC ELECTRIC POWER COMPANY
March 18, 1994
This statement is furnished in connection with a solicitation of proxies by
the Board of Directors of Potomac Electric Power Company (the "Company"), 1900
Pennsylvania Avenue, N.W., Washington, D. C. 20068, to be used at the Annual
Meeting of Shareholders of the Company to be held at 10:00 a.m. on Wednesday,
April 27, 1994, at the Washington Convention Center, 900 Ninth Street, N. W.,
Washington, D. C., and at any adjournment thereof, for the purposes set forth in
the foregoing notice of meeting. Properly executed proxies received prior to
closing of the polls during the meeting will be voted in the manner set forth on
the proxy unless specifically otherwise directed by the shareholder, in which
case they will be voted as directed. If the enclosed form of proxy is executed
and returned, it may nevertheless be revoked at any time by delivering notice of
revocation or a duly executed proxy bearing a later date to the Secretary of the
Company before the proxy is voted, and shareholders who are present at the
meeting may revoke their proxies and vote in person.
At the close of business on Tuesday, March 8, 1994, the Company had
outstanding 117,915,691 shares of Common Stock of the par value of $1 per share
(the "Common Stock"), and the then holders of record thereof will be entitled to
one vote for each share so held by them on each of the matters to be considered
at the meeting.
The Annual Report to Shareholders for the fiscal year ended December 31,
1993, including financial statements, was mailed on or about March 11, 1994 to
all shareholders. Such Report is not a part of the proxy soliciting material.
1. ELECTION OF DIRECTORS
At the meeting, four directors are to be elected to hold office for
three-year terms, and until their respective successors shall have been elected
and qualified. In addition, one director is to be elected to hold office for one
year to fill the unexpired term of Charls E. Walker, a director of the Company
for the past eleven years, who has reached the mandatory retirement age for
directors. Twelve directors constitute the entire Board of Directors.
It is the intention of the persons named in the enclosed proxy to vote such
proxy for the election of the nominees named below, all but one of whom are now
serving as directors, unless such authority is withheld. The Company does not
contemplate that any of such nominees will become unavailable for any reason,
but if that should occur before the meeting, proxies will be voted for another
nominee, or other nominees, to be selected by the Board of Directors. Nominees
receiving the greatest number of votes shall be elected. Abstentions and broker
non-votes will be deemed present and entitled to vote. Abstentions will not be
counted either for or against the election of a director. Broker non-votes will
be counted as an affirmative vote for the nominees named below.
1
<PAGE> 5
NOMINEES FOR ELECTION AS DIRECTORS
FOR TERM EXPIRING IN 1997
<TABLE>
<S> <C>
RICHARD E. MARRIOTT, age 55, has been Chairman of the Board of
PHOTO Host Marriott Corporation, a company based in Bethesda, Maryland
consisting of real estate holdings and airport and toll road
concession operations, since October 1993. From 1986 to October
1993 he served as Vice Chairman and Executive Vice President of
the Marriott Corporation, a hotel and hospitality company. Mr.
Marriott has been a director of the Company since 1993 and is a
member of the Human Resources Committee and the Nominating Commit-
tee. Mr. Marriott is a director of Marriott International. He owns
100 shares of the common stock of the Company.
DAVID O. MAXWELL, age 63, is Retired Chairman of the Board and
PHOTO Chief Executive Officer of the Federal National Mortgage
Association, a position he held from 1981-1991. Mr. Maxwell has
been a director of the Company since 1993 and is a member of the
Audit Committee and the Human Resources Committee. He is a
director of the Hechinger Company, Kaufman and Broad Home
Corporation and SunAmerica Inc. He owns 500 shares of the common
stock of the Company.
FLORETTA D. MCKENZIE, age 58, was the founder in 1987 and is the
PHOTO President of The McKenzie Group (educational consulting firm). Dr.
McKenzie
has been a director of the Company since 1988 and is a member of
the Audit Committee and the Executive Committee. Dr. McKenzie is a
director of Marriott International. She owns 319 shares of the
common stock of the Company.
EDWARD F. MITCHELL, age 62, has been Chairman of the Board of the
PHOTO Company since December 1992. He has been Chief Executive Officer
since September 1989. From 1983 to December 1992 he served as
President of the Company. He has been a director of the Company
since 1980, and is a member of the Executive Committee. He owns
47,959 shares of the common stock of the Company.
</TABLE>
2
<PAGE> 6
NOMINEE FOR ELECTION AS DIRECTOR
FOR TERM EXPIRING IN 1995
<TABLE>
<S> <C>
JOHN M. DERRICK, JR., age 54, has been President of the Company
PHOTO since December 1992. He has been Chief Operating Officer since
1989. From 1989 to December 1992 he served as Executive Vice
President of the Company. Mr. Derrick was nominated as a director
of the Company in January 1994. He owns 16,793 shares of the
common stock of the Company.
