2018 Guide to Effective Proxies

6 TH EDITION | GUIDE TO EFFECTIVE PROXIES 488 1 Informationabout theMeeting 2 CorporateGovernance &Board ofDirectors 3 Items toBeVotedOn 4 Executive Compensation 5 SecurityOwnership&Other Important Information OurResponsesin2017and2018toShareholderFeedback ShareholderFeedback 2017-2018ActionsTakeninResponse (1) Timing Shareholderswantpay forperformance alignment;metrics shoulddriveCompany strategyandlong-term shareholdervalue • IncreasedCEOstockownershipguidelinesfrom 6Xto7Xtoincreasetietoshareholdervalue 201 7 • Frozebasesalariesandtargetopportunitylevels asapercentofbasesalary,intheaggregate,for short-termandlong-termincentivecompensation in 201 7and 2018 forSection 1 6Insiders (excludingpromotions)toincreasefocuson performanceandpayalignment 201 7and 2018 • WiththesupportoftheCompensationCommittee andBoard,Mr.JonesvoluntarilyreducedhisFE STIPopportunity( 120 %to 11 5%)andFELTIP opportunity(6 00 %to545%)tolevelsestablished in 201 5 201 7and 2018 • Linkedprogramstokeydriversofshareholder value: • FESTIPtiedtoKPIOperatingEarningsin 201 7 andregulatedoperatingEPSin 2018 • FELTIPtiedtoKPIOperatingEPSandCapital Effectiveness,bothofwhicharestrong indicatorsofshareholdervalueintheutility industry 201 7and 2018 FESTIP 2018 FELTIP • Re-designedtheFELTIP: • IncludedarelativeTSR(“RTSR”)modifier, whichwillincreaseordecreasetheLTIP payoutbasedonperformanceagainst companiesintheS&P5 00 UtilitiesIndexto enhancelinktoshareholdervalue • IncorporatedaTSRcap,orgovernor,whereby ifTSRisnegativeoverthethree-yearLTIP period,thepayoutwillbecappedattarget opportunity 2018 • Inordertofurtheralignthepreviouslyawarded FELTIPcyclesfor 201 6- 2018 and 201 7- 201 9 withlong-termshareholdervalue,addedan absoluteTSRcapforMessrs.Jones,Pearson, andStrah,Ms.Vespoli,andoneotherSection 1 6 InsiderthatwilllimittheFELTIPmaximum possiblepayoutsasfollows: • 100 %iftheabsoluteTSRisnegativeoverthe respectivethree-yearperformanceperiods; • Basedonacontinuousfunctionforabsolute TSRgrowthbetween 0 %and 8 %forthe 201 6- 2018 cycleand 0 %and 10 %forthe 201 7- 201 9 cycle;and • Paidasearned(uptothemaxof 200 %)ifthe absoluteTSRgrowthovertheperformance periodisgreaterthan 8 %and 10 %, respectively • Thecalculationwillusetheaveragestockprice forthemonthofDecember(i.e.,December 201 5 andDecember 2018 forthe 201 6- 2018 cycleand December 201 6andDecember 201 9forthe 201 7- 201 9cycle)andwillassumedividendsare reinvested. 2018 and 201 9 53 | FirstEnergyCorp. 2018ProxyStatement Total of 03 pages in section 1 Information about theMeeting 2 CorporateGovernance &Board ofDirectors 3 Items toBeVotedOn 4 Executive Compensation 5 SecurityOwnership&Other Important Information StrategicInitiatives ActionsTaken Results ExitingourCESBusiness • Salesofcommodity-exposed generationassets • Continuedstrategicreviewof businesses • InDecember 201 7,wesold 8 59MWsofcombined capacityofgasassetsowned byAlleghenyEnergySupply Company,LLC(“AESupply”) for$3 88 million • InFebruary 2018 ,we announcedweexpecttoexit operationsofthePleasants PowerStationbyJanuary 1 , 201 9througheithersaleor deactivation ThroughMr.Jones’tenureasCEO,thesestrategicinitiativeshavestrengthenedourbalancesheetand achievedthefinancialflexibilitynecessarytotransitiontoafullyregulatedCompany.Theleadershipteam continuesatransformationoftheorganizationfromonewhoserevenueswerehistoricallydriventwo-thirdsby ourcompetitivegenerationbusinesstoanorganizationfocusedonstableandpredictableearningsandcash flowfromitsregulatedbusinesses. Whileweareproudofourstrategicandoperationalresults,wealsoacknowledgetheoverhangonourstock pricecausedbytheuncertaintyassociatedwithtransitioningawayfromcommodityexposedgeneration.Based onpubliclyavailableguidelinesonInstitutionalShareholderServicesmethodology,FirstEnergygenerateda TSR,orstockpricechangeplusthevalueofreinvesteddividends,overthelastthreeyearsof- 1 . 8 %andover thelastyearof7. 