UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant  x
 
Filed by a Party other than the Registrant  o
Check the appropriate box:
oPreliminary Proxy Statement
oConfidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
xDefinitive Proxy Statement
oDefinitive Additional Materials
oSoliciting Material Pursuant to §240.14a-12
NorthWestern Corporation
(Name of Registrant as Specified In Its Charter)
 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
xNo fee required.
oFee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 (1)Title of each class of securities to which transaction applies:
   
 (2)Aggregate number of securities to which transaction applies:
   
 (3)Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
   
 (4)Proposed maximum aggregate value of transaction:
   
 (5)Total fee paid:
   
oFee paid previously with preliminary materials.
oCheck box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 (1)Amount Previously Paid:
   
 (2)Form, Schedule or Registration Statement No.:
   
 (3)Filing Party:
   
 (4)Date Filed:
   
   






 
Notice of Annual Meeting and Proxy Statement








   
 
IMPORTANT VOTING INFORMATION
If you owned shares of ourNorthWestern Corporation common stock at the close of business on February 24, 2014,23, 2015, you are entitled to one vote per share upon each matter presented at the annual meeting of stockholders to be held on April 24, 2014.23, 2015. Stockholders whose shares are held in an account at a brokerage firm, bank, or other nominee (i.e., in “street name”) will need to obtain a proxy from the broker, bank, or other nominee that holds their shares authorizing them to vote at the annual meeting.
Your broker is not permitted to vote on your behalf on the election of directors and other matters to be considered at this stockholders meeting, except on ratification of our appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2014,2015, unless you provide specific instructions by completing and returning the voting instruction form or following the instructions provided to you to vote your shares via telephone or the Internet.internet. For your vote to be counted, you will need to communicate your voting decisions to your broker, bank, or other financial institution before the date of the annual meeting.
YOUR VOTE IS IMPORTANT
Your vote is important. Our Board strongly encourages you to exercise your right to vote. Voting early helps ensure that we receive a quorum of shares necessary to hold the annual meeting.
ASSISTANCE
If you have any questions about the proxy voting process, please contact the broker, bank, or other  financial institution where you hold your shares. The Securities and Exchange Commission or SEC, also has a website (www.sec.gov/spotlight/proxymatters.shtml) with more information about your rights as a stockholder. You also may contact our Investor Relations Department by phone at
(605) 978-2945 or by email at investor.relations@northwestern.com.
 
   
 
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL 24, 201423, 2015
The Notice of Annual Meeting, Proxy Statement, and 20132014 Annual Report to
Stockholders are available on the Internetinternet at www.proxyvote.com.
 
   
 
ATTENDING THE ANNUAL MEETING IN PERSON OR BY WEBCAST
Only stockholders of record or their legal proxy holders as of the Record Daterecord date or our invited guests may attend the annual meeting in person. If you wish to attend the annual meeting and your shares are held in street name at a brokerage firm, bank, or other nominee, you will need to bring your notice or a copy of your brokerage statement or other documentation reflecting your stock ownership as of the Record Date.record date. You may be asked to provide photo identification, such as a driver’s license.
The annual meeting will be webcast (audio and slides) simultaneously with the live meeting. You may access the webcast from our website at www.northwesternenergy.com under Our Company / Investor Relations / Presentations and Webcasts. A replay of the webcast will be available at the same location on our website through May 24, 2014.23, 2015.
 



 
March 7, 20146, 2015

Notice of 20142015 Annual Meeting and Proxy Statement

Dear Fellow NorthWestern Corporation Stockholder:

You are cordially invited to attend the 20142015 Annual Meeting of Stockholders to be held on Thursday, April 24, 2014,23, 2015, at 10:00 a.m. MountainCentral Daylight Time at the NorthWestern Energy MontanaSouth Dakota / Nebraska Operational Support Office, 40 East Broadway, Butte, Montana.600 Market Street West, Huron, South Dakota.

At the meeting, stockholders will be asked to elect the Board of Directors, to ratify the selection of our independent registered public accounting firm for 2014, to approve our equity compensation plan2015, and to hold an advisory vote to approve named executive officer compensation. The proxy statement included with this letter provides you with information about the annual meeting and the business to be conducted.
YOUR VOTE IS IMPORTANT. We urge you to read this proxy statement carefully. Whether or not you plan to attend the annual meeting in person, we urge you to vote promptly through the Internet,internet, by telephone or by mail.
If you are unable to attend our annual meeting in person, we are pleased to offer an audio webcast of the meeting. The webcast can be accessed live on our website at www.northwesternenergy.com under Our Company / Investor Relations / Presentations and Webcasts, or you can listen to a replay of the webcast, which will be archived on our website at the above location for
30 days after the meeting.

Thank you for your continued support of NorthWestern Corporation.
   Very truly yours,
   
   
Robert C. Rowe
President and Chief Executive Officer
   



Table of ContentsPage
Annual Meeting Notice1
Items of Business to Be Considered at the Annual Meeting2
Voting Procedures2
 Appointment of Proxy Holders2
 Record Date and Voting3
 Quorum3
 Broker Non-Votes4
 Required Vote and Method of Counting4
 Method and Cost of Soliciting and Tabulating Votes5
 Electronic Access to Proxy Statement and Annual Report65
General Information65
 Attending the Annual Meeting in Person or by Webcast65
 Householding; Receipt of Multiple Notices6
 Available Information76
 Future Stockholder Proposals76
 Assistance87
Corporate Governance8
Board of Directors9
 Our Board ofIndividual Directors10
 Nomination of New Director13
Independent Board Leadership StructureChair1914
 Determination of Independence and Family Relationships1914
 Committees of the Board1915
 Code of Conduct2117
 Risk Oversight of the Company2217
 Transactions with Related Persons2218
 Hedging and Pledging Our Securities2218
 Political Contributions Policy2218
 Communications with Our Board2319
Audit Committee Report2319
Compensation Committee Interlocks and Insider Participation19
Compensation Committee Report20
Compensation Discussion and Analysis2420
Compensation Discussion and Analysis Table of Contents20
 Executive Summary2421
Pay for Performance25
Say-on-Pay Results28
 Governance of Our Executive Compensation Program3028
 Targeted Overall Compensation and Competitive Analysis3129
 Components of Executive Compensation for 201320143432
 Other Compensation Policies42
Compensation Committee Interlocks and Insider Participation44
Compensation Committee Report4441
Compensation of Executive Officers and Directors4543
 20132014 Summary Compensation Table4543
 20132014 Grants of Plan-Based Awards4644
 Outstanding Equity Awards at 20132014 Fiscal Year-End4846
 20132014 Stock Vested4947
 Post-Employment Compensation4947
 20132014 Director Compensation5250
 Director Stock Ownership5351
Stock Ownership Information5452
 Security Ownership of Directors and Management5452
 Section 16(a) Beneficial Ownership Reporting Compliance5453
 Security Ownership of Certain Beneficial Holders5553
Other Matters54
Securities Authorized for Issuance Under Equity Compensation Plans54
Proposals Requiring Your Vote5655
 Proposal 1 – Election of Directors5755
 Proposal 2 – Ratification of Independent Registered Public Accounting Firm5957
 Proposal 3 – Approval of Equity Compensation Plan61
Proposal 4 – Advisory Vote to Approve Named Executive Officer Compensation7359
Other Matters76
Securities Authorized for Issuance Under Equity Compensation Plans76
Appendix A – NorthWestern Corporation Amended and Restated Equity Compensation Plan
77
Proxy Statement Glossary (inside back cover)
62



Notice of the
20142015 Annual Meeting of Stockholders

Meeting Date:April 24, 201423, 2015
Meeting Time:10:00 a.m. MountainCentral Daylight Time
Location:NorthWestern Energy MontanaSouth Dakota / Nebraska Operational Support Office, 40 East Broadway, Butte, MT600 Market Street West, Huron, South Dakota
Record Date:February 24, 201423, 2015
Purposes of the Annual Meeting:
Elect our slate of eight nominees to our Board of Directors to hold office until the annual meeting of stockholders in 2015 and until their successors are duly elected and qualified;
Ratify our appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the year ending December 31, 2014;
Approve the NorthWestern Corporation Amended and Restated Equity Compensation Plan;
Hold an advisory vote to approve named executive officer compensation; and
Transact any other business that may be properly brought before the annual meeting and any adjournment or postponement of the annual meeting.
●Election of eight individuals to serve as members of our Board of Directors for a one-year term. Seven of the eight individuals nominated for election currently are serving on our Board.
●Ratification of the appointment of Deloitte & Touche LLP as the company’s independent registered public accounting firm for 2015.
●Approval of the compensation for our named executive officers through an advisory say-on-pay vote.
●Transaction of any other matters and business as may properly come before the annual meeting or any postponement or adjournment of the annual meeting.
Stockholders, or their legal proxy holders, owning NorthWestern Corporation common stock at the close of business on February 24, 201423, 2015, the Record Date,record date, are entitled to vote at the annual meeting.
Only our stockholders, their legal proxy holders as of the Record Daterecord date, or our invited guests may attend the annual meeting in person. The annual meeting will be webcast (audio and slides) simultaneously with the live meeting.
On or about March 7, 20146, 2015, we mailed to our stockholders either (1) a Notice of Internet Availability of Proxy Materials, which indicates how to access our proxy materials on the Internet,internet, or (2) a copy of our proxy statement, a proxy card, and our 20132014 Annual Report.
By Order of the Board of Directors,
Timothy P. Olson
Corporate Secretary


20142015 Proxy Statement
March 7, 20146, 2015
This proxy statement contains information related to the solicitation of proxies by the Board of Directors or Board,(the Board) of NorthWestern Corporation d/b/a NorthWestern Energy (or NorthWestern,(NorthWestern, the company, we, us, or our) in connection with our 20142015 Annual Meeting of Stockholders. See the Proxy Statement Glossary on the inside back cover for additional definitions used in this proxy statement.
Items of Business to Be Considered at the Annual Meeting
Our Board asks you to vote on the following items at the annual meeting:
ŒElection of all theeight individuals to serve as members of our Board for a one-year term. TheSeven of the eight individuals nominated for election currently are currently serving on our Board.
Ratification of the appointment of ourDeloitte & Touche LLP as the company’s independent registered public accounting firm for 2014. We have appointed Deloitte & Touche LLP for this role.2015.
ŽApproval of our equity compensation plan.
Approval of the compensation for our named executive officers through an advisory say­say-­on-pay vote.
Transaction of any other matters and business as may properly come before the annual meeting or any postponement or adjournment of the annual meeting.
Voting Procedures
Appointment of Proxy Holders
Our Board asks you to appoint E. Linn Draper Jr. and Robert C. Rowe as your proxy holders to vote your shares at the annual meeting. You make this appointment by voting the proxy card provided to you and using one of the voting methods described on the next page.
If appointed by you, the proxy holders will vote your shares as you direct on the matters described in this proxy statement. If you sign and date your proxy card, but do not provide direction, they will vote your shares as recommended by our Board.
Management is not aware of any mattermatters to be brought before the annual meeting other than the matters described in the notice of annual meeting accompanying this proxy statement. The persons named in the form of proxy solicited by our Board will vote all proxies that have been properly executed, and if any matters not set forth in the notice of annual meeting are properly brought before the meeting, such persons will vote thereon in accordance with their best judgment.

2
Voting Procedures and General Information


Record Date and Voting
All stockholders of record as of the close of business on February 24, 201423, 2015, are entitled to receive notice of and to vote, in person or by proxy, at the annual meeting or any postponement or adjournment of the annual meeting. If you owned shares of our common stock at the close of business on February 24, 201423, 2015, you are entitled to one vote per share upon each matter presented at the annual meeting. The company does not have any other outstanding class of voting stock. Stockholders whose shares are held in an account at a brokerage firm, bank, or other nominee (i.e.(i.e., in “street name”) will need to obtain a proxy from the broker, bank, or other nominee that holds their shares authorizing them to vote at the annual meeting.
Your vote is important. Our Board strongly encourages you to
exercise your right to vote. Voting early helps ensure that we
receive a quorum of shares necessary to hold the annual meeting.
:
Voting on the Internet.You may vote by proxy on the Internetinternet up until 11:59 p.m. Eastern Daylight Time the day before the annual meeting. The website for Internetinternet voting is www.proxyvote.com. Easy-to-follow prompts allow you to vote your shares and confirm that your instructions have been properly recorded. If you vote on the Internet,internet, you can request electronic delivery of future proxy materials.
  
(
Voting by Telephone. You may vote by proxy by telephone up until 11:59 p.m. Eastern Daylight Time the day before the annual meeting by using the toll-free number listed on your proxy card or voting instruction form. Easy-to-follow prompts allow you to vote your shares and confirm that your instructions have been properly recorded.
  
+
Voting by Mail.Mark, sign and date your proxy card or voting instruction form and return it in the postage-paid envelope provided. Your proxy card or voting instruction form must be received far enough in advance of the annual meeting to allow sufficient time for processing.
  
?
Voting in Person at the Annual Meeting. If you attend the annual meeting and wish to vote in person, you will be given a ballot at the annual meeting. Please note, however, that if your shares are held in “street name”street name by a broker, bank, or other nominee and you wish to vote at the annual meeting, you must bring to the annual meeting a proxy from the record holder of the shares authorizing you to vote at the annual meeting. Submitting your vote by proxy will not affect your right to attend the annual meeting and to vote in person.
  
r
Revoking Your Voting Instructions to Your Proxy Holders.If you are a record holder of our common stock, you can change your vote at any time before your proxy is voted at the annual meeting by again voting by one of the methods described above or by attending the annual meeting and voting in person. You also may revoke your proxy by delivering a notice of revocation to our Corporate Secretarycorporate secretary at NorthWestern Corporation, 3010 W.West 69th Street, Sioux Falls, SDSouth Dakota 57108, prior to the vote at the annual meeting. If your shares are held in “streetstreet name,” you must contact your broker, bank, or other nominee to revoke your proxy.
Quorum
At the close of business on the Record Date,record date, there were 38,815,46447,037,077 shares of NorthWestern Corporation common stock outstanding and entitled to vote at the annual meeting. Each outstanding share is entitled to one vote.
A quorum, which is a majority of the outstanding shares as of the Record Date,record date, is necessary to hold a valid annual meeting. A quorum will be present at the annual meeting if the holders of a majority of the shares of our common stock outstanding and entitled to vote on the Record Daterecord date are present in person or represented by proxy. If a quorum is not present at the annual meeting, we expect that the annual meeting will be adjourned to solicit additional proxies.

