One Energy Plaza

Detroit, Michigan 48226-1279

 

2011 Notice of Annual Meeting of Shareholders and Proxy Statement

 

Date:		Thursday, May 5, 2011
Time:		10:00 a.m. Detroit time
Place:		DTE Energy Building (Town Square; see map on the last page) One Energy Plaza Detroit, Michigan 48226

 

We invite you to attend the annual meeting of DTE Energy Company (“DTE Energy,” “Company,” “we,” “us” or “our”) to:

 

 

The record date for this annual meeting is March 8, 2011. Only shareholders of record at the close of business on that date can vote at the meeting. For more information, please read the accompanying 2011 Proxy Statement.

 

This 2011 Notice of Annual Meeting, as well as the accompanying Proxy Statement and proxy card, will be first sent or given to our shareholders on or about March 21, 2011.

 

It is important that your shares be represented at the meeting. Shareholders may vote their shares (1) in person at the annual meeting, (2) by telephone, (3) via the Internet, or (4) by completing and mailing the enclosed proxy card in the return envelope. Specific instructions for voting by telephone or via the Internet are attached to the proxy card. If you attend the meeting and vote at it, your vote at the meeting will replace any earlier vote by telephone, Internet or proxy. If your shares are directly held in your name as a shareholder of record, an admission ticket to the meeting is attached to your proxy card. Please vote your proxy, and bring the admission ticket with you to the meeting. If your shares are registered in the name of a bank, brokerage firm, or other nominee and you plan to attend the meeting, bring your statement of account showing evidence of ownership as of the record date. All shareholders who plan to attend the meeting must present a government-issued photo identification card, such as your driver’s license, state identification card or passport.

 

 

March 21, 2011

 

Important Notice Regarding the Availability of Proxy Materials for the
Annual Shareholders Meeting to Be Held on May 5, 2011:

 

The Proxy Statement and Annual Report are available to security holders at
www.proxydocs.com/dte

 

TABLE OF CONTENTS

 

2011 PROXY STATEMENT OF DTE ENERGY COMPANY

 

 

 

 

At DTE Energy, we are committed to operating in an ethical, legal, environmentally sensitive and socially responsible manner, while creating long-term value for our shareholders. The foundation of our governance practices begins at the top, with the DTE Energy Board of Directors Mission Statement and Governance Guidelines (“Governance Guidelines”). The Governance Guidelines set forth the practices the Board follows with respect to Board composition and selection, Board meetings, the performance evaluation and succession planning for DTE Energy’s Chief Executive Officer (“CEO” or “Chief Executive Officer”), Board committees, Board compensation, and communicating with the Board, among other things. The Governance Guidelines are also intended to align the interests of directors and management with those of our shareholders. The following is a summary of the Governance Guidelines, along with other governance practices at DTE Energy.

 

Our Bylaws currently provide that the Board be divided into three classes, each class being as nearly equal in number as possible. At each annual shareholder meeting, the shareholders elect one class of directors for a three-year term, and elect any director who may be filling a vacancy in an unexpired term. However, our management has proposed and the Board of Directors has agreed that our Bylaws should be amended to declassify the Board of Directors. If this proposal passes, beginning with the 2012 annual meeting of shareholders, directors with expiring terms will be elected annually for terms of one year. For more details, see “Proposal No. 5 — Management Proposal — Amendment to the Bylaws to Declassify the Board of Directors” on page 35.

 

If a vacancy in the Board occurs between annual shareholder meetings, the vacancy may be filled by a majority vote of the directors then in office, and such person will be subject to election by the shareholders at the next annual shareholder meeting.

 

Under the Governance Guidelines, the Corporate Governance Committee periodically assesses the skills, characteristics and composition of the Board, along with the need for expertise and other relevant factors as it deems appropriate. In light of these assessments, and in light of the standards set forth in the Governance Guidelines, the Corporate Governance Committee may seek candidates with specific qualifications and candidates who satisfy other requirements set by the Board. We believe our Board should be comprised of directors who have had high-level executive experience, have been directors on other boards and have been tested through economic downturns and crises. Industry experience, regional relationships and broad diversity of experience and backgrounds are also factors in Board nominee selection. While we do not have a formal policy relative to diversity in identifying director nominees, we believe that it is desirable for Board members to possess diverse characteristics of gender, race, ethnicity, and age, and we consider such factors in Board evaluation and in the identification of candidates for Board membership. We believe this type of composition enables the Board to oversee the management of the business and affairs of the Company effectively. Information about the skills, experiences and qualifications of our directors is included in their biographies beginning on page 23.

 

The Corporate Governance Committee considers candidates who have been properly nominated by shareholders, as well as candidates who have been identified by Board members and Company personnel. In addition, the Corporate Governance Committee may use a search firm to assist in the search for candidates and nominees and to evaluate the nominees’ skills against the Board’s criteria. Based on its review of all candidates, the Corporate Governance Committee recommends a slate of director nominees for election at the annual meeting of shareholders. The slate of nominees may include both incumbent and new nominees.

 

Potential candidates are reviewed and evaluated by the Corporate Governance Committee, and certain candidates are interviewed by one or more Corporate Governance Committee members. An invitation to join the Board is extended by the Board itself, through the Chairman and the Chair of the Corporate Governance Committee.

The Corporate Governance Committee screened director candidates and recommended to the Board that David A. Brandon be elected as a director. Mr. Brandon had been recommended as a potential candidate by the Chief Executive Officer of the Company at the time, Mr. Earley, and other executive officers. At the Board’s June 24, 2010 meeting, Mr. Brandon was elected to fill a vacancy created by an increase in the size of the Board from 14 to 15 directors, to serve for a term expiring in 2011.

 

Composition of the Board and Director Independence

 

Our Governance Guidelines state that the exact size of the Board will be determined by the Board from time to time. Currently, our Governance Guidelines set the size of the Board at no less than 10 and no more than 18 directors.

 

Director Independence and Categorical Standards

 

As a matter of policy, in accordance with NYSE listing standards, we believe that the Board should consist of a majority of independent directors. The Board must affirmatively determine that a director has no material relationship with the Company, either directly or indirectly, or as a partner, shareholder or officer of an organization that has a relationship with the Company. The Board has established the following categorical standards for director independence, which are more stringent that the NYSE independence standards for former Company executives:

 

A director, for whom any of the following is true, will not be considered independent:

 

 

Contributions to a tax-exempt organization will not be considered to be a material relationship that would impair a director’s independence if a director serves as an executive officer of a tax-exempt organization and, within the preceding three years, contributions in any single fiscal year were less than $1 million or 2% (whichever is greater) of such tax-exempt organization’s consolidated gross revenues.

 

Applying these standards, the Board has affirmatively determined that a majority of our directors qualify as independent and have no material relationship with the Company. The independent directors are Lillian Bauder, David A. Brandon, W. Frank Fountain, Jr., Allan D. Gilmour, Frank M. Hennessey, Gail J. McGovern,

Eugene A. Miller, Mark A. Murray, Charles W. Pryor, Jr., General Josue Robles, Jr., Ruth G. Shaw and James H. Vandenberghe. Directors Anthony F. Earley, Jr., Gerard M. Anderson and John E. Lobbia are not independent directors and may be deemed to be affiliates of the Company under the categorical standards. Mr. Earley is not considered independent under the Company’s categorical standards due to his current employment as Chairman and prior employment as CEO of the Company; Mr. Anderson is not considered independent due to his current employment as President and Chief Executive Officer; and Mr. Lobbia is not considered independent due to his prior employment as Chairman and CEO of the Company and his son’s current employment at the Company.

 

The Board has standing committees for Audit, Corporate Governance, Finance, Nuclear Review, Organization and Compensation and Public Responsibility. The Board committees act in an advisory capacity to the full Board, except that the Organization and Compensation Committee has direct responsibility for the CEO’s goals, performance and compensation along with compensation of other executives, and the Audit Committee has direct responsibility for appointing, replacing, compensating and overseeing the independent registered public accounting firm. Each committee has adopted a charter that clearly establishes the committee’s respective roles and responsibilities. In addition, each committee has authority to retain independent outside professional advisors or experts as it deems advisable or necessary, including the sole authority to retain and terminate any such advisors, to carry out its duties. The Board has determined that each member of the Audit, Corporate Governance, and Organization and Compensation Committees is independent under our categorical standards and that each member is free of any relationship that would interfere with his or her individual exercise of independent judgment. The Board has also determined that each member of the Audit Committee meets the independence requirements under the SEC rules and NYSE listing standards applicable to Audit Committee members.

 

Our Bylaws currently provide that the Chairman may simultaneously serve as the CEO of the Company and shall preside at all meetings of the Board. In addition, the Board may elect an independent director as Presiding Director who would serve until the next annual meeting.

 

The Board believes it is in the best interests of the Company and shareholders for the Board to have flexibility in determining whether to separate or combine the roles of Chairman and Chief Executive Officer based on the Company’s circumstances. The Board has strong governance structures and processes in place to ensure the independence of the Board, eliminate conflicts of interest and prevent dominance of the Board by senior management. The Governance Guidelines and various committee charters provide for independent discussion among directors and for independent evaluation of, and communication with, many members of senior management.

