PROCESS FOR DETERMINING EXECUTIVE COMPENSATION
The ECCECHC Committee establishes our executive compensation philosophy and objectives and oversees the administration of our executive compensation programs. The ECCECHC Committee sets the CEO's compensation, for the CEO, and in 2020, the ECC set the compensation for the Executive Chairman. Both werewhich is reviewed and ratified by the Board without the CEO's or Executive Chairman's participation.
In setting the CEO's compensation, the ECCECHC Committee considers the Board's annual evaluation of the CEO's performance, which assesses among other things, performance relative to annual objectivesa broad spectrum of desired leadership and effectiveness attributes established by the Board. The ECCECHC Committee also compares the CEO's compensation to the compensation of CEOs at other investor-owned electric utilities. Compensation benchmarking data is adjusted for the Company's size as measured by revenue and provides a market context for the ECC'sECHC Committee's decisions. The ECCECHC Committee also approves the compensation of the other NEOs after considering the CEO's recommendations regarding such compensation.
At the beginning of theeach year, the ECC,ECHC Committee, with the CEO, establishesCEO's recommendation, approves performance goals and measures, award dates, performance or vesting periods, and forfeiture provisions for annual and long-term incentive awards.
As part of our ongoing commitment to monitor pay-for-performance alignment, in October 2020,2022, the ECCECHC Committee reviewed Pearl Meyer's 20192021 pay-for-performance analysis, which confirmed our view that our executive compensation programs contain appropriate elements that are linked to performance and are balanced, fair, competitive, and contain mainstream provisions.competitive.
Role of Management
The
For all NEOs, the CEO recommendsmakes compensation recommendations to the ECC compensation for all other NEOs except the Executive Chairman. Recommendations areECHC Committee based, in part, on each NEO's experience and responsibility level and the CEO's assessment of her or histhe NEO's performance. The CEO works with each NEO at the beginning of the year to identify individual goals that are aligned with strategic objectives within each NEO's scope of responsibility. The CEO reviews each NEO's performance during the year identifying accomplishments, areas of strength, and areas for development. The CEO bases her evaluation on her knowledge of the NEO's performance, and discussions with each NEO about her or his self-assessment. The CEO's recommendation is also basedtheir self-assessment, and on the executive compensation studies described on the following page. The CEO also recommends to the ECCECHC Committee financial and non-financial performance measures and target opportunities under the Company's incentive compensation plans.
Compensation Consultant Independence
The ECC'sECHC Committee's independent compensation consulting firm for 20202022 was Pearl Meyer. Pearl Meyer is engaged by, and reports directly to, the ECC.ECHC Committee. The ECCECHC Committee has the sole authority to hire or terminate its compensation consultant. It is the ECC'sECHC Committee's policy that its Chair pre-approve any additional services its independent compensation consultant performs for management. The ECCECHC Committee reviewed and confirmed Pearl Meyer's independence in 2020.2022.
Executive Compensation Studies
Annually, the ECCECHC Committee reviews the peer group that ALLETE uses for compensation benchmarking purposes. Compensation benchmarking is based on published salary surveys and proxy statement data from compensation benchmarking peer companies. Because there is a strong correlation between executive compensation pay levels and company size, the ECCECHC Committee compares executive pay levels with those at companies that are similar in size to ALLETE as measured by market capitalization and revenue. For this reason, ALLETE's compensation peer group was made up of a subset of all the companies in the EEI Stock Index in 2019,2021, which is the group used to determine the Company's relative TSR under the LTIP. Even within this subset, however, the companies range in size significantly. Accordingly, the compensation data is size adjustedsize-adjusted to establish appropriate market compensation comparisons for ALLETE. In 2019,2021, the ECCECHC Committee approved the following 15-company peer group for 2020:
2022: | | | | | | | | |
Compensation Benchmarking Peer Group |
Alliant Energy Corporation | IDACORP, Inc. | Otter Tail Corporation |
Avista Corporation | MDU Resources Group, Inc. | Otter Tail Corporation |
Avista Corporation | MGE Energy, Inc. | PNM Resources, Inc. |
Black Hills Corporation | MGE Energy,NiSource, Inc. | Pinnacle West Capital Corporation |
El PasoHawaiian Electric CompanyIndustries, Inc. | NorthWestern Corporation | Portland General Electric Company |
Hawaiian Electric Industries,IDACORP, Inc. | OGE Energy Corp. | Unitil Corporation |
During 2019, Vectren Corporation2020, El Paso Electric Company was acquired and CenterPoint Energy, Inc. merged. Based on its revenue size after the merger, Vectren Corporation wasis no longer a publicly traded utility, and is no longer included in ALLETE's compensation benchmarking peer group. With this company's removalEl Paso Electric Company removed from the peer group, Pinnacle West Capital CorporationNiSource, Inc. was added to maintain a comparison group size that was aligned with Pearl Meyer's recommendation.
In October 2019,2021, the ECCECHC Committee directed Pearl Meyer to conduct atwo compensation benchmarking studystudies for ALLETE: one for the then-CEO. AtCEO and another for the same time, in preparation for a potential CEO transition, the ECC directed Pearl Meyer to provide a CEO succession planning analysis that included a benchmarking study for a potential transition role of an Executive Chairman.other NEOs. These studies provided thea basis for compensation recommendations made in February 2020 in relation to Ms. Owen's promotion to CEO and Mr. Hodnik's transition to Executive Chairman.2022.
The October 2019 CEO benchmarking study compared (then-CEO) Mr. Hodnik'sMs. Owen's compensation to an external market using size-adjusted data from published surveys and compensation data disclosed in the proxy statements of the 15-company peer group. The study also analyzed CEO pay-for-performance practices and effectiveness. The Pearl Meyer report indicated that the elements ofALLETE's CEO compensation elements were comparableconsistent with the compensation elements generally provided to market. In offering its CEO succession planning guidance, Pearl Meyer advised that a newly-promoted chief executive officer's compensation typically is set initially at or near the lower end of the overall market range for chief executive officers and increased to the middle of the range within a few years based on performance.
CEOs. The CEO succession planning analysisreport further indicated that inMs. Owen's base salary, annual incentive opportunity, and long-term incentive opportunity were each below the 25th percentile of market median. In setting the CEO's compensation for a transitional executive chair role, long-term incentive opportunities are generally reduced by a greater amount than cash compensation elements. Mr. Hodnik's 2020 compensation was established based on his change2022, the ECHC Committee also considered Ms. Owen's tenure in role and responsibilities, including the level of support he was expected to provide to Ms. Owen and other executive officers, while also maintaining stability and consistency on the Board during the transition.position.
In October 2019, the ECC also directed Pearl Meyer to conduct a compensation study for the other NEOs, excluding (then-CEO) Mr. Hodnik. This study provided the basis for compensation recommendations made in 2020 for the NEOs, except Ms. Owen and Mr. Hodnik. Pearl Meyer's analysis compared the other NEOs'NEO's base salaries and annual and long-term target incentive opportunities to market data using the same survey sources and proxy statement data used in the CEO analysis. The Pearl Meyer report indicated that total direct compensation, base salaries, target total cash compensation,annual incentive opportunities, and long-term incentive opportunities for the other NEOs were, to varying degrees, below market median. In addition to relying on the independent analysis for the other NEOs, the CEO and ECCthe ECHC Committee also considered each NEO's specific roles within the organization and tenure in their position.
Using these processes, ECCand taking into account performance and new roles and responsibilities, where applicable, the ECHC Committee made the following determinations in 2020:2022: (1) the NEOs'each NEO's compensation includesincluded appropriate elements; (2) Ms. Owen's base salary, annual incentiveAIP target opportunity, and LTIP target opportunity should be increased based on her promotion to CEO;increased; (3) in recognition of his Executive Chairman role, Mr. Hodnik'sMorris and Ms. Thickens should receive increases in base salary, AIP target opportunity, and LTIP target opportunity; (4) Ms. Johnson should remain at its previous ratereceive an increase in base salary, AIP target opportunity, and decreased proportionally after May 2020 when his service became less than full-time, his annual incentiveLTIP target opportunity should reflect an amount that was equal to his previous level for the portionand, in light of the year through May 2020 and then reduced by fifty percent for the remainder of 2020, and his long-term incentiveher new role, her AIP opportunity should be substantially reducedtied 75% to ACE performance goals and provided solely in the form of an RSU grant; (4)25% to ALLETE performance goals; and (5) Mr. Morris' and Ms. Thickens'Cutshall's base salaries, annual incentive target opportunities,salary and LTIP target opportunitiesopportunity should be increased; and (5) Mr. Adams' and Ms. Johnson's base salaries should be increased.
HOW WE LINK EXECUTIVE PAY TO PERFORMANCE
A significant portion of our NEO'sNEOs' compensation is tied to Company performance. Annual incentives focus on achieving annual financial, strategic, and operational, and valuessafety goals. Long-term incentives reward long-term profitability, and facilitate stock ownership, as well asand provide an incentive to remain employed with the Company.
Total compensation generally increases as position and responsibility increase; at the same time, a greater percentage of total compensation is tied to performance, and therefore at risk, as reflected in our NEOs' annual and long-term incentive opportunities.
We consider market data and Pearl Meyer's advice in setting executive compensation. We establish market ranges for our NEOs' compensation using data from investor-owned electric utilities. In setting individual compensation, we consider experience in the position, performance, job responsibilities, and relative role among the executive management group. If market data were insufficient to establish a range for a specific position, we would also consider internal equity among our NEOs, taking into account the relative responsibilities for thateach position.
We generally set compensation so that when target performance is achieved under the Company's incentive compensation plans, total compensation is near the market median of ALLETE's compensation peer group. Consistent with our pay-for-performance philosophy, NEOs earn higher compensation when actual performance exceeds target goals. Conversely, when the Company does not meet target goals, total compensation will generally fall below the median.
20202022 total compensation opportunity for thethe NEOs was divided between base salary and incentive opportunities. The charts below illustrate the breakdown of compensation elements expressed as a percentage of total target compensation:
The chart on the right reflects an average, for all NEOs except Ms. Owen and Mr. Hodnikthe CEO, of the percentage of total target compensation that is represented by each compensation element. For both charts, total target compensation is calculated using the NEOs' 20202022 target opportunities for annual and long-term incentives and her or his base salary as of December 31, 2020.2022, except for respect for Mr. Adams whose base salary is as of his retirement in June 2022.
Annual Incentive Awards
At the beginning of each year, the ECC,ECHC Committee, with the CEO,CEO's recommendations, approves performance measures and targets for the annual incentive awards, as well as individual target award opportunities. The ECCECHC Committee has discretion to establish the terms of annual incentive awards and also the ability to reduce, increase, or eliminate awards, regardless of whether applicable performance goals have been achieved. The ECCECHC Committee sets annual incentive opportunity levels for our NEOs such that if the Company achieves target goals, the combination of salary and annual incentives will result in total cash compensation near the market median for ALLETE's compensation peer group.
| | | | | | | | | | | | | | |
2020 Annual Incentive2022 AIP Target Opportunities |
| | | Annual IncentiveAIP Target Opportunity as a
Percentage of Base Salary | |
| Ms. Owen | | 90.0% | |
| Ms. OwenMr. Morris1
| | 78.75%54.2% | |
| Mr. HodnikMs. Thickens2
| | 75.2% | |
| Mr. Adams | | 65%48.3% | |
| Ms. Johnson | | 45%50.0% | |
| Mr. MorrisCutshall | | 40%45.0% | |
| Ms. ThickensMr. Adams | | 40%65.0% | |
1 Ms. Owen'sMr. Morris' total 20202022 target opportunity was prorated, with 1/12 at 65%a 45% target opportunity and 11/12 at 80%,a 55% target opportunity, resulting in an average of 78.75%.54.2% target opportunity.
2 Mr. Hodnik'sMs. Thickens' total 20202022 target opportunity was setprorated, with 4/12 at $415,200, which was equal to 100%a 45% target opportunity and 8/12 at 50% target opportunity, resulting in an average of his annualized base salary for the period January through May and 50% for the period June through December.48.3% target opportunity.
The 2020 annual incentiveALLETE AIP performance goals, weighting, and measures applicable tofor all NEOs, except Ms. Johnson, were as follows:
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ALLETE Annual IncentiveAIP Performance Goals, Weighting, and Measures | |
Performance Goals | | Weighting | | Measures | |
| | | | Threshold | | Target | | Superior | |
Net Income1 | | 50% | | $167.2179.0 million | | $185.8198.9 million | | $204.4218.8 million | |
Cash from Operating Activities2 | | 20% | | $296.7330.6 million | | $329.7367.3 million | | $362.7404.0 million | |
Strategic | | 18% | | Described below.Below | |
Operational and Values | | 12%6% | | |
Safety | | 6% | | |
1 Threshold net income was set at 90 percent of the Company's budgeted net income, target was set at budget, and superior was set at 110 percent of budget. Net income for annual incentive calculation purposes is described in more detail below.
2 Threshold cash from operating activities goal was set at 90 percent of the Company's budgeted cash from operating activities;activities, target goal was set at budget, and superior goal was set at 110 percent of budget. Cash from operating activities for annual incentive calculation purposes is described in more detail below.
ALLETE Annual IncentiveAIP Financial Goals
The 2020 annual incentive2022 AIP financial measures, established at the beginning of the 20202022 plan year, were net income (weighted at 50%) and cash from operating activities (weighted at 20%). The ECCECHC Committee selected net income because it is a widely-used financial performance measure that reflects the combination of revenuerevenue generation and expense management. Cash from operating activities was selected because it indicates the Company's ability to generate funds internally for capital projects, to repay debt, and to pay dividends and interest. Both measures also can affect the Company's stock price.
•ALLETE Net Income. For annual incentive purposes, net income means Net Income Attributable to ALLETE adjusted in connection with the following: (1) net income associated with ALLETE Properties operations; (2) net income related to ALLETE Properties cash released from escrow (3) Minnesota Power rate case settlement; and (4) adjustments related to acquisition activities and associated operations.
•Cash from Operating Activities. For annual incentive purposes, cash from operating activities means Cash from Operating Activities adjusted in connection with the following: (1) cash associated with ALLETE Properties operations; (2) cash released from escrow related to ALLETE Properties; (3) a pension contribution made in cash; (4) refunds related to Minnesota Power rate case settlement; (5) cash related to acquisition activities; and (6) asset decommissioning expenses in excess of budget.
With respect to both the Net Income and Cash from Operating Activities metrics, the ECCECHC Committee established thespecific exclusions and adjustment guidelines at the beginning of the performance period.
ALLETE Annual IncentiveAIP Strategic, Goals and Operational, and ValuesSafety Goals
AIP also rewards strategic, operational, and safety performance. Each year, the ECHC Committee reviews the allocation between financial goals and strategic, operational, and safety goals. For 2022, our strategic, operational, and safety goals remained at a combined 30 percent of the overall opportunity and the achievement of these goals is measured independently of the financial goals. Therefore, it would have been possible to earn an annual incentive payout based on achieving strategic, operational, and safety goals even if financial goals had not been met.
Strategic, operational, and safety goals are linked to strategic, operational, and safety objectives and are also aligned with ALLETE's 2020core values: integrity, safety, people, and planet.
ALLETE's 2022 strategic goals were to addressadvance customer competitiveness, toadvance transmission strategy, and advance sustainability in all dimensions. Specific sustainability goals encompassed the following: continuing to reduce carbon emissions; implementing solar projects; advancing DE&I in our workforce, supply chain, communications, customers, and to enhance customer experiences.
Operationalcommunity giving; and values goals are linked toenhancing sustainability communication and disclosures. Our 2022 operational objectives and ALLETE's core values: integrity, safety, employee growth, community engagement, and environmental stewardship. Our 2020 operational and values goals were designed to demonstrate continuous safety improvement, as well as ALLETE's commitment to the environment and customer service as measured by goals relating to safety leading and lagging indicators, environmental stewardship, and system reliability.
The Specifically, operational goals are focused on system reliability and were measured quarterly by the System Average Interruption Duration Index, System Average Interruption Frequency Index, and Customer Average Interruption Duration Index relative to the EEI utilities' three-year average results. TheSafety goals were designed to demonstrate continuous safety goalimprovement, which we measure based on both leading and lagging indicators. Safety goals included tracking the number and severity of incidents recorded with the Occupational Safety and Health Administration while alsoand implementing proactive safety measures designed to support "zero injury" efforts.efforts, such as the ALLETE Moves stretching program and leadership safety conversations. An employee fatality, or a willful disregard of an environmental, reliability, or any Federal Energy Regulatory Commission regulation or standard, would have resultedresult in a reduction to, or non-payout for this goal.of, safety goals.
The ECC reviews the allocation between financial and strategic and operational goals each year. For 2020, our strategic goals and our operational and values goals represented a combined 30 percent of the overall opportunity and their achievement was measured independently of the financial goals. Therefore, it would have been possible to earn an annual incentive payout based on achieving strategic and operational and values goals even if financial goals had not been met.
The CEO, with input from senior management, reports the progress made on strategic goals and operational and value goals to the ECC.ECHC Committee. The ECCECHC Committee then determines the extent to which performance targets have been achieved.
2020 Annual Incentive2022 AIP Results
TheAll NEOs, except Ms. Johnson, earned 100.3104.2 percent of their 2020respective 2022 target annual incentive opportunity (compared to 94.9115.3 percent in 2019)2021). As disclosed in ALLETE's 202 Annual Report on Form 10-K for the year ended December 31, 2020, Net Income Attributable to ALLETE was $174.2 million (compared to $185.6 million for 2019). Cash from Operating Activities was $299.8 million (compared to $249.5 million for 2019). Annual incentives also reward strategic and operational accomplishments.
To calculate the financial goals for annual incentiveAIP purposes, the ECCECHC Committee established specified adjustmentsexclusions and exclusionsadjustment guidelines at the beginning of the plan year. The ECCECHC Committee also determined at the beginning of the plan year that it would make any determinations regardingevaluate on a case-by-case basis the effect of discrete, non-recurring events that might occur during the plan year.
As disclosed in ALLETE's Form 10-K for the year ended December 31, 2022, prior to adjustment, Net Income Attributable to ALLETE was $189.3 million (compared to $169.2 million for 2021). That amount was then increased by an overall $10.72 million, in accordance with the ECHC Committee's predetermined exclusions and its guidelines for evaluating, on a case-by-case basis.