3
Voting Procedures and General Information


Broker Non-Votes
Under the rules of the New York Stock Exchange or NYSE,(NYSE), certain stockholder nominees (such as brokers) have the discretion to vote on routine matters, such as the ratification of the appointment of our independent registered public accounting firm, unless instructed otherwise by the beneficial owner. They do not have authority to vote on non-routine matters – such as the election of directors approval of our equity compensation plan and the advisory vote to approve named executive officer compensation – unless they receive instruction from the beneficial owner.
A “broker non-vote” occurs when your broker submits a proxy for your shares but does not indicate a vote for a particular proposal because the broker does not have authority to vote on that proposal and has not received voting instructions from you. “Broker non-votes”Broker non-votes are not counted as votes for or against the proposal in question or as abstentions, and are not counted to determine the number of votes present for the particular proposal.
Under the rules of the NYSE, if your broker holds shares in your name and delivers this proxy statement to you, the broker is entitled to vote your shares on Proposal 2 — Ratification of Independent Registered Public Accounting Firm even if the broker does not receive voting instructions from you. Without your instructions, the broker is not entitled to vote your shares on Proposal 1 — Election of Directors or Proposal 3 — Approval of Equity Compensation Plan and Proposal 4 — Advisory Vote to Approve Named Executive Officer Compensation. We encourage you to provide instructions to your broker, bank, or other nominee. This ensures your shares will be voted at the annual meeting.
Required Vote and Method of Counting
The required vote and method of counting votes for the various business matters to be considered at the annual meeting are described in the table below. If you sign and return your proxy card without indicating your vote, your shares will be voted “FOR” each of the nominees for director, “FOR” ratification of Deloitte & Touche LLP as our independent registered public accounting firm, “FOR” approval of our equity compensation plan, “FOR” the advisory vote to approve named executive officer compensation, and in accordance with the recommendations of our Board on any other matters properly brought before the annual meeting for a vote.
Item of BusinessBoard RecommendationVoting Approval StandardEffect of AbstentionEffect of Broker Non-Vote
Proposal 1 —1:

Election of Directors
FOR
election of each director nominee
Nominee with most “FOR” votes is elected.

If a Nominee receives more “WITHHOLD AUTHORITY” votes than “FOR” votes, the Nominee must submit resignation for consideration by the Nominating and Corporate Governance Committee and final Board decision.
No effect
No effect;
brokermay not vote shares
Proposal 2:

Ratification of Appointment of Independent Registered Public Accounting Firm
FOR
Majority of votes(1) present in person or represented by proxy and entitled to vote.
Vote against
Not applicable; brokermay
vote shares
Proposal 3:

Advisory Vote to Approve Named Executive Officer Compensation
FOR
Majority of votes(1) present in person or represented by proxy and entitled to vote.

This advisory vote is not binding on the Board, but the Board will consider the vote results when making future executive compensation decisions.
Vote against
No effect;
brokermay not vote shares
For the election of directors, you may vote “FOR” all of the nominees or you may “WITHHOLD AUTHORITY” for one or more of the nominees. Withheld votes will not count as votes cast for the nominee, but will count for the purpose of determining whether a quorum is present. Stockholders do not have the right to cumulate their votes for directors.
The election of directors requires a plurality of the votes cast by the shares of common stock present in person or represented by proxy at the annual meeting and entitled to vote thereon. “Plurality” means that the nominees receiving the largest number of votes cast “FOR” are elected as directors up to the maximum number of directors to be chosen at the annual meeting. A properly executed proxy marked “WITHHOLD AUTHORITY” with respect to the election of one or more directors will not be voted with respect to the director or directors indicated. If your shares are held through a broker, bank or other nominee and you do not vote your shares, your bank, broker or other nominee may not vote your shares on this proposal. Assuming a quorum is present, the failure to vote, including broker non-votes, will have no effect on the voting on this proposal.
The Board has adopted a Majority Vote Policy for the election of directors. The policy provides that in an uncontested election, any nominee for director who receives a greater number of “WITHHOLD AUTHORITY” votes from his or her election than votes “FOR” such election (a “Majority Withheld Vote”) shall promptly tender his or her resignation following certification of the stockholder vote under the procedures in the policy.
(1)Assumes that a quorum exists – that at least a majority of the number of shares entitled to vote are present in person or represented by proxy at the annual meeting.

4
Voting Procedures and General Information


Proposal 2 — Ratification of Appointment of Independent Registered Public Accounting Firm
For the proposal relating to ratification of the appointment of our independent registered public accounting firm, you may vote “FOR,” “AGAINST” or “ABSTAIN.”
Ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2014 requires the affirmative vote of a majority of the shares of common stock present in person or represented by proxy at the annual meeting and entitled to vote thereon. If your shares are held through a broker, bank or other nominee and you do not vote your shares, your bank, broker or other nominee can vote your shares at its discretion on this proposal. Assuming a quorum is present, the failure to vote — either by not returning a properly executed proxy card or not voting in person at the annual meeting — will have no effect on the outcome of the voting on this proposal. However, abstentions will have the same effect as voting “AGAINST” this proposal.
Proposal 3 — Approval of Equity Compensation Plan
For the proposal relating to approval of the NorthWestern Corporation Amended and Restated Equity Compensation Plan, or equity compensation plan, you may vote “FOR,” “AGAINST” or “ABSTAIN.”
Approval of our equity compensation plan requires the affirmative vote of a majority of the shares of common stock present in person or represented by proxy at the annual meeting and entitled to vote thereon. If your shares are held through a broker, bank or other nominee and you do not vote your shares, your bank, broker or other nominee may not vote your shares on this proposal. Assuming a quorum is present, broker non-votes or the failure to vote — either by not returning a properly executed proxy card or not voting in person at the annual meeting — will have no effect on the outcome of the voting on the proposal. However, abstentions will have the same effect as voting “AGAINST” this proposal.
Proposal 4 — Advisory Vote to Approve Named Executive Officer Compensation
For the advisory vote to approve named executive officer compensation, you may vote “FOR,” “AGAINST” or “ABSTAIN.”
The affirmative vote of a majority of the shares of common stock present in person or represented by proxy at the annual meeting and entitled to vote thereon is required to approve the advisory vote to approve named executive officer compensation. If your shares are held through a broker, bank or other nominee and you do not vote your shares, your bank, broker or other nominee may not vote your shares on this proposal. Assuming a quorum is present, broker non-votes or the failure to vote — either by not returning a properly executed proxy card or not voting in person at the annual meeting — will have no effect on the outcome of the voting on the proposal. However, abstentions will have the same effect as voting “AGAINST” this proposal.
Because your vote is advisory, it will not be binding on the Board. However, the Board will review the voting results and take them into consideration when making future decisions regarding executive compensation.
Method and Cost of Soliciting and Tabulating Votes
The Board is providing these proxy materials to you in connection with the solicitation by the Board of proxies to be voted at our annual meeting. NorthWestern will pay the cost of the solicitation, which will be made primarily by the use of mail and the Internet.internet. Proxies also may be solicited in person or by telephone, facsimile, or similar means by our directors, officers, or employees without additional compensation.
We will, on request, reimburse stockholders who are brokers, banks, or other nominees for their reasonable expenses in sending proxy materials and annual reports to the beneficial owners of the shares they hold of record. Broadridge Financial Solutions, Inc., will be the proxy tabulator, and a representative from NorthWestern will act as the Inspector of Election.

5
Voting Procedures and General Information


Electronic Access to Proxy Statement and Annual Report
The proxy statement, annual report, voting card, and voting instructions are available on the Internetinternet at www.proxyvote.com and will be available for one year following the annual meeting. You will need the control number provided on your notice to access the electronic materials.
At www.proxyvote.com, stockholders can view these materials, cast their vote, and request to receive future proxy materials in printed form by mail or electronically by email.

General Information
Attending the Annual Meeting in Person or by Webcast
Only stockholders of record or their legal proxy holders as of the Record Daterecord date or our invited guests may attend the annual meeting in person. If you wish to attend the annual meeting and your shares are held in street name at a brokerage firm, bank, or other nominee, you will need to bring your notice or a copy of your brokerage statement or other documentation reflecting your stock ownership as of the Record Date.record date. You may be asked to provide photo identification, such as a driver’s license.
No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted at the annual meeting. No banners, signs, firearms or weapons will be allowed in the meeting room. We reserve the right to inspect all items entering the meeting room.

The annual meeting will be held at the NorthWestern Energy Montana Operational Support Office, 40 East Broadway, Butte, MT, as shown on the map below.
No cameras, recording equipment, electronic devices, large bags, briefcases, or packages will be permitted at the annual meeting. No banners, signs, firearms, or weapons will be allowed in the meeting room.
We reserve the right to inspect all items entering the meeting room.
The annual meeting will be held at the NorthWestern Energy South Dakota / Nebraska Operational Support Office, 600 Market Street West, Huron, South Dakota, as shown on the map to the right.
The annual meeting will be webcast (audio and  slides) simultaneously with the live meeting. You may access the webcast from our website at www.northwesternenergy.com under Our Company / Investor Relations / Presentations and Webcasts. A replay of the webcast will be available at the same location on our website through May 23, 2015.

Butte, Montana5
Voting Procedures and General Information
The annual meeting will be webcast (audio and slides) simultaneously with the live meeting. You may access the webcast from our website at www.northwesternenergy.com under Our Company / Investor Relations / Presentations and Webcasts. A replay of the webcast will be available at the same location on our website through May 24, 2014.

Householding; Receipt of Multiple Notices
Under SECthe rules of the Securities and Exchange Commission (SEC), a single Notice of Internet Availability of Proxy Materials or set of annual reports and proxy statements may be sent to any household at which two or more stockholders reside if they appear to be members of the same family. Each stockholder continues to receive a separate proxy card. This procedure, referred to as householding, reduces the volume of duplicate information stockholders receive and reduces mailing and printing expenses. In accordance with a notice sent to certain stockholders who shared a single address, only one annual report and proxy statement were sent to that address unless any stockholder at that address requested that multiple sets of documents be sent. However, if any stockholder who agreed to

6
Voting Procedures and General Information


householding wishes to receive a separate annual report or proxy statement for 20142015 or in the future, he or she may telephone toll-free (800) 542-1061 or write to Broadridge Householding Department, 51 Mercedes Way, Edgewood, NY 11717, and the company will deliver promptly upon such written or oral request a separate Notice of Internet Availability of Proxy Materials or annual report or proxy statement. Stockholders sharing an address who wish to receive a single set of reports may do so by contacting their banks, brokers, or other nominees, if they are beneficial holders, or by contacting Broadridge at the address set forth above, if they are record holders.
Available Information
We file annual, quarterly, and current reports, proxy statements and other information with the SEC. These filings are available through a website maintained by a third-party and accessible through our company website at www.northwesternenergy.com under Our Company / Investor Relations / SEC Filings.
Our public filings also are available to the public from document retrieval services and the website maintained by the SEC at www.sec.gov. You also may read and copy any reports, proxy statements or other information that we file with the SEC at the following location of the SEC: Public Reference Room, 100 F Street NE, Room 1580, Washington, DC 20549.
Please call the SEC at (800) SEC-0330732-0330 for further information on the public reference room. You also may obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street NE, Room 1580, Washington, DC 20549, at prescribed rates.
Future Stockholder Proposals
Stockholder Proposals for Inclusion in Next Year’s Proxy Statement
To be considered for inclusion in the proxy statement for our annual meeting to be held in 20152016, stockholder proposals must be received by the Corporate Secretarycorporate secretary of NorthWestern Corporation not later than November 7, 2014.2015. This notice requirement is separate from and in addition to the SEC’s requirements that a stockholder must meet in order to have a stockholder proposal included in the company’s proxy statement.
Other Stockholder Proposals for Presentation at the 20152016 Annual Stockholders’ Meeting
For nominations of persons for election as a director or for any proposal that is not submitted for inclusion in next year’s proxy statement, but is instead sought to be presented directly from the floor of the 20152016 Annual Stockholders’ Meeting, the company’s Bylawsbylaws require that timely notice must be given to the Corporate Secretary.corporate secretary. To be timely, the notice must be received by the Corporate Secretarycorporate secretary of NorthWestern Corporation between December 25, 2014,2015, and January 24, 2015.2016.
Stockholder proposals should be delivered or mailed to and received by us in accordance with the dates set forth above and addressed to:
Corporate Secretary
NorthWestern Corporation
3010 W.West 69th Street
Sioux Falls, SDSouth Dakota 57108

76
Voting Procedures and General Information


To be in proper written form, a stockholder’s notice for both annual and special meetings must set forth:
(1) as to each person whom the stockholder proposes to nominate for election as a director, (a) the name, age, and business and residence address of the person, (b) the principal occupation or employment of the person, (c) the class or series and number of shares of capital stock of the company that are owned beneficially or of record by the person, (d) any other information relating to the person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities and Exchange Act of 1934, as amended or Exchange Act,(Exchange Act) and the rules and regulations promulgated thereunder, and (e) the written consent of each proposed nominee to being named as a nominee and to serve as a director if elected;
(2) as to any other business that the stockholder proposes to bring before the meeting, (a) a brief description of the business desired to be brought before the meeting, (b) the text of the proposal or business (including the text of any resolutions proposed for consideration, and, in the event that such business includes a proposal to amend the Bylawsbylaws of the company, the language of the proposed amendment), (c) the reasons for conducting such business at the meeting, and (d) any material interest of such stockholder in the business being proposed and the beneficial owner, if any, on whose behalf the proposal is being made; and
(3) as to the stockholder giving this notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (a) the name and record address of such stockholder and any such beneficial owner, (b) the class or series and number of shares of capital stock of the company that are owned beneficially or of record by such stockholder and beneficial owner, (c) a description of all arrangements or understandings between such stockholder and any such beneficial owner and each proposed nominee and any other persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (d) a representation that such stockholder is a stockholder of record entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the persons and/or conduct the business being proposed as described in the notice, and (e) a representation of whether such stockholder or any such beneficial owner intends or is part of a group which intends (i) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the company’s outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (ii) otherwise to solicit proxies from stockholders in support of such proposal or nomination. The foregoing notice requirements shall be deemed satisfied by a stockholder with respect to an annual meeting if the stockholder has notified the company of his or her intention to present a proposal at such annual meeting in compliance with Regulation 14A (or any successor thereof) promulgated under the Exchange Act and such stockholder’s proposal has been included in a proxy statement that has been prepared by the company to solicit proxies for such annual meeting. The company may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the company.
Assistance
If you need assistance with voting your proxy or have questions regarding our annual meeting, please contact:
Travis Meyer
Director - Investor Relations
and Corporate FinanceBusiness Development
(605) 978-2945
or
Emily Larkin
Assistant Corporate Secretary
(605) 978-2871
No persons have been authorized to give any information or to make any representations other than those contained in this proxy statement and, if given or made, such information or representations must not be relied upon as having been authorized by us or any other person. You should not assume that the information contained in this proxy statement is accurate as of any date other than the date of this proxy statement, and the mailing of this proxy statement to stockholders shall not create any implication to the contrary.