</TABLE>
DIRECTORS CONTINUING IN OFFICE
TERM EXPIRES IN 1995
<TABLE>
<S> <C>
H. LOWELL DAVIS, age 61, has been Vice Chairman and Chief
PHOTO Financial Officer of the Company since 1983. He has been a
director of the Company since 1973 and is a member of the
Executive Committee. Mr. Davis is a director of AVEMCO
Corporation. He owns 52,959 shares of the common stock of the
Company.
PETER F. O'MALLEY, age 55, has been Of Counsel to O'Malley &
PHOTO Miles, a law firm in Upper Marlboro, Maryland since 1989. Prior to
that time he was Managing Partner of the firm. He has been a
director of the Company since 1982 and is Chairman of the
Nominating Committee and a member of the Finance Committee. Mr.
O'Malley is a director of Legg Mason, Inc. and Giant Food Inc. He
owns 1,828 shares of the common stock of the Company.
LOUIS A. SIMPSON, age 57, has been President and Chief Executive
PHOTO Officer of Capital Operations (investments), GEICO Corporation,
Washington D.C. since May 1993. From 1985 to May 1993 he served as
Vice Chairman of GEICO Corporation. He has been a director of the
Company since December 1990, and is a member of the Audit
Committee and Finance Committee. Mr. Simpson is a director of
Salomon Inc. He owns 2,000 shares of the common stock of the
Company.
</TABLE>
3
<PAGE> 7
DIRECTORS CONTINUING IN OFFICE
TERM EXPIRES IN 1996
<TABLE>
<S> <C>
ROGER R. BLUNT, SR., age 63, is Chairman of the Board of Blunt
PHOTO Enterprises, Inc. (general contracting and construction
management), a Washington based holding company, that includes
Essex Construction Corporation, of which he is Chairman of the
Board and Chief Executive Officer, and Tyroc Construction
Corporation, of which he is Chief Executive Officer and Director.
Mr. Blunt has been a director of the Company since 1984 and is
Chairman of the Audit Committee and a member of the Nominating
Committee. He owns 306 shares of the common stock of the Company.
A. JAMES CLARK, age 66, is Chairman of the Board, President and
PHOTO Chief Executive Officer of Clark Enterprises, Inc. (general
contracting), a holding company based in Bethesda, Maryland that
includes Omni Construction, Inc., The Clark Construction Group,
Inc., of which he is Chairman of the Board and President, The
George Hyman Construction Company, of which he is Chairman of the
Board (and was Chief Executive Officer until 1989) and HRW
Systems, Inc., Clark-Morris Company, Inc., and Clark-Kenith,
Incorporated, of which he is Director. He has been a director of
the Company since 1977 and is Chairman of the Human Resources
Committee and a member of the Finance Committee. Mr. Clark is a
director of Martin Marietta Corporation and GEICO Corporation. He
owns 5,061 shares of the common stock of the Company. Clark
Enterprises, Inc., of which Mr. Clark is the majority owner, owns
79,864 shares of the common stock of the Company. Mr. Clark has
sole voting and investment power with respect to the shares held
by that company.
ANN D. MCLAUGHLIN, age 52, is former United States Secretary of
PHOTO Labor, has been President of the Federal City Council since 1990
and Vice Chairman of The Aspen Institute since August 1993. She
served as President and Chief Executive Officer of the New
American Schools Development Corporation from July 1992 to 1993.
She was a Visiting Fellow and member of the Board of Trustees of
The Urban Institute, Washington, D.C. from 1989 to 1992. From 1989
to 1990 she served as Chairman of the President's Commission on
Aviation Security and Terrorism. She has been a director of the
Company since January 1991, and is a member of the Human Resources
Committee and Nominating Committee. Mrs. McLaughlin is a director
of AMR Corporation/American Airlines, Inc., General Motors
Corporation, Kellogg Company, Nordstrom Inc., Union Camp
Corporation, Vulcan Materials Company, and Host Marriott
Corporation. She owns 454 shares of the common stock of the
Company.
W. REID THOMPSON, age 69, is Retired Chairman of the Board and
PHOTO Chief Executive Officer of the Company. He served as Chairman of
the Company from 1971 to December 1992, and as its Chief Executive
Officer from 1971 to September 1989. He is Chairman of the
Executive Committee and a member of the Audit Committee, Finance
Committee, and Nominating Committee. Mr. Thompson is a director of
GEICO Corporation. He owns 85,326 shares of the common stock of
the Company.
