DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No. )

 

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SEMPRA ENERGY

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LOGO

2021 Notice of Annual Shareholders Meeting and Proxy Statement May 14, 2021


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LOGO    LOGO

March 26, 2021

Dear fellow shareholders:

We are pleased to invite you to attend our virtual 2021 Annual Shareholders Meeting. It is scheduled for Friday, May 14, 2021, at 9 a.m. Pacific Time. The accompanying proxy information outlines how to attend the virtual meeting and the matters to be voted on at the meeting.

Our industry has faced many challenges in the past year due to the impacts of COVID-19, and our hearts go out to all those who have experienced hardship and loss from the pandemic. Amidst these challenges, Sempra Energy and our 19,000 employees are humbled to have the opportunity to continue delivering energy with purpose – with an unwavering focus on safety – to more than 36 million consumers during a time when they need it most. We have remained resilient by continuing to invest in a high-performing culture that focuses on the well-being of our employees and our communities.

The political unrest and racial injustice that has occurred in the United States over the past year has also brought to the forefront the importance of living our values: doing the right thing, championing people and shaping the future. As part of our company’s continued commitment to building a high-performing culture, we have continued our efforts to build an increasingly diverse and inclusive workforce, with a view toward helping all employees reach their full potential. Also, we have matched this effort with a commitment to expand programs in the communities we serve to help strengthen our partnerships and improve access to opportunity.

Additionally, our resilience has enabled us to further advance our strategic mission to be North America’s premier energy infrastructure company. With the divestiture of our businesses in South America, the company’s portfolio is now squarely focused on top-tier markets in North America, with a focus on transmission and distribution infrastructure investments that should provide attractive risk-adjusted returns.

The content of the Annual Shareholders Meeting will focus on the shareholder business items outlined in the accompanying meeting notice. For more information about our business, our 2020 Annual Report to Shareholders is available online at www.sempra.com/2021-annual-meeting and www.proxyvote.com.

Please review the accompanying materials and promptly vote your shares. As in past years, you can vote in advance of the meeting by completing, signing, dating and returning the accompanying proxy card or voting instruction form. You can also vote by telephone or via the Internet.

In reviewing the materials, you will note that director Kathleen L. Brown, who has served on our board since 2013 and has attained the age of 75, has not been nominated to stand for re-election in 2021 in keeping with our policy.

We appreciate your vote and your continued investment in Sempra Energy.

Sincerely,

 

 

LOGO

Jeffrey W. Martin

Chairman and Chief Executive Officer


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LOGO    LOGO

March 26, 2021

Dear fellow shareholders:

When I wrote to you one year ago, little could we have known what challenges 2020 would bring to our economy, our country and our world. While the past year brought much uncertainty – related to the COVID-19 global pandemic and the political unrest and racial injustice issues here in the United States – your board of directors continued to fulfill its role in providing oversight of Sempra Energy’s response to these challenges and its actions to further its strategic mission to be North America’s premier energy infrastructure company. Within this environment, your board of directors held more frequent meetings, enhanced our level of communication with the senior management team and received regular briefings on the company’s efforts in these key areas, all while maintaining a strong focus on long-term strategy.

Throughout 2020, your board of directors continued to play a key role in providing strategic guidance to the company’s management team, overseeing corporate governance policies, and providing oversight of risk management. The board of directors is committed to continuing to do our part to help reinforce the company’s strong focus on doing what is right for its shareholders and other stakeholders and operating with the same high standards for which the company is known.

Another key area of focus for the board of directors this year was its oversight of the company’s efforts to continue investing in a high-performing culture. Sound safety practices are central to the company’s business culture. Amid the COVID-19 pandemic, the company continued to prioritize the health and safety of its employees, customers, partners and communities. Sempra Energy and its operating companies adapted their facilities and protocols consistent with the recommendations of public health officials, with a view toward delivering essential energy to millions in North America. In addition to advancing our health and safety priorities over the past year, we all continued our focus on delivering sustainable value for our shareholders.

Diversity and inclusion are also central to the company’s business culture and have been priorities at our company since its founding. We believe, as the company’s management does, that a strong focus on these areas is essential to building a better, more successful company. Our board members both embrace and reflect this focus. For the last seven years, at least half of our independent board members have been women and/or people of color and, today, 62% of our board members are women and/or people of color. The diverse backgrounds, perspectives, and skills of our board members contribute a wealth of experience to our business and demonstrate that diverse perspectives are encouraged and valued throughout the company.

In 2020, we continued our robust shareholder engagement program. We understand that this is an important way for us to gather feedback and input that informs our policies and programs in a variety of areas, such as environmental practices, sustainability efforts and governance. Last year, we reached out to shareholders representing approximately 63% of our total outstanding shares of common stock and engaged directly with holders of approximately 46% of our outstanding shares of common stock. I participated in many of these conversations and, on behalf of the board, we appreciate your valuable input on how to strengthen and support the company’s mission.

On behalf of your board of directors, we thank you for your investment in Sempra Energy. We are proud to serve in this important role for your company.

Sincerely,

 

 

LOGO

William D. Jones

Lead Independent Director


Table of Contents

Table of Contents

 

Notice of Annual Shareholders Meeting

 

    

 

1

 

 

 

Proxy Statement Summary

 

    

 

2

 

 

 

Corporate Governance

 

    

 

9

 

 

 

Board of Directors

     9  

Board Committees

     16  

Communications with the Board

     19  

Director Compensation

     20  

Audit Committee Report

 

    

 

24

 

 

 

Share Ownership

 

    

 

25

 

 

 

Proposals To Be Voted On

 

    

 

27

 

 

 

Board of Directors Proposals

     27  

Proposal 1: Election of Directors

     27  

Proposal 2: Ratification of Appointment of Independent Registered Public Accounting Firm

     33  

Proposal 3: Advisory Approval of Our Executive Compensation

     35  

Shareholder Proposals

     36  

Proposal 4: Shareholder Proposal Requesting an Amendment to Our Proxy Access Bylaw to Eliminate the Shareholder Nominating Group Limit

     36  

Proposal 5: Shareholder Proposal Requesting a Report on Alignment of Our Lobbying Activities with the Paris Agreement

     39  

Executive Compensation

 

    

 

43

 

 

 

Compensation Discussion and Analysis

     43  

Compensation and Talent Development Committee Report

     70  

Compensation Tables

     71  

About the Annual Shareholders Meeting and Voting

 

    

 

88

 

 

 

Attending the Annual Shareholders Meeting

     88  

How You Can Vote

     89  

Information About Proposals To Be Voted On

     92  

Proxy Materials

     95  

Information about 2022 Shareholder Proposals and Director Nominations

 

    

 

97

 

 

 

Other Information

 

    

 

99

 

 

 

Appendix A: Reconciliation of Non-GAAP Financial Measures (Unaudited)

 

    

 

101

 

 

 

Appendix  B: Companies Included in General Industry Benchmarking Review

 

    

 

103

 

 

 

Appendix  C: Companies Included in Utilities Benchmarking Review

 

    

 

104

 

 

 

Appendix  D: Performance-Based Annual Bonus Plan—Additional Information

 

    

 

105

 

 

 


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LOGO   

488 8th Avenue, San Diego, California 92101

(877) 736-7727

Notice of Annual Shareholders Meeting

Friday, May 14, 2021, 9 a.m. Pacific Time

Virtual-only meeting at www.virtualshareholdermeeting.com/SRE2021

The 2021 annual meeting of shareholders of Sempra Energy (Annual Shareholders Meeting) will be held on Friday, May 14, 2021, at 9 a.m. Pacific Time. The Annual Shareholders Meeting will be a completely virtual meeting of our shareholders conducted via live audio webcast. You will be able to attend the Annual Shareholders Meeting, vote and submit your questions during the Annual Shareholders Meeting by visiting www.virtualshareholdermeeting.com/SRE2021 and entering your 16-digit control number as described below. To help protect the health and safety of our shareholders, employees and directors in light of the ongoing COVID-19 pandemic, and in compliance with guidance from applicable federal, state and local public health authorities, our Annual Shareholders Meeting will be conducted via live audio webcast using online tools. There will be no physical location for the meeting.

Business Items

 

(1)

Election of the following director nominees, all of whom are currently directors: Alan L. Boeckmann; Andrés Conesa; Maria Contreras-Sweet; Pablo A. Ferrero; William D. Jones; Jeffrey W. Martin; Bethany J. Mayer; Michael N. Mears; Jack T. Taylor; Cynthia L. Walker; Cynthia J. Warner; and James C. Yardley.

(2)

Ratification of appointment of independent registered public accounting firm.

(3)

Advisory approval of our executive compensation.

(4)

Shareholder proposal requesting an amendment to our proxy access bylaw to eliminate the shareholder nominating group limit, if properly presented at the meeting.

(5)

Shareholder proposal requesting a report on the alignment of our lobbying activities with the Paris Agreement, if properly presented at the meeting.

(6)

Consideration of other matters that may properly come before the meeting, if any.

Adjournments and Postponements

The business items for the Annual Shareholders Meeting may be considered at the meeting and any adjournment or postponement of the meeting.

Record Date

The record date for the Annual Shareholders Meeting is March 19, 2021. You are entitled to notice of and to vote at the Annual Shareholders Meeting and any adjournment or postponement thereof, only if you were a holder of Sempra Energy common stock at the close of business on the record date.

Meeting Attendance and Participation

We will permit all persons, including shareholders of record, beneficial owners of shares held in “street name” through a bank, broker or other nominee and guests, to attend the Annual Shareholders Meeting via live audio webcast. Please visit www.virtualshareholdermeeting.com/SRE2021 at the date and time of the meeting to attend. You will only be permitted to submit questions at the meeting or vote your shares at the meeting if you were a shareholder of record or beneficial owner of shares of our common stock as of March 19, 2021, the record date for the meeting. To attend the meeting as a shareholder and access these capabilities, you will need to log into the meeting site with the 16-digit control number shown on your notice about the Internet availability of our proxy materials, voting instruction form or proxy card or, if you are a beneficial owner of shares held through a bank, broker or other nominee and your voting instruction form does not indicate that you may vote your shares through www.proxyvote.com, you will need to obtain a “legal proxy” from your bank, broker or other nominee (preferably at least five days before the Annual Shareholders Meeting) to receive a 16-digit control number that may be used to log into the meeting site. If you need to obtain such a “legal proxy” to attend the meeting, please follow the specific instructions to do so provided by your bank, broker or other nominee.

Additional instructions on how to attend and participate in the virtual meeting are included in “About the Annual Shareholders Meeting and Voting” in the accompanying proxy statement and are posted at www.proxyvote.com. If you encounter difficulties accessing the virtual meeting during the check-in or meeting time, please call (844) 976-0738 (U.S. and Canada) or +1 (303) 562-9301 (International) beginning April 15, 2021 for technical support, which numbers also will be posted on the login page at www.virtualshareholdermeeting.com/SRE2021. The Annual Shareholders Meeting live audio webcast will begin promptly at 9 a.m. Pacific Time on Friday, May 14, 2021. We encourage you to access the meeting site prior to the start time. Online check-in will begin at 8:30 a.m. Pacific Time, and you should allow ample time for the check-in procedures the day of the Annual Shareholders Meeting.

Voting

Your vote is important. Whether or not you plan to attend the virtual Annual Shareholders Meeting, we encourage you to read the accompanying proxy statement and promptly vote your shares. You may vote in advance of the meeting by completing, signing and dating the enclosed proxy card or voting instruction form and returning it in the enclosed envelope (if you received a paper copy of our proxy materials), or by telephone or via the Internet. Internet and telephone voting for holders of record will be available until 11:59 p.m. Eastern Time on May 13, 2021. For specific instructions on how to vote your shares, please see “About the Annual Shareholders Meeting and Voting” in the accompanying proxy statement and the instructions on your notice about the Internet availability of our proxy materials, proxy card or voting instruction form.

Our proxy materials, including this Notice of Annual Shareholders Meeting and the accompanying proxy statement and form of proxy card or voting instruction form, are being provided to shareholders beginning on or about March 26, 2021.

 

     

Jennifer F. Jett

Corporate Secretary

Important Notice Regarding the Availability of Proxy Materials

for the Annual Shareholders Meeting to be Held on May 14, 2021.

This Notice of Annual Shareholders Meeting, the Accompanying Proxy Statement, the Proxy Card and the

Annual Report to Shareholders are available on the Internet at www.proxyvote.com.

 


Table of Contents

    

 

    

Proxy Statement Summary

This proxy statement is being provided in connection with the 2021 annual meeting of shareholders of Sempra Energy (Annual Shareholders Meeting). This summary highlights selected information to assist you in your review of this proxy statement. It does not contain all of the information you should consider, and you should read the entire proxy statement carefully before voting. Information regarding the performance of Sempra Energy is available in the company’s Annual Report to Shareholders for the year ended December 31, 2020, which accompanies this proxy statement and is available on the company’s website at www.sempra.com/2021-annual-meeting. For additional information about the Annual Shareholders Meeting and voting, please see “About the Annual Shareholders Meeting and Voting.” This proxy statement and the accompanying form of proxy card or voting instruction form are first being made available to shareholders on or about March 26, 2021. All website references in our proxy materials are inactive textual references, and the information on, or that can be accessed through, such websites does not constitute a part of these materials.

Annual Shareholders Meeting Details

 

   
      Date/Time      Location

  Friday,May 14, 2021 - 9 a.m. Pacific Time

 

    

www.virtualshareholdermeeting.com/SRE2021

 

Shareholder Voting Matters

 

   
       Proposals    Board Recommendations

  1.   Election of directors

   FOR each director nominee

  2. Ratification of appointment of independent registered public accounting firm

   FOR ratification of appointment of independent registered public accounting firm

  3. Advisory approval of our executive compensation

   FOR advisory approval of our executive compensation

  4. Shareholder proposal requesting an amendment to our proxy access bylaw to eliminate the shareholder nominating group limit

   AGAINST shareholder proposal requesting an amendment to our proxy access bylaw to eliminate the shareholder nominating group limit

  5. Shareholder proposal requesting a report on alignment of our lobbying activities with the Paris Agreement

   AGAINST shareholder proposal requesting a report on alignment of our lobbying activities with the Paris Agreement

Director Nominees

 

     

  Name and Occupation

 

Age

 

Director

Since

 

Inde-

pendent

 

Standing Board

Committee Memberships(A)

 

 

 

AC

 

 

 

C&TD

 

 

 

CGC

 

 

 

SS&T

 

 

 

EC

 

             

Alan L. Boeckmann

Executive Chair, Fluor Corporation

  72   2011            
             

Andrés Conesa, Ph.D.

Chief Executive Officer, Grupo Aeroméxico, S.A.B. de C.V

  51   2017       C      
             

Maria Contreras-Sweet

Managing Partner, Contreras Sweet Companies, LLC and Rockway Equity Partners; 24th Administrator, U.S. Small Business Administration

  65   2017            
             

Pablo A. Ferrero

Independent energy consultant

  58   2013            
             

William D. Jones — Lead Independent Director

President and Chief Executive Officer, CityLink Investment Corp.

  65   1998         C    
             

Jeffrey W. Martin

Chairman of the Board, Chief Executive Officer and President, Sempra Energy

  59   2018               C
             

Bethany J. Mayer

Executive Partner, Siris Capital Group LLC

  59   2019(B)             C  
             

Michael N. Mears

Chairman, President and Chief Executive Officer, Magellan Midstream Partners L.P.

  58   2018            
             

Jack T. Taylor

Former Chief Operating Officer-Americas and Executive Vice Chair of U.S. Operations, KPMG LLP (U.S.)

  69   2013     C F        
             

Cynthia L. Walker

Former Senior Vice President, Midstream & Marketing,

Occidental Petroleum Corporation

  44   2018      F        
             

Cynthia J. Warner

President and Chief Executive Officer, Renewable Energy Group, Inc.

  62   2019            
             

James C. Yardley

Former Executive Vice President, El Paso Corp.

  69   2013            

 

(A) Director nominee membership in the following standing board committees and other designations as of the date of mailing this proxy statement:

 

AC = Audit Committee

C&TD = Compensation and Talent Development Committee (formerly Compensation Committee)

CGC = Corporate Governance Committee

SS&T = Safety, Sustainability and Technology Committee (formerly Environmental, Health, Safety and Technology Committee)

EC = Executive Committee

  C = Committee Chair

F = Audit Committee Financial Expert

 

(B) Ms. Mayer previously served as a director from February 2017 through November 2018.


 

2   Sempra Energy 2021 Proxy Statement

 


Table of Contents

Proxy Statement Summary

 

    

Director Nominee Composition

 

 

LOGO

58% of our board nominees are diverse: African American Latino * Women * Tenure (Years) Average: 6.5 / Median: 4.1 < 5 Years 5-10 Years > 10 Years 83% Independent *One director is a woman of color.

 

Our board has made it a priority to develop and support a high-performance culture, with respect to our board, our management and our workforce. At the board level, the board seeks directors with diversity of skills and experience and of gender and ethnicity. To assist our board in maintaining its focus on board diversity, we conduct an annual skills assessment and board evaluation that are fundamental to the process the board uses to help it assemble a board that is composed of members with a diverse and appropriate mix of experience, competencies and backgrounds. The board uses the results of the assessment and evaluation to critically analyze its effectiveness and skill set, which helps ensure that it is well-positioned to oversee Sempra Energy’s current and future strategies and operations.

We have a strong track record of board refreshment. Five of our independent directors have been added since the beginning of 2017: two in 2017, two in 2018 and one in 2019. Under the standards established by the New York Stock Exchange (NYSE), Bethany J. Mayer is not an independent director due to her recent service as an executive officer, and Jeffrey W. Martin is not an independent director due to his ongoing service as our Chief Executive Officer and President.

Shareholder Engagement and Governance Practices

In 2020, we reached out to shareholders representing approximately 63% of our total outstanding shares of common stock and we engaged with holders of approximately 46% of our outstanding shares of common stock (approximately half of our institutional share ownership) by holding telephonic or videoconference meetings to discuss corporate governance, board composition, executive compensation, business strategy and other environmental, social and governance (ESG) matters. Our Lead Independent Director participated in many of these meetings. Supported by feedback from our shareholders, we believe the following corporate governance policies reflect best practices:

 

  Lead Independent Director with clearly defined responsibilities

 

  Annual election of all directors

 

  Proxy access right for shareholder nominations of director candidates

 

  Majority-vote and director resignation policy for directors in uncontested elections

 

  Shareholders representing in the aggregate 10% or more of our outstanding shares may call a special meeting of shareholders

 

  Comprehensive, ongoing succession planning for key executives by the board

 

  Comprehensive board refreshment designed to maintain balanced and diverse board composition and tenure

 

  Board oversight of sustainability, including enhanced ESG focus of Safety, Sustainability and Technology Committee

 

  Annual board, director and committee self-evaluations for our standing committees (except for Executive Committee)

 

  

  10 of our 12 director nominees are independent

 

  NYSE-required board committees are 100% independent

 

  Director overboarding policy recently revised to align with the preferences and policies of many of our shareholders

 

  Executive sessions of non-management directors at all regular board meetings

 

  Prohibition on hedging or pledging company stock

 

  Robust share ownership guidelines for directors and officers

 

  96% attendance of directors at board and committee meetings in the aggregate in 2020

 

  Active shareholder engagement, including with our Lead Independent Director

 

  Code of conduct applicable to directors and officers, as well as separate code of conduct applicable to all employees


 

Sempra Energy 2021 Proxy Statement   3

 


Table of Contents

Proxy Statement Summary

 

    

Business and Performance

Company Overview

 

Sempra Energy’s businesses invest in, develop and operate energy infrastructure and provide electric and gas services to customers through regulated utilities, all in North America. Our mission is to be North America’s premier energy infrastructure company, and we are primarily focused on transmission and distribution investments among other areas that we believe are capable of producing stable cash flows and improved earnings visibility, with the goal of delivering safe and reliable energy to our customers and increasing shareholder value.

 

 

Utilities

   Energy Infrastructure

 

  We own or hold interests in regulated electric and gas utilities in California and Texas.

 

  Our utility businesses will continue to require investments in grid infrastructure, transmission, distribution, storage and other types of assets to help support safety and reliability of service and incorporate additional sources of renewable energy.

 

  

 

  Our energy infrastructure businesses are primarily focused on supporting the clean energy transition by investing in renewables and energy networks in North America, together with natural gas infrastructure to support exports to foreign markets. We believe diverse sources of energy will continue to be important domestically and internationally.

 

  Our revenues for these businesses generally are tied to long-term contracts with counterparties we believe are creditworthy.

 

In addition to focusing primarily on the North American markets we believe are most attractive, we are investing primarily in the transmission and distribution portion of the energy value chain, which we believe will provide attractive risk-adjusted returns:

 

 

LOGO

Sempra Business Model Exploration Generation Transmission Distribution End Market and Production or Processing Smart, New Energy Infrastructure Higher Commodity Risk Higher Value + Lower Risk Higher Consumer Risk


 

4   Sempra Energy 2021 Proxy Statement

 


Table of Contents

Proxy Statement Summary

 

    

Performance Highlights

 

Financial Performance

In 2020, we achieved strong financial performance across key metrics. We grew our GAAP earnings per common share (EPS) by 76.7% year over year, to $12.88 in 2020 compared to $7.29 in 2019.(1) Our adjusted EPS grew 18.4% year over year, to $8.03 in 2020 compared to $6.78 in 2019.(2)

Our 2020 achievements build on our strong long-term financial performance. Since 2010, we have delivered consistent strong earnings growth: our GAAP EPS was $2.86 in 2010, $5.37 in 2015 and $12.88 in 2020. On an adjusted basis, EPS increased from $3.80 in 2010 to $5.17 in 2015 and to $8.03 in 2020.(2) This performance has contributed to our robust long-term growth and shareholder value creation. We have had total shareholder return of 232% since 2010 and our market capitalization almost tripled over the past 10 years.

We also have continued to provide returns to shareholders by growing our common stock dividend. The compound annual growth rate (CAGR) of our common stock dividend exceeded the median CAGR for companies in the S&P 500 Utilities Index over the past one, three, five and ten years. From 2010 to 2020, we increased our annual dividend from $1.56 to $4.18 per common share. On February 23, 2021, the Board of Directors approved an additional increase of approximately 5% in our dividend to $4.40 per common share on an annualized basis.

 

 

LOGO

Long-Term Growth(3) Adjusted EPS(2) Dividends Market Capitalization(4)

Figure 1

 

(1)

GAAP means accounting principles generally accepted in the United States of America.

 

(2)

Adjusted EPS is a non-GAAP financial measure. For a reconciliation of GAAP earnings and EPS to adjusted earnings and EPS, please see Appendix A to this proxy statement.

 

(3)

As of or for the years ended December 31, 2010, 2015 and 2020.

 

(4)

Dollars in billions.


 

Sempra Energy 2021 Proxy Statement   5

 


Table of Contents

Proxy Statement Summary

 

    

Strategic Performance

Key strategic and operational accomplishments are highlighted below:

 

 

2020 Strategic Performance Highlights

 

  Business Achievements

 

  Sempra Energy executed on its disciplined strategy with the goal of becoming North America’s premier energy infrastructure company

 

  Sempra Energy completed a multi-year capital rotation program that included the divestiture of its U.S. renewables businesses, U.S. non-utility natural gas storage assets and South American businesses, which generated total gross cash proceeds of approximately $8.3 billion

 

  Sempra Energy executed a $500 million share buyback and received board authorization for the lesser of $2.0 billion or 25 million shares of common stock in potential future share repurchases

 

  Sempra Energy announced proposed integrated transactions to simplify its energy infrastructure investments under one platform, Sempra Infrastructure Partners

 

  Sempra Energy was named to Fortune Magazine’s ”World’s Most Admired Companies” List for 2020

 

  Sempra Energy was recognized by the National Organization on Disability as a 2020 Leading Disability Employer

 

  Sempra Energy was named to Forbes’ Just 100 list, which is intended to recognize companies that are doing right by all their stakeholders

 

  Sempra Energy received the National Association of Corporate Directors NXT Award for diversity and inclusion

  

 

Sempra Utilities

 

  San Diego Gas & Electric Company (SDG&E) received approval from the Federal Energy Regulatory Commission (FERC) of a settlement with return on equity (ROE) of 10.6%, effective June 1, 2019(1)

 

  SDG&E and Southern California Gas Company (SoCalGas) filed a petition for modification of the 2019 General Rate Case, requesting attrition rates for 2022 and 2023

 

  SDG&E continued its commitment to wildfire safety and received its 2020 safety certification from the Wildfire Safety Division of the California Public Utilities Commission (CPUC)

 

  SDG&E and SoCalGas received a final decision for cost recovery of approximately $935 million related to the Pipeline Safety Enhancement Plan

 

  SDG&E launched a comprehensive sustainability strategy to advance carbon neutrality

 

  SoCalGas and SDG&E announced a hydrogen blending demonstration program designed to help reduce carbon emissions

 

  Oncor Electric Delivery Company LLC (Oncor) announced a new five-year (2021-2025) capital plan of approximately $12.2 billion, largely driven by transmission and distribution growth needs in and around its service territory(2)

 

  

 

Sempra North American Infrastructure

 

  Continued progress on development projects with the goal of building up to 45 million tonnes per annum (Mtpa) of liquefied natural gas (LNG) export capacity to serve global markets:

 

  Cameron LNG JV Phase 1: Cameron LNG joint venture (JV) achieved full commercial operations under the tolling agreements; completed financing at Cameron LNG JV for return of capital of $753 million to Sempra Energy

 

  Cameron LNG JV Phase 2:(3)(4) Sempra LNG signed a memorandum of understanding (MOU) with Mitsubishi Corporation in May 2020 for potential offtake from the proposed project

 

  ECA LNG JV Phase 1:(3) Reached a final investment decision for the development, construction and operation of the project; sold a 16.6% ownership interest in the project to an affiliate of TOTAL SE

 

  Port Arthur:(3) Announced fixed-price, turnkey engineering, procurement and construction agreement with Bechtel Oil, Gas and Chemicals

 

  Infraestructura Energética Nova, S.A.B. de C.V. (IEnova) advanced construction of Gulf of Mexico fuel terminal network and placed into service its marine terminal in the New Port of Veracruz

 

 

(1)

Consists of a base ROE of 10.1% plus an additional 50 basis points for participation in the California Independent System Operator (CA-ISO). If the FERC issues an order ruling that California investor-owned utilities are no longer eligible for the additional CA-ISO ROE, then SDG&E would refund the additional 50 basis points of ROE associated with the CA-ISO. These rates were effective as of June 1, 2019 and remain in effect indefinitely, with parties having the annual right to terminate the applicable settlement agreement beginning in 2022.

 

(2)

Represents 100% of Oncor’s forecasted capital expenditures for 2021-2025. Actual amounts expended will depend on a number of factors and may differ materially from the amounts reflected in the capital plan.

 

(3)

The successful development and ultimate construction of Sempra Energy’s LNG projects are subject to a number of risks and uncertainties and there can be no assurance that any of the projects will be completed.

