Compensation

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Compensation

Proposal 3: Advisory Vote to Approve Duke Energy Corporation’s Named Executive Officer Compensation

At the 2011 Annual Meeting, our shareholders recommended that our Board of Directors hold say-on-pay votes on an annual basis. As a result, we are providing our shareholders with the opportunity to approve, on a nonbinding, advisory basis, the compensation of our named executive officers as disclosed in this proxy statement. This proposal gives our shareholders the opportunity to express their views on the compensation of our named executive officers.

In connection with this proposal, the Board of Directors encourages shareholders to review in detail the description of the compensation program for our named executive officers that is set forth in the Compensation Discussion and Analysis beginning on page 39, as well as the information contained in the compensation tables and narrative discussion in this proxy statement.

As described in more detail in the Compensation Discussion and Analysis section, the guiding principle of our compensation philosophy is that pay should be linked to performance and that the interests of our executives and shareholders should be aligned. Our compensation program is designed to provide significant upside and downside potential depending on actual results as compared to predetermined measures of success. A significant portion of our named executive officers’ total direct compensation is directly contingent upon achieving specific results that are important to our long-term success and growth in shareholder value. We supplement our pay-for-performance program with a number of compensation policies that are aligned with the long-term interests of Duke Energy and its shareholders.

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

“RESOLVED, that the shareholders of Duke Energy approve, on an advisory basis, the compensation paid to Duke Energy’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K of the Securities Act of 1933, as amended, including the Compensation Discussion and Analysis, the compensation tables and the narrative discussion in Duke Energy’s 2017 Proxy Statement.”

The approval of a majority of shares represented in person or by proxy at the Annual Meeting is required to approve this proposal. Because your vote is advisory, it will not be binding on the Board of Directors, the Compensation Committee or Duke Energy. The Compensation Committee, however, will review the voting results and take them into consideration when making future decisions regarding the compensation of our named executive officers.

For the Above Reasons, the Board of Directors Recommends a Vote “FOR” This Proposal.

Report of the Compensation Committee

The Compensation Committee of Duke Energy is responsible for the oversight of the Corporation’s compensation programs and compensation of the Corporation’s executives, per the Committee’s Charter which is available on our website at www.duke-energy.com/our-company/investors/corporate-governance/board-committee-charters/compensation.

The Compensation Committee of Duke Energy has reviewed and discussed the Compensation Discussion and Analysis with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

Compensation Committee
E. Marie McKee, Chairperson
Michael G. Browning
Charles W. Moorman IV
Carlos A. Saladrigas

Compensation Discussion and Analysis

The purpose of this Compensation Discussion and Analysis is to provide information about Duke Energy’s compensation objectives and policies for our named executive officers, who, for 2016 are:

NameTitle
Lynn J. GoodChairman, President and Chief Executive Officer
Steven K. YoungExecutive Vice President and Chief Financial Officer
Dhiaa M. JamilExecutive Vice President and Chief Operating Officer
Julia S. JansonExecutive Vice President, Chief Legal Officer and Corporate Secretary
Lloyd M. YatesExecutive Vice President, Customer and Delivery Operations and President, Carolinas Region

Executive Summary of the Compensation Discussion and Analysis

2016 Compensation Highlights

2016-STI-performance

As discussed throughout this Compensation Discussion and Analysis, our compensation program is designed to link pay to performance. Our 2016 Business Highlights are described on page 5 of this proxy statement.

Objectives of the Compensation Program

Duke Energy is committed to creating value for our shareholders while building trust and transforming our energy future. We continuously strive to achieve this core purpose of creating shareholder value in all that we do, but with a particular emphasis on the areas described below in The Road Ahead.

road-ahead

We design our compensation program so that it motivates our executives to focus on the four priorities in The Road Ahead, all of which are designed to ensure that our compensation program aligns with the interests of executives and shareholders:

customers-employees-operationalexcellence-growth

Pay-for-Performance

The guiding principle of our compensation philosophy is that pay should be linked to performance and that the interests of executives and shareholders should be aligned. Our compensation program is designed to provide significant upside and downside potential depending on actual results, as compared to predetermined measures of success.

Our core compensation program consists of base salary, STI and LTI (performance shares and restricted stock units). The following chart illustrates the components of the target total direct compensation opportunities provided to our named executive officers.

target-comp-mix

Align Interests of Named Executive Officers and Shareholders

Following are key features of our executive compensation program, which reinforce our pay-for-performance philosophy and strengthen the alignment of interests of our executives and shareholders:

AT DUKE ENERGY WE...AT DUKE ENERGY WE DO NOT...
Require significant stock ownership. We maintain aggressive guidelines to reinforce the importance of Duke Energy stock ownership. These guidelines are intended to align the interests of executives and shareholders and to focus the executives on our longterm success. Under these guidelines, each of our current named executive officers must own Duke Energy shares in accordance with the following schedule:Provide tax gross-ups. We do not provide excise tax gross-ups for severance received by our named executive officers under Change in Control Agreements or under the Executive Severance Plan, and we do not provide tax gross-ups on other payments such as perquisites.
Leadership PositionValue of Shares
Chief Executive Officer6x Base Salary*
Other Named Executive Officers3x Base Salary
**In order to further strengthen our stock ownership guidelines, the Chief Executive Officer’s ownership requirement was increased from 5X to 6X of her base salary during 2016.
Maintain a stock holding policy. Each named executive officer is required to hold 50% of all shares acquired under the LTI program (after payment of any applicable taxes) and 100% of all shares acquired upon the exercise of stock options (after payment of the exercise price and taxes) until the applicable stock ownership requirement is satisfied. Each of our named executive officers was in compliance with the stock ownership/stock holding policy during 2016.Permit hedging or pledging of Duke Energy securities. We have a policy that prohibits employees (including the named executive officers) and directors from trading in options, warrants, puts and calls or similar instruments in connection with Duke Energy securities, or selling Duke Energy securities “short.” In addition, we prohibit the pledging of Duke Energy securities in margin accounts.
Tie incentive compensation to a clawback policy. We maintain a “clawback policy,” which would allow us to recover (i) certain cash or equity-based incentive compensation tied to financial results in the event those results were restated due at least in part to the recipient’s fraud or misconduct or (ii) an inadvertent payment based on an incorrect calculation.Provide “single trigger” severance upon a change in control. Our Change in Control Agreements provide cash severance only upon a “double trigger,” meaning that change in control severance is payable only if our named executive officers incur a qualifying termination of employment (i.e., an involuntary termination without “cause” or a voluntary termination for “good reason”) and the termination occurs in connection with a change in control of Duke Energy.
Provide a consistent level of severance. We maintain the Duke Energy Corporation Executive Severance Plan (“Executive Severance Plan”) in order to provide a consistent approach to executive severance and to provide eligible employees, including our named executive officers (excluding Ms. Good, who is provided with severance compensation through her employment agreement), with certainty and security while they are focusing on their duties and responsibilities. Under this plan, severance compensation is payable only upon a qualifying termination of employment (i.e., an involuntary termination without “cause” or a voluntary termination for “good reason”).Provide employment agreements to a broad group. Except for our Chief Executive Officer, no executive is provided a comprehensive employment agreement.
Maintain a shareholder approval policy for severance agreements. We have a policy generally to seek shareholder approval for any future agreements with our named executive officers that provide severance compensation in excess of 2.99 times the executive’s annual compensation or that provide for tax gross-ups in connection with a termination event.Encourage excessive or inappropriate risk taking through our compensation program. In consultation with the Compensation Committee, members of management from Duke Energy’s Human Resources, Legal and Risk Management groups assessed whether our compensation policies and practices encourage excessive or inappropriate risk taking by our employees, including employees other than our named executive officers. This assessment included a review of the risk characteristics of Duke Energy’s business and the design of our incentive plans and policies. Management reported its findings to the Compensation Committee, and after review and discussion, the Compensation Committee concluded that our plans and policies do not encourage excessive or inappropriate risk taking.
Comply with equity award granting policy. In recognition of the importance of adhering to specific practices and procedures in the granting of equity awards, the Compensation Committee has adopted a policy that applies to the granting of equity awards. Under this policy, annual grants to employees may be made at any regularly scheduled meeting, provided that reasonable efforts will be made to make such grants at the first regularly scheduled meeting of each calendar year, and annual grants to independent directors may be made by the Board of Directors at any regularly scheduled meeting, provided that reasonable efforts will be made to make such grants at the regularly scheduled meeting that is held in conjunction with the annual meeting of shareholders each year.Provide excessive perquisites. Our perquisites program is limited to an executive physical, an airline club membership to facilitate travel, limited personal use of corporate aircraft (subject generally to the requirement that the executive reimburse Duke Energy for the direct operating costs for such travel), financial planning and matching charitable contributions. See page 52 for additional details.
Use an independent compensation consultant. The Compensation Committee has engaged FW Cook to report directly to the Compensation Committee as its independent compensation consultant. The consultant has been instructed to provide completely independent advice to the Compensation Committee and is not permitted to provide any services to Duke Energy other than at the direction of the Compensation Committee. The Compensation Committee has assessed the independence of FW Cook pursuant to SEC rules and concluded that no conflict of interest exists that would prevent the consulting firm from independently advising the Compensation Committee.Provide dividend equivalents on unearned performance shares. Dividend equivalents are paid with respect to our performance share awards only if, and to the extent, the related performance share awards are earned and become vested.
Review tally sheets. At least once a year, the Compensation Committee reviews tally sheets for each executive officer, which include a summary of compensation paid in prior years, compensation for the current year, the valuation of all outstanding equity awards and a summary of amounts payable upon a termination of employment under various circumstances. This information allows the Compensation Committee to evaluate the total compensation package for each named executive officer, as well as adjustments to specific elements of the total direct compensation package.
Consider prior year’s “say on pay” vote. As required by the Dodd Frank Act, we included a shareholder vote on executive compensation in last year’s proxy statement, which was approved by approximately 92% of the votes represented in person or by proxy. The Compensation Committee considers the results of this advisory vote when designing our compensation program, including our emphasis on pay-for-performance, which is structured and designed to achieve our stated goals and objectives. In addition, we regularly engage our shareholders in an open dialogue regarding our compensation program

