2018 Guide to Effective Proxies

6 TH EDITION | GUIDE TO EFFECTIVE PROXIES 198 AK STEEL HOLDING CORPORATION AMERICAN ELECTRIC POWER COMPANY, INC. CEO and Senior Management Succession Planning OurBoardoverseesmanagementsuccessionplanningandtalentdevelopment.TheHRCommitteeregularly reviewsanddiscusseswithmanagementtheCEOsuccessionplanandthesuccessionplansforkeypositionsat theseniorofficerlevelacrosstheCompany.TheHRCommitteereviewspotentialinternalseniormanagement candidateswithourCEO,includingthequalifications,experience,anddevelopmentprioritiesforthese individuals.ThesuccessionplansarereviewedwiththefullBoardatleastannually.TheBoardalsoevaluates successionplansinthecontextofouroverallbusinessstrategy.PotentialleadersarevisibletoBoardmembers throughformalpresentationsandinformaleventstoallowdirectorstopersonallyassesscandidates.In2017,we followedthisprocesswhenimplementingsuccessionplansforrecentexecutiveofficerchanges. OurBoardalsoestablishesstepstoaddressemergencyCEOsuccessionplanninginextraordinary circumstances.OuremergencyCEOsuccessionplanningisintendedtoenableourCompanytorespondto unexpectedemergenciesandminimizepotentialdisruptionorlossofcontinuitytoourCompany’sbusinessand operations. Culture AtAEP,webelieveindoingtherightthingeverytimeforourcustomers,eachotherandourfuture.The BoardhasoversightresponsibilityforAEP’scultureandassuringthatitsupportsthelongtermbestinterestsof theCompany.AEPleadersatalllevelsareresponsibleforfosteringanenvironmentthatsupportsapositive cultureandforactinginamannerthatpositivelymodelsit. Mr.AkinsisakeyleaderintheCompany’sculturaltransformationthroughhiscontinualencouragementof employeestoworktogethercollaborativelyto safely dotheirbestwork.Wecontinuallystriveforexcellencein everypartofouroperations.Webelieveinaculturededicatedtodiversityandinclusion,whichvaluesand promotesequalopportunity.Wealwaysaimtomeetourcustomers’expectations,andwearecommittedto conductingouroperationsinaccordancewiththehighestethicalstandards. EmployeesaregivenanopportunitytosharetheirperspectivesbyparticipatingintheEmployeeCulture Surveytomeasuretheprogresswearemakinginimprovingourculture.TheBoardandtheHRCommittee reviewtheresultsoftheannualsurvey,andthesurveyresultsaremeasuredaspartofourannualincentive compensationplan. CompanyexecutiveshavecandidmeetingswithemployeestodiscusstheCompany’schallenges, opportunities,what’sgoingwellandwhatcanbeevenbetter.TheBoardparticipatesinthesesameefforts throughinformalmeetingswithseniorandmid-levelofficers.TheBoarddiscussesCompanyculturewith Mr.Akinsinexecutivesession,anddirectorsinteractwithemployeestoindependentlygetareadonthepulseof theorganization.Culture,includingintegrityandethicsinparticular,arepartoftheCEO’sannualperformance evaluation.Thereputationalandotherrisksassociatedwithculturearealsodiscussedandaddressedthroughthe riskoversightprocessdescribedabove. Board’s Oversight of Strategy and Sustainability OneofthekeyresponsibilitiesoftheBoardofDirectorsisoverseeingtheCompany’sstrategytocreate long-termvalueforAEP’sshareholders.TheBoardhasextendedmeetingstwiceayear,toprovideextratimefor amorerobustreviewoftheCompany’sstrategy.TheBoardworkswiththeseniormanagementtoadjustplansas neededtorespondtorapidchangesintheindustry,includingtechnologyandpublicpolicy,andstrategyis activelydiscussedateachBoardmeeting.TheBoardisresponsibleforreviewingandapprovingtheCompany’s allocationofcapitalconsistentwiththestrategy. Aspartofitsoversightrole,theBoardalsomonitorsenvironmentalpoliciesandsustainabilitypolicies becausetheycanhaveasignificantimpactontheCompany’sstrategy.Asaresult,theBoardregularlyengages withseniormanagementintheoversightofenvironmentalissues,includingclimatechange,andtechnology changesintheindustry. 