 

Effective October 1, 2010, the Board decided to begin facilitating the transition of the Company’s leadership from Mr. Earley to Mr. Anderson and as a result, they voted to separate the roles of Chairman and Chief Executive Officer. In this arrangement, Mr. Earley remains an employee of the Company, advises Mr. Anderson on strategic planning activities and uses his expertise and experience to represent the Company in various policy and business forums. Mr. Anderson will be responsible for the management of the Company and will generally set the agenda for, and lead discussions of, strategic issues for the Company. The Board believes that both Mr. Earley and Mr. Anderson are extremely qualified through their experience and expertise to fill these roles. The Board believes that this separation of these functions facilitates long term leadership stability, will not affect risk oversight and is in the best interests of the Company and shareholders.

 

Even with the separation of the CEO and Chairman roles, the Board continues to believe a good governance practice is to elect a Presiding Director from the independent directors. The Presiding Director will have such responsibilities as required under the NYSE listing standards, as well as such other responsibilities as

determined by the Board. On February 3, 2011, the Board unanimously re-elected Mr. Miller as the Presiding Director. As Presiding Director, Mr. Miller’s duties include:

 

 

The Board met six times in 2010. A portion of each Board meeting was spent with the Chairman and no other management members. All of the incumbent directors attended at least 75% of the Board meetings and the meetings of the committees on which they served, 11 of whom had a 100% attendance record. The Board does not have a policy with regard to directors’ attendance at the annual meeting of shareholders. All directors then in office attended last year’s annual meeting.

 

The Board has not established term limits other than the current three-year terms of office (which will be reduced to one-year terms if Proposal 5 passes). However, the Corporate Governance Committee of the Board has established policies that independent directors should not stand for election after attaining the age of 75, unless the Board waives this provision when circumstances exist which make it prudent to continue the service of the particular independent director. Directors who are retired CEOs of the Company or its subsidiaries shall not stand for election after attaining the age of 70. Except for the CEO, who may continue to serve as a director after retirement for so long as he is serving as Chairman, current employees who are also directors will not stand for re-election after retiring from employment with the Company. Mr. Gilmour reached the mandatory retirement age in 2009 but consented to serve for one additional year in order to assist the Board with its transition plans for the Board’s Finance Committee. Mr. Gilmour was in a class of directors to be elected at the 2010 Annual Meeting of Shareholders and was elected to a one-year term expiring at the 2011 Annual Meeting of Shareholders.

 

It is the Board’s practice that the non-management directors meet in executive session at every regular Board meeting and meet in executive session at other times whenever they believe it would be appropriate. The non-management directors met in executive sessions (sessions without the Chairman, CEO or any representatives of management present) at all six Board meetings in 2010. At least once per year, the non-management

directors meet in executive session to review the Organization and Compensation Committee’s performance review of the CEO. The Presiding Director chairs the executive sessions of non-management directors.

 

The Board evaluates its performance annually. In addition, each Board committee performs an annual self-assessment to determine its effectiveness. Periodically, the Board performs a peer review of all directors who have served one year or more. The results of the Board and Committee self-assessments are discussed with the Board and each Committee, respectively. The results of the individual peer review are reviewed by the Chair of the Corporate Governance Committee and discussed with the Corporate Governance Committee. The Chair of the Corporate Governance Committee discusses the results of the peer review with individual directors, as directed by the Corporate Governance Committee.

 

The Company has established a Board compensation structure intended to provide compensation of approximately one-half cash and one-half equity. The Board has stock ownership guidelines that set specific Company stock ownership requirements based on the director’s years of service on the Board. (See “Director Stock Ownership” on page 17.)

 

The DTE Energy Board of Directors Code of Business Conduct and Ethics, the Officer Code of Business Conduct and Ethics and the DTE Energy Way are the standards of behavior for Company directors, officers, and employees. Any waiver of, or amendments to, the Board of Directors Code of Business Conduct and Ethics and the Officer Code of Business Conduct and Ethics as it pertains to the CEO, the Chief Financial Officer, senior financial officers and other Executive Officers, as defined in the “Security Ownership of Directors and Officers” section on page 19, will be disclosed promptly by posting such waivers or amendments on the Company website, www.dteenergy.com. There were no waivers or amendments during 2010.

 

The Company has established several methods for shareholders or other non-affiliated persons to communicate their concerns to the directors.

 

 

By telephone:		877-406-9448
Or
By Internet:		ethicsinaction.dteenergy.com
Or
By mail:		For auditing, accounting practices or internal control matters:
		DTE Energy Company
		Audit Committee
		One Energy Plaza
		Room 2441 WCB
		Detroit, Michigan 48226-1279
		For business ethics issues:
		DTE Energy Company
		Office of the Assistant to the Chairman
		One Energy Plaza
		Room 2343 WCB
		Detroit, Michigan 48226-1279

 

		Presiding Director
		c/o Corporate Secretary
		DTE Energy Company
		One Energy Plaza
		Room 2459 WCB
		Detroit, Michigan 48226-1279

 

Periodically, we revise our governance information in response to changing regulatory requirements and evolving corporate governance developments. Current copies of the Governance Guidelines, committee charters, categorical standards of director independence and the codes of ethics referred to above are available on our website at www.dteenergy.com, in the “Investors — Corporate Governance” section. You can also request a copy of any or all of these documents and a copy of the Company’s annual report on Form 10-K, free of charge, by mailing your request to the Corporate Secretary, DTE Energy Company, One Energy Plaza, Room 2459 WCB, Detroit, Michigan 48226-1279.

 

The information on the Company’s website is not, and shall not be deemed to be, a part of this Proxy Statement or incorporated into any other filings the Company makes with the SEC.

 

The table below reflects the membership and the number of meetings held by each Board Committee during 2010.

 

 

 

 

Following is a summary of the terms of each Committee’s charter and the responsibilities of its members:

 

Audit Committee

 

 

The Board has determined that each member of the Audit Committee is financially literate. The Board has reviewed the qualifications and experience of each of the Audit Committee members and determined that each member of the Audit Committee qualifies as an “audit committee financial expert” as that term has been defined by the SEC.

 

Corporate Governance Committee

 

Finance Committee

 

Nuclear Review Committee

 

Organization and Compensation Committee

 

Public Responsibility Committee

 

The Board receives, reviews and assesses reports from the Board Committees and from management relating to enterprise-level risks. Each Board Committee is responsible for overseeing and considering risk issues relating to their respective Committee and reporting their assessments to the full Board at each regularly scheduled Board meeting. When granting authority to management, approving strategies and receiving management reports, the Board and Committees consider, among other things, the risks we face. Each Committee reviews management’s assessment of risk for that Committee’s respective area of responsibility. The Audit Committee considers risk issues, policies and controls associated with our overall financial reporting and disclosure process and legal compliance, and reviews policies on risk control assessment and accounting risk exposure. In addition to its regularly scheduled meetings, the Audit Committee meets with the Chief Financial Officer, the General Auditor, the Chief Risk Officer and the independent registered public accounting firm in executive sessions at least quarterly, and meets in executive session with the General Counsel and the Chief Compliance Officer at least annually in separate executive sessions. The Finance Committee oversees financial, capital, credit and insurance risk. The Organization and Compensation Committee assesses and discusses with the Board the relationship between the inherent risks in executive compensation plans, executive compensation arrangements and executive performance goals and payouts, and how the level or risk

corresponds to the Company’s business strategies. The Corporate Governance Committee reports to the Board regarding those risks associated with the Company’s governance practices and the interaction of the Company’s governance with enterprise risk-level management. The Nuclear Review Committee reviews risk relating to the operation of our nuclear power facilities. The Public Responsibility Committee deals with matters of risk associated with social responsibility, reputation, safety and the environment. As part of its oversight function, the Board discusses any risk conflicts that may arise between the Committees or assigns to a Committee risk issues that may arise which do not fall within a specific Committee. All Board Committees meet periodically with members of senior management to discuss the relevant risks and challenges facing the Company.

 

The Company also utilizes an internal Risk Management Committee, chaired by the Chairman and comprised of the Chief Executive Officer, Chief Financial Officer, Chief Risk Officer, General Counsel, General Auditor and other senior officers, that, among other things, directs the development and maintenance of comprehensive risk management policies and procedures, and, among other things, sets, reviews and monitors risk limits on a regular basis for enterprise-level risks, counter-party credit and commodity-based exposures. The Company’s Chief Risk Officer attends all Audit Committee meetings and meets annually with the joint Audit Committee and Finance Committee to update the members on the Company’s enterprise-level risk management. The Chief Risk Officer also periodically meets with the other Board Committees and the full Board as may be required.

 

The Board believes that the committee structure of risk oversight is in the best interests of the Company and its shareholders. Each Committee member has expertise on risks relative to the nature of the Committee on which he/she sits. With each Committee reporting on risk issues at full Board meetings, the entire Board is in a position to assess the overall risk implications, how they may affect the Company and to provide oversight on appropriate actions for management to take.

 

With regard to risk and compensation programs and policies, the Company’s Energy Trading segment has compensation programs and policies that are structured differently than other units within the Company. These compensation programs and policies are designed to discourage excessive risk taking by the Energy Trading employees and are subject to specific written policies and procedures administered by members of the Company’s senior management. The Company has determined that the Energy Trading compensation programs and policies do not create risks that are reasonably likely to have a material adverse effect on the Company.