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Corporate Governance
Our Board oversees the business of the company. It establishes overall policies and standards for us and reviews the performance of our management. The Board operates pursuant to a set of written Corporate Governance Guidelines that set forth the company’s corporate governance philosophy and the governance policies and practices that the company has established to assist in governing the company and its affiliates. OurIn addition to our Corporate Governance Guidelines, the principal documents which establish our primary corporate governance practices are listed below and can be found on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
●Certificate of Incorporation
●Bylaws
●Audit Committee Charter
●Human Resources Committee Charter 
●Nominating and Corporate Governance
      Committee Charter
●Corporate Governance Guidelines
●Code of Conduct and Ethics
●Code of Ethics for the Chief Executive Officer
      and Senior Financial Officers 
●Complaint Procedures for the Audit Committee
      of the Board 
●Corporate Political Contributions Policy 
●Insider Trading Policy 
●Related Persons Transactions Policy 

We are committed to strong corporate governance. As governance standards have evolved, we have enhanced our governance standards as appropriate to best serve the interests of our stockholders. Our commitment to corporate governance best practices has been recognized. Forbes has recognized us three times on its list of America’s Most Trustworthy Companies, a distinction awarded, according to Forbes, for transparent accounting and solid corporate governance practices. Our proxy disclosures also have been recognized by Corporate Secretary magazine. Our proxy statement last year (2014) received Corporate Secretary’s award for Best Proxy Statement (small to mid cap), and we were a finalist for Best Proxy Statement in 2012 and 2013. Glass Lewis and C-Suite magazine also have evolved, we have enhanced our governance standards as appropriate to best serve the interests of our stockholders. Our efforts to operate at the highest level of corporate governance have been recognized. In 2013, Forbes recognized us for the third straight time on its list of America’s Most Trustworthy Companies, a distinction awarded, according to Forbes, for transparent accounting and solid corporate governance practices. Our proxy disclosures also have been recognized by Corporate Secretary magazine, as a finalist for Best Proxy Statement in 2012 and 2013, and by Glass Lewis and C-Suite magazine with respect to our say-on-pay disclosures.
We believe that the corporate governance practices we have adopted benefit our stockholders by maintaining appropriate accountability for our company.
What We Do
Annual election of all directors.
Majority vote standard in uncontested elections. If a director receives more “WITHHOLD AUTHORITY” votes than “FOR” votes, the director must submit a resignation for the Board to consider.
Allow stockholders owning 25 percent of our shares to call a special meeting.
Independent board. Our Board is comprised entirely of independent directors, except our chief executive officer.
Independent Chairman.
Independent Board committees. Each of our Board committees (audit, human resources and nominating and corporate governance) is made up solely of independent directors.
Committee authority to retain independent advisors. Each of our Board committees has the authority to retain independent advisors, which will be paid for by the company.
Code of Conduct and Ethics. We are committed to operating with honesty and integrity and maintaining the highest level of ethical conduct. Our Code of Conduct and Ethics applies to all employees, as well as the Board. We also have a separate Code of Ethics for the Chief Executive Officer and Senior Financial Officers concerning financial reporting and other related matters.
Robust stock ownership guidelines for executive officers and directors.
What We Don’t Do
Poison pill. We do not have a stockholders rights plan or poison pill.
Hedging or pledging of company securities. We do not allow our directors, executives or employees to hedge or pledge company securities.
Corporate political contributions. We do not make corporate contributions to candidates for political office, political parties or committees, or political committees organized for the advancement of political candidates.
Supermajority voting. We do not have supermajority voting provisions in our Certificate of Incorporation or Bylaws, except to approve (or amend provisions concerning) business combinations or mergers.
What We Do
●Annual election of all directors.
●Majority vote plus resignation standard in uncontested elections. If a director receives more “WITHHOLD AUTHORITY” votes than “FOR” votes, the director must submit a resignation for the Board to consider.
●Allow stockholders owning 25 percent of our shares to call a special meeting.
●Independent board. Our Board is comprised entirely of independent directors, except our CEO.
●Independent Chairman.
●Independent Board committees. Each of our Board committees (audit, human resources, and nominating and corporate governance) is made up solely of independent directors.
●Committee authority to retain independent advisors. Each of our Board committees has the authority to retain independent advisors, which will be paid for by the company.
●
Code of Conduct and Ethics. We are committed to operating with honesty and integrity and maintaining the highest level of ethical conduct. Our Code of Conduct and Ethics applies to all employees, as well as the Board. We also have a separateCode of Ethics for the Chief Executive Officer and Senior Financial Officersconcerning financial reporting and other related matters.
●Robust stock ownership guidelines for executive officers and directors.

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Corporate Governance


Our
What We Don’t Do
●Poison pill. We do not have a stockholders rights plan or poison pill.
●Hedging or pledging of company securities. We do not allow our directors, executives, or employees to hedge or pledge company securities.
●Corporate political contributions. We do not make contributions to candidates for political office, political parties, or committees, or political committees organized to advance political candidates.
●Supermajority voting. We do not have supermajority voting provisions in our certificate of incorporation or bylaws, except to approve (or amend provisions concerning) business combinations or mergers.
Board of Directors
Currently, we have seven members on our Board. In November 2014, we mourned the passing of our friend, colleague and Board member Philip L. Maslowe. Our Board has eight members. not filled the vacancy created by Mr. Maslowe’s passing, but instead conducted a search for an appropriately qualified individual. As a result of that search, our Board identified an individual with the expertise, experience, and skills that our Board believes will augment its collective skill set. Accordingly, our Board has nominated Jan R. Horsfall for election by our stockholders at the annual meeting.
We believe a limited number of directors helps maintain personal and group accountability. Our Board is independent in composition and outlook, led by an independent Chairman and composed of independent directors, other than theour Chief Executive Officer or CEO.(CEO). If elected, Mr. Horsfall also will be independent.
Our individual Board members have varied expertise and bring extensive professional experience from both within and outside our industry. This provides our Board with a vast collective skill set, which is
Our individual Board members have varied expertise and bring extensive professional experience from both within and outside our industry. This provides our Board with a vast collective skill set which is
advantageous to the Board’s oversight of our company. While the industry-specific expertise possessed by certain of our Board members is essential, we also benefit from the viewpoints of our directors with expertise outside our industry. These varied perspectives expand the Board’s ability to provide relevant guidance to our business.
Collective Board Skills

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UtilityFinanceExecutiveRegulatoryEngineering
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Territory
Legal /
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MarketingBoard
NACD
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Our Board acts as a coherent team and fosters an environment that allows individual insights to contribute to the group consensus. It isOur Board members are focused on long-term company success and maintainsmaintain an effective dialogue with management through constructive relationships which provide timely and appropriate deliberation.
Each of our current Board members has exceeded the stock ownership requirements established by our Corporate Governance Guidelines, has not sold any company stock, and continues to hold stock in excess of the ownership requirements. Each membercurrent director has been recognized as a Governance Fellow by the National Association of Corporate Directors or NACD,(NACD) since 2011.
Our Board is actively engaged both inside and outside the boardroom. Each Board member has knowledge and insight that provide guidance concerning our business, with particular focus on succession planning,

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Corporate Governance


corporate strategy, executive compensation, risk management, and operating performance. Our Board members spend time in our service territory interacting with our employees, customers, and community leaders. They seek and participate in learning opportunities to stay abreast of the latest industry and corporate governance developments affecting their role as directors.
Most of our Board meetings, including the annual meeting, are held in various locations throughout our service territory. This practice affordsoffers several educational opportunities for our Board members, including attending receptions of community leaders and meetings with employees. These opportunities are intended to inform our Board about the communities we serve and the issues, concerns, and successes of our employees. We believe holding Board meetings in our service territory also allows our Board to gain a broader understanding of various areas of our company by inviting non-management employees to make presentations to the Board that highlight their work. Our Board meeting agendas regularly include in-depth discussions concerning enterprise risks and different areas of our financial statements.
Our Board considers attendance at meetings and participation by directors in determining continued service on the Board. Attendance and participation is reviewed as part of the Board’s annual self-evaluation process. The Board held 10 meetings in 2013. Each director attended at least 90 percent of the aggregate number of the meetings of the Board and of each committee on which he or she served. At our last annual meeting of stockholders in April 2013, all of the eight director nominees were in attendance.
Our Board considers attendance at meetings and participation by directors in determining continued service on the Board. Attendance and participation is reviewed as part of the Board’s annual self-evaluation process. The Board held six meetings in 2014. Each of our current directors attended 100 percent of the meetings of the Board and of each committee on which he or she served. At our last annual meeting of stockholders in April 2014, all of the seven current director nominees were in attendance.
Individual Directors
Following are biographies of our current Board members, each of whom is currently serving and has been nominated to serve another one-year term.
Stephen P. Adik       Age 71 Independent Director since 2004
Utility, Finance, and Engineering experience as the retired vice chairman (2001-03) of NiSource, Inc., an electric and natural gas production, transmission and distribution company, as well as other executive roles prior to that, including chief financial officer (1996-2001).
Other Executive, Board, and NACD Fellow credentials through positions in the railroad industry, service on the boards of American Water Works Company, Inc. (NYSE: AWK, 2009-14) and Beacon Power (NASDAQ: BCON, 2004-10), as well as other boards (Chicago SouthShore and South Bend Railroad and the Dearborn Midwest Conveyor Company).
We believe Mr. Adik is Qualified to Serve on our Board because of his
● 25+ years energy and utility experience
● Financial proficiency – audit committee financial expert (SEC), financially literate (NYSE), MBA in finance
● Board service in energy- and utility-related industries brings developed perspective
● Tenure on our Board provides working knowledge of our company, efficiency and continuity
● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011
 Remembering our colleague and friend
In 2014, we mourned the passing of our esteemed colleague, fellow director and friend, Philip L. Maslowe. With an extensive background in leveraged buyout and turnaround situations, Phil provided valuable guidance to our company when he joined our Board in 2004 as we emerged from bankruptcy. Throughout his ten years of service to our company, we learned from his wisdom and insights and enjoyed his wit and humor. Phil was an active and important voice on our Board and a highly engaged chairman of our Human Resources Committee. His ideas for improving our proxy statement directly contributed to the Best Proxy Statement (small to mid cap) award we received in 2014 from Corporate Secretary magazine. We will miss his judgment and friendship.

10
Corporate Governance


Dorothy M. Bradley       Age 68       Independent Director since 2009
Stephen P. Adik
ChairmanLegal / Public Policy and Board experienceas the retired District Court Administrator for the 18th Judicial Court of Montana (2000-07), eight terms as an elected state legislator in the Montana House of Representatives (beginning in 1971) and the Director of the Audit Committee
MemberUniversity Water Center at Montana State University (1993-2000).
Service Territory and NACD Fellow credentials as a resident of and respected civic leader in Montana, including non-public company Board positions at One Montana, Science Technology Engineering and Math, and the Human Resources Committee
Independent
Director Since 2004
Age 70American Prairie Foundation.
  
Business ExperienceMr. Adik is the retired Vice Chairman (2001−2003) of NiSource Inc. (NYSE: NI), an electric and natural gas production, transmission and distribution company. Mr. Adik was Senior Executive Vice President and Chief Financial Officer (1998−2001), and Executive Vice President and Chief Financial Officer (1996−1998), of NiSource.
  
We believe Ms. Bradley is Qualified to Serve on our Board because of her
● Experience as a respected civic leader within the Montana judicial and legislative systems
● Local perspective on relevant regulatory, political and community issues facing our company
● Background in the public policy arena beneficial for dealing with environmental issues
● Tenure on our Board provides working knowledge of our company, efficiency and continuity
● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011
Public
E. Linn Draper, Jr.       Age 73       Independent Director since 2004 Chairmanof the Board
Utility, Executive, and Engineering experiencethrough positions as retired chairman, president and chief executive officer of both American Electric Power Company, Directorships Since 2008a public utility holding company (1992-2004), and Gulf States Utilities Company, an electric utility company (1979-1992), as well as other executive roles and his background in nuclear engineering.
American Water Works Company,Finance, Board, and NACD Fellow credentials as a result of extensive service on several public boards (and their committees) for companies in the utility, energy and related industries, including former service to the boards of Alliance Data Systems (NYSE: ADS) (since 2005), Alpha Natural Resources, Inc. (NYSE: AWK)ANR) (since 2004); TransCanada (NYSE: TRP) (2005-13), a provider of high-quality water and wastewater services to more than 1,600 communities in the United States and Ontario, Canada (since 2009) (member of audit and finance committees)Temple-Inland Inc. (2004-12).
Beacon Power (NASDAQ: BCON), a designer and manufacturer of power conversion and sustainable energy storage systems for the distributed generation, renewable energy and backup power markets (2004−November 2010).
  