</TABLE>
4
<PAGE> 8
As of March 8, 1994, Mr. Paul Dragoumis, and Mr. Dennis R. Wraase,
non-director officers, and Mr. Rhett B. Dawson, a former non-director officer,
each of whom is listed in the Summary Compensation Table, owned 14,818, 13,015,
and 3,104 shares, respectively, and all directors, nominees, and executive
officers as a group, owned 386,945 shares of the common stock of the Company,
representing less than 1% of the shares outstanding. Mr. Earl K. Chism, in 1988
upon his election as an officer of the Company, inadvertently omitted from his
Form 3 the ownership of 450 previously acquired shares of the Company's common
stock. The ownership was subsequently reported on Form 5 pursuant to Section 16
of the Securities Exchange Act of 1934.
The Board of Directors held seven meetings in 1993. The Company has
standing Executive, Audit, Finance, Human Resources and Nominating Committees of
the Board of Directors. Director McLaughlin attended fewer than 75% of the
meetings of the Board and Board committees of which she was a member.
The Audit Committee held four meetings in 1993. The Committee's duties and
responsibilities include recommending to the Board the engagement of the
independent accountant, approving the plan and scope of the audit and the fee
before the audit begins and, following the audit, reviewing the results with the
independent accountant and its comments on the Company's system of internal
accounting controls. The Committee also reviews with the Company's General
Auditor the plan, scope and results of internal audits and his comments on the
Company's system of internal accounting controls. It further reviews with
management, the independent accountant and the General Auditor the accounting
principles applied in financial reporting and the reports relating to compliance
with the Company's statements of policy relating to conflicts of interest. The
Committee reports its activities to the Board periodically and makes such
recommendations and findings concerning any audit or related matter as it deems
appropriate.
In carrying out these functions, the Audit Committee represents the Board
in discharging its responsibility of oversight, but the existence of the
Committee does not alter the traditional roles and responsibilities of the
Company's management and the independent accountant with respect to the
accounting and control functions and financial statement presentation.
The Nominating Committee, composed entirely of independent, non-employee
directors, held three meetings in 1993. The Committee recommends to the Board
candidates for nomination for election as directors. The Committee will consider
nominees recommended by shareholders upon the receipt, no later than the
deadline for receipt of shareholder proposals, of information concerning the
name, business address, occupation, qualifications and share holdings of the
proposed nominee.
The Human Resources Committee held four meetings in 1993. The Committee
recommends to the Board the annual salary administration program for all exempt
employees, including specific salary recommendations for senior officers and
employees, and administers the executive compensation plans. The Committee also
makes recommendations to the Board with respect to the Company's General
Retirement Plan, other benefit plans, and officer and senior management
succession.
Each of the Company's directors, except directors who are employees of the
Company, is paid an annual retainer of $26,000, plus a fee of $1,000 for each
Board and committee meeting attended. The Company has a Retirement Plan for
Directors under which directors retiring at or after age 65 will receive, for
life, or for lesser periods depending on the length of the director's
non-employee board service, annual benefits equal to the retainer fee for
directors in effect at the time of retirement, with limited death benefits to a
surviving spouse.
5
<PAGE> 9
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION(2),(3)
- ---------------------------------------- ---- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Edward F. Mitchell 1993 $ 540,000 $ 218,700 $66,131 $ 53,153
Chairman of the Board and 1992 521,667 0 54,864 24,265
Chief Executive Officer 1991 476,666 131,083 45,523 16,576
H. Lowell Davis 1993 $ 400,000 $ 162,000 $49,927 $ 44,227
Vice Chairman and 1992 388,333 0 43,543 20,520
Chief Financial Officer 1991 360,000 99,000 36,804 15,489
John M. Derrick, Jr. 1993 $ 300,000 $ 121,500 $ 9,312 $ 32,354
President 1992 241,667 0 8,490 12,002
1991 216,667 54,166 7,388 10,769
Paul Dragoumis 1993 $ 232,000 $ 76,850 $15,498 $ 27,524
Executive Vice President 1992 228,000 0 14,126 12,088
1991 216,667 49,833 12,313 11,310
Dennis R. Wraase 1993 $ 186,000 $ 73,238 $ 2,945 $ 24,947
Senior Vice President 1992 182,000 0 2,807 8,983
1991 170,333 42,584 2,520 8,391
Rhett B. Dawson* 1993 $ 249,792 $ 0 $ 0 $ 12,521
Senior Vice President 1992 272,500 0 0 13,401
1991 269,167 0 0 12,936
</TABLE>
- ------------------------------
*Mr. Dawson resigned from the Company effective November 30, 1993.
