Employees Communication. Attached are brochures (list below) that were sent to employee s

Transcription

1 Exhibit (C/BP 1) Employees Communication Attached are brochures (list below) that were sent to employee s homes as part of the communication plan explaining the changes taking place January 1, 2013, resulting from the comprehensive compensation and benefits review. The Company will provide the brochure on Focus on Time Off as soon as it is available. The Focus on Time Off brochure is scheduled to be distributed to employees in the end of November Your Total Rewards For Con Edison Management Employees Focus on Pay Focus on Retirement (Final Average Pay formula) Focus on Retirement (Cash Balance formula) Focus on Wellness Focus on Health

2 Your Total Rewards For Con Edison Management Employees

3 Your Total Rewards Our investment in you doesn t end with a paycheck. Why Did We Evaluate Total Rewards? We want to be sure that both you and the company are receiving the best value and return for the dollars we invest in Total Rewards, while balancing the needs of our customers. Changes to Total Rewards Change is never easy especially when it comes to Total Rewards. These changes will affect each person differently. They were difficult decisions that we made after extensive review and input. We appreciate your continued commitment to the company, and will give you more information about the details of these changes throughout the coming months. Share These Details In late March, you received the same information in this brochure in a Postmaster that was ed to you at work. We re sending this brochure to your home now so that you can share these changes with your family members. Total Rewards includes benefits for them and we want them to be part of this conversation, too. In fact, we invest more than $2 billion a year on Total Rewards for you and your family. Total Rewards include your compensation (base salary and variable pay), retirement and health-care benefits, and other valuable benefits, such as time off, work/life balance, and career opportunities. Almost half of the $2 billion we spend on Total Rewards goes to your benefits programs. In 2011, we reviewed our Total Rewards to evaluate whether your compensation and benefits are meeting your needs, are competitive in our industry, are consistent with O&R, reflect best practices in the marketplace, and help us attract and retain the right people. As part of this review, we: Completed employee focus groups and multiple surveys to get your feedback; Benchmarked our programs to see what other utilities and metro New York companies are doing; and Evaluated different program options and changes to the current Total Rewards package. The Result: Beginning January 1, 2013, you will see changes to the Total Rewards package to better align our programs that are currently: Significantly below or above market; Not aligned with what employees value; Not reflecting the best practices in the marketplace; or Inconsistent with O&R. We want to help you understand these changes and their value. In general, the Total Rewards changes include: 1. Vacation and Holidays. To give you greater flexibility, there will be a new vacation policy so that you can reach the maximum number of vacation days earlier in your career, and there will be no distinction between vested and non vested vacation. You will have also have new floating holidays which we selected based on employee feedback to give you greater flexibility in taking time off. 2. Pay. Pay remains an important and the largest part of Total Rewards. Consistency in pay policies between CECONY and O&R is important to employees. We also found that our variable pay is below market, so your variable pay at CECONY will be increased to be consistent with the variable pay offered at O&R. For a summary of the variable pay targets by band, refer to the Variable Pay Table on page 7. (Note that this change will take effect with the 2012 performance period, and will be paid in 2013 based on 2012 performance.) 2

4 3. Pension Plan. The Final Average Pay (FAP) Pension formula: Pension plan benefits are above market for employees under the FAP Pension formula. We will be making some changes to keep the pension plan in step with market practices. If you are under age 50 as of January 1, 2013, the FAP Pension formula will change. It is important to note that the FAP plan formula changes described in this brochure apply only to your pension benefits for your future service, on or after January 1, 2013, and not to your earned (accrued) benefit prior to January 1, If you are age 50 or older as of January 1, 2013, the changes to the pension plan benefits described in this brochure do not apply to you. The Cash Balance Pension formula: The Cash Balance Pension formula will not change because the retirement benefit under the Cash Balance formula is already in line with those of our peers. We are planning to do more, however, to help you understand how the Cash Balance Pension formula works and the value that it provides for your retirement. 4. Thrift Savings 401(k) Plan. If you are under the Cash Balance Pension formula, and a participant in the Thrift Savings 401(k) Plan, you will receive an increased company match in the Thrift Savings 401(k) Plan. This increase aligns your total retirement benefit with our peer group and with the retirement benefits for employees under the FAP Pension formula. If you are under the FAP Pension formula, there will be no change to your Thrift Savings 401(k) Plan. When combined with the FAP Pension formula, the Thrift Savings 401(k) Plan currently offers above-market retirement benefits. 5. Retiree Health. If you are under the Cash Balance Pension formula and eligible for Retiree Health coverage when you retire, you will have access to Retiree Health coverage, but will pay the full cost of the coverage. If you are under the FAP Pension formula, the change to Retiree Health benefits described in this brochure does not apply to you. 6. Retiree Life Insurance. If you are age 50 or older as of January 1, 2013, the current $50,000 benefit will be reduced to $25,000. You do not need to take any action right now. We are providing this preview of the changes that will begin January 1, 2013, so you have time to learn about them. We encourage you to become familiar with the changes in your benefits and programs. Check out What s Next? on page 19 to find out when you can expect to get more information. You will have many opportunities over the coming months to learn all of the specific details about the changes in your Total Rewards package. You can also send an with questions now to totalrewardsquestion@ coned.com. We will answer your questions in future communications and post them in a Frequently Asked Questions section on HR Online. The Total Rewards Survey Thanks for your feedback to the 2011 Total Rewards Survey. 58% of CECONY employees responded more than 3,200 employees in total. If you are under age 50 as of January 1, 2013, Retiree Life Insurance benefits will be eliminated at both CECONY and O&R to align this benefit with the market. The changes to Retiree Life Insurance described in this brochure do not apply to current retirees. 3