Our 2020basis, the impact of discrete, non-recurring events that occur during the plan year, to reflect the following adjustments to net income for AIP was increased by a totalpurposes: (1) the exclusion of $10.26 million. The ECC made the following adjustments based on the pre-established adjustments and exclusions: (1) net income associated with ALLETE Properties operationsfinancial results (decreased net incomeby
$4.19 million); (2) the strategic decision to defer into 2023 a solar project budgeted for 2022 (increased by $.4$5.03 million); and (2) adjustments related to acquisition activities and associated operations (increased net income by $1.02 million). In addition, the ECC made discretionary adjustments based on its review of the(3) a reserve adjustment following non-recurring events: (1) net income related to ALLETE Properties cash released from escrow (increased net income by $1.34 million); and (2) the Minnesota Power rate case settlementoutcome in 2022 (increased net income by $8.3$12.3 million); and (4) acquisition activities and post-acquisition operations of New Energy (decreased by $2.42 million). After these adjustments, 2020exclusions, 2022 net income for annual incentiveAIP purposes was slightly belowabove target at $184.5$200.0 million.
Our 2020As disclosed in ALLETE's Form 10-K for the year ended December 31, 2022, Cash from Operating Activities for the year ended December 31, 2022, prior to adjustment, was $221.3 million (compared to $263.5 million for 2021). That amount was then increased by an overall $114.82 million in accordance with the ECHC Committee's predetermined exclusions and its guidelines for evaluating, on a
case-by-case basis, the impact of discrete, non-recurring events that occur during the plan year, to reflect the following adjustments to cash from operating activities for AIP was increased by a total of $25.55 million. The ECC made adjustments based on the pre-established adjustments and exclusions in connection with the following:purposes: (1) cash associated with ALLETE Properties operations (decreased cash from operating activities by
$0.6 $4.85 million); (2) a pension contribution made in cash (increased cash from operating activitiesthe timing of accounting for the Minnesota Power fuel adjustment clause true-up (decreased by
$10.68 $15.07 million); (3) cash related to acquisition activitiesACE's build-own-transfer construction projects that are included in inventory (increased cash from operating activities by
$.98 $117.95 million); and (4) asset decommissioning expense in excesspost-acquisition operations of budgetNew Energy (increased cash from operating activities by $0.7 million). In addition, the ECC made a discretionary adjustments based on its review of the following one-time events: (1) cash released from escrow related to ALLETE Properties (increased cash from operating activities by $2.09 million); and (2) customer refunds related to Minnesota Power's rate case settlement (increased cash from operating activities by $11.7$16.79 million). After these adjustments, 20202022 cash from operating activities for annual incentiveAIP purposes was slightly below targetabove threshold at $325.4$336.1 million.
ALLETE'sWith respect to strategic, and operational, and valuessafety goals werewe achieved at a combined level that fell between target and threshold.superior.
The ALLETE annual incentiveAIP results were calculated as follows: | | | | | | | | | | | | | | | | | | | | |
2022 ALLETE AIP Payout |
Performance Goal | | Weighting | | Unweighted Results | | Payout1 |
Net Income | | 50% | | 105.6% | | 52.8% |
Cash from Operating Activities | | 20% | | 55.5% | | 11.1% |
Strategic Goals | | 18% | | 161.1% | | 29.0% |
Operational Goals | | 6% | | 95.0% | | 5.7% |
Safety Goals | | 6% | | 93.3% | | 5.6% |
Total | | 100% | | | | 104.2% |
| | | | | | | | | | | | | | | | | | | | |
2020 ALLETE Annual Incentive Payout |
Performance Goal | | Weighting | | Unweighted Results | | Payout1 |
Net Income | | 50% | | 96.4% | | 48.2% |
Cash from Operating Activities | | 20% | | 93.5% | | 18.7% |
Strategic Goals | | 18% | | 144.4% | | 26.0% |
Operational and Values Goals | | 12% | | 61.7% | | 7.4% |
Total | | 100% | | | | 100.3% |
1 Payout is expressed as a percentage of the NEO's annual incentive target opportunity.
Ms. Johnson's 2022 AIP performance goals, weighting, and measures were divided between the ALLETE AIP program described above and the ACE program. Ms. Johnson earned 87.3 percent of her 2022 target annual incentive opportunity. Ms. Johnson was named ALLETE Vice President and ACE President in August 2022. For the period January through August 2022, Ms. Johnson's AIP award was tied 100 percent to ALLETE's performance goals, which paid out at 104.2 percent of target opportunity; for the period September through December, 25 percent of Ms. Johnson's award was tied to ALLETE goals and 75 percent of her award was tied to ACE performance goals, which paid out at 36.6 percent of target opportunity. ACE's net income and return on capital results were below threshold (resulting in no payout) and ACE's strategic and operational goals were achieved at below-target levels (resulting in a 20.8 percent payout). The ACE 2022 annual incentive goals, weighting, measures, and results were as follows:
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ACE 2022 AIP Performance Goals, Weighting, Measures, and Results |
| Threshold | Target | Superior | Actual | Weighting | Unweighted Results | Payout1 |
| | | | | | | |
Financial Metrics |
ALLETE Net Income2 | $179.0 million | $198.9 million | $218.8 million | $200 million | 15.0% | 105.3% | 15.8% |
ACE Net Income3 | $38.2 million | $42.4 million | $46.6 million | $16.3 million | 30.0% | —% | —% |
ACE Return on Capital4 | 4.7% | 5.5% | 6% | 1.9% | 15.0% | —% | —% |
| | | | | | | |
Strategic Goals |
Portfolio Optimization | Develop Long-term Solutions for Legacy Fleet | Threshold | 15.0% | 50.0% | 7.5% |
Advance and Execute Project Development Pipeline | Below Threshold | 15.0% | —% | —% |
| | | | | | | |
Operational and Safety Goals |
Revenue-Weighted Fleet Availability (Relative to three-year historical fleet-wide average) | 95.0% | 97.0% | 98.0% | 95.6% | 5.00% | 66% | 3.3% |
Safety Conversations | 98% | 99% | 100% | 100% | 1.25% | 200% | 2.5% |
Safety Conversations: Quality Surveys Participation | 70% | 80% | 90% | 95.4% | 1.25% | 200% | 2.5% |
ALLETE Moves Stretching Program (Employees record activity sessions at least eight times per month) | 85% | 90% | 100% | 100% | 1.25% | 200% | 2.5% |
Safety Severity Rate (Lost workdays per 100 employees) |
60th percentile (16.91) |
75th percentile (10.88) |
80th percentile (5.6) |
100th percentile (0) | 1.25% | 200% | 2.5% |
| | | | | | | |
| Total | 36.6% |
1 Payout is expressed as a percentage of annual incentive target opportunity.
2 Threshold net income was set at 90 percent of ALLETE's budgeted net income, target was set at budget, and superior was set at 110 percent of budget. Net income for annual AIP calculation purposes is described in more detail starting on page 44.
3 Threshold net income was set at 90 percent of ACE's budgeted net income, target was set at budget, and superior was set at 110 percent of budget. ALLETE net income for AIP calculation purposes is described in more detail above.
4 Threshold return on capital net income was set at ACE's budgeted return on capital, target was set at 105 percent of budget, and superior was set at 110 percent of budget. Return on capital for AIP purposes is calculated by adding ACE's after-tax interest expense to ACE's net income and dividing that sum by ACE's debt and equity.
The ECCECHC Committee believes that the annual incentiveAIP provides appropriate motivation and does not encourage excessive business risks because it has multiple goals that align with the objectives of different stakeholders (e.g., shareholders, customers, regulators, and employees). The annual incentive provides payment opportunity levels that are market-competitive, and includes a cap on the maximum award amount.
Long-Term Incentive Awards: PSAs and RSUs
We use long-term incentive compensation to reward executives for achieving business objectives that are designed to grow long-term shareholder value. The time-vesting and forfeiture provisions associated with long-term incentive compensation also encourage NEOs to stay with the Company. Long-term incentive compensation elements consist of PSAs and RSUs.
The ECCECHC Committee grants the PSAs and RSUs under the LTIP in Januaryat the beginning of each year. Although the ECCECHC Committee can make additional grants at other times of the year, it did not do so in 20202022 for any NEO.NEO with the exception of an additional grant for Mr. Morris due to his promotion to CFO. We do not time equity awards to the release of material, non-public information. ECCECHC Committee meeting schedules are generally set six months prior to the start of the calendar year.
Performance Share Awards (PSAs)
PSAs reward executives for performance over a three-year period. Rewarding executives for creating long-term shareholder value links pay to performance.
For all outstanding performance periods, that include 2020 performance, performance is measured, in whole or in part, by ALLETE's TSR (i.e., the investment return for a share of Common Stock, assuming full dividend reinvestment) relative to a group of peer companies. The ECCECHC Committee selected relative TSR because it measures the value shareholders realize from their investment in Common Stock as compared to investment opportunities available in comparable companies. Beginning with the 2020-2022 performance period, performance is also was measured by EPS CAGR. The ECCECHC Committee selected EPS CAGR because it measures, in absolute terms, how the Company's earnings per share over the three-year period compares to our established long-term growth objectives.
The performance period begins on the first day of the first calendar month in thethree-year performance period. The payment amount of the payment with respect to any award is determined at the end of the three-year period. In 2020,2022, NEOs were granted PSAs for the three-year performance period beginning on January 1, 2020,2022, and ending on December 31, 2022.2024.
For the 2020-20222022-2024 performance period, the ECHC Committee set target relative TSR was set at the
50th percentile among the peer group, with threshold set at the 30th percentile, and superior set at the 85th percentile. If ALLETE's relative TSR percentile at the end of the performance period falls below threshold, no PSAs will be earned. Straight-line interpolation will be used to determine earned awards based on a relative TSR percentile result between threshold, target, and superior.
For all outstanding performance periods, that include 2020 performance (2018-2020, 2019-2021, and 2020-2022), ALLETE's TSR was or will be compared to the TSR of a peer group made up of the companies in the EEI Stock Index. The ECCECHC Committee believes that the companies comprising the EEI Stock Index reflect comparable investment alternatives available to shareholders. The specific peer group we use consists of all the companies that were in the EEI Stock Index as of December 31 of the last year in each three-year performance period, and that have been in the EEI Stock Index for at least three full years as of that date.
The EEI Stock Index companies as of December 31, 2020,2022, based on information published as of that date, were as follows:
| | | | | | | | |
TSR Peer Group Companies* |
Alliant Energy Corporation | Entergy Corporation | Otter Tail Corporation |
Ameren Corporation | Evergy, Inc. | PG&E Corporation |
American Electric Power Company | Eversource Energy | Pinnacle West Capital Corporation |
Avangrid, Inc. | Exelon Corporation | PNM Resources, Inc. |
Avista Corporation | FirstEnergy Corp. | Portland General Electric Company |
Black Hills Corporation | Hawaiian Electric Industries, Inc. | PPL Corporation |
CenterPoint Energy, Inc. | IDACORP, Inc. | Public Service Enterprise Group, Inc. |
CMS Energy Corporation | MDU Resources Group, Inc. | Sempra Energy |
Consolidated Edison, Inc. | MGE Energy, Inc. | The Southern Company |
Dominion Energy, Inc. | NextEra Energy, Inc. | Unitil Corporation |
DTE Energy Company | NiSource, Inc. | WEC Energy Group, Inc. |
Duke Energy Corporation | NorthWestern Corporation | Xcel Energy Inc. |
Edison International | OGE Energy Corp. | |
* Companies can be dropped from or added to the EEI Stock Index during the performance period due to mergers or other activities. If a company is dropped from the EEI Stock Index during the performance period, no information related to that company will be included in the performance calculation. A company that is newly added to the EEI Stock Index after the start of the performance period also will be excluded from the performance calculation. If a company in the EEI Stock Index at the beginning of a performance period undergoes a corporate restructuring during the performance period and the company remains in the EEI Stock Index following the transaction, the company will be included in the performance calculation. During 2018, two companies in the EEI Stock Index Great Plains Energy Incorporated and Westar Energy, Inc. merged to create Evergy, Inc. During 2019, SCANA Corporation merged with Dominion Energy, Inc., and Vectren Corporation merged with CenterPoint Energy, Inc. During 2020, El Paso Electric was dropped from the EEI Stock Index after being acquired by a private investment fund.
During the three-year performance period ending on December 31, 2020,2022, ALLETE's shareholders realized a TSR of negative 7.910.3 percent, ranking us in the 8th2nd percentile of the company peer group companies, and resulting in no PSA payout.
For the 2020-2022 performance period, EPS CAGR was measured using as a baseline ALLETE's EPS for the year ending December 31, 2019, adjusted to exclude the gain on the sale of U.S. Water Services and results from U.S. Water Services operations, and calculating ALLETE's annual EPS, with those exclusions, at the end of the three-year performance period. During the three-year performance period ending on December 31, 2022, ALLETE EPS CAGR was negative two percent, ranking us below threshold, and resulting in no PSA payout.
For the 2021-2023 performance period, EPS CAGR will be measured using as a baseline ALLETE'spro forma EPS for the year ending December 31, 2019 as the baseline,2020 and calculating ALLETE's annual pro formaEPS at the end of the
three-year performance period.For the 2022-2024 performance period, EPS CAGR will be measured using as a baseline ALLETE's EPS for the year ending December 31, 2020 and calculating ALLETE's annual EPS at the end of the three-year performance period. Target was set at the midpoint of earnings guidance, or six percent, with threshold at four percent, and superior at eight percent. If the EPS CAGR percentage result at the end of the performance period is below threshold, no PSAs with the EPS CAGR performance metric will be earned. Straight-line interpolation will be used to determine earned awards based on the EPS CAGR percentage result between threshold, target, and superior.
Restricted Stock Units (RSUs)
RSUs are used as a retention incentive and to encourage stock ownership. One RSU entitles the granteeNEO to receive one share of Common Stock and accrued dividend equivalents after the RSU vests at the end of a three-year period.
The table below shows 2020 long-term incentive2022 LTIP target opportunities for the NEOs. For all NEOs, except Mr. Hodnik, the target opportunities were allocated as follows: 75 percent to PSAs (half of which use relative TSR as the performance metric and half of which use EPS CAGR as the performance metric) and 25 percent to RSUs. For Mr. Hodnik, his target long-term incentive opportunity was allocated 100 percent to RSUs to align with his transition to Executive Chair and planned retirement in 2021. The Company retained MercerWillis Towers Watson to calculate the estimated fair value of PSAs. For PSAs with relative TSR as the associated performance measure, the estimated fair value reflects a modeled probability of achieving the performance goals, employing a Monte-Carlo simulation model that uses an underlying Black-Scholes methodology.model. The target number of PSAs (TSR) is determined by dividing each NEO's target award opportunity—shown in the table below—by $89.99$77.61, the estimated fair value of a PSA (TSR) as of December 31, 2019.2021. For PSAs with EPS CAGR as the associated performance metric, the valuation was calculated using a per-share value of $81.17,$66.35, the closing price for Common Stock on
December 31, 2019.2021. The number of RSUs granted to the NEOs was also calculated using a per-share value of $81.17.$66.35.
| | | | | | | | | | | | | | | | | | | | | | | |
LTIP Target Opportunities for 2022–2024 Performance Period |
| Total Target Opportunity | | Allocation of Long-Term Incentive Plan Target Opportunity |
| | PSAs with TSR Performance Metric | PSAs with EPS CAGR Performance Metric | PSAs as % of Total Target Opportunity | RSUs | RSUs as % of Total Target Opportunity |
Ms. Owen | $850,000 | | 4,107 | | 4,804 | | 75% | 3,203 | 25% |
Mr. Morris | $250,000 | | 1,208 | | 1,413 | | 75% | 942 | 25% |
Ms. Thickens | $200,000 | | 966 | | 1,130 | | 75% | 754 | 25% |
Ms. Johnson | $225,000 | | 1,087 | | 1,272 | | 75% | 848 | 25% |
Mr. Cutshall | $200,000 | | 966 | | 1,130 | | 75% | 754 | 25% |
Mr. Adams | $350,000 | | 1,691 | | 1,978 | | 75% | 1,319 | 25% |
| | | | | | | | | | | | | | | | | | | | | | | |
Long-Term Incentive Target Opportunities for 2020–2022 Performance Period |
| Total Target Opportunity | | Allocation of Long-Term Incentive Plan Target Opportunity |
| | PSAs with TSR Performance Metric | PSAs with EPS CAGR Performance Metric | % of Total Target Opportunity | RSUs | % of Total Target Opportunity |
Ms. Owen | $600,000 | | 2,500 | | 2,772 | | 75% | 1,848 | 25% |
Mr. Hodnik | $400,000 | | — | | — | | — | 4,928 | 100% |
Mr. Adams | $350,000 | | 1,458 | | 1,617 | | 75% | 1,078 | 25% |
Ms. Johnson | $200,000 | | 833 | | 924 | | 75% | 616 | 25% |
Mr. Morris | $150,000 | | 625 | | 693 | | 75% | 462 | 25% |
Ms. Thickens | $175,000 | | 729 | | 808 | | 75% | 539 | 25% |
The ECCECHC Committee has discretion to modify or eliminate awards, whether or not performance goals have been achieved. The ECCECHC Committee did not exercise discretion to modify or eliminate LTIP awards during 2020.2022.
OTHER GUIDELINES, POLICIES, BENEFITS, AND PRACTICES
Executive StockShare Ownership Guidelines
We believe NEOs should be ALLETE shareholders to encourage them to act as owners and focus on long-term, sustained performance when making business decisions. We use Common Stock to fund NEO'sNEOs' long-term incentive compensation and a portion of the Company's contribution to NEOs'
tax-qualified, defined-contribution retirement savings plan accounts.
NEOs are expected to own Common Stock in accordance with theUnder our share ownership guidelines that have been established by the Corporate GovernanceCG Committee as discussed on page 29. 30, Ms. Owen is expected to own shares of Common Stock that have a value equal to five times her annual base salary. Mr. Morris is expected to own shares of Common Stock that have a value equal to three times his annual base salary. All other NEO are expected to own shares of Common Stock that have a value equal to their respective annual base salary.
Common Stock may be owned directly by the NEO, owned jointly with or separately by the NEO's spouse, or held in trust for the benefit of the NEO, the NEO's spouse, or the NEO's dependent children. RSUs that have been granted but not yet time-vested are counted as Common Stock under the share ownership guidelines.
The applicable share ownership guidelines are as follows:essentially require that NEOs retain 100% of any Common Stock they receive under the LTIP (after share withholding to satisfy tax obligations) until they have achieved the applicable ownership guideline.
| | | | | | | | | | | | | | |
| Executive Stock Ownership Guidelines | |
| Position | | Stock Ownership Value as Multiple of Salary1
| |
| Chief Executive Officer | | 5X | |
| Executive Chairman | | 3X | |
| Chief Financial Officer | | 3X | |
| Other NEOs | | 1X | |
| | | | |
1 The salary used to calculate Mr. Hodnik's stock ownership guideline takes into account that his service is less than full-time.