 

Elements of Director Compensation

 

Employee directors receive no payment for service as directors. The goal of our compensation policies for non-employee directors is to tie their compensation to your interests as shareholders. Accordingly, approximately 50% of a director’s annual compensation is in the form of equity-based compensation, including phantom shares of our common stock. Generally, the compensation program for non-employee directors is reviewed on an annual basis by the Corporate Governance Committee and the Board. This review includes a review of a comparative peer group of companies that is identical to the peer group used to review executive compensation (See “Executive Compensation — Compensation Discussion and Analysis” beginning on page 40). Based on the review completed in 2010, two changes were made to the non-employee director compensation program. In December 2010, the Board of Directors voted to increase the Presiding Director cash retainer from $15,000 to $20,000 annually, effective January 1, 2011. Further, effective January 1, 2011, the annual equity grant to non-employee directors, previously set at 2,000 phantom shares annually, was changed to be a variable number of phantom shares valued at $90,000 annually. For total compensation paid

to each director during 2010, see the “2010 Director Compensation Table” on page 66. The compensation program effective January 1, 2011 is described below.

 

 

 

Payment of Non-Employee Director Fees and Expenses

 

Retainers and all meeting fees for non-employee directors are either (i) payable in cash or (ii) at the election of the director, deferred into an account pursuant to the DTE Energy Company Plan for Deferring the Payment of Directors’ Fees. Non-employee directors may defer up to 100% of their annual retainer and meeting fees into an unfunded deferred compensation plan. Deferred fees may accrue for future payment, with interest accrued monthly at the 5-year U.S. Treasury Bond rate as of the last business day of each month or, at the election of the director, they may be invested in phantom shares of our common stock with all imputed dividends reinvested.

 

In addition to the retainers and fees, non-employee directors are reimbursed for their travel expenses incurred in attending Board and committee meetings, along with reimbursement for fees and expenses incurred when attending director education seminars or special meetings requested by management. Non-employee directors of the Company, along with salaried employees, are also eligible to participate in the DTE Energy matching gift program, whereby the Company matches certain charitable contributions.

 

Directors’ Retirement Plan

 

Benefits under the DTE Energy Company Retirement Plan for Non-Employee Directors were frozen as of December 31, 1998, and all non-employee directors were deemed vested on that date. No further benefits will accrue. Messrs. Gilmour and Miller and Dr. Bauder are the only current directors covered by this plan and, upon their retirement from the Board, they will each receive $3,415 per month for 45, 111, and 152 months, respectively.

 

Director Life Insurance

 

The Company provides each non-employee director with group term life insurance in the amount of $20,000 and travel accident insurance in the amount of $100,000.

Director Stock Ownership

 

We have established stock ownership guidelines for directors to more closely tie their interests to those of shareholders. Under these guidelines, the Board requires that each director own shares of the Company’s common stock beginning no later than 30 days after election to the Board. In addition, directors are required to own, within five years after initial election to the Board, shares of Company stock having a value equal to two times their annual cash and phantom stock compensation. Common stock, time-based restricted stock, and phantom shares held by a director are counted toward fulfillment of this ownership requirement. As of January 1, 2011, all directors met the initial common stock ownership requirement and those directors who have served as a director for at least five years after their initial election have fulfilled the five-year requirement.

 

 

Under our Bylaws, the officers of DTE Energy are elected annually by the Board of Directors, each to serve until his/her successor is elected and qualified, or until his/her resignation or removal. The executive officers of the Company elected by the Board for 2011 are as follows:

 

 

 

 

During 2010, the Organization and Compensation Committee consisted of Messrs. Gilmour, Hennessey and Miller and Dr. Shaw. No member of the Organization and Compensation Committee serves as an officer or employee of the Company or any of its subsidiaries nor has any member of the Organization and Compensation Committee formerly served as an officer of the Company or any of its subsidiaries. During 2010, none of the executive officers of the Company served on the board of directors or on the compensation committee of any other entity, any of whose executive officers served either on the Board or on the Organization and Compensation Committee of the Company.

 

Pursuant to Article VI of our Articles of Incorporation, to the fullest extent permitted by law, no director of the Company shall be personally liable to the Company or its shareholders in the performance of his/her duties.

 

Article VII of our Articles of Incorporation provides that each person who is or was or had agreed to become a director or officer, or each person is or was serving or who had agreed to serve at the request of the Board of Directors as an employee or agent of the Company, or as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including heirs, executors, administrators or estate of such person), shall be indemnified by the Company to the fullest extent permitted by law. We have entered into indemnification agreements with each of our directors and executive officers. These agreements require the Company to indemnify such individuals for certain liabilities to which they may become subject as a result of their affiliation with the Company.

 

The Company, the directors and officers in their capacities as such are insured against liability for alleged wrongful acts (to the extent defined) under eight insurance policies providing aggregate coverage in the amount of $185 million.

 

The following table sets forth information as of January 3, 2011, with respect to beneficial ownership of common stock, phantom stock, performance shares, and options exercisable within 60 days for (i) each of our directors and nominees for director, (ii) our Chairman (who served as Chief Executive Officer until October 1, 2010), Chief Executive Officer, Chief Financial Officer and the three other highest paid executive officers (together, the “Named Executive Officers”), and (iii) all executive officers and directors as a group. Executive officers for this purpose are those individuals defined as Executive Officers under Rule 16a-1(f) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Unless otherwise indicated, each of the named individuals has sole voting and/or investment power over the shares identified. To our knowledge, no member of our management team or director was a beneficial owner of one percent or more of the outstanding shares of common stock as of January 3, 2011.

 

Amount and Nature of Beneficial Ownership as of January 3, 2011

 

 

 

 

Section 16(a) of the Exchange Act requires our directors, executive officers and 10% shareholders (if any) to file reports of ownership and changes in ownership with respect to our securities with the SEC and to furnish copies of these reports to us. We reviewed the filed reports and written representations from our directors and executive officers (to our knowledge, we do not have any 10% shareholders) regarding the necessity of filing reports. Based on our review, three executive officers had Section 16(a) filings during 2010 that were not filed on a timely basis:

 

 

The following table sets forth information regarding the only persons or groups known to the Company to be beneficial owners of more than 5% of our outstanding common stock.

 

 

 

 

Related-person transactions have the potential to create actual or perceived conflicts of interest. The Company has policies in place to address related-party transactions. In addition, our Corporate Governance Committee and Audit Committee review potential dealings or transactions with related parties. In conducting such reviews, the Committees consider various factors they deem appropriate, which may include (i) the identity of the related party and his or her relationship to the Company, (ii) the nature and size of the transaction, including whether it involved the provision of goods or services to the Company that are unavailable from unrelated third parties and whether the transaction is on terms that are comparable to the terms available from unrelated third parties, (iii) the nature and size of the related party’s interest in the transaction, (iv) the benefits to the Company of the transaction and (v) whether the transaction could involve an apparent or actual conflict of interest with the Company.

 

In general, employees and directors may not be involved in a business transaction where there is a conflict of interest with the Company. The DTE Energy Way requires non-officer employees to report conflicts of interest or potential conflicts of interest to their respective superiors; the Officer Code of Conduct and Ethics requires officers to report conflicts of interest or potential conflicts of interest to the Company’s General Counsel or to the Company’s Board of Directors; and the Board of Directors Code of Business Conduct and Ethics requires directors to disclose conflicts of interest or potential conflicts of interest to the Company’s Corporate Governance Committee or the Chairman of the Board. For directors and officers, any waivers of the Company’s conflict of interest policy must be approved by the Board or a Board committee, as required under the Officer Code of Conduct and Ethics or Board of Directors Code of Business Conduct and Ethics, disclosed to shareholders and posted to our website at http://www.dteenergy.com/dteEnergyCompany/investors/corporateGovernance/ethics/code.html.

 

Mr. Hennessey was a director of MCN at the time of the DTE Energy/MCN merger in 2001. The shares he owned under the MCN Energy Group Inc. Nonemployee Directors’ Compensation Plan were converted to cash at the time of the merger and placed in a cash balance account for him in the DTE Energy Company Plan for Deferring the Payment of Directors’ Fees. The cash balance account is managed by the Company, with interest accumulating at a 10-year Treasury rate, with a 10-year payout beginning in 2001. During 2010, Mr. Hennessey received $74,370 pursuant to this agreement.

 

Mr. Lobbia’s son, John R. Lobbia, has been employed by the Company since 2008 as a marketing program manger and in that capacity he received salary and other benefits totaling $123,175 during fiscal year 2010. The son’s compensation was comparable to compensation of other Company employees at a similar level.

 

Our current Bylaws require that the Board be divided into three classes. At each annual shareholder meeting, the shareholders elect one class of directors for a three-year term and elect directors who may be filling a vacancy in an unexpired term, if any. Because the Board decided to increase the size of the Board in 2010 and appointed Mr. Brandon to fill the vacancy created by that increase, at this year’s shareholder meeting, one director is being elected to serve for a two-year term expiring in 2013 in order to balance the sizes of the classes of directors. Mr. Brandon is the nominee for this position and has consented to serve the full two-year term if elected. All of the other nominees have consented to serve the full three-year term if elected. However, our management has proposed and the Board of Directors have agreed that our Bylaws should be amended to declassify the Board of Directors. If this proposal passes, beginning with the 2012 annual meeting of shareholders, directors with expiring terms will be elected annually for terms of one year. For more details, see “Proposal No. 5 — Management Proposal — Amendment to the Bylaws to Declassify the Board of Directors” on page 35.

 

Proxies cannot be voted for more than five persons for terms expiring in 2014 and one person for a term expiring in 2013. If any nominee becomes unable or unwilling to serve at the time of the meeting, the persons named in the enclosed proxy card have discretionary authority to vote for a substitute nominee or nominees. It is anticipated that all nominees will be available for election.