5 7. Sick-Time and Disability. The sick-time and disability policies will change to match best practices in the market and address employee concerns about how these policies currently work. The new sick-time and disability policies will change to provide varying percentages of pay based on the amount of time you are out of work due to illness or injury. It will also no longer be linked to years of service. 8. Health Care. We will offer new medical plan options starting in 2013 to give you more control over the money you spend for your health care because they will give you the option of trading off lower payroll contributions and higher out-ofpocket costs when you receive medical care. We will also offer improvements in your dental benefits. 9. Wellness. Living a healthy lifestyle is important to you and the company. If you take certain steps during this year s Open Enrollment period in the fall, you will be able to lower your health-care premium payroll deductions. 10. Expanded Communications. To help you better understand the full value of your Total Rewards, we will communicate with you more clearly and more often. 4

6 FOCUS ON TIME OFF Vacation and Holidays What Is Changing? Effective January 1, 2013, the vacation and holiday policies will change. The changes include the ability to reach the maximum vacation days earlier in your career and the introduction of new floating holidays. These changes not only address your concern about earning vacation sooner, but keep our company in line with market practices and create consistency across CECONY and O&R. How It Will Work Vacation Vacation schedules for CECONY and O&R will become consistent. Effective January 1, 2013, we will no longer classify vacation as vested and non-vested. The new vacation schedule is: Vacation Accrual Schedule Years of Service Current Days Revised Days WHAT WE HEARD FROM EMPLOYEES It takes too long to earn more time off. Not enough vacation days! 51% of employees are currently satisfied with the vacation policy which is lower than our 65% benchmark and are looking for more vacation earlier in their careers. Sources: 2011 Total Rewards Survey and Focus Groups Note: You will not lose any vacation days if you have already earned more than the new schedule allows. = no change 5

7 Holidays There will continue to be 11 paid corporate holidays, four of which will become floating holidays (as highlighted below): New Year s Day Martin Luther King Jr. Day Presidents Day Memorial Day Independence Day Labor Day Columbus Day Veterans Day Thanksgiving Day Day after Thanksgiving Christmas Day We designated the floating holidays based on the results of the employee Total Rewards survey. You can take floating holidays on the actual designated holiday date or on a different date that you select, subject to operational needs. You will continue to have one personal holiday. What This Means for You You will have more flexibility for when and how you use four of the 11 corporate holidays. There will be no distinction between vested and non-vested vacation (we will explain the carryover policy later this year). Vacation schedules will be consistent across CECONY and O&R, with a maximum vacation time of five weeks. If you have earned more vacation under the current schedule than you would earn under the revised schedule, you will not lose vacation days. 6

8 FOCUS ON PAY Pay What Is Changing? Pay remains an important and the largest part of your Total Rewards package. Currently, the targets for variable pay are below market which includes the CECONY Management Variable Pay (MVP) Plan and O&R Annual Team Incentive Plan (ATIP) and vary across the companies. To bring more consistency, competitiveness, and understanding to compensation for CECONY employees, the targets for variable pay are changing for the 2012 performance period, scheduled to be paid in How It Will Work CECONY MVP targets will align with the O&R targets. Specifically, this means most CECONY employees will be eligible for increased variable pay, as shown here in the Variable Pay Table. Variable Pay Targets CECONY Job Level Current NEW = no change 4H, 66 15% 21% 4L, 65 15% 17% 3H, 64 10% 12% 3L, 63 10% 12% 2H, % 7.5% 2L, % 6% 1H, % 5% 1L 4.5% 5% EP 4.5% 4.5% SH 4.5% 4.5% SL 4.5% 4.5% What This Means for You WHAT WE HEARD FROM EMPLOYEES The variable pay is totally out of line (not enough). There is very little financial reward and hence incentive for performing at a level higher than your peers. Only 36% of employees overall are satisfied with their variable pay, compared to 45% of employees at companies we are benchmarked against. Sources: 2011 Total Rewards Survey and Focus Groups For Example If you are a Band 2L employee who earns $100,000 in base salary, you will now be eligible to receive an additional $1,500 at target. Currently: $100,000 x 4.5% = $4,500 New Target: $100,000 x 6% = $6,000 Consistent variable pay targets will be available if you transfer between CECONY and O&R. Variable pay, which is included in your pension benefits, provides an opportunity to increase the value of your pension benefits. 7