23 and replaces theLong-TermPlanandtheAnnualPlanforyearsbeginningin2018),willbe70%in cash and 30% denominated in AK Steel stock, as opposed to being all in cash as had been the casewithourpriorawardsundertheLong-TermPlan. • Increasing Executive stock ownership – The Committee increased the Chief FinancialOfficer’s target stock ownership level under our Stock Retention Guidelines from one times his annual basesalary to one-and-one-halftimes hisannualbasesalary. • Basing performance share awards on relative performance – The Committee eliminated the absolute stock price compounded annual growth rate metric for performance shares and, beginningin 2018, the award willbe earned solely based on relative total shareholder return to increasethe emphasison relativeperformance. In addition, though not directly as a result of the deep dive review, for the 2018 compensation program the Committee added a sustainability component performance goals for annual, performance- based cash awards, based upon environmental performance, in order to reinforce the company’s and the Board’sfocus on the importance of sustainabilityto our employees In prior years, the Committee’s periodic deep dive reviews have resulted in the adoption of a variety of policiesandpractices to improve our compensationprogram, includingthe following: • A policyagainstre-pricing or replacingunderwater options. • An executive compensation clawback policy that applies to all performance-based compensation. • Stockholderapprovalof certain severanceagreements withseniorexecutives. • ExecutiveOfficer stock retention guidelines. • A policy prohibiting employees, including Executive Officers, from engaging in insider trading or hedging transactions, holding our securities in margin accounts and the pledging of our securities. • Locking our Executive Minimum and Supplemental Retirement Plan (“SERP”) in 2014 so as to limit participation in the SERP to then-existing participants and replacing it for Executive Officers elected thereafter with the ERIP, an executive retirement plan providing a reduced level of benefits (which, as discussed above, will itself be replaced in 2018 with an even more modest supplementalretirement plan). • Eliminating all tax gross-ups or “single triggers” in the change-of-control agreements with our ExecutiveOfficers andeliminatingall“singletriggers” for any awardsunder our Stock Plan. ContextualInformation for 2017ExecutiveCompensation ExecutiveManagement Succession The year 2017 was the second year in which our new Executive Management team led the company after a multi-year succession planning process that resulted in Mr. Roger K. Newport assuming the role of CEO, Mr. Kirk W. Reich being promoted to President and Chief Operating Officer (“COO”), and Mr. Jaime Vasquez being named our Vice President, Finance and Chief Financial Officer (“CFO”). After an initial year in which we made significant progress as a company on a number of financial, operational and business fronts, we continued in 2017 to take strategic actions to position AK Steelto create long-term stockholdervalue. For purposes of this CD&A, the term “NEOs” refers to the following in reference to 2017 (with their titles as of December 31, 2017): RogerK. Newport— ChiefExecutiveOfficer Kirk W. Reich— PresidentandChiefOperating Officer 44 2018Proxy Statement Total of 02 pages in section 2.13 CEO succession Given the importance of the CEO to the success of the company and generation of shareholder value, it is important that the board ensures that the company is developing and nurturing a pipeline of senior talent including one or more individuals capable of replacing the CEO should that person become unavailable due to accident, illness, death or being recruited elsewhere. This can include internal bench strength, as well as qualified outside candidates. Studies show the relative costs and long-term performance of promoting qualified inside candidates versus conducting external searches. As with other board oversight functions, investors generally don’t need to know all the specifics – rather they want to have confidence that this is a regular and high-level area of board attention.