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2000
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1999
Noon 1

Evidently there was no December 2000 Noon Meeting. If there was one, it was such a flop that they are keeping it under wraps!

The November 21, 2000, Noon Meeting with Duke Energy employees took place in Charlotte, North Carolina. It was hosted by Ruth Shaw, executive vice president of corporate resources and chief administrative officer.

Opening Comments

Ruth Shaw: I'm privileged to be with you at today's Noon Meeting. It's always a treat for any of the Policy Committee members when Rick asks us to stand in for him at these sessions.

Advocate: Hosting the meeting is a treat? Really?

Ruth Shaw: We're all watching the election news. In the Carolinas, we've been watching state elections with particular interest as we try to gauge potential effects on deregulation. It appears as though we will see movement, and potentially legislative activity, in both North Carolina and South Carolina in 2001. As a company, we are pushing for competitive wholesale markets in both states. Rick Priory continues to serve on the North Carolina Blue Ribbon Task Force, and Bill Coley is very involved in South Carolina with that process.

Translation: It is time to evaluate who is in our pocket and who is not. And, the rules are so much more accommodating when one can help write them.

Corporate Highlights

Ruth Shaw: October was in many ways a "green light" month for your company. Stock hit a record high, and it continues to hit levels that please our shareholders. We reported record third quarter earnings, and are on track for solid year-end results. Analysts who follow us are confident in your company, your company's strategy, and more importantly, your ability to execute that strategy.

Advocate: If it were truly "our" company, there would be no cash balance plan. No employee asked for a cash balance plan or reduced medical coverage that shrinks each year. Employee feedback was not solicited in advance. Now, all of the sudden, it gets to be our company. The company is completely controlled by a handful of extremely greedy people at the top. The company exists to deliver wealth to a very few at any cost. It is most definitely not our company.

Ruth Shaw: Let me remind you of the third quarter results: We reported earnings per share of $2.08, a 73 percent increase over earnings per share of $1.20 in the third quarter of 1999. Revenue increased 15 percent to $15.7 billion for the quarter. We are on track to achieve revenue in excess of $40 billion by year-end. Our competitive energy businesses, the strongest drivers in our growth trajectory, are continuing to deliver stunning results. For the third quarter, we saw a 92 percent increase in earnings growth. Very impressive numbers!

Advocate: The value taken from the retirement program helped produced those "very impressive numbers."

Ruth Shaw: You may have read recently that Duke Energy Field Services decided not to go forward with its previously announced initial public offering (IPO) of stock. They have continued to evaluate the market conditions for a stand-alone stock in DEFS and have determined that conditions still are not right for that sale. So they have allowed their filing with the SEC to lapse. If market conditions improve, they can re-file. If DEFS decides to move forward with an IPO in the future, you'll be notified about opportunities to participate.

Advocate: That is fine with us. Our early retirement benefit was not delivered as promised. You can understand that we are leery of any further financial "deals" with Duke Energy.

Ruth Shaw: When we created Duke Energy in 1997, we told analysts we would deliver eight to 10 percent earnings growth. We are now at the top of that range. Rick Priory's questions to his leadership team are: How do we take this company to the next level? How do we break through 10 percent and drive the earnings growth rate to even higher levels? This is what will drive the value of our stock, the price of our stock and the value of our equity. We're looking for ways to drive sustainable earnings growth.

Advocate: Duke Energy was created a short while after the retirement promises to the employees were broken. Management has shown zero concern over the lack of delivery of those promises. Evidently, the promises to employees were replaced by grandiose promises to financial analysts. Now that the company has delivered the upper range of the promised earnings to the analysts, Mr. Priory is scrambling to deliver more. Management has no concern about delivering even the original retirement promises to employees. When one has millions of dollars worth of stock options, it can tend to influence one's thinking.

Business Unit Updates

Ruth Shaw: No doubt you've seen DukeSolutions in the news a lot lately. The company's work with Harmony Products' animal waste processing plant is amazing. Simply put, we convert chicken litter into energy, helping the poultry industry and making a big difference in the watersheds that surround these large poultry farms.