9 FOCUS ON RETIREMENT Pension Plan WHAT WE HEARD FROM EMPLOYEES The company should do a better job communicating the value of pension benefits. 88% of employees view the Pension Plan as competitive with what other companies offer. Sources: 2011 Total Rewards Survey and Focus Groups What s the Difference in Pension Formulas? Cash Balance. The benefits of each employee covered under the Cash Balance formula are expressed as an account balance, that is credited each quarter with an amount equal to a percent of pay and interest at a fixed rate. The percent of pay that is credited each quarter to your account balance is based on your age and years of service. FAP. You receive a pension benefit based on a formula using your Final Average Pay (FAP) (highest consecutive 48 months in the last 120 months of service). What is Changing? Cash Balance Pension Formula Participants The way the Cash Balance Pension Plan works is not changing. However, we are going to do more to help you better understand the Cash Balance Pension formula so that you get more value from it. Final Average Pay (FAP) Pension Formula Participants* If you are under the FAP Pension formula and age 50 or older as of January 1, 2013, the changes to the pension plan described here do not apply to you. If you are under the FAP Pension formula and under age 50 as of January 1, 2013, there will be two changes explained below to keep the pension plan in-line with the market. Keep in mind that changes to your pension benefit described here apply only to your future service starting January 1, 2013 not to your earned (accrued) benefit prior to January 1, * Note: FAP Pension formula participants include employees covered under the Total Salary Pension formula. How It Will Work You will receive more information and details about the following changes in a mailing to your home in May. (See What s Next? on page 19 for more information.) Changes At-a-Glance Are you Under the Cash Balance Pension formula? Under the FAP Pension formula and age 50 or older as of January 1, 2013? Under the FAP Pension formula and under age 50 as of January 1, 2013? There are No pension plan changes. The changes to the FAP Pension formula described here do not apply to you. (For benefits earned after January 1, 2013, only) An increase in the age to 60 (from age 55) for employees who choose to receive an unreduced early retirement benefit Married employees will now be charged for the 50 percent joint and survivor (J&S) benefit (and there is an increased charge for the 75 percent and 100 percent J&S benefit, if you select one of these options). 8

10 1. Early Retirement Benefit for Employees Under the FAP Pension Formula Currently, an unreduced Early Retirement benefit is offered to employees who are age 55 with 30 years of service. A slightly reduced Early Retirement benefit is also offered to employees who are between the ages of 55 and 60 with less than 30 years of service and have 75 points (The 75-point rule is one point for each year of service plus one point for each year of age.) If you are under age 50 as of January 1, 2013, the early retirement age will be increased to age 60 from age 55. This change will be only on future benefits earned after January 1, If you retire between the ages of 55 and 60, even if you have 75 points or 30 years of service, your future benefit earned after January 1, 2013, will be reduced by five percent for each full year before age 60. What This Might Look Like If You Are Age 45 on 1/1/2013 with 20 Years of Service and: You retire at age 55 with 30 years of service on 1/1/2023 with a final average pay of $100,000. Without this change, you would have received an unreduced early retirement benefit of $48,000. With this change, your total benefit will be reduced from $48,000 to $43,500. Accrued benefit prior to 1/1/2013 (assumes no early retirement reduction applied to benefit accrued prior to 1/1/2013) Accrued benefit after 1/1/2013 (25% of early retirement reduction factor is applied to $18,000 based on service after 1/1/2013) Amount Reduction Factor Adjusted Benefit $30, $30,000 $18,000 25% $13,500 Total $48, $43,500 9

11 2. Survivor Benefit for Married Employees Under the FAP Pension Formula If you are married, you currently receive a post-retirement 50 percent joint and survivor (J&S) annuity benefit at no cost (O&R employees currently pay for this benefit). The post retirement 50 percent J&S benefit provides a death benefit to your surviving spouse, equal to 50 percent of the pension paid to you as a retiree. If you are under age 50 as of January 1, 2013, upon retiring you will be charged for the 50 percent J&S benefit when you begin your pension benefit. The charge will permanently reduce your pension payment, and will typically be four percent to eight percent of the future benefits earned after January 1, 2013, but will vary by age of the retiree and his or her spouse. What This Might Look Like If You Are Age 45 on 1/1/2013 with 20 Years of Service, and: You retire at 1/1/2023 with a final average pay of $100,000. Without this change you would have received a pension benefit of $48,000. With this change, your total benefit will be reduced from $48,000 to $46,920. Accrued benefit prior to 1/1/2013 (assumes no salary updates accrued, and 50 percent J&S option available without adjustment) Accrued benefit after 1/1/2013 (assumes spouse is same age and there is a six percent charge on $18,000) Amount Reduction Factor Adjusted Benefit $30, $30,000 $18,000 6% $16,920 Total $48, $6,920 What This Means for You If you are under the FAP Pension formula and under age 50 on January 1, 2013, you will experience a reduction in your: Future J&S benefit, if applicable Early retirement subsidy for retirements (if retiring before age 60) Variable pay is included in your pension benefits, and higher MVP awards may increase the value of your pension benefits. 10