(1)Other Annual Compensation
Amounts in this column represent above-market earnings on deferred
compensation funded by Company owned life insurance policies held in trust,
assuming the expected retirement at age 65. The amounts are reduced if the
executive terminates employment prior to age 62 for any reason other than death,
total or permanent disability or a change in control of the Company. In the
event of a change in control and termination of the participant's employment, a
lump sum payment will be made equal to the net present value of the expected
payments at age 65 discounted using the Pension Guaranty Corporation immediate
payment interest rate plus one-half of one percent. The Company has purchased
the policies on participating individuals under a program designed so that if
assumptions as to mortality experience, policy return and other factors are
realized, the compensation deferred and the death benefits payable to the
Company under such insurance policies will cover all premium payments and
benefit payments projected under this program, plus a factor for the use of
Company funds.
(2)Restricted Stock
The number and market value of non-vested restricted shares at December 31,
1993 for the executives listed above are: 8,000 shares or $214,000 for Mr.
Mitchell, 6,400 shares or $171,200 for Mr. Davis, and 2,800 shares or $74,900
each for Messrs. Derrick, Dragoumis and Wraase. In the event of change in
control and subsequent termination or diminution of duties, the balance of the
restricted shareholdings becomes vested immediately.
(3)All Other Compensation
Amounts in this column consist of (i) Company contributions to the Savings
Plan for Exempt Employees of $6,996 for Messrs. Mitchell, Davis, Dragoumis and
Wraase, respectively, $6,746, for Mr. Derrick, and $11,512 for Mr. Dawson for
1993, (ii) Company contributions to the Executive Deferred Compensation Plan due
to Internal Revenue Service limitations on maximum contributions to the Savings
Plan for Exempt Employees of $13,910, $11,255, $6,755, $3,695, and $1,625 for
Messrs. Mitchell, Davis, Derrick, Dragoumis, and Wraase, respectively, for 1993,
(iii) the term life insurance portion of life insurance written on a
split-dollar basis of $4,746, $3,131, $1,011, $1,722, $629, and $1,009 for
Messrs. Mitchell, Davis, Derrick, Dragoumis, Wraase and Dawson, respectively,
for 1993, and (iv) the interest on employer paid premiums for split-dollar life
insurance of $27,501, $22,845, $17,842, $15,061, and $15,697 for Messrs.
Mitchell, Davis, Derrick, Dragoumis and Wraase, respectively, for 1993. The
split-dollar life insurance contract provides death benefits to the executive's
beneficiaries of approximately three times the executive's annual salary. The
split-dollar program is designed so that, if the assumptions made as to
mortality experience, policy return and other factors are realized, the Company
will recover all plan costs, including a factor for the use of Company funds.
The split-dollar policy provides a cash surrender value to each participant in
excess of any premiums paid.
6
<PAGE> 10
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE OR
OTHER PERIOD
UNTIL
MATURATION OR THRESHOLD MAXIMUM
NAME PAYOUT NUMBER OF SHARES NUMBER OF SHARES
- ------------------------------------------ --------------- ------------------ ------------------
<S> <C> <C> <C>
Edward F. Mitchell........................ January 1, 1997 1,122 8,416
January 1, 1998 1,122 8,416
H. Lowell Davis........................... January 1, 1997 831 6,234
January 1, 1998 831 6,234
John M. Derrick, Jr....................... January 1, 1997 623 4,676
January 1, 1998 623 4,675
Paul Dragoumis............................ January 1, 1997 386 2,893
January 1, 1998 386 2,892
Dennis R. Wraase.......................... January 1, 1997 309 2,319
January 1, 1998 309 2,319
</TABLE>
The above table reflects the maximum share awards available under the
Company's Executive Restricted Stock Performance Award Program for the three
year performance cycle beginning January 1, 1993. The Plan provides for the
award of restricted stock based on comparisons of Company performance to the
Salomon Brothers Electrics index. The awards are based on total return to
shareholders over the three-year performance cycle and market-to-book ratios for
the same periods. Each of these two performance measures is given equal weight.