Advocate: Chicken litter will be converted into energy? We hate to cry foul, but chickens should have to obey the litter laws like the rest of us. But if someone wants to pick up their little ice cream, candy, and Big Mac wrappers, we have no problem with it.

Top 500 companies

Question: In September, Information Week announced its top 500 companies as it relates to the quality of information technology operations. Duke Energy ranked 359 out of 500. As a company used to high ratings, would you like to comment?

Ruth Shaw: This is a "bad news/good news" story because 359 out of 500 doesn't sound too great. On the same survey a year ago, however, we ranked 430, so we've gotten better! It's interesting to review those survey results and, of course, it feels good to rank higher. But "opinion" surveys have limited practical value. However, we conduct our own "apples-to-apples" benchmarking around quality, cost and performance in information technology. And on all but one or two of our big-hitter areas, we rank in the top-quartile…

Advocate: This could give rise to a new slogan: "We are not as bad as we used to be." We agree that opinion surveys have limited practical value. But when reporters questioned management about the cash balance plan in 1999, all they did was to point to a "Money Magazine" benefits survey. Management seemed to feel that this survey was going to answer all ethical, moral, and esoteric legal questions regarding the cash balance conversion. In other words, management completely avoided the questions. Their answer was trite and meaningless. When surveys favor Duke, they are the greatest thing every and can answer all questions. When surveys do not favor Duke, they have limited value. And, if management really does not like the results of a survey, they conduct their own. Somehow, they do just fine in their own surveys.

Duke’s Ranking

Question: What's (the brand stradgy) all about and why are we doing it?

Ruth Shaw: When we created Duke Energy, one of our greatest assets was the Duke name… And, while we capitalized on some of that value early on, we didn't understand it well enough to be systematic about leveraging our name and reputation… We formed a Brand Strategy Committee… We got a lot of impressions from (customers) about what mattered most to them and what they thought about our company, not all of it good… The team developed a clear statement of the brand intent - what we want to communicate to our customers and employees…

Advocate: If an individual or company treated everyone fairly, they would develop the reputation that they deserve - a good one. If an individual or company lied, cheated, and stole, they will also develop the reputation that they deserve - a bad one. Absolutely no reputation managing would be necessary. When one engages in less than honorable acts for increased profits, yet want to maintain a good reputation, that's when they have to break out the spin doctors. But spinning the truth has a limited affect. Those who see that Duke Energy will alter the rules in the middle of the game to increase their financial advantage, will never be influenced by their propaganda.

Question: A number of questions were asked about compensation.

Ruth Shaw: …There is no ONE policy. So the first fundamental is that we allow, within boundaries, some discretion on the part of the business units.
The second fundamental principle is market competitiveness... We evaluate positions and benchmark them against various companies of comparable size and in the geographies in which we compete for talent.

…We do not have aggressive general compensation or merit increases. Annual increases are intended to keep us market competitive. We give employees the opportunity to increase their compensation through incentives… So it's a complex array of those types of factors that go into establishing Duke Energy's compensation policy.

Advocate: We have figured out what "benchmarking" really means. Management "marks" an "X" on an employee's head. Then they pick up a heavy "bench" and break it over the mark. Duke's benchmarking is killing us. They used it as an excuse to take away our early retirement subsidy and stick us with a cheap cash balance plan. To Duke, benchmarking is just another method of taking away benefits. The "complex array of factors" allows for more games to be played.

Question: Doesn't putting so much emphasis on incentive pay hurt the individual from a retirement perspective because base salaries aren't increasing?

Ruth Shaw: We made an important change to our retirement plan that people may not realize. Participants receive pay credits on short-term/annual incentives as well as on base pay. Under the previous Duke Power retirement plan, incentives were not considered.

Advocate: We are aware that incentive pay is credited toward retirement earnings. We are also aware of other important retirement plan changes. Our early retirement subsidy has been eliminated, and we get to work for years with no new retirement accruals. The company took away dollars and gave back pennies.

