============= Page 1 of 20 ============= a t r-. Investor Relations Update E0004392324 EXH005-02498 ============= Page 2 of 20 ============= TRANSITIONING TO A PROFESSIONAL PARTNERSHIP MODEL s i 111 t ... q'f F y ~}K ~.> o d1 l k R r E0004392325 EXH005-02499 ============= Page 3 of 20 ============= 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 ============= Page 4 of 20 ============= 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 ============= Page 5 of 20 ============= 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 =XH005-02502 ============= Page 6 of 20 ============= 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 ============= Page 7 of 20 ============= 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 ============= Page 8 of 20 ============= 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 ============= Page 9 of 20 ============= 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 ============= Page 10 of 20 ============= 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 ============= Page 11 of 20 ============= 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 ============= Page 12 of 20 ============= 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 ============= Page 13 of 20 ============= 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 ============= Page 14 of 20 ============= 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 ============= Page 15 of 20 ============= NEW BUSINESS OPPORTUNITY CATEGORIES AND FUNDING SOURCES Type of growth opportunity Funding sources =XH005-02512 ============= Page 16 of 20 ============= 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 ============= Page 17 of 20 ============= 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 ============= Page 18 of 20 ============= 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 ============= Page 19 of 20 ============= 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 F0004392342 =XH005-02516 ============= Page 20 of 20 ============= TRANSITIONING TO A PROFESSIONAL PARTNERSHIP MODEL E0004392343 EXH005-02517