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  a
t





r-.



Investor Relations Update

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EXH005-02498


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TRANSITIONING TO A

PROFESSIONAL PARTNERSHIP

MODEL

  s


  i
111 t

  ... q'f F


y ~}K ~.> o d1 l k

  R r

E0004392325

EXH005-02499


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HOWEVER, ENRON NOW FACES THE
TYPICAL CHALLENGES OF A HIGHLY

SUCCESSFUL COMPANY

  Perception that "room at the top"
w. is limited given a very young
  senior leadership team

 Perception that current stock
options have less upside than
those of the past

 Reality that several executives
have become independently
wealthy

 Substantial external demand for
Enron talent

 Current stock valuation implies
substantial earnings growth

 Creation of additional shareholder
value will require even higher
growth rates

 These growth levels will require
the rapid and broad development
of new businesses beyond the
boundaries of existing business
units

E0004392326


  7

=XH005-02500




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WHY A PROFESSIONAL PARTNERSHIP

MODEL?

  World's leading corporations
all struggle to retain/motivate
top talent ...

... relative to leading
professional firms



Miot of-

McKinsey & Company

Cravath, Swaine & Moore

E0004392327 \~

=XH005-02501



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KEY ATTRIBUTES OF SUCCESSFUL

PROFESSIONAL PARTNERSHIP MODELS

v Unlimited number of senior roles (i.e., continuous growth of the

partnership)

  Meritocracy for advancement and compensation (not tenure or
hierarchy driven)

,' Transferability of skills and flexibility to pursue multiple career paths

  Financial alignment (significant upside and significant risk) that
creates strong sense of ownership and mutual accountability

  Collegiality and community fostered by common purpose and
frequent ad hoc teaming/networks

 Non-hierarchical governance; periodic rotation and broad
involvement in leadership roles and duties

 Strongly held set of shared values

E0004392328

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CREATING A PROFESSIONAL PARTNERSHIP

MODEL FOR ENRON

Traditional Corporate Enron's Professional High performing
Model Partnership Model partnership

Leadership Appointed by Board
and senior
management

Organizational Hierarchical line
structure organization (e.g.,
  small number of
executives at the top)

Governance Hierarchical

Career paths Well defined, inflexible
career tracks

Advancement Tenure based;
assessed by direct
supervisor

Compensation Some bonus at risk

Accountability Top down, metric
driven

Board appoints corporate
officers; OTC appoints other
key positions; most partners
elected by peers

Some hierarchy/line
authority, but few layers; no
limits on number of partners

Mix of Board, OTC, and
committee leadership

Mix of traditional career
tracks and flexible tracks

Meritocracy based on clear
criteria; assessed by peers

Significant pay at risk

Mutual accountability;
holistic

E0004392329

Elected by peers

Relatively flat
organization; no limits
on number of partners

Participative, led by
committees

Flexible tracks; up or
out policy

Meritocracy based on
clear criteria; assessed

by peers

Significant pay at risk

Mutual accountability;
holistic

  /

:XH005-02503


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GOVERNANCE STRUCTURE

   Responsibility to shareholders in
Board of Directors appointing/removing corporate
  officers and authorizing major
policies and strategy

Office of the Chairman

   Responsible for setting/approving
overall corporate policy, personnel
  Policy Committee management policy, and corporate
strategy



:XH005-02504

  Personnel
Committees

 Personnel Review
Committees
(PRCs)
 Analyst/
Associate
Committee

  Special Responsible for tactical, ongoing
Initiatives/ Information/ management
Task Forces Coordination

 New business  Executive
building Committee
 Cost reduction
 Asset efficiency,
return on invested
capital, balance
sheet improvement

E0004392330


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ARCHITECTURE FOR ENRON'S

PARTNERSHIP

Partners

Non-partners

 Obligation to build the organization
 Broad skill sets/diverse management
responsibilities
 Strong people leadership
 Evaluated by corporate PRC (higher

  career/compensation risk)
--------------------------------------

 More focused activities and roles
 Pre-defined positions and career tracks
 Lower compensation at risk

E000439233,

:XH005-02505


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TWO LEVELS OF PARTNERSHIP

Managing Director
(MD)

Vice President
(VP)

Expectations

 Proven ability to build and grow
businesses; demonstrated commercial
impact
 Extensive followership in organization
 Responsibility to lead/participate in
corporate governance
 Extensive cross-organizational network
 Broad, diverse skill base

 Measurable commercial impact (direct or
enabling)
 Strong intrinsics in problem solving,
people leadership, and communications
 Deep functional skill set

Increased
 Tenure
 Breadth and
transferability
of skill
 Career and
compensation
risk

E0004392332

:XH005-02506


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THREE TRACKS TO PARTNERSHIP

MD

VP
Director

Manager

  Analyst/
Associate

MD

VP
-----------
  Director

VP
Director

Manager

Specialist

Strategic professional

Manager

Specialist

  Commercial and technical Support

 Core commercial  Roles critical to  Traditional technical,
activities supporting infrastructure, and
   Unlimited partnership commercial activities administrative roles
roles  Key staff leadership Only role eligible for
 Multiple career paths to positions eligible for partnership is
  partnership partnership organization leader;
 More career/  Fewer partnerable further movement
compensation risk roles/career paths requires changing tracks
   Less career/compensation
risk