Elements of Duke Energy’s Compensation Program

As discussed in more detail below, during 2016, the principal components of compensation for the named executive officers were: base salary; STI compensation; LTI compensation; retirement and welfare benefits, and perquisites.

reward-elements

Following is a summary of each principal compensation component provided to the named executive officers during 2016.

Base Salary The salary for each named executive officer is based, among other factors, upon job responsibilities, level of experience, individual performance, comparisons to the salaries of executives in similar positions obtained from market surveys and internal comparisons. The following base salary adjustments for the named executive officers occurred in 2016:

  • Effective March 1, 2016, Ms. Good’s annual rate of base salary was increased from $1,250,000 to $1,300,000 to bring her total compensation to approximately the market median and recognize her exemplary leadership and performance over the past three years as Chief Executive Officer.
  • Effective March 1, 2016, Mr. Young, Mr. Yates and Ms. Janson each received market adjustments of 5%, and Mr. Jamil received a market adjustment of 11%, in each case to bring his or her salary closer to market median.

Short-Term Incentive Compensation STI opportunities are provided to our named executive officers under the Duke Energy Corporation Executive ShortTerm Incentive Plan to promote the achievement of annual performance objectives.

Each year, the Compensation Committee establishes the target annual incentive opportunity for each named executive officer, which is based on a percentage of his or her base salary. No changes were made to the target incentive opportunities of the named executive officers in 2016 other than for Ms. Good, whose target incentive opportunity was increased from 140% to 150% of her annual base salary, effective as of January 1, 2016, to bring her total compensation to approximately the market median.

target-incentive-opp

As discussed in more detail below, the Compensation Committee established the following objectives under the STI Plan in February 2016 with the STI target opportunity allocated between corporate and individual objectives.

adjusted-eps

In order to emphasize the importance of the EPS objective, the Compensation Committee established a circuit breaker, providing that if an adjusted diluted EPS performance level of at least $4.11 (increased from $4.10 as explained on the next page) was not achieved, the named executive officers would not have received any payout under the 2016 STI Plan. To encourage a continued focus on safety, the Compensation Committee also included a potential safety adder and penalty, each in the amount of five percent of a participant’s entire STI payment.

Depending on actual performance, named executive officers were eligible to earn up to 183.75% of the amount of their STI target opportunity, based on a potential maximum payout of 200% for the EPS objective, a 150% potential maximum payout for the operational excellence, customer satisfaction and individual objectives, and a potential five percent safety adder.

Corporate Objectives

The 2016 corporate objectives and the related target and performance results were as follows and are defined below:

objectives

(1) For additional information about the calculation of the EPS and O&M expense control objectives, see page 54.
(2) A payout of up to 200% of the target opportunity is available for the adjusted diluted EPS objective and a payout of up to 150% of the target opportunity is available for the Operational Excellence and CSAT objectives.
(3) If an adjusted diluted EPS performance level of at least $4.11 was not achieved (i.e., a circuitbreaker), the named executive officers would not have received a payout under the 2016 STI Plan.
(4) Each of the three primary operational excellence objectives contains an equal weighting of onethird of the aggregate weighting of 20%.
(5) The reliability objectives are calculated as described below. Each reliability metric contains an equal weighting of onefifth of the aggregate weighting of the reliability objective.
(6) The safety/environmental objectives are calculated as described below. Each safety/environmental metric contains an equal weighting of onehalf of the aggregate weighting of the safety/environmental objective.

The Compensation Committee established the target for the EPS objective under the 2016 STI Plan at $4.61 (adjusted as described below), which is slightly less than the $4.65 level established under the 2015 STI Plan but is in excess of our actual EPS under the STI Plan of $4.54 in 2015. The EPS target for 2015 was established based on the assumption that we would own the Midwest Commercial Generation business for approximately one quarter during 2015, and was based on normal hydrology and stable economic conditions in Brazil. Due to the deterioration of hydrology conditions in Brazil (which was expected to continue into 2016) and the disposition of the Midwest Commercial Generation business, the Compensation Committee determined that it was appropriate to establish the target for EPS under the 2016 STI Plan at $4.61.

After the end of 2016, the Compensation Committee approved the following adjustments to the performance levels under the 2016 STI Plan to reflect the acquisition of Piedmont Natural Gas on October 3, 2016: (i) increased each of the threshold, target, and maximum adjusted diluted EPS performance levels, as well as the circuit breaker, by $0.01, and (ii) increased each of the threshold, target, and maximum O&M expense performance levels by $70 million. These adjustments were made under the terms of the 2016 STI Plan because the original performance levels were established based on the assumption that the acquisition of Piedmont Natural Gas would not close during 2016. The adjusted diluted EPS result shown above ($4.71) is $0.02 higher than the amount reported in our 2016 earnings release. This difference is attributable to an adjustment approved by the Compensation Committee, pursuant to the terms of the 2016 STI Plan, to exclude the impact of a significant unanticipated contribution to the Duke Energy Foundation.

Reliability MetricsDescription
Regulated Generation (Fossil/Hydro) Commercial AvailabilityA measure of regulated fossil generation reliability, determined as the weighted percentage of time the regulated fossil generation units are available to generate electricity, where the availability each hour is weighted by the difference between market price and unit cost.
Nuclear Generation Capacity FactorA measure of the amount of electricity produced by a nuclear generating unit relative to the amount of electricity the unit is capable of producing.
System Average Interruption Duration IndexA measure of the number of outage minutes experienced during the year per customer served from both transmission and distribution systems calculated in accordance with the applicable guidelines set forth in the IEEE Standard 1366-Guide for Electric Power Distribution Reliability Indices, including application of the “major event day” exclusions described therein.
Renewables AvailabilityA renewables energy yield metric, calculated by comparing actual generation to expected generation based on the wind speed measured at the turbine and by calculating the actual generation to expected generation based on solar intensity measures at the panels. The renewables energy yield is weighted 90% to wind and 10% to solar.
International Equivalent AvailabilityA measure of the amount of electricity that potentially could be produced by an international generating unit relative to the amount of electricity the unit is actually producing.
Safety/Environmental MetricsDescription
Reportable Environmental EventsREE refers to environmental events resulting from Duke Energy operations that require notification to, or enforcement action by, a regulatory agency. This objective emphasizes service reliability and the mitigation of environmental risks associated with our operations.
Total Incident Case RateTICR measures the number of occupational injuries and illnesses per 100 employees and staff augmentation contractors. This objective emphasizes our focus on achieving an event free and injury free workplace.
Customer Satisfaction Metric 
DescriptionThe CSAT metric is a composite of customer satisfaction results for each regulated utility.
CalculationResults are based on the J.D. Power Electric Utility Residential Customer Satisfaction Index (“JDP CSI”), and internal surveys of customers through the Small/Medium Customer Perception Tracker (“SMB CPT”) and the Large Business Perception Tracker (“LB CPT”) using the following formula:

CSAT=0.50 (JDP CSI Score) +0.25 (SMB CPT Score X 10) +0.25 (LB CPT Score X 10)

The enterprise-wide CSAT score is calculated utilizing the regulated utility level CSAT scores, based on the following weights: Duke Energy Carolinas (32%); Duke Energy Progress (19%); Duke Energy Florida (24%); Duke Energy Indiana (12%); and Duke Energy Ohio/Kentucky (13%).