For a participant to receive the maximum award, the Company must have the
highest total return to shareholders and market-to-book ratio of all companies
included in the Salomon Brothers Electrics index. Generally the Company results
must be above the median of the companies contained in the index for a
participant to receive any award. Actual grants, if any, will not be determined
until the end of the performance cycle. No dividends are paid on awards until
actual grants are made.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ANNUAL RETIREMENT BENEFITS
---------------------------------------------------------------
AVERAGE ANNUAL SALARY YEARS IN PLAN
IN FINAL THREE YEARS ---------------------------------------------------------------
OF EMPLOYMENT 15 20 25 30 35 40
- ------------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$150,000............................. $ 39,000 $ 53,000 $ 66,000 $ 79,000 $ 92,000 $105,000
$250,000............................. $ 66,000 $ 88,000 $109,000 $131,000 $153,000 $175,000
$350,000............................. $ 92,000 $123,000 $153,000 $184,000 $214,000 $245,000
$450,000............................. $118,000 $158,000 $197,000 $236,000 $276,000 $315,000
$550,000............................. $144,000 $193,000 $241,000 $289,000 $337,000 $385,000
$650,000............................. $171,000 $228,000 $284,000 $341,000 $398,000 $455,000
$750,000............................. $197,000 $263,000 $328,000 $394,000 $459,000 $525,000
</TABLE>
The Company's General Retirement Plan provides participants benefits after
five years of service based on the average salary (the term salary being equal
to the amounts contained in the Salary column of the Summary Compensation Table)
for the final three years of employment and years in the Plan at the time of
retirement. Normal retirement age under the Plan is 65. Plan benefits are
subject to an offset for any Social Security benefits. Benefits under the Plan
may be reduced under certain provisions of the Internal Revenue Code, as
amended, and
7
<PAGE> 11
by salary deferrals under the Company's deferred compensation plans (other than
CODA contributions made under the Savings Plan). Where any such reductions
occur, the Company will pay (as an operating expense) a retirement supplement to
eligible executives designed to maintain total retirement benefits at a formula
level of the Plan. In order to attract and retain executives, the Company
provides supplemental retirement benefits for executives who retire under the
terms of the General Retirement Plan and are at least 59 years of age, which
increases the average salary by the average of the highest three annual
incentive awards out of the last five consecutive years. The annual incentive
amounts are equal to the amounts shown in the Bonus column of the Summary
Compensation Table. The current age, years of credited service and compensation
used to determine retirement benefits for the above-named officers are as
follows: Mr. Mitchell, 62 and 37 years of credit, $664,358; Mr. Davis, 61 and 36
years of credit, $498,347; Mr. Derrick, 54 and 32 years of credit, $321,246; Mr.
Dragoumis, 59 and 28 years of credit, $280,188; and Mr. Wraase, 49 and 19 years
of credit, $227,940. Annual benefits at age 65 (including the effect of the
Social Security offset) are illustrated in the table above.
Included in the years of credited service for Mr. Dragoumis are additional
years of service resulting from an agreement dated July 17, 1976 which provides
retirement benefits to him as though he had not had any interruption in
employment. Mr. Dragoumis joined the Company on September 1, 1971. In 1975 he
resigned to accept an executive appointment with the United States government.
He returned to the Company after approximately one year of Federal service.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Human Resources Committee of the Board of Directors is composed
entirely of independent, non-employee directors. The Committee's role includes
review of the performance of elected officers and other executives in connection
with executive compensation programs designed to provide a strong and direct
link between compensation, executive performance and the current and long-term
level of Company performance. The Committee recommends specific officer salaries
to the Board of Directors. The Committee also establishes and recommends to the
Board performance guidelines under the Executive Incentive Compensation Plan,
approves payments made pursuant to that Plan and recommends the structure of
compensation and amounts of awards under the Long-Term Incentive Plan approved
by the shareholders effective July 1, 1986. The Committee also reviews other
elements of compensation and benefits, making recommendations to the Board as
appropriate. The Committee carries out these responsibilities with assistance
from consulting firms and with such input from the Chief Executive Officer and
management as it deems appropriate.
OFFICER COMPENSATION PHILOSOPHY
The Company's compensation philosophy reflects a commitment to attract and
retain key executives with a program which compensates executive officers
competitively with other companies in the industry while rewarding executives
for achieving levels of operational excellence and financial results which
result in growth in shareholder value. The Company's compensation policy is to
provide a total compensation opportunity comparable to the median compensation
levels of the companies in the Salomon Brothers Electric Utilities index. The
relationship between pay and performance is reinforced by aligning the peer
group used for compensation comparison purposes with the same industry peer
group used for purposes of comparing total shareholder return.
The compensation program for officers consists of base salary, annual
incentive and long-term incentive components. The combination of these three
elements balances short and long term business performance goals and aligns
officer financial rewards with company operating results and shareholder return.
Total compensation
8
<PAGE> 12
for any specific year may, of course, be above the median for the peer group in
the event performance exceeds goals, or below the median if performance falls
short of goals, as was the case in 1992 when no annual executive incentive
awards were made.
Annual incentive awards are earned based on the Company's financial and
operational results. Long-term incentive awards are in the form of shares of
Company stock (Restricted Shares) which are awarded on the basis of meeting
pre-established goals and which vest on the basis of continued service. The
officer compensation program is structured so that between 36 and 48 percent of
the total compensation opportunity is composed of incentive compensation.
The Omnibus Budget Reconciliation Act of 1993 included a provision on the
deductibility of the compensation earned by a Company's five highest paid
officers. For 1993, all compensation earned by the Company's five highest paid
officers was completely deductible. In the future, the Committee will,
considering the best interests of the Company and its shareholders, use its best
judgment to continue the complete tax deductibility of the compensation paid to
its officers.