12 Thrift Savings 401(k) Plan What Is Changing? The Thrift Savings 401(k) Plan and pension plan work together to provide retirement benefits for you. If you are under the Cash Balance Pension formula, the Cash Balance Pension formula itself is not changing, but the company is increasing how much we match in the Thrift Savings 401(k) Plan from three percent (50 percent match on up to six percent of your contribution) to six percent. If you are under the FAP Pension formula, the current company match to the Thrift Savings 401(k) Plan will not change because the combination of your pension and 401(k) plans already offer a market-level retirement benefit. The changes to the Thrift Savings 401(k) Plan described here do not apply to you. How It Will Work NEW FOR JANUARY 1, % 6 % 14 % WHAT WE HEARD FROM EMPLOYEES Higher company contributions to 401(k) should be considered. 77% of employees are satisfied with the Thrift Savings 401(k) Plan as a retirement savings vehicle. 92% of employees believe the Thrift Savings 401(k) Plan is competitive with what other companies offer far above industry norms. Sources: 2011 Total Rewards Survey and Focus Groups Employees in the Cash Balance Pension Formula Contribute up to 8% of your pay The Company Matches 100% of the first 4% of your contributions, plus an additional 50% on the next 4% (up to 6% total) Potential retirement savings of up to 14% of your pay in the Thrift Savings 401(k) Plan You will receive additional details and examples in a mailing to your home in May. What This Means for You If you are under the Cash Balance Pension formula, you will receive an increased company match on your contributions to the Thrift Savings 401(k) Plan. For Cash Balance Pension formula participants, the combination of the pension and 401(k) plans is now more in-line with the market. 11

13 Retiree Health Care WHAT WE HEARD FROM EMPLOYEES 48% of employees don t have a good understanding of retirement health-care costs. Sources: 2011 Total Rewards Survey and Focus Groups What Is Changing? Your cost for Retiree Health coverage depends on whether you are under the CAP Pension formula or Cash Balance Pension formula and your eligibility for Medicare when you retire. If you are under the Cash Balance Pension formula and retire after January 1, 2013, you will continue to have access to Retiree Health coverage through the company, but will now pay the full cost of the coverage. If you are under the FAP Pension formula, the change to the Retiree Health program described here does not apply to you. How it Will Work If you are under the Cash Balance Pension formula: If you retire on or after January 1, 2013, meet the eligibility requirements, and enroll in the Retiree Health program, you will be responsible for paying the full cost of the Retiree Health coverage offered through the company. You will receive more information about this change later this year. What This Means for You You will need to save more to prepare for future retiree health-care costs. You can potentially offset the costs of future retiree medical coverage by saving more in the Thrift Savings 401(k) Plan (see Thrift Savings 401(k) Plan on page 11) and by participating in a new High-Deductible Consumer-Driven Health Plan (CDHP) with a Health Savings Account (HSA) that will be introduced and offered as a medical plan option during Open Enrollment in the fall of 2012 (see Focus on Health-Care Benefits on page 16). 12

14 Retiree Life Insurance What Is Changing? Retiree Life Insurance is above market and one of the least valued benefits that we offer, according to employee feedback. To align the benefit with what our peer companies offer, we are making a change and reallocating some of our investment in this benefit into other areas of the Total Rewards package that you value most. Specifically, if you are age 50 or older as of January 1, 2013, the company is reducing this benefit to $25,000 from $50,000. If you are under age 50 as of January 1, 2013, the Retiree Life Insurance benefit is being eliminated. WHAT WE HEARD FROM EMPLOYEES Employees ranked numerous benefit programs as more important to them than Retiree Life Insurance. Sources: 2011 Total Rewards Survey and Focus Groups How It Will Work If, as of January 1, 2013, you are Age 50 or older and retire on or after January 1, 2013 Under age 50 and retire on or after January 1, 2013 You will receive at retirement: A $25,000 Retiree Life Insurance Benefit No Retiree Life Insurance Benefit What This Means for You If you are under age 50 and retire on or after January 1, 2013, you will need to identify another source of life insurance in retirement. 13

15 FOCUS ON TIME OFF Sick Time and Disability WHAT WE HEARD FROM EMPLOYEES I think the company is too generous with this benefit (sick time). There are times when people don t need more than one day when they are sick, but many feel they need to take at least three to five days regardless, just to use the benefit. The sick time policy encourages people to take sick time as extra vacation. Sources: 2011 Total Rewards Survey and Focus Groups What Is Changing? Time off when you are sick is designed to help protect you when an illness or injury prevents you from working. We are changing the Sick Time and Short-Term Disability benefits so they are consistent with best practices in the market and in-line with the benefits offered by our peer companies. Specifically, the new Sick Time/Disability Policy will provide varying percentages of your base pay, depending on the amount of time you are approved to be out of work due to an illness or injury. The sick time benefit will no longer be related to your length of service with the company. How It Will Work Starting January 1, 2013, you will be eligible for up to 10 sick days each calendar year, paid at 100 percent of base pay. After five consecutive sick days, you will need to qualify for Short-Term Disability to receive sick pay. After five consecutive workdays out sick, you may be eligible for the Short-Term Disability benefit. You will need to provide documentation, approved by a third-party, to qualify for Short-Term Disability. The Short-Term Disability benefit will provide for sick pay and sick absences longer than five workdays, as follows: Weeks 2 6: 100% of base pay Weeks 7 11: 90% of base pay Weeks 12 26: 80% of base pay Weeks 27 and after: You will move to the Long-Term Disability program, if eligible. Your income will be based on the provisions of the Long-Term Disability program. You will receive more information about the Long-Term Disability program later this year. 14