Individual Objectives

The 2016 individual objectives were as follows:

individual-objectives

Safety Component

In order to emphasize a continued focus on safety, the Compensation Committee included the following safety measures in the 2016 STI Plan:

  • Safety PenaltyThe STI Plan payments for each of the named executive officers were subject to a safety penalty of five percent if Duke Energy experienced more than nine enterprise-wide life altering injuries (“LAI”) or there was a significant operational event (including a controllable work-related Duke Energy employee or contractor fatality).
  • Safety Adder. The STI Plan payments of the named executive officers were also eligible for a safety adder that could result in an increase of five percent if: (i) there were no controllable work-related fatalities of any Duke Energy employee or contractor during 2016, (ii) there were seven or fewer LAIs during 2016, and (iii) there were no significant operational events.

There was one LAI during 2016, which is less than the number (9) at which the safety penalty otherwise would apply, and no significant operational events or controllable work-related fatalities occurred. Therefore, the safety adder applies such that payments under the 2016 STI Plan were increased by 5% for eligible employees.

Payouts

As a result of the aggregate corporate, operational and individual performance, each named executive officer’s aggregate payout under the 2016 STI Plan was equal to:

payouts

Long Term Incentive Compensation

Opportunities under the LTI program are provided to our named executive officers to provide appropriate balance to the STI Plan and to align executive and shareholder interests in an effort to maximize shareholder value.

2016 LTI Program

Each year, the Compensation Committee establishes the target LTI opportunity for each named executive officer, which is based on a percentage of his or her base salary. Guided by the fact that actual realized LTI compensation will depend substantially on our long-term performance and is aligned with the interests of our shareholders, the Compensation Committee approved an increase in Ms. Good’s target LTI opportunity from 600% to 700% of her annual base salary, effective January 1, 2016. The Compensation Committee’s decision was based on a number of factors (none of which was assigned a fixed weight), including, but not limited to: market data that indicated Ms. Good’s target compensation opportunity was below market levels for an organization of our size and scope, recognition of the complexity and importance of Ms. Good’s position, as well as her outstanding performance record and leadership and potential future contributions to Duke Energy.

The target 2016 LTI opportunities for Mr. Jamil and Ms. Janson were increased from 250% to 275% and from 200% to 225%, respectively, in order to bring their total compensation levels closer to market median and for internal equity purposes. No changes were made to the target LTI opportunities of the other named executive officers for 2016.

target-lti-opp

The Compensation Committee reviews the allocation between performance shares and restricted stock units annually with its compensation consultant, which confirmed that the present 70%/30% mix was market based among both utility peers and the general industry. The Compensation Committee believes that this allocation strikes an appropriate balance to both incentivize and retain our executive officers and aligns with our strong pay-for-performance philosophy. Under the 2016 LTI program, each named executive officer’s LTI opportunity was provided in the form of restricted stock units and performance shares, as follows:

performance-shares

Retention Grants

The Compensation Committee grants restricted stock units, in addition to those provided under the LTI program, when needed for retention purposes in light of the marketability of our executive officers. In February, 2016, the Compensation Committee approved retention grants of time-based restricted stock units to the named executive officers, other than Ms. Good. Different from our annual restricted stock unit awards, these grants are subject to a more-restrictive three-year cliff vesting schedule and are intended to enhance retention incentives for our top executives.

neo-rsus

2014-2016 Performance Shares under the Duke Energy 2016 LTI Program

The 2014 performance shares could be earned based on Duke Energy’s relative TSR for the three-year period from January 1, 2014, to December 31, 2016, as compared to the companies in the UTY. The results and payout levels for the 2014-2016 performance shares are as follows:

relative-tsr

Retirement and Welfare Benefits

Our named executive officers participate in the retirement and welfare plans generally available to other eligible employees. In addition, in order to attract and retain key executive talent, we believe that it is important to provide our named executive officers with certain limited retirement benefits that are offered only to a select group of management. These retirement plans provided to our named executive officers are described on pages 59-62 and are generally comparable to the benefits provided by peers of Duke Energy, as determined based on market surveys.

Duke Energy provides the named executive officers with the same health and welfare benefits it provides to all other similarly situated employees, and at the same cost charged to all other eligible employees. The named executive officers also are entitled to the same postretirement health and welfare benefits as those provided to similarly situated retirees.

Perquisites

In 2016, Duke Energy provided our named executive officers with certain other perquisites, which are disclosed in footnote 6 to the Summary Compensation Table on page 56. Duke Energy provides these perquisites as well as other benefits to certain executives in order to provide competitive compensation packages. The cost of perquisites and other personal benefits is not part of base salary, and, therefore, does not affect the calculation of awards and benefits under Duke Energy’s other compensation arrangements (i.e., retirement and incentive compensation plans).

Our named executive officers were eligible to receive the following perquisites and other benefits during 2016: (i) up to $2,500 for the cost of a comprehensive physical examination, (ii) reimbursement of expenses incurred for tax and financial planning services, which program is administered on a three-year cycle, such that participating executives can be reimbursed for up to $15,000 of eligible expenses during the three-year cycle, (iii) matching contributions from the Duke Energy Foundation of up to $5,000 to qualifying charitable institutions, and (iv) preferred status at American Airlines.

In addition, Ms. Good may use corporate aircraft for personal travel in North America. With advance approval from the Chief Executive Officer, the other named executive officers may use the corporate aircraft for personal travel in North America. If Ms. Good or any other named executive officer uses the aircraft for personal travel, he or she must reimburse Duke Energy for the direct operating costs for such travel. However, Ms. Good is not required to reimburse Duke Energy for the cost of travel to the executive physical described above or to meetings of the board of directors of other companies on whose board she serves. For additional information on the use of the corporate aircraft, see footnote 6 to the Summary Compensation Table.

Compensation Peer Group

One of our core compensation objectives is to attract and retain talented executive officers through total compensation that generally is competitive with that of other executives and key employees of similarly sized companies with similar complexity, whether within or outside of the utility sector. The Compensation Committee has developed a customized peer group for review of executive compensation levels and plan design practices.

The customized peer group consists of 23 similarly sized companies from the utility and general sectors, with the general industry companies also having satisfied at least one of the following characteristics: (i) operates in capital intensive industry, (ii) operates in a highly regulated industry, (iii) has significant manufacturing operations, or (iv) derives more than 50% of revenue in the United States. The customized combined peer group, which did not change in 2016, consists of:

Compensation Peer Group

3MDominion Resources *FedExMonsanto
American Electric Power *Dow Chemical FirstEnergy *NextEra Energy *
CenturyLinkDuPontGeneral DynamicsPG&E Corp. *
Colgate-PalmoliveEatonInternational PaperSouthern *
Consolidated Edison *Edison International *Lockheed MartinUPS
Deere & Co.Exelon *Medtronic
* Utility subset consisting of nine companies in the UTY.

The Compensation Committee also reviews executive compensation levels against a subset of the customized peer group consisting of nine companies in the UTY. For those positions where the customized peer group does not provide an appropriate source of competitive market data, the Compensation Committee is provided with data from all companies in the Towers Watson Energy Services Executive Compensation database, which consists of 113 companies with aggregate revenues between $163 million and $56 billion, as listed on Appendix B, and/or the companies (with revenues in a range of approximately one-half to two times our revenues) in the Towers Watson General Industry Executive Compensation database, which consists of 123 companies with aggregate revenues between $12 billion and $48 billion, as listed on Appendix C.

Severance and Change in Control Benefits

Employment Agreement with Ms. Good

Effective July 2013, Duke Energy entered into an employment agreement with Ms. Good that contains a three-year initial term and automatically renews for additional one-year periods at the end of the initial term unless either party provides 120 days’ advance notice. In the event of a change in control of Duke Energy, the term automatically extends to a period of two years.

Upon a termination of Ms. Good’s employment by Duke Energy without “cause” or by Ms. Good for “good reason” (each as defined in her employment agreement), Ms. Good would be entitled to the severance benefits as are described in more detail under the “Potential Payments Upon Termination or Change in Control” section of this proxy statement. Ms. Good’s employment agreement does not provide for golden parachute excise tax gross-up payments.

Severance Plan

The Executive Severance Plan provides varying levels of severance to the named executive officers other than Ms. Good. The Compensation Committee believes that this plan is appropriate in order to provide a consistent approach to executive severance and to provide eligible executives with certainty and security while they are focusing on their duties and responsibilities. Severance compensation would only be paid in the event that an eligible executive’s employment is involuntarily terminated without “cause” or is voluntarily terminated for “good reason,” and is subject to compliance with restrictive covenants (i.e., noncompetition). The severance compensation that would be paid in the event of a qualifying termination of employment to those senior executives who are identified as “Tier I Participants,” including Mr. Young, Mr. Jamil, Ms. Janson and Mr. Yates, generally approximates two times his or her annual compensation and benefits. The Executive Severance Plan prohibits the payment of severance if an executive also would be entitled to severance compensation under a separate agreement or plan maintained by Duke Energy, including the Change in Control Agreements described below. The Executive Severance Plan does not provide for golden parachute excise tax gross-up payments.