 

(4)

This arrangement provides a framework for cooperation, but does not obligate the parties to enter into a definitive agreement or participate in the applicable project.


 

6   Sempra Energy 2021 Proxy Statement

 


Table of Contents

Proxy Statement Summary

 

    

Executive Compensation

2020 Compensation Overview

 

Our executive compensation program is designed to attract, motivate and retain key executive talent and promote strong, sustainable long-term performance. We place an emphasis on variable performance-based pay, with each component designed to promote value creation and alignment of our management team’s compensation with our long-term strategic objectives.

 

 

Chief Executive Officer Pay Mix at Target

 

     LOGO

Base Salary 13% Performance-Based Annual Bonus Long-Term 19% Equity-Based Incentives 68% 87% At-Risk Compensation

 

 

Performance-Based Annual Bonus

 

 

 

 85% ABP Earnings (as defined below)

  Provides accurate, comprehensive, and understandable picture of annual financial performance

  Adjusted to exclude the impact of non-contemplated acquisitions or divestitures, among other predefined adjustments

 15% Safety and Stakeholder Measures (as defined below)

  Promotes responsible and sustainable operations, and the safety of our customers and employees

 

 

 

Long-Term Equity-Based Incentives(1)

 

 

 

 Performance-Based Restricted Stock Units (weighted at 70% collectively)

  50% based on 3-year relative total shareholder return (TSR)

 35% based on 3-year relative TSR vs. S&P 500 Utilities Index(2)

 15% based on 3-year relative TSR vs. S&P 500 Index

  20% based on 3-year EPS CAGR with payout scale set based on forward consensus estimates of S&P 500 Utilities peers(2)

 Stock Options (weighted at 30%)

  Focus on growth and shareholder alignment

 

 

(1)

As used in this proxy statement, the term “long-term equity-based incentives” refers to the annual long-term incentive plan (LTIP) awards granted on January 2, 2020 and, unless stated or the context indicates otherwise, does not include any special awards.

 

(2)

For purposes of long-term equity-based incentives and labor market benchmarking, all references to the S&P 500 Utilities Index or our S&P 500 Utilities Index peers refers to the companies constituting the S&P 500 Utilities Index, excluding water companies.

Note: The Chief Executive Officer’s pay mix at target is based on 2020 annual base salary, 2020 target performance-based annual bonus and the target grant date value of the Chief Executive Officer’s 2020 long-term equity-based incentives.

2020 Compensation Decisions and Outcomes

Base Salary. Messrs. Martin and Mihalik received 2020 annual salary planning increases of 8.3% and 12.3%, respectively, in order to bring their salaries closer to the median salary of our general industry peer group. Mr. Wall received a salary increase of 13.7% in 2020, which reflects his promotion to Senior Vice President, Controller and Chief Accounting Officer effective April 4, 2020. Mr. Sagara received a 2020 salary planning increase of 4.0% in his prior role with SDG&E and an additional salary increase of 28.1% when he was promoted to Executive Vice President and Group President of Sempra Energy effective June 27, 2020.

Performance-Based Annual Bonus. Our 2020 target earnings for annual bonus plan purposes (ABP Earnings) were $2,032 million, an increase of $332 million, or 20%, over our 2019 target ABP Earnings of $1,700 million, and an increase of $52 million, or 3%, over our actual ABP Earnings for 2019. Actual ABP Earnings for 2020 were $2,339 million, which exceeded our maximum goal of $2,113 million. In determining ABP Earnings for 2020, the Compensation and Talent Development Committee made certain predefined adjustments to GAAP earnings. See “Reconciliation of GAAP Earnings to ABP Earnings” on page 56 and Appendix D to this proxy statement for additional information. After accounting for performance on employee and public safety measures (Safety Measures) and customer service and other stakeholder measures (Stakeholder Measures, and together with Safety Measures, Safety and Stakeholder Measures), 2020 annual bonuses were achieved at 198% of target.

Long-Term Equity-Based Incentives. Long-term equity-based incentives are the largest single component of the total 2020 target compensation package for each named executive officer who is still in service with our company. In accordance with our pay-for-performance philosophy, 100% of our Chief Executive Officer’s 2020 annual LTIP award was performance-based, with 50% of the award’s grant date value tied to relative TSR performance, 20% tied to EPS growth and 30% in nonqualified stock options, which the Compensation and Talent Development Committee views as performance-based because their value depends on our stock price increasing over time.


 

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Table of Contents

Proxy Statement Summary

 

    

Voting Information

Eligibility: Shareholders of our common stock at the close of business on the record date, March 19, 2021, are entitled to notice of the Annual Shareholders Meeting and to vote their shares as described below on each of the proposals to be voted on at the meeting. Each share of common stock is entitled to one vote on each director nominee and one vote on each of the other proposals to be voted on at the meeting.

Record Shareholders May Vote in the Following Ways:

 

 

LOGO

 

 

LOGO

 

 

LOGO

  LOGO   LOGO

 

Using the

Internet at

www.proxyvote.com

 

 

Calling
1-800-690-6903
in the U.S.

and Canada

 

 

Mailing your marked,

dated and signed

proxy card

 

 

Scanning the QR code
included in your
proxy materials

 

 

Attending the Annual Shareholders Meeting at

www.virtualshareholdermeeting.com
/SRE2021

For Internet and telephone voting, you will need to have your notice about the Internet availability of our proxy materials or proxy card available and use the company number and account number shown on the notice and card. Internet and telephone voting are available for shareholders of record until 11:59 p.m. Eastern Time on May 13, 2021.

Voting By Other Shareholders: Beneficial owners of shares should follow the voting instructions provided by their bank, broker or other nominee. If you hold shares in the Sempra Energy Employee Savings Plans, you are considered a beneficial owner of such shares and your voting instructions with respect to such shares must be received by 8 a.m. Eastern Time on May 11, 2021.


 

8   Sempra Energy 2021 Proxy Statement

 


Table of Contents

 

Corporate Governance

Our business and affairs are managed and all corporate powers are exercised under the direction of our Board of Directors. The board establishes fundamental corporate policies and oversees the performance of the company as well as our Chairman and Chief Executive Officer and the other officers to whom the board has delegated authority to manage our day-to-day business operations.

The board has adopted Corporate Governance Guidelines that set forth expectations for directors, director independence standards, board committee structure and functions, and other policies for the company’s governance. It also has adopted a Code of Business Conduct and Ethics for Directors and Senior Officers, which applies to each member of the Board of Directors of Sempra Energy and to each officer of Sempra Energy, SDG&E and SoCalGas. Officers also are subject to our Code of Business Conduct, which applies to all employees of Sempra Energy and any subsidiary or other entity as to which Sempra Energy has majority ownership and control. Several standing and ad hoc committees assist the board in carrying out its responsibilities. Each standing committee operates under a written charter adopted by the board.

Our Corporate Governance Guidelines, standing committee charters, including our Audit, Compensation and Talent Development and Corporate Governance Committee charters, Code of Business Conduct and Ethics for Directors and Senior Officers and Code of Business Conduct that applies to all employees, are all posted on our website at www.sempra.com under the “Investors” and “Governance” tabs. Paper copies may be obtained upon request by writing to the attention of our Corporate Secretary at Sempra Energy’s principal executive offices at 488 8th Avenue, San Diego, California 92101. If we either (1) amend a provision of our Code of Business Conduct and Ethics for Directors and Senior Officers and the amendment relates to any element of the code of ethics definition set forth in Item 406(b) of Securities and Exchange Commission (SEC) Regulation S-K, or (2) grant to our principal executive officer, principal financial officer or principal accounting officer or controller a waiver, including an implicit waiver, from a provision of our Code of Business Conduct and Ethics for Directors and Senior Officers and the waiver relates to one or more of the elements of the code of ethics definition set forth in Item 406(b) of SEC Regulation S-K, then we intend to describe on our website under the “Investors” and “Governance” tabs the date and nature of any such amendment or waiver and, if applicable, the name of the person to whom the waiver was granted, or if we do not make such disclosure on our website, we will include it in a current report on Form 8-K filed with the SEC.

Board of Directors

Functions

 

In addition to its general oversight role, our Board of Directors performs a number of specific functions, including, among others:

 

  Selecting our Chief Executive Officer and overseeing his or her performance and that of other senior management in the operation of the company

 

  Reviewing and monitoring strategic, financial and operating plans and budgets and their development and implementation by management

 

  Assessing and monitoring risks to the company’s business and evaluating and overseeing risk management strategies

 

  Reviewing and approving significant corporate actions
  Fostering the company’s values-driven culture and reviewing and monitoring processes designed to maintain the company’s integrity, including financial statements, compliance with law and ethics and relationships with shareholders, employees, customers, suppliers and other stakeholders

 

  Planning for management succession

 

  Nominating directors, evaluating board effectiveness, appointing board committee members and overseeing effective corporate governance
 

 

Leadership Structure

 

The Board of Directors retains the flexibility to determine, from time to time on an ongoing basis, whether the offices of Chief Executive Officer and Chairman of the Board should be combined or separated and whether an independent director should serve as Chairman of the Board. This flexibility permits the board to organize its functions and conduct its business in a manner it deems most effective in then-prevailing circumstances, and to select the individual it considers to be best-suited to serve as Chairman of the Board at any particular time. The non-management directors have historically evaluated the board’s leadership structure on an annual basis and expect to continue to do so, and their board leadership decisions are made based on their determination of the leadership structure that is in the best interests of the company and our shareholders at the time. In each case, this determination is made after deliberations and evaluations of the current Chairman of the Board’s performance and the board’s leadership structure generally.

 

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Jeffrey W. Martin, our current Chief Executive Officer and Chairman of the Board, was appointed as Chief Executive Officer and a director effective May 1, 2018 and was subsequently appointed as Chairman of the Board effective December 1, 2018, following the retirement of Debra Reed. In its annual evaluations of the board’s leadership structure since Mr. Martin’s appointment to this role, the non-management directors have considered, among other factors, Mr. Martin’s leadership skills and qualifications and his contributions as a director and performance as Chairman of the Board since his appointment to each of those roles. Mr. Martin is a 16-year employee of the Sempra Energy family of companies with an outstanding career of achievement, as well as extensive industry experience. Mr. Martin also has significant experience working with and adhering to the rules established by the CPUC, the principal regulator of our California utilities. He has used his experience to contribute to the board additional and valuable perspectives on, among other topics, strategy, business development, mergers and acquisitions, investor relations, succession planning, capital market activities and regulated utilities. In addition, the board has considered feedback from our shareholders on the board’s leadership structure obtained in our annual shareholder outreach program, the valuable experience Mr. Martin has accumulated serving in both the Chief Executive Officer and Chairman of the Board roles, and the company’s performance throughout Mr. Martin’s tenure holding both roles. Further, the board believes that Mr. Martin’s service as Chairman of the Board allows him to lead the board while also acting as a bridge between the board and the operating organization and provide critical leadership for future strategic initiatives and challenges. His involvement in our day-to-day operations affords him with in-depth knowledge of the issues, opportunities and challenges facing our company, which enables him to help focus our directors’ time and attention on the company’s most critical matters, while concurrently incorporating the board’s goals, strategies and initiatives for our company directly into the management of our businesses.

During periods in which we do not have an independent Chairman of the Board, our Corporate Governance Guidelines require the independent directors to select annually an independent director to serve as the Lead Independent Director (which is referred to as the “Lead Director” in our bylaws). If a Lead Independent Director is appointed, the role has broad powers and responsibilities. The position and role of the Lead Independent Director is intended to provide board leadership where the roles of a combined Chairman of the Board and Chief Executive Officer may be in conflict. It is also intended to expand lines of communication between the board and members of management and it is not intended to reduce the free and open access and communications that each director has with other directors and members of management. William D. Jones has served as our Lead Independent Director since 2019. Our robust Lead Independent Director role includes the following functions and responsibilities:

 

  Provide leadership to the Board of Directors if circumstances arise in which the role of the Chairman of the Board may be, or may be perceived by the Lead Independent Director or by the other independent directors to be, in conflict

 

  Preside at all meetings of the Board of Directors at which the Chairman of the Board is not available

 

  Organize, convene and preside over executive sessions of the non-management directors

 

  Act as the principal liaison between the independent directors and the Chairman of the Board and Chief Executive Officer

 

  Review and approve all board and committee agendas and approve information sent to the board, providing input to management on the scope and quality of such information

 

  Consult with the Chairman of the Board, Chief Executive Officer and committee chairs regarding the topics and schedules of the meetings of the board and its committees and approve such schedules to assure that there is sufficient time for discussion of all agenda items

 

  Call a special meeting of the Board of Directors or the independent directors at any time, at any place and for any purpose

 

  In consultation with the Chief Executive Officer, assist the board, the Corporate Governance Committee and management in complying with the Corporate Governance Guidelines
  Be available for consultation and direct communication with the company’s major shareholders

 

  Collect and communicate to the Chairman of the Board and Chief Executive Officer the views and recommendations of the independent directors relating to his or her performance, other than with respect to the annual performance review

 

  Consult with the Corporate Governance Committee as part of the committee’s review of director nominations and recommendations of director candidates

 

  Together with the Chair of the Corporate Governance Committee and the Chairman of the Board, has the authority to extend the board’s invitation to selected candidates to join or be nominated for election to the board

 

  Consult with directors regarding acceptance of memberships on other boards to assure that multiple board service does not conflict or otherwise interfere with such directors’ service to the company

 

  Led by the Compensation and Talent Development Committee and together with the Chairman of the Board, report annually to the board on succession planning, including policies and principles for executive officer selection

 

  Perform such other duties as may be assigned from time to time by the independent directors
 

 

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Corporate Governance

 

We conducted an extensive shareholder outreach program in 2020 regarding our board leadership structure and various other matters, in which we reached out to shareholders representing approximately 63% of our total outstanding shares of common stock and we engaged with holders of approximately 46% of our outstanding shares of common stock. Among the shareholders with whom we engaged, the majority, both in terms of number of shareholders and number of shares represented, indicated no preference for an independent Chairman of the Board as long as the Lead Independent Director has significant duties, as is the case at Sempra Energy.

The Board of Directors believes its independence and oversight of management and company risks are maintained effectively through its flexible leadership structure, including the robust role of the Lead Independent Director, sound corporate governance policies and practices, and the board’s overall composition, which currently includes 11 independent directors and 100% independent director composition of all NYSE-required board committees.

Based on the foregoing and other factors, the Board of Directors determined in its most recent evaluation of the board’s leadership structure, and continues to believe, that combining the roles of Chief Executive Officer and Chairman of the Board continues to best serve the interests of Sempra Energy and our shareholders.

Director Independence

 

The Board of Directors determines the independence of each of our directors and director nominees by applying the independence standards established by the NYSE. These standards provide that a director is independent only if the board affirmatively determines that the director has no direct or indirect material relationship with the company. Material relationships may include, depending on the circumstances, commercial, industrial, banking, consulting, legal, accounting, charitable, family and other business, professional and personal relationships. These standards also identify various relationships that preclude a determination of director independence.

Applying these standards, the board annually reviews and determines the independence of each of the company’s directors and director nominees. In its most recent review, the board considered, with respect to the company’s directors and director nominees other than Jeffrey W. Martin, who is an executive officer of the company, and Bethany J. Mayer, who served as an executive officer of the company within the last three years, among other things: each director’s affiliations, including directorships, employment or other service, significant ownership or any of the foregoing relationships of a director’s immediate family members, with organizations with which Sempra Energy or any of its subsidiaries or other entities as to which it has majority ownership does business; the absence of any employment relationships between the company and each director and his or her immediate family members; the absence of any of the other specific relationships that would preclude a determination of independence under NYSE independence standards; the absence of any affiliation of each director or his or her immediate family members with the company’s independent registered public accounting firm, compensation consultants, legal counsel or investment banks; the absence of any transactions in which a director or his or her immediate family members has a direct or indirect material interest that would require disclosure in this proxy statement under SEC rules regarding related person transactions; and the modest amount of our discretionary contributions to non-profit organizations with which some of our directors or their respective immediate family members may be associated. In assessing the materiality of director relationships, the board broadly considers all relevant facts and circumstances both from the standpoint of the director and also from that of persons or organizations with which the director has an affiliation.

Based on this review, the board has affirmatively determined that each of the following non-employee directors, each of whom is a director nominee standing for re-election at the Annual Shareholders Meeting, is independent:

 

Alan L. Boeckmann

 

Andrés Conesa

 

Maria Contreras-Sweet

 

Pablo A. Ferrero

  William D. Jones

 

Michael N. Mears

 

Jack T. Taylor

 

Cynthia L. Walker

  Cynthia J. Warner

 

James C. Yardley

Based on its review, the board also has affirmatively determined the independence of Kathleen L. Brown, who is currently a director but, in keeping with our retirement policy, has not been nominated to stand for re-election as a director in 2021.

Director Share Ownership Guideline

 

The board has established a director share ownership guideline to further strengthen the link between director and shareholder interests. For non-employee directors, the guideline is ownership of a number of our shares having a value of five times the directors’ annual base retainer of $85,000, resulting in an ownership guideline equal to $425,000. For these purposes, share ownership includes phantom shares into which compensation has been deferred, restricted stock units and the in-the-money value of service-based stock

 

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options, as well as shares owned directly. The Compensation and Talent Development Committee annually reviews adherence to this guideline, which is expected to be attained within five years of becoming a director. Following its review in 2020, the Compensation and Talent Development Committee determined that all of our non-employee directors who have been on the board for at least five years meet or exceed this guideline.

The board also has established executive officer share ownership guidelines. For information about these guidelines, please see “Executive Compensation—Compensation Discussion and Analysis—Share Ownership Guidelines.”

Director Overboarding Policy

 

In response to shareholder feedback and voting policies of some of our shareholders, in 2020, the board updated its Corporate Governance Guidelines to adopt a more restrictive director “overboarding” policy. Pursuant to the new policy, any director or director nominee who is not also a named executive officer of a public company should not serve on more than four public company boards (including our board), and any director or director nominee who is a named executive officer of a public company should not serve on more than two public company boards (including our board and the board of the company for which the director serves as a named executive officer). In the event a director or director nominee serves on more boards than permitted by this policy, such director will be expected to become compliant with the policy in advance of Sempra Energy’s next annual shareholders meeting. Additionally, our Corporate Governance Guidelines provide that no member of the Audit Committee may serve on more than a total of three audit committees of public companies (including our Audit Committee) unless the board affirmatively determines that a director’s multiple service on audit committees does not impair the director’s effectiveness on our Audit Committee.

Board, Committee and Shareholder Meetings

 

At regularly scheduled board and committee meetings, directors review and discuss management reports regarding the company’s performance, prospects and plans, as well as significant opportunities and material risks facing the company and other matters the board considers necessary to carry out its responsibilities. At least once a year, the board reviews management’s long-term strategic and financial plans, including an annual detailed and comprehensive strategy discussion. The Chairman of the Board or, in certain circumstances as described in “Leadership Structure” above, the Lead Independent Director, presides over each board meeting.

The Chairman of the Board leads all board meetings and proposes the agenda and schedule for each meeting, which the Lead Independent Director then reviews and modifies or approves. Committee agendas and schedules are set by or in consultation with the committee chair and with the approval of the Lead Independent Director. All directors are encouraged to propose agenda items, and any director also may raise at any meeting subjects that are not on the agenda.

Information and other materials important to understanding the business to be conducted at each board and committee meeting, to the extent available, are distributed in writing to the directors in advance of the meeting. Additional information and materials may be presented at the meetings.

At executive sessions, directors convene in both director-only sessions and sessions with non-management directors only to discuss issues such as succession planning, Chief Executive Officer performance and compensation (although the Chief Executive Officer is not present for deliberations or approvals of his own compensation), executive development, board performance and other matters deemed relevant. An executive session is held at each regular board meeting, and any director may call for an executive session at any board meeting. The Lead Independent Director presides over executive sessions in which the Chairman of the Board is not present.

During 2020, the board held 11 meetings and committees of the board, including standing and ad hoc committees, collectively held 52 meetings. Directors, on an aggregate basis, attended 96% of the combined number of these meetings. Each incumbent director attended at least 75% of the aggregate number of meetings of the board and each committee of which the director was a member (in each case during the periods when he or she was a member).

The board expects that each director will attend the Annual Shareholders Meeting. Thirteen members of the board attended our 2020 annual shareholders meeting, which also was held virtually.

Evaluation of Board and Director Performance

 

The Corporate Governance Committee annually reviews and evaluates the performance of the Board of Directors in a number of categories, including board oversight, leadership, composition and independence, conduct of meetings and committees. In this review, the Corporate Governance Committee assesses the board’s performance as a whole and identifies areas in which the board or senior

 

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management believes performance could improve. The purpose of the review is to increase the effectiveness of the board, and the results are reviewed with the board and its committees. The results also are considered in connection with board refreshment efforts. In addition, each standing committee, other than the Executive Committee, conducts an annual self-evaluation, in accordance with its charter.

As illustrated below, the board also conducts an annual peer evaluation by which each director is afforded the opportunity to comment anonymously on each other board member’s performance. In order to help ensure the objectivity and integrity of this process, an outside law firm is engaged every year to conduct the peer review portion of this evaluation and compile the results.

 

 

LOGO

Each independent director receives an evaluation survey for each other independent director Directors forward completed surveys to an outside law firm that compiles results, maintaining confidentiality The law firm provides compiled results to the Corporate Governance Committee Chair who discusses with the CEO The Corporate Governance Committee Chair and CEO address specific issues directly with individual directors as needed The full board discusses results and identifies areas in which the board can be improved and enhanced to increase board effectiveness

Our board annually reviews the individual performance and qualifications of each director who may wish to be considered for nomination for election for an additional term. The evaluations are reviewed by the Corporate Governance Committee, which makes recommendations to the board regarding nominees to stand for election as directors. Our board appreciates the importance of critically evaluating directors and their contributions to the board in connection with the re-nomination decision, including their collective skills, qualifications and experience, feedback from the annual board evaluation, and individual performance, attendance, participation, independence and outside board and other affiliations.

The Board’s Role in Risk Oversight

 

Our businesses invest in, develop and operate energy infrastructure, and provide electric and gas services to customers in North America. These businesses include regulated electric and natural gas transmission and distribution utilities as well as businesses that develop and operate LNG liquefaction facilities for the export of LNG worldwide and that develop and operate energy infrastructure in the United States and Mexico. Risks are inherent in these businesses, including, among others, health, safety and operational risks, human capital risks, regulatory and compliance risks, cybersecurity risks, climate and other environmental risks, business and financial risks and reputational risks.

Management has developed an integrated risk management framework to assess, prioritize, manage and monitor risks across the company’s operations. Sempra Energy’s board has ultimate responsibility for risk oversight under this framework. Consistent with this approach, our Corporate Governance Guidelines provide that the specific functions of the Board of Directors include assessing and monitoring risks and risk management strategies.

The board believes that risk oversight stretches far beyond any one committee. As a result, the board has diversified its risk oversight responsibilities across its membership, housing categories of risk oversight within standing board committees by topic and forming ad hoc committees to manage and oversee certain specific risks as needed. For example, the responsibilities of the board’s Safety, Sustainability and Technology Committee include issues affecting the environment and the committee is regularly briefed on the company’s progress on environmental and sustainability matters. This committee also oversees the company’s overall safety policies, reinforcing our strong commitment to safety. Additionally, this committee oversees cybersecurity and other information technology risks and keeps abreast of technology advancements of importance to our business. In addition, the board may form ad hoc committees to manage and oversee certain risks. Any risk oversight that does not fall within the responsibility of a particular committee remains with the full board. The committee chairs periodically report to the full board regarding their respective committees’ risk oversight role.

The board and its appropriate committees periodically review and evaluate the material risks we face. In addition, a review of Sempra Energy’s most material risks and mitigation strategies for these risks is presented by senior management to the full board annually. The board also reviews and monitors strategic, financial and operating plans that are intended to support sustainable long-term growth. Each of our principal operating units is responsible for identifying and moderating risk in a manner consistent with these goals. The board fulfills its risk oversight function through, among other things, the review of reports provided both directly to the board and to appropriate board committees, discussions with management, appointment of outside experts, selection of director candidates with diverse experience and qualifications, and staying informed on developments in our industry and other current events that may impact the company. Based on the foregoing, the board and its committees establish new or monitor and, as needed, amend existing risk oversight and control mechanisms. In addition, the company has a robust internal audit function that reports directly to the Audit Committee.

 

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The board and its committees seek to manage risk by establishing policies and practices that apply to various aspects of our business, including, among others:

 

  The appropriate capital structure for our businesses

 

  Utility investment plans consistent with state policy objectives and regulatory review and approval of significant investments

 

  Non-utility investment policies, including requiring substantial contractual commitments from third parties to purchase the capacity or output of major non-utility projects before commencing construction on the projects, subject to exceptions

 

  An employee compensation program that encourages and rewards sustainable growth in our business and is within an acceptable risk profile
  Commitment policies that require board review and/or approval above certain dollar thresholds

 

  Reviews of the company’s high-performing culture with a focus on significant operating measures, such as safety, sustainability, diversity and inclusion of our workforce and customer service

 

  With respect to investments in which we do not operate or control the related entity, careful selection of business partners and representation on the entity’s board or equivalent governing body when possible
 

 

For additional information on the responsibilities of board committees, see “Board Committees” below.

Board Approach to Certain Key ESG Topics

 

The board recognizes the importance of risks and opportunities related to environmental stewardship, safety and stakeholder engagement and responsible governance and believes a focus on these factors is consistent with our vision, mission and values and can help our company achieve better business outcomes. In order to strengthen and clarify the way in which the board oversees and considers sustainability and other ESG matters, the board changed the name of its Environmental, Health, Safety and Technology Committee to “Safety, Sustainability and Technology Committee” and has revised this committee’s charter to describe more fully the committee’s oversight of and focus on these matters. The board continues to strongly focus on the ESG topics discussed below.

Safety and COVID-19

Health and safety are foundational at the Sempra Energy family of companies. In addition to our enterprise-wide commitment to safety improvement and our ongoing focus on safety and reliability in our operations and our capital spending, the board and management directed significant efforts and attention in 2020 to the COVID-19 pandemic. As soon as the severity of the pandemic became known, the board began holding informal weekly calls with management to monitor and oversee management’s robust response and ongoing efforts to address the impact of the pandemic on the employees, customers and communities served by the Sempra Energy family of companies. This response included:

 

 

Employees

 

 

  Activated enterprise-wide Pandemic Response Leadership Team to respond quickly to changing conditions and help manage risks

 

  Hired a full-time infectious disease specialist to provide us
with expert advice

 

  Instituted travel bans, restricted office access and increased sanitization

 

  Revised protocols for essential onsite employees, including physical separation within operating groups and increased protective gear

 

  Expanded paid sick and emergency leave policies for
employees who need additional flexibility

 

  Providing employees technology reimbursement, stress management and mental health resources

 

  Continuing to engage with public health authorities to implement current health, safety and security guidelines, helping ensure a safe return to work plan

 

 

 

 

Customers

 

 

  Offering flexible payment plans and suspending service disconnections to help maintain uninterrupted energy service

 

  Enforcing physical distancing and personal protective equipment (PPE) protocol while performing work in customer homes / businesses

 

  Introduced contactless enrollment option for energy savings assistance program in response to COVID-19 social distancing guidelines

 

    

 

Local Communities

 

 

  Donated over $14 million for COVID-19 relief and recovery efforts; our support addresses food insecurity, senior services, medical supplies, worker relief and more in communities throughout North and South America

 

  Expanded employee giving program to include a one-to-one match by Sempra Energy to financial contributions to charitable causes, virtual volunteering or actual time spent volunteering

 

 

 

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High-Performance Culture

In addition to safety oversight, there is a strong focus on building a high-performing and inclusive culture at the board level. As discussed elsewhere in our proxy materials, the board also takes an active role in overseeing efforts to promote diversity and inclusion in our workforce, primarily through its Compensation and Talent Development Committee. This includes working with senior management to help ensure that, at the heart of our value of championing people, the company maintains its commitment to invest in our employees and to advance inclusivity in our business culture. We believe this elevates our performance and helps us to partner responsibly.