NEOs are expected to meet her or his stocktheir share ownership guideline within seven years after first becoming subject to the stock ownership guidelines. An NEONEOs who isare promoted to a position with a higher stock ownership expectation hashave five years from the promotion to meet her or histheir new guideline.
The stock ownership guidelines essentially require that each NEO retain 100% of any equity she or he receives under the LTIP (after share withholding to satisfy tax obligations) until she or he has achieved the applicable ownership guideline.
At least annually, the Corporate GovernanceCG Committee reviews Common Stock ownership to confirm that the NEOs have met or are making reasonable progress toward their stock ownership guidelines.
The Corporate GovernanceCG Committee may onreduce the share ownership guideline for a case-by-case basis, make adjustmentsDirector or NEO following a publicly announced plan to stock ownership guidelines to fit a particular situation.retire or in other circumstances the CG Committee deems appropriate.
Each NEO has already met, her or his stock ownership guideline or is making reasonable progress toward meeting, thetheir share ownership guideline. Common Stock ownership levels as of March 12, 2021,10, 2023, and how ownership is measured against stockshare ownership guidelines as of March 12, 2021,10, 2023, are shown in the table on page 11.9.
Compensation Recovery Policy
Our Compensation Recovery Policy, sometimes called a clawback policy, allows ALLETE to recover incentive payments and other forms of compensation from NEOs if any of the following events occur:
•Financial restatement. In the event of an accounting restatement due to material non-compliance with financial reporting rules, we can recover any excess payments made pursuant to the AIP or the LTIP in the three-year period prior to the date on which the Company is required to prepare the restatement.
•Error. In the event of a material error in the measurement of performance criteria, we can recover any excess payments made pursuant to the AIP or the LTIP during the three years prior to the discovery of the error.
•Misconduct. If an NEO engages in criminal behavior or work-related dishonesty, we can recover any AIP awards, LTIP awards, and bonuses that were paid during and subsequent to the period of misconduct.
Shareholder Advisory Voting on Executive Compensation
Each year, shareholders cast an advisory vote on executive compensation, commonly known as a "say-on-pay.
"say-on-pay." At the 20202022 Annual Meeting, more than 9592.9 percent of the votes cast by our shareholders approved the Company's 20192021 executive compensation on an advisory basis.
We believe that this say-on-pay vote affirms our executive compensation philosophy and objectives. The ECCECHC Committee considers the result of the say-on-pay vote as it makes its compensation decisions and the most recent shareholder advisory approval was a factor in the ECC'sECHC Committee's decision not to make any fundamental changes to ALLETE's executive compensation program.
At the Company's 2017 Annual Meeting, shareholders supported the Company's recommendation to hold theWe believe that holding an advisory shareholder say-on-pay vote on an annual basis. We believe annual say-on-pay voting promotesbasis is the appropriate frequency to promote shareholder awareness of executive compensation and allowsto allow shareholders to provide feedback about ALLETE's executive compensation practices on a regular basis. Annual
say-on-pay voting is also consistent with ALLETE's desire to maintain effective relationships with our shareholders. We will hold a say-on-pay vote on an annual basis until the next advisory vote on the frequency of say-on-pay proposals.
Pledging, Hedging, and Short Sales by NEOs Prohibited
NEOs are prohibited from holding Common Stock in a margin account or otherwise entering into any pledge arrangement that would permit a third party to sell the securities without the NEO's consent or knowledge. In addition, no NEONEOs may not enter into any transaction that allows him or herthem to be insulated from the full risk or reward of Common Stock ownership (i.e., hedging) norand NEOs may an NEOnot enter into any transaction that allows him or hercould result in allowing them to benefit iffrom a decrease in the value of the Common Stock decreases (i.e.(e.g., short sale).
Retirement and Other Broad-Based Benefits
We provide benefits, including retirement benefits, to attract and retain executive talent. Retirement benefits also reward long-term service with the Company. NEOs are eligible for retirement benefits under the same plans available to other eligible employees. NEOs are also eligible for supplemental retirement benefits under our supplemental executive retirement plans.
NEOs participate in a range of broad-based employee benefits, including vacation pay, sick pay, disability benefits, a flexible compensation plan, an employee stock purchase plan, group term life insurance, and both active and post-retirement health benefits.
Tax-Qualified Retirement Benefits
For all NEOs other thanexcept Ms. Thickens, who was hired after September 2006, we provide tax-qualified retirement benefits from two primary sources: (1) the RSOP, a defined-contribution retirement savings and stock ownership plan, and (2) traditional defined benefit pension plans. Since October 2006, we have emphasized delivering nonunion retirement benefits through the RSOP; therefore, for Ms. Thickens, her tax-qualified retirement benefit comes only from the RSOP. Both the RSOP and pension plan benefits are intended to be tax-qualified.
The RSOP has features of both an employee stock ownership plan and a 401(k) savings plan. NEOs may elect to defer salary into the RSOP up to the limits imposed by the Tax Code and the RSOP. In addition, we contribute to the NEOs' RSOP accounts a matching contribution of up to four percent of base salary for all NEOs, except Ms. Thickens, and up to five percent for Ms. Thickens. All NEOs, except Ms. Thickens, are also eligible for an annual Company contribution of between 8.5 percent and 11.5 percent of base salary, depending on the NEO's age. Ms. Thickens is eligible for an annual contribution of six percent. AmountsThe amount contributed by the Company to the NEOseach NEO under the RSOP areis included in column (h) of the Summary Compensation Table on page 54.56.
For the nonunion pension plans, only service through September 30, 2006 will be counted as credited service for calculating her or his benefit under the pension plans. Mr. Hodnik's credited service for purposes of his union pension plan benefit reflects the actual years that he was a participant in the union pension plan. In 2018, after assessing Company cost competitiveness and reviewing benefits benchmarking data, we froze pension plan benefits for all nonunion employees; no earnings after November 30, 2018 will be considered for calculating the pension benefits. The present value of each eligible NEO's pension benefits as of December 31, 2020,2022, is shown in the Pension Benefits table on page 61.64. The 20202022 increase in the pension benefits value for each eligible NEO is included in
column (g) of the Summary Compensation Table on page 54.56.
Supplemental Executive Retirement Benefits
We provide supplemental retirement benefits to NEOs through the SERP, our non-tax-qualified retirement plan. Generally, the SERP is designed to provide benefits that, in the aggregate, substantially equal the benefits the NEOs would have been entitled to receive if the Tax Code did not limit the types and amounts of compensation that can be considered under tax-qualified benefit plans. Providing SERP benefits is also a recruiting and retention strategy for executive talent because it provides additional retirement planning opportunities.
The SERP has three components: a supplemental pension benefit, a supplemental defined contribution benefit, and a deferral account benefit. The SERP benefits are discussed in more detail starting on page 63.65.
Perquisites
The Company gives executives limited perquisites. Perquisites are tailored to the individual NEO, take into account business purpose, and may include: club memberships; reimbursement for financial and tax planning services; identity theft coverage; office parking spaces; approved travel, meal, and entertainment expenses for spouses; and executive physicals. As required by the Tax Code, we impute income to the NEOs for reimbursement of personal expenses; we provide no tax gross-ups for this imputed income.
The ECCECHC Committee has reviewed all perquisites and determined that they are a minimal component of total compensation and facilitate the NEOs' performance of their job responsibilities.In 2020,2022, each NEO received less than $10,000 in perquisites.
Severance Benefits
We have no employment agreements with any of our NEOs. Under the CIC Severance Plan, NEOs could receive severance benefits in connection with a change in control of the Company. The CIC Severance Plan would provide benefits in the event of an involuntary termination of employment (or resignation following certain unfavorable changes made to an NEO's duties, compensation, or benefits) occurring within six months before, or up to two years after, a change in control. The CIC Severance Plan is designed to encourage executives to remain dedicated and objective when evaluating transactions that could result in a loss of employment in connection with a potential change in control and to minimize the risk that executives would depart prior to a change in control. The ECCECHC Committee believes that the most effective way to accomplish these objectives is to require both a change in control and termination of employment before severance benefits are paid. This ensures that NEOs would not receive severance benefits unless they are adversely affected by a change in control.
TheDuring 2022, the CIC Severance Plan would providehave provided Ms. Owen Mr. Hodnik, and Mr. AdamsMorris with a lump-sum severance payment equal to two and one-half times their annual cash compensation. The CIC Severance Plan would providehave provided Ms. Thickens, Ms. Johnson, and Mr. Morris, and Ms. ThickensCutshall with a lump-sum severance payment equal to two times their annual cash compensation. Mr. Adams' eligibility for benefits under the CIC Severance Plan ended upon his retirement in June 2022. The CIC Severance Plan also contains a modified payment cap whereby the payment would be reduced below the Tax Code Section 280G safe harbor amount if that would result in a greater after-tax amount to the NEO than the after-tax amount that would be retained if the Company paid an unreduced benefit subject to the excise tax. We provide no tax gross-up in connection with any severance payments under the CIC Severance Plan. As it does each year, the ECCECHC Committee reviewed the terms of the CIC Severance Plan in 2020,2022, in consultation with Pearl Meyer, and believes that the CIC Severance Plan aligns with mainstream practice.
The SERP II includes a change in control provision that accelerates payment of the supplemental executive retirement benefits and deferral account benefits, earned after December 31, 2004, upon a termination of employment in connection with a change in control. There are also change in control features in both the AIP and the LTIP. The change in control features in the SERP II, the AIP, and the LTIP are designed to protect NEOs from losing previously-granted benefits on account of a change in control.
The potential value of the change in control severance benefits is discussed more fully in the “Potential Payments Upon Termination or Change in Control” section starting on page 66.69.
Tax and Accounting Considerations
We attempt to structure NEOs' compensation in a manner that maximizes the Company's ability to recognize tax-deductions. Section 162(m)tax deductions and we consider the accounting implications of our compensation elements. Because the Tax Code limitsprimary objectives of our compensation programs are tied to $1 millionperformance, however, the amountECHC Committee may design a compensation structure regardless of compensation that we may deduct in any year with respect to our NEOs and any other employee who waswhether it qualifies for a covered employee for Section 162(m) purposes for any preceding taxable year. For periods before 2018, that limit did not apply to “performance-based compensation” within the meaning of Section 162(m). Recognizing the need to maintain flexibility in administering our executive compensation program, and changestax deduction or more favorable accounting treatment if deemed in the Company's best interest. We do not provide tax law,gross-ups on payments to NEOs, except in connection with relocation expenses covered under the ECC has the authority to approve compensation that may not be tax deductible.Company's broad-based relocation policy.
Section 280G of the Tax Code limits the amount that we may deduct for payments in connection with a change in control, commonly referred to as “parachute payments." If total payments to any covered individual in connection with a change in control exceed the Section 280G limits, the Company's deduction would be limited and the recipient's parachute payments would be subject to an excise tax. The CIC Severance Plan has a modified severance payment cap that limits payments to a level below the safe harbor amount provided by Tax Code Section 280G if the NEO would retain a greater after-tax amount than the after-tax amount that would be retained if the Company paid an unreduced benefit that was subject to the excise tax.
In addition to tax deductibility, we also consider the accounting implications of each compensation element. Because the primary objectives of our compensation programs are tied to performance, however, the ECC may design a compensation structure regardless of whether it qualifies for a tax deduction or more favorable accounting treatment if deemed in the Company's best interest. We do not provide tax gross-ups on payments to NEOs, except in connection with relocation expenses covered under the Company's broad-based relocation policy.
EXECUTIVE COMPENSATION AND HUMAN CAPITAL COMMITTEE REPORTREPORT
The CompensationECHC Committee has reviewed the CD&A and discussed it with management. Based upon such review and the related discussions, the CompensationECHC Committee has recommended to the Board that the CD&A be included in this Proxy Statement and ALLETE's 2020 Annual Report on
Form 10-K.10-K for the year ended
December 31, 2022.
March 25, 202123, 2023
Executive Compensation and Human Capital Committee
Robert P. Powers, Chair
Susan K. Nestegard, ex officio
Madeleine W. Ludlow
Susan K. NestegardBarbara A. Nick
Heidi E. Jimmerson, ex officioCharlene A. Thomas
EXECUTIVE COMPENSATION TABLES
The following table sets forth information for the last three fiscal years.Information for fiscal years 2018year 2020 and 2021 is not provided for Mr. Morris and Ms. JohnsonCutshall because neither was an NEO prior to fiscal year 2019 and information for fiscal years 2018 and 2019 is not provided for Ms. Thickens because shehe was not an NEO prior to 2020.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Summary Compensation Table–2022 |
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) |
Name and Principal Position1 | Year | Salary | Bonus2 | Stock Awards3 | Non-Equity Incentive Plan Compensation4 | Change in Pension Value5 | All Other Compensation6 | Total |
| | | | | | | | |
| | | | | | | | |
Bethany M. Owen | 2022 | $696,116 | — | | $797,313 | $656,482 | — | | $188,511 | $2,338,422 |
Chair, President and CEO | 2021 | $644,132 | — | | $757,908 | $637,131 | $385,368 | $154,000 | $2,578,539 |
| 2020 | $537,128 | — | | $596,185 | $434,424 | $307,375 | $110,232 | $1,985,344 |
| | | | | | | | |
| | | | | | | | |
Steven W. Morris | 2022 | $360,111 | $40,000 | $234,767 | $211,150 | — | | $81,163 | $927,191 |
Senior Vice President and | 2021 | $298,072 | — | | $189,450 | $156,530 | $28,446 | $66,123 | $738,621 |
CFO | 2020 | $285,068 | — | | $149,046 | $116,381 | $82,061 | $54,231 | $686,787 |
| | | | | | | | |
| | | | | | | | |
Margaret A. Thickens | 2022 | $349,980 | $40,000 | $187,578 | $187,315 | — | | $68,273 | $833,146 |
Vice President, Chief Legal | 2021 | $322,896 | — | | $189,450 | $170,216 | — | | $58,733 | $741,295 |
Officer, and Corporate | 2020 | $288,497 | — | | $173,832 | $125,351 | — | | $48,466 | $636,146 |
Secretary | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Nicole R. Johnson | 2022 | $333,808 | $40,000 | $211,075 | $153,738 | — | | $67,707 | $806,328 |
Vice President and President | 2021 | $311,517 | — | | $216,554 | $164,217 | — | | $62,980 | $755,268 |
ALLETE Clean Energy | 2020 | $287,127 | — | | $198,701 | $136,051 | $49,566 | $63,899 | $735,344 |
| | | | | | | | |
| | | | | | | | |
Patrick L. Cutshall | 2022 | $278,520 | $20,000 | $187,578 | $138,912 | — | | $64,618 | $689,628 |
Vice President and Corporate | | | | | | | | |
Treasurer | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Robert J. Adams | 2022 | $212,891 | — | | $328,297 | $145,281 | — | | $200,114 | $886,583 |
Retired Senior Vice President; | 2021 | $423,942 | — | | $379,028 | $321,576 | $233,188 | $103,841 | $1,461,575 |
and former CFO | 2020 | $405,449 | — | | $347,746 | $268,981 | $619,418 | $98,319 | $1,739,913 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Summary Compensation Table–2020 |
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) |
Name and Principal Position1 | Year | Salary | Bonus2 | Stock Awards3 | Non-Equity Incentive Plan Compensation4 | Change in Pension Value5 | All Other Compensation6 | Total |
| | | | | | | | |
| | | | | | | | |
Bethany M. Owen | 2020 | $537,128 | — | | $596,185 | $434,424 | $307,375 | $110,232 | $1,985,344 |
President and CEO | 2019 | $337,450 | — | | $267,311 | $190,388 | $141,691 | $73,432 | $1,010,272 |
| 2018 | $295,888 | — | | $284,088 | $169,779 | $49,454 | $52,732 | $851,941 |
| | | | | | | | |
| | | | | | | | |
Alan R. Hodnik | 2020 | $555,017 | — | | $414,543 | $416,446 | $1,766,933 | $159,281 | $3,312,220 |
Executive Chairman | 2019 | $667,933 | — | | $1,113,733 | $634,743 | $2,093,019 | $196,586 | $4,706,014 |
| 2018 | $633,421 | — | | $1,291,261 | $726,906 | $709,665 | $132,205 | $3,493,458 |
| | | | | | | | |
| | | | | | | | |
Robert J. Adams | 2020 | $405,449 | — | | $347,746 | $268,981 | $619,418 | $98,319 | $1,739,913 |
Senior Vice President and | 2019 | $390,626 | $40,000 | $311,875 | $247,087 | $557,208 | $97,669 | $1,644,465 |
CFO | 2018 | $357,870 | — | | $361,578 | $246,413 | $175,938 | $71,332 | $1,213,131 |
| | | | | | | | |
| | | | | | | | |
Nicole R. Johnson | 2020 | $287,127 | — | | $198,701 | $136,051 | $49,566 | $63,899 | $735,344 |
Vice President and Chief | 2019 | $241,099 | $25,000 | $133,619 | $104,266 | $43,598 | $47,570 | $595,152 |
Administrative Officer | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Steven W. Morris | 2020 | $285,068 | — | | $149,046 | $116,381 | $82,061 | $54,231 | $686,787 |
Vice President, Chief | 2019 | $278,543 | $25,000 | $89,128 | $93,545 | $86,415 | $61,114 | $633,745 |
Accounting Officer, and | | | | | | | | |
Controller | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Margaret A. Thickens | 2020 | $288,497 | — | | $173,832 | $125,351 | — | | $48,466 | $636,146 |
Vice President, Chief Legal | | | | | | | | |
Officer, and Corporate | | | | | | | | |
Secretary | | | | | | | | |
1 The principal positions shown above are as of March 12, 2021.10, 2023.
2 The amounts in column (d) represent discretionary cash bonuses paid to Mr. Adams, Ms. Johnson, and Mr. Morris in connection with their roles in the saleacquisition of U.S. Water Services.New Energy.