16 For Example: You earn $52,000 a year ($1,000 a week) and have the following three separate sick absences within the same year: Three-day absence in January for the flu Seven-week absence in March for a fractured ankle You receive 100% of pay for all three days. Week 1 is covered by five of your remaining seven sick days at full pay. Weeks 2 6 are covered at full pay ($1,000 a week) under the Short-Term Disability plan. Three-week absence in September for back sprain Week 7 is covered at 90% ($900 a week) under the Short-Term Disability plan. Week 1 you will receive 100% sick pay for your remaining two sick days; the next three days are covered by unpaid leave. Change to your sick pay: First sick absence: No change Weeks 2 3 are covered at full pay ($1,000 a week) under the Short-Term Disability plan as a new disability. Second sick absence: Week 7 reduced to $900 from $1,000 Third sick absence: First week reduced to $400 from $1,000, no change at weeks 2 3 Note: Maternity leave will be covered under a new maternity policy in development, which we will communicate to you later this year. What This Means for You Sick time is no longer service-related, which will result in reduced sick time benefits for most employees. 15

17 FOCUS ON HEALTH WHAT WE HEARD FROM EMPLOYEES The plans are similar where I can t really tell which would be the right choice. Our health care is about as good as other large companies, but we pay more than many people. 85% of employees say that having a mix of medical plan options to choose from is important. Sources: 2011 Total Rewards Survey and Focus Groups Health Care Benefits What Is Changing? For 2013, we will be offering you more choices in health-care options. These new options will give you more control over your money and help you save money for future health-care expenses. We will also offer improved dental benefits to address common procedures that are not currently covered. How It Will Work Here s an overview of what will change. You will receive additional details and examples in a mailing to your home closer to the Open Enrollment period in the fall of Medical During Open Enrollment this fall, we will introduce new health-care options, including a new high-deductible Consumer-Driven Health Plan (CDHP) with a Health Savings Account (HSA) option, in addition to Health Maintenance Organization (HMO) options. These new plans will offer you the option of trading off lower payroll contributions and higher out-of-pocket costs when you receive medical care. And, as always, you will still save money by visiting in-network providers when you need care. The company will contribute to the HSA if you choose the CDHP option, and you will also be able to contribute to the account. The HSA is not use it or lose it like a Flexible Spending Account, so any dollars remaining can be used in future years for expenses or even to save for retiree medical costs. To help you choose the right medical and prescription drug coverage option, we will make new tools available to you during Open Enrollment. You ll learn more about these tools later this year. Dental Based on your feedback, we are working to improve the dental plan. For example, new procedures (such as implants) will now be covered if you use in-network dentists. What This Means for You You will have greater control over how much you spend on your health care. You will have new tools to help you choose the medical plan that best meets your needs. 16

18 FOCUS ON WELLNESS Wellness What Is Changing? To encourage you and your family members to live a healthy lifestyle, which can also help us better manage health-care costs in the future, we will offer new incentives and activities to help you improve your health. If you take certain steps during this year s Open Enrollment period in the fall, you will able to save money and lower your health-care premiums in How It Will Work To earn the credits and avoid paying more in health-care premiums, you will need to take these three steps: 1. Complete a health-risk questionnaire (HRQ) This questionnaire will be available online through Cigna. 2. Receive basic medical screenings (for example, blood pressure, cholesterol, and blood sugar) These screenings will be offered at local company events and benefits fairs, or you can receive the screening at your physician s office and have the results submitted to Cigna. Basic medical screenings will help supplement the HRQ and develop a more complete assessment of your health risks for such conditions as diabetes, heart disease, back pain, and hypertension. 3. Certify that you don t smoke, or if you do smoke, enroll in an approved smoking-cessation program. All three of these steps will affect how much you pay for health-care coverage in 2013, which you ll learn more about this fall during Open Enrollment. WHAT WE HEARD FROM EMPLOYEES The cost of health benefits has skyrocketed and it scares me that so many employees feel that the company should simply assume the escalated costs. 70% of employees agree that if the company provides a financial incentive, they would participate in programs that could improve their health. There is varied confidence (62% to 92%) with the information and tools available to help employees manage their health. Sources: 2011 Total Rewards Survey and Focus Groups For example, during Open Enrollment this fall, you will need to take one of the following actions to lower your health-care premiums in 2013: If you are a smoker sign up for and participate in the company s smokingcessation program. If you don t smoke certify that you do not smoke. You will receive additional details and examples in a mailing to your home later this year. What This Means for You Reinforcing healthy behaviors can help both you and the company save money on reducing health-care costs. Enrolling in health programs can help you stay healthier longer by preventing and managing health risks and conditions. 17