OFFICER SALARIES
The Committee determines base salary ranges for executive officers based
upon competitive pay practices. Officer salaries correspond to approximately the
median of the companies in the Salomon Brothers Electric Utilities index.
Consistent with a company-wide salary and wage freeze, the Company's officers
did not receive a salary increase during 1993. (With the exception of Mr.
Derrick, who received an increase in connection with his election as President
in December, 1992, increases from 1992 salaries shown in the Summary
Compensation Table result from annualization of increases granted during 1992.)
EXECUTIVE INCENTIVE COMPENSATION PLAN
In 1983, the Board of Directors established the Executive Incentive
Compensation Plan for Company officers and senior executives. For 1993, awards
under the Plan were based on achievement of progress in earnings, common stock
performance, as measured by relative market-to-book value ratios, and unit
customer prices which includes a comparison with a peer group consisting of
twenty regional electric utilities (with a total weighting of approximately 75%
for earnings and stock performance.) Awards for the Chairman, Vice Chairman and
President were based upon the Company's progress in achieving plan goals; awards
for other officers were based on a combination of corporate goals and individual
goals established at the beginning of the year.
For awards paid in February, 1994 for performance during 1993, the most
critical factor was earnings. The 1993 earnings per share of $1.95 represented a
17.5% increase over 1992. The Company's average monthly market-to-book ratio was
above the average and median for the Salomon Brothers index and for the year
1993 the Company ranked 14th among the Salomon Brothers 65 utilities in total
shareholder return. The Company's average price per kilowatt-hour of electricity
was less than the average and median price of the peer group. Pursuant to the
Plan formula, the increase in earnings per share and above average performance
in market to book and price comparison resulted in an incentive award level of
135% of the target award compared to the maximum award level of 180%.
Accordingly, the annual incentive award for the Chief Executive Officer
shown in the Summary Compensation Table was 40.5% of base salary for the year,
calculated consistent with the determination of awards for other officers and
reflecting the Committee's assessment of the Chief Executive Officer's
individual performance during 1993 in achieving corporate goals.
9
<PAGE> 13
LONG-TERM INCENTIVE PLAN
In 1991, the Board of Directors adopted an Executive Restricted Stock
Performance Award Program pursuant to the Long-Term Incentive Plan approved by
the Company's shareholders effective July 1, 1986. The initial three-year
performance period covered the period from 1991 through 1993. The maximum shares
are based on the December 31, 1993 stock price and 37.5% of annual salary for
Messrs. Mitchell, Davis and Derrick, and 30% for Messrs. Dragoumis and Wraase.
At the start of the cycle, each participant became eligible for the award of
Performance Shares, with the maximum amounts based upon the participant's salary
and the price of Company stock at that date. The initial award under the
long-term plan was made in February, 1994. The number of shares actually earned
was based on the performance measured over the three-year period in terms of
earnings per share, market-to-book value ratio, and price of electricity
relative to the 20 regional peer utilities (with the earnings and market-to-book
components accounting for approximately 80% of the maximum award potential). The
long-term incentive awards for the Chief Executive Officer and the other
officers named in the Summary Compensation Table reflect the following
performance: earnings per share increased 20.4% from the beginning of the cycle;
average market-to-book value ratio ranked well above the median of the Salomon
Brothers index during the three-year cycle; and the unit price of electricity
during the three-year cycle was less than the average and median for the peer
group. Pursuant to the plan formula, the Chief Executive Officer was awarded
10,402 shares, or 62% of the total award potential of 16,778 fixed at the
beginning of the cycle. Subject to the participants' continued Company
employment, 50% of the shares earned for the 1991-1993 period will vest on
January 1, 1995, and the remaining 50% will vest on January 1, 1996. A second
performance cycle covering the years 1993 through 1995 was approved during 1993,
with awards, if any, to be determined in the Spring of 1996.
Restricted stock awards are shares of common stock subject to limitations
on their sale, transfer or pledge until the expiration of a restriction period
as determined by the Committee at the time of grant. The Company has used
restricted stock sparingly, and the restricted shares shown for the Chief
Executive Officer and the other proxy-named officers in the footnotes to the
Summary Compensation Table in this report reflect the only previous restricted
stock award, which was made in 1986.
HUMAN RESOURCES COMMITTEE
Mr. A. James Clark, Chairman
Mr. Richard E. Marriott
Mr. David O. Maxwell
Ms. Ann D. McLaughlin
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<PAGE> 14
The following chart compares PEPCO's five year cumulative total return to
shareholders with the five year cumulative total return for the Salomon Brothers
Electric Utilities and the Dow Jones Utilities index.