3 The amounts shown in column (e) represent the actuarial value of a future payout for RSUs and PSAs granted in 20202022 pursuant to the LTIP and are not amounts that were paid to the NEO in the year reported. The actual amount that the NEO will earn will depend on the extent to which long-term incentive goals are achieved and on the then-current market price of Common Stock. The actual value each NEO realized in 20202022 from stock awards in prior years is shown in the "Option Exercises and Stock Vested" table on page 61.64. The amounts in column (e) relate to RSU and PSA opportunities awarded to the NEOs during 2020.2022. The amounts shown reflect the grant date fair value determined in accordance with generally accepted accounting principles under ASC 718, using the same assumptions used in the valuation of compensation expenses disclosed in Note 1213 to the Company's Consolidated Financial Statements contained in ALLETE's 2020 Annual
Report on Form 10-K for the year ended December 31, 2022, but based on a modeled probability of reaching performance goals and excluding the effect of estimated forfeitures. All The values for 2022 and 2021 were calculated by our consultant, Willis Towers Watson; the values for 2020 were calculated by our prior consultant, Mercer. For PSAs with TSR as the performance metric, the estimated value was calculated using a Monte-Carlo simulation model with an underlying Black-Scholes methodology.model. For both RSUs and PSAs with EPS CAGR as the performance metric, the estimated value was calculated using the closing price of Common Stock on January 30, 2020.February 1, 2022. The grant date fair value is the total amount that we will recognize as an expense over the awards' vesting period, except that the amounts shown do not include a reduction for forfeitures.
The amounts shown in column (e) for 20202022 are comprised of the following:
| | | | | | | | | | | | | | | | | | | | |
| | | PSAs* |
| | RSUs | | PSAs with TSR Metric | | PSAs with EPS CAGR Metric |
Bethany M. Owen | | $203,038 | | $289,749 | | $304,526 |
Steven W. Morris | | $59,779 | | $85,319 | | $89,669 |
Margaret A. Thickens | | $47,796 | | $68,151 | | $71,631 |
Nicole R. Johnson | | $53,755 | | $76,688 | | $80,632 |
Patrick L. Cutshall | | $47,796 | | $68,151 | | $71,631 |
Robert J. Adams | | $83,611 | | $119,300 | | $125,385 |
| | | | | | | | | | | | | | | | | | | | |
| | | | PSAs* |
| | RSUs | | PSAs with TSR Metric | | PSAs with EPS CAGR Metric |
Bethany M. Owen | | $155,454 | | $207,550 | | $233,181 |
Alan R. Hodnik | | $414,543 | | — | | — |
Robert J. Adams | | $90,681 | | $121,043 | | $136,022 |
Nicole R. Johnson | | $51,818 | | $69,156 | | $77,727 |
Steven W. Morris | | $38,863 | | $51,888 | | $58,295 |
Margaret A. Thickens | | $45,341 | | $60,522 | | $67,969 |
* The maximum grant date fair value for each NEO's unearned 2020 PSAs,2022 PSA grant, assuming that the highest level of performance were towill be achieved, is as follows: Ms. Owen—$881,462,1,188,549, Mr. Morris—$349,976, Ms. Thickens—$279,564, Ms. Johnson—$314,640, Mr. Cutshall—$279,564, and Mr. Adams—$514,130,
Ms. Johnson—$293,766, Mr. Morris—$220,366, and Ms. Thickens—$256,982.489,371.
4 The amounts in column (f) reflect annual incentive awards earned in 20202022 and paid in 2021.2023.
5 TheAll amounts shown in column (g) represent the actuarial increase during 2020change in the value of retirement benefits earned by each eligible NEO under our retirementpension and SERP II plans, which are described in detail beginningstarting on page 62,65 and were not paid to NEOs in the year reported. For each NEO who was eligible for retirement benefits under the pension or SERP II, the 2022 aggregate change in the actuarial present value of their accumulated retirement benefits was negative and, therefore, is reflected in the table as $0; the actual amounts are as follows: Ms. Owen—negative $340,630, Mr. Morris—negative $126,156,
Ms. Johnson—negative $85,435, Mr. Cutshall—negative $158,295, and Mr. Adams—negative $440,893. Ms. Thickens is not eligible for retirement benefits under either the pension or SERP II plan.
6 The amounts in column (h) for 20202022 are comprised of the following: | | | | | | | | | | | | | | |
| | Company RSOP Contributions, Flexible Compensation Benefits, Nominal Service-Anniversary Gift Cards, and Life Insurance Premiums | Company Contributions Under SERP II | Acceleration of Outstanding Equity Awards in Connection with Retirement* |
Bethany M. Owen | | $55,089 | $133,422 | — |
Steven W. Morris | | $54,012 | $27,151 | — |
Margaret A. Thickens | | $40,517 | $27,756 | — |
Nicole R. Johnson | | $42,793 | $24,914 | — |
Patrick L. Cutshall | | $48,627 | $15,991 | — |
Robert J. Adams | | $43,233 | $41,805 | $115,076 |
| | | | | | | | | | | |
| | Company RSOP Contributions, Flexible Compensation Benefits, and Life Insurance Premiums | Company Contributions Under SERP II |
Bethany M. Owen | | $51,032 | $59,200 |
Alan R. Hodnik | | $52,949 | $106,332 |
Robert J. Adams | | $51,174 | $47,145 |
Nicole R. Johnson | | $50,344 | $13,555 |
Steven W. Morris | | $42,070 | $12,161 |
Margaret A. Thickens | | $37,847 | $10,619 |
* Mr. Adams retired in June 2022, resulting in accelerated vesting of the following outstanding RSU grants: 1,014 RSUs granted on January 30, 2020, 766 RSUs granted on February 2, 2021, and 229 RSUs granted on February 1, 2022. Dividend equivalent shares are also vested in connection with each grant. Mr. Adams' receipt of these shares was subject to a non-elective, six-month deferral. The value of the accelerated vesting was calculated by multiplying the exact
(non-rounded) number of shares acquired on vesting by $57.28, the closing price of Common Stock on June 17, 2022.
The following Grants of Plan-Based Awards table shows information about the range of each NEO's annualAIP and long-term incentive awardLTIP opportunities granted to NEOs for the fiscal year ended December 31, 2020. The narrative following the table describes the terms of each incentive award.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Grants of Plan-Based Awards–2022 |
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) |
Name and Award Type1 | Grant Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards2 | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units | Grant Date Fair Value of Stock and Option Awards3 |
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) |
Bethany M. Owen | | | | | | | | | |
Annual Incentive | 02/01/22 | $277,263 | $630,142 | $1,260,284 | — | | — | | — | | — | | — | |
PSAs (TSR metric) | 02/01/22 | — | | — | | — | | 2,054 | | 4,107 | | 8,214 | | — | | $289,749 |
PSAs (EPS CAGR metric) | 02/01/22 | — | | — | | — | | 2,402 | | 4,804 | | 9,608 | | — | | $304,526 |
RSUs | 02/01/22 | — | | — | | — | | — | | — | | — | | 3,203 | | $203,038 |
Steven W. Morris | | | | | | | | | |
Annual Incentive | 02/01/22 | $74,082 | $168,368 | $336,736 | — | | — | | — | | — | | — | |
Annual Incentive | 02/09/22 | $15,096 | $34,310 | $68,619 | — | | — | | — | | — | | — | |
PSAs (TSR metric) | 02/01/22 | — | | — | | — | | 483 | | 966 | | 1,932 | | — | | $68,151 |
PSAs (TSR metric) | 02/09/22 | — | | — | | — | | 565 | | 1,130 | | 2,260 | | — | | $17,167 |
PSAs (EPS CAGR metric) | 02/01/22 | — | | — | | — | | 121 | | 242 | | 484 | | — | | $71,631 |
PSAs (EPS CAGR metric) | 02/09/22 | — | | — | | — | | 142 | | 283 | | 566 | | — | | $18,038 |
RSUs | 02/01/22 | — | | — | | — | | — | | — | | — | | 754 | | $47,796 |
RSUs | 02/09/22 | — | | — | | — | | — | | — | | — | | 188 | | $11,983 |
Margaret A. Thickens | | | | | | | | | |
Annual Incentive | 02/01/22 | $73,661 | $167,411 | $334,822 | — | | — | | — | | — | | — | |
Annual Incentive | 05/01/22 | $5,451 | $12,388 | $24,777 | — | | — | | — | | — | | — | |
PSAs (TSR metric) | 02/01/22 | — | | — | | — | | 483 | | 966 | | 1,932 | | — | | $68,151 |
PSAs (EPS CAGR metric) | 02/01/22 | — | | — | | — | | 565 | | 1,130 | | 2,260 | | — | | $71,631 |
RSUs | 02/01/22 | — | | — | | — | | — | | — | | — | | 754 | | $47,796 |
Nicole R. Johnson | | | | | | | | | |
Annual Incentive | 02/01/22 | $77,499 | $176,133 | $352,267 | — | | — | | — | | — | | — | |
PSAs (TSR metric) | 02/01/22 | — | | — | | — | | 544 | | 1,087 | | 2,174 | | — | | $76,688 |
PSAs (EPS CAGR metric) | 02/01/22 | — | | — | | — | | 636 | | 1,272 | | 2,544 | | — | | $80,632 |
RSUs | 02/01/22 | — | | — | | — | | — | | — | | — | | 848 | | $53,755 |
Patrick L. Cutshall | | | | | | | | | |
Annual Incentive | 02/01/22 | $58,669 | $133,338 | $266,676 | — | | — | | — | | — | | — | |
PSAs (TSR metric) | 02/01/22 | — | | — | | — | | 483 | | 966 | | 1,932 | | — | | $68,151 |
PSAs (EPS CAGR metric) | 02/01/22 | — | | — | | — | | 565 | | 1,130 | | 2,260 | | — | | $71,631 |
RSU | 02/01/22 | — | | — | | — | | — | | — | | — | | 754 | | $47,796 |
Robert J. Adams | | | | | | | | | |
Annual Incentive | 02/01/22 | $122,718 | $278,904 | $557,808 | — | | — | | — | | — | | — | |
PSAs (TSR metric) | 02/01/22 | — | | — | | — | | 846 | | 1,691 | | 3,382 | | — | | $119,300 |
PSAs (EPS CAGR metric) | 02/01/22 | — | | — | | — | | 989 | | 1,978 | | 3,956 | | — | | $125,385 |
RSUs | 02/01/22 | — | | — | | — | | — | | — | | — | | 1,319 | | $83,611 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Grants of Plan-Based Awards–2020 |
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) |
Name and Award Type1 | Grant Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards2 | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units | Grant Date Fair Value of Stock and Option Awards3 |
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) |
Bethany M. Owen | | | | | | | | | |
Annual Incentive | 01/30/20 | $157,300 | $357,500 | $715,000 | — | | — | | — | | — | | — | |
Annual Incentive4 | 02/03/20 | $33,275 | $75,625 | $151,250 | — | | — | | — | | — | | — | |
PSAs (TSR metric) | 01/30/20 | — | | — | | — | | 1,250 | | 2,500 | | 5,000 | | — | | $207,550 |
PSAs (CAGR metric) | 01/30/20 | — | | — | | — | | 1,386 | | 2,772 | | 5,544 | | — | | $233,181 |
RSUs | 01/30/20 | — | | — | | — | | — | | — | | — | | 1,848 | | $155,454 |
Alan R. Hodnik | | | | | | | | | |
Annual Incentive | 01/30/20 | $182,688 | $415,200 | $830,400 | — | | — | | — | | — | | — | |
RSUs | 01/30/20 | — | | — | | — | | — | | — | | — | | 4,928 | | $414,543 |
Robert J. Adams | | | | | | | | | |
Annual Incentive | 01/30/20 | $117,998 | $268,177 | $536,354 | — | | — | | — | | — | | — | |
PSAs (TSR metric) | 01/30/20 | — | | — | | — | | 729 | | 1,458 | | 2,916 | | — | | $121,043 |
PSAs (CAGR metric) | 01/30/20 | — | | — | | — | | 809 | | 1,617 | | 3,234 | | — | | $136,022 |
RSUs | 01/30/20 | — | | — | | — | | — | | — | | — | | 1,078 | | $90,681 |
Nicole R. Johnson | | | | | | | | | |
Annual Incentive | 01/30/20 | $59,683 | $135,644 | $271,288 | — | | — | | — | | — | | — | |
PSAs (TSR metric) | 01/30/20 | — | | — | | — | | 417 | | 833 | | 1,666 | | — | | $69,156 |
PSAs (CAGR metric) | 01/30/20 | — | | — | | — | | 462 | | 924 | | 1,848 | | — | | $77,727 |
RSUs | 01/30/20 | — | | — | | — | | — | | — | | — | | 616 | | $51,818 |
Steven W. Morris | | | | | | | | | |
Annual Incentive | 01/30/20 | $51,055 | $116,033 | $232,066 | — | | — | | — | | — | | — | |
PSAs (TSR metric) | 01/30/20 | — | | — | | — | | 313 | | 625 | | 1,250 | | | $51,888 |
PSAs (CAGR metric) | 01/30/20 | — | | — | | — | | 347 | | 693 | | 1,386 | | — | | $58,295 |
RSUs | 01/30/20 | — | | — | | — | | — | | — | | — | | 462 | | $38,863 |
Margaret Thickens | | | | | | | | | |
Annual Incentive | 01/30/20 | $54,990 | $124,977 | $249,953 | — | | — | | — | | — | | — | |
PSAs (TSR metric) | 01/30/20 | — | | — | | — | | 365 | | 729 | | 1,458 | | — | | $60,522 |
PSAs (CAGR metric) | 01/30/20 | — | | — | | — | | 404 | | 808 | | 1,616 | | — | | $67,969 |
RSU | 01/30/20 | — | | — | | — | | — | | — | | — | | 539 | | $45,341 |
1 20202022 annual incentive awards were made under the AIP, andAIP; PSAs and RSUs were granted under the LTIP.
2 Actual awards earned are shown in column (f) of the Summary Compensation Table on page 54.56.
3 These amountsAmounts reflect the grant date fair value determined in accordance with generally accepted accounting principles under
ASC 718, using the same assumptions used in the valuation of compensation expenses disclosed in Note 1213 to the Company's Consolidated Financial Statements contained in ALLETE's 2020 Annual Report on Form10-KForm 10-K for the year ended December 31, 2020,2022, but based on a modeled probability of reaching performance goals and excluding the effect of estimated forfeitures. Amounts shown for PSAs and RSUs are theaward values of the awards for accounting purposes. The value an NEO realizes from performance sharesPSAs with
TSR as the performance metric will depend on actual Common Stock performance relative to the peer company group, as discussed beginningstarting on page 45,47, and the market price of Common Stock. The value an NEO realizes on PSAs with EPS CAGR as the performance metric will depend on the Company's baseline pro forma EPS for the year ending December 31 of the year prior to the beginning of the three-year performance period and ALLETE's pro forma earnings per share at the end of the three-year performance period, as discussed on page 47, and the market price of Common Stock. The value an NEO realizes from RSUs depends on the market value of Common Stock at the time of vesting.
4 Ms. Owen's received an additional AIP opportunity in connection with her promotion to CEO on February 3, 2020.
GRANTS OF PLAN-BASED AWARDS DISCUSSION
NEOs received incentive awards in 20202022 consisting of annual incentiveAIP opportunities and long-term incentiveLTIP opportunities, which were allocated between PSAs and RSUs.
Annual Incentive Opportunity
Annual incentive
AIP awards are discussed in detail in the Compensation Discussion and Analysis section beginningstarting on page 32.33. Our 20202022 annual incentive goal weightings, reflected in columns (c), (d), and (e) of the Grants of Plan-Based Awards table on page 56,58, were as follows:
•Threshold amount shown in column (c)—the minimum annual incentiveAIP award, ranging from 17.619.8 percent to 34.65
39.6 percent of base salary as of December 31, 2020, that2022, which would be payable if net income, cash from operating activities, and strategic goals were achieved at threshold, and if there was nothreshold progress on operational goals and valuessafety goals.
•Target amount shown in column (d)—the target annual incentiveAIP award, ranging from 4045 percent to 78.7590 percent of base salary as of December 31, 2020, that2022, which would be payable if net income, cash from operating activities, strategic goals, and operational goals and valuessafety goals all were achieved at the target level.
•Maximum amount shown in column (e)—maximum annual incentiveAIP award, ranging from 8090 percent to 157.5
180 percent of base salary as of December 31, 2020, that2022, which would be payable if net income, cash from operating activities, strategic goals, and operational goals and valuessafety goals were achieved at the superior level.
Goal achievements that fall between threshold and target, and between target and superior, are interpolated on a straight-line basis.
The amounts shown in column (f) of the Summary Compensation Table on page 5456 include annual incentiveAIP awards earned in 20202022 at 100.3104.2 percent of target for all NEOs. Annual incentive award amounts, expressed as a percentage of the NEO's base salary, ranged from 40.133.9 percent to
79.0 93.8 percent.
An NEONEOs may elect to receive her or his annual incentivetheir AIP award in cash, or to defer some or all of the awards in accordance with SERP II. An NEO who retires, dies, or becomes disabled during the year remains eligible to receive a prorated annual incentiveAIP award, based on actual results at the end of the year. An NEO who terminates employment for any other reason during the performance period forfeits any annual incentive award. In the event of a change in control, annual incentive awards would be calculated as if the end of the performance year had occurred, based on the Company's performance at the time of the change in control. Any awards earned would be prorated based on the number of months in the performance year which had elapsed as of the time of the change in control.
PSAs
The PSAs for the three-year performance period beginning January 1, 2020,2022, are reflected in the Grants of Plan-Based Awards table on page 56.58. Beginning with the 2020-2022 performance period, PSAs are divided into two grants, each with a different performance metrics.metric. Fifty percent of the target opportunity is allocated to PSAs with relative TSR as the performance metric, as described beginningstarting on page 46;47; the other fifty percent of the target opportunity is allocated to PSAs with EPS CAGR as the performance metric, as described on page 47.48.
Specifically, withWith respect to PSAs with TSR as the performance metric, the amounts shown in columncolumns (f), (g), and (h) reflect the following:
•Threshold amount shown in column (f)—the minimum 20202022 PSA payable, set at 50 percent of the target opportunity, which would be earned if ALLETE's TSR percentile ranking for the
three-year performance period was at the 30th percentile among the peer group. If our TSR percentile ranking among the peer group at the end of the performance period falls below threshold, no PSAs would be paid.
•Target amount shown in column (g)—the target PSA payable, which would be earned if ALLETE's TSR percentile ranking among the peer group at the end of the performance period falls at the 50th percentile.
•Maximum amount shown in column (h)—the maximum PSA payable, set at 200 percent of the target opportunity, which would be earned if ALLETE's TSR percentile ranking for the three-year performance period is at the 85th percentile or higher among the peer group.
Specifically, withWith respect to the PSAs with EPS CAGR as the performance metric, amounts shown in columncolumns (f), (g), and (h) reflect the following:
•Threshold amount shown in column (f)—the minimum 20202022 PSA payable, set at 50 percent of the target opportunity, which would be earned if ALLETE's EPS CAGR at the end of the three-year performance period equates to a four percent average annual EPS growth rate. If our EPS CAGR result falls below threshold at the end of the performance period, no PSAs would be paid.