Question: Perhaps I misstated my question. You get retirement contributions on your incentives for that particular year, but you do not get the cumulative effects of pay raises added to your retirement plan.

Ruth Shaw: The dollars in the Retirement Cash Balance Plan create their own "cumulative effect" as they grow over time. Since we wanted to emphasize incentives in compensation, it was important that incentives become part of your retirement plan.

Advocate: Ms. Shaw is correct. Once the money is reflected in the retirement plan, it will draw compound interest. We have no problem with the incentive program, but with the deception in other areas. Most employees lost real money with the cash balance conversion. Employees lost much of the value of their health insurance coverage. Employees lost their retirement health insurance. Now, it takes the maximum incentive you can get to almost break even with the old program. This is hardly an accident. It means that with no incentive, employees are actually being penalized. It took some years, but management came up with a way to legally penalize hourly employees, as well as exempt employees. The interest paid on your retirement funds will be cheap - the 30 year treasury bond rate. Duke will keep any excess of the actual earnings.

Question: Why do clerical staff employees not receive general wage increases?

Answer: Again, our business units do have some discretion in how they administer compensation. Some business units, such as Duke Power, use pay systems that provide for annual general increases for non-represented employees if the market supports such an increase. The pay system for clerical employees in Duke Power is based on job performance and the employee's position within his or her salary band. Positions are reviewed annually to ensure we're paying competitive rates of pay. If you have specific questions about your compensation, you should talk with your supervisor or with your business unit human resources representative.

Advocate: Good question! Many clerks have not received raises in years. And, for an answer you received a dance. You know you hit a nerve when you are referred to HR.

Question: The question was about medical insurance coverage available to DEFS employees at retirement.

Answer: Communications regarding DEFS's benefits at retirement are currently under way. If you have questions, you should talk with your business unit human resources representative.

Advocate: Wow! Two in a row. Go straight to HR. Do not pass GO and do not collect $200.

Question: I used the retirement benefits projector on the new benefits Web site to calculate my retirement monthly benefit and lump-sum payments for the Retirement Cash Balance Plan (RCBP). I noticed there is no mention of inflation effects. The numbers reported appear to be future dollars, not present day dollars. The company tends to ignore inflation or to choose low inflation rates (like the three percent average over the last few years), but I hope the company promotes the use of the average inflation over the last 20 plus years (five percent) to calculate present worth retirement benefits.

Answer: The estimate feature for the cash balance plan doesn't have the functionality to show an inflation-adjusted result. However, by adjusting your own assumptions on future pay increases and the interest crediting rate, you can essentially produce your own inflation-adjusted cash balance estimate. Another method would be to load the results of your RCBP into Future$aver, the retirement planning tool on the Internet site. You can enter the results of a cash balance estimate and project your Retirement Savings Plan (RSP) account using Future$aver as well. Future$aver allows you to make an assumption concerning the future inflation rate, and presents projection results in both current and future dollars. The tool also provides a substantial amount of information on historical inflation rates to help you determine an appropriate interest rate assumption.

Advocate: The company hopes you never find out all the facts regarding the cash balance conversion. You will not like what you find! You were offered a typical "work around" for the problem that you experienced.

Question: Whose idea was it to change our incentive plan this year? I'm referring to the different percentages each pay scale will receive. Instead of a department getting a possible six percent, each individual will receive a different amount regardless of what they do, even if they are doing the same job to achieve a goal. It seems as if we're now working to get the managers their 10 or 15 percent while we get much less. What kind of incentive does this give employees?

Answer: The incentive opportunities for certain bands/grades in Duke Power, Gas Transmission and the corporate areas were adjusted for 2000 by management. To ensure we provide competitive compensation to each employee, we participate in a number of compensation surveys throughout the year to collect market data from other companies for various position levels. These compensation surveys include both base salary and incentive compensation. At least annually, we compare where we are in our marketplace and make adjustments as necessary to ensure we maintain our competitive position. As a result of such a comparison in late 1999, adjustments to incentive opportunities were necessary for certain bands/grades to maintain our competitive position. These adjustments were not limited to management positions.