E0004392333

XH005-02507


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DEFINING PARTNERSHIP TRACKS

Commercial

Roles directly
responsible for deal
sourcing, structuring,
and closing

Transferability of skills

 P/L leaders
 Originators
 Traders
 Investment groups
 Business development
 Selected members of
Finance groups

Strategic professional
and technical

Critical commercial-
enabling roles

Role manages
significant financial
risk

  RAC
 Structuring
 Selected leadership from
- Legal (deal related, tax)
- Accounting
  - HR
- IT
  - Finance
- IR/PR
- AOPS

Support

Role cannot easily or
should not be
outsourced

Role is core to Enron's
mission

Non-core
(oustourcing
opportunities)

 Pipeline operators
 Critical O&M staff
 Legal (compliance, reporting)
 Accounting (AP/AR)
 HR
 IT
 IR/PR (support roles)
 AOPs

E0004392334

  I

XHO05-02508


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PERSONNEL ROLES

  Office of the Chairman

  Corporate Policy Committee

  MD PRC (Corporate Policy
Committee MDs and selected other
MDs

Key roles

 Evaluates, elects, and sets compensation for Corporate
Policy Committee MDs
 Appoints all Corporate Policy Committee and PRC
members
 Approves MD and VP compensation schemes and
evaluation/election criteria

 Sets MD and VP evaluation and election criteria

 Sets MD and VP compensation levels and "curve tilt"
 Hears and decides on MD and VP evaluation/election

  appeals
 Approves election slates from PRCs
 Determines partnerable roles

 Evaluates, ranks, and elects all MDs

  Commercial/Strategic Professional  Evaluates, ranks, and elects all Commercial and
and Technical VP PRC Strategic Professional and Technical VPs
(selected MDs)

  Support VP PRC
(selected MDs)

Evaluates, ranks, and elects Support VPs

E0004392335

=XH005-02509


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CURRENT COMPENSATION PRINCIPLES

Compensation tenets

 Partners have more
compensation at risk
than a typical
corporate executive

 Increasing variability/
spread in
  compensation ranges
by level

 Corporate-wide bonus
pools for each
partnership level

Options/
restricted
shares

Cash
bonus

Base
salary



E0004392336

Relative level of compensation at-risk for partners

:XH005-02510


  VP Range of MD compensation


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CHALLENGES IN COMPENSATING

PARTNERS FOR NEW BUSINESS BUILDING

VENTURES

Methodology

Challenges/implications

Approach 1 Use salary, cash bonus, and
Enron corporate options/
restricted shares as the sole
tools to compensate all
partners

Approach 2 Create special incentives
(e.g., formulaic
compensation vehicles) to
be shared by those
individuals directly involved
with the creation of new
businesses

  Approach 3 Create specific
compensation vehicles
linked to building new
businesses, but with
distributed ownership
across entire partnership

 Easy to lose focus on the importance of
business building
 Partners reluctant to donate best people )c
to a new venture with more distant and
  indirect impact on stock price

 Violates key tenet of partnership (i.e.,
single profit pool)
 Value of new ventures may not be readily
or accurately reflected in stock price
 Leaders with formulaic compensation may
be reluctant to "pull the plug" on non-
performing businesses

 Aligns entire leadership group toward
creation of new businesses
 Allows partners to have a portion of
compensation tied to long term Enron
growth in a vehicle other than stock price

E0004392337



:XH005-02511


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NEW BUSINESS OPPORTUNITY CATEGORIES

  AND FUNDING SOURCES

Type of growth opportunity Funding sources



=XH005-02512



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IMPACT OF PARTNERSHIP INTEREST IN NEW

BUSINESS GROWTH

1. Increased support across the organization for new businesses

 EES

 EBS

2. Increased accountability/"pushback" from partnership group
for key decisions

 Azu rix

 El

E0004392339

=XH 005-02513


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GOVERNANCE

  An independent Board will ensure integrity and consistency in key
compensation issues by

 Identifying which new business ventures are placed in each category

 Determining funding sources and proportions

 Approving specific valuation methodology, take-out provisions, and
caps

E0004392340

=XH005-02514


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RELATIVE IMPACT OF HYBRID
COMPENSATION APPROACH

Equity interest in
new businesses

Options/restricted
shares

Cash bonus

Base salary

VP Range of MD compensation

E0004392341

=XH005-02515



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BUILDING THE ENRON OF TOMORROW

Tomorrow's Enron

	Today's Enron	
	Yesterday's Enron		
Vision	 World's First	 World's Most	 World's Most
	Natural Gas	Innovative	Valued Company
	Major	Company	
Strategic	 Growth in	 New business	 Broad-based
emphasis	traditional	building around	business building
	asset-based	Enron's core	development by
	businesses	competencies	leveraging
			intangible capital
			(i.e., knowledge,
			talent, networks)
Organizational	Corporate	 Networked	 Professional
concept	Model	model	Partnership Model

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=XH005-02516


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TRANSITIONING TO A

PROFESSIONAL PARTNERSHIP

MODEL

E0004392343

EXH005-02517