Energy Transition

The board, primarily through its Safety, Sustainability and Technology Committee, takes an active role in providing oversight of the company’s strategies for helping to enable a just energy transition in the markets we serve, with a view towards achieving net-zero greenhouse gas emissions in our own operations by 2050 and enabling our customers to work toward their own net-zero greenhouse gas emissions goals by 2050. This includes reviewing business risks and opportunities in the context of local, national and global energy, economic and climate trends, as well as overseeing the company’s strategies and capabilities relating to safety and reliability; decarbonization of key market sectors, including power generation, industry and transportation; digitization of energy systems, including use of robotics and artificial intelligence; and diversification of energy systems, including the integration of distributed energy resources. In addition, the board oversees the company’s efforts to minimize the impact of company operations on the environment.

Transparency

The board believes transparency with respect to key ESG risks and opportunities is an important way for us to convey to our shareholders and other stakeholders how we prioritize these topics. As a result, we perform stakeholder-driven materiality assessments and make extensive disclosures about these topics, in many cases surpassing the standards of our peers or expectations for our industry, and our board oversees many of these disclosures. For example, our annual corporate sustainability report includes goals and results in the areas of emissions reductions, renewable energy, energy efficiency, water use, employee and public safety, electric reliability, customer assistance programs, employee diversity and inclusion, employee engagement and community giving. We also publicly report detailed information annually on our greenhouse gas emissions and climate-related risks and opportunities. We prepare our sustainability disclosures in alignment with the guidelines of many of the largest sustainability frameworks in the world, including Global Reporting Initiative (GRI) Standards, the Sustainability Accounting Standards Board (SASB) framework for electric utility and natural gas utility performance, the Task Force on Climate-related Financial Disclosures (TCFD) guidelines, the CDP (formerly Carbon Disclosure Project) disclosure system and the Edison Electric Institute and American Gas Association combined template. In 2021, we expect to pilot the new International Business Council Stakeholder Capitalism disclosure framework. In addition, our Annual Report to Shareholders includes descriptions and other detailed information about our efforts and goals to promote diversity and inclusion in our workforce, including information about the gender and racial/ethnic make-up of our workforce.

Succession Planning and Management Development

 

Our Compensation and Talent Development Committee oversees and regularly evaluates leadership succession planning practices and results. The committee reports at least annually to the Board of Directors on succession planning, including policies and principles for executive officer selection. In connection with this review and the departures of Dennis V. Arriola and George W. Bilicic in 2020, the board appointed Kevin C. Sagara as Executive Vice President and Group President of Sempra Energy in June 2020.

Review of Related Person Transactions

 

SEC rules require us to describe any transaction since the beginning of 2020 or any currently proposed transaction involving more than $120,000 in which we were or will be a participant and any of our directors, director nominees, executive officers, persons or entities known by us to be a beneficial owner of more than 5% of our common stock, or any member of their respective immediate families, had or will have a direct or indirect material interest. The charter of our Corporate Governance Committee requires the committee to review and approve or ratify any such “related person transaction” that is required to be disclosed. When evaluating any such transaction, the Corporate Governance Committee focuses on a variety of factors on a case-by-case basis, including, among other things, the identity of the related person, the nature and terms of the transaction, the interest of the related person in the transaction and the dollar amount involved. There were no transactions requiring such review since the beginning of 2020.

 

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Director Orientation and Education Programs

 

Every new director participates in an orientation program and receives materials and briefings to acquaint him or her with our business, industry, management and corporate governance policies and practices. Continuing education is provided for all directors through board materials and presentations, discussions with management, visits to corporate facilities and other sources. Several directors, at the company’s expense, also attend third-party offered education courses and participate in the National Association of Corporate Directors (NACD), of which the company is a member.

Director Access to Senior Management, Independent Accountant and Counsel

 

Directors have complete access to our senior management and other employees, as well as to our independent registered public accounting firm. Directors also have complete access to counsel, advisors and experts of their choice to assist the board as needed in discharging its duties.

Retirement Policy

 

In accordance with our Corporate Governance Guidelines, directors should not be nominated to stand for election after attaining age 75.

Board Committees

Our standing board committees consist of the Audit Committee, the Compensation and Talent Development Committee, the Corporate Governance Committee, the Safety, Sustainability and Technology Committee and the Executive Committee. In addition to these standing board committees, the board may, from time to time, establish ad hoc committees to address particular matters, transactions and projects.

The following chart sets forth our standing board committees and membership on these committees as of the date of mailing this proxy statement:

 

    Audit  

Compensation    

and Talent    
Development    

  Corporate    
Governance    
 

Safety,    

Sustainability and    
Technology    

  Executive    
         

Alan L. Boeckmann

 

 

 

 

   

 

 

 

         

Kathleen L. Brown

 

 

 

 

     
         

Andrés Conesa

    LOGO  

 

 

 

 
         

Maria Contreras-Sweet

     

 

 

 

 

 

         

Pablo A. Ferrero

 

 

 

 

     

 

         

William D. Jones

 

 

    LOGO  

 

 
         

Jeffrey W. Martin

 

 

 

 

 

 

 

 

  LOGO
         

Bethany J. Mayer

 

 

 

 

 

 

  LOGO  
         

Michael N. Mears

   

 

 

 

   

 

         

Jack T. Taylor

  LOGO    

 

 

 

 
         

Cynthia L. Walker

   

 

 

 

   

 

         

Cynthia J. Warner

 

 

     

 

 

 

         

James C. Yardley

   

 

 

 

   

 

                                          = Committee Member

  LOGO = Committee Chair                                        

 

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Audit Committee

 

 

Our Audit Committee currently is, and at all times in 2020 was, entirely composed of independent directors under the independence standards for such a committee established by the NYSE and the SEC. It is directly responsible and has sole authority for the appointment, compensation, retention and oversight of our independent registered public accounting firm, which reports directly to the committee. The committee also prepares the report included in this proxy statement under “Audit Committee Report.” In addition, it assists the Board of Directors in fulfilling oversight responsibilities regarding, among other things:

 

  The company’s internal controls over financial reporting

 

  The integrity of our financial statements

 

  Our compliance with legal and regulatory requirements
  The independent registered public accounting firm’s qualifications and independence

 

  The performance of our internal audit function and independent registered public accounting firm
 

 

The Audit Committee helps ensure the independence of our independent registered public accounting firm by, among other things, assuring the mandated rotation of the lead audit partner in accordance with SEC rules. The Audit Committee and its chair are directly involved in the selection of the independent registered public accounting firm’s lead audit partner, including by meeting with the lead audit partner candidate and discussing with the committee members and management. We most recently rotated our lead audit partner in 2019.

The board has determined that each member of the Audit Committee is financially literate. It also has determined that Mr. Taylor, who chairs the committee, and Ms. Walker, who is a member of the committee, are audit committee financial experts as defined by the rules of the SEC.

During 2020, the Audit Committee held seven meetings.

Compensation and Talent Development Committee

 

 

Our Compensation and Talent Development Committee (formerly named the Compensation Committee) currently is, and at all times in 2020 was, entirely composed of independent directors under the independence standards for such a committee established by the NYSE and the SEC. It assists the board in the evaluation and compensation of our executives, and it establishes our compensation principles and policies and designs and oversees our executive compensation program. The committee’s responsibilities include, among others:

 

  Reviewing and approving corporate goals and objectives relevant to the Chief Executive Officer’s compensation

 

  Evaluating our Chief Executive Officer’s performance in light of those goals and objectives and determining and approving (and recommending for ratification by the board acting solely through the independent directors) his or her compensation level based on the committee’s performance evaluation

 

  Determining and approving (and periodically reviewing with the board) other executive officer compensation

 

  Making recommendations to the board with respect to incentive compensation plans and equity-based plans that are subject to board approval

 

  Evaluating and overseeing risk in our compensation programs
  Reviewing and discussing the Compensation Discussion and Analysis required to be included in the company’s proxy statement and Annual Report on Form 10-K (Form 10-K) with management and determining whether to recommend to the board that such disclosure be so included

 

  Producing the report included in this proxy statement under “Compensation and Talent Development Committee Report”

 

  Reporting to the board annually on succession planning together with the Chairman of the Board and Lead Independent Director, including on principles for executive officer selection, and reviewing reports on the corporation’s human capital management policies, initiatives and outcomes, including efforts to build a more diverse and inclusive workplace

 

  Overseeing benefit plans and programs
 

 

During 2020, the Compensation and Talent Development Committee held six meetings.

 

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Corporate Governance Committee

 

 

Our Corporate Governance Committee currently is, and at all times in 2020 was, entirely composed of independent directors under the independence standards established by the NYSE. The committee’s responsibilities include, among others:

 

  Identifying individuals qualified to become directors consistent with criteria approved by the board

 

  Recommending to the board nominees to stand for election as directors and candidates to fill board vacancies

 

  Overseeing the evaluation of the board and management
  Recommending directors for appointment by the board as members of board committees

 

  Developing and recommending to the board corporate governance guidelines
 

 

The committee reviews with the board the skills and characteristics required of directors in the context of current board membership and the needs of the board as a whole in light of the company’s long-term business strategy. It seeks a group of individuals who bring to the board a variety of complementary skills and a range of viewpoints, backgrounds, experiences and other individual qualities and attributes that contribute to overall board diversity. It solicits the names of director candidates from a variety of sources, including members of the board and search firms. The committee also considers candidates submitted by shareholders pursuant to the process described in Question 33 under “Information About 2022 Shareholder Proposals and Director Nominations” below. The committee assesses the effectiveness of its policies as part of its annual review of board composition and board, committee and individual director performance and in its recommendations to the board of nominees to stand for election as directors at the next annual meeting of our shareholders.

The committee reviews biographical data and other relevant information regarding potential board candidates, may request additional information from the candidates or other sources and, if the committee deems it appropriate, may interview candidates and consult references and others who may assist in candidate evaluation. The committee evaluates all candidates in the same manner, whether identified by shareholders or through other sources.

In considering potential director candidates, the committee evaluates each candidate’s character, integrity, independence, judgment, knowledge, experience, background and other relevant factors to develop an informed opinion of his or her qualifications and ability and dedication to meet the board’s expectations for directors as set forth in our Corporate Governance Guidelines. The committee’s deliberations reflect the board’s requirement that substantially all directors must be independent and that all director nominees must be financially literate or must become financially literate within a reasonable time after becoming a director. They also reflect the board’s views regarding the appropriate number of directors and the composition of the board, including its belief that the membership of the board should reflect diversity and be drawn from a pool of diverse, qualified candidates.

The committee, in recommending nominees to stand for election as directors at the Annual Shareholders Meeting, and the board, in approving the nominees, considered the individual experience, background, qualifications, attributes and skills of each nominee (including his or her prior contributions to the board), with a view toward constituting a board that, as a whole, is well-qualified to oversee our businesses.

With respect to Dr. Conesa, the committee and the board also considered that he has been the Chief Executive Officer and a director of Grupo Aeroméxico S.A.B. de C.V. since 2005 and that Grupo Aeroméxico filed a voluntary petition under Chapter 11 of the U.S. federal bankruptcy laws on June 30, 2020. The committee and the board concluded that this event does not reflect upon the integrity of Dr. Conesa or his ability and qualifications to serve on our board, but was a direct result of the unprecedented global COVID-19 pandemic that resulted in domestic and international travel restrictions and severely impacted the air travel industry.

For additional information about the nominees and their qualifications, please see “Proposal 1: Election of Directors.”

During 2020, the Corporate Governance Committee held six meetings.

 

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Safety, Sustainability and Technology Committee

 

 

Our Safety, Sustainability and Technology Committee (formerly named the Environmental, Health, Safety and Technology Committee) is responsible for, among other things, assisting the board:

 

  In overseeing the company’s risk management and oversight programs and performance related to environmental, health, safety, security (including cybersecurity), technology, climate change, sustainability and other related ESG matters affecting the company

 

  On matters relating to environmental, health and safety laws, regulations and other ESG developments at the global, national, regional and local levels and evaluating ways to address these matters as part of the company’s immediate and longer-term business strategies and operations
  In reviewing management’s implementation of risk management protocols with respect to cybersecurity issues, and overseeing matters relating to technology developments that advance the company’s environmental, health, safety, security (including cybersecurity), climate change, sustainability and other related ESG goals

 

  In reviewing with management and, where appropriate, making recommendations to management and the Board of Directors regarding the company’s policies, practices and strategies with respect to environmental, health, safety, security (including cybersecurity), technology, climate change, sustainability and other related ESG matters
 

 

During 2020, the Safety, Sustainability and Technology Committee held five meetings.

Executive Committee

 

 

Our Executive Committee meets on call by the Chairman of this committee to act on emergency or other time-sensitive issues during periods between meetings of the Board of Directors when scheduling or other requirements make it difficult to convene the full board. The Executive Committee did not meet in 2020.

Communications with the Board

The board has adopted a Director Communications Policy to facilitate communications with the company’s Board of Directors, which is available on our website under the “Investors” and “Governance” tabs. Under this policy, shareholders, employees and other interested parties who wish to communicate with the board, non-employee directors as a group, a board committee, the Chair of a board committee or another specific director may do so by mail addressed to the board or the specific directors or group of directors and in care of our Corporate Secretary. All such communications regarding executive compensation will be relayed to the Compensation and Talent Development Committee Chair for appropriate evaluation and consideration. All such communications regarding accounting, accounting policies, internal accounting controls and procedures, auditing matters, financial reporting processes or disclosure controls and procedures will be relayed to the Audit Committee Chair.

All other communications are reviewed by the Corporate Secretary and provided to the directors consistent with a screening policy providing that unsolicited items, marketing or advertising materials and other routine items, as well as items unrelated to the duties and responsibilities of the board, are not relayed to directors. Any communication that is not relayed is recorded in a log and made available to the directors upon request.

The address to which communications to the Board should be sent is:

 

LOGO  

C/O Corporate Secretary

Board of Directors

Sempra Energy

488 8th Avenue

San Diego, CA 92101

 

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Director Compensation

Overview

 

 

The Compensation and Talent Development Committee of the Sempra Energy Board of Directors reviews non-employee director compensation on an annual basis. The committee’s independent compensation consultant, Exequity, annually provides the committee with a report that analyzes the competitiveness of Sempra Energy’s director compensation in total and by component. Any changes to director compensation are approved by the Board of Directors.

Directors who also are employees of the company are not additionally compensated for service as a director. Compensation of Jeffrey W. Martin, our Chairman, Chief Executive Officer and President, is summarized in the 2020 Summary Compensation Table appearing under “Executive Compensation—Compensation Tables” below.

Our 2020 director compensation program is summarized in the table below.

 

2020 Director Compensation Program

 

Board Retainers:

  

Annual Base Retainer

   $ 85,000  

Lead Director Retainer

   $ 40,000  

Committee Chair Retainers:

  

Audit Committee Chair Retainer

   $ 20,000  

Compensation and Talent Development Committee Chair Retainer

   $ 15,000  

Other Committee Chair Retainer (A)

   $ 10,000  

Committee Member Retainers:

  

Audit Committee Member Retainer

   $ 20,000  

Other Committee Member Retainer (B)

   $ 10,000  

Equity:

  

Mandatory Deferred Equity

   $ 50,000  

Annual Equity Award

   $ 90,000  

Initial Equity Award for New Director

   $ 90,000  

 

(A)

Applicable to the Corporate Governance Committee and Safety, Sustainability and Technology Committee.

 

(B)

Applicable to the Compensation and Talent Development Committee; Corporate Governance Committee; Safety, Sustainability and Technology Committee and Executive Committee.

Retainers

 

 

Directors who are not employees of Sempra Energy received annual retainers in 2020 as set forth in the table above. Directors could elect to receive their retainer in cash or to defer it into phantom investment funds (including a fund for which interest is credited at the higher of 110% of the Moody’s Corporate Bond Yield Average or the Moody’s Corporate Bond Yield Average plus 1%) or phantom shares of our common stock.

Equity

 

 

Each quarter in 2020, non-employee directors were credited with a number of vested phantom shares of our common stock having a market value of $12,500, which we refer to as Mandatory Deferred Equity, and are required to hold these phantom shares until retirement or other separation from the board. Following the director’s retirement or other separation from the board, the current market value of the shares credited to the director’s account (together with related reinvested dividend equivalents) is paid to the director in cash. Directors also received initial or annual equity awards, which are described below. Directors could elect to receive the initial and annual equity awards in the form of restricted stock units or phantom shares of our common stock.

In our 2020 director compensation program, any newly appointed non-employee director would have received an initial equity award of restricted stock units or phantom shares of our common stock having a market value of $90,000 and vesting (together with related reinvested dividend equivalents) on the first anniversary of the grant date. Thereafter, at each annual shareholders meeting (other than

 

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the annual meeting in the same calendar year as the director’s initial appointment to the board), each non-employee director who continues to serve as a director receives a grant of restricted stock units or phantom shares of our common stock that, in our 2020 director compensation program, had a market value of $90,000 and vests (together with related reinvested dividend equivalents) on the date of the next annual shareholders meeting.

Unvested restricted stock units or phantom shares of our common stock immediately vest if the director’s service on the board terminates by reason of death, disability or removal without cause. Upon any other termination event, all unvested units or phantom shares are forfeited.

Director Compensation Table

 

 

We summarize below the 2020 compensation of our non-employee directors who served on our board during the year.

2020 DIRECTOR COMPENSATION TABLE

 

  

 

  

Fees Earned or

Paid in Cash

 

      

Stock
Awards

(B)

 

    

Change in Pension Value
and Nonqualified Deferred

Compensation Earnings

(C)

 

    

All Other

Compensation

(D)

 

    

Total

 

 

Alan L. Boeckmann

     $  95,000        $ 140,000        $     515        $20,000      $ 255,515  

Kathleen L. Brown

     $115,000        $ 140,060                        $25,000      $ 280,060  

Andrés Conesa

     $131,415        $ 140,060                               —      $ 271,475  

Maria Contreras-Sweet

     $115,000        $ 140,060        $     191        $  2,650      $ 257,901  

Pablo A. Ferrero

     $105,000        $ 140,060                               —      $ 245,060  

William D. Jones

     $165,000        $ 140,000        $90,158        $20,000      $ 415,158  

Bethany J. Mayer

     $108,132        $ 140,000                        $25,000      $ 273,132  

Michael N. Mears

     $111,566        $ 140,000        $  1,350        $17,700      $ 270,616  

William C. Rusnack (A)

     $  45,000        $ 17,308        $59,895        $25,000      $ 147,203  

Lynn Schenk (A)

     $  43,269        $ 17,308                        $25,000      $ 85,577  

Jack T. Taylor

     $145,000        $ 140,000        $  5,540        $14,500      $ 305,040  

Cynthia L. Walker

     $111,566        $ 140,000                        $16,917      $ 268,483  

Cynthia J. Warner

     $105,000        $ 140,060                        $25,000      $ 270,060  

James C. Yardley

     $115,000        $ 140,000                        $25,000      $ 280,000  

 

(A)

Mr. Rusnack and Ms. Schenk were not nominated to stand for re-election and retired from the board effective May 5, 2020.

 

(B)

Represents the grant date fair value of the equity grants of restricted stock units and phantom shares of our common stock granted during the year. These amounts represent our grant date estimate of the aggregate compensation expense that we will recognize over the service period of the awards. They are calculated in accordance with GAAP for financial reporting purposes based on the assumptions described in Note 10 of the Notes to Consolidated Financial Statements included in our Annual Report to Shareholders but disregarding estimates of forfeitures related to service-based vesting conditions. These awards were valued at the fair market value of our shares at the crediting date without reduction for non-transferability. The amounts set forth in this column are equal to the number of shares subject to 2020 awards multiplied by the grant date closing price of Sempra Energy’s common stock. The restricted stock units will be settled in shares of Sempra Energy common stock upon vesting. The phantom shares are paid in cash in accordance with the director’s payout election under the terms of the company’s nonqualified deferred compensation plan following the director’s retirement or other separation from the board.

 

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The following table reflects the components of the stock awards granted to each non-employee director in 2020:

 

                Equity Grant           

    

 

    

 

Mandatory
Deferred  Equity(1)

 

      

 

Phantom

Shares

 

      

 

Restricted

Stock Units

 

      

Total

 

 

Alan L. Boeckmann

       $50,000          $90,000                          $ 140,000  

Kathleen L. Brown

       $50,000                            $90,060        $ 140,060  

Andrés Conesa

       $50,000                            $90,060        $ 140,060  

Maria Contreras-Sweet

       $50,000                            $90,060        $ 140,060  

Pablo A. Ferrero

       $50,000                            $90,060        $ 140,060  

William D. Jones

       $50,000          $90,000                          $ 140,000  

Bethany J. Mayer

       $50,000          $90,000                          $ 140,000  

Michael N. Mears

       $50,000          $90,000                          $ 140,000  

William C. Rusnack

       $17,308                                            $ 17,308  

Lynn Schenk

       $17,308                                            $ 17,308  

Jack T. Taylor

       $50,000          $90,000                          $ 140,000  

Cynthia L. Walker

       $50,000          $90,000                          $ 140,000  

Cynthia J. Warner

       $50,000                            $90,060        $ 140,060  

James C. Yardley

       $50,000          $90,000                          $ 140,000  

 

(1)

Mandatory deferred equity was prorated for Mr. Rusnack and Ms. Schenk, who retired effective May 5, 2020. Restricted stock units are rounded up to the next whole number of units.

The following table summarizes outstanding equity balances for each non-employee director at December 31, 2020:

 

    

 

  

 

Phantom
Shares

 

      

 

Restricted
Stock Units

 

    

Total

 

 

Alan L. Boeckmann

     22,771                 22,771  

Kathleen L. Brown

     10,248          737        10,985  

Andrés Conesa

     3,187          737        3,924  

Maria Contreras-Sweet

     1,689          737        2,426  

Pablo A. Ferrero

     3,655          737        4,392  

William D. Jones

     33,829                 33,829  

Bethany J. Mayer

     1,338                 1,338  

Michael N. Mears

     3,317                 3,317  

William C. Rusnack

     15,592                 15,592  

Lynn Schenk

     16,052                 16,052  

Jack T. Taylor

     12,152                 12,152  

Cynthia L. Walker

     1,656          553        2,209  

Cynthia J. Warner

     1,343          737        2,080  

James C. Yardley

     11,904                 11,904  

 

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(C)

Consists of (i) the aggregate change in the actuarial value of accumulated benefits under defined benefit pension plans and (ii) above-market interest (interest in excess of 120% of the federal long-term rate) on deferred compensation. The 2020 amounts are:

 

    

 

  

 

Change in

Accumulated

Benefits

 

      

 

Above-Market

Interest

 

    

Total

 

 

Alan L. Boeckmann

                    $ 515      $ 515  

Kathleen L. Brown

                      —         

Andrés Conesa

                      —         

Maria Contreras-Sweet

                    $ 191      $ 191  

Pablo A. Ferrero

                      —         

William D. Jones

               $ 88,244                    $ 1,914      $ 90,158  

Bethany J. Mayer

                      —         

Michael N. Mears

                    $ 1,350      $ 1,350  

William C. Rusnack

                    $ 59,895      $ 59,895  

Lynn Schenk

                      —         

Jack T. Taylor

                    $ 5,540      $ 5,540  

Cynthia L. Walker

                      —         

Cynthia J. Warner

                      —         

James C. Yardley

                            —         

 

    

Only Mr. Jones is entitled to receive grandfathered pension benefits and he has attained the maximum years of service credit. The annual benefit is based on the annual board retainer at the date the benefit is paid. It commences upon the latter of the conclusion of board service or attaining age 65 and continues for a period not to exceed the director’s years of service as a director of predecessor companies plus up to 10 years of service as a director of the company. The actuarial equivalent of the total retirement benefit is paid to the retiring director in a single lump sum upon the conclusion of board service, unless the director has elected to receive the annual benefit. As of December 31, 2020, the aggregate actuarial present value of the accumulated benefit under the grandfathered pension plan for Mr. Jones was $824,853.

 

(D)

Consists of our contributions to charitable, educational and other non-profit organizations to match those of directors on a dollar-for-dollar basis up to an annual maximum match of $25,000 for each director.

In addition to the compensation for non-employee directors set forth above, Sempra Energy has agreements with these directors that provide for indemnification for monetary damages to the fullest extent permissible under California law, which are intended to mitigate concern about personal liability in connection with their service for the company.

 

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Audit Committee Report

The Audit Committee of the Board of Directors is composed of the six directors named below, all of whom have been determined by the board to be independent directors. The board also has determined that all members of the committee are financially literate and that Mr. Taylor, the Chair of the committee, and Ms. Walker, a member of the committee, are audit committee financial experts as defined by the rules of the Securities and Exchange Commission. The committee’s charter, adopted by the board, is posted on the company’s website at www.sempra.com under the “Investors” and “Governance” tabs.

The committee’s responsibilities include appointing the company’s independent registered public accounting firm, pre-approving both audit and non-audit services to be provided by the firm and assisting the board in providing oversight of the company’s financial reporting process. In fulfilling its oversight responsibilities, the committee meets with the company’s independent registered public accounting firm, internal auditors and management to review accounting, auditing, internal control and financial reporting matters.

It is not the committee’s responsibility to plan or conduct audits or to determine that the company’s financial statements and disclosures are complete, accurate and in accordance with accounting principles generally accepted in the United States and applicable laws, rules and regulations. Management is responsible for the company’s financial statements, including the estimates and judgments on which they are based, as well as the company’s financial reporting process, accounting policies, internal audit function, internal control over financial reporting, disclosure controls and procedures, and risk management. The company’s independent registered public accounting firm, Deloitte & Touche LLP, is responsible for performing an audit of the company’s annual financial statements, expressing an opinion as to the conformity of the annual financial statements with accounting principles generally accepted in the United States, expressing an opinion as to the effectiveness of the company’s internal control over financial reporting and reviewing the company’s quarterly financial statements.