•Target amount shown in column (g)—the target PSA payable, which would be earned if ALLETE's EPS CAGR at the end of the three-year performance period equates to a six percent average annual EPS growth rate.
•Maximum amount shown in column (h)—the maximum PSA payable, set at 200 percent of the target amount, which would be earned if ALLETE's EPS CAGR at the end of the three-year performance period equates to an eight percent average annual EPS growth rate.
Goal achievements that fall between threshold and target, and target and superior, are interpolated on a straight-line basis.
Dividend equivalents accrue during the performance period and allow NEOs to receive the value of dividends that would have been paid on Common Stock between the grant date and the date the performance shares are paid, but only if performance goals are achieved. If earned, performance shares and dividend equivalents are paid in Common Stock after the end of the performance period. An NEO who retires, dies, or becomes disabled during the performance period remains eligible to receive a prorated payment of performance shares. Upon a change in control, PSAs would immediately vest and be paid out on a prorated basis, including dividend equivalents, at the greater of the target level or the level earned based on the actual performance as of the date of the change in control.
The
Consistent with Financial Accounting Standards Board requirements, the grant date fair value for performance shares with the relative TSR performance metric is based on a modeled probability of reaching the performanceperformance goal. The grant date fair value for performance sharesPSA with the EPS CAGR performance metric was calculated using the closing price of Common Stock on January 30, 2020.December 31, 2021. The total grant date fair value of the PSAs is included in the amount shown in column (e) of the Summary Compensation Table on page 54.56.
Performance sharesPSAs awarded for the 2019-20212021-2023 and 2020-20222022-2024 performance periods remain unearned unless and until the performance goals are achieved as measured at the end of the applicable performance periods.period. The performance shares awarded to NEOs for those periods are shown in column (d) of the Outstanding Equity Awards at Fiscal Year-End table on page 59.63. The estimated market value of the unearned performance shares, assuming target TSR performance for the 2021-2023 and 2022-2024 performance periods, threshold EPS CAGR performance infor the case of the 2019-20212021-2023 performance period, and the 2020-2022target EPS CAGR performance periods,for the 2022-2024 performance period is shown in column (e) of that table. The actual value to the NEOs for the performance period 2019-2021, 2021-2023 and 2022-2024 performance periods, if any, will be determined at the end of the performance period based solely on the Company's actual TSR ranking at the end of the three-year performance period. The actual value to the NEOs for the performance period 2020-2022, if any, will be determined at the end of the performance period based both on the Company's actual TSR ranking and the Company's EPS CAGR results at the end of the three-year performance period.
For the 2018-20202020-2022 performance period, the Company had a relative TSR of negative 7.910.3 percent, which ranked in the 8th2nd percentile among the peer group, and resulted inan EPS CAGR of negative two percent. As a result, there was no payout.PSA payout for the 2020-2022 performance period.
RSUs
The number of RSUs awarded to NEOs in 20202022 is shown in column (i) of the Grants of Plan-Based Awards table on page 56.58. Each RSU entitles the NEO to receive one share of Common Stock when the unit vests at the end of a three-year period. The RSUs granted in 20202022 will vest on December 31, 2022.2024. The NEOs must remain employed by the Company at the time RSUs vest to receive the Common Stock. Dividend equivalents accrue during the vesting period, but are paid only if the RSUs vest. Dividend equivalents allow the NEO to receive the value of dividends that would have been paid on Common Stock during the vesting period. RSUs and dividend equivalents are paid in Common Stock after the end of the vesting period. If an NEO retires, becomes disabled, or dies, a prorated number of the RSUs would immediately vest. In the event of a change in control, restrictions in RSU grants will be deemed to have expired upon the change in control and a prorated number of the RSUs would immediately vest, unless the RSU grant is fully assumed by the successor corporation. If the RSU grant were to be fully assumed, a prorated number of RSUs would immediately vest if the NEO's employment were to be terminated by the successor corporation for reasons other than cause within 18 months of the change in control.
The full grant date fair value for RSUs awarded to each NEO is included in the amount shown in column (e) of the Summary Compensation Table on page 54.56. The number of unvested RSUs outstanding at the end of 2020,2022, including dividend equivalents, is shown in column (b) of the following Outstanding Equity Awards at Fiscal Year-End table, while the value of the award as of
December 31, 2020,2022, is shown in column (c).
RSUs are also discussed in the CD&A section on pages 4647 and 48.
49.
| Outstanding Equity Awards at Fiscal Year-End–2020 | |
Outstanding Equity Awards at Fiscal Year-End–2022 | | Outstanding Equity Awards at Fiscal Year-End–2022 |
(a) | (a) | | (b) | (c) | (d) | (e) | (a) | | (b) | (c) | (d) | (e) |
| | | Stock Awards | | | Stock Awards |
Name | Name | | Number of Shares or Units of Stock That Have Not Vested1 | Market Value of Shares or Units of Stock That Have Not Vested2 | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested3 | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested4 | Name | | Number of Shares or Units of Stock That Have Not Vested1 | Market Value of Shares or Units of Stock That Have Not Vested2 | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested3 | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested4 |
| Name | | Number of Shares or Units of Stock That Have Not Vested1 | Market Value of Shares or Units of Stock That Have Not Vested2 | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested3 | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested4 | |
Bethany M. Owen | Bethany M. Owen | | 4,131 | | td55,874 | 4,358 | | td69,935 | Bethany M. Owen | | 8,560 | | $552,206 | 16,575 | | td,069,253 |
Alan R. Hodnik | | 14,559 | | $901,784 | 6,113 | | $378,639 | |
Robert J. Adams | | 3,746 | | $232,027 | 3,398 | | $210,472 | |
Nicole R. Johnson | | 1,773 | | $109,820 | 1,698 | | $105,174 | |
Steven W. Morris | Steven W. Morris | | 1,234 | | $76,434 | 1,212 | | $75,071 | Steven W. Morris | | 2,299 | | $148,309 | 4,587 | | $295,907 |
Margaret A. Thickens | Margaret A. Thickens | | 785 | | $48,623 | 931 | | $57,666 | Margaret A. Thickens | | 2,164 | | $139,600 | 3,995 | | $257,717 |
Nicole R. Johnson | | Nicole R. Johnson | | 2,458 | | $158,566 | 4,526 | | $291,972 |
Patrick L. Cutshall | | Patrick L. Cutshall | | 2,108 | | $106,184 | 3,995 | | $257,717 |
Robert J. Adams | | Robert J. Adams | | — | | — | | 2,323 | | $149,857 |
1 The amounts in column (b) for all NEOs, except Mr. Adams, are comprised of RSUs granted on January 22, 2018, January 30, 2019, and January 30, 2020, February 2, 2021, and February 1, 2022, plus dividend equivalents. The amount for Mr. Morris also includes RSUs granted on February 9, 2022 in connection with his promotion, plus dividend equivalents. RSUs vest over a three-year period provided the NEO continues to be employed by the Company. No PSAs were earned forCompany. Mr. Adams' RSUs vested on June 17, 2022, upon his separation from service in connection with his retirement. The number of shares Mr. Adams received and value he realized on the 2018-2020 performance periodvesting of his RSUs is shown in the Option Exercises and for that reason those awards are not included.Stock Vested table on page 64.
2 The amounts in column (c) were calculated by multiplying the number of units in column (b) by $61.94,$64.51, the closing price of Common Stock on December 31, 2020.30, 2022.
3 The amounts in column (d) represent the Common Stock that would bebecome payable for outstanding PSAs if target performance were achieved for the 2021-2023 and 2022-2024 performance period for the TSR, if threshold performance were achieved for the EPS CAGR metric for the 2021-2023, and if target were achieved for the 2019-2021 and 2020-2022EPS CAGR metric for 2022-2024 performance periods.period. For the PSAs based on the TSR metric, thisthreshold performance means a TSR ranking at the 30th percentile among the peer group comprised of the EEI Stock Index companies and target means a TSR ranking at the 50th percentile among the peer group comprised of the EEI Stock Index companies as described beginningstarting on page 46 and for47. For PSAs based on the EPS CAGR metric, thisthreshold means a four percent average annual EPS growth rate and target means a six percent average annual EPS growth rate as discussed on page 47).48. If the performance period had ended on December 31, 2020, no2022, PSAs for the TSR metric would have been earned for the 2019-20212021-2023 performance period orat 54 percent and for the 2020-20222022-2023 performance period.period at 80 percent. If the performance period had ended on December 31, 2022, PSAs based on the EPS CAGR metric would not have been earned for the 2021-2023 performance period and, for the 2022-2024 period, would have been earned at 55 percent. The amount shown for Mr. Adams reflects the reduced (prorated) amount for which he remained eligible on December 31, 2022, following his separation from service on June 17, 2022 in connection with his retirement.
4 The amounts in column (e) were calculated by multiplying the number of shares and units in column (d) by $61.94,$64.51, the closing price of Common Stock on December 31, 2020.30, 2022.
| | | | | | | | | | | |
Option Exercises and Stock Vested–2022 |
(a) | (b) | (c) |
| Stock Awards |
Name | Number of Shares Acquired on Vesting1 | Value Realized on Vesting2 |
Bethany M. Owen | 1,096 | $69,890 | |
Steven W. Morris | 365 | $23,297 | |
Margaret A. Thickens | 97 | $6,179 | |
Nicole R. Johnson | 548 | $34,945 | |
Patrick L. Cutshall | 365 | $23,297 | |
Robert J. Adams | 3,288 | $196,614 | |
| | | | | | | | |
Option Exercises and Stock Vested–2020 |
(a) | (b) | (c) |
| Stock Awards |
Name | Number of Shares Acquired on Vesting1 | Value Realized on Vesting2 |
Bethany M. Owen | 955 | $80,365 |
Alan R. Hodnik | 5,309 | $446,594 |
Robert J. Adams | 1,168 | $98,254 |
Nicole R. Johnson | 421 | $35,412 |
Steven W. Morris | 421 | $35,412 |
Margaret A. Thickens | 112 | $9,449 |
1 The amounts reflect the RSUs that vested at the end of the 2017-20192019-2021 vesting period, which were paid in Common Stock on January 30, 2020.February 9, 2022. All amounts shown have been rounded to the nearest whole share, whereas actual Common Stock payments included fractional shares. The amount shown for Mr. Adams also includes the following prorated amounts that vested on June 17, 2022, coincident with his separation from service in connection with his retirement: 1,014 RSUs granted on January 30, 2020, 766 RSUs granted on February 2, 2021, and 229 RSUs granted on February 1, 2022. These additional vested RSUs for Mr. Adams were not paid to him in Common Stock in 2022 because they were subject to a
non-elective, six-month delay under Tax Code Section 409A. Mr. Adams' vested but unpaid RSUs continued to earn dividend equivalents until they were paid in Common Stock in February 2023.
2 The value realized on vesting, shown in column (c), was is calculated by multiplying the number of shares acquired on vesting, as shown in column (b), by $84.12,$63.74, the closing price of Common Stock on the January 30, 2020February 9, 2022 payment date.
date, except that the portion of Mr. Adams' RSUs that vested on June 17, 2022 in connection with his separation from service but were not yet paid on December 31, 2022, are valued using $57.28, the closing price of Common Stock on June 17, 2022. These RSUs were paid using $59.85, the closing price of Common Stock on February 9, 2023, and valued at $115,076.
| | | | | | | | | | | | | | |
Pension Benefits–2022 |
(a) | (b) | (c) | (d) | (e) |
Name1 | Benefit Plan | Number of Years Credited Service2 | Present Value of Accumulated Benefit3 | Payments During Last Fiscal Year |
Bethany M. Owen | Nonunion Pension Plan | 4.42 | $100,444 | — |
| SERP II | 16.50 | $648,489 | — |
| | | | |
Steven W. Morris | Nonunion Pension Plan | 5.67 | $162,895 | — |
| SERP II | 17.92 | $223,218 | — |
| | | | |
Nicole R. Johnson | Nonunion Pension Plan | 9.25 | $100,340 | — |
| | | | |
Patrick L. Cutshall | Nonunion Pension Plan | 17.08 | $325,943 | — |
| | | | |
Robert J. Adams | Nonunion Pension Plan | 19.67 | $677,445 | $18,623 |
| SERP II | 31.92 | $1,495,860 | — |
| | | | | | | | | | | |
Pension Benefits–2020 |
(a) | (b) | (c) | (d) |
Name1 | Benefit Plan | Number of Years Credited Service2 | Present Value of Accumulated Benefit3 |
Bethany M. Owen | Nonunion Pension Plan | 4.42 | $153,306 |
| SERP II | 16.50 | $550,889 |
Alan R. Hodnik | Nonunion Pension Plan | 11.75 | $546,797 |
| Union Pension Plan | 12.75 | $1,323,367 |
| SERP II | 36.75 | $9,263,428 |
Robert J. Adams | Nonunion Pension Plan | 19.67 | $839,890 |
| SERP II | 31.92 | $1,541,120 |
Nicole R. Johnson | Nonunion Pension Plan | 9.25 | $202,783 |
Steven W. Morris | Nonunion Pension Plan | 5.67 | $216,138 |
| SERP II | 17.92 | $267,687 |
1 Ms. Thickens is not included in the table above because she is not eligible for qualified or non-qualified pension benefits having joined the Company after September 30, 2006, whenthe date as of which pension retirement benefits under both the qualified and non-qualified plans were closed to new participants. Ms. Johnson and Mr. Cutshall are eligible to receive qualified pension benefits only, as they first became participants under SERP II after September 30, 2006, the date as of which non-qualified retirement benefits were closed to new participants.
2 No service has been credited under the nonunion pension plan since September 30, 2006. Mr. Hodnik's credited service under the union pension plan reflects his actual years of service in a union position. The numbers in column (c) for SERP II reflect years of service with the Company through December 31, 2018.
3 The amounts shown in column (d) represent the discounted net present value of the annual annuity payments to which the NEONEOs would be entitled at retirement assuming she or he retiresthey retire at age 62, the earliest age at which NEOs can receive unreduced pension benefits. Mr. Adams separated from service on June 17, 2022 in connection with his retirement and the amounts shown for him represent the discounted net present value of the annuity payments he became entitled to receive after that date. In addition to retirement age, the following assumptions were used to calculatecalculate the present value of accumulated benefits: discountbenefits for all NEOs except Mr. Adams: discount rate of 2.545.69 percent; cost of living adjustment of 1.9 percent;4 percent for 2023 and
2.5 percent afterwards; and female spouses are assumed to be three years younger than male spouses. For Mr. Adams, who elected to receive payments over a 15-year period commencing at retirement, a discount rate of 5.69 percent was used to calculate the present value of his accumulated benefit. The amounts for all NEOs reflect thethe accumulated pension benefits over the years of credited service shown for each plan.
PENSION BENEFITS DISCUSSION
ALLETE's defined-benefit nonunion defined-benefit pension plan is intended to be tax-qualified and covers some of our nonunion employees, including all NEOs, except Ms. Thickens. PensionNonunion pension benefits are calculated based on years of service and final average earnings. As a resultpart of a company-wide nonunion benefit change, no employee accrued additional credited service for nonunion pension benefits after September 30, 2006. In 2018, additional changes were made to all participating nonunion employees' pension benefits to freeze final average earnings as of November 30, 2018. The nonunion pension benefit is calculated as a life annuity using the following formula:
| | | | | | | | | | | | | | | | | | | | | | | |
| 0.8% | × | (years of credited service from July 1, 1980
through September 30, 2006) | | × | final average earnings through November 30, 2018* |
plus (for NEOs hired before July 1, 1980): |
| 10% | + | (1% × years of credited service
prior to July 1, 1980) | | × | final average earnings through November 30, 2018* |
* Final average earnings includes the highest consecutive 48 months of salary in the
fifteen-year period ending November 30, 2018.
Mr. Hodnik is also entitled to a union defined-benefit pension based on bargaining unit positions he previously held with the Company. The union defined-benefit pension is also designed to be
tax-qualified and covers a portion of our bargaining unit employees. Mr. Hodnik's credited service for purposes of his union pension reflects the actual years that he served in a union position. This benefit is calculated as a life annuity using the following formula:
| | | | | | | | | | | | | | | | | | | | |
| 10% | + | (1% × years of credited service) | | × | final average earnings through November 30, 2018* |
* Final average earnings includes the highest consecutive 48 months of salary in the
ten-year period ending November 30, 2018.
The remaining terms of the union pension plan benefit is substantially the same as the terms of the nonunion pension plan benefit (and the plans are collectively referred to as the "Retirement Plans").
Normal retirement age under the Retirement Plansnonunion pension plan is age 65 with at least five years of continuous service with the Company. NEOs become eligible for an unreduced early-retirement benefit at age 62 if they have at least 10 years of continuous service, or at age 58 if they have at least 40 years of continuous service. NEOs are first eligible for a reduced early-retirement benefit at age 50 with at least 10 years of continuous service. Early-retirement benefits are calculated by reducing the retirement benefit by 4 percent for each year and partial year between age 62 and the early-retirement benefit commencement age. Each eligible NEO, except Ms. Johnson, is currently eligible to receive
early retirement benefits.
The normal form of benefit payment under the nonunion pension plan for a married participant is a life annuity with a 60 percent surviving spouse benefit. The normal form of benefit payment under the union pension plan for a married participant is a life annuity with a 50 percent surviving spouse benefit. The normal form of payment for single participants under the Retirement Plans is a life annuity. At normal retirement age, each optional form of benefit payment is the actuarial equivalent of the normal form of benefit payment for the Retirement Plans.nonunion pension plan. The Retirement Plans dononunion pension plan does not provide for lump sum distributions unless the lump sum equivalent value is $10,000 or less. Once a pension benefit payments havepayment has commenced, the benefit adjusts in future years to reflect changes in cost of living, with a maximum adjustment of three percent per year.
The Tax Code limits both the annual earnings that may be considered in calculating benefits under the Retirement Planspension plan and the annual benefit amount that the Retirement Planspension plan may deliver to an NEO. The SERP plans provide supplemental pension benefits, paid out of general Company assets, to eligible NEOs in amounts generally designed to maintain total benefits at the level that would have been provided by our Retirement Planspension plan if those benefits were not restricted by the Tax Code.
The SERP formula is calculated as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 0.8% | × | (years of credited service from July 1, 1980 through December 31, 2018) | | × | SERP final average earnings* |
plus, for NEOs hired before July 1, 1980: |
| 10% | + | (1% x years of credited service prior to
July 1, 1980) | | × | SERP final average earnings*earnings through December 31, 2021* |
* SERP final average earnings includes the sum of the NEO's (i) annual salary in excess of the Tax Code limits imposed on nonunion qualified retirement benefits and (ii) annual incentive awards over the highest consecutive 48-month period.period ending December 31, 2021. The highest consecutive 48-month period for (i) and (ii) above can be different; both, however, must fall within the last 15 years of service.
