Sustainability Governance and Integration

Managing Sustainability: Board and Executive Level

The Public Policy Committee of PG&E Corporation’s Board of Directors has primary oversight of strategic sustainability issues, such as environmental compliance, workforce development and climate change. Other committees of the PG&E Corporation Board and the full Board itself address other components of PG&E’s sustainability portfolio, such as public and employee safety, investments in the Smart Grid and the pathway to increasing our deliveries of renewable electricity.

Within management, the Chief Sustainability Officer, who reports to the Chairman and CEO of PG&E Corporation, is responsible for developing and coordinating the company’s sustainability strategy and initiatives and overseeing PG&E’s sustainability reporting and measurement programs.

PG&E’s Chief Sustainability Officer coordinates with other members of senior management who are responsible for functions such as supply chain management, environmental compliance and customer energy solutions. The Chief Sustainability Officer and his team provide strategic input on key business challenges and opportunities, such as developing innovative workforce development strategies and maintaining and expanding our infrastructure while minimizing the environmental impact of that work.

Integrating Sustainability into Our Work: Goals

PG&E’s sustainability strategy is framed by the company’s four goals: delighted customers, energized employees, rewarded shareholders and environmental leadership. In addition, work is under way to make more explicit PG&E’s longstanding goals around employee and public safety. By the end of 2014, PG&E seeks to meet the following ambitious targets:

Measuring Sustainability 2010 – 2014

Goal	2014 Target
Delighted Customers	First decile for customer satisfaction Top 10% performance in all four J.D. Power and Associates customer satisfaction studies: residential electric, residential gas, business electric, business gas
Energized Employees	First quartile for employee engagement Top 25% in employee engagement compared to “most admired companies”
Rewarded Shareholders	First quartile for total shareholder return (share price appreciation + dividends paid) Top 25% total shareholder return compared to other peer utilities
Environmental Leadership	First decile for environmental leadership Top 10% score on the annual MSCI environmental ranking, which compares PG&E’s environmental performance to other utilities

In 2010, we made significant progress in aligning the company’s strategic, financial and operational plans with these goals. Specifically, teams from across the enterprise—led by an officer responsible for each goal—defined the key drivers, performance metrics and initiatives that will enable us to meet each five year target.

Starting in 2010 and continuing into 2011, the company completed a major revision of its enterprise-wide metrics—our "scorecard"—as part of our work to align all 20,000 employees around the company’s four goals. Senior management meets monthly to review the new scorecard and assess progress across the lines of business, as well as to make any necessary course corrections. The enterprise-wide scorecard cascades down and is linked to business unit scorecards. The company’s key sustainability indicators are drawn from the enterprise-wide and business unit scorecard metrics.

Also in 2010, we began a major communications effort to ensure that employees across and at all levels of the organization can make a tangible connection to how their work impacts PG&E’s success in meeting the 2014 goals. Ongoing communications—quarterly all-employee calls, weekly blog posts from Pacific Gas and Electricity Company’s President, informal discussions with grassroots employee groups and the annual employee goal setting process—are reinforcing the message to employees about their role in helping PG&E meet its goals.

Integrating Sustainability into Our Work: Employees

While the Chief Sustainability Officer and his team set the strategic direction for sustainability at PG&E, our employees throughout the enterprise are taking the initiative to integrate sustainability into their work. This “bottom up/top down” approach is central to PG&E’s integration of sustainability into our business.

For example, at the grassroots level, a group of employees from across different business units is actively supporting our goal of environmental leadership by engaging with co-workers to reduce office waste through intra-departmental waste minimization contests. PG&E’s employees are also a vital link to the communities we serve and to fulfilling our goal to delight customers. As part of a PG&E-organized initiative, employees give generously—and voluntarily—of their time, talent and money to support our annual “Campaign for the Community,” which raises millions of dollars for charitable organizations in their communities, such as K-12 schools and food banks.

Integrating Sustainability into Our Work: Compensation

PG&E’s Short-Term Incentive Plan (STIP) reinforces the company’s vision and values by rewarding eligible employees for their contributions toward achieving goals that benefit our customers, shareholders, employees and the environment.

As shown below, under the 2010 STIP structure, 50 percent of the overall STIP performance score was based on corporate financial performance, as measured by earnings from operations. The remaining 50 percent of the overall 2010 STIP score was based on PG&E’s performance against key operational objectives aligned with our four goals.

2010 STIP—Performance Measures
Measure	Relative Weight
Earnings from Operations	50%
Customer Satisfaction and Brand Health Survey Index	15%
Reliable Energy Delivery Index	15%
Safety Index	10%
Employee Engagement Premier Survey Results Index	5%
Environmental Leadership Index	5%
Total Weightings	100%

Each year, we reassess and examine our STIP to ensure we are employing the most effective and accurate means of measuring our performance. In doing so, we aim to sharpen our STIP measures, better align our rewards program with the direction of our business and bring increased accountability to PG&E’s overall results.

In 2011, we expanded how we measure safety, reliability and environmental leadership, and refocused how we calculate employee engagement. Our approach to measuring customer satisfaction and earnings from operations remains unchanged.

Significantly, the STIP Safety Index will continue to track the OSHA Recordable Rate and Motor Vehicle Incident Rate. However, in addition, the Compensation Committee of the PG&E Corporation Board of Directors will apply both a quantitative and qualitative assessment to our safety performance. This will allow a deeper analysis of injuries and incidents, and will rightly consider the safety of our employees, customers and communities in determining the final STIP score. This includes the discretion to adjust STIP awards down to zero. Additionally, the Safety Index and the Reliable Energy Delivery Index were combined as an Operational Excellence Index.

The 2011 STIP is as follows:

2011 STIP—Performance Measures
Measure	Relative Weight
Earnings from Operations	50%
Operational Excellence Index	25%
Customer Satisfaction and Brand Health Survey Index	15%
Employee Engagement Premier Survey Results Index	5%
Environmental Leadership Index	5%
Total Weightings	100%

For more details on the specific measures and targets for our 2010 and 2011 STIP, as well as our 2010 results, please see page 41 of the 2011 PG&E Corporation and Pacific Gas and Electric Company Joint Proxy Statement.