 

The biographies of each of the nominees and continuing directors below contain information regarding the person’s service as a director, business experience, and director positions held currently or at any time during at least the last five years. The dates shown for service as a director of DTE Energy include service as a director of Detroit Edison, our former corporate parent and, as a result of a share exchange in 1996, now our wholly-owned subsidiary. The age provided for each director is as of March 21, 2011. In addition to the information presented below regarding each person’s experience, qualifications, attributes, and skills that caused our Corporate Governance Committee and Board to determine that the person should serve as a director, the Board believes that all of the Company’s directors have a reputation for integrity and honesty and adherence to high ethical standards. They each have demonstrated business acumen, strategic insight, an ability to exercise sound judgment, and a commitment to service and community involvement. Finally, we value their significant experience on other public company boards of directors and board committees and the diversity that they bring to our Board.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE NOMINEES FOR ELECTION AT THIS MEETING.

 

 

 

 

 

Subject to ratification by the shareholders, the Audit Committee has appointed PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm to audit our consolidated financial statements for the fiscal year ending December 31, 2011 and to perform other audit-related services. Following the Audit Committee’s appointment, the Board voted unanimously to recommend that our shareholders vote to ratify the Audit Committee’s selection of PwC as our independent auditors for 2011.

 

The reports of PwC on the consolidated financial statements of DTE Energy for the year ended December 31, 2010 and for the year ended December 31, 2009 did not contain adverse opinions or a disclaimer of opinions and were not qualified or modified as to uncertainty, audit scope or accounting principles.

 

During the Company’s two most recent fiscal years, ended December 31, 2010 and 2009, and from January 1, 2011 through February 18, 2011, there were no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to PwC’s satisfaction, would have caused PwC to make reference to the subject matter of such disagreements in connection with its reports on the Company’s consolidated financial statements for such years.

 

During the Company’s two most recent fiscal years, ended December 31, 2010 and 2009, and from January 1, 2011 through February 18, 2011, there were no “reportable events” as defined under Item 304(a)(1)(v) of Regulation S-K.

 

Representatives of PwC will be present at the annual meeting and will be afforded an opportunity to make a statement, if they desire, and to respond to appropriate questions from shareholders.

 

The following table presents fees for professional services rendered by PwC for the audit of the Company’s annual financial statements for the years ended December 31, 2010 and December 31, 2009, and fees billed for other services rendered by PwC during those periods.

 

 

 

 

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Registered Public Accounting Firm

 

Consistent with SEC policies regarding the independence of the registered public accounting firm, the Audit Committee is responsible for appointing, approving professional service fees of, and overseeing the work of the independent registered public accounting firm. The Audit Committee has established a policy regarding pre-approval of all audit and permissible non-audit services provided by the independent registered public accounting firm.

 

Prior to engaging the independent registered public accounting firm to perform specific services, the Audit Committee pre-approves these services by category of service. The Audit Committee may delegate to the Chair of the Audit Committee, or to one or more other designated members of the Audit Committee, the authority to grant pre-approvals of all permitted services or classes of these permitted services to be provided by the independent registered public accounting firm up to, but not exceeding, a pre-defined limit. The decisions of the designated member to pre-approve a permitted service are reported to the Audit Committee at each scheduled meeting. At least quarterly, the Audit Committee reviews:

 

 

All audit, audit-related, tax and other services performed by PwC were pre-approved by the Audit Committee in accordance with the regulations of the SEC. The Audit Committee considered and determined that the provision of the non-audit services by PwC during 2010 was compatible with maintaining independence of the registered public accounting firm.

 

The purpose of the Audit Committee is to assist the Board’s oversight of the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the Company’s independent registered public accounting firm’s qualifications and independence and the performance of the Company’s internal audit function. All members of the Audit Committee meet the criteria for independence as defined in our categorical standards and the audit committee independence requirements under the SEC rules. The Audit Committee Charter also complies with requirements of the NYSE.

 

Management is responsible for the financial reporting process, including the system of internal controls, and for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Management is also responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. The independent registered public accounting firm is responsible for auditing these financial statements and expressing an opinion as to their conformity with GAAP. The independent registered public accounting firm is also responsible for expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. The Audit Committee’s responsibility is to monitor and review these processes, acting in an oversight capacity, and the Audit Committee does not certify the financial statements or internal control over financial reporting or guarantee the independent registered public accounting firm’s reports. The Audit Committee relies, without independent verification, on the information provided to it including representations made by management and the reports of the independent registered public accounting firm.

 

The Audit Committee discussed with PwC the matters required to be discussed by audit standards, SEC regulations and NYSE requirements. Disclosures were received from PwC regarding its independence as required by applicable requirements of the Public Company Accounting Oversight Board and discussed with

them. The Audit Committee has considered whether the services provided by PwC other than those services relating to audit services are compatible with maintaining PwC’s independence. The Audit Committee has concluded that such services have not impaired PwC’s independence. The Audit Committee reviewed and discussed the audited financial statements for the year ended December 31, 2010 with management and PwC. Based on the review and discussions noted above, the Audit Committee recommended to the Board that the audited financial statements be included in the Company’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2010. The Audit Committee reviewed and discussed Management’s Report on Internal Control over Financial Reporting as of December 31, 2010 with management and PwC. Based on the review and discussions noted above, the Audit Committee recommended to the Board that Management’s Report on Internal Control over Financial Reporting as of December 31, 2010 be included in the Company’s Annual Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2010.

 

Audit Committee

 

Frank M. Hennessey, Chair

W. Frank Fountain, Jr.

Josue Robles, Jr.

James H. Vandenberghe

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE PROPOSAL TO RATIFY THE APPOINTMENT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) requires the Company to provide shareholders with an opportunity to vote to approve, on an advisory basis, the compensation of our Named Executive Officers as described in the “Compensation Discussion and Analysis” (CD&A) section of this proxy statement and in the tabular and narrative disclosure regarding Named Executive Officer compensation, all contained under the heading “Executive Compensation” in this proxy statement.

 

The Company’s executive compensation program is designed to include elements of cash and equity-based compensation to motivate and reward executives who achieve short-term and long-term corporate and financial objectives leading to the success of the Company. We emphasize performance-based compensation for results that are consistent with shareholder interests. The program is also designed to attract and retain talented executives and align the interests of our executives with those of our shareholders.

 

Shareholders have in the past approved the incentive plans that we use to motivate and reward our executives, including the Annual Incentive Plan and the Long-Term Incentive Plans. At the Company’s 2010 annual meeting, shareholders overwhelmingly approved our Amended and Restated 2006 Long-Term Incentive Plan. In addition, the Company has enhanced our disclosures related to executive compensation to provide more detail to our shareholders about our compensation programs, including expanded disclosures relating to these plans in this proxy statement.

 

Our executive compensation programs have been important in driving the Company’s success in achieving its corporate and financial objectives by tying executive compensation to achieving those very specific goals. We explain each of our performance targets and measures in detail in our CD&A, but a few examples of Company success in areas related to our targets and measures include the following. First, our Company has exceeded its long-term goal of achieving between 5%-6% operating earnings per share growth, averaging 8.5% annual growth from 2007 through 2010. (Operating earnings exclude certain non-recurring items and discontinued operations.) Further, the Company also weathered the economic downtown of 2008-2009 with a strong cash flow position and balance sheet. The MPSC Complaints measurements at our utilities continue to trend downward. Additionally, in each of 2008, 2009 and 2010 the Company set a new DTE Energy record high result on the Gallup survey which tracks effectiveness of our efforts to improve employee engagement throughout the Company. Each of these accomplishments is related to a specific performance goal in our short- or long-term compensation programs.

 

The Organization and Compensation Committee employs the highest standards of corporate governance when implementing and reviewing our executive compensation programs. The Committee ensures independence of committee members and compensation consultants, avoids conflicts of interest and has enhanced shareholder disclosure in accordance with SEC and NYSE requirements. These programs have helped guide the Company through the economic downturn and position the Company for future growth and success in meeting corporate and financial objectives.

 

For the reasons discussed above, the Board of Directors recommends that shareholders vote in favor of the following resolution:

 

“RESOLVED, that the shareholders approve, on an advisory basis, the overall executive compensation paid to the Named Executive Officers of the Company, as described in the Compensation Discussion and Analysis and the tabular and narrative disclosure regarding Named Executive Officer compensation contained in this proxy statement.”

 

Because this vote is advisory, it will not be binding upon the Company or the Board. The Organization and Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THIS PROPOSAL.

 

The Dodd-Frank Act also requires the Company to provide shareholders with an opportunity to vote to advise the Board of Directors as to how often you wish the Company to include an advisory vote on executive compensation, similar to Proposal No. 3, in our proxy statement.

 

The Board of Directors recommends that you vote to hold an advisory vote on executive compensation every three years. Because our compensation programs are designed to balance long-term and short-term incentives for executives, we feel that the compensation programs are best evaluated on a longer-term basis, to allow the shareholders to evaluate the effectiveness of the program over time. For example, share grants under our Long-Term Incentive Plan are determined based on measurements made over a three-year period. Accordingly, an advisory vote every three years will allow shareholders to review a full three years of performance and compensation data between each advisory vote.

 

Additionally, there already exist other more direct means for shareholders to express their specific concerns about executive pay to the Company and to the Board of Directors. We welcome and are open to feedback from shareholders on this or other topics at any time. Shareholders can send letters to the Board of Directors by addressing them to the Corporate Secretary’s office, can speak out at annual meetings and can contact members of the Company’s Investor Relations department at any time.

 

Allowing a three-year period between advisory votes will also allow time for the Organization & Compensation Committee, management and our compensation consultants to review the results of any advisory vote and make appropriate changes, if necessary, to our executive compensation programs and then evaluate those changes after providing time for the changes to fully take effect. The Board of Directors believes that anything less than a triennial vote will result in a short-term perspective towards executive compensation programs and detract from the effectiveness of those programs.