PERFORMANCE PRESENTATION
<TABLE>
<CAPTION>
SALOMON
MEASUREMENT PERIOD BROTHERS DOW JONES
(FISCAL YEAR COVERED) PEPCO ELECTRICS UTILITIES
<S> <C> <C> <C>
1988 100 100 100
1989 126 131 132
1990 117 132 129
1991 153 170 163
1992 155 181 165
1993 185 204 183
</TABLE>
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company appointed Price Waterhouse as
Independent Public Accountants for the Company for the year 1993 and, upon
recommendation of the Audit Committee of the Board, has reappointed the firm for
1994. A representative of Price Waterhouse is expected to attend the Annual
Meeting and will be given the opportunity to make a statement and to respond to
appropriate questions.
11
<PAGE> 15
2. SHAREHOLDER PROPOSAL
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEM 2.
Mrs. Evelyn Y. Davis, Watergate Office Building, Suite 215, 2600 Virginia
Avenue, N.W., Washington, D.C. 20037, who is the record holder of 100 shares of
the Company's Common Stock, has notified the Company of her intention to present
the following proposal for action at the meeting:
"RESOLVED: That the shareholders of PEPCO recommend that the Board of
Directors take the necessary steps to reinstate the election of directors
ANNUALLY, instead of the staggered system which was recently adopted."
The following statement has been supplied by the shareholder submitting
this proposal:
"REASONS: Until recently, directors of PEPCO were elected annually by all
shareholders."
"The great majority of New York Stock Exchange listed corporations elect
all their directors each year.
"This insures that ALL directors will be more accountable to ALL
shareholders each year and to a certain extent prevents the self-perpetuation of
the Board.
"Last year the owners of 18,159,561 shares, representing 22.6% of shares
voting, voted FOR this proposal.
"If you AGREE, please mark your proxy FOR this resolution."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE ADOPTION
OF THIS PROPOSAL, SET FORTH AS ITEM 2 ON THE PROXY.
The Board of Directors believes that this proposal is not in the best
interests of the Company and its shareholders. The Board believes that the
present system, providing for the election of directors for three-year terms on
a staggered basis rather than one-year terms, enhances the likelihood of
continuity and stability in the composition of and in the policies formulated by
the Company's Board of Directors. The Board also believes that this, in turn,
permits it to represent more effectively the interests of all shareholders.
In order to be adopted, the shareholder proposal requires the vote of the
holders of a majority of the stock present and entitled to vote at a meeting of
shareholders at which a quorum is present. Abstentions and broker non-votes will
be deemed present and entitled to vote but will not be counted as a vote either
for or against this proposal.
3. SHAREHOLDER PROPOSAL
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST ITEM 3.
Ms. Beatrice M. Katz, Trustee of the Beatrice M. Katz Trust, 11435
Monterrey Drive, Silver Spring, Maryland 20902, who is the record holder of
2,890 shares of the Company's Common Stock, has notified the Company of her
intention to present the following proposal for action at the meeting:
"RESOLVED: That the shareholders of PEPCO recommend that the Board of
Directors institute a salary and compensation ceiling such that as to future
employment contracts, no senior executive or director of the Company receive
combined salary and other compensation which is more than two times the salary
provided to the President of the United States, that is, no more than $400,000."
12
<PAGE> 16
The following statement has been supplied by the shareholder submitting
this proposal:
"REASONS: There is a general consensus that corporate officials are grossly
overpaid and that this is promulgated by the hands-off policy of Boards of
Directors. The recommended ceiling is sufficient to motivate any person to do
his best. There is no corporation which exceeds the size and complexity of the
United States government of which the President is the chief executive officer.
Even government agencies exceed the size, as measured by personnel and budget,
of private corporations. The President of the United States receives a salary of
$200,000; even agency heads and members of Congress are paid only somewhat more
than $100,000."
"The duties of the President of the United States are not comparable to
those of senior executive officers or directors (the President has a much more
demanding job). While the President has many valuable compensations which may
exceed those of company executives, I use the salary of the President only as a
reference point for shareholders to consider as they evaluate this resolution.
"Officers and directors of public corporations are the employees and not
the owners, except as they may be shareholders in common with other
stockholders. The Boards of Directors, a closed group which perpetuates itself,
determines who is to be selected to the Board and who is an officer of the
company, as well as the compensation to be received. They should not give the
appearance that they run the corporations for their benefit and only
incidentally for the benefit of shareholders. They should not unnecessarily
drain away millions of dollars in salary, stock options and other compensation.
When the recommended ceiling is exceeded, it may be an expression of greed and
abuse of power.
"There may be no direct correlation between the profitability of a
corporation and the compensation to officers. In many corporations, compensation
increases even as profits fall. High compensation need not serve as an incentive
for a better run or more profitable corporation. Many qualified people would
gladly step in and do as good a job as the incumbent officers of the Corporation
and would have no hesitation serving under the aforementioned ceiling on
compensation.