1 %.Theseresultsarebelowtheindustryaverageandwebelievereflectthefactthatweare transitioningtoafullyregulatedcompany. Giventhatourexecutivesmetrigorousfinancialandoperationalgoals,thecompensationprogramsendingin 201 7 resultedinabove-targetpayoutstoNEOs.TheCompensationCommitteedeterminedthatitwouldbeinthebest interestsoftheCompanytopayouttheincentiveplansin 201 7asdesigned.TheBoardfurtherdeterminedthatthis decisionwasimportanttodemonstrateitsstrongconfidenceintheexecutiveteam,whileservingasaretention mechanismforourverycapableexecutivesduringacriticalperiodinyourCompany’sevolution. YourCompanycontinuestotakestepstothoughtfullymoveawayfromthecommodity-exposedgenerationtoa regulatedbusinesswhilepreservingshareholdervalueandtargetingadditionalstepstoensurelong-term growthforourshareholders. ShareholderEngagementandSay-on-PayResults Aswepreparedfor 201 7,theCommitteeandmanagementrecognizedpayandperformancealignment concernswithourincentiveprograms.Asaresult,theCEOvoluntarilyreducedhisincentivecompensation opportunitiesandtheBoardapprovedanincreaseinhisshareownershipguidelines.Inaddition,therewereno basesalaryincreasesandnoincreaseintargetopportunitylevelsasapercentofbasesalary,inthe aggregate,forshort-termandlong-termincentivecompensation,fortheSection 1 6Insiders(excluding promotions). OurBoardandmanagementarecommittedtoengagingourshareholdersandsolicitingtheirperspectiveson keyperformance,compensationandgovernanceissues.WeconductedextensiveoutreachduringtheSpring of 201 7,focusedonthetop 100 shareholders,whoaccountedfornearly54%oftheoutstandingsharesatthat time.Althoughour 201 7Say-on-Payvotetechnicallypassedwith7 2 %support,werecognizethereis opportunitytoimprovetheseresults. Therefore,overthecourseof 201 7,wecontinuedtoengagewithshareholdersandgatherfeedbackonour programsandpotentialcompensationdesignconsiderationsfor 2018 .Ouroutreacheffortsincludedin-person discussionsandphonecallswithmanyofourtop 2 5shareholders(whoheldalmost45%ofouroutstanding sharesin 201 7).Althoughnotallshareholdersacceptedourinvitation,weheldmeetingswithshareholders representingmorethan 2 5%ofouroutstandingshares. Basedinpartonthisshareholderengagement,we havemadesubstantialchangestoourcompensationplansandprogramsfor2018whicharedescribed intheproxystatement. Tofurtheralignourcompensationprogramswiththeinterestsofshareholders,improvetherelationship betweenpayandperformance,bettertieourexecutivecompensationprogramstoourbusinessstrategies,and drivetherightexecutivebehaviors,additionalincentivedesignchangeswereproactivelymadetoFirstEnergy’s incentiveprogramsbeginningwithawardsgrantedin 2018 .Belowisasummaryofthefeedbackweobtained, andtheactionstakenin 201 7and/or 2018 toenhancethealignmentbetweenourexecutivesandshareholders. 5 2 | FirstEnergyCorp. 2018ProxyStatement CORPORATEGOVERNANCEATENTERGY Duringour 2017-18off-seasonoutreacheffort, wecontactedtheholdersofapproximately47% of our outstanding shares, resulting in substantive engagements with shareholders representing approximately 19% of our outstanding shares. In these engagements, we discussed the following issuesandtopicsofmutualinterest,amongothers: • Industryandbusinessdevelopments; • Corporatestrategy; • Executivecompensation,includingincentiveplanmetricsandtargetsetting; • Workforceplanningandinvestinginhumancapital; • Corporategovernanceissues,includingdirectorrefreshmentandassessment; • Cyberriskoversight; • Environmental and social issues, including enhancements to our existing environmental, socialandgovernancedisclosures;and • ProxyStatementandIntegratedReportdisclosures. The investors we spoke with remain supportive of the leadership our Board and management are providingandthebusinessstrategiesourmanagementispursuing.Theygenerallyagreedwithour view that our executive compensation programs are well designed to align pay with performance and had done so effectively over the past several years. Some investors suggested that we consider the addition of a second performance measure to our long term incentive plan. We also discussed Board composition and refreshment and related disclosures and the Board self-assessment process. In addition to this feedback, we received suggestions for enhancing our proxy statement disclosures, and we have sought to respond to those suggestions. The comments, questions and suggestions offered by our investors were shared with, and discussed by the full Board, and their perspectives will inform theBoard’sdecisionmakingin2018andbeyond. Outcomes from Investor Feedback Shareholder