The benefit levels under the Executive Severance Plan are described in more detail under the “Potential Payments Upon Termination or Change in Control” section of this proxy statement.

Change in Control Agreements

Duke Energy has entered into Change in Control Agreements with the named executive officers other than Ms. Good. Under these agreements, each such named executive officer would be entitled to certain payments and benefits if (i) a change in control were to occur and (ii) within two years following the change in control, (a) Duke Energy terminates the executive’s employment without “cause” or (b) the executive terminates his or her employment for “good reason.” The severance provided by Duke Energy is generally two times the executive’s annual compensation and benefits and becomes payable only if there is both a change in control and a qualifying termination of employment. The Compensation Committee approved the two times severance multiplier after consulting with its advisors and reviewing the severance provided by peer companies. The Change in Control Agreements do not provide for golden parachute excise tax gross-up payments.

Our restricted stock unit awards provide for “double-trigger” vesting in full (without proration) upon a qualifying termination of employment in connection with a change in control. Our performance share awards provide for pro rata vesting at the target performance level in the event of a change in control (on a “single-trigger” basis, without regard to termination of employment).

The Compensation Committee believes these change in control arrangements are appropriate in order to diminish the uncertainty and risk to the executives’ roles in the context of a potential or actual change in control. The benefit levels under the Change in Control Agreements and equity awards are described in more detail under the “Potential Payments Upon Termination or Change in Control” section on page 62 of this proxy statement.

Tax and Accounting Implications

Deductibility of Executive Compensation

The Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code, which provides that Duke Energy generally may not deduct, for federal income tax purposes, annual compensation in excess of $1 million paid to certain employees. Performance-based compensation paid pursuant to shareholder approved plans is not subject to the deduction limit as long as such compensation is approved by “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code and certain other requirements are satisfied.

Although the Compensation Committee generally intends to structure and administer executive compensation plans and arrangements so that they will not be subject to the deduction limit of Section 162(m) of the Code, the Compensation Committee may, from time to time, approve payments that cannot be deducted in order to maintain flexibility in structuring appropriate compensation programs in the interests of shareholders. For example, restricted stock unit awards received by certain employees, and amounts paid to certain employees under the STI Plan with respect to individual objectives, may not be deductible for federal income tax purposes, depending on the amount and other types of compensation received by such employees.

Accounting for Stock-Based Compensation

Stock-based compensation represents costs related to stock-based awards granted to employees and members of the Duke Energy Board of Directors. Duke Energy recognizes stock-based compensation based upon the estimated fair value of the awards, net of estimated forfeitures at the date of issuance. The recognition period for these costs begins at either the applicable service inception date or grant date and continues throughout the requisite service period or, for certain share-based awards, until the employee becomes retirement eligible, if earlier. Compensation cost is recognized as expense or capitalized as a component of property, plant and equipment.

Non-GAAP Financial Measures

As described previously in this Compensation Discussion and Analysis, Duke Energy uses various financial measures, including adjusted diluted EPS and O&M expense, in connection with short-term and long-term incentives. Adjusted diluted EPS is a non-GAAP financial measure as it represents diluted EPS from continuing operations attributable to Duke Energy Corporation common shareholders, adjusted for the per share impact of special items. As discussed below, special items include certain charges and credits which management believes are not indicative of Duke Energy’s ongoing performance. The O&M expense measure used for incentive plan purposes also is a non-GAAP financial measure as it represents GAAP O&M adjusted primarily for expenses recovered through rate riders, certain regulatory accounting deferrals and applicable special items. Management believes that the presentation of adjusted diluted EPS provides useful information to investors, as it provides them an additional relevant comparison of Duke Energy’s performance across periods. The most directly comparable GAAP measures for adjusted diluted EPS and O&M expense measures used for incentive plan purposes are reported diluted EPS from continuing operations attributable to Duke Energy Corporation common shareholders and reported O&M expense from continuing operations, which includes the impact of special items.

Special items included in the periods presented include the following items which management believes do not reflect ongoing costs. Costs to achieve mergers represent charges that result from potential or completed strategic acquisitions. Cost savings initiatives represents severance charges related to company-wide initiatives to standardize processes and systems, leverage technology and workforce optimization. Commercial Renewables Impairment and Asset impairment represent other-than-temporary impairments. Edwardsport Settlement, Ash Basin Settlement and Coal Ash Plea Agreements Reserve represents charges related to Plea Agreements and settlement agreements with regulators and other governmental entities. Midwest Generation Operations and International Operations special items represent the operating results of the non-regulated Midwest generation business and Duke Energy Retail Sales (collectively, the Midwest Generation Disposal Group) and the International Disposal Group, respectively, which have been classified as discontinued operations. Management believes inclusion of the operating results of the Disposal Groups within adjusted earnings and adjusted EPS results in a better reflection of Duke Energy’s financial performance during the period.

Duke Energy’s adjusted earnings and adjusted EPS and O&M expense may not be comparable to similarly titled measures of another company because other companies may not calculate the measures in the same manner.

Summary Compensation Table

The following table provides compensation information for our Chief Executive Officer (Ms. Good), our Chief Financial Officer (Mr. Young) and the three other most highly compensated executive officers who were employed on December 31, 2016, (Mr. Jamil, Ms. Janson and Mr. Yates). The table provides information for 2014 and 2015 only to the extent that each named executive officer was included in the Duke Energy Summary Compensation Table for those years.

summarycomp

(1) Effective May 1, 2016, Mr. Jamil became Executive Vice President and Chief Operating Officer. Prior to this assignment, he served as Executive Vice President and President, Generation and Transmission.
(2) Effective September 1, 2016, Mr. Yates became Executive Vice President Customer and Delivery Operations and President, Carolinas Region. Prior to this assignment, he served as Executive Vice President, Market Solutions and President, Carolinas Region.
(3) Grant Date Fair Value of Stock Awards for Accounting Purposes. This column does not reflect the value of stock awards that were actually earned or received by the named executive officers during each of the years listed above. Rather, as required by applicable SEC rules, this column reflects the aggregate grant date fair value of the performance shares (based on the probable outcome of the performance conditions as of the date of grant) and restricted stock units granted to our named executive officers in the applicable year. The aggregate grant date fair value of the performance shares granted in 2016 to Ms. Good, Mr. Young, Mr. Jamil, Ms. Janson and Mr. Yates, assuming that the highest level of performance would be achieved, is $12,797,794; $1,993,529; $2,900,623; $1,661,199 and $2,109,776; respectively. The aggregate grant date fair value of the awards was determined in accordance with the accounting guidance for stockbased compensation. See Note 20 of the Consolidated Financial Statements contained in our Form 10K for an explanation of the assumptions made in valuing these awards.
(4) With respect to the applicable performance period, this column reflects amounts payable under the STI Plan. Unless deferred, the 2016 amounts were paid in March 2017.
(5) This column includes the amounts listed below. The amounts listed were earned over the 12month period ending on December 31, 2016.

accumulated-benefits

(6) The All Other Compensation column includes the following for 2016:

all-other-comp

* Regarding use of corporate aircraft, named executive officers generally are required to reimburse Duke Energy the direct operating costs of any personal travel. With respect to flights on a leased or chartered airplane, direct operating costs equal the amount that the third party charges Duke Energy for such trip. With respect to flights on the Companyowned airplane, direct operating costs include the amounts permitted by the Federal Aviation Regulations for noncommercial carriers. Named executive officers are permitted to invite their spouse or other guests to accompany them on business trips when space is available; however, in such events, the named executive officer is imputed income in accordance with IRS guidelines. The additional cost included in the table above is the amount of the IRSspecified tax deduction disallowance, if any, with respect to the named executive officer’s personal travel.
** Certain charitable contributions made by the named executive officers are not eligible for matching under the Matching Gifts Program and therefore are not listed above.
(7) Due to an error in the actuarial calculation, the change in pension value was incorrectly reported as $560,144 in the 2016 proxy statement.