The present value of eligible NEO's SERP pension benefit as of December 31, 2020,2022, is shown in the Pension Benefits table on page 61.64. The 20202022 increase in the SERP II pension benefit value for each eligible NEO is included in column (g) of the Summary Compensation Table on page 54.56.
Each eligible NEO hasEligible NEOs have elected a date when her or histheir SERP retirement benefit payments will commence and has elected the form of benefit payment. The normal form of payment for SERP II is a 15-year annuity. The optional forms of payment for SERP II benefits are a life annuity or a lump sum, each of which is actuarially equivalent to the normal form of payment.
SERP II benefits vest and become payable only if the NEO (i) retires after reaching age 50 with 10 years of service, (ii) becomes disabled after reaching age 50 with 10 years of service, or (iii) reaches age 50 after becoming disabled with 10 years of service. Vested SERP II benefit payments commence upon the earlier of retirement or disability, or, if a disability occurs prior to vesting, the earlier of attaining age 65 or the date of death. Payment of the SERP II benefits accrued after December 31, 2004 would be accelerated and paid as a lump sum upon a termination of employment in connection with a change in control.
In all other respects, the eligibility requirements for SERP retirement benefits and the calculation of SERP early retirement benefits are the same as the nonunion pension plan's eligibility requirements and early retirement benefits discussed above.
On December 31, 2004, the Company froze SERP I with respect to all plan benefits. Effective
January 1, 2005, the Company established SERP II to comply with Section 409A of the Tax Code. SERP II covers compensation initially deferred, and supplemental pension and supplemental defined contribution benefits accrued or vested, after December 31, 2004.
Effective October 1, 2006, the Company froze eligibility for supplemental pension benefits under
SERP II. Individuals who were not SERP II participants and eligible for supplemental pension benefits on September 30, 2006, are not eligible for supplemental pension benefits.
Supplemental executive retirement benefits were reviewed in 2018 in light of Company cost competitiveness and benchmarking data. Credited service for calculating the supplemental pension benefits was frozen as of December 31, 2018. In addition, amounts an NEO defersNEOs defer to her or histheir SERP II deferral account after December 31, 2018, will no longer receive a fixed annual interest crediting rate and will instead be credited or debited with notional gains or losses until the balance has been paid in full. In response to changes in the tax law discussed on page 52, SERP II was also amended in 2018, effective January 1, 2019, to eliminate the provision that required a non-elective deferral of the portion of a participant's AIP that the Company could not deduct by application of Section 162(m) of the
Tax Code. SERP II was further amended in 2021 to freeze final average earnings as of
December 31, 2021.
As of December 31, 2020,2022, all NEOs, except Ms. Thickens, Ms. Johnson, and Ms. Thickens,Mr. Cutshall, have vested SERP supplemental pension benefits. Because Ms. Thickens, Ms. Johnson, and Ms. ThickensMr. Cutshall were not eligible to participate in SERP II before September 30, 2006, they are not eligible for supplemental SERP supplemental pension benefits.
ALLETE provides a supplemental defined contribution benefit and a deferral account benefit to the NEOs. The SERP II supplemental defined contribution benefit provides a benefit that is substantially equal to the benefit the NEO would have been entitled to receive if the Tax Code did not impose limitations on the types and amounts of compensation that can be included in the benefit calculations under the ALLETE and Affiliated Companies Flexible Compensation Plan and the RSOP. Annually, each NEONEOs may elect to defer some or all of her or histheir salary and annual incentive award to a SERP II deferral account. NEOs whose base salary is below the tax-qualified benefit plans' annual compensation limit may also elect to defer some or all of the SERP II defined contribution benefit. NEOs can select among different crediting rates to apply to deferral balances under the SERP Plans and the investment options generally match the investment options available to all employees under the RSOP. These investment options include mutual funds and similar investments. The NEOs may change their investment elections at any time. The amount of the 20202022 SERP II defined contribution benefit received by each NEO is included in column (h) of the Summary Compensation Table on page 54.56. The aggregate amount each NEO elected to defer and the amount that the Company contributed to the SERP II in 20202022 are shown in the Non-Qualified Deferred Compensation table on page 65.68.
Each NEO has elected a date when benefit payments from her or histhe NEO's SERP I and SERP II deferral accounts will commence and has elected the form of benefit payment. SERP I and SERP II deferral account benefit payments will not begin earlier than the elected commencement date. An NEONEOs may request an early distribution of some or all of her or histheir SERP I deferral account balance upon a demonstrated severe financial need or, at any time prior to the elected commencement date, may elect an early withdrawal of contributions made to her or histheir account prior to January 1, 2005, subject to a ten percent early withdrawal penalty.
NEOs may not elect to receive an early withdrawal of amounts contributed to her or histheir SERP II deferral accountaccounts after December 31, 2004, except that she or hethey may request early withdrawal in the event of an unforeseen emergency, which request is subject to the approval of the ECC.ECHC Committee. Contributions made to a SERP II deferral account after December 31, 2004, would be paid in full upon a termination of the NEO's employment in connection with a change in control.
NEOs may elect to receive their SERP deferral account balance in the form of either a lump sum or monthly installments over a 5-, 10-, or 15-year period, or a combination of lump sum payment and monthly installments.
NEOs' SERP balances for deferrals made on or before December 31, 2018, will receive a fixed
7.5 percent annual interest crediting rate until paid in full; SERP II balances for deferrals made on or after
January 1, 2019, will be will be credited or debited with notional gains or losses until the balance has been paid in full.
| | | | | | | | | | | | | | |
Non-Qualified Deferred Compensation–2020 |
(a) | (b) | (c) | (d) | (e) |
Name | Plan | Company Contributions in 20201 | Aggregate Earnings in 20202 | Aggregate Balance as of December 31, 20203 |
Bethany M. Owen | SERP I | — | $11,683 | $95,814 |
| SERP II | $59,200 | $8,645 | $223,396 |
| | | | |
Alan R. Hodnik | SERP I | — | $12,578 | $430,766 |
| SERP II | $106,332 | $131,942 | $4,089,681 |
| | | | |
Robert J. Adams | SERP I | — | $22,361 | $172,878 |
| SERP II | $47,145 | $17,906 | $192,981 |
| | | | |
Steven W. Morris | SERP I | — | $662 | $6,231 |
| SERP II | — | $140,837 | $1,332,094 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non-Qualified Deferred Compensation–2022 |
(a) | (b) | (c) | (d) | (e) | | (f) | (g) |
Name | Plan | Executive Contributions1 | Company Contributions in 20222 | Aggregate Earnings in 20223 | Aggregate Withdrawals or Distributions in 2022 | Aggregate Balance as of December 31, 20224 |
Bethany M. Owen | SERP I | — | | | — | | | $(18,257) | | — | | | $92,692 | |
| SERP II | — | | | $133,421 | | $(60,300) | | — | | | $369,739 | |
| | | | | | | | | | | |
Steven W. Morris | SERP I | — | | | — | | | $124 | | — | | | $6,486 | |
| SERP II | — | | | $27,151 | | $26,832 | | — | | | $1,402,793 | |
| | | | | | | | | | | |
Margaret A. Thickens | SERP II | $187,315 | | $27,756 | | $(2,283) | | — | | | $18,054 | |
| | | | | | | | | | | |
Nicole R. Johnson | SERP II | — | | | $24,914 | | $(2,432) | | — | | | $17,825 | |
| | | | | | | | | | | |
Patrick L. Cutshall | SERP II | — | | | — | | | $(3,388) | | — | | | $23,033 | |
| | | | | | | | | | | |
Robert J. Adams | SERP I | — | | | — | | | $(12,770) | | $192,730 | | — | | |
| SERP II5 | — | | | — | | | $(23,693) | | $159,432 | | $152,760 | |
1 For Ms. Thickens, the amount shown in column (c) includes 100 percent of the annual incentive plan that was earned in 2022 and deferred in 2023 (reported in column (f) of the Summary Compensation Table on page 56).
2 The amounts shown in column (c)(d) reflect SERP annual make-up awards that were earned in 20202022 and automatically deferred in 20212023 (reported in column (h) of the Summary Compensation Table on page 54)56).
23 The amounts in column (d)(e) represent unrealized and realized gains or losses based on the crediting rates associated with the investment funds selected by each NEO.
3 4 The aggregate balances shown for SERP II include compensation that was earned and deferred in 20182020 and 2019,2021, and reported in the Summary Compensation Table under the applicable year in the following cumulative amounts:
Ms. Owen—$44,050,160,936, Mr. Hodnik—Morris—$1,335,523,15,976, Ms. Thickens—$20,338, Ms. Johnson—$20,258, and Mr. Adams— $69,742, and Mr. Morris—$12,139.$99,236. These amounts have since been adjusted for investment performance (i.e., earnings and losses) and deferrals credited during 2020.2022. The aggregate balances shown for the SERP I include compensation that was earned prior to 2009; those balances have been adjusted subsequently for investment performance.
5 Mr. Adams became entitled to receive SERP II distributions upon his separation from service, on June 17, 2022, in connection with his retirement. The portion of his SERP II deferral account for which he elected to receive monthly distributions over a 15-year period commencing at retirement was withdrawn from his SERP II account at his retirement but distributions did not commence until January 2023, after the expiration of a non-elective, six-month delay imposed by Tax Code Section 409A. The remaining portion of Mr. Adams' SERP II deferral account, which was comprised of deferrals made on or after January 1, 2019, was not withdrawn from his account and continued to be credited and debited with notional gains or losses until it was distributed as a lump-sum payment, in accordance with his election, in January 2023, after the expiration of the non-elective, six-month delay imposed by Tax Code Section 409A.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The NEOs are covered by the CIC Severance Plan. Under the CIC Severance Plan, a change in control generally means any one of the following events:
•Acquisition of more than 50 percent of the total fair market value or total voting power of Common Stock by any person, entity, or group acting together;
•Acquisition in any 12-month period of 40 percent or more of the Company's assets by any person, entity, or group acting together;
•Acquisition in any 12-month period of 30 percent or more of the total voting power of Common Stock by any person, entity, or group acting together; or
•A majority of members of the Board is replaced during any 12-month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of appointment or election.
Each NEO is entitled to receive specified benefits in the event her or histhe NEO's employment is involuntarily terminated during the period beginning six months before and ending two years after a change in control. An involuntary termination is deemed to occur if (i) the Company terminates the employment of the NEO other than for cause, or (ii) the NEO resigns from her or histheir employment with good reason. Cause generally includes reasons such as failure to perform duties, willful misconduct, or felony convictions. Good reason generally means a material reduction in the NEO's responsibilities or authority; a material reduction in her or histheir supervisory responsibilities or authority; a material reduction in base salary, incentive compensation, or other benefits; a material breach by the Company of an agreement under which an NEO provides services; or reassignment to another geographic location more than 50 miles from the NEO's current job location.
Under the CIC Severance Plan, if a triggering event had occurred on December 31, 2020,2022, Ms. Owen Mr. Hodnik, and Mr. AdamsMorris would behave been entitled to receive a lump sumlump-sum severance payment equal to two and one-half times their annual compensation as of December 31, 2020.2022. Ms. Thickens, Ms. Johnson, and Mr. Morris, and Ms. ThickensCutshall would be entitled to a payment equal to two times their annual compensation as of December 31, 2020.2022. Mr. Adams, who retired as of June 30, 2022, was not eligible for benefits under the CIC Severance Plan on December 31, 2022. Annual compensation includes base salary and an amount representing a target award under the annual incentive in effect for the year of termination. The CIC Severance Plan has a modified severance payment cap that limits payments to a level below the safe harbor amount provided by Tax Code Section 280G if the NEO would retain a greater after-tax amount than the after-tax amount that would be retained if the Company paid an unreduced benefit that was subject to the excise tax.
The AIP and LTIP also have change in control features. Under the AIP, in the event of a change in control (as defined in the AIP), any award earned based on actual results as of the date of the change in control will be prorated based on the number of months in the performance year elapsed as of the date of the change in control. Under the LTIP, in the event of a change in control (as defined in the LTIP), restrictions in RSU grants would be deemed to have expired upon the change in control and a prorated number of the RSUs would immediately vest, unless the RSU grants were fully assumed by the successor corporation. If the RSU grants were fully assumed, a prorated number of RSUs would immediately vest if the NEO's employment was terminated by the successor corporation for reasons other than cause within 18 months of the change in control. If a change in control were to occur, PSAs would immediately pay out on a prorated basis at the greater of target level or the level earned, based on then-current TSR ranking and with respect to the 2020-2022 performance period, then-current EPS CAGR results.
As a condition of receiving payments under the CIC Severance Plan, participants must sign a waiver of potential claims against the Company and must agree not to disclose confidential information, engage in any business in competition with the Company for a period of one year, recruit any employee or Director of the Company for employment for a period of two years, or publicly disparage the Company.
Estimated Potential Payments Upon Termination Associated with a Change in Control
The table below illustrates the value that would have been received by NEOs if a change in control had occurred on December 31, 2020,2022, and if, as a result, the NEO's employment had been terminated on the same date. Mr. Adams is not included in the table because of his June 30, 2022 retirement.
| | | | | | | | | | | | | | | | | | | | |
| Ms. Owen | Mr. Hodnik | Mr. Adams | Ms. Johnson | Mr. Morris | Ms. Thickens |
Severance Payment1 | $2,457,813 | $2,208,440 | $1,701,893 | $874,150 | $812,232 | $874,837 |
Annual Incentive Plan2 | — | | — | | — | | — | | — | | — | |
Performance Shares3 | $240,493 | $504,811 | $210,947 | $100,342 | $70,219 | $42,016 |
Unvested RSUs4 | $149,833 | $585,457 | $157,100 | $70,756 | $48,086 | $22,236 |
SERP II Pension5 | — | | — | | — | | — | | — | | — | |
SERP II Defined Contribution5 | — | | — | | — | | — | | — | | — | |
Benefits6 | $41,832 | $81,978 | $66,818 | $61,867 | $52,548 | $51,460 |
Outplacement Services7 | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 |
Total Payments8 | $2,914,971 | $3,405,686 | $2,161,758 | $1,132,115 | $1,008,085 | $1,015,549 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Ms. Owen | | Mr. Morris | | Ms. Thickens | | Ms. Johnson | | Mr. Cutshall | |
Severance Payment1 | | $2,833,208 | | $1,449,836 | | $1,078,870 | | $1,056,801 | | $859,288 | |
Annual Incentive Plan2 | | — | | | — | | | — | | | — | | | — | | |
Performance Shares3 | | $908,413 | | $235,905 | | $238,266 | | $271,543 | | $224,139 | |
Unvested RSUs4 | | $203,446 | | $54,016 | | $49,802 | | $56,617 | | $49,802 | |
SERP II Pension5 | | — | | | — | | | — | | | — | | | — | | |
SERP II Defined Contribution5 | | — | | | — | | | — | | | — | | | — | | |
Benefits6 | | $46,186 | | $69,042 | | $55,694 | | $61,627 | | $53,090 | |
Outplacement Services7 | | $25,000 | | $25,000 | | $25,000 | | $25,000 | | $25,000 | |
Total Payments8 | | $4,016,253 | | $1,833,799 | | $1,447,632 | | $1,471,588 | | $1,211,319 | |
1 The values for severance payments were calculated based on December 31, 2020,2022, base salary, target annual incentive, and the applicable severance benefit multiple of salary. Under the CIC Severance Plan, if payments constitute "excess parachute payments" within the meaning of Tax Code Section 280G, the payments would be reduced only if the executiveNEO would receive a greater net after-tax benefit than she or hethey otherwise would receive with no reduction in payments. The amounts shown above reflect no such reductions.
2 The performance period ended on December 31, 2020.2022. Therefore, no benefit acceleration would have occurred under this scenario.
3 Outstanding performance shares for the 2018-2020, 2019-2021,2020-2022, 2021-2023, and 2020-20222022-2024 performance periods would accelerate under this scenario. Under the LTIP, if a change in control and employment termination were to occur, performance shares would be paid on a prorated basis based on the number of months that had transpired as of December 31, 20202022 for each applicable three-year performance period and using the greater of actual performance or target as of December 31, 2020.2022. The award values shown reflect the proration, were calculated at target for each performance period, and reflect the $61.94$64.51 closing price of Common Stock on December 31, 2020.30, 2022.
4 Under the LTIP, if a change in control and employment termination were to occur, unvested RSUs would vest and be payable on a prorated basis based on the number of months that had transpired between the start of the three-year vesting period and December 31, 20202022 relative to the full three-year vesting period. The values shown reflect the $61.94 closing price of Common Stock on December 31, 2020.
5 The CIC Severance Plan does not provide for any additional age or service credit for supplemental executive retirement benefits under the SERP.
6 The values for benefit payments were based on the applicable severance multiplier times the sum of (i) medical, dental, and basic group term life insurance benefit premiums, and (ii) Company contributions under the Flexible Compensation Plan.
7 The Company will pay outplacement directly to service providers up to the amount shown for the cost of outplacement services provided to the NEOs. No amount will be paid unless the NEO utilizes outplacement services within the time frame specified in the CIC Severance Plan.
8 The CIC Severance Plan provides that if payments are delayed as a result of Tax Code Section 409A, interest is required to be paid at the short-term applicable federal rate. The amounts shown exclude interest.
Estimated Potential Payments Upon Termination Due to Retirement, Disability, or Death
If an NEONEOs were to retire, become disabled, or die, she or hethey would become entitled to receive prorated PSAs if PSA goals are achieved at the conclusion of the applicable three-year performance period. The LTIP also provides for immediate, accelerated vesting of RSUs, on a prorated basis, upon an NEO's retirement, disability, or death. The following table illustrates the value NEOs would have received in connection with accelerated vesting and payments triggered by a retirement, disability, or death had the event occurred on December 31, 2020.2022.The amount shown for Mr. Adams reflects what he received, or is eligible to receive, in connection with his retirement as of June 30, 2022.
| | | Ms. Owen | Mr. Hodnik | Mr. Adams | Ms. Johnson | Mr. Morris | Ms.Thickens | | | Ms. Owen | | Mr. Morris | | Ms. Thickens | | Ms. Johnson | | Mr. Cutshall | | Mr. Adams | |
Annual Incentive1 | Annual Incentive1 | — | | — | | — | | — | | — | | — | | Annual Incentive1 | | — | | | — | | | — | | | — | | | — | | | — | | |
Performance Shares2 | Performance Shares2 | — | | — | | — | | — | | — | | — | | Performance Shares2 | | $234,330 | | $64,529 | | $56,586 | | $64,127 | | $56,586 | | $82,427 | |
Unvested RSUs3 | Unvested RSUs3 | $149,833 | $585,457 | $157,100 | $70,756 | $48,086 | $22,236 | Unvested RSUs3 | | $203,446 | | $54,016 | | $49,802 | | $56,617 | | $49,802 | | $115,069 | |
Total Payments | Total Payments | $149,833 | $585,457 | $157,100 | $70,756 | $48,086 | $22,236 | Total Payments | | $437,776 | | $118,545 | | $106,388 | | $120,744 | | $106,388 | | $197,496 | |
1 Because the annual performance period ended on December 31, 2020,2022, no acceleration of benefits would have occurred.