The committee has discussed with Deloitte & Touche LLP the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the Securities and Exchange Commission, which require the independent registered public accounting firm to communicate information to the committee regarding the scope and results of its audit of the company’s financial statements, including information with respect to the firm’s responsibilities under auditing standards generally accepted in the United States, significant accounting policies, management judgments and estimates, any significant unusual transactions or audit adjustments, any disagreements with management and any difficulties encountered in performing the audit and other such matters required to be discussed with the committee by those standards.

The committee also has received from Deloitte & Touche LLP a report providing the disclosures required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence. Deloitte & Touche LLP also has discussed its independence with the committee and confirmed in the report that, in its professional judgment, it is independent of the company within the meaning of the federal securities laws. The committee also considered whether Deloitte & Touche LLP’s provision of non-audit services to the company and its affiliates is compatible with its independence.

The committee also has reviewed and discussed with the company’s management the audited financial statements included in the company’s Annual Report on Form 10-K for the year ended December 31, 2020, and management’s reports on the financial statements and internal control over financial reporting. Management has confirmed to the committee that the financial statements have been prepared with integrity and objectivity and that management has maintained an effective system of internal control over financial reporting. Deloitte & Touche LLP has expressed its professional opinions that the financial statements conform with accounting principles generally accepted in the United States of America and that management has maintained an effective system of internal control over financial reporting. In addition, the company’s Chief Executive Officer and Chief Financial Officer have reviewed with the committee the certifications that each will file with the Securities and Exchange Commission pursuant to the requirements of the Sarbanes-Oxley Act of 2002 and the policies and procedures management has adopted to support the certifications.

Based on these considerations, the Audit Committee has recommended to the Board of Directors that the company’s audited financial statements be included in the company’s Annual Report on Form 10-K for the year ended December 31, 2020, for filing with the Securities and Exchange Commission.

Audit Committee

Jack T. Taylor, Chair

Andrés Conesa

Maria Contreras-Sweet

Michael N. Mears

Cynthia L. Walker

James C. Yardley

 

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Share Ownership

The following table shows the number of shares of our common stock beneficially owned at March 1, 2021, by each of our directors, by each of our executive officers named in the executive compensation tables in this proxy statement (named executive officers), and by all of our directors and executive officers as a group. The shares of common stock beneficially owned by each of our directors and named executive officers and by our directors and executive officers as a group in each case total less than 1% of our outstanding shares of common stock. In calculating these percentages, shares under the heading “Phantom Shares” are not included because these phantom shares cannot be voted and may be settled only for cash. In addition, in calculating these percentages we used the 302,705,890 shares of our common stock that were outstanding as of March 1, 2021.

 

 

Name

 

  

 

Beneficial
Holdings(C)

 

    

 

Shares Subject
to  Exercisable
Options(D)

 

    

 

Total Without
Phantom Shares

 

    

 

Phantom

Shares(E)

 

    

 

Total

Including
Phantom Shares

 

 

Dennis V. Arriola (A)

     51,699        10,197        61,896               61,896  

George W. Bilicic (A)

                                  

Alan L. Boeckmann

     6,000               6,000        22,483        28,483  

Kathleen L. Brown (B)

     746               746        10,435        11,181  

Andrés Conesa

     7,060               7,060        3,314        10,374  

Maria Contreras-Sweet

     3,314               3,314        1,803        5,117  

Pablo A. Ferrero

     4,152               4,152        3,787        7,939  

William D. Jones

     4,138               4,138        33,473        37,611  

Jeffrey W. Martin

     36,994        126,336        163,330        42,272        205,602  

Bethany J. Mayer

     678               678        949        1,627  

Michael N. Mears

     2,000               2,000        2,144        4,144  

Trevor I. Mihalik

     14,506        15,656        30,162        11,749        41,911  

Kevin C. Sagara

     17,655               17,655        3,512        21,167  

Jack T. Taylor

     131               131        11,612        11,743  

Cynthia L. Walker

     4,091               4,091        1,027        5,118  

Peter R. Wall

     2,834               2,834               2,834  

Cynthia J. Warner

                          1,528        1,528  

James C. Yardley

                          11,363        11,363  

Directors and Executive Officers as a Group (18 persons)

     155,998        152,189        308,187        161,451        469,638  

 

(A)

Mr. Arriola resigned as Executive Vice President and Group President of the company effective July 3, 2020 and Mr. Bilicic resigned as President and Chief Legal Officer of the Company effective March 30, 2020. Because Mr. Arriola met the vesting requirements under our compensation plans due to age and years of service, we refer to his separation from service as a retirement in the Compensation Discussion and Analysis and related compensation tables in this proxy statement below.

 

(B)

In keeping with our retirement policy, Ms. Brown was not nominated to stand for re-election at the Annual Shareholders Meeting and will no longer serve as a director of the Company effective as of the election of directors at the Annual Shareholders Meeting.

 

(C)

None of our directors or executive officers beneficially owned any shares of our 6.75% Mandatory Convertible Preferred Stock, Series B, or our 4.875% Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Stock, Series C, at March 1, 2021; therefore, no such shares are shown in this table.

 

(D)

Shares which may be acquired through the exercise of stock options that currently are exercisable or will become exercisable within 60 days after March 1, 2021.

 

(E)

Phantom shares represent deferred compensation deemed invested in shares of our common stock. These phantom shares track the performance of our common stock but cannot be voted and may only be settled for cash. All phantom shares are either fully vested or will vest within 60 days after March 1, 2021.

For information regarding share ownership guidelines applicable to our directors and executive officers, please see “Corporate Governance—Board of Directors—Director Share Ownership Guidelines” and “Executive Compensation—Compensation Discussion and Analysis—Share Ownership Guidelines,” respectively.

 

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Share Ownership

 

Based on a review of filings made under Section 13(g) of the Securities Exchange Act of 1934, as amended (Exchange Act), as of December 31, 2020, the persons or entities known by us to be a beneficial owner of more than 5% of our common stock were as follows:

 

Name and Address of Beneficial Owner

  Shares of Sempra Energy Common Stock   Percent of Class(F)

T. Rowe Price Associates, Inc. (A)

100 E. Pratt Street

Baltimore, MD 21202

  27,413,645   9.1%

The Vanguard Group (B)

100 Vanguard Blvd.

Malvern, PA 19355

  24,946,554   8.2%

BlackRock, Inc. (C)

55 East 52nd Street

New York, NY 10055

  21,816,645   7.2%

Capital International Investors, division of
Capital Research and Management Company (D)

333 South Hope Street, 55th Floor

Los Angeles, CA 90071

  20,887,964   6.8%

State Street Corporation (E)

State Street Financial Center

One Lincoln Street

Boston, MA 02111

  15,712,593   5.2%

 

(A)

The information regarding T. Rowe Price Associates, Inc. is based solely on a Schedule 13G/A filed by T. Rowe Price Associates, Inc. with the SEC on February 16, 2021 reflecting shares of our common stock beneficially owned as of December 31, 2020 (the TRP 13G/A). According to the TRP 13G/A, includes sole voting power with respect to 12,755,869 shares and sole dispositive power with respect to 27,413,645 shares.

 

(B)

The information regarding The Vanguard Group is based solely on a Schedule 13G/A filed by The Vanguard Group with the SEC on February 10, 2021 reflecting shares of our common stock beneficially owned as of December 31, 2020 (the Vanguard 13G/A). According to the Vanguard 13G/A, includes sole dispositive power with respect to 23,483,469 shares, shared voting power with respect to 651,573 shares and shared dispositive power with respect to 1,463,085 shares.

 

(C)

The information regarding BlackRock, Inc. is based solely on a Schedule 13G/A filed by BlackRock, Inc. with the SEC on February 5, 2021 reflecting shares of our common stock beneficially owned as of December 31, 2020 (the BlackRock 13G/A). According to the BlackRock 13G/A, includes sole voting power with respect to 18,813,504 shares and sole dispositive power with respect to 21,816,645 shares.

 

(D)

The information regarding Capital International Investors, a division of Capital Research and Management Company, as well as certain of its investment management subsidiaries and affiliates (Capital), is based solely on a Schedule 13G/A filed by Capital with the SEC on February 16, 2021 reflecting shares of our common stock beneficially owned as of December 31, 2020 (the Capital 13G/A). According to the Capital 13G/A, includes shares of our common stock that would have resulted from the conversion of 3,052,907 shares of our convertible preferred stock, as well as sole voting power with respect to 21,366,145 shares of our common stock and sole dispositive power with respect to 21,409,401 shares of our common stock. Based on the information included in the Capital 13G/A, we have computed Capital’s beneficial ownership for purposes of this table pursuant to Rule 13d-3(d)(1)(i) under the Exchange Act assuming that such shares of our convertible preferred stock were our 6% Mandatory Convertible Preferred Stock, Series A, which, if they had been converted into shares of our common stock on December 31, 2020 at the election of the holder, would have resulted in the issuance of 2,362,950 shares of our common stock.

 

(E)

The information regarding State Street Corporation is based solely on a Schedule 13G filed by State Street Corporation with the SEC on February 10, 2021 reflecting shares of our common stock beneficially owned as of December 31, 2020 (the State Street 13G). According to the State Street 13G, includes shared voting power with respect to 14,241,551 shares and shared dispositive power with respect to 15,710,893 shares.

 

(F)

The percentages are calculated based on (i) the number of shares of our common stock reflected as being beneficially owned by each beneficial owner in its filing made under Section 13(g) of the Exchange Act as described in the other footnotes to this table, and (ii) 302,705,890 shares of our common stock outstanding as of March 1, 2021.

Delinquent Section 16(a) Reports

Our directors and executive officers, as well as persons who beneficially own more than 10% of our common stock, are required to file reports with the SEC regarding certain transactions in our equity securities. During 2020, one such transaction for an award of restricted stock units granted to Peter R. Wall was reported on one late-filed Form 4.

 

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Proposals to be Voted On

Board of Directors Proposals

Proposals 1, 2 and 3 have been included in this proxy statement at the direction of the Board of Directors. The board recommends that you vote “FOR” each director nominee in Proposal 1 and “FOR” each of Proposals 2 and 3.

Proposal 1: Election of Directors

 

Directors are elected at each annual meeting of our shareholders for terms expiring at the next annual meeting of our shareholders. The Board of Directors has nominated the following 12 individuals to stand for election as directors, all of whom are currently directors:

 

Alan L. Boeckmann

 

Andrés Conesa

 

Maria Contreras-Sweet

 

Pablo A. Ferrero

  William D. Jones

 

Jeffrey W. Martin

 

Bethany J. Mayer

 

Michael N. Mears

  Jack T. Taylor

 

Cynthia L. Walker

 

Cynthia J. Warner

 

James C. Yardley

Properly executed proxies will be voted “FOR” each of these 12 nominees unless other instructions are specified. If any nominee should become unavailable to serve, the proxies may be voted for a substitute nominee designated by the board, or the board may reduce the authorized number of directors. In no event may the proxies be voted for more than 12 nominees.

In keeping with our retirement policy, Kathleen L. Brown was not nominated to stand for re-election and, immediately following this year’s Annual Shareholders Meeting, as adjourned or postponed, Ms. Brown will no longer serve as a director of the company.

The board has determined that each non-employee nominee other than Ms. Mayer is an independent director. Information about director independence is described under “Corporate Governance—Board of Directors—Director Independence.”

 

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Proposals to be Voted On

 

Our board possesses a robust breadth and depth of experience and qualifications to oversee the company’s multiple businesses and global operations. The following chart sets forth the experience, skills and qualifications of the director nominees in the aggregate in areas of particular importance to our businesses:

 

 

LOGO

Experience/Qualifications Accounting and Finance 11 Experience in accounting and financial matters, including the oversight of financial statements and operating results Business / Markets 9 Experience as a senior leader specifically in regions and markets where Sempra Energy and its operating companies have operations Corporate Governance 10 Experience on or supporting a public company board, maintaining board and management accountability, protecting shareholder interests and observing appropriate governance practices Cybersecurity 6 In-depth knowledge of technology and data security systems through industry experience or academia Diversity, Equity and Inclusion (DE&I) 6 Experience participating in or leading executive DE&I councils, chairing/sponsoring employee DE&I councils or business resource groups, signing on to DE&I commitments or mentoring talent from under-represented groups Energy Industry Experience 6 Experience in the energy industry outside of Sempra Energy Environmental, Health and Safety 10 Experience in operating responsible and sustainable businesses and oversight of environmental, health and safety systems and procedures Government, Regulatory and Public Policy 9 Experience in managing governmental and regulatory affairs, advancing public policy and community and public relations Infrastructure Development 11 Experience in the development and management or oversight of capital projects involving physical systems (e.g., transportation, water and electric systems), real estate acquisitions and construction activities Risk Management 10 Experience in oversight of risk management, or in a senior compliance or regulatory role Strategic Planning 11 Experience in developing corporate strategies and long-term business plans Technology 6 Leadership and oversight experience in technological trends, digital platforms and/or efficiency improvements through technology

The charts below summarize the diversity, tenure and independence of our directors nominated to stand for election at the Annual Shareholders Meeting: 58% of our director nominees are women and/or people of color; 58% of our director nominees have served less than five years, with an average tenure of 6.5 years; and 83% of our director nominees are independent.

 

 

LOGO

Director Nominee Composition 58% of our board nominees are diverse: 1 African American 3 Latino* 4 Women* *One director is a woman of color. Tenure (Years) Average: 6.5 / Median: 4.1 < 5 5-10 > 10 Years Years Years 83% Independent

Biographical information regarding each director nominee and his or her qualifications to serve as a director is set forth on the succeeding pages. In each biography below, unless otherwise indicated, the year shown as the beginning of each director’s tenure on the board is the year during which the director was first elected or appointed as a director of Sempra Energy, and the age shown for each director is as of the date of mailing this proxy statement.

 

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Proposals to be Voted On

 

 

 

LOGO

  

 

Alan L. Boeckmann, 72, has been a director since 2011. He has been the Executive Chairman and a director of Fluor Corporation, a leading engineering, procurement, construction and maintenance services company, since May 2019. In 2012, he retired as the Non-Executive Chairman of Fluor. From 2002 to early 2011, Mr. Boeckmann was the Chairman and Chief Executive Officer of Fluor. Prior to that, he held a number of senior management and operating positions at Fluor. He is a former director of Archer-Daniels-Midland Company, BHP Billiton, BP p.l.c., Burlington Northern Santa Fe Corporation and the National Petroleum Council.

 

Mr. Boeckmann has been an outspoken business leader in promoting international standards for business ethics and was instrumental in the formation of the World Economic Forum’s Partnering Against Corruption Initiative in 2004. His extensive board, executive management and infrastructure construction experience, coupled with his commitment to ethical conduct in international business activities, makes him a valuable member of our board.

 

LOGO   

Andrés Conesa, Ph.D., 51, has been a director since 2017. He has been the Chief Executive Officer and a director of Grupo Aeroméxico, S.A.B. de C.V., an air transportation services company, since 2005. Previously, Dr. Conesa held several positions in the Mexico Federal Government: from 2003 to 2005, he was Chairman of the Board of Directors of CINTRA (the holding company of Aeroméxico and Mexicana), and from 1991 to 2004, he served in various capacities at the Mexican Ministry of Finance, most recently as Deputy Undersecretary of Public Credit. He was a member of the Board of Governors of the International Air Transport Association from 2008 until June 2018 and served as its Chairman during the 2015 term. Dr. Conesa is a former director of IEnova, Genomma Lab International and the Mexican Stock Exchange.

 

Dr. Conesa’s extensive experience and knowledge of transnational business activities and the Mexican regulatory and financial sectors make him a valuable member of our board, particularly as we look to expand our operations in Mexico.

 

LOGO   

Maria Contreras-Sweet, 65, has been a director since 2017. She became the Managing Member of both Contreras Sweet Companies, LLC, a marketing and research solutions company, and Rockway Equity Partners, a private-equity firm that invests in technology, manufacturing and infrastructure-related companies, in October 2017. From April 7, 2014 through January 20, 2017, she served as the 24th Administrator of the U.S. Small Business Administration and as a member of President Obama’s cabinet. Ms. Contreras-Sweet was a founder of ProAmerica Bank where she served as Executive Chairwoman from 2006 to 2014. She was Co-Founder and Managing Partner of Fortius Holdings from 2003 to 2006. Prior, she served as the California cabinet Secretary of the Business, Transportation and Housing Agency from 1999 to 2003. She was appointed chair to the finance committee of CA-ISO (California Independent System Operator) to help solve the state’s 2000-2001 energy crisis. Ms. Contreras-Sweet served as a senior executive for Westinghouse Electric Company’s 7-Up/RC Bottling Company, where she became an equity partner. She is a director of Regional Management Corp., TriNet, Inc. and the Bipartisan Policy Center and is a distinguished fellow of the Larta Institute. Ms. Contreras-Sweet has received honorary doctorates from Tufts University, Whittier College, La Verne University, Mount St. Mary’s University and California State University, Los Angeles.

 

Ms. Contreras-Sweet possesses extensive knowledge and executive experience in both the public and private sectors. She brings a strong understanding of banking, infrastructure, supply chains, and global innovation, as well as a deep understanding and familiarity with government and regulatory bodies in our marketplace and experience with small and medium-sized businesses, which makes her a valuable contributor to our board.

 

LOGO   

Pablo A. Ferrero, 58, has been a director since 2013. He is an independent energy consultant. From 2006 to 2011, Mr. Ferrero served as Executive Vice President for the Southern Cone at AEI Energy, a power generation and distribution and gas transmission and distribution company. From 2004 to 2006, he was the Chief Executive Officer of Transportadora de Gas del Sur S.A. He is executive director at MSU Energy S.A. and a former director of Metrogas, Pampa Energía, RDA Renting, S.A., TGS, Transener Edesur, Petrobras Energía, Emdersa, EDESA Holding, EDEN, Emgasud, Servicios Petroleros Argentina, Refinor, Oldelval, Termap, Chilquinta Energía (Chile), Luz del Sur (Peru), Petrolera Andina (Bolivia) and Promigas (Colombia).

 

Mr. Ferrero has a deep understanding of the energy industry and in particular international energy operations. This understanding of international energy operations along with his extensive executive and board experience make him a valuable member of our board.

 

 

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Proposals to be Voted On

 

   
LOGO   

William D. Jones, 65, has been a director since Sempra Energy’s inception in 1998. He has been the President and Chief Executive Officer and a director of CityLink Investment Corporation, a commercial real estate investment and development services firm, since 1994. From 2001 through 2018, Mr. Jones was the President, Chief Executive Officer and a director of City Scene Management Company, a real estate management company. From 1989 to 1993, Mr. Jones served as General Manager/Senior Asset Manager and Investment Manager with certain real estate subsidiaries of The Prudential. Previously, he served as a San Diego City Council member and as Deputy Mayor of San Diego. Mr. Jones is a director and, in some cases, Board Chair of certain funds under management by the Capital Group and Capital Group Private Client Services. He is an NACD Board Leadership Fellow. Mr. Jones is a trustee of the University of California San Diego Foundation and its Investment Committee and the Real Estate Advisory Council. Mr. Jones is a former director of The Price Real Estate Investment Trust, Southwest Water Company, the Federal Reserve Bank of San Francisco and the San Diego Padres baseball team and is a former Chairman of the Board of the Los Angeles Branch of the Federal Reserve Bank of San Francisco, the former Chairman of the Board of Trustees of the Francis Parker School and former Board Trustee of the University of San Diego. Mr. Jones has extensive experience as a real estate developer in San Diego, where he built the City Heights Urban Village, an award-winning redevelopment project.

 

Mr. Jones’ background in the public and financial arenas, along with his real estate expertise, has been helpful to our board as it considers the development of large infrastructure projects, which require extensive amounts of land and an understanding of the construction and real estate industries. He is also an experienced director of board governance matters and has earned the NACD board leadership fellow designation. His expertise in these areas makes him a vital member of our board.

 

LOGO   

Jeffrey W. Martin, 59, has been a director since 2018. Mr. Martin is the Chairman and Chief Executive Officer of the company. Previously, Mr. Martin served as Executive Vice President and Chief Financial Officer of the company since January 2017. Prior to that, he served at SDG&E as the Chief Executive Officer and a director beginning in January 2014. Continuing in those roles, he also was appointed as President in October 2015 and as Chairman in November 2015, serving in each of these offices through December 2016. From 2010 to 2013, Mr. Martin served as the President and Chief Executive Officer of Sempra U.S. Gas & Power (USGP), a previous business unit of the company, and USGP’s predecessor organization, Sempra Generation. Before that, he served as Vice President — Investor Relations for Sempra Energy. Prior to joining the company in December 2004, Mr. Martin was chief financial officer of NewEnergy, Inc. He also formerly served as corporate counsel at UniSource Energy Corporation and was an attorney at the law firm of Snell & Wilmer, LLP. Mr. Martin currently serves as a director of Oncor, of which Sempra Energy indirectly owns 80.25%. Mr. Martin serves on the board of directors of the American Petroleum Institute and on the board of trustees of the University of San Diego. He also is a governor of the Oil and Gas and Electricity communities for the World Economic Forum and is a member of the Business Roundtable. He previously served on the boards of directors of the Edison Electric Institute, California Chamber of Commerce and National Association of Manufacturers.

 

Mr. Martin, in his position as Chairman and Chief Executive Officer of Sempra Energy, oversees the management of all aspects of our business and leads the overall activities of the Board of Directors. His performance and leadership in previous senior executive positions at Sempra Energy, his experience as an employee of the company and its subsidiaries for more than 16 years, and his broad understanding of the energy industry, make Mr. Martin a valuable member of our board.

 

LOGO   

Bethany J. Mayer, 59, has been a director since 2019. She previously served as a director from February 2017 until October 2018 when she was appointed Executive Vice President — Corporate Development and Technology of the company effective November 26, 2018, a position from which she resigned in January 2019. In January 2018, she became an Executive Partner with Siris Capital Group LLC, a private equity firm that invests in technology companies. From April to December 2017, she was the Senior Vice President of Keysight Technologies, an electronics testing and measurement equipment and software manufacturing company, and President of its Ixia Solutions Group. From 2014 until its acquisition by Keysight Technologies in 2017 she was the President and Chief Executive Officer and a director of Ixia, a provider of testing, visibility and security solutions for physical and virtual networks. Prior to joining Ixia, Ms. Mayer held several key executive roles at HP since 2010, including as Senior Vice President and General Manager of HP’s Network Business Unit. Prior to joining HP, Ms. Mayer served as Senior Vice President, Worldwide Marketing and Corporate Development at Blue Coat Systems and, before that, she held roles at Cisco Systems, Apple Computer and Lockheed Martin. Ms. Mayer is a director of Box Inc., LAM Research Corporation and Marvell Technology Group Ltd and a former director of Delphi Automotive plc.

 

Ms. Mayer’s extensive technology background and deep understanding of network security, together with her executive and public company board experience, make her a valuable member of our board.

 

 

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Proposals to be Voted On

 

   
LOGO   

Michael N. Mears, 58, has been a director since 2018. He has been Chairman, President and Chief Executive Officer of Magellan Midstream Partners, L.P., which transports, stores and distributes petroleum and petroleum products, since 2011. From 2008 through 2011, he served as Chief Operating Officer of Magellan. Mr. Mears was a Senior Vice President of Magellan GP, LLC, general partner of Magellan, from 2007 through 2008 and a Vice President from 2004 to 2007. Prior to joining Magellan in 2004, he served as a Vice President of Subsidiaries of The Williams Companies, Inc. from 1996 to 2004. Mr. Mears also worked in various management positions with Williams Pipe Line Company (now known as Magellan Pipeline Company, L.P.) since joining Williams in 1985. He is a member of the board of directors of the Association of Oil Pipelines and is a director of the Tulsa Regional Chamber.

 

Mr. Mears’ extensive knowledge of the energy industry, as well as his executive, commercial and operational experience, make him a valuable member of our board.

 

LOGO

 

  

Jack T. Taylor, 69, has been a director since 2013. He was the Chief Operating Officer — Americas and Executive Vice Chair of U.S. Operations for KPMG LLP from 2005 to 2010. From 2001 to 2005, he served as the Vice Chairman of U.S. Audit and Risk Advisory Services for KPMG. Mr. Taylor is an NACD Board Leadership Fellow and a member of the NACD Audit Committee Chair Advisory Council. He is a director of Genesis Energy LP and Murphy USA Inc.

 

Mr. Taylor has extensive experience with financial and public accounting issues as well as a deep knowledge of the energy industry. He spent over 35 years as a public accountant at KPMG LLP, many of which he worked in a leadership capacity. This experience with financial and public accounting issues, together with his executive experience and knowledge of the energy industry, makes him a valuable member of our board.

 

LOGO   

Cynthia L. Walker, 44, has been a director since 2018. She served as Senior Vice President, Midstream & Marketing, for Occidental Petroleum Corporation, an integrated oil and gas exploration and production company, from 2016 until October 2019. From 2014 to 2016, she was Occidental’s Senior Vice President, Strategy and Development. She joined Occidental in 2012 as Executive Vice President and Chief Financial Officer. Prior to that, Ms. Walker was a managing director at Goldman Sachs & Co. where she worked for 12 years providing strategic advice in high-profile energy industry transactions as a senior member of the Global Natural Resources Group and Mergers and Acquisitions Group. She is a director of Oasis Petroleum Inc. and of the Houston Zoo and the Children’s Museum of Houston.

 

Ms. Walker’s extensive knowledge and executive experience in the natural gas and energy industries, as well as her prior experience in finance and mergers and acquisitions, make her a valuable member of our board.

 

LOGO   

Cynthia J. Warner, 62, has been a director since 2019. She has served as President and Chief Executive Officer and a director of Renewable Energy Group, Inc., an advanced biofuel producer, since January 2019. Ms. Warner served as Executive Vice President of Operations for Andeavor (formerly Tesoro Corporation), a refiner and marketer of petroleum products, from August 2016 until October 2018, when Andeavor was acquired by Marathon Petroleum Corp. Prior to that, she served as Andeavor’s Executive Vice President of Strategy and Business Development from October 2014 to August 2016. Ms. Warner previously served as Chairman and Chief Executive Officer of Sapphire Energy, Inc. after a 25-year career at BP and Amoco, Inc. (prior to its acquisition by BP). Ms. Warner is a director of IDEX Corporation and is a member of the National Petroleum Council and Board of Visitors of Vanderbilt University School of Engineering. Ms. Warner will retire as a director of IDEX Corporation and will not stand for re-election at its upcoming annual shareholders meeting in May 2021.

 

Ms. Warner’s extensive experience in the global energy industry, particularly with respect to clean and renewable energy, makes her a valuable member of our board.

 

LOGO   

James C. Yardley, 69, has been a director since 2013. He was Executive Vice President of El Paso Corporation, a natural gas pipeline company and oil and gas producer, and President of its Pipeline Group from 2006 through 2012. Mr. Yardley was also the President and Chief Executive Officer of El Paso Pipeline GP Company LLC, the general partner of El Paso Pipeline Partners, L.P., a master limited partnership that owned and operated interstate natural gas transportation pipelines, storage and other midstream assets, from 2007 through 2012. From 1998 through 2006, he was the President of Southern Natural Gas Company, previously a unit of El Paso Corporation and now a unit held jointly by Kinder Morgan Inc. and The Southern Company. Mr. Yardley is a former director of El Paso Pipeline GP Company LLC, and Scorpion Offshore Ltd.