feedback has been a significant factor in numerous changes to our executive compensation programs, governance practices and disclosures. Some of the actions we have taken in responsetoshareholderfeedbackoverthelastfewyearsinclude: ✓ Addition of a cumulative utility earnings measure, as a second performance metric, in additiontorelativetotalshareholderreturn,toourLong-TermIncentiveProgram; ✓ Adoptionofproxyaccessfordirectornominations; ✓ Addition of one-on-one individual assessment component to our Board self-evaluation process; ✓ Amendments to our Corporate Governance Guidelines to limit the number of public- companyboardsonwhichourdirectorsmayserve; ✓ Enhancements to our proxy disclosure, including in the areas of risk oversight (including cyber risk oversight), director backgrounds and qualifications, and incentive plan target setting;and ✓ Enhancements to the environmental and sustainability disclosure in our Integrated Report. 32 Š 2018ProxyStatement Total of 02 pages in section ENTERGY CORPORATION FIRSTENERGY CORP CORPORATEGOVERNANCEATENTERGY Open Government Act of 2007, wefilequarterly reports on our federal lobbyingactivity. Board Oversight The Corporate Governance Committee is responsible for monitoring public policies applicable to the Company and oversight of the Company’s corporate political activity. Management provides regular updates on lobbyists and lobbying activities to the Corporate Governance Committee, and annually, the Corporate Governance Committee reviews and approves our Advocacy and Political ContributionsReport. Our website also provides our shareholders with useful information about political contributions and lobbying activity. Please see our website at http://www.entergy.com/investor_relations/corporate_ governance.aspx for a copy of the annual report and more information about the ways in which we participateinthe politicalprocess. Shareholder Engagement Our Board’s Commitment to Shareholder Engagement We welcome the opportunity to engage with you, our shareholders, to share our perspective on and obtain your insights and feedback on matters of mutual interest. The Bo r ’s and management’s commitment to understanding the interests and perspectives of our shareholders i a key component of our corporate governance strategy and compensation philosophy. We engage with shareholdersthroughout the year to: ✓ Provide visibility and transparency into our business and our financial and operational performance; ✓ Discuss with our shareholders the issues that are important to them, hear their expectationsfor us andshare our views; ✓ Shareour perspectiveon Companyandindustry developments; ✓ Discuss and seek feedback on our executive compensation and corporate governance policiesandpractices; ✓ Shareour environmentalandsustainabilitystrategy andrecord; and ✓ Seekfeedbackon our communicationsanddisclosuresto investors. How We Engage We approach shareholder engagement as an integrated, year-round process involving senior management, our investor relations team and our corporate governance team. Throughout the year, we meet with analysts and institutional investors to inform and share our perspective and to solicit their feedback on our performance. This includes participation in investor conferences and other formal events and group and one-on-one meetings throughout the year. We also engage with governance representatives of our major shareholders, through conference calls that occur during and outside of the proxy season. Members of our investor relations, executive compensation, corporate governance, and, starting this year, environmental, groups discuss, among other matters, Company performance, executive compensation, emerging corporate governance practices and environmental and sustainabilityoversight andperformance. 