Other Current Directorships
We believe Dr. Draper is Qualified to Serve on our Board because of his
● Extensive experience as the lead executive for some of the top electric utilities in the country
● Wide perspective gained from public company board and Membershipscommittee service
● Financial proficiency – audit committee financial Expert (SEC), financially literate (NYSE)
● Tenure on our Board provides working knowledge of our company, efficiency and continuity
● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011
The Chicago SouthShore Dana J. Dykhouse       Age 58       Independent Director since 2009
Finance, Executive, and South Bend Railroad,Board experiencethrough his leadership of First PREMIER Bank, a regional rail carrier serving northwest Indiana.
Dearborn Midwest Conveyor Company,bank headquartered in Sioux Falls, South Dakota, as its chief executive officer (since 1995) and his service in a manufacturervariety of executive leadership roles in community and installerprofessional organizations and non-public company boards in South Dakota.
Service Territory and NACD Fellow credentials as a resident of conveyor equipment for the bulk materials and automotive industries.
Member and president emeritus of the board of the Northwest Indiana Regional Bus Authority.respected civic leader in South Dakota.
  
Qualifications Relative
We believe Mr. Dykhouse is Qualified to ServiceServe on Ourour Board
Our Board concluded that Mr. Adik is qualified to serve because of his
● Experience as a Board member because of his 25+ year careerrespected civic, community and professional leader within South Dakota
● Local perspective on relevant issues facing our company in the energy and utility industries, having served on the board and as the chief financial officer for a Fortune 500 utility holding company engaged in natural gas transmission, storage and distribution, as well as electric generation, transmission and distribution. Mr. Adik holds an MBA in Finance, is considered financially literate under NYSE rules and qualifies as anSouth Dakota
● Financial proficiency – audit committee financial expert under SEC rules. Mr. Adik also serves and has in the past served on the boards of other companies in energy- and utility-related industries, which provides him a wide perspective on various issues applicable to the company. During his more than nine-year tenure(SEC), financially literate (NYSE)
● Tenure on our Board Mr. Adik has gained a goodprovides working knowledge of our company, that provides efficiency and continuity
● Demonstrated commitment to our Board. Mr. Adik has been anboardroom excellence – NACD Governance Fellow since 2011. He has demonstrated his commitment to boardroom excellence by completing NACD’s comprehensive program of study for corporate directors. He supplements his skill sets through ongoing engagement with the director community and access to leading practices.2011

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Corporate Governance


Julia L. Johnson       Age 52       Independent Director since 2004
Dorothy M. Bradley
MemberUtility, Regulatory, Executive, Finance, and Legal / Public Policy experiencethrough her leadership as President of NetCommunications, LLC (since 2000), a consulting firm in the energy, telecommunications and information technology public policy arenas, prior service as Chairwoman (1997-99) and Commissioner (1993-97) of the NominatingFlorida Public Service Commission, service to various public policy and Corporate Governance Committee
Independent
Director Since 2009
Age 67non-profit organizations, and legal background.
Board and NACD Fellow credentials as a director on public company boards, including companies in the utility and energy industries, such as current service to American Water Works Company, Inc. (NYSE: AWK) (since 2008), FirstEnergy (NYSE: FE) (since 2011 following merger with Allegheny Energy in 2011), and MasTec, Inc. (NYSE: MTZ) (since 2002), and former service to the board of Allegheny Energy (NYSE: AYE) (2003 until merger with FirstEnergy in 2011).
  
Business ExperienceMs. Bradley is the retired District Court Administrator for the 18th Judicial Court of Montana (2000−2007). Ms. Bradley was the Director of the University Water Center, an education and research arm of Montana State University (1993−2000); law clerk, hearing master and mediator in the Montana District Court (1983−1990); and served eight terms in the Montana House of Representatives beginning in 1971.
  
We believe Ms. Johnson is Qualified to Serve on our Board because of her
● Experience in the public utility regulatory arena, as an executive, board member and regulator
● Public policy background which provides a wide perspective on regulatory and political issues
● Financial proficiency – financially literate (NYSE)
● Tenure on our Board provides working knowledge of our company, efficiency and continuity
● Demonstrated commitment to boardroom excellence – NACD Governance Fellow since 2011
Public
Denton Louis Peoples       Age 74       Independent Director since 2006
Utility, Engineering, Finance, and Executive experiencethrough his position as retired chief executive officer and vice chairman of Orange and Rockland Utilities, Inc. (1994-99), an investor-owned, electric and natural gas utility, and as executive vice president of Madison Gas and Electric Company Directorships Since 2008(1992-93), with an engineering (registered professional engineer) and accounting (certified public accountant – retired status) background.
None
  
Other Current Directorships and Memberships
MemberBoard and NACD Fellow credentials through various utility industry directorships and memberships, including former chairman and member of the boardNew York Power Pool Executive Committee, former chairman of One Montana,the New York Power Pool Transition Steering Committee to form the new York Independent System Operator, former vice chairman and director of the Energy Association of New York State and the Empire State Electric Energy Research Corporation, former director of Edison Electric Institute and Electric Power Research Institute, and as a nonprofit organization dedicated to ruralcurrent and urban collaboration.

National Advisorformer member of numerous non-public company boards, including the Center for Clean Air Policy, Nevada Area Council of the Boy Scouts of America, regional director for the American PrairieSan Francisco Bay Area and Northern Nevada for Naval War College Foundation and trustee of the Boyd Family Foundation.
  
Qualifications Relative
We believe Mr. Peoples is Qualified to ServiceServe on Ourour Board
Our Board concluded that Ms. Bradley is qualified to serve as a Board member because of herhis
● Executive experience with the Montana judicial and legislative systems and her reputation as a respected civic leader in Montana. During four of her termsexpertise in the Montana legislature, she also servedelectric and natural gas energy industries
● Utility and engineering background gained from service on the Montana Legislative Appropriations Committee. Her experience brings to theindustry related boards
● Financial proficiency – audit committee financial Expert (SEC), financially literate (NYSE), CPA
● Tenure on our Board a local perspective on relevant regulatory, political and community issues facingprovides working knowledge of our company, in Montana, where we serve approximately two-thirds of the state. Ms. Bradley’s work in the public policy arena also provides valuable background as the company addresses the environmental issues that are facing utility companies today. As one of the newer members of our Board, Ms. Bradley brings a fresh perspectiveefficiency and continuity
● Demonstrated commitment to the Board. Ms. Bradley has been anboardroom excellence – NACD Governance Fellow since 2011. She has demonstrated her commitment to boardroom excellence by completing NACD’s comprehensive program of study for corporate directors. She supplements her skill sets through ongoing engagement with the director community and access to leading practices.2011


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Corporate Governance


Robert C. Rowe       Age 59Director since 2008
E. Linn Draper Jr.
ChairmanUtility, Regulatory, Finance, Executive, and Legal / Public Policy experiencethrough service as our president and chief executive officer (since 2008) and former service as co-founder and senior partner at Balhoff, Rowe & Williams (2005-08), a national professional services firm advising the telecommunications and energy industries, and chairman (2003-04)and commissioner (1993-2002) of the Montana Public Service Commission.
Service Territory, Board,
Independent
Director Since 2004
Age 72 and NACD Fellow credentials as a resident of Montana, and from voluntary leadership roles in the utility industry, such as chairman of the Western Energy Institute (2012-13), co-chair of the Institute of Electric Innovation (Edison Electric Foundation) and past president of the National Association of Regulatory Utility Commissioners.
  
Business ExperienceMr. Draper is the retired Chairman, President and Chief Executive Officer of American Electric Power Company (NYSE: AEP), a public utility holding company (1992−2004). Prior to that, he worked for Gulf States Utilities Company, an electric utility company (1979−1992), including serving as its chairman of the board of directors and President and Chief Executive Officer for the last six years of his time there.
  
Public Company Directorships Since 2008
Alliance Data Systems Corporation (NYSE: ADS), a provider of transaction services, credit services and marketing services (since 2005) (member of human resources committee since 2005 and chairman of that committee since 2009).
Alpha Natural Resources Inc. (NYSE: ANR), a coal producer (since 2004) (member of the human resources committee from 2005 until 2011; member of the safety, health, environment and sustainability committee from 2008 until 2011; and member of the audit, nominating and governance committee since 2011).
TransCanada (NYSE: TRP), a transporter and marketer of natural gas and generator of electric power in Canada and the United States (from 2005 until 2013) (member of the health, safety and environmental committee from 2005 until 2013, chairman of that committee from 2007 until 2013; member of audit committee from 2009 until 2012; member of the human resources committee from 2005We believe Mr. Rowe is Qualified to 2009).
Temple-Inland Inc., a building products and corrugated packaging company (from 2004 until its acquisition by International Paper in February 2012) (servedServe on the human resources committee and as lead director).
Other Current Directorships and MembershipsNone
Qualifications Relative to Service on Ourour BoardOur Board concluded that Mr. Draper is qualified to serve as a Board member because of his 12 years of service
● Position as chairman of the board andour president and chief executive officer of one of the largest electric utilities
● Experience in the United Statesregulatory and his six additional years of service in those same roles with another electric utility. In addition, Mr. Draper also currently serves or has in the past served on the boards of other companies in energy- and utility-related industries, which provides him a wide perspective on the issues impacting the company today. Mr. Draper’s public board experience spans 11 companies and approximately 80 years of cumulative experience, and he has served on a variety of committees on those boards. Mr. Draper is consideredpolicy arenas
● Financial proficiency – financially literate under NYSE rules. Mr. Draper has gained a good working knowledge of our company during his more than nine-year tenure on our Board that provides efficiency and continuity(NYSE)
● Demonstrated commitment to our Board. Mr. Draper has been anboardroom excellence – NACD Governance Fellow since 2011. He has demonstrated his commitment to boardroom excellence by completing NACD’s comprehensive program of study for corporate directors. He supplements his skill sets through ongoing engagement with the director community and access to leading practices.2011

Nomination of New Director
Over approximately the past two years, our Nominating and Corporate Governance Committee (NCG Committee) has been leading our Board through a Board succession planning process. In addition to the typical annual review of individual Board members and our Board skills matrix, the NCG Committee led a continued analysis throughout this period of the future membership of our Board as our directors approach the end of their 15-year term limits and began to assemble a list of potential candidates based on internal recommendations.
As a result, the NCG Committee possessed the foundation for conducting a search to fill the Board vacancy created by the 2014 passing of our Board member, Phil Maslowe. After gathering recommendations for potential candidates, the NCG Committee retained a search firm to assist its efforts in accordance with the powers provided by its charter. The search firm developed position specifications as directed by the NCG Committee’s (including a preference for qualified financial experts), identified additional candidates, investigated candidate interest, provided the NCG Committee with an assessment of candidate fitness for the position, coordinated in-person interviews of finalists, and conducted background/reference checks.
Throughout the search process, the NCG Committee and other members of our Board participated in reviewing the backgrounds of potential candidates, developing a short list of candidates to interview, and conducting in-person interviews with the candidates. The search process focused on identifying an individual to fill the vacancy on the Board created by Mr. Maslowe’s passing, and, as a result of a robust search process, the Board identified an individual with the skills and qualities that the Board felt would augment the Board’s collective skill set today and into the future.
Accordingly, the search process resulted in our Board extending an invitation to Jan R. Horsfall to join our Board, subject to stockholder approval at the annual meeting. Our Board determined to fill this vacancy by conducting a stockholder vote at the annual meeting, rather than exercising the Board’s rights under our bylaws to immediately fill the Board vacancy without stockholder approval. If our stockholders do not support the nomination of Mr. Horsfall, our Board may act to reduce the size of our Board rather than fill the vacancy.
We are delighted that Mr. Horsfall accepted our Board’s invitation and recommend that you vote “For” his election at the annual meeting. A summary follows of the biography and qualifications considered by our Board in connection with its nomination of Mr. Horsfall. In short, our Board nominated Mr. Horsfall because his broad executive, entrepreneurial, marketing, financial, integration, and change management experience outside of the utility industry will provide a unique, supplemental perspective to our Board discussions and decisions.

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Corporate Governance


Jan R. Horsfall       Age 54 Nominated as Independent Director
Dana J. Dykhouse
MemberFinance, Marketing, and Executive experiencethrough his current position as co-founder and chief executive officer of the Audit Committee
MemberMaxletics Corporation, a sports technology and media company and his former roles as chief executive officer of the NominatingUniversal Lubricants, LLC (2012-14), an oil collecting, refining, blending and Corporate Governance Committee
Independent
Director Since 2009
Age 57distribution company; chief marketing officer of Turbine Inc., an online games company, which was sold to Warner Bros. Interactive Entertainment; founder and CEO of Gemini Voice Solutions, Inc., an experimental broadband voice (VoIP) company; vice president of marketing for LYCOS, Inc., an internet portal and search engine; and vice president of consumer brand strategy for Valvoline, a provider of automotive after-market products, among other positions.
Board credentials as a current and former board member of several privately held and non-profit entities.
  
Business Experience
Mr. Dykhouse is the Chief Executive Officer of First PREMIER Bank, a regional bank headquartered in Sioux Falls, S.D., with bank locations across eastern
South Dakota (since 1995).
  
Public Company Directorships Since 2008None
Other Current Directorships and Memberships
We believe Mr. Dykhouse serves in a variety of leadership roles in civic, community and professional organizations in South Dakota.
Qualifications RelativeHorsfall is Qualified to ServiceServe on Ourour BoardOur Board concluded that Mr. Dykhouse is qualified to serve as a Board member because of his reputation
● Executive experience as a respected civic, community and professional leader in South Dakota. Mr. Dykhouse has served as chief executive officer, of a $1 billion regional bank for 18 yearschief marketing officer and provides a local perspective on the issues relevant to our service area that spans the eastern one-third of South Dakota. Mr. Dykhouse has 30+ years of experience in the financial services industry and is consideredother positions
● Financial proficiency – financially literate under NYSE rules. As one(NYSE)
● Marketing background
● Experience with mergers, acquisitions and the growth and development of the newer members of our Board, Mr. Dykhouse brings a fresh perspective to the Board. Mr. Dykhouse has been an NACD Governance Fellow since 2011. He has demonstrated his commitment to boardroom excellence by completing NACD’s comprehensive program of study for corporate directors. He supplements his skill sets through ongoing engagement with the director community and access to leading practices.companies

Independent Board Chair


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Corporate Governance


Julia L. Johnson
ChairwomanOur Board has placed the responsibilities of Chair with an independent member of the NominatingBoard, which we believe provides optimum accountability between the Board and Corporate Governance Committee
Memberour management team. We believe it is beneficial to have an independent Chair whose sole responsibility is leading our Board members as they provide leadership to our executive team. Our Chair is responsible for providing leadership to the Board
and facilitating communication among the directors; setting the Board meeting agendas in consultation with the President and CEO; presiding at Board meetings, executive sessions and stockholder meetings; and serving as an ex-officio member of each Board committee. This delineation of duties allows the CEO to focus his attention on managing the day-to-day business of the Human Resources Committee
Independent
Director Since 2004
Age 51
company. We believe this structure provides strong leadership for our Board, while positioning our CEO as the leader of the company in the eyes of our customers, employees, and other stakeholders.
  