 

Mr. Yardley has extensive experience in the natural gas industry and in particular the midstream portion of that industry. He has spent over 34 years in the energy sector, many of which he worked in a leadership capacity, and has public company board experience. This specialized energy industry experience, together with Mr. Yardley’s executive and public company board experience, makes him a valuable member of our board.

 

 

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Proposal to be Voted on, Board Recommendation and Vote Required

We are asking our shareholders to elect each of the 12 nominees named in this proxy statement as directors of our company. We have not received notice of any additional candidates to be nominated to stand for election as directors at the Annual Shareholders Meeting and the deadline for notice of the nomination of additional candidates has passed. Consequently, the election of directors will be an uncontested election and our bylaw providing for majority voting in uncontested elections will apply. Under this bylaw, to be elected as a director, a nominee must receive votes “FOR” his or her election constituting a majority of the shares represented and voting at the Annual Shareholders Meeting at which a quorum is present, and the approving majority also must represent more than 25% of our outstanding shares. If a nominee who currently is serving as a director does not receive sufficient “FOR” votes to be re-elected, the director will cease to be a director not later than 90 days following the certification of the election results, and the resulting vacancy on the board may be filled by the remaining directors. If a nominee receives sufficient “FOR” votes, he or she will be re-elected to serve until our next annual shareholders meeting and until his or her successor has been elected and qualified or until his or her earlier resignation or removal.

 

The Board of Directors recommends that on Proposal 1 you vote “FOR” each of its nominees for election to the board.

 

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Proposal 2: Ratification of Appointment of Independent Registered Public Accounting Firm

 

The Audit Committee of the Board of Directors has retained Deloitte & Touche LLP as the independent registered public accounting firm to audit our financial statements and the effectiveness of our internal control over financial reporting for 2021. Deloitte & Touche LLP has served as our independent public accounting firm continuously since our inception in 1998. Deloitte & Touche LLP or its predecessors have continuously served as the independent public accounting firm of SDG&E and SoCalGas or their parent companies since 1935 and 1937, respectively. Representatives of Deloitte & Touche LLP are expected to attend the Annual Shareholders Meeting and will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions from shareholders.

The following table shows fees paid to Deloitte & Touche LLP for services provided to Sempra Energy for 2020 and 2019:

 

        2020        2019  

Dollars in Thousands

     Fees        % of Total        Fees        % of Total  

Audit fees

                   

Consolidated financial statements, internal controls audits and subsidiary audits

     $  9,145             $ 10,568       

Regulatory filings and related services

       827                     466             

Total audit fees

       9,972          82%          11,034          87%  

Audit-related fees

                   

Employee benefit plan audits

       505               517       

Other audit-related services (A)

       1,494                     883             

Total audit-related fees

       1,999          17%          1,400          11%  

Tax fees (B)

       156          1%          74          1%  

All other fees (C)

       22          0%          74          1%  

Total fees

     $  12,149          100%      $ 12,582          100%  

 

(A)

Other audit-related services primarily relate to statutory audits, agreed upon procedures and permitted internal control advisory services.

 

(B)

Tax fees relate to tax consulting and compliance services.

 

(C)

All other fees relate to training and conferences.

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight, including the oversight of the audit fee negotiations, of our independent registered public accounting firm. Except where pre-approval is not required by SEC rules, the committee pre-approves all audit, audit-related and permissible non-audit services provided by Deloitte & Touche LLP for Sempra Energy and its subsidiaries, including all services provided by Deloitte & Touche LLP for Sempra Energy for 2020 and 2019. The committee’s pre-approval policies and procedures provide for the general pre-approval of specific types of services and give detailed guidance to management as to the services that are eligible for general pre-approval, and they require specific pre-approval of all other permitted services. For both types of pre-approval, the committee considers whether the services to be provided are consistent with maintaining the firm’s independence. The committee’s policies and procedures also delegate authority to the chair of the committee to address any requests for pre-approval of services between committee meetings, with any pre-approval decisions to be reported to the committee at its next scheduled meeting.

The Audit Committee regularly meets in executive session with only committee members present and with Deloitte & Touche LLP’s lead engagement partner without members of management present. This provides an opportunity for the Audit Committee to assess Deloitte & Touche LLP’s effectiveness and independence for determining reappointment as well as consideration of rotating audit firms. The Audit Committee considers various factors in determining whether to reappoint Deloitte & Touche LLP, including: the firm’s level and quality of service and professional integrity and objectivity in executing audits; professional qualifications; understanding of our businesses and industry and capability and expertise in handling the breadth and complexity of our businesses; independence policies and processes for maintaining independence; and external data such as peer reviews and recent Public Company Accounting Oversight Board reports on the firm. The Audit Committee also considers the firm’s tenure in serving as our independent registered public accounting firm. While the Public Company Accounting Oversight Board has acknowledged that there is no conclusive linkage between tenure and audit quality, auditor tenure may be one data point. Deloitte & Touche LLP’s tenure as our independent public accounting firm has allowed it to gain institutional knowledge and a deep understanding of our businesses, accounting policies, and internal control

 

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over financial reporting, which the Audit Committee considers beneficial. In addition, in conjunction with mandated five-year rotation of the audit firm’s lead engagement partner, which most recently occurred in 2019, the Audit Committee and its Chair are directly involved in the selection of the new lead engagement partner.

Proposal to be Voted On, Board Recommendation and Vote Required

We are asking our shareholders to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2021. Ratification would be advisory only, but the Audit Committee may reconsider the appointment if it were not ratified. The members of the Audit Committee and the Board of Directors believe the continued retention of Deloitte & Touche LLP as our independent registered public accounting firm is in the best interests of the company and our shareholders. Ratification requires the receipt of “FOR” votes constituting a majority of the shares represented and voting at the Annual Shareholders Meeting at which a quorum is present, and the approving majority also must represent more than 25% of our outstanding shares.

 

The Board of Directors recommends that you vote “FOR” Proposal 2.

 

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Proposal 3: Advisory Approval of Our Executive Compensation

 

Pursuant to Section 14A of the Exchange Act, we are asking our shareholders to approve an advisory resolution on the compensation of the named executive officers as reported in this proxy statement. This proposal, commonly known as a “say-on-pay” proposal, gives our shareholders the opportunity to express their views on our 2020 executive compensation program. We currently provide our shareholders the opportunity to vote on a say-on-pay proposal every year, and as a result, the next vote on a say-on-pay proposal following the Annual Shareholders Meeting will occur at our 2022 annual shareholders meeting.

Proposal to be Voted on, Board Recommendation and Vote Required

We are asking our shareholders to indicate their support for the compensation of our named executive officers as described in this proxy statement by voting in favor of the following resolution:

“RESOLVED, that, as an advisory matter, the shareholders of Sempra Energy approve the compensation paid to the company’s named executive officers as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K promulgated by the SEC, including the Compensation Discussion and Analysis, compensation tables and narrative discussion.”

Approval requires the receipt of “FOR” votes constituting a majority of the shares represented and voting at the Annual Shareholders Meeting at which a quorum is present, and the approving majority also must represent more than 25% of our outstanding shares.

Even though the say-on-pay vote is advisory and will not be binding on the company, the Compensation and Talent Development Committee and the Board of Directors value the opinions of our shareholders. Accordingly, to the extent there is a significant vote against the compensation of our named executive officers, we will consider our shareholders’ concerns, and the Compensation and Talent Development Committee will evaluate what actions may be necessary or appropriate to address those concerns.

 

The Board of Directors recommends that you vote “FOR” Proposal 3.

 

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Shareholder Proposals

Proposals 4 and 5 were submitted for inclusion in this proxy statement at the direction of shareholders of the company and will be submitted to a vote at the Annual Shareholders Meeting if properly presented at the meeting. The board recommends that you vote “AGAINST” Proposal 4 and “AGAINST” Proposal 5. In accordance with SEC rules, the proposals and their supporting statements are being reprinted as they were submitted to Sempra Energy by the applicable proponent and Sempra Energy takes no responsibility for them. As a result, the proposals and their supporting statements may contain assertions about the company or other statements or references to websites that contain information that we do not endorse or that we believe are incorrect. Although the board has not attempted to refute all of these assertions, the board has considered the proposals and their supporting statements and has made voting recommendations based on the specific reasons described in the board’s statements opposing the proposals set forth below. We have put boxes around the materials provided by the proponents so that readers can easily distinguish between material provided by the proponents and material provided by the company.

 

Proposal 4:

Shareholder Proposal Requesting an Amendment to Our Proxy Access Bylaw to Eliminate the Shareholder Nominating Group Limit

 

Proposal 4 was submitted by Mr. John Chevedden, who has advised us that he or a representative intends to introduce the proposal included below at the Annual Shareholders Meeting. Sempra Energy has been advised that Mr. Chevedden is the owner of no fewer than 100 shares of Sempra Energy common stock. The company will furnish the address of Mr. Chevedden promptly upon a shareholder’s oral or written request.

The Proposal

 

Proposal 4 — Improve Our Catch-22 Proxy Access

Shareholders request that our board of directors take the steps necessary to enable as many shareholders as may be needed to aggregate their shares to equal 3% of our stock owned continuously for 3-years in order to enable shareholder proxy access.

The current arbitrary ration of 20 shareholders to initiate shareholder proxy access can be called Catch-22 Proxy Access. In order to assemble a group of 20 shareholders, who have owned 3% of Sempra stock for an unbroken 3-years, one would reasonably need to start with 60 activist shareholders who own 9% of Sempra stock for an unbroken 3-years because initiating proxy access is a complicated process that is easily susceptible to errors. It is a daunting process that is also highly susceptible to dropouts.

The 60 activist shareholders could then be whittled down to 40 shareholders because some shareholders would be unable to timely meet all the paper chase requirements. After the 40 shareholders submit their paperwork to management—then management might arbitrarily claim that 10 shareholders do not meet the requirements figuring that shareholders do not want a battle in court and management might convince another 10 shareholders to drop out—leaving 20 shareholders. But the current bylaws do not allow 40 shareholders to submit their paperwork to management to end up with 20 qualified shareholders.

And 60 shareholders who own 9% of company for an unbroken 3-years might determine that they own 51% of company stock when length of unbroken stock ownership is factored out.

But how does one begin to assemble a group of 60 potential participants if potential participants cannot even be guaranteed participant status after following the tedious rules that can easily be 1500-words of legalese—because a single shareholder always takes the risk that one will be the 21st shareholder that could be voted off the island after a substantial investment of time by the arbitrary ration of 20     shareholders.

The current arbitrary ration of 20 shareholders to initiate shareholder proxy access means that shareholders of the same class of stock are treated unequally. This could violate state law. At least one court concluded that a company cannot provide different voting rights for the owners of the same class of stock.

Shareholders could determine that the poorest performing director is in need of replacement. For instance Cynthia Warner joined the Sempra board in 2019 and was rejected by 30% of shares in 2020 compared to less than 1% rejection in regard to some other Sempra directors.

More emphasis should be given to improving proxy access because we do not have the right to act by written consent and the shareholder right to call a special meeting has taken a big hit due to the avalanche of online shareholder meetings that can be tightly controlled bare bones meetings where all challenging questions and comments can be screened out by management.

Please vote yes:

Improve Our Catch-22 Proxy Access—Proposal 4

 

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Board of Directors’ Statement Opposing the Shareholder Proposal Requesting an Amendment to Our Proxy Access Bylaw to Eliminate the Shareholder Nominating Group Limit

The Board of Directors recommends a vote AGAINST this proposal because it believes our company and our shareholders are best served by our existing proxy access bylaw, which provides meaningful and appropriate proxy access rights that are aligned with current market practices and properly balance the need to protect the interests of all our shareholders.

Our Existing Proxy Access Bylaw

In December 2015, our board adopted proxy access for director nominations, which allows eligible shareholders to nominate directors and include those nominees in our proxy materials. As set forth in our bylaws, a group of up to 20 shareholders owning at least 3% of our outstanding common stock in the aggregate for at least three years may nominate and include in our proxy materials up to the greater of (i) 20% of the total number of directors in office at the deadline for nominations and (ii) two individuals, provided that the shareholder(s) and the nominee(s) satisfy the requirements specified in our bylaws.

Our Proxy Access Bylaw’s Limit on the Size of a Nominating Group Is In Line With Shareholder Feedback and Market Practice

In shaping our proxy access bylaw, our board evaluated various alternative proxy access formulations and engaged in extensive discussions with our major shareholders. Importantly, the 20-shareholder aggregation limit aligned with input we received from most of our shareholders and with best governance practices. Moreover, our shareholders have expressed continued support for the terms of our proxy access framework during our ongoing shareholder outreach since our proxy access bylaw was adopted. As a result, our board continues to believe the proxy access provisions set forth in our current bylaws reflect the preferences of our shareholders.

The terms of our proxy access rights are also consistent with overwhelming market practice. Specifically, a 20-shareholder aggregation limit has been widely adopted by companies that provide proxy access rights to their shareholders. According to a study published by Sidley Austin LLP, of the 565 public companies that adopted proxy access bylaws between 2015 and 2019, approximately 93% of them adopted an aggregation limit of 20 shareholders.

A Proxy Access Bylaw With No Nominating Group Limit Could Be Harmful to the Company and Its Shareholders

When a shareholder group submits a nominee under our proxy access bylaw, the company must verify that the eligibility and procedural requirements are satisfied by each member of the group. The absence of a reasonable limitation on the number of shareholders participating in a proxy access nomination group could require the company to make time-consuming inquiries into the nature and duration of the share ownership of a large number of shareholders, distracting our employees and creating excessive expense for the company. Moreover, the absence of a reasonable nominating group limit could allow for misuse of proxy access rights by shareholders with a narrow and short-term special interest. The shareholder aggregation limit in our proxy access bylaw strengthens the principle that we believe is shared by most of our shareholders – the right to nominate a director using the company’s proxy statement should strike the balance of requiring at least one shareholder with a sufficient financial stake in the company to cause their interests to be aligned with the interests of our shareholders as a whole, while providing a reasonable opportunity for like-minded shareholders who may not have significant shareholdings to participate in the process.

For these reasons, the board believes, consistent with boards of directors of a substantial majority of public companies that have adopted proxy access, that its current proxy access framework strikes an appropriate balance between making proxy access available to shareholders and creating an undue burden and expense on the company to the detriment of its shareholders.

Removing The Limit on the Size of a Proxy Access Nominating Group Would Not Meaningfully Enhance Proxy Access At Our Company

We believe a 20-shareholder aggregation limit is particularly appropriate for our company in light of our shareholder base. As of December 31, 2020, our 50 largest institutional shareholders held approximately 69% of our outstanding shares, all of whom individually owned more than 0.15% of our outstanding shares (which is the average ownership needed for 20 shareholders to aggregate to 3%), and six of our shareholders individually owned more than 3% of our outstanding shares. Under our proxy access bylaw, any of our shareholders may combine with up to 19 other shareholders (provided they have all continuously held their shares for at least three years) to meet the 3% ownership requirement. Given the concentration of our shareholder base, our existing proxy access bylaw provides numerous opportunities for any of our shareholders to combine with as few as one other like-minded shareholder to satisfy such bylaw’s ownership requirements, and thus eliminating the 20-shareholder aggregation limit would not provide our shareholders with meaningful new rights.

 

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Proxy Access Is Just One of Our Many Strong Corporate Governance Practices

Our board is committed to implementing corporate governance practices that operate for the benefit of our shareholders. We describe many of these practices under “Proxy Statement Summary—Shareholder Engagement and Governance Practices” and “Corporate Governance” above. With respect to our shareholders’ ability to influence the composition of our board, in addition to our proxy access rights we have adopted:

 

 

Annual elections of all directors

 

 

A majority-vote and director resignation policy for directors in uncontested elections

 

 

A process for shareholders to recommend director candidates for nomination by our board

 

 

A process by which shareholders may nominate director candidates for election to the board outside of our proxy materials by complying with our advance notice bylaw provisions

Summary

The 20-shareholder aggregation limit in our proxy access bylaw reflects the results of engagement with our shareholders and consideration of prevailing market practices. A proxy access bylaw with no nominating group limit, as Proposal 4 requires, could impose significant burdens on the company without providing any meaningful enhanced benefits to our shareholders. Therefore, the board believes our existing proxy access rights best serve the interests of our company and all our shareholders, and are one of the many strong corporate governance practices our board has adopted.

Proposal to be Voted On, Board Recommendation and Vote Required

At the request of Mr. Chevedden, our shareholders are being asked to vote on the proposal set forth above requesting an amendment to our proxy access bylaw to eliminate the shareholder nominating group limit, and we are recommending that shareholders vote against this proposal. This proposal will not be approved unless it receives “FOR” votes constituting a majority of the shares represented and voting at the Annual Shareholders Meeting at which a quorum is present, and the approving majority represents more than 25% of our outstanding shares.

 

The Board of Directors recommends that you vote “AGAINST” Proposal 4.

 

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Proposal 5:

Shareholder Proposal Requesting a Report on Alignment of Our Lobbying Activities with the Paris Agreement

 

Proposal 5 was submitted by Putney School Inc Endowment Inv Mgr and other co-filers and by Calvert Research and Management. We have been advised that a representative of the co-filers intends to introduce the resolution included below at the Annual Shareholders Meeting. The company has been advised that Putney School Inc Endowment Inv Mgr is the owner of 62 shares of Sempra Energy common stock and Calvert Research and Management is the owner of 64,363 shares of Sempra Energy common stock. The company will furnish the names, addresses and share ownership of the co-filers of this proposal promptly upon oral or written request.

The Proposal

 

WHEREAS: The Intergovernmental Panel on Climate Change released a report finding that “rapid, far-reaching” changes are necessary in the next 10 years to avoid disastrous global warming.1 The economic impacts of exceeding 1.5 degrees Celsius warming are projected to be in the tens to hundreds of trillions of dollars by 2100.2,3

According to the most recent annual United Nations Environment Programme “Emissions Gap Report,”4 critical gaps remain between national governments’ climate commitments and the level of action necessary to prevent catastrophic climate change.

Companies have an important role to play in enabling policymakers to close these gaps. Corporate lobbying activities that seek to prevent climate-related laws and regulations present growing risk to investors. Delays in implementing the Paris Agreement’s decarbonization goals increase the physical risks of climate change, pose systemic risk to economic stability, and introduce uncertainty and volatility into investor portfolios.

Investors believe that Paris-aligned climate lobbying, including lobbying by trade groups, helps to mitigate these risks and contributes positively to the long term value of investment portfolios. Over a dozen large European companies have reached agreements with investors regarding Paris aligned lobbying disclosure, and Shell, BP, and Total have published reports evaluating the positions their trade associations take on climate change.5

Investors currently lack sufficient information to understand how Sempra ensures its lobbying activities, both direct lobbying and indirect lobbying through trade associations, align with the Paris Agreement’s goals, and what actions Sempra is taking to address any misalignments.

Unlike peers, Sempra has no net zero or long term climate targets. Instead, it continues to invest in greenhouse gas intensive natural gas assets,6 acknowledging this will cause its emissions to balloon.7 While Sempra discloses how its trade associations align with its own views on climate change,8 current reporting does not disclose whether its lobbying is aligned with Paris goals, especially regarding natural gas use. Sempra’s climate-related lobbying has already sparked concern. Subsidiary Southern California Gas Company (SoCalGas) is currently under investigation by the California Public Utilities Commission’s (CPUC) Public Advocates Office (PAO) regarding the use of ratepayer funds and lobbying groups to promote gas.9 Already, PAO has recommended a $255 million fine for undermining energy efficiency rules.10 SoCalGas has also filed lawsuits with California agencies fighting clean truck regulations and electrification policy.11 Federal legislators recently took issue with Sempra’s anti-climate lobbying and actions, sending a public letter questioning SoCalGas’ efforts to undermine California’s greenhouse gas targets.12

We urge the Board and management to report to shareholders on this critical issue.

RESOLVED: Shareholders request the Board of Directors evaluate and issue a report (at reasonable cost, omitting proprietary information) describing if, and how, Sempra’s lobbying activities (direct and through trade associations) align with the Paris Agreement’s goal to limit temperature rise to 1.5 degrees and how Sempra plans to mitigate risks presented by any misalignment.

 

  1 

//www.ipcc.ch/2018/10/08/summary-for-policymakers-of-ipcc-special-report-on-global-warming-of-1-5c-approved-by-governments/

  2 

//www.nature.com/articles/d41586-018-05219-5

  3 

//www.nature.com/articles/s41467-020-18797-8/

  4 

//www.unenvironment.org/resources/emissions-gap-report-2019

  5 

//www.ceres.org/news-center/press-releases/major-us-investors-call-largest-corporate-emitters-disclose-how-their

  6 

//rmi.org/wp-content/uploads/2020/03/Methane-Insight-Brief.pdf

  7 

//www.okproud.com/sites/default/files/content/files/node-media-document/2019/2019-sempra-corporate-sustainability-report.pdf, p.36

  8 

CDP Reporting

  9 

//www.latimes.com/environment/story/2020-07-23/is-americas-biggest-gas-utility-fighting-climate-action-california-demands-answers

  10 

//earthjustice.org/sites/default/files/files/r1311005-public-advocates-office-opening-brief.pdf

  11 

//www.latimes.com/environment/story/2020-08-04/california-sued-by-nations-biggest-gas-utility-in-climate-change-dispute

12     //www.utilitydive.com/news/california-federal-legislators-press-socalgas-on-reported-efforts-to
-under/588174/?utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202020-11
-02%20Utility%20Dive%20Newsletter%20%5Bissue:30588%5D&utm_term=Utility%20Dive

 

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Board of Directors’ Statement Opposing the Shareholder Proposal Requesting a Report on Alignment of Our Lobbying Activities with the Paris Agreement

The Board of Directors recommends a vote AGAINST this proposal because it believes the company’s existing thorough and transparent lobbying disclosures provide all material information needed by investors to understand and evaluate the extent and scope of our lobbying activities, including as they relate to sustainability and global warming, such that the requested report would be duplicative and unnecessary. More importantly, as reflected in our annual corporate sustainability reports and other public disclosures, we have demonstrated our ongoing commitment to the environment and fighting global warming with a strong track record of transparency and achievement in this area.

Background: Our Commitment to Sustainability and the Role of Natural Gas in the Global Energy Transition

Sempra Energy shares the concerns of governments and the public about climate change risks, which is why we are committed to sustainability and focused on advancing the transition to net zero energy systems and minimizing the environmental impact of our operations in light of the evolving global response to climate change.

Global climate-related issues and their impact on our stakeholders and our operations, have led the Sempra Energy family of companies to focus long term on a low- and zero-carbon approach to meeting the energy needs of our customers. We believe our businesses—which include transmission and distribution-like energy infrastructure in the electric and natural gas sectors, infrastructure to export LNG to global markets, and various renewable resources and emerging technologies—play a critical role in the global transition to net-zero energy systems by developing the necessary infrastructure to help reduce greenhouse gas emissions in the markets we serve, while also focusing on reducing the greenhouse gas emissions footprint of our own operations. Specifically, our natural gas infrastructure is already helping to substantially reduce the carbon emissions in the North American markets we serve, particularly the power generation, industrial and transportation sectors, while providing essential baseload storage to support growth in renewables generation. For example, our natural gas infrastructure is delivering some renewable natural gas, which can be carbon negative, and we are advancing a number of initiatives intended to utilize that infrastructure to deliver zero-carbon hydrogen to customers in the future. Globally, LNG export infrastructure can play a significant role in reducing greenhouse gas emissions in emerging markets by replacing higher-carbon intensive fossil fuels, such as traditional coal-fired generation, and by providing essential baseload energy storage to complement and help drive the growth of renewables generation. As a result, we believe natural gas infrastructure advances global efforts in supporting a lower-carbon future. The role we believe natural gas infrastructure will play in the energy transition is a foundational principle of many of our business activities, including our lobbying activities.

Sempra Energy Already Provides Extensive and Transparent Lobbying Disclosures, Including Relating To Climate Change and Sustainability

Sempra Energy and our operating companies engage in direct and indirect lobbying activities at the federal, state and local levels of government in a manner consistent with our business interests and goals, which include our commitment to creating long-term, sustainable value through, among other things, the important role we believe our infrastructure can play in lowering greenhouse gas emissions. We are committed to transparency regarding our policies and positions relating to the environment and energy, which we believe support our commitment to creating long-term, sustainable value, and how our direct and indirect lobbying activities align with these policies and positions. As a result, we make robust lobbying disclosures on our public website, at //www.okproud.com/investors/governance/political-engagements-contributions, that already contain the information requested by this proposal. Notably, and as we state on our website, we believe our direct lobbying activities align with the relevant policies of the legislative and regulatory jurisdictions in which we operate (such as California’s goal to achieve economy-wide carbon neutrality by 2045 and the U.S. EPA’s methane rules) and important global multi-lateral collaborations, including the Paris Agreement’s goals of limiting average global warming to well below 2°C above preindustrial levels and pursuing efforts to limit the temperature increase to 1.5°C. We also believe our indirect lobbying activities through trade associations are consistent with a transition to a lower carbon energy system and generally align with the Paris Agreement’s goal to limit global temperature rise.

We also disclose, among other things:

 

 

Our direct political contributions and trade association membership fees, and the political contributions of our employee political action committee

 

 

Our responses to the CDP-Climate questionnaire, which include detailed disclosure on the issues on which we have engaged directly with policy makers and our efforts to influence the positions on climate change legislation of the trade associations of which we are a member

 

 

The role of our Board of Directors and senior management with respect to our lobbying activities and disclosures, including the terms of our corporate political spending plans and how they are administered

 

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Descriptions of our political activities policies and robust internal training and outreach programs dedicated to compliance with rules and requirements regarding political and lobbying activities and reporting

 

 

Key policies and position statements that provide a roadmap for day-to-day operations and help ensure compliance with laws and regulations, give guidance for decision-making, and streamline internal processes

We believe our comprehensive lobbying disclosures provide all material information needed by investors to understand and evaluate the extent and scope of our lobbying activities, including as they relate to sustainability and global warming. As a result, we believe preparing a separate report dedicated to the subject matter requested by this proposal would produce duplicative disclosures and would be an inefficient and unnecessary use of the company’s capital and personnel resources. Further, we believe publishing a report about one narrow topic without the context of our broader lobbying and sustainability disclosures would be of limited utility to our shareholders and obfuscate our overall lobbying efforts that should be viewed on a more holistic basis.

Moreover, our existing lobbying and sustainability disclosures are the result of careful consideration, analysis and oversight by a large group of company personnel, including senior management and the Board of Directors. Our commitment to achieving our climate-related goals, the manner in which we engage in lobbying activities to advance these goals and the disclosures we prepare to describe these efforts are the result of complex business decisions to prioritize and report on these topics.