Advocate: Each day while you are working, management will be tinkering, refining, and otherwise making sure that you do not receive one cent more that absolutely necessary. If you do not have a contract, there is little that you can do about it.

Question: I understand that Duke Energy plans to determine the market value of each employee and move toward compensating them accordingly. When is this going to happen? How can the company expect to retain talent otherwise?

Answer: ...We ensure the continued competitiveness of our pay and benefits by regularly benchmarking against companies similar in size and scope to Duke Energy. Market comparisons are completed for classifications or classes of jobs rather than on an individual employee basis. If you have questions or concerns about your specific compensation, you should talk with your manager or with your business unit human resources representative.

Advocate: Oh boy! More benchmarking and compensation changes. Just whom do you think the changes will benefit - Duke or the employees? And, while you are thinking about it, go straight to HR.

Question: In the September issue of the Noon Report, there was a question relating to job opportunities. The point was that there aren't any diverse career opportunities due to "non-cooperation" between different business units. Several of our department's best people recently applied for promotional transfers for which they were qualified, but the positions were filled with people from off the street. Increasingly, we're being led to believe, in no uncertain terms, that "the only way up, is out!" Another concern is benefits/pay. In the September Noon Report, 10 out of 23 questions related to pay and benefits or other HR issues. You have responded to many of these questions in the past by telling us to talk to our department leaders and HR representatives. Yet, when we try to address this issue with our management, we're told that we seem "preoccupied" with our pay situation. Please address this.

Answer: …I encourage you to work with your immediate supervisor and your local human resources representative to develop a career plan that meets your personal needs and the needs of the business.

As far as pay and benefits are concerned, each business unit is responsible for setting its pay strategy, including identification of pay markets and the target level of competitive pay. The business units also have some flexibility in designing their benefits program to meet their business needs. So, while we have an overall pay and benefits strategy for the company as a whole, because of business unit differences, the best source of information for details associated with certain aspects of these plans it at the business unit level. If you are unable to discuss this issue with your immediate supervisor, you should talk with your business unit human resources representative

Advocate: Welcome to "Catch 22." HR can only give canned responses, so you asked higher management. Management referred you back to HR. HR then told you that you are preoccupied with the pay situation. You asked management again. Management referred you back to HR. They hope to continue the stonewalling until you retiree or die. Then it will not matter. You mentioned the large number of benefit and compensation questions asked. Management controls the number that you actually know about. It was stated that a "number" of compensation questions were asked during this meeting. A "number" could be two questions or two-hundred questions. The spin control never ends.

Question: Recently, The Charlotte Observer ran an article on same-sex partner benefits (September 27). Although Duke Energy wants to be considered a world-class company, we were noticeably absent from the list of major/international corporations which offer same-sex benefits. When will Duke Energy take a step for equality and offer same-sex benefits to employees?

Answer: We are committed to providing comprehensive and competitive benefits, and have been following practices associated with domestic partners through benchmarking efforts. The environment surrounding domestic partners is evolving and, at this point, is not a widespread benefits practice among companies. We will continue to benchmark benefits practices of other companies and will continue to monitor evolving benefits practices for domestic partners as well as other benefits practices.

Advocate: If you have a question, you should always ask it. You may get a dance; you may be referred to HR. In this case a "hot potato" was "resolved" by the threat of benchmarking.

Question: In the September Noon Report it was stated that medical costs had risen an average of 12 percent. Looking at the benefits enrollment information I recently received, my premiums will increase 25 percent, my co-pay 50 percent and my prescription costs as much as 200 percent. Why are employee costs increasing so much more than the average? Is Duke Energy expecting employees to pay a greater share of the cost than they have in the past?