19 FOCUS ON WORK ENVIRONMENT Expanded Communications WHAT WE HEARD FROM EMPLOYEES The Learning Center and online training are great resources, and programs like the GOLD Program and Tuition Reimbursement make Con Edison a more attractive place to work and improve on my skills. Understanding and perceived competitiveness of flexible work options are below benchmarks. 76% of employees are satisfied with the Employee Stock Purchase Plan (ESPP). What Is Changing? We offer many valuable benefits and resources to help you manage your personal life and your career. They include: Flexible work options Stock Purchase Plan (SPP) Tuition Reimbursement The Learning Center and GOLD Program To help you better understand the full value of these benefits, and all of your Total Rewards, we re committed to providing you with more frequent and enhanced communication. What This Means for You The company will communicate with you more clearly and more often about your Total Rewards. Sources: 2011 Total Rewards Survey and Focus Groups 18

20 What s Next? Here s your Total Rewards Communication Road Map what to expect and when in 2012: COMMUNICATION SCHEDULE APRIL MAY JULY SEPTEMBER NOVEMBER Pay Retirement Wellness Health Time Off An in-depth series of brochures on changes to different parts of your Total Rewards Program will become available. Each brochure will include examples and scenarios to help you better understand the changes and any steps needed to meet enrollment deadlines. HOW TO LEARN MORE Take Time to Read Extra effort is being taken to communicate a lot of information in the coming months, including in mailings to your home. Please share this information with your family. Employee Meetings Plan to attend one of the employee meetings being offered at many locations later this year. Stay tuned for information about available dates and times. Box Do you have a question not answered in the Total Rewards Brochure? If so, please send an to totalrewardsquestion@coned.com. We will address your questions in upcoming communication. Your feedback is helpful. Benefits Fairs Benefits Fairs will be offered in fall 2012 at many locations. Look for a Benefits Fairs schedule later this year. This communication about Total Rewards is just a summary. Your Total Rewards as they now exist and as they will be changed are always governed by the official plan documents and policies. The company reserves the right to amend, modify, or terminate the plans. 19

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22 FOCUS ON PAY Pay remains an important and the largest part of your Total Rewards package. The company believes in pay for performance, and in compensating you for your contributions to the company s success. This brochure provides information about the management compensation program and the Total Rewards changes to the Management Variable Pay Plan to make it more competitive compared with our peers. A Look at Your Total Compensation The management compensation program is made up of three components: 1. Base Salary. You have the opportunity to receive increases in your base salary based on your work performance and where your actual salary falls within the range set for your job level. 2. Management Variable Pay Plan (MVP). You can earn variable pay each year based on the company s success and your work performance. The company s success is determined by achieving operational, safety, environmental, and financial performance measures set at the beginning of the year. 3. Long-Term Incentives. Long-term incentives are currently awarded in the form of restricted stock units to certain employees who demonstrate the potential to make significant contributions to the company s future success. Generally, employees must also be continuously employed with the company for three years before the stock vests. Awards to employees in bands 3 and 4 are made in the form of performance-based restricted stock. That means the awards are based on the company meeting two performance measures: (1) the three-year total shareholder return relative to the Consolidated Edison, Inc. peer group; and (2) the three-year corporate average of the MVP award fund. How Pay Is Benchmarked Setting the right compensation level for any position is not an exact science. To help evaluate if the pay we offer is competitive, we benchmarked a sample of our job positions against those at peer utility companies. We matched positions based on roles and responsibilities. We also benchmarked a subset of management positions against other companies in the metropolitan New York area. The results we found looking at other utilities and metropolitan New York companies, as well as survey data, helped us determine the competitiveness of our compensation program. When compared with the benchmark data, we found that the CECONY base salary ranges were in-line with current market and variable pay was below market. The changes in the variable pay program described in this brochure will bring variable pay in line with the market. Awards to employees in bands 1 and 2 are made in the form of time-based restricted stock. That means employees must be continuously employed with the company for three years before the stock vests. Through our review of the value of our Total Rewards package, including employee input and external industry benchmarking, we found that our variable pay under the MVP is below market. As a result, we re taking steps to increase the targets for most of the job group levels to improve the competitiveness of our variable pay program. Your Total Rewards For Con Edison Management Employees

23 Variable Pay Your Total Rewards Total Rewards include your pay plus a whole lot more: Compensation (base salary, variable pay, and long-term incentives) Retirement Benefits Health-Care Benefits Other Benefits Con Edison has two variable pay plans: the CECONY MVP and the O&R Annual Team Incentive Plan (ATIP). Both currently have varying individual targets. In addition to being below market, we found the MVP has a low satisfaction rate among employees. To improve the competitiveness of the CECONY variable pay plan, and to create more consistent targets between the CECONY MVP and O&R ATIP, we are changing the targets for variable pay for most CECONY employees starting with the 2012 performance period. The changes will be retroactive to January 1, 2012, and awards will be paid out in April 2013 based on 2012 performance results. Note: The other two components of the management compensation program base pay and long-term incentives are not changing. A Look at the Changes CECONY MVP targets will now align with the O&R ATIP targets, which means that most CECONY employees will be eligible for increased variable pay. Variable Pay Targets CECONY Job Level Current NEW An Example 4H, 66 15% 21% 4L, 65 15% 17% 3H, 64 10% 12% 3L, 63 10% 12% 2H, % 7.5% 2L, % 6% 1H, % 5% 1L 4.5% 5% EP 4.5% 4.5% SH 4.5% 4.5% SL 4.5% 4.5% = no change Under the Total Rewards change, if you are a band 2L employee who earns $100,000 in base salary, you will now be eligible to receive in 2013 an additional $1,500 for 2012 performance results at the new target: Currently: $100,000 x 4.5% = $4,500 New Target: $100,000 x 6% = $6,000 2

