8-KLeadership ChangesMaterial Agreements

SOUTHERN CO 8-K Report, Material Agreement (Feb 24, 2006)

Filed February 24, 2006For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

This 8-K filing from Southern Company, dated February 24, 2006, primarily details the establishment of performance criteria for fiscal year 2006 executive compensation under the Southern Company Omnibus Incentive Compensation Plan. The plan incorporates both corporate performance goals (earnings per share and subsidiary net income/return on equity) and operational goals (capital expenditures, reliability, customer satisfaction, plant availability, safety, diversity, and price) to determine annual performance-based compensation and dividend equivalent awards. Performance is weighted, with potential payouts ranging from zero to 230% of target, subject to certain minimum thresholds and dividend funding requirements. Additionally, the report announces the election of two new independent directors to the Board, Juanita P. Baranco and William G. Smith, Jr., and the subsequent resignations of two existing directors, Daniel P. Amos and Bruce S. Gordon. Base salary adjustments for executive officers were also approved, effective March 1, 2006.

Key Highlights

  • 1Southern Company established specific performance criteria for fiscal year 2006 annual performance-based compensation and future performance-based dividend equivalent awards under its Omnibus Incentive Compensation Plan.
  • 2Executive compensation is tied to a combination of corporate performance goals (50% EPS, 50% subsidiary net income/ROE) and operational goals (capital expenditures, reliability, customer satisfaction, etc.).
  • 3Annual performance-based compensation payouts can range from 0% to 230% of target, with minimum net income and dividend funding requirements in place.
  • 4Performance-based dividend equivalents for executive stock options are based on total stockholder return over a four-year period, with payouts ranging from 5% to 100% of dividend paid.
  • 5New directors Juanita P. Baranco and William G. Smith, Jr. were elected to the Board, effective February 22, 2006.
  • 6Directors Daniel P. Amos and Bruce S. Gordon resigned from the Board, effective February 21, 2006.
  • 7Annual base salary adjustments for Southern Company and subsidiary executive officers were approved, effective March 1, 2006, based on recommendations from an independent consultant.

Frequently Asked Questions

Executive compensation is based on two primary corporate performance goals with equal weighting: Southern Company's earnings per share (50%) and the net income or return on equity of its subsidiary companies (50%). These are further adjusted by performance against operational goals such as capital expenditures, transmission and distribution system reliability, customer satisfaction, plant availability, safety, diversity, and price.

Annual performance-based compensation can range from zero percent to 230% of the target amount, depending on the achievement of both corporate and operational performance goals. However, no compensation is paid if performance falls below a threshold level, if Southern Company's net income is insufficient to fund the common stock dividend at the prior year's level, or if a minimum Southern Company net income level is not reached.

Juanita P. Baranco and William G. Smith, Jr. were elected as new members to the Board of Directors. In connection with these appointments, Daniel P. Amos and Bruce S. Gordon resigned from their positions on the Board.

Performance-based dividend equivalents on stock options are determined by the company's total stockholder return over a four-year measurement period compared to a peer group of utility companies. Payouts range from approximately 5% to 100% of the dividend paid, based on achieving specific percentile ranks in total stockholder return. These payments are also contingent on sufficient net income to fund the common stock dividend and meeting minimum net income levels.