Business ExperienceMs. Johnson is President of NetCommunications, LLC, a strategy consulting firm specializing in the energy, telecommunications and information technology public policy arenas (since 2000). Ms. Johnson was Chairwoman (1997−1999) and Commissioner (1993−1997) of the Florida Public Service Commission.
Public Company Directorships Since 2008
FirstEnergy (NYSE: FE), an electric utility holding company (since 2011 following merger with Allegheny Energy in 2011).
Allegheny Energy (NYSE: AYE), an electric utility holding company (from 2003 until merger with FirstEnergy in 2011) (member of the finance committee and the corporate governance committee)
MasTec, Inc. (NYSE: MTZ), a leading end-to-end voice, video, data and energy infrastructure solution provider (since 2002) (chair of the nominating and governance committee and member of the compensation committee)
American Water Works Company, Inc. (NYSE: AWK), a provider of high-quality water and wastewater services to more than 1,600 communities in the United States and Ontario, Canada (since 2008) (member of the compensation committee and the nominating and governance committee).
Other Current Directorships and MembershipsNone
Qualifications Relative to Service on Our Board
Our Board concluded that Ms. Johnson is qualified to serve as a Board member because of her experience in the public utility regulatory arenas, having founded and served more than 10 years as president of a strategy consulting firm specializing in the energy, telecommunications and information technology public policy arenas and her extensive experience working with federal, state and local legislative, regulatory and administrative agencies. Ms. Johnson also served two years as chairwoman and four years as a commissioner on the Florida Public Service Commission. Ms. Johnson currently serves on the boards of three other public companies, one of which is a large investor-owned electric utility holding company, as well a variety of committees on those boards. Her approximately
30+ years of cumulative public company board experience provides her with a broad perspective on the issues facing the company today. Ms. Johnson is financially literate under NYSE rules. Ms. Johnson has gained a good working knowledge of our company during her more than nine-year tenure on our Board that provides efficiency and continuity to our Board. Ms. Johnson has been an NACD Governance Fellow since 2011. She has demonstrated her commitment to boardroom excellence by completing NACD’s comprehensive program of study for corporate directors. She supplements her skill sets through ongoing engagement with the director community and access to leading practices.


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Corporate Governance


Philip L. Maslowe
Chairman of the Human Resources Committee
Member of the Audit Committee
Independent
Director Since 2004
Age 67
Business ExperienceMr. Maslowe was the non-executive chairman of the board for AMF Bowling Worldwide, Inc., operators of bowling centers and providers of sporting goods (2002−2004); Executive Vice President and Chief Financial Officer of The Wackenhut Corporation, a security, staffing and privatized prisons corporation (1997−2002); and Executive Vice President and Chief Financial Officer of Kindercare Learning Centers, a provider of learning programs for preschoolers (1993−1997).
Public Company Directorships Since 2008Delek US Holdings, Inc. (NYSE: DK), a diversified energy business focused on petroleum refining and supply and retail marketing (since 2006) (chairman of the audit committee).
Other Current Directorships and Memberships
United Site Services, a national provider of portable restrooms, temporary fence, storage, erosion control, power sweeping and other services (chairman of the audit committee).
American Media, Inc., a publishing company in the field of celebrity journalism and health and fitness magazines (chairman of the audit committee).
NextMedia Group, Inc., a media company that owns and operates radio stations throughout the United States.
Qualifications Relative to Service on Our Board
Our Board concluded that Mr. Maslowe is qualified to serve as a Board member because of the diverse experience he gained over his business career, having served as chief financial officer for a number of national companies, including The Wackenhut Corporation, KinderCare Learning Centers, Thrifty Corporation and The VONS Companies, Inc. Mr. Maslowe also previously served as the non-executive chairman of the board, chairman of the compensation committee and chairman of the audit committee for AMF Bowling Worldwide, Inc.; as director and chairman of the audit committee for Hilex Poly Co., LLC, a manufacturer of plastic bag and film products; as member of the board of managers and human resource committee for Gate Gourmet Group Holding LLC, an airline catering company; as director, chairman of the corporate governance committee and member of the audit committee for Mariner Health Care, Inc., a health care service provider; and director and member of the audit committee for Bruno’s Supermarkets, Inc., a leading supermarket chain in the South.
Mr. Maslowe’s service on a variety of public and private company boards of directors, as well as a variety of committees on those boards, provides him with 30+ years of cumulative board experience and a broad perspective on the issues facing businesses and the company today. Mr. Maslowe is considered financially literate under NYSE rules. Mr. Maslowe has gained a good working knowledge of our company during his more than nine-year tenure on our Board that provides efficiency and continuity to our Board. Mr. Maslowe has been an NACD Governance Fellow since 2011. He has demonstrated his commitment to boardroom excellence by completing NACD’s comprehensive program of study for corporate directors. He supplements his skill sets through ongoing engagement with the director community and access to leading practices.

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Corporate Governance


Denton Louis Peoples
Member of the Audit Committee
Member of the Human Resources Committee
Independent
Director Since 2006
Age 73
Business ExperienceMr. Peoples is the retired Chief Executive Officer and Vice Chairman of the Board of Orange and Rockland Utilities, Inc., an investor-owned electric and natural gas utility (1994−1999). Mr. Peoples also served as Executive Vice President and was a member of the board of directors of Madison Gas and Electric Company, an investor-owned electric and natural gas utility (1992−1993).
Public Company Directorships Since 2008None
Other Current Directorships and Memberships
Director of the Center for Clean Air Policy
Director of the Nevada Area Council, Boy Scouts of America
Regional director for the San Francisco Bay Area and Northern Nevada for the Naval War College Foundation
Sponsor of the Aspen Institute Energy Policy Forum
Member of the Stanford University Mechanical Engineering Department Advisory Committee
Trustee of the Boyd Family Foundation.
Qualifications Relative to Service on Our BoardOur Board concluded that Mr. Peoples is qualified to serve as a Board member because of his broad expertise in the electric and natural gas energy industries gained during his tenure as chief executive officer and vice chairman of the board of a mid-sized investor-owned utility and executive positions held at other utility or energy-related companies during his 35+ year business career. Mr. Peoples’ utility industry experience also is reflected in past directorships and memberships, including former chairman and member of the New York Power Pool Executive Committee, former chairman of the New York Power Pool Transition Steering Committee to form the New York Independent System Operator, former vice chairman and director of the Energy Association of New York State and the Empire State Electric Energy Research Corporation, former director of the Edison Electric Institute, and former director of the Electric Power Research Institute. Mr. Peoples also is a Registered Professional Engineer and Certified Public Accountant (retired status). Mr. Peoples is considered financially literate under NYSE rules. Mr. Peoples has gained a good working knowledge of our company during his approximately eight-year tenure on our Board that provides efficiency and continuity to our Board. Mr. Peoples has been an NACD Governance Fellow since 2011. He has demonstrated his commitment to boardroom excellence by completing NACD’s comprehensive program of study for corporate directors. He supplements his skill sets through ongoing engagement with the director community and access to leading practices.


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Corporate Governance


Robert C. Rowe
Director Since 2008
Age 58



Business ExperienceMr. Rowe is the President and CEO of NorthWestern Corporation (since August 2008). Mr. Rowe was co-founder and senior partner at Balhoff, Rowe & Williams, LLC, a specialized national professional services firm providing financial and regulatory advice to clients in the telecommunications and utility industries (January 2005−August 2008). Prior to that, Mr. Rowe was Chairman (2003-2004) and Commissioner (1993-2002) of the Montana Public Service Commission.
Public Company Directorships Since 2008None
Other Current Directorships and MembershipsChairman of Western Energy Institute (2012-2013); Co-Chair of the Institute of Electric Innovation, an institute of the Edison Electric Foundation focused on advancing the adoption of innovative and efficient technologies among electric utilities and their technology partners that will transform the power grid.
Qualifications Relative to Service on Our Board
Our Board concluded that Mr. Rowe is qualified to serve as a Board member because of his position as president and chief executive officer of our company and his significant experience in the regulatory and public policy arenas. Mr. Rowe previously founded and was senior partner for three and one-half years in a specialized national professional services firm providing financial and regulatory advice to clients in the telecommunications and energy industries. In addition,
Mr. Rowe previously served 12 years as a commissioner (including two years as chairman) of the Montana Public Service Commission. Mr. Rowe also served a term as president of the National Association of Regulatory Utility Commissioners. Mr. Rowe is financially literate under NYSE rules. Mr. Rowe has been an NACD Governance Fellow since 2011. He has demonstrated his commitment to boardroom excellence by completing NACD’s comprehensive program of study for corporate directors. He supplements his skill sets through ongoing engagement with utility and director communities and access to leading practices.


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Corporate Governance


Board Leadership Structure
Our Board has placed the responsibilities of Chairman with an independent member of the Board, which we believe provides optimum accountability between theEach regularly scheduled Board and our management team. We believe it is beneficial to have an independent Chairman whose sole responsibility to us is leading our Board members as they provide leadership to ourcommittee meeting provides the opportunity for executive team. Our Chairman is responsible for providing leadership to the Board and facilitating communication among the directors; setting the Board meeting agendas in consultation with the President and CEO; presiding at Board meetings, executive sessions and stockholder meetings; and serving as an ex-officio member of each Board committee. This delineation of duties allows the CEO to focus his attention on managing the day-to-day business of the company. We believe this structure provides strong leadership for our Board, while positioning our CEO as the leader of the company in the eyes of our customers, employees and other stakeholders.
Executive sessions of the non-employee directors without management in attendance are provided for at each regularly scheduled Board and committee meeting andattendance. These executive sessions are chaired, as applicable, by our Chairman or the independent chairperson of the respective committee.
Determination of Independence and Family Relationships
All of our directors are independent, with the sole exception of our CEO. A director will be considered independent if he or she qualifies as “independent” under (1) NYSE standards and any applicable laws and (2) he or she (a) has never been an employee of the company or any of its subsidiaries;subsidiaries, (b) is not a close relative of any management employee of the company;company, (c) provides no services to the company, or is not employed by any firm providing major services to the company, other than as a director;director, and (d) receives no compensation from the company other than director fees and benefits. The Board’s determination of independence is based upon a review of the questionnaires submitted on an annual basis by each director, the company’s relevant business records, publicly available information and the applicable SEC and NYSE requirements.
Based on its review, the Board determined that all of the non-employee directors (Messrs. Adik, Draper, Dykhouse, Maslowe, Peoples and Mses. Bradley and Johnson) are independent as defined in the listing standards noted above. The Board also has determined that Mr. Horsfall, if elected by stockholders at the annual meeting, will be independent. Our final director, Mr. Rowe, is an executive officer of the company and, therefore, is not independent.

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Corporate Governance


In addition to the independence assessment of our current directors and newly-nominated director, our Board reviewed the family relationships of our current directors, executive officers and newly-nominated director to determine the existence of any family relationships not more remote than first cousins. Based on this review, our Board determined that no such family relationships exist, except that current director Dana J. Dykhouse and newly-nominated director Jan R. Horsfall are first cousins.
Committees of the Board
We have three Board committees composed solely of independent directors, each with a different independent director serving as chairperson of the committee. Our Board committees are:
● Audit Committee;
● Human Resources Committee; and
● Nominating and Corporate Governance Committee.
We have three Board committees composed solely of independent directors, each with a different independent director serving as chairperson of the committee. Our Board committees are: Audit Committee, Human Resources Committee and Nominating and Corporate Governance Committee. We hold our Board committee meetings sequentially (i.e., committee meetings do not overlap with one another). As a result of holding sequential meetings, each of our Board members attends each committee meeting. We believe this practice is highly beneficial to our Board as a whole and the company in general because each of our Board members is aware of the detailed work conducted by each Board committee. This practice also affords each of our Board members the opportunity to provide input to the committee members before a committee reaches any conclusions are reached.conclusions.
The following table shows the committees on which our Board members serve and the number of meetings held in 2013 for each committee.
Director 
Audit
Committee
 Human Resources Committee Nominating and Corporate Governance Committee  
E. Linn Draper Jr., Chairman of the Board        
Stephen P. Adik IC I    
Dorothy M. Bradley     I  
Dana J. Dykhouse I   I  
Julia L. Johnson   I IC  
Philip L. Maslowe I IC    
Denton Louis Peoples I I    
Robert C. Rowe       I = Independent
Number of Meetings in 2013 5 6 4 C = Chairperson

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Corporate Governance


The general functions of the committees are set forth in the following paragraphs. Each of these committees has a written charter that can be found on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
Audit Committee
Our Audit Committee assists the Board in fulfilling its responsibilities for oversight of (1) the company’s accounting and financial reporting processes, (2) the audits and integrity of the company’s financial statements, (3) the company’s compliance with legal and regulatory requirements, (4) the independent auditor’s qualifications and independence, (5) the performance of the company’s internal audit function and independent auditors, (6) preparation of the Audit Committee reports that the rules of the SEC require to be included in the company’s annual proxy statement, (7) significant financings and dividend policy and dividend payment recommendations;recommendations, and (8) such other duties as directed by the Board.
The Board determined that each member of the Audit Committee Chairman Adik qualifies as an audit committee financial expert under the applicable SEC regulations and that each member of the Audit Committee is independent, as defined in the listing standards of the NYSE and the SEC regulations, and financially literate within the meaning of the listing standards of the NYSE.
Human Resources Committee
Our Human Resources Committee or HR Committee,(HR Committee) acts on behalf of and with the concurrence of the Board with respect to compensation, benefits and other employment matters for executives; stock-based compensation plans for employees; the election and appointment of executive officers and other officers;

15
Corporate Governance


the assessment of the performance of the CEO; and the compensation of non-employee members of the Board. Our HR Committee has delegated the administration of our executive compensation and benefits plans to our Compensation and Benefits Department.
Each member of our HR Committee is an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code, a “non-employee” director within the meaning of Rule 16b-3 under the Exchange Act, and independent under the standards of the NYSE.
The HR Committee has directly retained Towers Watson as its independent, external compensation consultant for the last several years. Towers Watson is an independent consulting firm that provides services in the areas of executive compensation and benefits and has specific expertise in evaluating compensation in the utility industry. Towers Watson reports directly to the HR Committee and, at the HR Committee’s request, provides an annual evaluation and analysis of trends in both executive compensation and director compensation. Towers Watson also evaluates other compensation issues at the direct request of the HR Committee.
In accordance with NYSE requirements approved by the SEC in 2013, the HR Committee evaluated the following six factors to assess independence and conflicts of interest before it engaged Towers Watson to do work in 2014:2014 and 2015:
1.The provision of other services to the company by Towers Watson.
2.The amount of fees received from the company by Towers Watson, as a percentage of the firm's total revenues.
3.The policies or procedures of Towers Watson that are designed to prevent conflicts of interest.
4.Any business or personal relationship of a member of the HR Committee with the regular members of the Towers Watson executive compensation team serving the company.
5.Any stock of the company owned by the regular members of the Towers Watson executive compensation team serving the company.
6.Any business or personal relationships between the executive officers of the company and the regular members of the Towers Watson executive compensation team serving the company.