 

For these reasons, the Board of Directors recommends that you vote for the “Three years” option on the following proposal:

 

“RESOLVED, that the shareholders advise the Company to include an advisory vote on the compensation of the Company’s Named Executive Officers every:

 

 

Because this vote is advisory, it will not be binding upon the Company or the Board. Notwithstanding the advisory nature of the vote, the Board of Directors intends to adopt the shareholder-advised frequency for future advisory votes on executive compensation.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR “THREE YEARS” ON THIS PROPOSAL.

 

The Board is seeking shareholder approval of an amendment to the Company’s Amended Bylaws (“Bylaws”) that will declassify the Board for the purpose of director elections.

 

At the May 6, 2010 annual meeting, shareholders approved a shareholder proposal urging the Board of Directors to take the steps necessary to declassify the Board for the purpose of director elections. The proposal also called for this to be accomplished in a manner that does not affect the unexpired terms of directors previously elected.

 

The Board had recommended against that shareholder proposal at that time because it felt that the classified board structure promoted continuity and stability to the Board, facilitated independence of the directors from management, and improved the Board’s negotiating position when confronted with an unsolicited suitor. However, as evidenced by the votes in favor of the 2010 shareholder proposal, an increasing number of investors have come to believe that classified boards reduce accountability of directors because they limit the ability of shareholders to evaluate and elect all directors annually.

 

In making its recommendation, the Board considered the advantages of both classified and declassified board structures. The Board determined that the advantages of a classified board were outweighed by the advantages of the shareholders’ ability to evaluate all directors annually and the adoption of a structure that is currently considered by many to be a “best practice” in corporate governance. Consequently, the Board concluded that an amendment to our bylaws to provide for the annual election of all directors is in the best interests of the Company and its shareholders.

 

If this proposal to declassify the Board is approved by the shareholders at this annual meeting, the declassified Board structure will be phased in as follows:

 

 

The Board recommends that you vote in favor of the following proposal:

 

“RESOLVED, that the Bylaws of the Company shall be amended by deleting the first paragraph of Article II, Section 1 of the Bylaws and replacing it with the following:

 

“Section 1.  Number and Time of Holding Office.  The business and affairs of the Company shall be managed by or under the direction of a Board of Directors. The number of directors constituting the entire Board of Directors shall be determined from time to time by resolution of the Board of Directors; provided that no change in the number of directors shall serve to shorten the term of office of any incumbent director. Commencing with the 2012 annual meeting of shareholders and for each annual meeting of shareholders thereafter, directors whose terms are expiring at an annual meeting of shareholders shall be elected for terms of one year; for the avoidance of doubt, each director whose term of office for which he or she was elected has not expired as of the 2012 annual meeting of shareholders shall continue to hold office until such time as his or her term has expired. If at any time the holders of any series of the Company’s Preferred Stock are entitled to elect directors pursuant to the Articles of Incorporation of the Company, then the provisions of such series of Preferred Stock with respect to their rights shall apply and such directors shall be elected in a manner and for terms expiring consistent with the Articles of Incorporation.

 

Each director shall serve for the term to which the director was elected, and until a successor shall have been elected and qualified or until the director’s prior death, resignation, or removal. Except for the Chief Executive Officer of the Company, no person who has served as an employee of the Company or a subsidiary shall be elected a director after retiring from employment with the Company or a subsidiary.”

RESOLVED FURTHER, that the Bylaws of the Company shall be amended by deleting Article IX of the Bylaws and replacing it with the following:

 

“ARTICLE IX.
Amendment of Bylaws

 

The Bylaws of the Company may be amended, repealed or adopted by vote of the holders of a majority of shares at the time entitled to vote in the election of any directors or by vote of a majority of the directors in office.” ”

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THIS PROPOSAL.

 

The Company expects the following shareholder proposal to be presented for consideration at the annual meeting by the Office of the Comptroller of New York City, as the custodian and trustee of the New York City Employees’ Retirement System, the New York City Teachers’ Retirement System, the New York City Fire Department Pension Fund and the New York City Police Pension Fund, and custodian of the New York City Board of Education Retirement System (collectively, the “New York City Funds”), which beneficially owned an aggregate of 528,201 shares of the Company’s common stock as of November 16, 2010. The proposal, along with the supporting statement, is included below. The New York City Funds’ request was submitted by John C. Liu, Comptroller, City of New York, 1 Centre Street, New York, New York 10007-2341 on behalf of the Boards of Trustees of the New York City Funds.

 

The following proposal and supporting statement were submitted by the New York City Funds:

 

Shareholder Proposal and Supporting Statement

 

Proposal

 

Resolved, that the shareholders of DTE Energy hereby request that the Company provide a report, updated semi-annually, disclosing the Company’s:

 

 

 

The report shall be presented to the board of directors’ audit committee or other relevant oversight committee and posted on the Company’s website.

 

Stockholder Supporting Statement

 

As long-term shareholders of DTE Energy, we support transparency and accountability in corporate spending on political activities. These include any activities considered intervention in any political campaign under the Internal Revenue Code, such as direct and indirect political contributions to candidates, political parties, or political organizations; independent expenditures; or electioneering communications on behalf of federal, state or local candidates.

 

Disclosure is consistent with public policy, in the best interest of the company and its shareholders, and critical for compliance with federal ethics laws. Moreover, the Supreme Court’s Citizens United decision recognized the importance of political spending disclosure for shareholders when it said “[D]isclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages.” Gaps in transparency and accountability may expose the company to reputational and business risks that could threaten long-term shareholder value.

DTE Energy contributed at least $1.6 million in corporate funds since the 2002 election cycle. (CQ:http://moneyline.cq.com/pml/home.do and National Institute on Money in State Politics: http://www.followthemoney.org/index.phtml.)

 

However, relying on publicly available data does not provide a complete picture of the Company’s political expenditures. For example, the Company’s payments to trade associations used for political activities are undisclosed and unknown. In many cases, even management does not know how trade associations use their company’s money politically. The proposal asks the Company to disclose all of its political spending, including payments to trade associations and other tax-exempt organizations for political purposes. This would bring our Company in line with a growing number of leading companies, including Aetna, American Electric Power and Microsoft that support political disclosure and accountability and present this information on their websites.

 

The Company’s Board and its shareholders need complete disclosure to be able to fully evaluate the political use of corporate assets. Thus, we urge your support of this critical governance reform.

 

Board of Directors Response

 

THE BOARD OF DIRECTORS OPPOSES THIS SHAREHOLDER PROPOSAL AND RECOMMENDS A VOTE AGAINST IT FOR THE REASONS SET FORTH BELOW:

 

DTE Energy has a long tradition as a responsible corporate citizen and is committed to complying with the law regarding political contributions and expenditures. The Board believes the Company has a responsibility to shareholders to be engaged and to participate in the political process with respect to issues that affect the Company or are significant to our business. The Board also believes that it is in the best interests of our shareholders to support the legislative process by making corporate political contributions to organizations when such contributions are consistent with the Company’s business objectives and are permitted by federal, state and local laws.

 

This shareholder previously submitted substantially the same proposal in connection with our 2008, 2009 and 2010 Annual Meetings of Shareholders, and the Board opposed the proposal on all three occasions. The Company expanded its political contribution information and disclosures on our website prior to the 2008 Annual Meeting of Shareholders. At the 2008 Annual Meeting of Shareholders, the proposal was defeated by a vote of 58,491,668 “Against,” 24,705,127 “For” and 14,316,494 “Abstain.” At the 2009 Annual Meeting of Shareholders, the proposal was defeated by a vote of 58,316,502 “Against,” 26,667,835 “For,” and 13,636,524 “Abstain.” At the 2010 Annual Meeting of Shareholders, the proposal was defeated by a vote of 57,891,538 “Against,” 26,767,566 “For,” and 19,458,783 “Abstain.” The Board continues to believe that adoption of this resolution is unnecessary. Information about, and links to, publicly available information concerning political contributions are available on our website at http://www.dteenergy.com/dteEnergyCompany/investors/corporateGovernance/political.html and available through various political contribution disclosure laws.

 

In addition, the Company has adopted a formal policy on corporate political participation that applies to all employees of the Company and its subsidiaries and is incorporated in our daily business practices. A copy of this policy is available on our website at http://www.dteenergy.com/pdfs/politicalParticipation.pdf. Among other things, the policy provides as follows:

 

A. Corporate Contributions — Our policy mandates that corporate contributions to political organizations be made only as permitted by applicable laws and authorized by our Vice President — Corporate & Government Affairs. Disclosure of the aggregate amount of these contributions will be annually posted on our website.

 

B. Political Action Committee Contributions — Political contributions to federal, state and local candidates, political party committees, and political action committees are made by the DTE Energy Political Action Committee (“PAC”), which is funded by voluntary contributions from eligible DTE Energy employees. The PAC’s activities are guided by a steering committee comprised of PAC members elected by all PAC members and are subject to comprehensive regulation, including detailed disclosure

requirements. PAC contributions are reported to the Federal Election Commission and the Michigan Secretary of State’s Bureau of Elections. Links to these organizations are available on our website.