We Believe Our Nationally Recognized Political Lobbying Disclosures Reflect Best Practices

We believe our lobbying disclosures are consistent with best practices, both in our industry and in general, and we have been nationally recognized for our efforts. In December 2020, we were recognized for the fifth consecutive year as a Trendsetter in political disclosure practices and accountability in the 2020 CPA-Zicklin Index. The CPA-Zicklin Index, which is released annually by the Center for Political Accountability (CPA) and the Zicklin Center for Business Ethics Research at The Wharton School at the University of Pennsylvania, measures political disclosure and accountability policies and practices for election-related spending by S&P 500 companies, including political spending policies and board oversight. Companies that score 90 points or higher on the index are considered “Trendsetters.” Our recognition on this index in 2020 includes the following highlights:

 

 

We achieved a score of 95.7 out of a possible 100 and were among the top-performing companies in the utility sector. Of the 492 companies studied in 2020, the average score on the index was 50.1.

 

 

We were recognized for the fifth consecutive year as a Trendsetter on the index, and this year’s ranking marked the seventh consecutive year that the company has been ranked in the first tier, which represents businesses scoring 80 points or higher.

Based upon this national recognition and various other factors, the board believes our existing comprehensive lobbying disclosures, including their content and format, are consistent with best practices.

We Believe Our Lobbying Activities Present an Opportunity to Advance Our Commitment to Sustainability and the Long-Term Interests of Our Shareholders

We may not agree with all of the positions of every industry, trade or policy organization in which we participate. For example, at times, the policy positions and lobbying activities of the trade associations with which we are members may not fully align with our positions on particular issues, including the Paris Agreement’s goals and other climate change and sustainability topics. However, we believe, through continuous participation with these organizations, we have an opportunity to influence their positions in a manner that aligns with our commitment to sustainability and the long-term interests of our shareholders. We work to do this in three primary ways: (1) education of the association staff and key members; (2) ongoing engagement with the association to try to move consensus positions; and (3) if needed, dissenting from association positions, including not providing formal company participation or endorsement.

We strive to align all of our lobbying and political activities with the goals and strategies of our business, including on sustainability and climate and on other matters that affect us. We also adhere to high ethical standards when engaging in these activities, and we comply with the laws and regulations that govern these activities and our related disclosures.

Our Robust Sustainability Disclosures

As with our lobbying disclosures, we are also committed to transparency in our sustainability goals and strategies. Our disclosures on these topics include annual corporate sustainability reports, which we have been producing for 12 years, a dedicated sustainability website, sustainability information contained in the documents we file with the SEC, policies and position statements relating to the environment and energy, and numerous press releases and other reports that provide additional information about our commitment to sustainability. Our most recent annual corporate sustainability report includes goals and achievements for a number of areas related to our sustainability efforts, including, among others, emissions reductions, renewable energy, energy efficiency, water use, employee and public safety and electric reliability. We also publicly report detailed information annually on our greenhouse gas emissions and climate-related risks and opportunities, and we have published detailed information about our efforts to help achieve California’s ambitious

 

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Proposals to be Voted On

 

environmental goals, which we believe are aligned with the goals of the Paris Agreement. As described under “Corporate Governance—Board of Directors” above, we disclose our sustainability efforts and data in a transparent fashion and in alignment with prominent sustainability reporting frameworks, including GRI, SASB, TCFD and CDP.

Summary

We believe engaging with policymakers is both a valuable and necessary part of doing business and our responsibility as a leading energy infrastructure company, and we believe transparency about these efforts with our shareholders is important. As a result, we have taken significant steps to publicly disclose fulsome information about our political and lobbying activities, our environmental and climate goals, and the way in which these efforts align. Given the robust disclosures already available to our shareholders, the board believes the report requested by this Proposal 5 would be an unnecessary and unproductive use of the company’s time and resources, and would present a limited view of the company’s strategy and efforts that would not in itself be useful or additive to our shareholders. Moreover, based on our understanding of lobbying disclosure practices and our national recognition in this area, our existing lobbying disclosures are in line with current best practices.

Proposal to be Voted On, Board Recommendation and Vote Required

At the request of Putney School Inc Endowment Inv Mgr and other co-filers and Calvert Research and Management, our shareholders are being asked to vote on the proposal set forth above requesting a report on the alignment of our lobbying activities with the Paris Agreement, and we are recommending that shareholders vote against this proposal. This proposal will not be approved unless it receives “FOR” votes constituting a majority of the shares represented and voting at the Annual Shareholders Meeting at which a quorum is present, and the approving majority represents more than 25% of our outstanding shares.

 

The Board of Directors recommends that you vote “AGAINST” Proposal 5.

 

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Executive Compensation

Compensation Discussion and Analysis

Executive Summary

 

In this Compensation Discussion and Analysis, we:

 

 

Outline our compensation philosophy and program goals

 

 

Discuss how the Compensation and Talent Development Committee determines executive pay

 

 

Describe each element of executive pay, including base salaries, short-term and long-term incentives and executive benefits

 

 

Describe the rationale for each element of executive pay in the context of our compensation philosophy and program goals

 

Section

           Page        

Executive Summary

   43

Business Overview and Strategy

   44

Performance Highlights

   45

Shareholder Engagement

   46

2020 Compensation Program Overview

   47

Chief Executive Officer Target Compensation Summary

   49

Pay-for-Performance Alignment

   49

Rigor of Incentive Targets

   49

Compensation Governance

   51

Compensation Philosophy and Program Goals

   51

Labor Market Benchmarking

   52

Compensation Components

   54

Base Salaries

   54

Performance-Based Annual Bonuses

   54

Long-Term Equity-Based Incentives

   57

Benefit Plans

   62

Severance and Change in Control Arrangements

   65

Compensation and Talent Development Committee Roles and Responsibilities

   66

Management’s Role

   67

Managing Risk in Compensation Plans

   67

Share Ownership Guidelines

   69

Impact of Regulatory Requirements

   69

 

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Executive Compensation

 

This Compensation Discussion and Analysis focuses on the compensation of the following individuals, who we collectively refer to as our named executive officers:

 

Named Executive Officer

   Title

Jeffrey W. Martin(1)

   Chairman, Chief Executive Officer and President

Trevor I. Mihalik

   Executive Vice President and Chief Financial Officer

Kevin C. Sagara(2)

   Executive Vice President and Group President

Peter R. Wall(3)

   Senior Vice President, Controller and Chief Accounting Officer

Dennis V. Arriola(4)

   Former Executive Vice President and Group President

George W. Bilicic(5)

   Former President and Chief Legal Officer

Table 1

 

(1)

Mr. Martin assumed the President role upon the departure of George Bilicic.

 

(2)

Mr. Sagara was appointed as Executive Vice President and Group President effective June 27, 2020. Prior to such appointment, he was Chairman and Chief Executive Officer of SDG&E.

 

(3)

Mr. Wall was promoted from Vice President, Controller and Chief Accounting Officer to Senior Vice President, Controller and Chief Accounting Officer effective April 4, 2020.

 

(4)

Mr. Arriola retired effective July 3, 2020.

 

(5)

Mr. Bilicic separated from service effective March 30, 2020.

Business Overview and Strategy

Sempra Energy’s management team has set a clear mission to be North America’s premier energy infrastructure company. In alignment with this, we:

 

 

Simplified our business model and sharpened our focus on what we believe are the most attractive markets in North America

 

 

Narrowed our focus within the energy value chain to primarily focus on electric and natural gas infrastructure where we believe there is an attractive risk/reward profile for our owners

 

 

Positioned our business to better serve important markets. By investing in North America’s LNG infrastructure, we believe we are in a position to provide lower-carbon and more reliable energy for tens of millions of consumers in Europe, Asia and the Middle East

Our investments are focused on long-term opportunities that we believe should deliver higher returns than our utility peers with a commensurate risk profile.

Our operations extend beyond those of a typical utility and we have growing non-utility infrastructure operations. We therefore evaluate our performance against the broader market as well as against the S&P 500 Utilities Index. Our labor market for senior management talent also extends beyond the utility industry, as discussed under “Labor Market Benchmarking.” Some significant achievements over the past 10 years include:

 

 

Advancing major infrastructure projects at our California utilities, such as the deployment of advanced meter infrastructure and investments in grid resiliency and mitigation of climate-related vulnerabilities, including wildfires

 

 

Acquiring an 80.25% indirect interest in Oncor, a regulated electric transmission and distribution business that operates the largest transmission and distribution system in Texas

 

 

Developing and investing in large infrastructure projects in the United States, including a three-train natural gas liquefaction export facility in operation in Hackberry, Louisiana, a one-train liquefaction export facility in the process of being constructed in Baja California, Mexico and other strategically located LNG development opportunities in North America

 

 

Building a strong and diverse energy infrastructure business in Mexico

 

 

Executing on a multi-year capital rotation program that resulted in the divestiture of our U.S. renewables business, U.S. non-utility natural gas storage assets and South American businesses, which generated total gross cash proceeds of approximately $8.3 billion

We strive to deliver balanced, solid growth across our portfolio of businesses, which we believe should provide us with a broad spectrum of opportunities to deploy capital at attractive terms. Our current five-year (2021-2025) capital plan for Sempra Energy, its subsidiaries and its equity method investments includes new investment opportunities in utility operations and infrastructure projects that we believe should yield attractive returns consistent with our strategy.

 

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Performance Highlights

Financial Performance

In 2020, we achieved strong financial performance across key metrics in a market environment that demanded we adapt to the challenges presented by the COVID-19 pandemic. We grew our GAAP EPS by 76.7% year over year, to $12.88 in 2020 compared to $7.29 in 2019. Our adjusted EPS grew 18.4% year over year, to $8.03 in 2020 compared to $6.78 in 2019.(1) While we were successful in driving earnings performance in 2020, our share price, along with the rest of the market, was negatively impacted by the headwinds brought about by the pandemic, and it has not rebounded at the rate or to the level as some of our peers. During this challenging year, we were able to complete our multi-year capital rotation program, including divesting assets that do not directly align with our business strategy, and we executed on our strategic plan to focus on the North American markets we believe are most attractive. While these achievements are significant and foundational to creating sustainable long-term shareholder value, we believe they are not yet fully reflected in our stock price and, as a result, our near-term stock price performance did not recover as strongly as the broader market indices against which we compare ourselves, including the S&P 500 Index and S&P 500 Utilities Index.

Our 2020 achievements build on our strong long-term financial performance. Since 2010, we have delivered consistent strong earnings growth: our GAAP EPS was $2.86 in 2010, $5.37 in 2015 and $12.88 in 2020. On an adjusted basis, EPS increased from $3.80 in 2010 to $5.17 in 2015 and to $8.03 in 2020.(1) This performance has contributed to our robust long-term growth and shareholder value creation. Since 2010, we have had total shareholder return of 232%, exceeding the return of the S&P 500 Utilities Index during the same period. In addition, our market capitalization almost tripled over the past 10 years.

We also have continued to provide returns to shareholders by growing our common stock dividend. The CAGR of our common stock dividend exceeded the median CAGR for companies in the S&P 500 Utilities Index over the past one, three, five and ten years. From 2010 to 2020, we increased our annual dividend from $1.56 to $4.18 per common share. On February 23, 2021, the Board of Directors approved an additional increase of approximately 5% in our dividend to $4.40 per common share on an annualized basis.

 

 

LOGO

Long-Term Growth(2) Adjusted EPS(1) Dividends Market Capitalization(3)

Figure 1

 

(1)

Adjusted EPS is a non-GAAP financial measure. For a reconciliation of GAAP earnings and EPS to adjusted earnings and EPS, please see Appendix A to this proxy statement.

 

(2)

As of or for the years ended December 31, 2010, 2015 and 2020.

 

(3)

Dollars in billions.

 

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Strategic Performance

 

 

2020 Strategic Performance Highlights

 

Business Achievements

 

  Sempra Energy executed on its disciplined strategy with the goal of becoming North America’s premier energy infrastructure company

 

  Sempra Energy completed a multi-year capital rotation program that included the divestiture of its U.S. renewables businesses, U.S. non-utility natural gas storage assets and South American businesses, which generated total gross cash proceeds of approximately $8.3 billion

 

  Sempra Energy executed a $500 million share buyback and received board authorization for the lesser of $2.0 billion or 25 million shares of common stock in potential future share repurchases

 

  Sempra Energy announced proposed integrated transactions to simplify its energy infrastructure investments under one platform, Sempra Infrastructure Partners

 

  Sempra Energy was named to Fortune Magazine’s “World’s Most Admired Companies” List for 2020

 

  Sempra Energy was recognized by the National Organization on Disability as a 2020 Leading Disability Employer

 

  Sempra Energy was named to Forbes’ Just 100 list, which is intended to recognize companies that are doing right by all their stakeholders

 

  Sempra Energy received the National Association of Corporate Directors NXT Award for diversity and inclusion

 

  

 

Sempra Utilities

 

  SDG&E received approval from the FERC of a settlement with ROE of 10.6%, effective June 1, 2019(1)

 

  SDG&E and SoCalGas filed a petition for modification of the 2019 General Rate Case, requesting attrition rates for 2022 and 2023

 

  SDG&E continued its commitment to wildfire safety and received its 2020 safety certification from the Wildfire Safety Division of the CPUC

 

  SDG&E and SoCalGas received a final decision for cost recovery of approximately $935 million related to the Pipeline Safety Enhancement Plan

 

  SDG&E launched a comprehensive sustainability strategy to advance carbon neutrality

 

  SoCalGas and SDG&E announced a hydrogen blending demonstration program designed to help reduce carbon emissions

 

  Oncor announced a new five-year (2021-2025) capital plan of approximately $12.2 billion, largely driven by transmission and distribution growth needs in and around its service territory(2)

 

  

 

Sempra North American Infrastructure

 

  Continued progress on development projects with the goal of building up to 45 Mtpa of LNG export capacity to serve global markets:

 

  Cameron LNG JV Phase 1: Cameron LNG JV achieved full commercial operations under the tolling agreements; completed financing at Cameron LNG JV for return of capital of $753 million to Sempra Energy

 

  Cameron LNG JV Phase 2:(3)(4) Sempra LNG signed a MOU with Mitsubishi Corporation in May 2020 for potential offtake from the proposed project

 

  ECA LNG JV Phase 1:(3) Reached a final investment decision for the development, construction and operation of the project; sold a 16.6% ownership interest in the project to an affiliate of TOTAL SE

 

  Port Arthur:(3) Announced fixed-price, turnkey engineering, procurement and construction agreement with Bechtel Oil, Gas and Chemicals

 

  IEnova advanced construction of Gulf of Mexico fuel terminal network and placed into service its marine terminal in the New Port of Veracruz

 

 

(1)

Consists of a base ROE of 10.1% plus an additional 50 basis points for participation in the CA-ISO. If the FERC issues an order ruling that California investor-owned utilities are no longer eligible for the additional CA-ISO ROE, then SDG&E would refund the additional 50 basis points of ROE associated with the CA-ISO. These rates were effective as of June 1, 2019 and remain in effect indefinitely, with parties having the annual right to terminate the applicable settlement agreement beginning in 2022.

 

(2)

Represents 100% of Oncor’s forecasted capital expenditures for 2021-2025. Actual amounts expended will depend on a number of factors and may differ materially from the amounts reflected in the capital plan.

 

(3)

The successful development and ultimate construction of Sempra Energy’s LNG projects are subject to a number of risks and uncertainties and there can be no assurance that any of the projects will be completed.

 

(4)

This arrangement provides a framework for cooperation, but does not obligate the parties to enter into a definitive agreement or participate in the applicable project.

Shareholder Engagement

Incorporating shareholder feedback into the decision-making process is a critical component of our corporate governance philosophy. Our board and management have a long-standing commitment to engaging our shareholders and listening to their perspectives on key performance, governance and compensation matters. With respect to compensation matters, we engage extensively with shareholders to gather feedback on our current compensation program and any potential changes to the program the Compensation and Talent

 

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Development Committee is considering. Our Lead Independent Director participates in these shareholder engagement efforts, including attending many of the meetings with our shareholders, to strengthen the communication of shareholder feedback directly to the board.

During our shareholder engagement campaign in 2020, which was in addition to our normal investor relations outreach, we reached out to shareholders representing approximately 63% of our total outstanding shares of common stock and held telephonic or videoconference meetings with shareholders representing approximately 46% of our total outstanding shares of common stock (over half of our institutional share ownership). During these meetings, we reviewed our executive compensation program and a variety of other topics and learned about shareholder views and priorities with respect to these matters.

Our shareholders presently have the opportunity to cast an advisory vote on our executive compensation, or a “say-on-pay” vote, once every year at our annual shareholders meetings. At our 2020 Annual Shareholders Meeting, the “say-on-pay” vote received more than 97% approval. The Compensation and Talent Development Committee believes this high level of approval affirms our shareholders’ support for our approach to executive compensation, and therefore the committee did not seek to significantly alter our compensation policies or practices for 2020.

2020 Compensation Program Overview

Our executive compensation program is designed to attract, motivate and retain key executive talent and promote strong, sustainable long-term performance. The three components of total direct compensation delivered in our program are 1) Base Salary; 2) Performance-Based Annual Bonus; and 3) Long-Term Equity-Based Incentives. We place an emphasis on variable performance-based pay, with each component designed to promote value creation and alignment of our management team’s compensation with our long-term strategic objectives.

 

   

Type

  Component   Form     Key Characteristics
   
 Fixed   Base Salary   Cash    

  Base salary is benchmarked to the median of comparably-sized general industry peers (excluding financial services companies)

 

   
 Variable   Performance-Based Annual Bonus   Cash    

  Based on ABP Earnings (weighted at 85%) and Safety and Stakeholder Measures (collectively weighted at 15%)

 

  No bonus payment unless company exceeds threshold performance level for the year and maximum payouts are capped

 

  Long-Term Equity-Based Incentives(2)   Equity    

  Performance-Based Restricted Stock Units (weighted at 70% collectively)

 

  Relative Total Shareholder Return (TSR) Performance-Based Restricted Stock Units (50%): 3-year relative TSR

 

(35%): Relative TSR measured vs. S&P 500 Utilities Index(1); maximum payout requires performance at 90th percentile of S&P 500 Utilities Index peers

 

(15%): Relative TSR measured vs. S&P 500 Index; maximum payout requires performance at 90th percentile of S&P 500 Index peers

 

  EPS Growth Performance-Based Restricted Stock Units (20%): 3-year EPS CAGR, with payout scale set based on forward consensus estimates of EPS CAGR of S&P 500 Utilities Index peers(1); maximum payout requires performance at the 90th percentile of estimates for S&P 500 Utilities Index peers

 

  3-year performance period for each performance measure

 

  For each measure, performance at threshold results in zero payout

 

  Stock Options(3) and/or Service-Based Restricted Stock Units(3) (weighted at 30% collectively): Vest ratably over three years

 

Table 2

 

(1)

For purposes of long-term equity-based incentives and labor market benchmarking, all references to the S&P 500 Utilities Index or our S&P 500 Utilities Index peers refer to the companies constituting the S&P 500 Utilities Index, excluding water companies.

 

(2)

As used in this proxy statement, “long-term equity-based incentives” refers to the annual long-term incentive plan (LTIP) award granted on January 2, 2020 and, unless stated or the context indicates otherwise, does not include any special awards.

 

(3)

Stock options were weighted at 30% for Mr. Martin and at 15% for Messrs. Mihalik, Bilicic and Arriola. Service-based restricted stock units were weighted at 15% for Messrs. Mihalik, Arriola and Bilicic and at 30% for Messrs. Sagara and Wall. The 2020 annual LTIP award for Mr. Martin did not include service-based restricted stock units, and the 2020 annual LTIP award for Messrs. Sagara and Wall did not include stock options.

Note: Based on 2020 annual base salary, 2020 target performance-based annual bonus and the target grant date value of 2020 long-term equity-based incentives.

 

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The relative value of Mr. Martin’s 2020 total pay opportunity for each of the three components of total direct compensation at target company performance is shown below in Figure 2.

Chief Executive Officer Pay Mix at Target

 

 

LOGO

Chief Executive Officer Pay Mix at Target Base Salary 13% Performance-Based Annual Bonus Long-Term 19% Equity-Based Incentives 68% 87% At-Risk Compensation

Figure 2

Note: Based on 2020 annual base salary, 2020 target performance-based annual bonus and the target grant date value of the 2020 annual long-term incentive plan award.

Our pay mix is designed to align our executives’ interests with our shareholders’ interests by providing a greater proportion of target annual compensation through performance-based annual and long-term incentives rather than base salary. This means that most pay is intended to be variable and increase or decrease based on company performance. As shown in Figure 2, over two-thirds of Mr. Martin’s total target pay opportunity was in the form of performance-based equity incentives and 87% was in the form of variable incentive pay.

Actual pay mix may vary substantially from target pay mix. This may occur as a result of company performance, which greatly affects annual bonuses, and stock performance, which significantly impacts the ultimate value realized for stock-based awards. Figure 3 shows the percentage of each component of the total 2020 pay opportunity as of December 31, 2020 at target company performance for each of our named executive officers, excluding Messrs. Arriola and Bilicic, who separated from service prior to December 31, 2020.

 

 

LOGO

Components of Total Target Compensation Martin Mihalik Sagara Wall Base Salary Performance-Based Long-Term Equity-Annual Bonus Based Incentives

Figure 3

Note: Based on annual base salary and target performance-based annual bonus as of December 31, 2020 and the target grant date value of the 2020 annual long-term incentive plan award, including Mr. Wall’s April 1, 2020 promotional award but excluding any other special awards.

 

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Chief Executive Officer Target Compensation Summary

The table below summarizes Mr. Martin’s 2020 base salary, the target value of his 2020 performance-based annual bonus, and the target value of his 2020 annual LTIP award.

 

Base Salary                        

  

Target Value of Performance-

Based Annual Bonus

   Target 2020 LTIP
Award Value
  

  Target 2020 Total Direct  

Compensation

$1,300,000                         

   $1,885,000    $7,000,000    $10,185,000

Table 3

Pay-for-Performance Alignment

The Compensation and Talent Development Committee believes that pay should be structured to align executive compensation with company performance and with the interests of our shareholders. As a result, our incentive plans are designed to deliver payouts that are aligned with company performance. Our LTIP awards measure TSR performance relative to companies in the S&P 500 Utilities Index and S&P 500 Index and the payout scale for our EPS growth-based LTIP awards is based on forward consensus estimates of earnings per share growth for the S&P 500 Utilities Index peers.

This is demonstrated by comparing the performance outcomes of our recent LTIP payouts for our TSR-based annual LTIP awards, which comprised 80% of our annual LTIP grant date award value of the 2016-2018 and 2017-2019 awards and 50% of our annual LTIP grant date award value for our 2018-2020 awards. Such awards directly tie payouts to our stock price performance.

 

    TSR-Based LTIP Awards

   TSR Performance Result    

 

  Payout

    2016 - 2018

  

Below Threshold Performance

 

LOGO

 

No Payout  

    2017 - 2019

  

59.8th Percentile vs. S&P 500 Utilities Index

66.2nd Percentile vs. S&P 500 Index

 

LOGO

 

125% of Target         138% of Target  

169% of Target     Combined Payout  

    2018 - 2020

  

55.9th Percentile vs. S&P 500 Utilities Index

51.2nd Percentile vs. S&P 500 Index

 

LOGO

 

115% of Target         111% of Target  

103% of Target      Combined Payout  

Table 4

Note: The 2016-2018 award considered performance against both the S&P 500 Utilities Index and the S&P 500 Index in a combined design. The 2017-2019 and 2018-2020 award design measured TSR performance against the S&P 500 Utilities Index and the S&P 500 Index in separate awards and the award related to the S&P 500 Index included a modifier based on Sempra Energy’s absolute total shareholder return that increased the award payout for the 2017-2019 award by 20% (this modifier feature was not triggered for the 2018-2020 award cycle and was not included in the 2019-2021 or 2020-2022 award cycles). For additional information, see “Results for the 2018-2020 Award Cycle” and “Compensation Tables—Option Exercises and Stock Vested” following this Compensation Discussion and Analysis.

Rigor of Incentive Targets

At the start of each year, our Compensation and Talent Development Committee aims to set challenging yet achievable incentive targets, designed to motivate our team to drive strong performance and sustained value creation and to closely align executives’ interests with those of our shareholders.

Performance-Based Annual Bonus Plan

For 2020, the Compensation and Talent Development Committee selected earnings, weighted at 85%, and Safety and Stakeholder Measures, collectively weighted at 15%, for the measurement of annual corporate performance under the performance-based annual bonus plan. The committee utilizes earnings as the basis of the primary annual bonus metric because it believes the measure provides an accurate and comprehensive picture of annual company financial performance that plan participants, shareholders, analysts and other parties clearly understand. The committee makes certain predefined adjustments to GAAP earnings as described in Appendix D to this proxy statement to calculate ABP Earnings. For 2020, the committee set a challenging ABP Earnings target of $2,032 million based on the company’s financial plan. The 2020 target reflected an increase of $332 million, or 20%, over our 2019 target ABP Earnings of $1,700 million, and an increase of $52 million, or 3%, over our 2019 actual ABP Earnings.

Our 2020 GAAP earnings were $3,764 million. ABP Earnings for 2020 were $1,425 million lower, or $2,339 million. Adjustments were predefined at the time the Compensation and Talent Development Committee determined the 2020 annual bonus plan goals. For a reconciliation of GAAP earnings to ABP Earnings, see “Reconciliation of 2020 GAAP Earnings to ABP Earnings” on page 56. For detailed information about the component measurements of annual corporate performance under the performance-based annual bonus plan, please see Appendix D to this proxy statement.

 

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Long-Term Equity-Based Incentives

The 2020 annual LTIP award design for Mr. Martin is 100% performance based, with 70% in performance-based restricted stock units and 30% in nonqualified stock options, which the Compensation and Talent Development Committee views as performance-based because their value depends on our stock price increasing over time. The 2020 annual LTIP award design for the other named executive officers is 70% performance-based restricted stock units and, for Messrs. Mihalik, Arriola and Bilicic, 15% nonqualified stock options and 15% service-based restricted stock units or, for Messrs. Sagara and Wall, 30% service-based restricted stock units. The 2020 performance measures and weightings for the 2020 annual long-term incentive plan awards are:

 

 

LOGO

2020 Annual LTIP Award Metrics Martin Mihalik, Arriola and Bilicic Sagara and Wall TSR vs. Stock Options S&P 500 30% Utilities Index 35% EPS Growth TSR vs. 20% S&P 500 Index 15% Restricted Stock Units 15% TSR vs. S&P 500 Stock Options Utilities Index 35% 15% EPS Growth TSR vs. 20% S&P 500 Index 15% Restricted Stock Units TSR vs. S&P 500 30% Utilities Index 35% EPS Growth TSR vs. 20% S&P 500 Index 15%

Figures 4, 5 and 6

The 2020 annual long-term incentive plan awards include two performance measures — relative total shareholder return (50% total weighting with 35% based on performance against the S&P 500 Utilities Index and 15% based on performance against the S&P 500 Index) and EPS growth (20% weighting). The Compensation and Talent Development Committee measures performance against challenging targets in order to drive long-term growth and closely align executives’ interests with those of our shareholders.