Grants of Plan-Based Awards

gpba

(1) Reflects the STI opportunity granted to our named executive officers in 2016 under the Duke Energy Corporation Executive ShortTerm Incentive Plan. The information included in the “Threshold,” “Target” and “Maximum” columns reflects the range of potential payouts under the plan established by the Compensation Committee. The actual amounts earned by each executive under the terms of such plan are disclosed in the Summary Compensation Table.
(2) Reflects the performance shares granted to our named executive officers on February 24, 2016, under the terms of the Duke Energy Corporation 2015 LTI Plan. The information included in the “Threshold,” “Target” and “Maximum” columns reflects the range of potential payouts established by the Compensation Committee. Earned performance shares will be paid following the end of the 20162018 performance period, based on the extent to which the performance goals have been achieved. Any shares not earned are forfeited. In addition, following a determination that the performance goals have been achieved, participants will receive a cash payment equal to the amount of cash dividends paid on one share of Duke Energy common stock during the performance period multiplied by the number of performance shares earned.
(3) Reflects restricted stock units granted to our named executive officers on February 24, 2016, under our LTI program pursuant to the terms of the Duke Energy Corporation 2015 LTI Plan. These restricted stock units generally vest in equal portions on each of the first three anniversaries of the grant date, provided the recipient continues to be employed by Duke Energy on each vesting date. If dividends are paid during the vesting period, then the participants will receive a current cash payment equal to the amount of cash dividends paid on one share of Duke Energy common stock during the vesting period multiplied by the number of unvested restricted stock units.
(4) Reflects retention grants of restricted stock units provided to the named executive officers on February 24, 2016, under the terms of the Duke Energy Corporation 2015 LTI Plan. These restricted stock units generally vest in full on the third anniversary of the grant date, provided the recipient continues to be employed by Duke Energy. If dividends are paid during the vesting period, then the participants will receive a current cash payment equal to the amount of cash dividends paid on one share of Duke Energy common stock during the vesting period multiplied by the number of unvested restricted stock units.
(5) Reflects the grant date fair value of each restricted stock unit and performance share (based on the probable outcome of the performance conditions as of the date of grant) granted to our named executive officers in 2016, as computed in accordance with the accounting guidance for stock-based compensation.

Outstanding Equity Awards at Fiscal Year-End

The following table shows the outstanding equity awards held by our named executive officers as of December 31, 2016.

outstanding-equity-awards

(1) Ms. Good, Mr. Young, Mr. Jamil, Ms. Janson and Mr. Yates received restricted stock units under our LTI Plan on February 25, 2014, February 25, 2015, and February 24, 2016, which vest, subject to certain exceptions, in equal installments on the first three anniversaries of the date of grant. In addition, Ms. Good received restricted stock units under our LTI Plan on June 25, 2015, which vest, subject to certain exceptions, in equal installments on the first three anniversaries of February 25, 2015. Mr. Young, Mr. Jamil, Ms. Janson, and Mr. Yates also received additional retention grants of restricted stock units on February 24, 2016, that vest in full, subject to continued employment, on the third anniversary of the grant date.
(2) Ms. Good, Mr. Young, Mr. Jamil, Ms. Janson and Mr. Yates received performance shares on February 25, 2015, and on February 24, 2016, that, subject to certain exceptions, are eligible for vesting on December 31, 2017, and December 31, 2018, respectively. Ms. Good received additional performance shares on June 25, 2015, that, subject to certain exceptions, are eligible for vesting on December 31, 2017. Pursuant to applicable SEC rules, the performance shares granted in 2015 are listed at the minimum number of shares and the performance shares granted in 2016 are listed at the target number of shares.

Option Exercises and Stock Vested

option-exercises

(1) Includes vested restricted stock units for all named executive officers. On February 22, 2017, the Compensation Committee certified that the minimum required performance was not achieved for the performance share cycle ending in 2016, and, therefore, no performance shares were earned for this cycle.
(2) The value realized upon vesting of stock awards was calculated based on the closing price of a share of Duke Energy common stock on the respective vesting date.

Pension Benefits

pension

Duke Energy provides pension benefits that are intended to assist its retirees with their retirement income needs. A more detailed description of the plans that comprise Duke Energy’s pension program follows.

Duke Energy Retirement Cash Balance Plan

Ms. Good, Mr. Young, Mr. Jamil, Ms. Janson and Mr. Yates actively participate in the Duke Energy Retirement Cash Balance Plan (“RCBP”), which is a noncontributory, defined benefit retirement plan that is intended to satisfy the requirements for qualification under Section 401(a) of the Internal Revenue Code. The RCBP generally covers employees of Duke Energy and affiliates, with certain exceptions for individuals previously employed with Piedmont Natural Gas and who are covered under a Piedmont Natural Gas plan and for individuals employed or reemployed on or after January 1, 2014. The RCBP currently provides benefits under a “cash balance account” formula (described below are certain prior plan formulas). Ms. Good, Mr. Young, Mr. Jamil, Ms. Janson and Mr. Yates have satisfied the eligibility requirements to receive his or her RCBP account benefit upon termination of employment. The RCBP benefit is payable in the form of a lump sum in the amount credited to a hypothetical account at the time of benefit commencement. Payment is also available in annuity forms based on the actuarial equivalent of the account balance.

The amount credited to the hypothetical account is increased with monthly pay credits equal to (i) for participants with combined age and service of less than 35 points, four percent of eligible monthly compensation, (ii) for participants with combined age and service of 35 to 49 points, five percent of eligible monthly compensation, (iii) for participants with combined age and service of 50 to 64 points, six percent of eligible monthly compensation and (iv) for participants with combined age and service of 65 or more points, seven percent of eligible monthly compensation. If the participant earns more than the Social Security wage base, the account is credited with additional pay credits equal to four percent of eligible compensation above the Social Security wage base. Interest credits are credited monthly. The interest rate for benefits accrued after 2012 is based on an annual interest factor of four percent and for benefits accrued before 2013 is based generally on the annual yield on the 30-year Treasury rate (determined quarterly), subject to a minimum of four percent and a maximum of nine percent.

For the RCBP, eligible monthly compensation is equal to Form W2 wages, plus elective deferrals under a 401(k), cafeteria, or 132(f) transportation plan, and deferrals under the Executive Savings Plan. Compensation does not include severance pay, payment for unused vacation (including banked vacation and banked time), expense reimbursements, allowances, cash or non-cash fringe benefits, moving expenses, bonuses for performance periods in excess of one year, transition pay, LTI compensation (including income resulting from any stock-based awards such as stock options, stock appreciation rights, restricted stock units or restricted stock), military leave of absence pay (including differential wage payments) and other compensation items to the extent described as not included for purposes of benefit plans or the RCBP. The benefit under the RCBP is limited by maximum benefits and compensation limits under the Internal Revenue Code.

Effective at the end of 2012, the Cinergy Corp. Non-Union Employees’ Pension Plan (“Cinergy Plan”) was merged into the RCBP. The balances that Ms. Good and Ms. Janson had under the Cinergy Plan’s “cash balance account” formula at the end of 2012 were credited to their hypothetical accounts under the RCBP. Prior to 2011, the Cinergy Plan also provided benefits under the Traditional Program formula, which provides benefits based on service and final average monthly pay. Pursuant to a choice program offered to all non-union participants in the Traditional Program formula in 2006, Ms. Janson elected to participate in the Cinergy Plan’s cash balance account formula with the retention of her accrued benefit under the Traditional Program, which benefit is based on service through April 1, 2007, and by amendment applicable to Ms. Janson and other choice participants effective at the end of 2016, on pay through December 31, 2016, (with banked vacation taken into account at December 31, 2016). Ms. Good has always participated in the Cinergy Plan’s cash balance account formula.

Under the Cinergy Plan’s Traditional Program, in which Ms. Janson participated prior to April 1, 2007, and which was frozen as of December 31, 2016, each participant earns a benefit under a final average pay formula, which calculates pension benefits based on a participant’s “highest average earnings” and years of plan participation. The Traditional Program benefit is payable following normal retirement at age 65, following early retirement at or after age 50 with three or more years of service (with reduction in the life annuity for commencement before age 62 in accordance with prescribed factors) and at or after age 55 with combined age and service of 85 points (with no reduction in the life annuity for commencement before normal retirement age). Ms. Janson is eligible for an early retirement benefit, the amount of which would be reduced for early commencement. Payment to Ms. Janson is available in a variety of annuity forms and in the form of a lump sum that is the actuarial equivalent of the benefit payable to her under the Traditional Program.

The Traditional Program benefit formula is the sum of (a), (b), and (c), where (a) is 1.1 percent of final average monthly pay (“FAP”) times years of participation (up to a maximum of 35 years); where (b) is 0.5% times FAP in excess of monthly Social Security covered compensation times years of participation (up to a maximum of 35 years); and where (c) is 1.55% of FAP times years of participation in excess of 35. The benefit under the Traditional Program will not be less than the minimum formula, which is the sum of (x) and (y), where (x) is the lesser of (i) 1.12% of FAP times years of participation (up to a maximum of 35 years) plus 0.5% times FAP in excess of monthly Social Security covered compensation times years of participation (up to a maximum of 35 years) or (ii) 1.163% of FAP times years of participation (up to a maximum of 35 years); and where (y) is 1.492% of FAP times years of participation over 35 years. Social Security covered compensation is the average of the Social Security wage bases during the 35 calendar years ending in the year the participant reaches Social Security retirement age.