 

C. Trade Associations — DTE Energy belongs to a number of trade associations that participate in the political process. DTE Energy’s sole purpose in becoming a member of these trade associations is not for political purposes, as DTE Energy may not agree with all positions taken by trade associations on issues. The benefits that DTE Energy does receive from trade associations are primarily expertise and the ability to gain insight on industry setting standards. Our policy on political participation provides that DTE Energy will request that trade associations to which our dues or other payments are significant provide a breakdown of the portion of our dues or payments that were used for political contributions. This information is included in the annual Board report of PAC and political activities.

 

D. Board Oversight — The Company’s political activities are reviewed annually by the Public Responsibility Committee of the DTE Energy Board of Directors. We believe this oversight process ensures accountability and transparency for the Company’s corporate political activities.

 

Given the Company’s policy on corporate political participation discussed above and the mandatory public disclosure requirements already required under the law, the Board has again concluded that the Company’s policy and disclosures exceed what is required by the law. This, coupled with ample public information regarding DTE Energy’s political participation, appropriately addresses the concerns cited in the New York City Funds’ proposal.

 

While the Company supports many of the objectives expressed in the shareholder proposal, the Company believes that the level of specific disclosure requested by the proposal could have unintended consequences and could hinder DTE Energy’s ability to pursue its business and strategic objectives. For example, disclosing specific contributions made to political parties, committees and other organizations could lead to increased requests for contributions from the Company from other such organizations with similar or opposing views. Additionally, such disclosure would make it easier for competitors and opponents to discern the Company’s public policy and political strategies which could have negative consequences for the Company.

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “AGAINST” THE SHAREHOLDER PROPOSAL RELATING TO POLITICAL CONTRIBUTIONS.

 

Our management does not intend to bring any other business before the meeting for action and has not been notified of any other business proposed to be brought before the meeting. However, if any other business should be properly presented for action, it is the intention of the persons named on the enclosed proxy card to vote in accordance with their judgment on such business.

 

Executive Summary

 

The following provides an executive summary of our compensation philosophy and programs as described in greater detail below in this Compensation Discussion and Analysis.

 

 

Overview

 

Your understanding of our executive compensation program is important to us. The goal of this Compensation Discussion and Analysis is to explain:

 

 

 

Throughout this Proxy Statement, the term “Named Executive Officers” means: (1) the Executive Chairman, Anthony F. Earley, Jr.; (2) the President and Chief Executive Officer, Gerard M. Anderson; (3) the Executive Vice President and Chief Financial Officer, David E. Meador; (4) the Group President of our Company and the President and Chief Operating Officer of our electric utility subsidiary, The Detroit Edison Company (“Detroit Edison”), Steven E. Kurmas; (5) the Group President of our Company and the President and Chief Operating Officer of our gas utility subsidiary, Michigan Consolidated Gas Company (“MichCon”), Gerardo Norcia; and (6) the Senior Vice President and General Counsel, Bruce D. Peterson. In addition, the term “executive” includes the Named Executive Officers and individuals who are at or above the level of corporate vice president (or equivalent), the General Auditor, and other individuals whose base annual salary is at or above $225,000, and includes Executive Officers as defined by the Exchange Act.

 

Philosophy and Objectives

 

Our executive compensation philosophy is to motivate and reward executives who achieve short-term and long-term corporate and financial objectives leading to the success of the Company. We will continue to emphasize performance-based compensation for results that are consistent with shareholder interests. The main objectives underlying this philosophy are:

 

 

Role of the Organization and Compensation Committee

 

The Board has a long-standing process for determining executive compensation that is performance-based, objective, and transparent. The process is designed to serve the purpose of recruiting, retaining and motivating executives for the benefit of shareholders. The Board-designed governance process expressly delegates to the O&C Committee the responsibility to determine and approve the CEO’s compensation, as well as the compensation of certain other executives. The O&C Committee makes all decisions regarding compensation for the Named Executive Officers. Although the responsibilities have been delegated, the entire Board maintains oversight and receives direct reports after each O&C Committee meeting.

 

The O&C Committee is composed entirely of independent directors, none of whom derives a personal benefit from the compensation decisions the O&C Committee makes. Generally, the O&C Committee is responsible for our executive compensation programs throughout the enterprise (including subsidiaries). The O&C Committee responsibilities for executive compensation are more fully detailed in its charter, which is available at http://www.dteenergy.com/dteEnergyCompany/investors/corporateGovernance/charters/organization.html. The O&C Committee continually monitors the executive compensation program and adopts changes to reflect the dynamic marketplace in which we compete for talent. To the extent necessary, the O&C Committee also works with other Board Committees to review or approve reports, awards and other matters relating to compensation. For example, the Finance Committee reviews the financial components of performance measures and metrics, the Corporate Governance Committee assists in the review of this Compensation Discussion and Analysis and the Audit Committee reviews the internal controls over the data reported herein.

 

The O&C Committee uses information from several external sources to monitor and achieve an executive compensation program that supports our business goals and attracts executives whose performance will be measured against those goals. Independent outside consultants and external information enable the O&C Committee to maintain impartial decision-making regarding performance and pay. The O&C Committee annually reviews each component of the Named Executive Officers’ compensation and is advised directly by

the outside compensation consulting firm, discussed in further detail below, in connection with such review. The O&C Committee, based on input from its consultant and management and a review of competitive data from peer group companies (as discussed below), believes that the current structure is appropriately balanced and competitive to accomplish the important tasks of recruiting, retaining, and motivating talented executives in the energy industry in which we compete.

 

Independent Review of Compensation Program — The O&C Committee employs an outside consulting firm, Mercer Human Resources Consulting LLC (“Mercer HR”), a subsidiary of Marsh & McClennan Companies, Inc. (“Marsh”), to advise the O&C Committee on various executive compensation matters, including current compensation trends. Mercer HR also provides objective recommendations as to the design of our executive compensation program. Mercer HR reports directly to the O&C Committee. Use of this outside consultant is an important component of the compensation setting process, as it enables the O&C Committee to make informed decisions based on market data and practices. The representative from Mercer HR, who is considered a leading professional in the compensation field, attends O&C Committee meetings, meets with Committee members in executive session and consults with the members as required and provides input with regard to the Executive Chairman and CEO’s compensation and performance.

 

Mercer HR has served as the O&C Committee’s outside consultant since 2002 and is considered to be an independent consultant. Mercer HR has no affiliations with any of the Named Executive Officers or members of the Board other than in its role as an outside consultant. The lead consultant and partner in charge of Mercer HR, who provides executive compensation consulting services to the O&C Committee, does not provide any other services to the Company. To help ensure that the consultant maintains the highest level of independence from the Company, all work performed by Mercer HR and its affiliates (a) which falls outside the scope of work performed for the O&C Committee on executive compensation matters, and (b) which has a total cost of $25,000 or greater, requires pre-approval by the O&C Committee based upon the recommendation of management.

 

In 2010, we paid Mercer HR approximately $90,000 of which $4,915 related to services provided in 2009.

 

Management’s Role

 

Our management works closely with the O&C Committee in the executive compensation process. Excluding the CEO’s compensation, management’s responsibilities include:

 

 

The CEO’s compensation is determined solely by the O&C Committee, which bases its decisions on performance and market studies along with participation and recommendations from its independent outside consultant.

 

Compensation and Peer Group Assessment — Each component of executive compensation (see “Key Components of Executive Compensation” below) is compared, measured and evaluated against a peer group of companies. The O&C Committee approves the peer group and periodically reviews and updates the companies included in that group. Management also retains an external consulting firm to conduct a market study generally every two years covering compensation practices for similar positions in the peer group. The most recent study was completed in September 2010 by Hewitt Associates (“Hewitt”). Hewitt’s comprehensive data base included most of our desired utility/energy peer companies and also included data for most of our utility/energy-related executive positions.

 

The peer group for the 2010 study, as approved by the O&C Committee, consisted of the following companies. Most of these companies, along with DTE Energy, participate in the same independent compensation surveys.

The surveys provide us with availability of data needed for accurate compensation comparisons. The peer group consists primarily of utilities (including utility holding companies), broad-based energy companies, and significant non-energy companies selected on the basis of revenues, financial strength, geographic location and availability of compensation information. The O&C Committee reviews the peer group data for the Named Executive Officers and the Company’s mix of compensation components in making compensation decisions.

 

 

 

 

Key Components of Executive Compensation

 

The key components of the compensation program include the following:

 

 

While the programs and pay levels reflect differences in job responsibilities, the structure of the compensation and benefits program is applied consistently to our Named Executive Officers, including the CEO. Differences in compensation between the CEO and the other Named Executive Officers are due, in part, to an analysis of peer group benchmark data, as well as differences in the responsibilities of each Named Executive Officer. We review each element of total compensation, both individually and on a combined basis, for each Named

Executive Officer and make adjustments as appropriate based on these comparisons. The following is a more detailed discussion of the components of the Company’s executive compensation program:

 

Base Salary

 

The objective of base salary is to provide a stable, fixed source of income that reflects an executive’s job responsibilities, experience, value to the Company, and demonstrated performance. When setting individual base salary levels, we consider several factors, including (i) the market reference point for the executive’s position, (ii) the responsibilities of the executive’s position, (iii) the experience and performance of the individual, and (iv) retention issues. Market reference points target the median for most positions, adjusted to take into account differences in company size within the peer group. In addition, we establish midpoints for each executive group level for determining base salary for those executives whose jobs cannot be easily matched in the marketplace. These midpoints are consistent with the market reference points for other executives in the same executive group. Annually, we review these midpoints to ensure they are consistent with the market and make salary adjustments, when appropriate.