In the event that Sempra Energy’s total shareholder return does not exceed the 25th percentile of the relevant index (S&P 500 Utilities Index or S&P 500 Index), participants will receive zero shares for that portion of the award. In addition, to achieve the maximum payout, performance at or above the 90th percentile of the relevant index (S&P 500 Utilities Index or S&P 500 Index) is required. For the EPS CAGR portion of the annual LTIP award, zero payout is made if our EPS CAGR is at or below the 25th percentile of consensus expectations for our S&P 500 Utilities Index peers. To achieve maximum payout, performance at or above the 90th percentile of consensus expectations for S&P 500 Utilities Index peers is required.

 

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Compensation Governance

We believe the compensation governance and policies summarized below conform to best practices:

 

 

 

LOGO

What We Do Incorporate shareholder feedback in our compensation program design Multiple LTIP award and annual bonus plan performance measures LTIP includes double trigger equity vesting on a change in control(1) Clawback policy Share ownership requirements (8x base salary for Chief Executive Officer, 5x retainer for Directors)Independent advisors conduct risk assessment of compensation program Independent compensation consultant What We Dont Do No excise tax gross ups for named executive officers No employment contracts for named executive officers No stock option repricing(2) No hedging or pledging of shares No uncapped incentives No single trigger cash severance payments upon a change in control

 

(1)

See “Severance and Change in Control Arrangements” for additional information.

 

(2)

Long-term incentive plan awards are granted from a shareholder-approved plan that prohibits stock option repricing and cash buyouts without shareholder approval.

Compensation Philosophy and Program Goals

 

Compensation Philosophy

The Compensation and Talent Development Committee of our Board of Directors sets the company’s executive pay philosophy, which emphasizes four key areas:

 

 

 

LOGO

Sempra Energy Compensation Philosophy Performance based incentives aligned with shareholder value creation Alignment of pay with short term and long term company performance Balance between short term and long term incentives More pay tied to performance at higher levels of responsibility

We believe this compensation philosophy enables us to attract, motivate and retain key executive talent and promote strong, sustainable long-term performance.

 

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Executive Compensation Program Goals

Our executive compensation program goals include:

 

 

Aligning executive compensation with shareholders’ interests

 

 

Linking executive compensation to both annual and long-term corporate, business and individual performance

 

 

Motivating executives to achieve superior performance

 

 

Attracting and retaining executives with outstanding ability and experience who demonstrate high standards of integrity and ethics

Labor Market Benchmarking

 

Labor Market

The Compensation and Talent Development Committee uses external pay data to help align executive compensation levels with the labor market. The committee views the labor market for our most senior positions as a nationwide, broad cross-section of companies in various industries, and the committee recognizes that this labor market varies by position. The committee’s use of both general industry and utilities benchmarking data reflects the competitive labor market from which we recruit executives.

Sempra Energy’s 18 corporate officers as of December 31, 2020 were hired from a broad range of industries, including accounting, consulting, banking, energy and law.

 

 

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Sempra Energy Officers Other Industries/ Accounting/ Developed Consulting Internally 28% 27% Banking/ Law Investment 17% Banking Energy/ 11% Energy-Related 17%

Figure 7

Target Market Alignment

The Compensation and Talent Development Committee targets alignment of compensation with the 50th percentile of the general industry benchmarking data, reviewing data in total and by component (base salaries, target performance-based annual bonuses and target long-term equity-based incentives). Positioning relative to the 50th percentile may vary based on factors such as time in position, performance, and the comparability of market benchmark positions to the scope and structure of our positions.

Based on the November 2019 benchmarking review, total target compensation for Mr. Martin in 2020 was below the 50th percentile of general industry benchmarking data. Mr. Mihalik’s total target compensation in 2020 approximated and Mr. Wall’s total target compensation in 2020 was slightly above the 50th percentile of the general industry benchmarking data. Mr. Sagara was not included in the November 2019 benchmarking review.

Actual compensation may be higher or lower than target compensation, as it reflects actual performance and payouts under our performance-based annual bonus plan and our long-term incentive plan.

General Industry Benchmarking

When benchmarking executive pay, the Compensation and Talent Development Committee first reviews general industry market pay data from the Aon Hewitt Total Compensation Management (TCM) Database for non-financial services Fortune 500 companies with revenues between $6.25 billion and $25 billion. The November 2019 benchmarking review, on which 2020 compensation decisions were based, consisted of 123 companies, which are listed on Appendix B to this proxy statement, and are referred to in this Compensation Discussion and Analysis as our “general industry peer group.”

 

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The Compensation and Talent Development Committee uses the general industry peer group as the primary benchmarking data source because it believes it best represents the market from which we recruit executive talent. This peer group is not constrained by industry affiliation, but companies in the utilities and energy sectors make up approximately 20% of the general industry peer group. This peer group focuses on companies comparable in size to Sempra Energy.

Table 5 summarizes the market capitalization, earnings, and revenue of the general industry peer group compared to Sempra Energy.

 

(Dollars in Millions)

  

Market

Capitalization(1)

     Earnings(2)      Revenue(2)  

Sempra Energy

     $ 36,754         $ 3,764        $ 11,370  

Sempra Percentile Rank

     74 th       92 nd       46 th 

75th Percentile

     $ 40,032         $ 1,336        $ 16,488  

Median

     $ 20,274         $    681        $ 11,635  

25th Percentile

     $   9,267         $      18        $   8,525  

Table 5

 

(1)

Market capitalization used for benchmarking purposes is calculated using the closing price of the common stock on December 31, 2020 and the number of outstanding shares of common stock based on publicly reported information available as of December 31, 2020.

 

(2)

Earnings and revenue for the general industry peer group companies are for fiscal year 2020 unless otherwise noted in Appendix B to this proxy statement.

Utilities Industry Benchmarking

The Compensation and Talent Development Committee also reviews pay and performance data in proxy statements and other public filings of energy and utility companies. This peer group is composed of the 26 companies that make up the S&P 500 Utilities Index, excluding water companies. These companies are listed in Appendix C to this proxy statement and are referred to in this Compensation Discussion and Analysis as our “utilities peer group” or our “S&P 500 Utilities Index peers.” We used the companies in the utilities peer group as comparators for the EPS growth and one of the two relative TSR components of the 2020 annual LTIP award.

Table 6 summarizes the market capitalization, earnings, and revenue of the utilities peer group compared to Sempra Energy.

 

(Dollars in Millions)

  

Market

Capitalization(1)

     Earnings(2)      Revenue(2)  

Sempra Energy

     $ 36,754        $ 3,764        $ 11,370  

Sempra Percentile Rank

     77 th       100 th       63 rd 

75th Percentile

     $ 34,281        $ 1,449        $ 13,245  

Median

     $ 22,591        $ 1,090        $   9,632  

25th Percentile

     $ 13,560        $    605        $   6,820  

Table 6

 

(1)

Market capitalization used for benchmarking purposes is calculated using the closing price of the common stock on December 31, 2020 and the number of outstanding shares of common stock based on publicly reported information available as of December 31, 2020.

 

(2)

Earnings and revenue for the utilities peer group companies are for fiscal year 2020.

Role of Internal Equity in Determining Pay

The Compensation and Talent Development Committee uses internal pay equity principles to determine the compensation for positions that are unique or difficult to benchmark against market data. Internal equity is also considered in establishing compensation for positions considered to be equivalent in responsibilities and importance, especially where precise external data is not available.

 

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Compensation Components

 

Primary Components of Executive Compensation Program

The primary components of our executive compensation program are:

 

 

Base salaries

 

 

Performance-based annual bonuses

 

 

Long-term equity-based incentives

Additional benefits include health and welfare programs, retirement and savings plans, personal benefits and severance pay.

All of our named executive officers generally participate in the same compensation program. However, compensation levels for named executive officers vary substantially based on the roles and responsibilities of the individual officers.

 

1.   Base Salaries

Our executive compensation program emphasizes performance-based pay. This includes annual cash bonuses and long-term equity-based incentives. However, base salaries remain a necessary and typical element of compensation for attracting and retaining outstanding employees at all levels.

The Compensation and Talent Development Committee annually reviews base salaries for executive officers. The committee considers the following factors in its review:

 

 

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Factors Considered in Determining Base Salaries Peer group salary data Complexity of roles and responsibilities Reporting relationships Individual contributions and performance Succession planning Internal equity Labor market conditions Retention needs Experience

2020 Adjustments to Base Salaries

Messrs. Martin and Mihalik received 2020 salary planning increases of 8.3% and 12.3%, respectively, in order to bring their salaries closer to the median salary of our general industry peer group. For additional information, see “Target Market Alignment” above. Mr. Wall received a salary increase of 13.7% in 2020, which reflects his promotion to Senior Vice President, Controller and Chief Accounting Officer effective April 4, 2020. Mr. Sagara received a 2020 salary planning increase of 4.0% in his prior role with SDG&E and an additional salary increase of 28.1% when he was promoted to Executive Vice President and Group President of Sempra Energy effective June 27, 2020. Messrs. Arriola and Bilicic received 2020 salary planning increases of 6.1% and 3.0%, respectively.

 

2.   Performance-Based Annual Bonuses

Performance Guidelines

Each year the Compensation and Talent Development Committee establishes performance measures and dollar guidelines for performance-based cash bonus payments. The committee uses financial and operational performance measures that are linked to our business strategy and shareholder interests.

Consistent with our pay-for-performance philosophy, the performance measures do not provide for any bonus payment unless the company surpasses the threshold (minimum) performance level for the year. Bonus opportunities increase from zero for performance at the threshold level to 200% of target for performance at the maximum level.

The committee may apply discretion in determining awards, including determining the results of performance measures and taking into consideration the contributions of each named executive officer or other factors it deems relevant.

 

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Bonus Opportunities for Named Executive Officers

Potential bonus opportunities at threshold, target and maximum company performance as of December 31, 2020 are expressed as a percentage of each named executive officer’s base salary as of December 31, 2020 below.

 

       

Named Executive Officer

Threshold

Target

Maximum

Jeffrey W. Martin

  0%     145%     290%  

Trevor I. Mihalik

  0%     85%     170%  

Kevin C. Sagara(1)

  0%     90%     180%  

Peter R. Wall

  0%     50%     100%  

Dennis V. Arriola(2)

  0%     80%     160%  

George W. Bilicic(3)

  N/A     N/A     N/A  

Table 7

 

(1)

Mr. Sagara’s 2020 performance-based annual bonus was prorated between his prior target of 70% as Chief Executive Officer of SDG&E and his 90% target as Executive Vice President and Group President of Sempra Energy.

 

(2)

Mr. Arriola’s 2020 performance-based annual bonus was based on his base salary immediately prior to his retirement date and was prorated through his retirement date.

 

(3)

Mr. Bilicic was not eligible for a 2020 performance-based annual bonus under the terms of his separation from service.

Annual Bonus Performance Measures

 

For 2020, the Compensation and Talent Development Committee selected earnings, employee and public safety, and customer service and other stakeholder criteria for the measurement of annual corporate performance. The ABP Earnings measure was weighted at 85% and the Safety and Stakeholder Measures were collectively weighted at 15%. For annual bonus plan purposes, ABP Earnings are Sempra Energy’s GAAP net income, excluding earnings attributable to noncontrolling interests and preferred stock dividends and subject to certain predefined adjustments. ABP Earnings may be higher or lower than earnings reported in our financial statements due to the predefined adjustments. These adjustments are described in “Reconciliation of GAAP Earnings to ABP Earnings” below and in Appendix D to this proxy statement. The specific components of the Safety and Stakeholder Measures are also described in Appendix D to this proxy statement.  

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85% ABP Earnings 15% Safety and Stakeholder Measures

Rationale for Selection of Performance Measures

The Compensation and Talent Development Committee selected earnings as the basis of the primary annual bonus plan metric for 2020 because it believes this measure provides an accurate and comprehensive picture of annual company financial performance that plan participants, shareholders, analysts and other parties can clearly understand.

The committee included Safety and Stakeholder Measures in the 2020 annual bonus plan because it believes that strong safety and customer service performance are critical to our infrastructure-intensive and customer-focused businesses.

During our shareholder engagement meetings, we solicit shareholders’ input on the performance measures and other aspects of our incentive plans. Some shareholders expressed a preference for the use of multiple performance measures in annual bonus plans, including a financial performance measure (there was not a clear preference for earnings or EPS), and for the use of different performance measures in our annual and long-term incentive plans. Shareholder feedback related to our annual bonus plan performance measures and structure generally has been positive.

ABP Earnings Goal Determination

Table 8 shows the ABP Earnings criteria for 2020 performance-based annual bonuses:

 

Financial Performance Measure (Dollars in Millions)

Threshold      Target      Maximum     

ABP Earnings (Attributable to Common Shares)

$ 1,951 $ 2,032 $ 2,113

Table 8

The Compensation and Talent Development Committee set 2020 earnings goals, with the target of $2,032 million in ABP Earnings, based on the company’s financial plan and with certain adjustments for annual bonus plan purposes. The financial plan takes into account anticipated earnings for each of our businesses, planned purchases or sales of assets, major capital projects and other significant issues that may impact the company’s earnings. The financial plan also is used to develop the company’s public earnings guidance. The 2020

 

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target reflected an increase of $332 million, or 20%, over our 2019 target ABP Earnings of $1,700 million, and an increase of $52 million, or 3%, over our 2019 actual ABP Earnings.

Consistent with the approach taken in prior years, the Compensation and Talent Development Committee also determined when it set earnings goals that the earnings calculation for 2020 bonus purposes would be adjusted by excluding the impact of major changes in accounting rules, certain items related to acquisitions and divestitures and other adjustments as described in Appendix D to this proxy statement. In addition, the Compensation and Talent Development Committee has, but did not use, discretion to adjust earnings for other unplanned or unforeseen items that may occur during the course of the year.

Reconciliation of GAAP Earnings to ABP Earnings

A reconciliation of 2020 GAAP earnings to ABP Earnings is provided in Table 9. For additional information about the adjustments made to GAAP earnings to calculate ABP Earnings, please see Appendix D to this proxy statement.

 

(Dollars in Millions)

   

 

  Reconciliation     

GAAP Earnings

      $ 3,764

Predefined Adjustments:

     

Exclude gain on sale of South American businesses and related items

        (1,752 )

Exclude variance to plan of foreign exchange gains or losses at Mexico

        43

Exclude unplanned rabbi trust investment returns (related to nonqualified pension and deferred compensation) in excess of specified limits and nonqualified pension settlement charges to the extent not included in the plan

        (19 )

Exclude legacy litigation costs, costs related to Sempra Commodities, which was sold, and the impact of unplanned changes in tax law

        303

ABP Earnings

        $ 2,339

Table 9

Annual Bonus Performance Results

Overall company performance on the 2020 annual bonus plan performance measures was at 198% of target performance. A summary of the plan metrics and results is provided in Table 10 below, with additional detail in Appendix D to this proxy statement:

 

2020 Performance Measures

             Goals            

Weighted

Percent of

 
   Target Weight         Threshold      Target      Maximum      Actual      Target
Achieved(1)
 

Financial:

                  

ABP Earnings (Dollars in Millions)

     85%       $ 1,951      $ 2,032      $ 2,113      $ 2,339        170

Safety Measures:

                  
 

Employee and Public Safety

     12%         See Appendix D for Detail              23

Stakeholder Measures:

       

SDG&E and SoCalGas Customer Service and Other Stakeholders

     3%          5

TOTAL

     100%                                               198

Table 10

 

(1)

ABP Earnings exceeded the maximum goal, resulting in achievement of 200% of target performance that corresponds to a weighted percent of target achievement of 170%. Overall performance for the Safety and Stakeholder Measures resulted in achievement of 190% of target performance that corresponds to a weighted percent of target achievement of 28%.

 

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2020 Bonus Payouts

Based on overall performance and its consideration of the contributions of each named executive officer in 2020, the Compensation and Talent Development Committee approved the payment of the annual bonuses shown in Table 11.

 

Named Executive Officer

  

Base Salary at

Year-End 2020

   x    Bonus
Target
  x    Performance
Score(4)
   =    Bonus(5)  

Jeffrey W. Martin

    

$

1,300,000

         

 

145

%

        

 

198%

 

         

$

3,740,600  

Trevor I. Mihalik

    

$

730,000

         

 

85

%

        

 

198%

 

         

$

1,231,400  

Kevin C. Sagara(1)

    

$

720,000

         

 

80

%

        

 

196%

 

         

$

1,132,500  

Peter R. Wall

    

$

375,000

         

 

50

%

        

 

198%

 

         

$

372,100  

Dennis V. Arriola(2)

    

$

343,716

         

 

80

%

        

 

198%

 

         

$

545,700  

George W. Bilicic(3)

                                                                     

$

0  

Table 11

 

(1)

Mr. Sagara’s. 2020 performance-based annual bonus was prorated between his prior target of 70% as Chief Executive Officer of SDG&E and the performance score of 192.55% of target under the SDG&E plan and his 90% target as Executive Vice President and Group President of Sempra Energy.

 

(2)

Mr. Arriola’s 2020 performance-based annual bonus was prorated through his date of retirement.

 

(3)

Mr. Bilicic was not eligible for a 2020 performance-based annual bonus under the terms of his separation from service.

 

(4)

The actual performance score of 198.44% is rounded in this Table 11.

 

(5)

Final award payouts are rounded up to the nearest hundred.

 

3.   Long-Term Equity-Based Incentives

Long-term equity-based incentives are the largest single component of each named executive officer’s total target compensation package. See Figure 3 for these percentages. In accordance with our pay-for-performance philosophy, the performance-based restricted stock units constitute the majority of the 2020 annual long-term incentive plan awards. The key features of our awards and their alignment with shareholder interests are summarized below.

 

 

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2020 Annual LTIP Award Metrics Martin Mihalik, Arriola and Bilicic Sagara and Wall TSR vs. Stock Options S&P 500 30% Utilities Index 35% EPS Growth TSR vs. 20% S&P 500 Index 15% Restricted Stock Units 15% TSR vs. S&P 500 Stock Options Utilities Index 35% 15% EPS Growth TSR vs. 20% S&P 500 Index 15% Restricted Stock Units TSR vs. S&P 500 30% Utilities Index 35% EPS Growth TSR vs. 20% S&P 500 Index 15%

 

(1)

Stock options were weighted at 30% for Mr. Martin and at 15% for Messrs. Mihalik, Arriola and Bilicic (with the remaining 15% in service-based restricted stock units). Service-based restricted stock units were weighted at 30% for Messrs. Sagara and Wall.

Rationale for 2020 Annual LTIP Award Design

The Compensation and Talent Development Committee has implemented what it believes is a balanced award design that is based 50% on relative total shareholder return, 20% on relative EPS growth and 30% on nonqualified stock options (and/or service-based restricted stock units for named executive officers other than the Chief Executive Officer). The committee believes this design creates a strong alignment with shareholder interests and with our growth strategy. The committee approved this equity award structure after considering many variables, including alignment with shareholder interests, retention, plan expense, share usage, market trends and feedback from our shareholder outreach.

 

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In determining the design of the performance-based components of our 2020 annual LTIP awards, the Compensation and Talent Development Committee sought a direct link to long-term performance in comparison to indices and peers. To achieve this result, the committee used performance-based restricted stock units based on relative total shareholder return (constituting 50% of the target grant date award value, with 35% based on performance relative to the S&P 500 Utilities Index and 15% based on performance relative to the S&P 500 Index). The link between pay and long-term earnings performance is further strengthened by the use of a second performance measure based on relative long-term EPS growth (constituting 20% of the target grant date award value). Stock options (weighted at 30% for Mr. Martin, 15% for Messrs. Mihalik, Arriola and Bilicic) also are aligned with the company’s strategic focus on long-term growth and service-based restricted stock units (weighted at 15% for Messrs. Mihalik, Arriola and Bilicic and 30% for Messrs. Sagara and Wall) promote retention.

 

LOGO 2020 Annual LTIP Award Metrics Martin Mihalik, Arriola and Bilicic Sagara and Wall TSR vs. Stock Options S&P 500 30% Utilities Index 35% EPS Growth TSR vs. 20% S&P 500 Index 15% Restricted Stock Units 15% TSR vs. S&P 500 Stock Options Utilities Index 35% 15% EPS Growth TSR vs. 20% S&P 500 Index 15% Restricted Stock Units TSR vs. S&P 500 30% Utilities Index 35% EPS Growth TSR vs. 20% S&P 500 Index 15%

Figures 8, 9 and 10

Determining Individual Equity Award Grants

In granting the 2020 awards, the Compensation and Talent Development Committee:

 

 

Specified a target dollar value and other terms for each named executive officer’s award; and

 

 

Based the number of shares underlying the awards on the specified target dollar value for each named executive officer, as opposed to a fixed number of shares. This approach allows maintenance of a pay mix the committee believes to be optimal.

On the grant date, we calculated the precise number of shares to be granted to each named executive officer by dividing the total target value of each named executive officer’s award by the grant date closing price of Sempra Energy common stock for the performance-based and service-based restricted stock units and by the Black-Scholes value for nonqualified stock options.

These values are presented below under “Target Value of Long-Term Equity-Based Incentives” and differ from the value reported in “Compensation Tables—Summary Compensation Table” and “Compensation Tables—Grants of Plan-Based Awards” with respect to awards based on relative total shareholder return, which are reported in those compensation tables based on a Monte Carlo valuation that is used to reflect the probable outcome of performance conditions and calculate the grant date fair value.

 

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Target Value of Long-Term Equity-Based Incentives

The target values for the 2020 annual long-term incentive plan awards are summarized below in Table 12.

 

 

 

     Target Value of 2020
Annual LTIP Award
 

Jeffrey W. Martin

       $7,000,000  

Trevor I. Mihalik

       $2,100,000  

Kevin C. Sagara

       $1,067,800  

Peter R. Wall(1)

       $   400,000  

Dennis V. Arriola

       $1,800,000  

George W. Bilicic

       $2,500,000  

Table 12

 

(1)

Amount shown includes awards with a collective total target value of $100,000 granted on April 1, 2020 in connection with Mr. Wall’s promotion to Senior Vice President. This portion of Mr. Wall’s award is subject to the same award design, weighting, terms and performance periods as the January 2, 2020 LTIP award.

The actual amounts realized by equity award recipients will depend on future stock price performance and our EPS performance and the degree to which these performance measures are achieved. The amounts ultimately realized will not necessarily align with the target grant values.

Performance Goals for the 2020 Performance-Based Restricted Stock Units

The 2020 annual long-term incentive plan awards included two performance measures — relative total shareholder return and EPS growth. Fifty percent of the total target award value is linked to relative total shareholder return, with 35% based on total shareholder return relative to the S&P 500 Utilities Index and 15% based on total shareholder return relative to the S&P 500 Index. Twenty percent of the total target award value is linked to EPS growth.

 

1.

Relative Total Shareholder Return

Each performance-based restricted stock unit represents the right to receive between zero and two shares of Sempra Energy common stock based on the company’s three-year cumulative total shareholder return compared with the S&P 500 Utilities Index or the S&P 500 Index, as applicable. We measure our total shareholder return against both the S&P 500 Utilities Index and the S&P 500 Index because our operations extend beyond those of a typical utility and we have significant international and non-utility energy infrastructure operations.

If the company’s performance is at the target performance level (the 50th percentile of the applicable index), participants will earn one share for each restricted stock unit. Participants have the opportunity to earn up to two shares for each restricted stock unit if performance exceeds the target performance level. Participants earn a partial share for performance between the threshold and target performance levels, as shown below.

 

Cumulative Total Shareholder Return Percentile Rank vs.

S&P 500 Utilities Index or S&P 500 Index

(Measured Independently in Separate Award Components)

   Sempra Energy Common Stock Shares
Received for Each
Restricted Stock Unit(1)

90th Percentile or higher (Maximum)

   2.0

70th Percentile

   1.5

50th Percentile (Target)

   1.0

40th Percentile

   0.7

30th Percentile

   0.4

25th Percentile or below (Threshold)

   0.0

Table 13

 

(1)

Participants also receive additional shares for dividend equivalents, which are reinvested to purchase additional units that become subject to the same vesting conditions as the restricted stock units to which the dividends relate.

Note: If performance falls between the tiers shown in Table 13, the payout is calculated using linear interpolation.

 

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2.

EPS Growth

The 2020 annual long-term incentive plan awards also included a performance-based restricted stock unit award linked to relative EPS growth. The award measures the CAGR of our EPS for the three-year period ending on December 31, 2022. The payout scale is based on the December 31, 2019 analyst consensus three-year EPS growth estimates for the S&P 500 Utilities Index peer companies. The target payout level is based on the 50th percentile of the analyst consensus estimates and the threshold and maximum payout levels are based on the 25th and 90th percentiles, respectively.

During our 2016-2017 shareholder engagement meetings, some shareholders expressed concern about the potential effect of share buybacks on incentive plans with performance measures based on EPS. The Compensation and Talent Development Committee took this feedback into consideration by including a provision in the 2017 and subsequent years’ awards that excludes the impact of share buybacks not contemplated in our financial plans publicly communicated prior to the grant date of such awards.

The Compensation and Talent Development Committee bases the payout scale for our EPS growth-based awards on analyst consensus estimates for the S&P 500 Utilities Index peer companies because:

 

 

Our strategic goal is to deliver higher earnings growth than our utility peers while maintaining a commensurate risk profile

 

 

Our 2020 annual LTIP award design aligns with this strategic goal by measuring our three-year EPS CAGR against a payout scale that is based on analyst consensus estimates, compiled by an independent third party, for our S&P 500 Utilities Index peer companies

 

 

The earnings growth in the financial plan is not linear from year to year due, in part, to our investment in large-scale, capital-intensive development projects that take multiple years to construct and multiple years for earnings to be generated

If the company’s EPS CAGR is at the 50th percentile of the analyst consensus estimates for the S&P 500 Utilities Index, participants will earn one share for each restricted stock unit. Participants have the opportunity to earn up to two shares for each restricted stock unit if performance exceeds the 50th percentile. Participants earn a partial share for performance between the 25th and 50th percentiles of the analyst consensus estimates, as shown below.

 

Percentile of Analyst Consensus Estimates for

S&P 500 Utilities Index EPS CAGR

   Sempra Energy Common Stock Shares Received
for Each Restricted Stock Unit(1)

90th Percentile or higher (7.3% or higher)

   2.0

75th Percentile (6.5%)

   1.5

50th Percentile (5.9%)

   1.0

25th Percentile (4.2%)

   0.0

Table 14

 

(1)

Participants also receive additional shares for dividend equivalents, which are reinvested to purchase additional units that become subject to the same vesting conditions as the restricted stock units to which the dividends relate.

Note: If performance falls between the tiers shown in Table 14, the payout is calculated using linear interpolation.