2 Outstanding performance shares for the performance periods 2018-2020, 2019-2021,2020-2022, 2021-2023, and 2020-20222022-2024 would be earned on a prorated basis under this scenario if TSR and EPS CAGR performance goals were achieved at the conclusion of each
three-year performance period. The award values shownshow assume no payoutPSA for all three of the TSR metric would have been earned for the 2021-2023 performance periodsperiod at 54 percent and for the 2022-2023 performance period at 80 percent and PSAs based on the EPS CAGR metric would not have been earned for the 2021-2023 performance period and, for the 2022-2024 period, would have been earned at 55 percent. No amount is included for the 2020-2022 performance period based on actual performance through December 31, 2020.
3 The2022. For all NEOs except Mr. Adams, award values for RSUs were calculated and prorated basedusing $64.51, the closing price of Common Stock on December 30, 2022. For Mr. Adams, award values were calculated using $57.28, the $61.94 closing share price on June 17, 2022, the date he separated from service in connection with his retirement; also in connection with his retirement, the amount shown for Mr. Adams reflects an 18/36 proration of his grant for the 2021-2023 performance period and a 6/36 proration of his grant for the 2022-2024 performance period.
3 For all NEOs except Mr. Adams, the values shown reflect the $64.51 closing price of Common Stock on December 31, 2020.
30, 2022. Mr. Adams' outstanding RSUs vested on a pro rata basis based on his retirement in June 2022. Mr. Adams' grant for the 2020-2022 performance period was prorated at 30/36, his grant for the 2021-2023 performance period was prorated at 18/36, and his grant for the 2022-2024 performance period was prorated at 6/36. Mr. Adams' award values were calculated using $57.28, the closing share price on June 17, 2022.
CEO PAY RATIO
Employees drive ALLETE’s success. Our compensation strategy is designed to compensate all employees appropriately and competitively. When determining employee compensation, we consider multiple factors including market data, job responsibilities, experience, performance, and internal equity.
For purposes of this CEO pay ratio disclosure, we have usedIn keeping with the samerequirement to identify our median employee at least once every three years, we identified last year. Because there has been no material change in our employee population or our employee compensation arrangements, and there have been no material changes in the median employee's circumstances, we believe that using the samea new median employee is appropriate for our 2020 pay ratio disclosure.in 2022. ALLETE's median employee was identified in 2019for 2022 by computing the median annual W-2 Medicare reported wages for all employees other than the then-CEO, who were employed on December 20, 2019,16, 2022, which was the last day of ALLETE's 20192022 payroll reporting period.period, other than the CEO and 80 employees who became employees as the result of ALLETE's acquisition of New Energy in 2022. We did not make assumptions, adjustments, or estimates; nor did we annualize compensation for any full-time employee who was not employed for all of 2019. 2022.
We calculated the median employee's 20202022 annual total compensation using the same methodology used to report the NEO's compensation in the Summary Compensation Table on page 54.
Both Ms. Owen and Mr. Hodnik served as CEO (non-concurrently)56. The total compensation reported in 2020. Ms. Owen, who was elected CEO on February 3, 2020, held the position for 332 dayscolumn (i) of the year and Mr. Hodnik for 33 days. We calculated the CEO's 2020 annual total compensation by calculating the compensation provided to Ms. Owen and Mr. Hodnik for the time they each served as CEO and then combining the two figures. Specifically, we prorated the respective amounts of 2020 salary, annual bonus, change in pension value and all other compensation by the portion of the year in which they served as CEO, applying the increased salarySummary Compensation Table for Ms. Owen in connection with her promotion. Ms. Owen's equity awards were included in full (and Mr. Hodnik's excluded), as she was serving as CEO on the annual grant date and only her award was designed to reflect that role. Using this methodology, the CEO's 2020 total compensation was $2,067,829, or 192022 is $2,338,422. This amount is 21 times that of the median employee’s 2022 total 2020 compensation of $108,922.$111,305.
We believe the foregoing pay ratio disclosuredisclosed above is a reasonable estimate calculated in a manner consistentaccordance with SecuritiesSEC rules, based on our records and Exchange Commission Item 402(u) of Regulation S-K.the methodology described above. The SEC rules for identifying the median employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to make reasonable assumptions and estimates, and to applyuse a variety of methodologies, to apply various assumptions, and to make reasonable estimates and exclusions. The application of various methodologies, assumptions, estimates, and exclusions that reflect their compensation practices. As amay result in significant differences in the results reported by SEC reporting companies. For this reason, the CEO pay ratio reported by other companies may not be comparable to the pay ratio reported above,above.
PAY VERSUS PERFORMANCE
In accordance with rules adopted by the SEC pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the following disclosure is provided regarding “compensation actually paid” for (i) ALLETE's CEO ("PEO") and (ii) ALLETE's NEOs other than the PEO on an average basis, as other companies may have different compensation practices, may utilize assumptions, adjustments, or estimates,well as certain Company performance measures for the past three fiscal years. Ms. Owen served as PEO during 2022 and 2021, and also may employ different methodologiesduring the period from February 3, 2020 through
December 31, 2020. Alan R. Hodnik served as PEO from January 1, 2020 to February 2, 2020.
Refer to our CD&A starting on page 33 for a complete description of how executive compensation relates to Company performance and exclusionshow the ECHC Committee makes its compensation decisions.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) | (b1) | (b2) | (c1) | (c2) | (d) | (e) | (f) | (g) | (h) | (i) |
| | | | | | | Value of Initial Fixed $100 Investment Based on: | | |
| Summary Compensation Table Total for PEO1 (Ms. Owen) | Summary Compensation Table Total for PEO2 (Mr. Hodnik) | Compensation Actually Paid to PEO1,3,4 (Ms. Owen) | Compensation Actually Paid to PEO 2,3,4 (Mr. Hodnik) | Average Summary Compensation Table Total for Non-PEO NEOs6 | Average Compensation Actually paid Non-PEO NEOs4,5,6 | Net Income (millions) | EPS |
| TSR | Peer Company TSR7 |
2022 | $2,338,422 | — | | $2,466,968 | — | | $805,560 | $741,696 | $90 | $111 | $189 | $3.38 |
2021 | $2,578,539 | — | | $2,174,091 | — | | $924,190 | $853,982 | $88 | $114 | $169 | $3.23 |
2020 | $1,985,344 | $3,312,220 | $1,481,717 | $1,328,953 | $949,548 | $685,329 | $80 | $99 | $165 | $3.18 |
1 Ms. Owen was elected CEO effective February 3, 2020 and she has served as CEO since that date.
2 Mr. Hodnik served as CEO during the period January 1, 2020 to February 2, 2020; Mr. Hodnik served as Executive Chairman during the period February 3, 2020 to December 31, 2020. Consistent with SEC rules, we have included Mr. Hodnik's total 2020 compensation in calculating their own pay ratios.
the columns (b2) and (c2).
3 To calculate the amounts shown in the "Compensation Actually Paid to PEO" columns (c1) and (c2), amounts were deducted from and added to, as applicable, the amount in the corresponding "Summary Compensation Table Total Compensation for PEO" columns (b1) and (b2) as shown in the following table:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| PEO (Ms. Owen) | | PEO (Ms. Owen) | | PEO (Ms. Owen) | | PEO (Mr. Hodnik) |
Total Compensation from Summary Compensation Table | $2,338,422 | | $2,578,539 | | $1,985,344 | | $3,312,220 |
Adjustments for Pension | | | | | | | |
Amounts Reported in "Change in Pension Value" Column of Summary Compensation Table | — | | | $(385,368) | | $(307,375) | | $(1,766,933) |
Current Year Service Cost | — | | | — | | | — | | | — | |
Prior Service Cost Impacting Current Year | — | | | — | | | — | | | — | |
Adjustments for Equity Awards(a) | | | | | | | |
Amounts Reported in "Stock Awards" Column of the Summary Compensation Table | $(797,313) | | $(757,908) | | $(596,185) | | $(414,543) |
Year-end Fair Value of Unvested Awards Granted in the Current Year | $839,445 | | $753,194 | | $425,474 | | $317,983 |
Year-Over-Year Difference of Year-End Fair Values for Unvested Awards Granted in Prior Years | $(49,272) | | $(18,216) | | $(33,165) | | $(159,667) |
Fair Values at Vesting Date for Awards Granted and Vested in Current Year | — | | | — | | | — | | | — | |
Difference in Fair Values Between Prior Year-End Fair Values and Vesting Date Fair Values for Awards Granted in Prior Years | $135,686 | | $3,850 | | $7,624 | | $39,893 |
Forfeitures During Current Year Equal to Prior Year-End Fair Value | — | | | — | | | — | | | — | |
Dividends or Dividend Equivalents Not Otherwise Included in the Total Compensation | — | | | — | | | — | | | — | |
Compensation Actually Paid (as calculated) | $2,466,968 | | $2,174,091 | | $1,481,717 | | $1,328,953 |
(a) Equity valuation assumptions for calculating "compensation actually paid" are not materially different from grant date valuation assumptions. |
4 To calculate the amounts shown in the "Average Compensation Actually Paid to Non-PEO NEOs" column (e), amounts were deducted from and added to (as applicable) the amount shown in the "Average Summary Compensation Table Total Compensation for Non-PEO NEOs" column (d) as shown in the following table:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Average Non-PEO NEOs | | Average Non-PEO NEOs | | Average Non-PEO NEOs |
Total Compensation from Summary Compensation Table | $805,560 | | $924,190 | | $949,548 |
Adjustments for Pension | | | | | |
Amounts Reported in "Change in Pension Value" Column of Summary Compensation Table | — | | | $(65,409) | | $(187,761) |
Current Year Service Cost | — | | | — | | | — | |
Prior Service Cost Impacting Current Year | — | | | — | | | — | |
Adjustments for Equity Awards(a) | | | | | |
Amounts Reported in "Stock Awards" Column of Summary Compensation Table | $(229,859) | | $(243,621) | | $(217,331) |
Year-end Fair Value of Unvested Awards Granted in the Current Year | $180,751 | | $242,101 | | $155,102 |
Year-Over-Year Difference of Year-End Fair Values for Unvested Awards Granted in Prior Years | $(38,376) | | $(5,467) | | $(18,071) |
Fair Values at Vesting Date for Awards Granted and Vested in Current Year | $2,625 | | — | | | — | |
Difference in Fair Values Between Prior Year-End Fair Values and Vesting Date Fair Values for Awards Granted in Prior Years | $20,995 | | $2,188 | | $3,842 |
Forfeitures During Current Year Equal to Prior Year-End Fair Value | — | | | — | | | — | |
Dividends or Dividend Equivalents Not Otherwise Included in the Total Compensation | — | | | — | | | — | |
Compensation Actually Paid (as calculated) | $741,696 | | $853,982 | | $685,329 |
(a) Equity valuation assumptions for calculating "compensation actually paid" are not materially different from grant date valuation assumptions. |
4 Non-PEO NEOs include the following individuals for each year as shown below:
2022: Mr. Morris, Ms. Thickens, Ms. Johnson, Mr. Cutshall, and Mr. Adams
2021: Mr. Adams, Ms. Johnson, Mr. Morris, and Ms. Thickens
2020: Mr. Adams, Ms. Johnson, Mr. Morris, and Ms. Thickens
5 The peer group is comprised of the companies in the Philadelphia Utility Index.
The following three graphs describe the relationship between "compensation actually paid" to the PEO(s), as calculated in accordance with the SEC rules, and the average of "compensation actually paid" to the NEOs other than the PEO(s), all as calculated in accordance with SEC rules, and the TSR, net income, and EPS information presented in the Pay Versus Performance table on page 73.
Compensation Actually Paid and Cumulative TSR
Compensation Actually Paid and Net Income
Compensation Actually Paid and EPS
Financial Performance Measures
In our assessment, the most important financial performance measures used to link compensation actually paid to our NEOs in 2022, as calculated in accordance with the SEC rules, to our performance were:
•TSR
•Net Income
•EPS CAGR
•Cash from Operating Activities
DIRECTOR COMPENSATION
The ECCECHC Committee has primary responsibility for developing and evaluating the non-employee Director compensation program, which is then approved by the Board.
The ECCECHC Committee reviews non-employee Director compensation annually. The ECCECHC Committee receives advice from its independent compensation consultant, Pearl Meyer, to help ensure that non-employee Director compensation is market-based, aligned with shareholder interests, and consistent with our compensation principles. Pearl Meyer reviews each director compensation element and total director compensation, comparing those to the director compensation of the same group of peer companies used in connection with designing ALLETE's executive compensation. See “Process for Determining Executive Compensation," page 39,41, for the list of the peer group companies. Pearl Meyer also examines director compensation data from similarly-sized companies in all industries. The ECCECHC Committee reviews Pearl Meyer's benchmarking report and determines whether to recommend to the Board any changes to non-employee Director compensation.
Based on its review and evaluation in December 2019,October 2021, the ECCECHC Committee determined that compensation for non-employee Director compensationDirectors was below the market median. To align compensation more closely to the market median, effective January 1, 2020,2022, the Board approved a fifteen percent4.8% increase to the stock retainer ($93,00097,500 compared to $80,850$93,000 in 2019)2021) and cash retainer ($75,000 compared to $65,100 in 2019) for non-employee Directors. The Board also approved, effective January 1, 2020, a $9,9006.6% increase to the Lead Director's cash retainer ($115,00080,000 compared to $105,100$75,000 in 2019).2021) for non-employee Directors.
The following table sets forth the non-employee Director compensation earned in 2020:2022: | | | | | | | | | | | | | | | | | | | | |
Director Compensation—2022 |
(a) | (b) | (c) | (d) |
Name1 | Fees Earned or Paid in Cash2 | Stock Awards2,3 | Total |
Kathryn W. Dindo4 | $37,083 | | — | | | $37,083 | |
George G. Goldfarb | $99,000 | | $97,500 | | $196,500 | |
James J. Hoolihan | $87,500 | | $97,500 | | $185,000 | |
Heidi E. Jimmerson4 | $39,583 | | — | | | $39,583 | |
Madeleine W. Ludlow | $100,000 | | $97,500 | | $197,500 | |
Charles R. Matthews5 | $44,500 | | $89,375 | | $133,875 | |
Susan K. Nestegard6 | $120,000 | | $97,500 | | $217,500 | |
Barbara A. Nick | $92,125 | | $97,500 | | $189,625 | |
Douglas C. Neve | $96,500 | | $97,500 | | $194,000 | |
Robert P. Powers | $95,000 | | $97,500 | | $192,500 | |
Charlene A. Thomas | $94,000 | | $97,500 | | $191,500 | |
| | | | | | | | | | | |
Director Compensation—2020 |
(a) | (b) | (c) | (d) |
Name | Fees Earned or Paid in Cash1 | Stock Awards1,2 | Total |
Kathryn W. Dindo | $94,000 | $93,000 | $187,000 |
George G. Goldfarb | $84,000 | $93,000 | $177,000 |
James J. Hoolihan | $82,500 | $93,000 | $175,500 |
Heidi E. Jimmerson | $115,000 | $93,000 | $208,000 |
Madeleine W. Ludlow | $95,000 | $93,000 | $188,000 |
Susan K. Nestegard | $87,500 | $93,000 | $180,500 |
Barbara A. Nick | $42,000 | $85,250 | $127,250 |
Douglas C. Neve | $91,500 | $93,000 | $184,500 |
Robert P. Powers | $90,000 | $93,000 | $183,000 |
1 Ms. Owen is not included in this table because she was an NEO and her compensation is fully discussed in the CD&A starting on page 33 and reflected in the Summary Compensation Table on page 56.1 Ms. Jimmerson, 2 Mr. Goldfarb, Mr. Hoolihan, Ms. Nestegard, Mr. Neve, and Mr. Powers elected to defer their 20202022 stock retainer.retainer; Mr. Goldfarb, and
Mr. Neve elected to defer their full 20202022 cash retainers; Ms. Jimmersonretainers. Mr. Matthews elected to defer $96,750all eligible portions of her 2020his stock and cash retainer.retainers. These amounts were deferred under the Deferral Plan II.
2 3 For all Directors except Ms. Nick,Mr. Matthews, the amounts shown in column (c) reflect the grant date fair value of the annual stock retainer paid on June 1, 2020.2022. On that date, Directors each received 1,740.9211,585.366 shares of Common Stock valued based on a share price of $53.42$61.50 (the five-day average closing price, including the date that is ten calendar days prior to June 1, 2020)2022). Ms. NickMr. Matthews received a prorated stock retainer in connection with herhis election to the Board which occurred on July 28, 2020. On September 9, 2020, Ms. Nick6, 2022. Mr. Matthews received 1,575.2031,481.681 shares of Common Stock, on August 9, 2022, the calculation of which was based on a share price of $54.12$60.32 (the five-day average closing price, including the date that is ten calendar days prior to
September August 9, 2020)2022).
4 Ms. Dindo and Ms. Jimmerson each retired following the 2022 Annual Meeting on May 10, 2022. The amounts shown for Ms. Dindo and Ms. Jimmerson reflect the prorated cash retainers they received for their service as Directors through their May 10, 2022 retirement date. Director stock retainers are paid in advance in June of each year; for that reason, neither Ms. Dindo nor Ms. Jimmerson received a stock retainer in June 2022.
5 Mr. Matthews joined the Board on July 6, 2022.
6 Ms. Nestegard served as Lead Director for all of 2022.
Employee Directors receive no additional compensation for their services as Directors. Accordingly, neither Mr. Hodnik nor Ms. Owen received anyno additional compensation in 2022 for theirher service on the Board in 2020. The 2020and her 2022 compensation for the NEOs is covered in detail in the CD&A beginningstarting on page 32.33.