2018ProxyStatement Š 31 1 Information about theMeeting 2 CorporateGovernance &BoardofDirectors 3 Items toBeVotedOn 4 Executive Compensation 5 SecurityOwnership&Other Important Information healthreasons.Non-managementdirectors,whoareallindependentdirectors,arerequiredtomeetasa groupinexecutivesessionswithouttheCEOoranyothernon-independentdirectorormanagementatleast sixtimesineachcalendaryear,andourindependentChairmanoftheBoardpresidedoverallexecutive sessions.During 201 7,thenon-managementdirectorsmet 1 3timesinexecutivesessions. During 201 7,membersoftheNuclearCommitteeandotherBoardmembersalsoparticipatedinsitevisitsto yourCompany’soperatinglocations,includingvisitstoournuclearsites. ShareholderOutreachandEngagementProgram WeHaveaRobustShareholderOutreachandEngagementProgram Webelieveitisimportantforustocommunicateregularlywithourshareholdersregardingtopicsofinterest sowemaintainanactiveshareholderoutreachandengagementprogram.WithsupportfromyourBoard, yourCompany’sCEOandmanagementteamfocussignificanteffortsonengagingourmajorshareholders andtheinvestmentcommunity.Shareholderfeedbackandsuggestionswereceivearereportedtothe CompensationCommittee,CorporateGovernanceCommitteeoryourentireBoardforitsconsideration.We alsoconductongoinggovernancereviews(e.g.,assessinggovernancetrends).Thisprocessensuresthat yourBoardandmanagementunderstandandconsiderthetopicsthatmattermosttoourshareholdersso wecanaddressthemeffectively. PostAnnualMeetingReview YourCorporateGovernanceCommittee and, as needed, yourBoard or various committeesof yourBoard, analyze and review shareholder voting and feedback and identify any topics of interest. Year-Round Engagement Analyze Engage Review Follow-up Off-SeasonEngagement Based on the results of the review process, we reachout to shareholders to discuss topicsof interest regarding our corporate governance and executive compensation practices and listen to any shareholder concernsandpriorities. AnnualMeetingVoting PublishProxyStatement.Follow-up on previous conversationsand seek support from shareholders for your Board’s voting recommendations. Prior toAnnualMeeting YourCorporateGovernanceCommitteeand,as needed, yourBoardor various committees of your Board, review the feedback fromour outreach and discussanypotential changes to our corporate governanceand executive compensation practices in light of shareholder feedback. Aspartofourcommitmentandinanefforttocontinuetounderstandourinvestors’perspectiveandaspart ofourcorporategovernanceshareholderengagementprogram,inthelastsixmonthsweheldmeetings withourshareholdersrepresentingmorethan 2 5%ofouroutstandingsharesatthattime(andmorethan 3 8 %ofvotescastfromourlastannualmeeting)primarilytodiscussgovernance-relatedissues,executive compensationandenvironmentalmatters.Duringthesemeetings,participantsincludedmembersfro managementandourCompensationCommitteeChair.Ouroutreachgaveusanopportunitytodiscussour continuinggoalofimplementingESGandexecutivecompensationmeasuresthatareinthebestinter st f ourshareholdersandtoconveyourcommitmenttocontinuetoalignpayandperformance. CommunicationswithyourBoardofDirectors YourBoardprovidesaprocessforshareholdersandinterestedpartiestosendcommunicationstoyour Boardandnon-managementdirectors,includingourChairmanoftheBoard.AssetforthinyourCompany’s CorporateGovernancePolicies,shareholdersandinterestedpartiesmaysendwrittencommunicationsto yourBoardoraspecifiedindividualdirector,includingourChairmanoftheBoard,bymailinganysuch communicationstotheFirstEnergyBoardofDirectorsatyourCompany’sprincipalexecutiveoffice, c/oCorporateSecretary,FirstEnergyCorp.,76SouthMainStreet,Akron,OH443 08 - 18 9 0 .OurCorporate GovernancePoliciescanbeviewedbyvisitingourwebsiteat www.firstenergycorp.com/charters . DuringAnnualMeetingVotingPublishProxyStatement.Follow-uponpreviousconversationsanddiscussyourBoard’sdecisionsandreasoning,andreviewvoteproposals.PostAnnualMeetingReviewYourCorporateGovernanceCommitteeand,asneeded,yourBoardorvariouscommitteesofyourBoard,analyzeandreviewshareholdervotingandfeedbackandidentifyanytopicsofinterest.PriortoAnnualMeetingYourCorporateGovernanceCommitteeand,asneeded,yourBoardorvariouscommitteesofyourBoard,reviewthefeedbackfromouroutreachanddiscussanypotentialchangestoourcorporategovernanceandexecutivecompensationpracticesinlightofshareholderfeedback.Off-SeasonEngagementBasedontheresultsofthereviewprocess,wereachouttoshareholderstodiscusstopicsofinterestregardingourcorporategovernanceandexecutivecompensationpracticesandlistentoanyshareholderconcernsandpriorities.Year-RoundEngagementAnalyzeEngageReviewFollow-up 1 7 | FirstEnergyCorp. 2018ProxyStatement