For purposes of the 2020 annual long-term incentive award, the calculation of EPS may, at the Compensation and Talent Development Committee’s discretion, include the same types of potential adjustments made to ABP Earnings, as described in Appendix D to this proxy statement, as well as adjustments related to, among other things, other unusual or non-operating items as determined by the Compensation and Talent Development Committee.

Results for the 2018-2020 Award Cycle

The performance period of our 2018-2020 award cycle concluded on January 4, 2021 (for the TSR-based awards, which collectively were weighted at 50% of the award) and December 31, 2020 (for the EPS-based awards, which were weighted at 20% of the award) and were scheduled to vest in 2021.

Our 2018-2020 relative total shareholder return was at the 55.9th percentile of the S&P 500 Utilities Index, resulting in vesting at 114.75% of target for the S&P 500 Utilities Index-based award component. Our relative total shareholder return was at the 51.2nd percentile of the S&P 500 Index, resulting in vesting at 103% of target for the S&P 500 Index-based award component.

 

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The 2018-2020 awards based on EPS growth vested at 200% of target based on EPS growth (as adjusted for LTIP purposes) of 21.7%. Table 15 below shows the predefined adjustments to GAAP EPS used to calculate EPS growth for purposes of the 2018 annual LTIP award, as well as an additional adjustment to exclude the impact of a $500 million share buyback effected in the summer of 2020. For additional information see “Compensation Tables—Outstanding Equity Awards at Year-End” and “Compensation Tables—Option Exercises and Stock Vested.”

 

EPS Growth (Diluted) for 2018-2020 Award

   2017     2020  

GAAP EPS

   $ 1.01     $ 12.88  

Excluding $500 million share buyback(1)

       (0.09

Predefined Adjustments:

    

Acquisitions and divestitures (other than Oncor): gains and losses on sales, related impairments and costs, and related earnings impacts

     (0.91     (6.56

Effect of changes in tax laws, changes in regulatory treatment of tax repairs allowance and foreign exchange gains or losses at Mexico, and legacy litigation costs

     4.15       0.64  

Costs related to Sempra Commodities, which was sold, and Rockies Express capacity releases

     (0.13     0.34  

Certain unplanned items related to nonqualified pension and deferred compensation and interest cost of accelerated share repurchase financing

     (0.13     (0.02

EPS for 2018-2020 LTIP Award Purposes

   $ 3.99     $ 7.19  

EPS Growth for 2018-2020 LTIP Award Purposes

             21.7

Table 15

 

(1)

The impact of the share buyback, which was not contemplated in our financial plans publicly communicated prior to the grant date of the award, is excluded pursuant to the terms of the award. The impact of the share buyback is weighted for the portion of the year that the shares were not outstanding.

Special Awards Granted to Named Executive Officers in 2020

Special equity awards also may be granted with the Compensation and Talent Development Committee’s approval upon the hiring or promotion of named executive officers or, in limited instances, to reward extraordinary performance or promote retention. In connection with his promotion to Senior Vice President, Mr. Wall received on April 1, 2020 awards with a collective total target value of $100,000 that are subject to the same award design, weighting, terms and performance periods as the January 2, 2020 LTIP award. For his leadership in connection with the sales of our former renewables businesses, Mr. Sagara received on January 2, 2020 an award of service-based restricted stock units with a grant date value of $600,000. This award to Mr. Sagara was granted prior to Mr. Sagara’s appointment as an executive officer of Sempra Energy.

 

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4.   Benefit Plans

Our named executive officers also participate in certain benefit plans including: (1) health, life insurance and disability plans and other executive benefits; and (2) retirement and savings plans.

 

1.

Health, Life Insurance and Disability Plans and Other Executive Benefits

 

   

Plan Type

 

Plan

   Description

Health &

Welfare

 

Basic Group

Plans

  

 

Our named executive officers participate in life, disability, medical, dental and vision insurance group plans that are generally available to all employees. These are common benefits that we believe are essential to attracting a high-quality workforce.

 

 

Other Health

& Welfare

Benefits

  

 

In addition to the basic group health and welfare plans, Mr. Martin participates in a life insurance plan providing additional life insurance death benefits (target death benefit is two times base salary and bonus for active employees and 1.5 times base salary and bonus for retired employees). The company funds the post-retirement benefit in the year following a qualified retirement under the plan (retirement at age 62 or older with five or more years of service). This plan was closed to new participants in 2012.

 

Our named executive officers (except for Mr. Wall) participate in a long-term disability plan providing additional protection upon disability (60% of base salary and average bonus) and restoring benefits otherwise capped under the company’s basic long-term disability plan.

 

Other Executive Benefits

  

 

We provide certain other benefits to our named executive officers. The Compensation and Talent Development Committee reviews the level and types of these executive benefits each year. The committee believes that these benefits are important in attracting and retaining executive talent. These executive benefits include financial planning services, excess personal liability insurance, and a program that matches up to $25,000 of charitable contributions ($15,000 for Mr. Wall) by the named executive officer. The Chief Executive Officer has an executive security specialist for personal and business driving in the context of an overall security plan.

 

An annual executive benefit program allowance of $40,000 for Mr. Martin and $30,000 for the other named executive officers (except for Mr. Wall) may be used to cover out of pocket costs for health and welfare benefits as well as the cost of the financial planning services and excess personal liability insurance discussed above. Any unused allowance is paid out at year-end.

 

None of the benefits described above includes a tax gross-up provision.

 

Table 16

 

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2.

Retirement and Savings Plans

Our named executive officers participate in our broad-based, tax-qualified 401(k) Savings Plan, our Cash Balance Plan and Supplemental Executive Retirement Plan (except for Mr. Wall, who participates in a Cash Balance Restoration Plan). Officers and certain other key management employees may also elect to participate in a deferred compensation plan. These plans are described in Tables 17 and 18 below.

 

   

Plan Type

 

Plan

   Description

Pension

 

 

Cash Balance

Plan

 

  

 

The Cash Balance Plan is a tax-qualified pension plan generally available to all U.S.-based company employees.

 

 

Cash Balance

Restoration Plan

  

 

The Cash Balance Restoration Plan restores the benefits that would otherwise be provided under the Cash Balance Plan but for Internal Revenue Service limits applicable to tax-qualified pension plans.

 

 

Supplemental

Executive

Retirement

Plan

  

 

The Compensation and Talent Development Committee believes that retirement, savings and deferred compensation plans, in general, and the Supplemental Executive Retirement Plan, in particular, are important elements of an overall compensation package. This package is designed to recruit and retain executive talent, especially mid-career executives, and to retain longer-term executive participants.

 

Our Supplemental Executive Retirement Plan, or SERP, provides a participating named executive officer with retirement benefits based on the executive’s:

 

  Final average pay(1)

 

  Actual years of service

 

  Age at retirement

 

SERP benefits are reduced by benefits payable under the broad-based Cash Balance Plan.

 

The Cash Balance Plan, the Cash Balance Restoration Plan and the SERP use only base salary and performance-based annual bonuses in calculating benefits. The value of long-term incentive plan awards is not included.

 

Table 17

 

(1)

Final average pay is the average base salary for the two consecutive years of highest base salary prior to retirement plus the average of the three highest annual bonuses during the 10 years prior to retirement.

 

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Plan Type

 

Plan

   Description

Savings

Plans

 

401(k)

Savings Plan

  

 

Employees may contribute a portion of their eligible pay to a tax-qualified 401(k) savings plan. Contributions to the plan may be invested on a tax-deferred or after-tax basis (including a Roth option). The Internal Revenue Code limits the amount of compensation eligible for deferral under tax-qualified plans.

 

Employees may receive company contributions of up to 4% of eligible pay. Eligible pay generally includes base salary and performance-based annual bonus, net of any amounts contributed under the deferred compensation plan. The basic company matching contribution is equal to one-half of the first 6% of the employee’s contributions. In addition, employees receive a “stretch match” equal to one-fifth of the next 5% of the employee’s contributions.

 

All employee contributions and related investment earnings in the 401(k) Savings Plan vest immediately. Employees are eligible to participate in the plan and receive company matching contributions upon hire. Company matching contributions (including related earnings) vest after one year of service.

 

 

Deferred

Compensation

Plan

  

 

Our executive officers and other key management employees also may defer up to 85% of their base salary and performance-based annual bonus under a nonqualified deferred compensation plan, the Employee and Director Savings Plan. Executive officers also may defer all or a portion of certain performance-based restricted stock unit awards upon vesting.

 

Participants can direct these deferrals into:

 

  Funds that mirror the investments available under our 401(k) Savings Plan, including a Sempra Energy phantom stock account

 

  A fund providing interest at the greater of 110% of the Moody’s Corporate Bond Yield or the Moody’s Corporate Bond Yield plus 1%

 

Deferrals of performance-based restricted stock unit awards must be directed into the Sempra Energy phantom stock account and cannot be transferred into other investments and are paid out in shares of common stock in accordance with the participant’s payout elections.

 

The Internal Revenue Code places annual limits on the amounts that employees and employers can defer into a 401(k) plan. Because of these limits, the company makes matching contributions for deferred compensation plan participants through the deferred compensation plan. The deferred compensation matching contribution is equal to one-half of the first 6% of the employee’s contributions plus one-fifth of the next 5% of the employee’s contributions less an offset for 401(k) matching contributions. There are no company matching contributions on deferrals of performance-based restricted stock unit awards.

 

All employee contributions and related earnings in the deferred compensation plan vest immediately. New participants are immediately eligible for company matching contributions and company matching contributions (including related earnings) vest after one year of service.

 

Table 18

 

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5.   Severance and Change in Control Arrangements

None of our U.S. officers has an employment agreement, but our named executive officers have severance pay agreements that include change in control features.

Rationale for Providing Severance Pay Agreements

The Compensation and Talent Development Committee believes severance pay agreements, which are a prevalent market practice, are effective in:

 

 

Attracting executives who are leaving an existing employer

 

 

Mitigating legal issues upon an employment separation

 

 

Retaining talent during uncertain times

By mitigating the effect of potential job loss, severance pay agreements can reinforce management continuity, objectivity and focus on shareholder value. This is particularly critical in actual or potential change in control situations. Under the terms of our named executive officers’ severance pay agreements, payments are not required when terminations are for cause or upon a voluntary resignation that is not for “good reason” as described below.

Severance Pay Agreement Benefits

The severance pay agreements provide for cash payments and the continuation of certain other benefits for a limited period when:

 

 

The company terminates an executive’s employment for reasons other than cause, or

 

 

The executive resigns for “good reason”

A resignation for “good reason” may occur if there is an adverse change in scope of duties or in compensation and benefit opportunities or, following a change in control, changes in employment location. These provisions are intended to provide safeguards against arbitrary actions that may effectively force an executive to resign.

The agreements provide for additional benefits if the termination of employment were to occur within two years following a change in control of the company.

The agreements do not contain any excise tax gross-up provisions. In addition, in order to receive some of the benefits provided for in the agreement, the executive must, upon termination, enter into a general release in favor of the company, provide consulting services for the company for two years following the date of termination, if requested, and agree to abide by certain contractual confidentiality and non-solicitation obligations. See “Compensation Tables – Severance and Change in Control Benefits” below for additional information about the terms of each named executive officer’s severance pay agreement.

Outstanding Equity Award Treatment Upon Certain Terminations or a Change in Control

Awards granted under our shareholder-approved 2013 and 2019 Long-Term Incentive Plans are subject to the double trigger change in control vesting provisions in these plans. This means that awards do not automatically vest upon a change in control. Rather, except under limited circumstances, vesting is only accelerated upon a termination of employment that meets certain conditions following a change in control. In the event of a termination of employment other than in connection with a change in control, equity awards are generally forfeited to the extent they are not vested at the time of termination, subject to accelerated vesting or non-forfeiture upon termination in certain specific circumstances. See “Compensation Tables—Severance and Change in Control Benefits” below for additional information.

The Compensation and Talent Development Committee determined to utilize double trigger vesting provisions in connection with a change in control because it believes double-trigger vesting more accurately reflects current market practices while still providing appropriate benefits to executives in the event of a termination in connection with a change in control, and is thus in the best interests of our company and our shareholders.

2020 Severance Pay Agreement Benefits

Consistent with a separation for “good reason” as defined in Mr. Bilicic’s severance pay agreement, he received the benefits to which he was entitled in the event of such a separation pursuant to the terms of that agreement, which consisted of a cash payment in the amount of $3,248,000, eligibility for certain medical benefits for 24 months (which Mr. Bilicic elected not to receive), outplacement services for up to 24 months not to exceed $50,000 in total, and financial planning services for 24 months not to exceed $25,000 per year. In addition, the vesting of an award of service-based restricted stock units consisting of 31,427 shares that was outstanding at the separation date was accelerated (not including any future reinvested dividends) pursuant to the terms of the award.

 

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Compensation and Talent Development Committee Roles and Responsibilities

 

Overview

The Compensation and Talent Development Committee’s primary role is to establish our compensation principles and policies and design and oversee our executive compensation program. The Compensation and Talent Development Committee reviews, determines and approves the compensation level, including base salary and performance standards and level of awards under annual and long-term incentive plans, for our Chief Executive Officer and other executive officers.

The Compensation and Talent Development Committee typically holds three regularly scheduled meetings each year and additional meetings when required. The committee’s Chair approves the agenda prior to each meeting. Five directors currently sit on the committee. Each member of the committee is required to be:

 

 

An independent director under NYSE’s independence standards and applicable SEC rules

 

 

A non-employee director under Rule 16b-3 under the Exchange Act

The Compensation and Talent Development Committee:

 

 

Sets its regular meeting dates and standing agenda items annually

 

 

Considers standing agenda items and other topics at each meeting

 

 

Holds an executive session without management present at each regular meeting

 

 

Retains its own independent compensation advisor

 

 

Recommends changes to its charter for approval by the board as needed

 

 

Conducts an annual self-assessment of its effectiveness in compliance with its charter

The Compensation and Talent Development Committee’s charter is available on our website at www.sempra.com under the “Investors” and “Governance” tabs. The Compensation and Talent Development Committee’s major responsibilities are discussed under “Corporate Governance—Board Committees—Compensation and Talent Development Committee.”

Tally Sheets and Other Information

The Compensation and Talent Development Committee uses tally sheets to review and evaluate our executive compensation and benefit programs as a whole. These tally sheets, along with information prepared annually for our proxy statement, provide:

 

 

Information for analyzing the design, operation and effectiveness of our executive compensation program

 

 

The total dollar value of executives’ accumulated compensation and benefits, including holdings of our common stock and realized and unrealized gains under equity-based compensation awards

 

 

Estimated pension benefits, life insurance benefits and deferred compensation balances

 

 

Information on change in control scenarios

The committee does not rely on tally sheets to establish specific pay levels. Instead, pay levels are based primarily on external market data and other considerations described under “Labor Market Benchmarking.”

In addition, board members periodically receive an overview of our executive compensation philosophy, executive compensation program and officer and employee demographic data.

The Compensation and Talent Development Committee’s Advisors

The Compensation and Talent Development Committee retains an independent advisor to assist it with executive compensation matters. The committee has the sole authority to select, compensate and terminate its external advisors, and is directly responsible for the oversight of the work of any such advisors.

In 2020, the committee retained Exequity as its independent compensation consultant. The committee has assessed Exequity’s independence pursuant to SEC and NYSE rules and concluded that there are no conflicts of interest. Exequity is a nationally recognized independent provider of executive compensation advisory services and it is not affiliated with any of the company’s other service providers.

 

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An Exequity representative attended and met in executive session with committee members at all of the 2020 meetings.

 

 

LOGO

Exequity supported the committee in 2020 by Providing competitive data on compensation and relative performance of peer group companies Recommending pay programs and salary increase budgets Conducting a risk assessment of incentive programs Making presentations on regulatory and legislative matters affecting executive compensation Providing opinions on the reasonableness of compensation Consulting on other related matters as needed

Exequity and its affiliates do not perform any work for the company outside of its advisory role to the Compensation and Talent Development Committee. The total amount paid to Exequity in 2020 was $108,966.

Management’s Role

 

Our Chief Executive Officer and/or Chief Human Resources Officer attend the non-executive session of each Compensation and Talent Development Committee meeting. Our human resources department assists the committee by preparing tally sheets and other compensation information and analyses for its consideration.

Our accounting, finance and law departments also support the committee with respect to compensation-related matters, including issues related to broad-based benefit plans and regulatory reporting and compliance. The committee members and their independent compensation consultant, Exequity, receive presentation materials in advance of committee meetings.

Our executive officers do not determine or approve any element or component of their own compensation, nor are they present during the committee’s deliberation regarding their own compensation. This includes base salary, performance-based annual bonus, long-term equity-based incentives and all other aspects of compensation. Our Chief Executive Officer does not meet separately with the committee’s independent compensation consultant.

The Compensation and Talent Development Committee seeks our Chief Executive Officer’s views on the performance of our other executive officers, and the Chief Executive Officer makes pay recommendations for these officers. In addition, the committee frequently requests input from the Chief Executive Officer on what compensation programs and goals he believes might be most appropriate given the company’s strategic direction. The committee considers this input in addition to input received from its independent compensation consultant in setting goals, pay levels and program design.

Managing Risk in Compensation Plans

 

Managing Risk

The Compensation and Talent Development Committee seeks to mitigate risk in our executive compensation program through the following policies and features:

 

 

LOGO

Compensation Program Risk Mitigation Balance of shortterm and longterm incentives Higher proportion of total compensation linked to longterm incentives Incentive plan design and performance measure selection Independent thirdparty risk assessment Stock ownership requirements Antihedging policy Clawback policy

 

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Risk Mitigation Features in our Incentive Plan Design and Performance Measure Selection

Our 2020 annual long-term incentive plan awards include the following risk mitigation features:

 

 

Using multiple types of awards and performance measures, consisting of a market-based performance measure (relative total shareholder return), a financial performance measure (long-term EPS growth), a service-based measure (service-based restricted stock units), and stock options

 

 

Measuring our total shareholder return against the S&P 500 Index and the S&P 500 Utilities Index rather than against peer groups selected by the company. Using these indices helps ensure less subjectivity in the determination of our peer groups

 

 

Using multi-year performance periods to promote a longer-term performance horizon

 

 

Limiting the maximum payout level for performance-based restricted stock unit awards to 200% of the target number of units (including reinvested dividend equivalents)

Our 2020 performance-based annual bonus plan includes the following risk mitigation features:

 

 

Using a payout scale that begins at zero for threshold performance. In contrast, many of our peers pay 25% or 50% for threshold performance

 

 

Limiting the payout at the maximum performance level to 200% of target

 

 

Using a corporate financial performance measure that is based on the earnings reported in our financial statements, with certain adjustments that are limited and predefined and the potential for others related to unplanned or unforeseen items, all of which are made only after thoughtful consideration by the Compensation and Talent Development Committee

 

 

Incorporating Safety and Stakeholder Measures, which are performance measures important to our business operations, in addition to the corporate financial performance measure

 

 

Providing the Compensation and Talent Development Committee with discretion over certain incentive plan payouts

Independent Third-Party Risk Assessment

The Compensation and Talent Development Committee’s independent compensation consultant, Exequity, conducted a risk assessment of our 2020 compensation programs. Exequity’s findings concluded that our compensation programs do not create risks that are likely to have a material adverse impact on the company. The committee concurs with these findings. Specific examples of safeguards and risk-mitigating features found in our executive compensation programs are listed above.

Clawback Policy

Our clawback policy applies to both short-term and long-term incentive plans. It is included in both executive and non-executive award agreements. The policy requires the forfeiture, recovery or reimbursement of awards or compensation under the applicable plans as required:

 

 

By applicable law, or

 

 

Under any policy implemented or maintained by the company pursuant to any applicable rules or requirements of a national securities exchange or national securities association on which any securities of the company are listed

The company also reserves the right to recoup compensation if it determines that the results on which the compensation was paid were not actually achieved.

In addition, the Compensation and Talent Development Committee may, in its sole discretion, require the recovery or reimbursement of incentive compensation awards from any employee whose fraudulent or intentional misconduct materially affects the operations or financial results of the company or its subsidiaries.

Anti-Hedging and Pledging Policies

Pursuant to the company’s Insider Trading and Information Confidentiality Policy, all employees, including all officers, of Sempra Energy and any subsidiary or other entity as to which Sempra Energy has majority ownership and control and all directors of Sempra Energy are prohibited from purchasing financial instruments or otherwise engaging in transactions that hedge or offset, or are designed to hedge or offset, any decrease in the market value of any equity security of Sempra Energy or any such subsidiary or other entity, and are also prohibited from selling “short” any securities of those companies. These prohibitions also apply to family members living in the same household as any such employee, officer or director, as well as entities directly or indirectly controlled by the employee, officer or director.

Officers and directors also are prohibited from pledging shares of company common stock.

 

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Share Ownership Guidelines

 

Our Board of Directors has established share ownership guidelines for officers to further strengthen the link between executive and shareholder interests. The guidelines set minimum levels of share ownership that our officers must achieve and maintain. For officers, the guidelines are:

 

 

LOGO

Executive Level Chief Executive Officer Corporate Group Presidents and Executive Vice Presidents Principal Subsidiary Chief Executive Officers, Presidents and Chief Operating OfficersSenior Vice Presidents Vice Presidents Share Ownership Requirements 8x base salary 4x base salary 3x base salary 2x base salary 1x base salary

Based on Exequity’s review of competitive benchmark data, we believe our share ownership guidelines are robust relative to prevalent market practices.

For purposes of the guidelines, we include shares owned directly and through our 401(k) Savings Plan. We also include phantom shares of our common stock into which compensation has been deferred, deferred restricted stock units that have vested, unvested service-based restricted stock units, and the in-the-money value of service-based stock options.

We expect officers to meet these guidelines within five years after hire or promotion to an officer-level position or promotion to a role with a higher share ownership guideline. Until such time as the share ownership guidelines are met, executive officers are expected to retain (and not sell) a number of shares equal to at least 50% of the net after-tax shares acquired through equity compensation awards.

All named executive officers are in compliance with these guidelines or have additional time within which to comply with any higher level applicable to them as a result of a promotion.

Impact of Regulatory Requirements

 

Tax Deductibility of Pay

Section 162(m) of the Internal Revenue Code places a limit of $1 million on the annual amount of compensation that publicly held companies may deduct for federal income tax purposes for “covered employees.” Prior to the Tax Cuts and Jobs Act of 2017 (TCJA), covered employees generally consisted of our Chief Executive Officer and each of the next three highest compensated officers serving at the end of the taxable year other than our Chief Financial Officer, and compensation that qualified as “performance-based” under Section 162(m) was exempt from this $1 million deduction limitation. As part of the TCJA, the ability to rely on this exemption was eliminated, with limited exceptions for certain outstanding awards, incentive plans, benefits and other arrangements in place on November 2, 2017, all of which have vested or otherwise expired or been paid.

The Compensation and Talent Development Committee believes that tax deductibility is one important factor in designing and evaluating our executive compensation program. Although we historically maintained certain performance-based incentive plans that originally were intended to permit the payment of compensation deductible under Section 162(m), subject to the limited transition relief rules in the TCJA, we are no longer able to take a deduction for any compensation in excess of $1 million that is paid to a covered employee.

Providing salary levels and other compensation that are not fully tax deductible may be required by competitive or other circumstances and may be in the best interests of our company and our shareholders. Accordingly, the Compensation and Talent Development Committee may exercise judgment to provide compensation that may not be fully tax deductible by the company.

Other Tax, Accounting and Regulatory Considerations

Many other Internal Revenue Code provisions, SEC regulations and accounting rules affect the design of executive pay. They are taken into consideration to create and maintain plans that are intended to comply with these requirements and that our Compensation and Talent Development Committee believes are effective and in the best interests of our company and our shareholders.

 

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Compensation and Talent Development Committee Report

The Compensation and Talent Development Committee of Sempra Energy’s Board of Directors has reviewed and discussed with the company’s management the Compensation Discussion and Analysis included in this proxy statement and, based on that review and discussion, recommended to the board that it be so included.

Compensation and Talent Development Committee

Andrés Conesa, Chair

Maria Contreras-Sweet

William D. Jones

Jack T. Taylor

Cynthia J. Warner

 

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Compensation Tables

Summary Compensation Table

 

2020 SUMMARY COMPENSATION TABLE

In the table below, we summarize the compensation for the past three years for our named executive officers.

 

                Stock
Awards (H)
  Option
Awards (H)
  Non-Equity
Incentive Plan
Compensation
  Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings (I)
       
  

 

  Year   Salary (F)   Bonus (G)   Restricted
stock
units
  Service-
based
options
  Performance-
based annual
cash bonus
  Pension
accruals
and above-
market
interest
on  non-
qualified
deferred
compensation
  All Other
Compensation (J)
  Total    

 

Jeffrey W. Martin(A)

Chairman, Chief

Executive Officer

and President

 

   

 

2020

   

$

1,300,000

   

 

   

$

5,166,808

   

$

2,100,014

   

$

3,740,600

   

$

10,567,633

   

$

306,664

   

$

23,181,719  

   

 

2019

   

$

1,200,000

   

 

   

$

5,927,197

   

$

1,800,005

   

$

3,027,100

   

$

7,630,712

   

$

221,332

   

$

19,806,346  

   

 

2018

   

$

968,493

   

 

   

$

4,450,221

   

 

   

$

2,267,300

   

$

1,337,441

   

$

301,036

   

$

9,324,491  

 

Trevor I. Mihalik

Executive Vice

President and Chief

Financial Officer

 

   

 

2020

   

$

730,000

   

 

   

$

1,865,247

   

$

315,014

   

$

1,231,400

   

$

2,927,863

   

$

130,198

   

$

7,199,722  

   

 

2019

   

$

650,000

   

 

   

$

1,211,982

   

$

204,758

   

$

1,009,100

   

$

2,051,189

   

$

112,278

   

$

5,239,307  

   

 

2018

   

$

534,247

   

 

   

$

1,880,243

   

 

   

$

863,700

   

$

433,632

   

$

72,396

   

$

3,784,218  

 

Kevin C. Sagara(B)

Executive Vice

President and

Group President

 

   

 

2020

   

$

643,158

   

 

   

$

1,709,042

   

 

   

$

1,132,500

   

$

3,098,093

   

$

105,676

   

$

6,688,469  

                                   
                                                                                         

 

Peter R. Wall(C)

Senior Vice President,

Controller and Chief

Accounting Officer

 

   

 

2020

   

$

375,000

   

 

   

$

404,451

   

 

   

$

372,100

   

$

65,254

   

$

33,979

   

$

1,250,784  

                                   
                                                                                         

 

Dennis V. Arriola(D)

Former Executive Vice

President and Group

President

 

   

 

2020

   

$

390,793

   

 

   

$

1,598,823

   

$

270,001

   

$

545,700

   

$

2,087,243

   

$

112,692

   

$

5,005,252  

   

 

2019

   

$

640,900

   

 

   

$

2,345,280

   

$

201,894

   

$

994,900

   

$

3,231,239

   

$

140,077

   

$

7,554,290  

   

 

2018

   

$

614,718

   

 

   

$

1,145,826

   

 

   

$

966,900

   

$