Under the terms of the ALLETE Director Stock Plan, ALLETE pays each non-employee Director an annual retainer fee, a portion of which is paid in cash and a portion of which is paid in Common Stock as set forth below: | | | | | | | | | | | | | | |
Non-Employee Director Retainers—2022 | |
| Cash | | Stock | |
All Directors | $80,000 | | $97,500 | |
Lead Director (Additional) | $40,000 | | — | |
| | | | | | | | | | | | | | |
Non-Employee Director Retainers—2020 | |
| Cash | | Stock | |
All Directors | $75,000 | | $93,000 | |
Lead Director (Additional) | $40,000 | | — | |
We also pay each non-employee Director, other than the Lead Director, an annual cash retainer for each committee membership and committee chair assignment as set forth below:
| | | | | | | | | | | | | | |
Non-Employee Committee Retainers—2022 | |
| Member | | Additional Chair Retainer | |
Audit Committee | $9,000 | | $10,000 | |
Executive Compensation and Human Capital Committee | $7,500 | | $7,500 | |
Corporate Governance and Nominating Committee | $7,500 | | $5,000 | |
| | | | | | | | | | | | | | |
Non-Employee Committee Retainers—2020 | |
| Member | | Additional Chair Retainer | |
Audit Committee | $9,000 | | $10,000 | |
Compensation Committee | $7,500 | | $7,500 | |
Corporate Governance Committee | $7,500 | | $5,000 | |
The Lead Director receives her designated cash retainer and the Director stock retainer, but does not receive any other committee or chair retainers.
Director and committee retainers are prorated based on the actual term of service per year.
Directors may elect to receive all or part of the cash portions of their retainer fees in Common Stock.
The Company provides a deferral account benefit to the Directors under the terms of the Deferral Plans. On December 31, 2004, the Company froze Deferral Plan I with respect to all deferrals. Effective
January 1, 2005, the Company established Deferral Plan II to comply with Section 409A of the Tax Code. Deferral Plan II governs all cash retainers initially deferred after December 31, 2004. On
May 1, 2009, the Board amended Deferral Plan II to permit Directors to elect to defer their stock retainers.
Annually, each Directornon-employee Directors may elect to defer to a Deferral Plan II cash account some or all of her or histheir cash retainer fees. Directors can select among different investment crediting rates to apply to deferral cash account balances under the Deferral Plans. These investment options include mutual funds and similar investments. The Directors may change their investment elections at any time.
Annually, each Directornon-employee Directors also may elect to defer to a Deferral Plan II stock account some or all of her or histheir stock retainer fees. Deferred stock retainer fees are credited to a Director's stock account, which has a single investment option that mirrors the performance of our Common Stock and is credited with dividend equivalents equal to cash dividends that are declared and paid on our Common Stock.
Each Director electsDirectors elect a date when benefit payments from her or histheir Deferral Plan I and Deferral Plan II accounts will commence and the form of benefit payment. Generally, Deferral Plan I and Deferral Plan II account benefit payments will not begin earlier than the elected commencement date. Directors may, however, request an early distribution of some or all contributions made to her or histheir Deferral Plan I account prior to January 1, 2005, subject to a 10 percent early withdrawal penalty.
A DirectorDirectors may not elect to receive an early withdrawal of amounts contributed to her or histheir Deferral Plan II account after January 1, 2005, except that she or hethey may request an early withdrawal in the event of an unforeseen emergency, which request is subject to the approval of the ECC.ECHC Committee.
A DirectorDirectors may elect to receive her or histheir Deferral Plan cash and stock account balances in the form of either a lump sum payment or annual installments over a 5-, 10-, or 15-year period, or a combination of both. A Director's Deferral Plan cash account balance will be credited or debited with notional gains or losses until the balance has been paid in full. A DirectorDirectors will receive dividend equivalents on her or histheir Deferral
Plan II stock account balancebalances until paid in full.
ITEM NO. 3—ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION
We have conducted annual advisory shareholder votes to approve executive compensation–like the one in Item No. 2 of this proxy statement–since the 2011 Annual Meeting. In accordance with the requirements of Section 14A of the Exchange Act and the related SEC rules, we are asking you to vote, on an advisory basis, whether future advisory votes on executive compensation should occur every year, every two years, or every three years.
Our shareholders voted on a similar proposal in 2017 with the majority voting to hold the advisory
say-on-pay vote every year. Our executive compensation programs have been designed to promote a long-term connection between executive compensation and performance. At the same time, the
ECHC Committee and the Board recognize that compensation disclosures are made annually, and we believe that annual say-on-pay voting helps to promote awareness of our executive compensation programs and provides us with the most direct and timely feedback about those programs from shareholders. We believe that holding an annual say-on-pay vote is consistent with our compensation philosophy and programs, and is also consistent with our practice of engaging shareholders and seeking their input on corporate governance matters.
Although this shareholder vote on the frequency of future advisory shareholder say-on-pay votes is advisory and non-binding, the ECHC Committee and the Board expect to take into account the outcome of the vote when considering the frequency of future advisory shareholder say-on-pay votes.
For this Item No. 3, you are not voting to approve or disapprove the Board's recommendation. Rather, you will be able to specify your preference for one of three possible frequencies, within the following four possible voting options: "one year," "two years," "three years," or "abstain."
The Board recommends a vote for a “ONE YEAR” frequency for future advisory votes to approve executive compensation.
ITEM NO. 4—RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has selected PricewaterhouseCoopers as the Company's independent registered public accounting firm for the year 2021.2023. PricewaterhouseCoopers has acted in this capacity since October 1963.
While the Audit Committee is responsible for the selection, retention, evaluation of independence and performance, approval of fees and retention terms, oversight, and termination (when appropriate) of the Company’s principal independent accountants, the Audit Committee and Board request that shareholders ratify the selection of PricewaterhouseCoopers as the Company's independent registered public accounting firm as a matter of good corporate practice. The Audit Committee is not required to take any action as a result of the outcome of this vote, but will take it into consideration. Even if the selection is ratified by shareholders, the Audit Committee in its discretion may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its shareholders.
A representative of PricewaterhouseCoopers is expected to be present at the 20212023 Annual Meeting. The representative will have an opportunity to make a statement if she or hethey so desiresdesire and will be available to respond to appropriate questions.
The Board recommends a vote “FOR” ratifying the selection of PricewaterhouseCoopers as the Company's independent registered public accounting firm for 2021.2023.
AUDIT COMMITTEE REPORT
The Audit Committee is comprised of fivesix non-employee Directors, each of whom has been determined by the Board to be “independent” under ALLETE's Corporate Governance Guidelines, and within the meaning of the rules of both the NYSE and the SEC. The Board has also determined that each member of the Audit Committee is financially literate and that Ms. Dindo, Mr. Goldfarb, Mr. Matthews, and Mr. Neve are each an “audit committee financial expert” within the meaning of the rules of the SEC.SEC rules. The Audit Committee operates pursuant to a written charter. The Audit Committee charter which was reviewed in
February 20212023 and last revised in January 2018,February 2022 and is available on the Company's website at www.allete.com/Governance. The Audit Committee assists in the Board's oversight of the integrity of the Company's financial reports, compliance with legal and regulatory requirements, the qualifications and independence of the independent registered public accounting firm, both the internal and external audit processes, and internal controls over financial reporting. The Audit Committee reviews and recommends to the Board that the audited financial statements be included in the Annual Report.Company's annual Form 10-K.
During 20202022, the Audit Committee met and held separate discussions with members of management and the Company's independent registered public accounting firm, PricewaterhouseCoopers, regarding certain audit activities and with the Company's Chief Audit Officer regarding the plans for and results of selected internal audits. The Audit Committee reviewed the quarterly financial statements. It reviewed with management and the independent registered public accounting firm the effectiveness of internal controls over financial reporting and the Company's compliance with laws and regulations.
The Audit Committee received and reviewed the written disclosures and letters from PricewaterhouseCoopers specified by applicable requirements of the Public Company Accounting Oversight Board (PCAOB) regarding the independent registered public accounting firm's communications with the Audit Committee concerning independence and discussed the firm's independence with the independent registered public accounting firm. The Audit Committee has received written material addressing PricewaterhouseCoopers' internal quality control procedures and other matters, as required by the NYSE listing standards.
The Audit Committee has: (i) reviewed and discussed the Company's Consolidated Financial Statements for the year ended December 31, 20202022, with the Company's management and with the Company's independent registered public accounting firm; (ii) met with management to discuss all quarterly and annual financial reports prior to their issuance and to discuss significant accounting issues and management judgments; and (iii) discussed with the Company's independent registered public accounting firm the matters required to be discussed under the rules adopted by the PCAOB. Management represented to the Audit Committee that the Company's Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States of America.
Based on the above-mentioned review and discussions, the Audit Committee recommended to the Board that the audited financial statements be included in ALLETE's 2020 Annual Report on Form 10-K.10-K for the year ended December 31, 2022.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee has pre-approval policies and procedures related to the provision of audit and non-audit services by the independent registered public accounting firm. Under these procedures, the Audit Committee pre-approves both the type of services to be provided by the independent registered public accounting firm and the estimated fees related to these services. During the pre-approval process, the Audit Committee considers the impact of the types of services and the related fees on the independence of the independent registered public accounting firm. The services and fees must be deemed compatible with the maintenance of the independence of the independent registered public accounting firm, including compliance with the SEC's rules and regulations.
The Audit Committee will, as necessary, consider and, if appropriate, pre-approve the provision of additional audit and non-audit services by the independent registered public accounting firm that were not encompassed by the Audit Committee's annual pre-approval and that are not prohibited by law. The Audit Committee has delegated to the Chair of the Audit Committee the authority to pre-approve, on a case-by-case basis, these additional audit and non-audit services, provided that the Chair shall promptly report any decisions to pre-approve such services to the Audit Committee.
Audit and Non-Audit Fees
The following table presents fees for professional audit services rendered by PricewaterhouseCoopers for the audit of the Company's annual financial statements for the years ended December 31, 20202022 and December 31, 2019,2021, and fees billed for other services rendered by PricewaterhouseCoopers during those periods. All audit and non-audit services and fees for 20202022 and 20192021 were pre-approved by the Audit Committee. The Company has considered and determined that the provision of the non-audit services noted below is compatible with maintaining PricewaterhouseCoopers' independence.
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| | | 2020 | | 2019 | |
| Audit Fees1 | | $1,675,000 | | $1,689,000 | |
| Audit-Related Fees2 | | 45,000 | | | — | | |
| Tax Fees3 | | 12,500 | | | 19,756 | | |
| All Other Fees4 | | 2,700 | | | 20,700 | | |
| Total | | $1,735,200 | | $1,729,456 | |
| | | | | | | | | | | | | | | | | | | | |
| | | 2022 | | 2021 | |
| Audit Fees1 | | $2,537,000 | | $1,835,400 | |
| Audit-Related Fees2 | | — | | | 45,000 | | |
| Tax Fees3 | | 111,100 | | | 35,500 | | |
| All Other Fees4 | | 2,900 | | | 2,780 | | |
| Total | | $2,651,000 | | $1,918,680 | |
1 Audit fees were incurred in connection with audit work performed on the integrated audit of the Consolidated Financial Statements, as well as work generally only the independent registered public accounting firm can reasonably be expected to provide, such as required regulatory audits, subsidiary audits, accounting consultations, and services in connection with securities offerings. 2022 audit fees also included incremental services related to the Company's acquisition of New Energy in 2022.
2 Audit-related fees consisted of consultation services related to a new system implementation.
3 Tax fees consisted of tax consultationcompliance services.
4 Other fees consisted of license fees for accounting research software and training provided to ALLETE's internal audit group.software.
March 25, 202123, 2023
Audit Committee
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Kathryn W. Dindo, Chair | |
George G. Goldfarb, | |
Douglas C. Neve | |
Barbara A. Nick Chair | |
Heidi E. Jimmerson, Susan K. Nestegard, ex officio
| |
Charles R. Matthews | |
Douglas C. Neve | |
Barbara A. Nick | |
Charlene A. Thomas | |
OTHER BUSINESS ________________________________________________________________
The Board knows of no other business to be presented at the 20212023 Annual Meeting. However, if any other matters properly come before the Annual Meeting, it is the intention of the persons named in the proxy form to vote the Common Stock represented thereby pursuant to the proxies in accordance with their judgment in such matters.
All shareholders are respectfully asked to vote their proxies so that the necessary vote may be present at the Annual Meeting.
Shareholder Proposals for the 20222024 Annual Meeting
All proposals from shareholders to be considered for inclusion in the Proxy Statement relating to the Annual Meeting scheduled for May 10, 2022,14, 2024, must be received by the Corporate Secretary of ALLETE at
30 West Superior Street, Duluth, MN 55802-2093 not later than November 25, 2020.24, 2023. The Company's Bylaws provide that for business to be properly brought before an annual meeting by a shareholder, the shareholder must have delivered timely notice to the Company's Corporate Secretary. To be timely, advance notice for business to be brought before an Annual Meeting generally must be received not less than
90 days nor more than 120 days prior to the anniversary of the immediately preceding Annual Meeting. Therefore, for the Annual Meeting scheduled for May 10, 2022,14, 2024, ALLETE must receive a shareholder's notice between January 11, 202110, 2024 and February 10, 2021.9, 2024. A shareholder's notice must also comply with the informational and other requirements set forth in the Company's Bylaws. In addition to the information and other requirements in the Company's Bylaws, as noted in the prior sentence, to comply with the universal proxy rules, shareholders who intend to solicit proxies in support of director nominees other than the Company's nominees must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act no later than March 10, 2024. The persons to be named as proxies in the proxy card relating to the 20222024 Annual Meeting may have the discretion to vote their proxies in accordance with their judgment on any matter as to which ALLETE did not have notice in accordance with the advance notice provisions in the Company's Bylaws, without discussion of such matter in the Proxy Statement relating to the 20222024 Annual Meeting.
By order of the Board of Directors,
/s/ Margaret A. Thickens
Margaret A. Thickens
Vice President, Chief Legal Officer, and Corporate Secretary
March 25, 202123, 2023
Duluth, Minnesota
ALLETE, INC.
ANNUAL MEETING OF SHAREHOLDERS
Tuesday, May 11, 2021
10:30 a.m. CDT
The Annual Meeting of Shareholders will be conducted solely via live webcast.
Please visit: www.proxydocs.com/ALE
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| ALLETE, Inc. | | |
30 West Superior Street | | proxy |
Duluth, MN 55802-2093 | |
This proxy is solicited by the Board of Directors for use at the Annual Meeting of Shareholders on May 11, 2021.
Bethany M. Owen, and Margaret A. Thickens, or either of them, with power of substitution, are hereby appointed proxies of the undersigned to vote all shares of ALLETE, Inc. common stock owned by the undersigned at the Annual Meeting of Shareholders to be held online, via an Internet webcast at 10:30 a.m. CDT on Tuesday, May 11, 2021, or any adjournments or postponements thereof, with respect to the election of Directors, an advisory vote to approve executive compensation, ratification of the selection of an independent registered public accounting firm, and any other matters as may properly come before the meeting.
This proxy confers authority to vote each proposal listed on the other side unless otherwise indicated. If no choice is specified, the proxy will be voted FOR each nominee in Item 1, FOR Item 2, and FOR Item 3. If any other business is transacted at said meeting, this proxy shall be voted in the discretion of the proxies. This proxy is solicited on behalf of ALLETE, Inc., and may be revoked prior to its exercise. Please complete, sign, date and return this Proxy Card using the enclosed envelope. Alternatively, authorize the above-named proxies to vote the shares represented on this Proxy Card online or by phone as described below. Shares cannot be voted unless these instructions are followed, or other specific arrangements are made to have the shares represented at the meeting. By responding promptly, you may help save the costs of additional proxy solicitations.
Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to be held on May 11, 2021:
The Notice and Proxy Statement and 2020 Annual Report are available at:
www.proxydocs.com/ALE.
Vote by Internet, Telephone, or Mail.
Internet and Telephone Voting Available
24 Hours a Day, 7 Days a Week
Your Internet or telephone vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed, and returned your proxy card.
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: | | ( | | * |
INTERNET | | TELEPHONE | | MAIL |
| | | | |
www.proxypush.com/ale | | 1-866-883-3382 | | Mark, sign, and date your proxy
card and return it in the
postage-paid envelope provided.
Must be received by May 10, 2021.
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Use the Internet to vote your proxy. | | Use a touch-tone telephone to
vote your proxy. | |
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If you vote your proxy by Internet or by telephone, you do NOT need to mail back your Proxy Card.
| | | | | |
| Shareowner Services |
P.O. Box 64945 |
St. Paul, MN 55164-0945 |
Address Change? Mark box, sign, and indicate changes below: □
TO VOTE BY INTERNET OR TELEPHONE, SEE REVERSE SIDE OF THIS PROXY CARD.
TO VOTE BY MAIL AS THE BOARD OF DIRECTORS RECOMMENDS ON ALL ITEMS BELOW, SIMPLY SIGN, DATE, AND RETURN THIS PROXY CARD.
The Board of Directors recommends a vote FOR each nominee in Item 1, FOR Item 2, and FOR Item 3.
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1. Election of directors:
| | | | | | | | |
| | | FOR | AGAINST | ABSTAIN | | | | FOR | AGAINST | ABSTAIN |
| a. | Kathryn W. Dindo | ¨ | ¨ | ¨ | | f. | Susan K. Nestegard | ¨ | ¨ | ¨ |
| b. | George G. Goldfarb | ¨ | ¨ | ¨ | | g. | Douglas C. Neve | ¨ | ¨ | ¨ |
| ò Please fold here - Do not separate ò
|
| c. | James J. Hoolihan | ¨ | ¨ | ¨ | | h. | Barbara A. Nick | ¨ | ¨ | ¨ |
| d. | Heidi E. Jimmerson | ¨ | ¨ | ¨ | | i. | Bethany M. Owen | ¨ | ¨ | ¨ |
| e. | Madeleine W. Ludlow | ¨ | ¨ | ¨ | | j. | Robert P. Powers | ¨ | ¨ | ¨ |
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2. Advisory vote to approve executive compensation.
| | ¨ | FOR | ¨ | AGAINST | ¨ | ABSTAIN |
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3. Ratification of the selection of PricewaterhouseCoopers LLP as ALLETE's independent registered public accounting firm for 2021.
| | ¨
| FOR | ¨
| AGAINST | ¨
| ABSTAIN |
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED AS THE BOARD RECOMMENDS. THE PROXIES ARE ALSO AUTHORIZED TO VOTE IN THEIR DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY BE BROUGHT BEFORE THE MEETING AND ANY ADJOURNMENTS THEREOF.
Date _____________________________________
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| | Signature(s) in Box
Please sign exactly as your name(s) appears on Proxy. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the Proxy.
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