Under the Traditional Program, as part of the administrative record keeping process established in 1998, creditable service for Ms. Janson and similarly situated employees was established from the beginning of the year of hire. The number of actual years of service by Ms. Janson with us or an affiliated company, established from the beginning of the year of hire, is the same as the number of credited years of service under the RCBP (and the Duke Energy Executive Cash Balance Plan) and, therefore, no benefit augmentation resulted under the RCBP (and the ECBP) to Ms. Janson as a result of any difference in the number of years of actual and credited service. Ms. Janson’s years of participation under the Traditional Program is frozen as of April 1, 2007.

FAP is the average of the participant’s total pay during the three consecutive years of highest pay from the last 10 years of participation at December 31, 2016, (including banked vacation taken into account at December 31, 2016, determined by multiplying the participant’s weeks of unused banked vacation as of December 31, 2016, by the participant’s rate of pay as of December 31, 2016). This is determined, at December 31, 2016, using the three consecutive calendar years or last 36 months of participation that yield the highest FAP. Ms. Janson’s FAP under the Traditional Program is frozen as of December 31, 2016.

Total pay under the Traditional Program includes base salary or wages, overtime pay, shift premiums, work schedule recognition pay, holiday premiums, retirement bank vacation pay, performance lump-sum pay, annual cash incentive plan awards and annual performance cash awards. Total pay does not include reimbursements or other expense allowances, imputed income, fringe benefits, moving and relocation expenses, deferred compensation, welfare benefits, long-term performance awards and executive individual incentive awards. The benefit under the Traditional Program is limited by maximum benefits and compensation limits under the Internal Revenue Code.

Effective at the end of 2015, the Progress Energy Pension Plan (“Progress Plan”) was merged into the RCBP. The balance that Mr. Yates had under the Progress Plan’s “cash balance account” formula at the end of 2015 was credited to his hypothetical account under the RCBP. After 2013, the Progress Plan provided for cash balance benefits under the same formula as the RCBP. Prior to 2014, pay credits ranged from three percent to seven percent depending on the participant’s age at the beginning of each plan year, plus an additional similar credit on eligible pay above 80% of the Social Security wage base. Interest credits for benefits accrued before 2014 are based on an annual interest credit rate of four percent and are added to cash balance accounts on December 31 of each year based on account balances as of January 1. At benefit commencement, an employee has several lump sum and annuity payment options.

Duke Energy Corporation Executive Cash Balance Plan

Mr. Young, Mr. Jamil, Mr. Yates and Ms. Janson actively participate in the ECBP, which is a noncontributory, defined benefit retirement plan that is not intended to satisfy the requirements for qualification under Section 401(a) of the Internal Revenue Code. Benefits earned under the ECBP are attributable to (i) compensation in excess of the annual compensation limit ($270,000 for 2017) under the Internal Revenue Code that applies to the determination of pay credits under the RCBP; (ii) restoration of benefits in excess of a defined benefit plan maximum annual benefit limit ($215,000 for 2017) under the Internal Revenue Code that applies to the RCBP; and (iii) supplemental benefits granted to a particular participant. Generally, benefits earned under the RCBP and the ECBP vest upon completion of three years of service, and, with certain exceptions, vested benefits generally become payable upon termination of employment with Duke Energy.

Amounts were credited to an account established for Ms. Good under the ECBP pursuant to an amendment to her prior employment agreement that was negotiated in connection with the merger of Cinergy Corp. and Duke Energy. Ms. Good will not earn any additional benefits under any nonqualified defined benefit plan (other than future interest credits under the ECBP) unless and until she continues employment with Duke Energy past age 62.

Effective as of July 2, 2012, (i.e., the closing of the Duke Energy/Progress Energy merger), the portion of the Supplemental Senior Executive Retirement Plan of Progress Energy, Inc. (“Progress Energy Supplemental Plan”) relating to the 10 active participants in the Progress Energy Supplemental Plan, including Mr. Yates, was merged into the ECBP, resulting in the nonqualified retirement benefits that were originally to be provided to the Progress Energy participants under the Progress Energy Supplemental Plan, to be instead provided pursuant to the ECBP. The ECBP provides that Mr. Yates will participate in the ECBP and, subject to the terms and conditions of the ECBP, be entitled to nonqualified retirement benefits equal to the greater of:

  • The sum of (i) the accrued benefit under the Progress Energy Supplemental Plan frozen as of July 2, 2012, (based on applicable service and compensation earned prior to July 2, 2012), and (ii) future benefits under the ECBP with respect to service and compensation levels following July 2, 2012; or
  • The benefits earned under the Progress Energy Supplemental Plan, as increased by post-July 2, 2012, service and cost of living adjustments.

Mr. Yates participates in the Progress Energy Supplemental Plan formula of the ECBP and is fully vested in his benefit. Payments attributable to the Progress Energy Supplemental Plan formula generally are made in the form of an annuity, payable at age 65. The monthly payment is calculated using a formula that equates to four percent per year of service (capped at 62%) multiplied by the average monthly eligible pay (annual base salary and annual cash incentive award) for the highest completed 36 months of eligible pay within the preceding 120-month period. Benefits under the Progress Energy Supplemental Plan formula are fully offset by Social Security benefits and by benefits paid under the RCBP. An executive officer who is age 55 or older with at least 15 years of service (including Mr. Yates, who has attained age 55 with at least 15 years of service) may elect to retire prior to age 65 and his or her benefit generally will commence within 60 days of the first calendar month following retirement. The early retirement benefit will be reduced by 2.5% for each year the participant receives the benefit prior to reaching age 65. All service with Duke Energy and its affiliates is treated as eligible service for purposes of meeting the Progress Energy Supplemental Plan’s eligibility requirements.

Present Value Assumptions

Because the pension amounts shown in the Pension Benefits Table are the present values of current accrued retirement benefits, numerous assumptions must be applied. The values are based on the same assumptions as used in our Annual Report, except as required by applicable SEC rules. Such assumptions include a 4.1% discount rate and an interest crediting rate of 4.25% for Duke Energy cash balance accounts for benefits accrued before 2013 and four percent for benefits accrued after 2012 and four percent for the prior Progress Plan cash balance accounts. Cash balance accounts are assumed to be paid in the form of a lump sum. Annuity benefits are assumed to be paid in the form of either (i) a single life annuity or (ii) a 50% joint and survivor annuity. The post-retirement mortality assumption is consistent with that used in Duke Energy’s Form 10K. Benefits are assumed to commence at age 55 for Ms. Janson, age 62 for Ms. Good, and at age 65 for Mr. Young, Mr. Jamil and Mr. Yates, or the named executive officer’s current age (if later), and each named executive officer is assumed to remain employed until that age.

Nonqualified Deferred Compensation

nonq-deferred-comp

(1) Includes $180,833, $25,000, $31,250 and $52,917 of salary deferrals credited to the plan in 2016 on behalf of Ms. Good, Mr. Young, Ms. Janson and Mr. Yates, respectively, which are included in the salary column of the Summary Compensation Table. Includes $160,588, $26,630, $208,164 and $35,282 of shortterm incentive deferrals earned in 2016 and credited to the plan in 2017 on behalf of Ms. Good, Mr. Young, Mr. Jamil and Ms. Janson, respectively, which are included in the NonEquity Incentive Compensation Plan column of the Summary Compensation Table.
(2) Reflects make-whole matching contribution credits made under the Executive Savings Plan, which are reported in the All Other Compensation column of the Summary Compensation Table.
(3) The aggregate balance as of December 31, 2016, for each named executive officer includes the following aggregate amount of prior deferrals of base salary and short-term incentives, as well as employer matching contributions, that were previously earned and reported as compensation on the Summary Compensation Table for the years 2008 through 2015: (i) Ms. Good – $1,174,337; (ii) Mr. Young – $173,687; (iii) Mr. Jamil – $831,691; (iv) Ms. Janson – $83,066 and (v) Mr. Yates – $264,048. These amounts have since been adjusted, pursuant to the terms of the Executive Savings Plan for investment performance (i.e., earnings and losses), deferrals, contributions and distributions. The aggregate balance as of December 31, 2016, also includes amounts earned in 2016 but credited to the plan in 2017, including the amounts described in footnotes 1 and 2 above.

Duke Energy Corporation Executive Savings Plan

Under the Executive Savings Plan, participants can elect to defer a portion of their base salary and short-term incentive compensation. Participants also receive a company matching contribution in excess of the contribution limits prescribed by the Internal Revenue Code under the Duke Energy Retirement Savings Plan, which is the 401(k) plan in which the named executive officers participate.*

In general, payments are made following termination of employment or death in the form of a lump sum or installments, as selected by the participant. Participants may direct the deemed investment of base salary deferrals, STI deferrals and matching contributions among investment options available under the Duke Energy Retirement Savings Plan, including the Duke Energy Common Stock Fund. Participants may change their investment elections on a daily basis. The benefits payable under the plan are unfunded and subject to the claims of Duke Energy’s creditors.