 

Annual and Long-Term Incentive Plans

 

We have two primary incentive plans that reward executives for performance. The plans are consistent with our objectives of tying compensation to performance and encouraging executives to align their interests with those of the shareholders of the Company. The DTE Energy Company Annual Incentive Plan (the “Annual Incentive Plan”) allows us to reward executives with annual cash bonuses for performance against pre-established objectives based on work performed in the prior year. The DTE Energy Company 2006 Long-Term Incentive Plan allows us to grant executives long-term equity incentives to encourage continued employment with DTE Energy, to accomplish pre-defined long-term performance objectives and create shareholder alignment. On April 27, 2006, the Company’s shareholders approved the 2006 Long-Term Incentive Plan, which replaced the 2001 Stock Incentive Plan (the two plans are referred to collectively as the “Long-Term Incentive Plan”). At the Company’s 2010 annual meetings, shareholders approved our Amended and Restated Long-Term Incentive Plan.

 

We believe the current mix among base salary, the Annual Incentive Plan and the Long-Term Incentive Plan is appropriately set to provide market-competitive compensation when Company performance warrants. The mix is more heavily weighted toward incentive compensation at higher executive levels within DTE Energy. The interplay between the Annual Incentive Plan and the Long-Term Incentive Plan provides a balance of short- and long-term incentives to motivate executives to achieve our business goals and objectives and to properly reward executives for the achievement of such goals and objectives.

 

a. Annual Incentive Plan — The objective of the Annual Incentive Plan is to compensate individuals yearly based on the achievement of specific annual goals. Participating executives and other select employees may receive annual cash awards based on performance compared against pre-established Company and business unit objectives. The purpose of providing cash awards under the Annual Incentive Plan is to tie compensation to near-term performance. Objectives that management proposes are reviewed and approved or revised by the O&C Committee, with financial goal recommendations reviewed by the Board’s Finance Committee, no later than 90 days after the beginning of the performance period. The objectives include performance measures in several categories that are critical to our success. When setting these objectives, management and the O&C Committee determine the elements of our business that require the focused attention of the executives. The weights, which can change from year-to-year, are determined based on the Company’s key priorities and areas of focus for the upcoming year. The final awards, if any, are paid after the O&C Committee approves the final results of each objective.

 

The Annual Incentive Plan cash awards to executives are determined as follows:

 

1. The executive’s most recent year-end base salary is multiplied by an Annual Incentive Plan target percentage to arrive at the target award.

2. The overall performance payout percentage, which can range from 0% to 175%, is determined based on final results compared to threshold, target, and maximum levels for each objective.

 

3. The target award is then multiplied by the performance payout percentage to arrive at the pre-adjusted calculated award.

 

4. The pre-adjusted calculated award is then adjusted by an individual performance modifier (assessment of an individual executive’s achievements for the year), which can range from 0% to 150%, to arrive at the final award.

 

For 2010, the performance objectives and the related weightings, thresholds, targets, maximums and results for calculating the Named Executive Officers’ pre-adjusted awards were as follows:

 

For Messrs. Earley, Anderson, Meador and Peterson:

 

 

The measures in the above table are defined below:

 

DTE Energy Adjusted EPS — DTE Energy net income after adjustments for certain non-operating items divided by average shares outstanding, fully diluted.

 

DTE Energy Adjusted Cash Flow — DTE Energy net cash from operating activities adjusted by utility capital expenditures, asset sale proceeds and other items.

 

Customer Satisfaction Percentile Ranking — The ranking of residential and business customer satisfaction as compared to 22 peer utilities.

 

MPSC Complaints — Number of complaints received by the Michigan Public Service Commission (“MPSC”) in the calendar year for all business units across DTE Energy.

 

Employee Engagement — Gallup Percentile Ranking vs. Utility Sector.

 

Safety — Number of Occupational Safety and Health Administration (“OSHA”) defined recordable injuries in the calendar year per 100 employees (working an average of 2,000 hours per year, per employee) divided by the actual number of hours worked.

 

Diversity Hiring — The percentage of minority and women non-represented placements (new hires and promotions).

 

The aggregate weighted payment percentage for Messrs. Anderson, Earley, Meador and Peterson’s pre-adjusted calculated award was 111.7%.

For Mr. Kurmas:

 

 

The measures in the above table are defined below:

 

DTE Energy Adjusted EPS — DTE Energy net income after adjustments for certain non-operating items divided by average shares outstanding, fully diluted.

 

Detroit Edison Adjusted Net Income — Detroit Edison net income after adjustments for certain non-operating items.

 

Detroit Edison Adjusted Cash Flow — Detroit Edison net cash from operating activities adjusted by Detroit Edison capital expenditures and other items.

 

Customer Satisfaction Percentile Ranking — The ranking of residential and business customer satisfaction as compared to 22 peer utilities.

 

MPSC Complaints — Number of complaints received by the MPSC in the calendar year for all business units across DTE Energy.

 

Employee Engagement — Gallup Percentile Ranking vs. Utility Sector.

 

Safety — Number of OSHA defined recordable injuries in the calendar year per 100 employees (working an average of 2,000 hours per year, per employee) divided by the actual number of hours worked for Detroit Edison.

 

Diversity Hiring — The percentage of minority and women non-represented placements at Detroit Edison (new hires and promotions).

 

The aggregate weighted payment percentage for the pre-adjusted calculated award for Mr. Kurmas was 109.7%.

For Mr. Norcia:

 

 

The measures in the above table are defined below:

 

DTE Energy Adjusted EPS — DTE Energy net income after adjustments for certain non-operating items divided by average shares outstanding, fully diluted.

 

MichCon Adjusted Net Income — MichCon net income after adjustments for certain non-operating items.

 

MichCon Adjusted Cash Flow — MichCon net cash from operating activities adjusted by MichCon capital expenditures and other items.

 

Customer Satisfaction Percentile Ranking — The ranking of residential and business customer satisfaction as compared to 22 peer utilities.

 

MPSC Complaints — Number of complaints received by the MPSC in the calendar year for all business units across DTE Energy.

 

MichCon — Employee Engagement — MichCon’s Gallup Percentile Ranking vs. Utility Sector.

 

Safety — Number of OSHA defined recordable injuries in the calendar year per 100 employees (working an average of 2,000 hours per year, per employee) divided by the actual number of hours worked for MichCon.

 

Diversity Hiring — The percentage of minority and women non-represented placements at MichCon (new hires and promotions).

 

GSP Adjusted Net Income — DTE Energy’s Gas Storage and Pipeline Business Unit’s (“GSP”) net income after adjustments for certain non-operating items.

 

GSP Adjusted Cash Flow — GSP net cash from operating activities adjusted by GPS capital expenditures and other items.

GSP — New Project Development — Project performance against key milestones, objectives and deliverables identified at the beginning of the performance period for new business opportunities, or new geographies for current business.

 

GSP — Employee Engagement — GSP’s Gallup Percentile Ranking vs. Utility Sector.

 

The aggregate weighted payment percentage for the pre-adjusted calculated award for Mr. Norcia was 96.0%.

 

The earnings per share, cash flow and net income measures were chosen as indicators of the Company’s financial strength. The customer satisfaction, employee engagement, safety and diversity measures were selected to make the Company more responsive to our customers’ needs and to make the Company a safer and better place to work. The GSP — New Project Development measure is designed to reward growth in DTE Energy’s Gas Storage and Pipeline Business Unit.

 

Each objective has a minimum, target and maximum level. The Company or business unit must attain a minimum level of achievement for an objective before any compensation is payable with respect to that objective. The minimum established level of each objective will result in a payout of 25% of target (50% for GSP measures, 0% for GSP — New Product Development measure), and the maximum established for each level (or better) will result in a payment of up to 175% of target (150% for GSP measures).

 

The pre-adjusted awards are adjusted by an individual performance modifier for each of the Named Executive Officers. Individual performance criteria are set at the beginning of each calendar year for each of the Named Executive Officers. For 2010, qualitative criteria include, as applicable, leadership performance, overall operational, employee engagement and customer performance, continuous operational improvements and other appropriate operating measures. The O&C Committee evaluates the individual performance of each of the Named Executive Officers and approves an adjustment to the annual award based on the individual contribution and performance. The individual performance modifier adjusts a Named Executive Officer’s annual cash bonus such that the Named Executive Officer’s actual cash bonus ranges between zero and 150% of the pre-adjusted calculated award. For 2010, after adjusting for individual performance, annual incentive awards for the Named Executive Officers ranged from 110% to 135% of the pre-adjusted calculated awards.

 

The final awards for 2010 year were paid to each of the Named Executive Officers in early 2011 and are reported in the Non-Equity Incentive Plan Compensation column of the “Summary Compensation Table” on page 54.

 

b. Long-Term Incentive Plan — The Long-Term Incentive Plan provides the O&C Committee the ability to design programs that focus on our long-term performance over a three-year period, with the objective to align executives’ interests with those of our shareholders. Our principles for ownership of stock, discussed on page 52, ensure that the executives and other employees have a vested interest in the long-term financial health, management, and success of the Company.

 

The Long-Term Incentive Plan rewards executives and other employees with stock-based compensation. Participants are eligible to receive stock options, restricted stock, performance shares, performance units or a combination of these awards. To date, we have granted only performance shares, time-based restricted stock and non-qualified stock options. Executives receive Long-Term Incentive Plan grants based upon a target percentage of base salary. The targeted award levels for the Named Executive Officers for 2010 were as follows: Mr. Earley — 300% of base salary; Mr. Anderson — 225% of base salary; Mr. Kurmas — 155% of base salary; Mr. Meador — 150% of base salary; Mr. Norcia — 115% of base salary; and Mr. Peterson — 115% of base salary. In addition to the targeted award levels, the O&C Committee also considers previous years’ grants, career potential, and retention issues in determining the final number of awards granted.