Answer: …Without knowing what type of medical plan you are in, it's difficult to address the 25 percent increase you mention. However, I can tell you that the cost of HMO coverage is specific to the contracting HMO, and is impacted by the geographic area in which the HMO operates… The company will continue to pay about 66 percent of total medical plan costs.

Advocate: Employees are getting less medical benefits and less retirement benefits. Future retirees will get less medical benefits - zero! When many employees came to work for the company, the insurance was free. There was no co-pay, preferred provider, primary care physician, and the deductible could be as low as twenty-five dollars per year. The only comparable plan now is the catastrophic plan, with a twenty-five hundred dollar deductible. The deductible has increased one-hundred times the original amount! Management hopes that by constantly changing the plans, adding co-pays, and confusion factors, that you will not notice what you have lost.

Question: How can the company justify a 3.5 percent raise for employees when the company has a $40 billion revenue?

Answer: Our total compensation strategy, which includes benefits, base pay and incentives, is designed to help both employees and the company prosper in a competitive market. Incentives are designed to offer each of us an opportunity to share in the company's success and earn more than the market based on personal, business unit and company success…

Advocate: We cannot believe they went there - to the total compensation strategy. This is nothing new. The company thinks that employees have forgotten the lies and failures of total compensation past. Total compensation was used to explain why employee's salaries were smaller that expected. They were told to look at the benefits such as the early retirement subsidy and not to be too concerned with salary. After many employees had worked for twenty-five years, Duke yanked away most of the benefits. The promise of these benefits was a covenant between the company and employees, made long before Ms. Shaw was even employed. Management must feel that employees have a short attention span, because they have rolled out total compensation once again. One would think that they would have buried it and hoped it would stay buried. Flimflam artist generally keep moving into new territory and come up with new rip-offs. One cannot expect to keep pulling the same con on the same people over and over again, and no one ever getting wise to it.

Question: I am a recent victim of identity fraud. Someone stole my paycheck stub from my home mailbox and applied for credit cards using my correct name, Social Security number, address and employer. Is it possible for Duke Energy to use something other than Social Security numbers for employee identification for insurance and other benefits information sent to employees' homes?

Answer: …Given increasing employee and management concern, we will continue to encourage movement away from the use of Social Security numbers.

Advocate: Notice the typical non-answer. What is meant by "encourage movement away"? Who has to be encouraged? Management comes up with all these programs. Is blame being place on some mythical entity that must be encouraged?

The Noon Meeting was held in Australia on October 4, 2000. The meeting was hosted by Harvey Padewer, group president of energy services.

Question: We've all seen the success of the share price rate over the past six months or so. How much of that do we attribute to Duke Energy initiatives, and how much of it may be a piggyback effect on the recent movement of the energy market?

Answer: The fundamental reason for the acceleration of our share price has been recognition by investors and Wall Street that we're growing at a faster rate than utilities…

Advocate: The price of Duke Energy stock has under performed the utility averages for some time and has only recently outperformed them. These things usually balance out. Unless you are a day trader, there is little point salivating over a quote screen all day.

On the other hand, if the company has granted you stock options, the price of stock becomes a greater concern. Those sitting on millions of dollars worth of options make out like gangbusters when the price doubles.

The links below are to articles that explain how your lost benefits are converted to dollars for top executives and how profits gained from stock options are used to reduce the company's tax!

Many Large U.S. Companies Paid No Taxes

Firms Find More Profit From Retirement Funds

Question: Does Duke Energy's senior management fully support e-business?

Answer: Absolutely!…

Advocate: That sounded like a planted question.

Question: What is the general view on the future performance of Duke Energy stock? What is it going to do?

Answer: I'm very optimistic about the future of Duke Energy stock. The future value, however, will be determined by a number of variables, none of which can be accurately predicted. We will, of course, continue to tell Wall Street our company's positive story, and hope investors continue to recognize that Duke Energy is an undervalued stock.

Advocate: It looks like we had more than one planted question this time. Just what would you expect a company spokesperson to say - "The stock is going to crash and burn; we are all doomed!"? The answer was more realistic that the ones we usually get. G'Day.