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Corporate Governance


The HR Committee also obtained a representation letter from Towers Watson addressing these six factors and certain other matters related to its independence. Based on the HR Committee’s evaluation of these factors and the representations from Towers Watson, the HR Committee concluded that Towers Watson is an independent adviser and has no conflicts of interest with us.
As discussed in the “Compensation Discussion and Analysis” section of this proxy statement, the HR Committee also considers input on executive compensation from our CEO and Chief Financial Officer or CFO.(CFO).
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee or NCG Committee,(NCG Committee) is comprised of independent directors and assists the Board in identifying qualified individuals to become Board members, in determining the composition of the Board and its committees, in monitoring a process to assess Board effectiveness and in developing and implementing our corporate governance principles. Further, the NCG Committee reviews and oversees our position on (1) corporate social responsibilities, and (2) public policy issues that significantly affect us, our stockholders, our customers and our other key stakeholders.

16
Corporate Governance


Our NCG Committee evaluates each director candidate to determine whether such candidate should be recommended to the Board as a director nominee. In considering new individuals for nomination as directors, the NCG Committee typically solicits recommendations from its current directors and is authorized to engage third-party advisers, including search firms, to assist in the identification and evaluation of candidates. The process used by the NCG Committee with respect to our proposed new director nominee is described above in the “Nomination of New Director” discussion.
Our NCG Committee also has the responsibility for considering nominees for directors properly recommended by stockholders. A stockholder who wishes to submit a candidate for consideration at the annual meeting of stockholders must notify our Corporate Secretary in writing not less than 90 days and no more than 120 days prior to the first anniversary date of the preceding year’s annual meeting. The stockholder’s written notice must include information about each proposed nominee, including name, age, business address, principal occupation and other information required in proxy solicitations. The nomination notice also must include the nominating stockholder’s name and address, the number of shares of our common stock beneficially owned by the stockholder and any arrangements or understandings between the nominee and the stockholder. The stockholder also must furnish a statement from the nominee indicating that the nominee wishes and is able to serve as a director. The manner in which the NCG Committee evaluates candidates recommended by stockholders is generally the same as candidates from other sources. However, the NCG Committee also will seek and consider information concerning the relationship between the recommending stockholder and the candidate to determine if the candidate can represent the interests of all of the stockholders. The NCG Committee will not evaluate a candidate recommended by a stockholder unless the stockholder notice states that the potential candidate has indicated a willingness to serve as a director, to comply with the expectations and requirements for Board service publicly disclosed by NorthWestern and to provide all of the information required to conduct an evaluation.
Code of Conduct
Our Board adopted a Code of Conduct and Ethics, or Code (Code of Conduct,Conduct) and reviews it annually. Our Code of Conduct embodies the standards that form our culture and sets forth expectations of conduct for all of our officers, directors, and employees and those of our subsidiary companies, including all full- and part-time employees and certain persons that provide services on our behalf. Our Code of Conduct focuses on our corporate vision, mission and values through its Compliance through SERVICE theme. You may review our Code of Conduct on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance. We intend to post on our website any amendments to, or waivers from, our Code of Conduct.Conduct. In addition, our Board adopted a separate Code of Ethics for the Chief Executive Officer and Senior Financial Officers that applies to our principal executive officer, principal financial officer, and principal accounting officer or controller (or persons performing similar functions), which includes complaint procedures that specifically apply to this separate code. Our Board also annually reviews this separate code of ethics, which is available on our website at the location noted above. We intend to post on our website any amendments to, or waivers from, this special code of ethics.

21
Corporate Governance


Risk Oversight of the Company
Our Audit Committee is primarily responsible for overseeing the company’s risk management processes on behalf of the full Board by monitoring company processes for management’s identification and control of key strategic, operational, financial, regulatory and compliance risks. The Audit Committee receives reports from management at least quarterly regarding the company’s assessment of risks. The HR Committee oversees risks in compensation plans, and the NCG Committee oversees risks in corporate governance and social responsibilities including environmental, health and safety matters. In addition, the Audit Committee reports regularly to the full Board, which also considers the company’s risk profile. The Audit Committee and the full Board focus on the most significant risks facing the company and review the corporate risk appetite in evaluating strategic alternatives. While the Board oversees the company’s risk management, our CEO and executive Enterprise Risk Management Committee act to ensure that our enterprise risk management and business continuity programs or ERM,(ERM) achieve their objectives. While management is responsible for the day-to-day risk management processes, we have structured our ERM reporting relationship through our Chief Audit and Compliance Officer who reports functionally to the Audit Committee. We believe this division of

17
Corporate Governance


responsibilities is the most effective approach for addressing the risks facing our company and that our Board leadership structure supports this approach.
Transactions with Related Persons
Our Audit Committee has adopted a written Related Persons Transaction Policy. The policy requires that any related person transaction be reviewed and approved by the Audit Committee based on its consideration of all available relevant facts and circumstances. The Audit Committee should approve a related person transaction only if it determines in good faith that such transaction is in, or is consistent with, the best interests of the company and its stockholders. No material related person transactions were identified during 2014.
Under the policy, a “related person” is an officer, director, director nominee, or five percent or more stockholder of the company, as well as any immediate family member of such individuals or any entity which is owned or controlled by any of such individuals; and a “related person transaction” is a transaction involving (1) the company, (2) a related person and (3) an aggregate annual amount in excess of $120,000.
The policy also provides ratification procedures for approval of transactions that have been commenced or consummated prior to any knowledge of the involvement of a related person and for the annual review of ongoing related person transactions to ensure that such transactions continue to remain in the best interests of the company and its stockholders.
No material related person transactions were identified during 2013. The policy is available on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
Hedging and Pledging Our Securities
Our Insider Trading Policy prohibits our directors and employees from engaging in transactions involving our securities and hedging, monetization, or publicly traded options. The Insider Trading Policy also prohibits our directors and employees from pledging any of our securities as collateral for a loan, unless pre-cleared by the insider trading compliance officer. None of our directors or executive officers hashave pledged any of our securities as collateral for a loan. The Insider Trading Policy can be foundpolicy is available on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
Political Contributions Policy
As a public utility, we are subject to various laws and regulations at the federal, state, and local levels; and changes to these laws can affect our business, employees, communities and stockholders. Accordingly, we are committed to being an active and responsible corporate citizen.
We use our resources, through legally permissible participation in the political process, to advance matters of public policy that are consistent with our values, our legal obligations and our Code of Conduct. We also encourage our employees to be active in civic and community activities, including by participating in the political and democratic process.

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Corporate Governance


We have a formal political contributions policy. We do not make and our policy prohibits corporate contributions to candidates for political office, political parties, or committees, or political committees organized for the advancement of political candidates, whether federal, state, or local.
On the other hand, state and local ballot initiatives and referenda on important policy issues have the potential to impact our business and our stakeholders. Accordingly, the policy permits corporate contributions in connection with such matters, as well as lobbying efforts and contributions to trade and local associations. Finally, the policy allows individual employees to make personal contributions to political action committees. The full policy is available on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.

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Corporate Governance


Communications with Our Board
Communications by an interested party to our Board, including our Chairman and the independent directors, individually or as a group, should be addressed to our Corporate Secretary at NorthWestern Corporation, 3010 W.West 69th Street, Sioux Falls, SDSouth Dakota 57108. The Corporate Secretary will forward directly to the Board any communication received.
Audit Committee Report
Our Audit Committee assists the Board in fulfilling its responsibilities for oversight of (1) the company’s accounting and financial reporting processes, (2) the audits and integrity of the company’s financial statements, (3) the company’s compliance with legal and regulatory requirements, (4) the independent auditor’s qualifications and independence, (5) the performance of the company’s internal audit function and independent auditors, (6) preparation of the Audit Committee reports that the rules of the SEC require to be included in the company’s annual proxy statement, (7) significant financings and dividend policy and dividend payment recommendations and (8) such other duties as directed by the Board. The Audit Committee operates pursuant to a charter that is reviewed annually and was last amended in October 2010, a2010. A summary of the Audit Committee’s oversight responsibilities can be found on page 15 of this proxy statement. A copy of whichthe charter is available on NorthWestern’s website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
In the performance of the Audit Committee’s oversight function, and in connection with the December 31, 20132014, financial statements, the Audit Committee reviewed and discussed the audited financial statements with management. The Audit Committee has discussed the matters required to be discussed by Statement on Auditing Standards No. 61, as amended, as adopted by the Public Company Accounting Oversight Board or PCAOB,(PCAOB) in Rule 3200T. The Audit Committee received the written disclosures and the letter from Deloitte & Touche LLP or Deloitte,(Deloitte) our independent registered public accounting firm, required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence; and the Audit Committee has discussed with Deloitte the firm’s independence. The compatibility of non-audit services was considered with the auditor’s independence.
Based on its review of the consolidated financial statements and discussions with and representations from management and Deloitte referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 20132014, filed with the SEC.
Audit Committee
Stephen P. Adik, Chairman
Dana J. Dykhouse
Denton Louis Peoples
Compensation Committee Interlocks
and Insider Participation
Throughout 2014, Stephen P. Adik, Julia L. Johnson, and Denton Louis Peoples served on our HR Committee. During 2014, Philip L. Maslowe
Denton Louis Peoples served as the chair of our HR Committee until his unexpected death in November. Thereafter, the Chairman of our Board, E. Linn Draper, Jr., served as interim chair of our HR Committee through the end of 2014. Each of the individuals that served on our HR Committee in 2014 is and was at all times an independent member as defined by NYSE corporate governance listing standards. None of these individuals who served as members of our HR Committee during 2014 are officers or employees or former employees of the company or any of its subsidiaries. In addition, no executive officer of NorthWestern or any of its subsidiaries served as a member of the board or compensation committee of any other entity.

2319
Compensation Discussion and Analysis




Compensation Committee Report
The HR Committee reviewed and discussed the Compensation Discussion and Analysis with management. Based on this review and discussion, the HR Committee recommended to the Board that the Compensation Discussion and Analysis be included in the proxy statement and incorporated by reference into the Annual Report on Form 10-K for the year ended December 31, 2014.
Human Resources Committee
Dana J. Dykhouse, Chairman*
Stephen P. Adik
Julia L. Johnson
Denton Louis Peoples
*Phil Maslowe was the long-standing chair of our HR Committee. Following his passing, the Chairman of our Board assumed the responsibilities through the end of 2014, and Mr. Dykhouse became HR Committee Chair, effective January 1, 2015.
Compensation Discussion and Analysis
The Compensation Discussion and Analysis or CD&A,(CD&A) describes our executive compensation program,programs, including the oversight of such programs by the HR Committee of our Board and the rationale and processes used to determine the 20132014 compensation of our executive officers. This includes the objectives and specific elements of our compensation program, including cash compensation, equity compensation, and post-termination compensation. This CD&A, which may include forward-looking statements, should be read together with the compensation tables and related disclosures that follow this section.
The For ease of reference, a table of contents specific to this CD&A is organized into the following sections:
Executive Summary;
Governance of Our Executive Compensation Programs;
Targeted Overall Compensation and Competitive Analysis;
Components of Executive Compensation;follows.
2013 Compensation; and
Other Compensation Policies.
In our CD&A, the term
“Named executive officer” means the CEO, CFO and the three most highly compensated officers, other than the CEO and CFO, who were serving as executive officers at the end of 2013. For 2013, our named executive officers include the following individuals:
Robert C. Rowe, President and Chief Executive Officer;
Brian B. Bird, Vice President and Chief Financial Officer;
Heather H. Grahame, Vice President and General Counsel;
Curtis T. Pohl, Vice President-Distribution; and
Kendall G. Kliewer, Vice President and Controller Human Resources.
“Executive officer” means the named executive officers and other executives responsible for company  policy, strategy and operations. For 2013, there were nine executive officers serving on our executive team.
Executive Summary
In 2013, we continued to show strong operating results, which have translated into returns for our stockholders.
From 2009 to 2013, our GAAP net income has grown from $73.4 million to $94.0 million.
Although our GAAP net income declined from $98.4 million in 2012 to $94.0 million in 2013, our 2012 results included a total one-time after tax net gain of $14.7 million, consisting of a $47.9 million ($29.5 million after-tax) gain relating to a favorable arbitration ruling associated with our dispute with Colstrip Energy Limited Partnership, or CELP, partially offset by the charge of approximately $24.0 million ($14.8 million after tax) we recorded in 2012 in connection with abandonment of our Mountain States Transmission Intertie, or MSTI, project.
For the five-year period ending in 2013, our TSR was 133.0 percent, a return that outperformed the S&P 500 index (128.2 percent) and significantly outperformed the S&P utility index (62.3 percent) over that same time period.
Our return on average equity, or ROAE, has averaged 10.2 percent over the last five years.
For 2013, our total stockholder return, or TSR, was 29.5 percent, which was more than twice that of the industry as a whole (S&P utility index 13.2 percent).
CD&A Table of ContentsPage
Executive Summary21
2014 Results21
Compensation Practices23
Compensation Components24
Pay for Performance25
Value Provided to Stockholders25
Performance Relative to Our Peers26
Peer Group for 201426
Say-on-Pay Results28
Governance of Our Executive Compensation Program28
Human Resources Committee28
Compensation Consultant29
Decision-Making Process and Role of Executive Officers29
Targeted Overall Compensation and Competitive Analysis29
Compensation Philosophy29
Compensation Consultant Data and Analysis30
Internal Pay Equity and Wealth Accumulation31
Components of Executive Compensation for 201432
Base Salary32
Annual Cash Incentive Awards33
Long-Term Performance-Based Equity Awards under the Equity Compensation Plan37
2014 Long-Term Incentive Program Performance Unit Grants38
2014 Executive Retention / Retirement Program Restricted Share Grants39
Vesting of 2012 Long-Term Incentive Program Performance Unit Grants in 201440
Other Compensation Policies41
Stock Ownership Guidelines41
Retirement and Other Benefits41
Severance and Post-Termination Benefits42
Non-Qualified Deferred Compensation42
No Employment Agreements42
Tax Treatment of Certain Compensation42