Mr. Yates previously participated in the Progress Energy, Inc. Management Deferred Compensation Plan (“MDCP”), the Progress Energy, Inc. Management Incentive Compensation Plan (“MICP”) and the Progress Energy, Inc. Performance Share SubPlan (“PSSP”), each of which permitted voluntary deferrals and was merged with and into the Executive Savings Plan effective as of the end of 2013. In addition to voluntary deferrals, the MDCP also provided for employer contributions of six percent of base salary over the limits prescribed by the Internal Revenue Code under the Progress Energy 401(k) Savings and Stock Ownership Plan. With respect to the plans that were merged into the Executive Savings Plan, participants are entitled to the same benefits, distribution timing and forms of benefit that were provided by the MDCP, MICP and PSSP immediately prior to January 1, 2014. These pre-2014 benefits generally are payable following termination of employment, or in certain cases on a date previously specified by the participant, in the form of a lump sum or installments, as selected by the participant.

* The Duke Energy Retirement Savings Plan is a tax-qualified “401(k) plan” that provides a means for employees to save for retirement on a tax-favored basis and to receive an employer matching contribution. The employer matching contribution is equal to 100% of the named executive officer’s before tax and Roth 401(k) contributions (excluding “catchup” contributions) with respect to six percent of eligible pay. For this purpose, “eligible pay” includes base salary and STI compensation. Earnings on amounts credited to the Duke Energy Retirement Savings Plan are determined based on the performance of investment funds (including a Duke Energy Common Stock Fund) selected by each participant.

Potential Payments Upon Termination or Change in Control

Under certain circumstances, each named executive officer would be entitled to compensation in the event his or her employment terminates or upon a change in control. The amount of the compensation is contingent upon a variety of factors, including the circumstances under which he or she terminates employment. The relevant agreements that each named executive officer has entered into with Duke Energy are described below, followed by a table that quantifies the amount that would become payable to each named executive officer as a result of his or her termination of employment.

The amounts shown assume that such termination was effective as of December 31, 2016, and are merely estimates of the amounts that would be paid to the named executive officers upon their termination. The actual amounts to be paid can only be determined at the time of such named executive officer’s termination of employment.

The table shown below does not include certain amounts that have been earned and that are payable without regard to the named executive officer’s termination of employment. Such amounts, however, are described immediately following the table.

Under each of the compensation arrangements described below for Ms. Good, Mr. Young, Mr. Jamil, Ms. Janson and Mr. Yates, “change in control” generally means the occurrence of one of the following: (i) the date any person or group becomes the beneficial owner of 30% or more of the combined voting power of Duke Energy’s then outstanding securities; (ii) during any period of two consecutive years, the directors serving at the beginning of such period or who are elected thereafter with the support of not less than two-thirds of those directors cease for any reason other than death, disability or retirement to constitute at least a majority thereof; (iii) the consummation of a merger, consolidation, reorganization or similar corporate transaction, which has been approved by the shareholders of Duke Energy, regardless of whether Duke Energy is the surviving company, unless Duke Energy’s outstanding voting securities immediately prior to the transaction continue to represent at least 50% of the combined voting power of the outstanding voting securities of the surviving entity immediately after the transaction; (iv) the consummation of a sale of all or substantially all of the assets of Duke Energy or a complete liquidation or dissolution, which has been approved by the shareholders of Duke Energy; or (v) under certain arrangements, the date of any other event that the Board of Directors determines should constitute a change in control.

Employment Agreement with Ms. Good

Effective July 1, 2013, Duke Energy entered into an employment agreement with Ms. Good that contains a three-year initial term and automatically renews for additional one-year periods at the end of the initial term unless either party provides 120 days’ advance notice. In the event of a change in control of Duke Energy, the term automatically extends to a period of two years. Upon a termination of Ms. Good’s employment by Duke Energy without “cause” or by Ms. Good for “good reason” (each as defined below), the following severance payments and benefits would be payable: (i) a lump sum payment equal to a pro rata amount of her annual bonus for the portion of the year that the termination of employment occurs during which she was employed, determined based on the actual achievement of performance goals; (ii) a lump sum payment equal to 2.99 times the sum of her annual base salary and target annual bonus opportunity; (iii) continued access to medical and dental benefits for 2.99 years, with monthly amounts relating to Duke Energy’s portion of the costs of such coverage paid by Duke Energy (reduced by coverage provided by future employers, if any) and a lump sum payment equal to the cost of basic life insurance coverage for 2.99 years; (iv) one year of outplacement services; (v) if termination occurs within 30 days prior to, or two years after a change in control of Duke Energy, vesting in unvested retirement plan benefits that would have vested during the two years following the change in control and a lump sum payment equal to the maximum contributions and allocations that would have been made or allocated if she had remained employed for an additional 2.99 years; and (vi) 2.99 additional years of vesting with respect to equity awards and an extended period to exercise outstanding vested stock options following termination of employment.

Ms. Good is not entitled to any form of tax gross-up in connection with Sections 280G and 4999 of the Internal Revenue Code. Instead, in the event that the severance payments or benefits otherwise would constitute an “excess parachute payment” (as defined in Section 280G of the Internal Revenue Code), the amount of payments or benefits would be reduced to the maximum level that would not result in an excise tax under Section 4999 of the Internal Revenue Code if such reduction would cause Ms. Good to retain an after-tax amount in excess of what would be retained if no reduction were made.

Under Ms. Good’s employment agreement, “cause” generally means, unless cured within 30 days, (i) a material failure by Ms. Good to carry out, or malfeasance or gross insubordination in carrying out, reasonably assigned duties or instructions consistent with her position; (ii) the final conviction of Ms. Good of a felony or crime involving moral turpitude; (iii) an egregious act of dishonesty by Ms. Good in connection with employment, or a malicious action by Ms. Good toward the customers or employees of Duke Energy; (iv) a material breach by Ms. Good of Duke Energy’s Code of Business Ethics; or (v) the failure of Ms. Good to cooperate fully with governmental investigations involving Duke Energy. “Good reason,” for this purpose, generally means, unless cured within 30 days, (i) a material reduction in Ms. Good’s annual base salary or target annual bonus opportunity (exclusive of any across-the-board reduction similarly affecting substantially all similarly situated employees); or (ii) a material diminution in Ms. Good’s positions (including status, offices, titles and reporting relationships), authority, duties or responsibilities or any failure by the Board of Directors to nominate Ms. Good for re-election as a member of the Board of Directors.

Ms. Good’s employment agreement contains restrictive covenants related to confidentiality, mutual nondisparagement, noncompetition and nonsolicitation obligations. The noncompetition and nonsolicitation obligations survive for two years following her termination of employment.

Other Named Executive Officers

Duke Energy entered into a Change in Control Agreement with Mr. Young effective as of July 1, 2005, and with Mr. Jamil effective as of February 26, 2008, both of which were amended and restated effective as of August 26, 2008, and subsequently amended effective as of January 8, 2011. Duke Energy entered into a Change in Control Agreement with Ms. Janson effective as of December 17, 2012, and with Mr. Yates effective as of July 3, 2014. The agreements have an initial term of two years commencing as of the original effective date, after which the agreements automatically extend, unless six months’ prior written notice is provided, on a month-to-month basis.

The Change in Control Agreements provide for payments and benefits to the executive in the event of termination of employment within two years after a “change in control” by Duke Energy without “cause” or by the executive for “good reason” (each as defined below) as follows: (i) a lump-sum cash payment equal to a pro rata amount of the executive’s target bonus for the year in which the termination occurs; (ii) a lump-sum cash payment equal to two times the sum of the executive’s annual base salary and target annual bonus opportunity in effect immediately prior to termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting “good reason”; (iii) continued medical, dental and basic life insurance coverage for a two-year period or a lump-sum cash payment of equivalent value (reduced by coverage obtained by subsequent employers); and (iv) a lump-sum cash payment of the amount Duke Energy would have allocated or contributed to the executive’s qualified and non-qualified defined benefit pension plan and defined contribution savings plan accounts during the two years following the termination date, plus the unvested portion, if any, of the executive’s accounts as of the date of termination that would have vested during the remaining term of the agreement. If the executive would have become eligible for normal retirement at age 65 within the two-year period following termination, the two times multiple or two-year period mentioned above will be reduced to the period from the termination date to the executive’s normal retirement date. The agreements also provide for enhanced benefits (i.e., two years of additional vesting) with respect to equity awards.

Under the Change in Control Agreements, each named executive officer also is entitled to reimbursement of up to $50,000 for the cost of certain legal fees incurred in connection with claims under the agreements. In the event that any of the payments or benefits provided for in the Change in Control Agreement otherwise would constitute an “excess parachute payment” (as defined in Section 280G of the Internal Revenue Code), the amount of payments or benefits would be reduced to the maximum level that would not result in excise tax under Section 4999 of the Internal Revenue Code if such reduction would cause the executive to retain an aftertax amount in excess of what would be retained if no reduction were made. In the event a named executive officer becomes entitled to payments and benefits under a Change in Control Agreement, he would be subject to a one-year non-competition and non-solicitation provision from the date of termination, in addition to certain confidentiality and cooperation provisions.

