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28 Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153-0119

EXHIBIT B

Case: 19-30088 Doc# 1634-2 Filed: 04/23/19 Entered: 04/23/19 16:39:53 Page 1

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CONFIDENTIAL – FOR INTERNAL DISCUSSION PG&E Corporation 

Compensation Committee 

February 19, 2019 

2019 SHORT-TERM INCENTIVE PLAN (STIP) 

QUARTERLY APPROVAL DISCUSSION 

Background 

 2019 STIP payments are expected be made on a quarterly basis, as soon as practicable 

following the end of each quarterly performance period, based on year-to-date results against 

established performance measure targets. 

 The Compensation Committee has requested an understanding of the STIP results validation 

process and further confirmation of results. 

o Attachment A contains a detailed description of the STIP results validation process as 

conducted by Internal Auditing. 

Discussion 

 The Compensation Committee’s quarterly review and approval of results to occur at an inperson or telephonic meeting. 

 The first performance period may be for three months or six months, based on when 

Bankruptcy Court approval is obtained. 

Case: 19-30088 Doc# 1634-2 Filed: 04/23/19 Entered: 04/23/19 16:39:53 Page 2

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CONFIDENTIAL – FOR INTERNAL DISCUSSION ATTACHMENT A 

STIP RESULTS VALIDATION PROCESS 

Each year, Internal Auditing (IA) leads a multi-step, cross-functional process to review and 

validate Pacific Gas and Electric Company’s (Utility) Short-Term Incentive Plan (STIP) metrics 

and metric results. The process has four key steps and includes work performed by the line of 

business (LOB) that owns the metric, Compensation staff, and IA staff. 

Step 1: Metric Definition and Calculation 

The first step in the process involves gaining a full understanding of each metric being used for 

the year. To do this, IA reviews each individual metric to understand: 

 Intent of the metric 

 The parameters of the metric calculations 

 Population, inclusions, and exclusions 

 Performance targets 

 Preparers and approvers 

 Data sources and systems 

Step 2: Identify Processes and Controls 

Using the knowledge gained in Step 1, IA then analyzes each metric to determine what can go 

wrong. This includes identifying where errors could occur, how each metric could be manipulated, 

and reviewing for control issues within the key systems that generate metric data. IA focuses its 

attention on new metrics, metrics with calculation changes, metrics with more complex and 

difficult calculations, and metrics that have multiple data sources. IA also includes any known 

control issues from other audit work in this analysis. 

IA identifies the key control points that will need to be monitored for each metric, including both 

preventive and detective controls. Where such controls do not exist, IA works with the responsible 

LOB to implement the necessary processes. 

Step 3: Quarterly Review 

Each quarter, the LOB performs its processes to calculate the STIP metrics, including performing 

all agreed-upon validation controls. The LOB creates a STIP reporting package for each metric 

that is reviewed and approved by LOB management. The package is then sent to Compensation, 

where staff reviews the results for accuracy and performs some limited validation steps. 

Compensation then forwards the package to IA for further review. 

IA performs its audit over the STIP results for each metric and issues a report to all Senior Vice 

Presidents and Vice Presidents who own STIP metrics. This review has two main objectives: (1) 

monitor the effectiveness of the LOB’s controls, and (2) assess the accuracy of the data being 

reported. 

Case: 19-30088 Doc# 1634-2 Filed: 04/23/19 Entered: 04/23/19 16:39:53 Page 3

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CONFIDENTIAL – FOR INTERNAL DISCUSSION 

A-2 

IA reviews the key LOB controls to assess their effectiveness to identifying errors within the metric 

results. If new controls were required, IA also reviews and reports on the LOB’s progress to 

implement these controls until they are deemed to be fully effective. 

IA also evaluates the effectiveness of the quarterly STIP validation process, reviews the key data 

upon which STIP calculation approvers rely, and verifies that the individual metric results were 

derived based on the approved metric definitions. In addition, IA reviews the metric scores to 

confirm that they were calculated based on the approved break-point scales and validates the STIP 

calculations. 

IA has identified issues during the process in the last two years that have impacted the final STIP 

results. For 2017, IA reported on control issues in an Electric Operations (EO) metric that was 

based on the performance of infrared inspections for overhead electric equipment. IA identified 

an issue with EO not being able to provide complete evidence that all the inspections occurred. 

As a result, the year-end payout was modified to eliminate unsupported inspections from the totals. 

In 2018, IA and the LOB identified issues with the Safe Driving Rate metric and performed 

extensive analysis and controls advisory work throughout the year. Ultimately, the controls were 

deemed to be incapable of providing accurate data and the metric was counted as a zero for STIP 

purposes. 

Step 4: Year-End Validation 

IA also performs a year-end validation of all STIP results prior to payment. This includes all of 

the steps in the quarterly validation, along with additional processes to validate final performance 

amounts against the yearly targets. With the change in 2019 to paying STIP awards quarterly, 

these processes will be performed during each validation audit. 

Implementing Additional Controls and Independent Validation 

In consideration of recent events, IA will be implementing new validation processes over 

additional upstream controls to provide enhanced visibility into the transactions and data feeding 

the STIP metric calculations. This will include identifying and monitoring of other metrics that 

may identify where STIP measures could be driving the wrong behavior, including those that could 

identify elevated spend or poor-quality results that may occur due to actions being taken only to 

achieve STIP success. IA will include the validation of these additional metrics in its quarterly 

STIP validation results. 

Case: 19-30088 Doc# 1634-2 Filed: 04/23/19 Entered: 04/23/19 16:39:53 Page 4

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