"Any officer who believes he can better the corporation should be
sufficiently motivated to purchase stock on the open market or to receive stock
options as part of his salary and compensation package. To remain competitive in
world markets we must cut our costs and not overcompensate directors and
officers.
"Last year a similar proposal received 18.2% of the stockholder's vote.
"If you AGREE, please mark your proxy FOR this resolution."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE ADOPTION
OF THIS PROPOSAL, SET FORTH AS ITEM 3 ON THE PROXY.
The Board of Directors believes that this proposal is not in the best
interests of the Company and the shareholders. Executive compensation is an
essential tool employed by the Board and the Human Resources Committee in order
to attract and retain qualified executives and to encourage excellent
performance. Decisions regarding the amount of compensation for senior
executives are made with reference to market-based conditions in the utility
industry, the performance of the Company and of individual officers, and other
relevant factors. Payment of a major component of compensation is based upon the
Company's meeting or exceeding certain performance standards. Fixed arbitrary
limits on compensation would significantly impair the Board's ability to offer
performance-based incentives and set compensation at levels that will yield the
greatest benefits to the Company.
13
<PAGE> 17
The Board does not believe that the salary payable to the President of the
United States has any relevance to the proper level of compensation for any
officer of the Company. However, the Board notes that, as the proposal
acknowledges, the total compensation (rather than merely salary) paid to the
President of the United States, when measured in the same manner that total
compensation to corporate officers is measured, vastly exceeds the total
compensation paid to any officer or director of the Company.
In order to be adopted, the shareholder proposal requires the vote of the
holders of a majority of the stock present and entitled to vote at a meeting of
shareholders at which a quorum is present. Abstentions and broker non-votes will
be deemed present and entitled to vote but will not be counted as a vote either
for or against this proposal.
RECEIPT OF SHAREHOLDER PROPOSALS
Shareholder proposals must be received by the Company by November 18, 1994
for inclusion in the proxy material for next year's Annual Meeting.
4. OTHER MATTERS WHICH MAY COME BEFORE THE MEETING
The Board of Directors knows of no other matters which are likely to be
brought before the meeting. However, if any other matter should properly come
before the meeting, it is the intention of the person named in the enclosed
proxy to vote it in accordance with their judgment on such matters.
------------------------
The Company will bear the cost of solicitation of proxies. In addition to
the use of the mails, proxies may be solicited by officers, directors and
regular employees of the Company personally, by telephone or by facsimile. The
Company expects to reimburse persons holding stock in their names or in those of
their nominees for their expenses in sending soliciting materials to their
principals.
(LOGO)
14
<PAGE> 18
<TABLE>
<CAPTION>
PEPCO PROXY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. ELECTION OF DIRECTORS FOR all nominees listed below WITHHOLD AUTHORITY to vote
(except as marked to the contrary below) / / for all nominees listed below / /
(TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST BELOW.)
Four to serve for three years
Richard E. Marriott David O. Maxwell Floretta D. McKenzie Edward F. Mitchell
One to serve for one year
John M. Derrick, Jr.
- ------------------------------------------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" ITEMS 2 AND 3 BELOW FOR AGAINST ABSTAIN
2. Shareholder proposal relating to the election of Directors.......................... / / / / / /
3. Shareholder proposal relating to compensation of senior executives and directors.... / / / / / /
Account No.
Sign here
as name X--------------------------------------------------- (L.S.)
appears
above X--------------------------------------------------- (L.S.) Date --------------------------------, 1994
</TABLE>
Attorneys, executors, administrators, trustees and corporate officials should
indicate the capacity in which they are signing. Full shares held in the
Shareholder Dividend Reinvestment Plan are voted on this Proxy.
<PAGE> 19
POTOMAC ELECTRIC POWER COMPANY
1900 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20068
PEPCO ANNUAL MEETING OF SHAREHOLDERS - APRIL 27, 1994 PROXY
The undersigned hereby appoints EDWARD F. MITCHELL, H. LOWELL DAVIS and JOHN M.
DERRICK, JR., and each of them, proxies of the undersigned, with power of
substitution, to attend the above Annual Meeting to be held on Wednesday, April
27, 1994 at 10 a.m. at the Washington Convention Center, 900 Ninth Street,
N.W., Washington, D.C., and all adjournments thereof, and thereat to vote all
shares of Common Stock of the Company that the undersigned would be entitled to
vote if personally present on matters set forth in the Proxy Statement and upon
such other matters as may properly come before the meeting. UNLESS INDICATED TO
THE CONTRARY, THIS PROXY SHALL BE DEEMED TO GRANT AUTHORITY TO VOTE FOR ITEM 1
AND AGAINST ITEMS 2 AND 3.
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF POTOMAC ELECTRIC POWER COMPANY
CONTINUED ON REVERSE SIDE