2420
Compensation Discussion and Analysis




This CD&A is organized into the following sections:
Executive Summary— Highlights of our 2014 executive compensation program and results.
Pay for Performance — How our pay and performance, relative to our peers, provides value to our stockholders.
Say-on-Pay Results — Details about our Board's consideration of prior shareholder voting results concerning executive compensation.
Governance of Our Executive Compensation Programs — How our HR Committee oversees our executive compensation program.
Targeted Overall Compensation and Competitive Analysis — How our HR Committee determined 2014 compensation levels.
Executive CompensationComponents — Details about our 2014 executive compensation program.
Other Compensation Policies — Information on other aspects of our compensation philosophy.
Executive Summary
2014 Results
In 20132014, we paid an annual dividend of $1.52 per share,continued to show strong operating results, which provided a dividend yield of approximately 3.5 percent.
In 2013, wehave translated into returns for our stockholders. We achieved our best ever safety performanceresults and customer satisfaction results. Our safety performance placed us in the top quartile,rating, while providing our customers with reliable service and our customer satisfaction rating, as measured by JD Power, improved significantly over 2012. stockholders with returns among the industry leaders.
●Our net income grew 28.3 percent to $120.6 million in 2014 from $94 million in 2013.
●For the five-year period ending in 2014, our total shareholder return (TSR) was 167.4 percent, a return that significantly outperformed the S&P 500 index (105 percent) and the S&P utility index (87 percent) over that same time period.
●Of the 48 utilities that appear in the Edison Electric Institute’s Utility Index, we are the only company with a TSR in the top ten for the one-, two-, three- and five-year periods ending December 31, 2014.
●Our return on average equity (ROAE) has averaged 10.4 percent over the last three years.
●For 2014, our TSR was 35 percent, which was considerably better than the industry as a whole (S&P utility index 29 percent).
●
In 2014, we paid an annual dividend of $1.60 per share, which provided a dividend yield of approximately 2.8 percent, based on our closing stock price of $56.58 per share on December 31, 2014.
We also achieved top quartile reliability in South Dakotawere able to continue to achieve these strong operating results during 2014, while simultaneously completing the acquisition of 11 hydroelectric facilities, related assets, and second quartile reliabilityone storage reservoir located in Montana for overall reliability ina purchase price of approximately $900 million (the Hydro Transaction). In 2013 and 2014, we dedicated significant management and other resources to the second quartile.Hydro Transaction to (1) ensure a smooth operational transition of the assets, (2) obtain state and federal regulatory approval of the transaction, and (3) secure financing for the acquisition.

Along with
21
Compensation Discussion & Analysis


In spite of this strong operating performance and completion of the Hydro Transaction, the overall compensation of our executives ranks near the bottom of our peer group.group, which is identified on page 26 of this proxy statement. In summary:
Our named executive officers had an average compensation that was less than all but two of the companies insummary, for 2013 (the most recent year for which our peer group with our averageexecutive compensation per named executive officer of approximately $752,000 versus our peer group median average compensation per named executive officer of approximately $1.2 million.is publicly available):
For 2012, our CEO’s total compensation was approximately 63 percent of the median total compensation of CEOs in our peer group.
●Our named executive officers had an average compensation (as published in the 2014 proxy statement Summary Compensation Table for each respective company, excluding change in pension value) that was less than all but four of the other 14 companies in our peer group, with our average compensation per named executive officer of approximately $856,000 versus our peer group median average compensation per named executive officer of approximately $1.3 million.
●Our CEO’s total compensation was approximately 63 percent of the median total compensation of CEOs in our peer group.
Relative to our peers, we are providing strong financial results, with our TSR over the past one- and three-year periods in the top quartile. Meanwhile, our CEO pay has been among the lowest in our peer group, ranking third lowest over the same periods. Later in this CD&A, we provide additional details concerning (1) the compensation of our executives in comparison to our peers as summarized above, (2) the graphics below, and (3) the members of our peer group.
3-YEAR
3rd Lowest CEO Pay4th2nd Highest TSR
                                    of 15 Peers                         of 15 Peers
  
1-YEAR
3rd Lowest CEO Pay3rd Highest TSR
                                    of 15 Peers                         of 15 Peers

25
Compensation Discussion & Analysis


An investment in our stock of $100 at the beginning of 2013 would have turned into $129.50 by the end of 2013. These results we achieved for our stockholders are consistent with the results obtained under our incentive plans. With respect to our annual incentive plan for 2013, our financial results combined with the results of our reliability and safety goals resulted in a 108 percent funding of our annual incentive target for 2013. The grants of long-term performance-based restricted shares that were made in 2011 vested on December 31, 2013. The performance measures associated with those grants were measured over a three-year vesting period and were tied to net income growth, ROAE and TSR. The company had solid results for these financial metrics over the three-year vesting period, attaining 7.2 percent average
RESULT OF INVESTING $100 IN
NORTHWESTERN STOCK FOR 2012
net income growth, 10.5 percent ROAE, and 63.2 percent TSR. Our TSR ranked 4th when compared with our 16-member peer group of us and 15 other companies. Our peer group is summarized on page 33 of this proxy statement. Based on the terms of the 2011 grants and the performance measure matrix, the awards paid out at 92.5 percent of target.
The charts below illustrate the directional relationship between the compensation of our CEO and company performance over a five-year period based on the three performance metrics utilized in our performance units.
5-YEAR CEO PAY ALIGNMENT
 VS. NET INCOMEVS. TSR
VS. ROAENet Income is stated in millions and for 2012 included a total one-time after tax net gain of $14.7 million related to the CELP and MSTI matters described above. TSR illustrates the growth of $100 invested in our common stock on December 31, 2008, assuming reinvestment of dividends. CEO Compensation is total compensation (excluding change in pension value) as published in the proxy statement Summary Compensation Table. Current CEO joined us in August 2008. In 2009, in recognition of the general economy, none of the executive team received an increase in base pay; similarly, in 2010 the CEO and the CFO did not receive an increase in base pay. In 2011, 2012 and 2013, the CEO received the same adjustment to base pay for which other non-represented employees were eligible. In 2009, the CEO received a partial annual incentive for 2008; in subsequent years, he received an annual incentive based on the Board-approved formula. The CEO first received a long-term stock-based incentive in 2012 (for the 2009-2011 plan), and has participated in the plan since then.

26
Compensation Discussion and Analysis




The following chart shows the total return on an investment made on December 31, 2010, through December 31, 2013. The chart also compares our stock price performance with (1) the S&P 500, (2) our peer group that was used for the performance-based awards made in 2011, and (3) our current peer group that was used for the performance-based awards made in 2013, which is described on page 33 of this proxy statement. The period represented in the chart is approximately the same as the performance period for the performance-based restricted shares that were granted in 2011 and that vested on December 31, 2013. Total return is computed assuming reinvestment of dividends.
3-YEAR TSR
Source: SNL Financial LC
We consider our executive compensation program to be instrumental in helping us achieve our business objectives and effective in rewarding our executive officers for their role in achieving strong financial and operational performance. Based on our performance and our compensation outcomes, we are requesting your support of Proposal No. 43 — Advisory Vote to Approve Named Executive Officer Compensation.

22
Compensation Discussion and Analysis




Our overarching philosophy concerning executive compensation is that it should be structured to be market competitive and to align the long-term interests of our executives, our stockholders and our customers so that the compensation appropriately reflects performance in achieving financial and non-financial operating objectives. In order to live up to our philosophy, we believe that a significant portion of an executive’s compensation should be “at risk”“at-risk” in the form of performance-based incentive awards that are paid, if earned, as a result of individual and company performance.
Our executive compensation program is designed to:
Attract and retain a high-quality executive team by providing competitive compensation and benefits that reflect our financial and operational size;
Reward executives for both individual and company performance (based on financial, reliability, customer care and safety metrics) through performance-based, at-risk compensation; and
Maximize long-term stockholder value by putting a significant emphasis on:
financial performance, reliability, safety, and customer satisfaction; and
annual and long-term at-risk, performance-based compensation.

●
27Attract and retain a high-quality executive team by providing competitive compensation and benefits that reflect our financial and operational size;
●Reward executives for both individual and company performance (based on financial, reliability, customer care, and safety metrics) through performance-based, at-risk compensation; and
Compensation Discussion & Analysis●Maximize long-term stockholder value by putting a significant emphasis on:


●financial performance, reliability, safety, and customer satisfaction; and
●annual and long-term at-risk, performance-based compensation.
Compensation Practices
Our executive compensation program accomplishes our goals by incorporating certain compensation practices while avoiding other, more problematic or controversial compensation practices.
What We Do
What We Do
●Place a significant portion of executive compensation at risk in the form of incentive awards that are paid, if earned, based on continuing annual and long-term individual and company performance.
●Utilize multiple performance metrics for long-term incentive awards that align executive and stockholder interests.
●Target executive compensation around the median of our peers, while also considering trade area economics, turn-over, tenure, experience, and other factors.
What We Don’t Do
●Use employment or golden parachute agreements.
●Provide change in control payments exceeding three times base salary and target bonus. Our only change in control provision appears in the NorthWestern Corporation Amended and Restated Equity Compensation Plan (Equity Compensation Plan) and provides for the immediate vesting or cash payment of any unvested equity awards upon a change in control.
●Grant stock options. No stock options are currently outstanding, and none have been issued under our Equity Compensation Plan.
●Allow option repricing or liberal share recycling. Each of these compensation practices are expressly prohibited under our Equity Compensation Plan.
●Promise multi-year guarantees for salary increases.
●Provide perquisites for executives that differ materially from those available to employees generally.
●Maintain non-performance-based top hat plan or separate retirement plan available only to our executive officers. We do maintain a performance-based executive retirement / retention program, with five-year cliff vesting and a five-year payout period after the recipient’s separation from service.
●Pay tax gross-ups to our named executive officers.
●Pay dividends or dividend equivalents on unvested performance shares or units.
●Allow our executives or directors to hedge or pledge company securities.

Utilize multiple performance metrics for long-term incentive awards that align executive and stockholder interests.
23
Compensation Discussion & Analysis
Target executive compensation around the median of our peers, while also considering trade area economics, turn-over, tenure, experience and other factors.
What We Don’t Do
Use employment or golden parachute agreements.
Provide change in control payments exceeding three times base salary and target bonus. Our only change in control provision appears in the NorthWestern Corporation Amended and Restated 2005 Long-Term Incentive Plan, or 2005 Plan, and provides for the immediate vesting or cash payment of any unvested equity awards upon a change in control.
Grant stock options. No stock options are currently outstanding and none have been issued under our 2005 Plan.
Allow option repricing or liberal share recycling. Each of these compensation practices are expressly prohibited under our 2005 Plan.
Promise multi-year guarantees for salary increases.
Provide perquisites for executives that differ materially from those available to employees generally.
Maintain non-performance-based top hat plan or separate retirement plan available only to our executive officers. We do maintain a performance-based executive retirement / retention program, with five-year cliff vesting and a five-year payout period after the recipient’s separation from service.
Pay tax gross-ups to our named executive officers.
Pay dividends or dividend equivalents paid on unvested performance shares or units.