24 2012 Variable Pay Performance Period It s important to note that the MVP performance indicators are not changing for The MVP awards paid in 2013 will be based on the actual performance results achieved for For more information, visit the CECONY performance indicator system under hot sites on the company s intranet. January 1, 2012 December 31, 2012 April 2013 PERFORMANCE PERIOD Payout Questions? If you have any questions about the variable pay improvements, send an to totalrewardsquestion@coned.com. We will answer your questions in future communications and post them in a Frequently Asked Questions section on HR Online. What s Next This is the first in a series of brochures that outline the changes to the different aspects of the Total Rewards package. Here s what you can expect over the coming months: RIL MAY JULY SEPTEMBER NOVEMBER ay Retirement Wellness Health Time Off An in-depth series of brochures on changes to different parts of your Total Rewards Program will become available. Each brochure will include examples and scenarios to help you better understand the changes and any steps needed to meet enrollment deadlines. e to Read t is being taken to communicate a lot of information in months, including in mailings to your home. Please information with your family. Box Do you have a question not answered in the Total Rewards Brochure? If so, please send an to totalrewardsquestion@coned.com. We will address your questions in upcoming communication. Your feedback is helpful. e Meetings end one of the employee meetings being offered at tions later this year. Stay tuned for information about Benefits Fairs Benefits Fairs will be offered in fall 2012 at many locations. Look for a Benefits Fairs schedule later this year. This communication about Total Rewards is just a summary. Your Total Rewards as they now ates and times. exist and as they will be changed are always governed by the official plan documents and policies. The company reserves the right to amend, modify, or terminate the plans. 3

25 IMPORTANT INFORMATION ON YOUR TOTAL REWARDS r 4 Irving Place New York, NY 10003

26 FOCUS ON RETIREMENT It s Your Future Planning for a secure retirement is an important goal for you and your family. Con Edison supports you by providing a comprehensive Total Rewards package that includes your compensation (base salary and variable pay), retirement and health-care benefits, and other valuable benefits, such as time off. Earlier this year, you began hearing about changes to the company s retirement benefits. These changes take your feedback into account to recognize what you most value, and better align our Total Rewards with the marketplace and across our companies. While you should have received an overview of the Total Rewards changes both at work and at home earlier this year, take a few minutes now to read about the details of the changes to your retirement benefits and how they impact you. This brochure describes the changes to a CECONY management or CEB employee who is covered under the Final Average Pay (FAP) Pension formula. Keep this brochure handy in the future for your reference once the changes take effect. Also, note that the federal law of ERISA requires us to notify you of changes to the Consolidated Edison Retirement Plan, the Consolidated Edison Retiree Life Plan, and the Consolidated Edison Thrift Savings Plan. This brochure is a Summary of Material Modifications ( SMM ) that provides you with information about what is changing for the Consolidated Edison Retirement Plan, the Consolidated Edison Retiree Life Plan, and the Consolidated Edison Thrift Savings Plan, the effective date of each change, and employees who are affected by each change. Understanding Your Retirement Benefits What s Inside What s Happening... 2 Retirement Changes At-a-Glance... 3 Retirement Benefits Basics Thrift Savings (401(k)) Plan... 5 Retirement Benefits Basics Retirement Plan... 8 Retirement Benefits Basics Retiree Health and Retiree Life Insurance We Hear You How to Take Action Retirement Resources at Your Fingertips Looking Ahead What to Expect What We ve Heard The benefits are too complex to really understand. Getting information about the retirement benefits is difficult. If I m age 50 or older as of January 1, 2013, I m not impacted by the Total Rewards changes to the Retirement Plan. What We re Doing The company is committed to providing you with more frequent and clearer communication to help you understand how the programs work and the full value of your benefits. You can access information about your retirement benefits by using the OnPoint pension calculator found on the company s intranet site at HR Online. The pension calculator will be updated with the new plan changes to help you get the information you need, when you need it. After careful consideration, age 50 was chosen because those individuals are close to retirement, or within five years of being eligible for an Early Retirement pension beginning at age 55. Although the Retirement Plan changes have some impact on employees under age 50, employees in this age group will generally have more time to modify their plans if they wish to retire at age 55, including saving more and retiring later. This is why the company is grandfathering those employees closest to retirement. CEB Employee? The references throughout this brochure to the company intranet at HR Online, OnPoint, the Con Edison Employee Benefits Center, and the link to access Summary Plan Descriptions (SPDs) do not apply to you. See page 18 for CEB contact information and resources. Your Total Rewards For CECONY Management and CEB Employees Covered Under the Final Average Pay (FAP) Pension Formula