The Executive Severance Plan provides certain executives, including Mr. Young, Mr. Jamil, Ms. Janson and Mr. Yates, with severance payments and benefits upon a termination of employment under certain circumstances. Pursuant to the terms of the Executive Severance Plan, “Tier I Participants,” which include Duke Energy’s named executive officers, would be entitled, subject to the execution of a waiver and release of claims, to the following payments and benefits in the event of a termination of employment by (a) Duke Energy other than for “cause” (as defined below), death or disability, or (b) the participant for “good reason” (as defined below): (i) a lump-sum payment equal to a pro rata amount of the participant’s annual bonus for the year that the termination of employment occurs, determined based on the actual achievement of performance goals under the applicable performance-based bonus plan; (ii) a lump-sum payment equal to two times the sum of the participant’s annual base salary and target annual bonus opportunity in effect immediately prior to termination of employment or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting “good reason”; (iii) continued access to medical and dental insurance for a two-year period following termination of employment, with monthly amounts relating to Duke Energy’s portion of the costs of such coverage paid to the participant by Duke Energy (reduced by coverage provided to the participant by future employers, if any) and a lump-sum payment equal to the cost of two years of basic life insurance coverage; (iv) one year of outplacement services; and (v) two additional years of vesting with respect to equity awards and an extended period to exercise outstanding vested stock options following termination of employment.

The Executive Severance Plan also provides that, in the event any of the payments or benefits provided for in the Executive Severance Plan otherwise would constitute an “excess parachute payment” (as defined in Section 280G of the Internal Revenue Code), the amount of payments or benefits would be reduced to the maximum level that would not result in an excise tax under Section 4999 of the Internal Revenue Code if such reduction would cause the executive to retain an after-tax amount in excess of what would be retained if no reduction were made. In the event a participant becomes entitled to payments and benefits under the Executive Severance Plan, he or she would be subject to certain restrictive covenants, including those related to noncompetition, nonsolicitation and confidentiality.

Duke Energy has the right to terminate any participant’s participation in the Executive Severance Plan but must provide the participant with one year’s notice and the participant would continue to be eligible for all severance payments and benefits under the Executive Severance Plan during the notice period. Any employee who is eligible for severance payments and benefits under a separate agreement or plan maintained by Duke Energy (such as a Change of Control Agreement) would receive compensation and benefits under such other agreement or plan (and not the Executive Severance Plan).

For purposes of the Change in Control Agreements and the Executive Severance Plan, “cause” generally means, unless cured within 30 days, (i) a material failure by the executive to carry out, or malfeasance or gross insubordination in carrying out, reasonably assigned duties or instructions consistent with the executive’s position; (ii) the final conviction of the executive of a felony or crime involving moral turpitude; (iii) an egregious act of dishonesty by the executive in connection with employment, or a malicious action by the executive toward the customers or employees of Duke Energy; (iv) a material breach by the executive of Duke Energy’s Code of Business Ethics; or (v) the failure of the executive to cooperate fully with governmental investigations involving Duke Energy. “Good reason,” for this purpose, generally means (i) a material reduction in the executive’s annual base salary or target annual bonus opportunity as in effect either immediately prior to the change in control or the termination under the Executive Severance Plan (exclusive of any across the board reduction similarly affecting substantially all similarly situated employees); or (ii) a material diminution in the participant’s positions (including status, offices, titles and reporting relationships), authority, duties or responsibilities as in effect either immediately prior to the change in control or immediately prior to a Tier I participant’s termination of employment under the Executive Severance Plan.

Equity Awards – Consequences of Termination of Employment

As described above, each year Duke Energy grants long-term incentives to its executive officers, and the terms of these awards vary somewhat from year to year. The following table summarizes the consequences under Duke Energy’s LTI award agreements, without giving effect to Ms. Good’s employment agreement, the Change in Control Agreements or the Executive Severance Plan described above, that would generally occur with respect to outstanding equity awards in the event of the termination of employment of Ms. Good, Mr. Young, Mr. Jamil, Ms. Janson and Mr. Yates.

EventConsequences
Voluntary termination or involuntary termination (retirement-eligible)Restricted Stock Units – prorated portion of award vests

Performance Shares – prorated portion of award vests based on actual performance
Voluntary termination (not retirement-eligible)Restricted Stock Units and Performance Shares – the executive’s right to unvested portion of award terminates immediately
Involuntary termination after a change in controlRestricted Stock Units – immediate vesting

Performance Shares – see impact of change in control below
Death or DisabilityRestricted Stock Units – immediate vesting

Performance Shares – prorated portion of award vests based on actual performance
Change in ControlRestricted Stock Units – no impact absent termination of employment
Performance Shares – prorated portion of award vests based on target performance

Potential Payments Upon Termination or Change in Control

severance-payments

(1) The amounts listed under “Cash Severance Payment” are payable under (i) the terms of Ms. Good’s employment agreement; (ii) the Change in Control Agreements of Mr. Young, Mr. Jamil, Ms. Janson and Mr. Yates; or (iii) the Executive Severance Plan.
(2) The amounts listed under “Incremental Retirement Plan Benefit” are payable under the terms of Ms. Good’s employment agreement and the Change in Control Agreements of Mr. Young, Mr. Jamil, Ms. Janson and Mr. Yates. They represent the additional amount that would have been contributed to the RCBP, ECBP, Duke Energy Retirement Savings Plan and the Executive Savings Plan in the event the named executive officer had continued to be employed by Duke Energy for (i) 2.99 years for Ms. Good or (ii) two additional years after the actual date of termination for the other named executive officers.
(3) The amounts listed under “Welfare and Other Benefits” include the amount that would be paid to each named executive officer in lieu of providing continued welfare benefits and basic life coverage. This continued coverage represents (i) 2.99 years for Ms. Good or (ii) two years for the other named executive officers. In addition to the amounts shown above, access to outplacement services for a period of up to one year after termination will be provided to Ms. Good if terminating under her employment agreement or to any named executive officer terminating under the Executive Severance Plan.
(4) In the event of a termination of employment due to longterm disability, because the payment of RSUs would be delayed for an additional six months as required by applicable tax rules, additional dividend equivalent payments would be made in the amount of $82,754, $19,122, $41,624, $16,520 and $31,668 for Ms. Good, Mr. Young, Mr. Jamil, Ms. Janson and Mr. Yates, respectively.

Assumptions and Other Considerations

The amounts listed above have been determined based on a variety of assumptions, including with respect to the limits on qualified retirement plan benefits under the Internal Revenue Code. The actual amounts to be paid out can only be determined at the time of each named executive officer’s termination of employment. The amounts described in the table do not include compensation to which each named executive officer would be entitled without regard to his or her termination of employment, including (i) base salary and short-term incentives that have been earned but not yet paid; (ii) amounts that have been earned, but not yet paid, under the terms of the plans listed under the Pension Benefits and Non-qualified Deferred Compensation tables on pages 58 and 61, respectively; (iii) unused vacation; and (iv) the potential reimbursement of legal fees.

The amounts shown above do not reflect the fact that, under Ms. Good’s employment agreement and under the Change in Control Agreements that Duke Energy has entered into with Mr. Young, Mr. Jamil, Ms. Janson and Mr. Yates, in the event that payments to any such executive in connection with a change in control otherwise would result in a golden parachute excise tax and lost tax deduction under Sections 280G and 4999 of the Internal Revenue Code, such amounts would be reduced to the extent necessary so that such tax would not apply under certain circumstances.

The amounts shown above with respect to stock awards were calculated based on a variety of assumptions, including the following: (i) the named executive officer terminated employment on December 31, 2016; (ii) a stock price for Duke Energy common stock equal to $77.62, which was the closing price on December 30, 2016; (iii) the continuation of Duke Energy’s dividend at the rate in effect during the first quarter of 2017; and (iv) performance at the target level with respect to performance shares.

Potential Payments Due Upon a Change in Control

Other than as described below, the occurrence of a change in control of Duke Energy would not trigger the payment of benefits to the named executive officers absent a termination of employment. If a change in control of Duke Energy occurred on December 31, 2016, with respect to each named executive officer, the outstanding performance share awards granted by Duke Energy, including dividend equivalents, would be paid on a prorated basis assuming target performance. As of December 31, 2016, the prorated performance shares that would be paid as a result of these accelerated vesting provisions, including dividend equivalents, would have had a value of $6,086,640, $1,041,132, $1,375,604, $804,653 and $1,101,841, for Ms. Good, Mr. Young, Mr. Jamil, Ms. Janson and Mr. Yates, respectively.

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