 

The value of each element of these Long-Term Incentive Plan grants for 2010 was as follows:

 

This mix was designed to provide a balance of incentives to executives for creating long-term shareholder value through strong financial and operating performance and to align executive interests with shareholder interests.

 

For 2011, the O&C Committee approved a shift in the type of equity grants under the Long-Term Incentive Plan from stock options to performance shares. The Committee chose to grant a mix of restricted stock and performance shares because (i) this approach is more consistent with the long-term incentive award practices among our peer group and (ii) this approach allows us to continue to reward executives for the Company’s achievement of performance based goals in a way that is more effective than stock options.

 

 

Long-Term Incentive Plan (2010 Payout of Awards Granted in 2007)

 

 

The measures in the above table are defined below:

 

Total Shareholder Return — Total shareholder return compared to 22 peer group companies (as defined below) based on the average share prices for the month of December.

 

Balance Sheet Coverage Ratio — Funds from operations divided by debt (less certain exclusions).

 

Employee Engagement — Three-year average employee satisfaction survey results.

 

The peer group for the Long-Term Incentive Plan, as approved by the O&C Committee, consists of the companies set forth below. These companies were selected because: (1) their operations are largely regulated; (2) their size (based on market capitalization); and (3) their business strategies are similar to those of DTE Energy. In creating this peer group, the Company started with the S&P 1500 Multi-Utility and S&P 1500

Electric Utility Indices and eliminated companies with less than $2 billion of market capitalization and companies with material gas commodity exposure. In addition, companies that were in the process of being acquired were also eliminated. The O&C Committee reviews and approves this peer group annually.

 

Alliant Energy Corporation		NSTAR
American Electric Power Company, Inc.		PG&E Corporation
CenterPoint Energy, Inc.		Pinnacle West Capital Corporation
CMS Energy Corporation		Progress Energy, Inc.
Consolidated Edison, Inc.		SCANA Corporation
DPL, Inc.		TECO Energy, Inc.
Great Plains Energy Inc.		The Southern Company
Integrys Energy Group, Inc.		Vectren Corporation
NiSource Inc.		Westar Energy, Inc.
Northeast Utilities		Wisconsin Energy Corporation
NV Energy, Inc.		Xcel Energy Inc.

 

Total shareholder return compared to the Peer Group is the primary measure because it reflects how well our Company has performed on total return to its shareholders relative to the total shareholder returns of similar companies. See footnote 2 to the “Option Exercises and Stock Vested in 2010” table on page 59. Over the past three years, the payout level has ranged from 16.5% to 74.8%. For the 2007 — 2009 period, the minimum levels of performance for all three measures were exceeded. Based on the results of these measures, the 2010 payout level, as approved by the O&C Committee, was 149.0%.

 

 

Retirement and Other Benefits

 

Providing a supplemental retirement program for our executives is in keeping with our philosophy and objectives to attract and retain talented executives. The Pension Benefits Table and related footnotes beginning on page 60 describe both the qualified and nonqualified retirement benefit programs for which certain executives are eligible and are commonly offered by other employers in our peer group. Other benefit programs include the DTE Energy Company Supplemental Savings Plan (the “Supplemental Savings Plan”), which mirrors the 401(k) plan and allows executives to continue to defer base salary after certain IRS limits have been reached. The matching contributions we make in the Supplemental Savings Plan are the same as those provided under the 401(k) plan. For further description of the supplemental retirement programs, see “Pension Benefits” beginning on page 60.

 

Executive Benefits

 

We provide executives with certain benefits generally not available to our other employees as a matter of competitive practice and as a retention tool. The O&C Committee periodically reviews the level of benefits provided to executives against a peer group to assure they are reasonable and consistent with our overall compensation objectives.

 

We provide a cash allowance to certain executives in lieu of executive benefits typically provided by other companies. The executive is permitted to use the allowance as he or she deems appropriate. Although the allowance is taxable for income tax purposes, it is not considered as compensation for any Company incentive or benefit program.

 

During 2010, we provided various benefits for a limited number of officers that included the following:

 

a. Home security program and security driver for business: Home security monitoring for most executives has been phased out and replaced by the executive benefit allowance. During 2010, the Company provided home security monitoring systems for certain executives, including some of the Named Executive Officers, based on our executive security policies and a security risk assessment by the Company’s chief security officer. These expenses are considered appropriate to protect the Company and its executives despite the incidental personal benefit to the executives. In addition to home security monitoring, under our executive security policy, the Board requires Messrs. Earley and Anderson to use a Company car and security driver while on Company business.

 

b. Corporate aircraft for limited business travel: We lease a fractional share of an aircraft for limited business travel by executives and other employees when there is an appropriate business purpose. Personal use of the aircraft is not allowed except in unusual circumstances and requires the prior approval of the CEO. During 2010, there was no personal use of the aircraft.

 

c. Supplemental retirement program: Certain executives are eligible for both the qualified and non-qualified retirement benefit programs, which are commonly offered by other employers in our peer group. For further description of the supplemental retirement programs, see “Pension Benefits” beginning on page 60.

 

d. Other benefits: Executives are also allowed the limited use of corporate event tickets and the corporate condominium when available.

 

Post-Termination Agreements

 

We have entered into indemnification agreements and change-in-control agreements with each of the Named Executive Officers and certain other executives. The indemnification agreements require that we indemnify these individuals for certain liabilities to which they may become subject as a result of their affiliation with the Company. The change-in-control agreements are intended to provide continuity of management in the event there is a change-in-control of the Company and to align executive and shareholder interests in support of corporate transactions. The important terms of, and the potential payments provided under, the change-in-control agreements are described beginning on page 64.

Stock Ownership Policy

 

Our principles for ownership of stock ensure that the executives and other employees have a vested interest in the financial health, management and success of the Company. We expect most executives and certain other employees to own, within five years of their appointment to such position, shares of our stock having a value equal to a multiple of their annual base salary. Common stock, time-based restricted stock, phantom stock, and unvested performance shares (assuming achievement of target levels of performance) are counted toward the fulfillment of this ownership requirement. The following are the requirements for the Named Executive Officers: (i) for Messrs. Earley and Anderson, five times their respective base salary; (ii) for Messrs. Kurmas and Meador, four times their respective base salary; and (iii) for Messrs. Norcia and Peterson, three times their base salary. Other executives and employees may be required to hold from one to three times their base salaries as determined by their executive group level within the Company. As of January 1, 2011, 100% of the Named Executive Officers and other required employees met the stock ownership guidelines.

 

Internal Revenue Code Limits on Deductibility of Compensation

 

In evaluating the potential compensation alternatives, our Compensation Committee considers the possible impact of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Code Section 162(m) places a limit of $1 million on the amount of compensation we can deduct as a business expense on our federal income tax return with respect to “covered employees” unless it is (i) based on performance and (ii) paid under a program that meets Internal Revenue Code requirements. In general, “covered employees” for these purposes are our CEO and the three highest paid executive officers named in the “Summary Compensation Table” on page 54 other than the CEO and CFO. The Annual Incentive Plan and the Long-Term Incentive Plan, previously approved by the shareholders, are designed to provide the opportunity for use of the performance-based compensation exception. The Long-Term Incentive Plan permits various types of awards, some of which qualify for exemption under Code Section 162(m) and some of which do not. We expect to continue to emphasize performance-based compensation programs designed to fulfill future corporate business objectives at all levels. Although these programs are generally designed to satisfy the requirements of Code Section 162(m), we believe it is important to preserve flexibility in designing compensation programs and it may be appropriate in certain circumstances to grant compensation that may not meet all of the Internal Revenue Code requirements for deducting compensation in excess of $1 million and, therefore, will not be tax deductible for the Company. For the 2010 tax year, the Company paid the Named Executive Officers a total of $3.9 million which was not deductible.

 

We have also structured all of our nonqualified compensation programs to be in compliance with Internal Revenue Code Section 409A, as added by the American Jobs Creation Act of 2004. Internal Revenue Code Section 409A imposes additional tax penalties on our executive officers for certain types of deferred compensation that are not in compliance with the form and timing of elections and distribution requirements of that section.

 

Accounting considerations also play a role in our executive compensation program. Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“FASB ASC Topic 718” formerly, Financial Accounting Standards Board Statement SFAS No. 123R) requires us to expense the fair value of our stock option grants over the vesting period, which reduces the amount of our reported profits. Because of this stock-based expensing and the impact of dilution to our shareholders, we closely monitor the number and the fair values of the option shares.

 

The O&C Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on that review and discussion, we recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s 2011 Proxy Statement.

 

Organization and Compensation Committee

 

Eugene A. Miller, Chair

Frank M. Hennessey

Allan D. Gilmour

Ruth G. Shaw

 

The table below summarizes the total compensation earned by each of the Named Executive Officers for the fiscal years ended December 31, 2008, December 31, 2009 and December 31, 2010, except for Messrs. Kurmas and Norcia. Since 2009 was Mr. Kurmas’ first year as a Named Executive Officer, his total compensation, and the corresponding footnotes, relate only to the fiscal years ended December 31, 2009 and December 31, 2010. Since Mr. Norcia was a Named Executive Officer in 2008, was not a Named Executive Officer in 2009 and is a Named Executive Officer again in 2010, his total compensation, and the corresponding footnotes, relate only to the fiscal years ended December 31, 2008 and December 31, 2010.