27 What s Happening Understanding Your Retirement Income Your income in retirement will likely come from several sources. That s why it s important to understand the role that each will play including your retirement benefits from the company: The Retirement Plan. Depending on your start date, you may be eligible to receive a pension from the company under the Final Average Pay (FAP) Pension formula. See page 8 for details about the FAP Pension formula. The Thrift Savings (401(k)) Plan. When you contribute to the Thrift Savings Plan, the company makes matching contributions. See page 5 for details about this plan. The Stock Purchase Plan. When you contribute to the Stock Purchase Plan, the company makes matching contributions. For details about this plan, go to the company s benefits intranet site at Pages/planDescriptions.aspx and click on Stock Purchase Plan. Social Security. Both you and the company (as well as your previous employers, if any) contribute to Social Security. You will be eligible for Social Security benefits in retirement if you ve been employed for at least 10 years. For information about your future Social Security benefits, contact the Social Security Administration at or visit Savings plan accounts and pensions from other employers. If you ve worked at other companies, you may have participated in another pension plan or contributed to a savings plan. Remember to account for those benefits as you consider your retirement income strategy. Your personal savings. This might include investment accounts, such as individual retirement accounts (IRAs), brokerage accounts, savings bonds, certificates of deposit (CDs), health savings accounts (HSAs), and traditional savings accounts. What It Means to Be Grandfathered Under the Consolidated Edison Retirement Plan Who is grandfathered? What does it mean to be a grandfathered employee? An actively employed CECONY management or CEB employee is considered grandfathered under the FAP Pension formula if he or she is age 50 or older on January 1, You are also considered grandfathered if you are a former union employee who was covered under the FAP Pension formula at the time you transferred to management and are age 50 or older on January 1, The Total Rewards changes to the Retirement Plan and the Retiree Health Program do not apply to grandfathered employees. If you re a grandfathered employee, you need to do nothing at this time. 2 Do any of the Total Rewards changes to retirement benefits apply to employees age 50 or older on January 1, 2013? *Including employees under the Total Salary Pension formula. Yes. Total Rewards changes to the Retiree Life Insurance program will affect management employees who are age 50 or older on January 1, 2013, and under either the FAP* or Cash Balance Pension formulas. Total Rewards changes to the Retiree Health Program also affect management employees who are age 50 or older on January 1, 2013, and under the Cash Balance Pension formula.

28 Retirement Changes At-a-Glance Here s a summary of the changes to your retirement benefits taking effect on January 1, (These affect employees under the Final Average Pay (FAP) Pension formula who are under age 50 on January 1, 2013.) Note that the changes to the Consolidated Edison Retirement Plan described in this brochure apply only to your pension benefits earned on your future service beginning on and after January 1, 2013, and not on your pension benefits earned or accrued before January 1, What s Changing Why? FAP Pension Formula* (Including employees covered under the Total Salary Pension formula) If you are not age 50 or older on January 1, 2013, the age to receive an unreduced Early Retirement pension benefit is being raised from age 55 to age 60: If you retire between the ages of 55 and 60 (even if, at age 55, you have 75 points or 30 years of service), and you elect to begin your pension benefit immediately, the portion of your pension benefit earned after January 1, 2013, will be reduced by 5% for each full year before age 60. If you are married and retire after January 1, 2013, and you were under age 50 on January 1, 2013, you will pay when you begin your pension benefit: A charge, based on your age and your spouse s age, for the 50% Joint & Survivor (50% J&S) benefit (currently offered to married employees at no cost). An increased charge, based on your age and your spouse s age, if you select a 75% or 100% J&S optional form of pension instead of the 50% J&S benefit. The FAP Pension formula provides a pension benefit that is above market. The changes are designed to align the Retirement Plan benefits paid under the FAP Pension formula closer to the median of our peer group. In general, retirement ages are increasing; depending on your year of birth, Social Security increased its unreduced retirement age from age 65 to age 66 or 67. In the Total Rewards Survey, many employees expressed an intention to retire after age 60 (since 2010, the average retirement age of Con Edison management employees has been age 61). Most pension plans at peer companies, as well as the Con Edison Cash Balance Pension formula, apply a charge for J&S benefits. *If you are a former union employee who transferred to management, the Retirement Plan changes affecting the FAP Pension formula also apply to you if you are under age 50 on January 1, Important! With the exception of Retiree Life Insurance, the changes outlined in this brochure do not apply to employees age 50 and older on January 1, 2013 you are considered grandfathered. How Were Retirement Benefits Evaluated? The company evaluated all of our Total Rewards, including our retirement benefits, in three ways: Solicitation of employee input (leadership interviews, focus groups, and employee surveys) Benchmarking of current programs against a peer group of utilities and New York metro companies Review of alternative designs with a consistent set of guiding principles Because employee retirement income is generally supported by both the Retirement Plan and Thrift Savings (401(k)) Plan benefits, the company analyzed the value of each program individually and then as a package. 3