Compensation Components
For 20132014, our executive compensation package included the same components as in 20122013 — base salary, annual non-equitycash incentive awards, and long-term equity incentive stock awards. All of the incentive awards pension contributions (for eligible executives)(annual and certain other compensation.long-term) were performance-based. The annual incentive awards were performance-based andaward utilized financial and operational measures and were issued under our annual incentive plan. The long-term incentive stock awards were issued under our 2005Equity Compensation Plan, targeted multi-year financial performance goals, and consisted of two components. The first component, our long-term incentive program (LTIP), was an award of performance units that cliff vest after a three-year performance period tied 50 percent to TSR (relative to our peer group) and 50 percent to net incomeearnings per share (EPS) growth and ROAE. The second component, was an award of executive retirement / retention program or ERRP,(ERRP), was an award of restricted share units that also contain performance-based elements. The HR Committee designed and implemented the ERRP in 2011 to bring our long-term incentive compensation more in line with our peers and solidify the alignment of the long-term interests of our executives and stockholders. The ERRP restricted share units cliff vest after a five-year performance period that is tied to improved net income and, if earned, will be paid out over a five-year period after the executive separates from service with the company. With respect to the ERRP restricted share units, our HR Committee has attempted to encourage and promote retention, provide retirement benefits and incentivize our executives to focus on our long-term performance and results, particularly because the ERRP restricted share units do not pay until after the recipient leaves the service of the company, and even then is paid out over a five-year period. Unlike many other companies, we do not offer a non-performance-based supplemental executive retirement plan.
ComponentDescriptionWhy we include this componentHow we determine amountDecisions for 2014
Reason for
Change
Base
Salary
Short-term fixed cash compensation
Provide a base level of compensation for executive talentTarget middle of competitive range of peer group, with adjustments for trade area economics, turnover, tenure, and experienceConsistent with the salary adjustment generally provided to all employees, executives received a three percent increase to base salary for 2014To remain market competitive and provide cost of living adjustment
Annual
Cash
Incentive
Short-term variable cash compensation, based on corporate performance against annually established metrics (financial, safety, reliability, and customer satisfaction) and individual performance
Motivate employees to meet and exceed annual company objectives that are part of our strategic planTarget middle of competitive range of peer group, with adjustments for trade area economics, turnover, tenure, and experienceOne executive received a 12.5 percent increase to annual cash incentive target; targets unchanged for other executivesTo increase the compensation opportunity for a strategic position to align with market median
Added natural gas reliability metrics and additional customer satisfaction metricsTo appropriately motivate employees serving our natural gas customers and to capture customer viewpoints from independent custom survey results
Performance Unit Awards under
Long-Term Incentive Program (LTIP)
Long-term variable equity compensation, paid following three-year vesting period if corporate performance metrics (EPS, ROAE, and TSR) are achieved
Provide market-competitive, performance-based compensation opportunities while aligning interests of executives and stockholdersMarket survey of similar peer group roles and responsibilities and assessment of the strategic value of each positionIncreased target opportunity for three executivesTo increase the compensation opportunity for strategic positions to align with market median
Changed one of three performance measures to earnings per share instead of net incomeTo align performance results with the experience of equity investors and to capture the dilutive impact of additional equity to finance the hydro and any future transactions
Restricted Share Grants under Executive Retention / Retirement Program (ERRP)
Long-term variable, equity compensation, with corporate performance metrics over a five-year vesting period; paid over five-year period following separation from service
In lieu of a non-performance based supplemental retirement benefit, provide market-competitive, performance-based compensation opportunity that aligns interests of executives and stockholders, while encouraging retention and the continuity of our strategic planPeer group and competitive survey data and judgment on internal equity of positions and scope of responsibilities, as well as an assessment of the strategic value of each positionTarget opportunities doubled for all executivesTo remain competitive with the market median for long-term incentive compensation opportunity

2824
Compensation Discussion and Analysis




Pay for Performance
Our HR Committee has designed our compensation program to align pay with performance. Our executives are rewarded for providing value to stockholders and performing relative to our peer group, which is summarized on page 26 of this proxy statement.
Value Provided to Stockholders
As highlighted above in the Executive Summary of this CD&A, the value we have provided to our stockholders over the past one-, two-, three- and five-year periods has been among the industry leaders and, for the past five years, has surpassed the S&P 500 index and the S&P utility index. An investment
in our stock of $100 at the beginning of 2014 would have turned into $135 by the end of 2014.
These results we achieved for our stockholders are consistent with the results obtained under our incentive plans. With respect to our annual cash incentive plan for 2014, our financial results combined with the results of our reliability, safety, and customer satisfaction goals resulted in a 125 percent funding of our annual incentive target for 2014.
The grants of long-term performance units that were made in 2012 vested on December 31, 2014. The performance measures associated with those grants were measured over a three-year
RESULT OF INVESTING $100 IN
NORTHWESTERN STOCK FOR 2014
vesting period and were tied to net income growth, ROAE, and TSR. The company had solid results over the three-year vesting period, attaining 10.1 percent average net income growth, 10.4 percent ROAE, and 70.8 percent TSR. Our TSR ranked second highest when compared with our 14 other peer companies. Based on these results, the awards paid out at 168.4 percent of target.
The chart below shows the total return on an investment made over that same three-year vesting period and highlights our stock price performance with the S&P 500 and our peer group. Total return is computed assuming reinvestment of dividends.
3 YEAR TSR

25
Compensation Discussion & Analysis


The charts below provide another example of pay for performance by illustrating the directional relationship between the compensation of our CEO and company performance over a five-year period based on the three performance metrics utilized in relationour LTIP performance units.
5-YEAR CEO PAY ALIGNMENT
 VS. NET INCOMEVS. ROAEVS. CUMULATIVE TSR
Net Income is stated in millions. TSR illustrates the growth of $100 invested in our common stock on December 31, 2009, assuming reinvestment of dividends. CEO Compensation is total compensation (excluding change in pension value) as published in the proxy statement Summary Compensation Table. In 2011, 2012, and 2013, the CEO received the same adjustment to base pay for which other non-represented employees were eligible. The CEO first received a long-term stock-based incentive in 2012 (for the 2009-2011 plan), and has participated in the plan since then.
Performance Relative to Our Peers
As detailed below, relative to our peers, we are producing high performance for low pay. Over the past three years, our TSR is in the first quartile of our peer group, while our CEO’s compensation falls to the low end of the peer group range in the fourth quartile. In addition, the aggregate compensation provided to our named executive officers and the pay multiple of our CEO to the second highest paid named executive officer both lag the performancemedian of our peer group.
We also provide value to shareholders by maintaining a relatively small executive team. We currently have nine members on our executive team. As of the record date, three of our 14 peers also have nine executives, eight of our peers have larger executive teams of ten or more members, and the value we bring tothree of our stockholders. peers have fewer than nine executive officers. We believe that having a relatively small executive team creates efficiencies and a stronger team that is more effective as a group.
Peer Group for 2014
ALLETE, Inc.Empire District Electric CompanyPortland General Electric Company
Avista Corp.Great Plains Energy IncorporatedUIL Holdings Corporation
Black Hills CorporationIDACORP, Inc.Vectren Corporation
Cleco CorporationMGE Energy Inc.Westar Energy, Inc.
El Paso Electric Co.PNM Resources Inc.
Our HR Committee, in consultation with its independent compensation consultant, selects the members of our peer group and periodically examines whether the members continue to meet the criteria for inclusion. The HR Committee uses the following financial criteria to select our peer group: (1) a market capitalization of less than $3 billion, (2) total revenue between $100 million and $5 billion, and (3) energy-related revenue of at least 75 percent of total revenue. The HR Committee also requires that peer group companies either be located near our existing service territory or have both electric and gas customers.
For 2014, we removed one company, Unisource Energy Corporation, from our peer group because it was acquired by another company.

26
Compensation Discussion and Analysis




The following pay for performancepay-for-performance charts and tables below reflect relative values for CEO pay and TSR of us and our peers that are expressed as a percentage of the highest value in the category. The charts and tables demonstrate that, over the past three years, our CEO is generally being compensated at a lower level than the CEOs of our peers (in the fourth quartile), while leading strong performance for stockholders (in the first quartile) relative to our peers.
Datapoints within the highlightedshaded pay-for-performance alignment band reflect a strong correlation between pay and performance. Datapoints to the left and above the band suggest lower pay for higher performance; while those to the right and below the band suggest higher pay for lower performance. The charts and tables below demonstrate that our CEO is generally being compensated at a lower level than the CEOs of our peers, while leading strong performance for stockholders relative to our peers over the past three years.
CEO PAY FOR PERFORMANCE VS. PEERS
1-YEAR3-YEAR
  
Relative 1-Year CEO Pay* Relative 1-Year TSR* Relative 3-Year CEO Pay* Relative 3-Year TSR*
PNM Resources Inc.100% Black Hills Corporation100% Great Plains Energy100% PNM Resources Inc.100%
Cleco Corporation95% UNS Energy Corporation94% PNM Resources Inc.91% Black Hills Corporation95%
Great Plains Energy90% NorthWestern Corporation60% Cleco Corporation90% UNS Energy Corporation87%
Vectren Corporation81% ALLETE, Inc.54% Westar Energy, Inc.89% NorthWestern Corporation68%
Black Hills Corporation63% Vectren Corporation53% El Paso Electric Co.72% Cleco Corporation65%
UIL Holdings Corporation62% Great Plains Energy49% Vectren Corporation69% Vectren Corporation59%
IDACORP, Inc.61% IDACORP, Inc.48% Avista Corp.67% Portland General Electric55%
Avista Corp.61% Avista Corp.45% UIL Holdings Corporation66% IDACORP, Inc.53%
Westar Energy, Inc.57% PNM Resources Inc.43% IDACORP, Inc.62% ALLETE, Inc.51%
UNS Energy Corporation56% Cleco Corporation41% UNS Energy Corporation58% UIL Holdings Corporation48%
Portland General Electric52% Westar Energy, Inc.35% Black Hills Corporation57% MGE Energy Inc.47%
El Paso Electric Co.41% MGE Energy Inc.34% Portland General Electric50% Westar Energy, Inc.45%
ALLETE, Inc.37% Empire District Electric34% ALLETE, Inc.31% Avista Corp.42%
NorthWestern Corporation35% Portland General Electric30% NorthWestern Corporation36% Great Plains Energy40%
MGE Energy Inc.27% El Paso Electric Co.27% MGE Energy Inc.27% El Paso Electric Co.38%
Empire District Electric16% UIL Holdings Corporation27% Empire District Electric18% Empire District Electric13%
  
* Expressed as a percentage of the highest value in the category.
Source: CEO Pay is the 2012 total compensation (excluding change in pension value) as published in the 2013 proxy statement Summary Compensation Table for each respective company. We excluded change in pension value because its inclusion could lead to inconsistent comparisons from company to company based upon differing pension plan provisions, length of employee tenure and other factors. Total Stockholder Return is as published in the Edison Electric Institute Index Rankings for the one- and three-year periods ended December 31, 2013.
We currently have nine members on our executive team, as do four of our 15 peers; while eight of our peers have larger executive teams of 10 or more members, and three of our peers have fewer than nine executive officers. We believe that having a relatively small executive team creates efficiencies and a stronger team that is more effective as a group.
Relative 1-Year CEO Pay* Relative 1-Year TSR* Relative 3-Year CEO Pay* Relative 3-Year TSR*
Vectren Corporation100% El Paso Electric Co.100% Cleco Corporation100% PNM Resources Inc.100%
Cleco Corporation99% Vectren Corporation96% PNM Resources Inc.94% NorthWestern Corporation100%
Great Plains Energy89% NorthWestern Corporation96% Great Plains Energy93% Black Hills Corporation98%
UIL Holdings Corporation88% Westar Energy, Inc.91% Vectren Corporation86% Vectren Corporation96%
Avista Corp.77% IDACORP, Inc.87% UIL Holdings Corporation75% IDACORP, Inc.93%
PNM Resources Inc.77% Avista Corp.84% Avista Corp.71% Portland General Electric87%
Black Hills Corportation74% Portland General Electric81% El Paso Electric Co.68% Westar Energy, Inc.82%
Westar Energy, Inc.72% PNM Resources Inc.72% Westar Energy, Inc.66% El Paso Electric Co.80%
IDACORP, Inc.68% MGE Energy Inc.60% IDACORP, Inc.66% MGE Energy Inc.78%
Portland General Electric62% Great Plains Energy59% Black Hills Corporation64% Cleco Corporation74%
ALLETE, Inc.48% Cleco Corporation56% Portland General Electric56% Avista Corp.74%
El Paso Electric Co.46% UIL Holdings Corporation48% ALLETE, Inc.44% ALLETE, Inc.63%
NorthWestern Corporation45% Empire District Electric48% NorthWestern Corporation40% Great Plains Energy61%
Empire District Electric34% ALLETE, Inc.41% MGE Energy Inc.29% UIL Holdings Corporation54%
MGE Energy Inc.31% Black Hills Corportation11% Empire District Electric21% Empire District Electric35%
         
* Expressed as a percentage of the highest value in the category.
Source: CEO Pay for the one-year period is the 2013 total compensation and for the three-year period is the 2011-13 total compensation, as published in the, as applicable, 2012, 2013, and 2014 proxy statement Summary Compensation Tables for each respective company. We have excluded any change in pension value from the total compensation calculation because its inclusion could lead to inconsistent comparisons from company to company based upon differing pension plan provisions, length of employee tenure, and other factors. Total Stockholder Return is from SNL Financial for the one- and three-year periods ended December 31, 2014.

2927
Compensation Discussion & Analysis


As with our CEO’s total compensation package, the total compensation provided to our named executive officers, as a group, relative to our peers also demonstrates a strong pay for performancepay-for-performance alignment for our stockholders. As shown in the following charts below, our named executive officer group lags the median total compensation provided to our peer group named executive officers. The summary also depicts that the multiple of our CEO’s compensation compared with our next most highly compensated named executive officer is significantly less than our peer group median.
NAMED EXECUTIVE OFFICER PAY VS. PEERSPAY MULTIPLE OF CEO TO SECOND HIGHEST PAID NAMED EXECUTIVE OFFICER
  
Source: 2012 totalTotal compensation (excluding change in pension value) as published in the 2013 proxy statement summary compensation table for each respective company. We excluded change in pension value because its inclusion could lead to inconsistent comparisons from company to company based upon differing pension plan provisions, length of employee tenure, and other factors.
Say-on-Pay Results
At our annual meeting in 20132014, we asked our stockholders to approve, on an advisory basis, a “say-on-pay”say-on-pay resolution regarding the compensation of our named executive officers as disclosed in the proxy statement for that meeting. Our say-on-pay resolution and the 20122013 compensation of our named executive officers was approved by 94.494.7 percent of the shares present and entitled to vote on the matter.
The HR Committee and the full Board reviewed the voting results received at the 20132014 annual meeting concerning our say-on-pay resolution and have taken the results into account when establishing compensation for the named executive officers for 20142015. The HR Committee believes thesethe results from our 2014 annual meeting affirm our stockholders’ support of the company’s approach to executive compensation. Thus, we believe our executive compensation programs appropriately align the long-term interests of management and our stockholders.
Governance of Our Executive Compensation Program
HRHuman Resources Committee
The HR Committee, composed solely of independent directors, acts on behalf of and with the concurrence of the Board with respect to compensation, benefits, and other employment matters for executives; stock-based compensation plans for employees; the election and appointment of executive officers and other officers; the assessment of the performance of the CEO; and the compensation of non-employee members of the Board. The HR Committee considers several factors including but not limited to (1) the desire to align management (and employee) interests with those of stockholders and customers, (2) the desire to link management pay to both annual and long-term performance, (3) the need to attract talent from both within and outside the utility industry, (4) economic circumstances including turnover and retention considerations, (5) pay for performance (financial and operational) in all areas of compensation, and (6) executives participate in same base plans available to all non-union employees, with no additional perquisites — all of which ultimately influence our executive compensation program.

3028
Compensation Discussion and Analysis




Compensation Consultant
In its governance of our executive compensation program, the HR Committee works with an independent compensation consultant, Towers Watson, and, to a lesser extent, our CEO and CFO. Towers Watson, who reports directly to and is retained directly by the HR Committee, advises the HR Committee on an ongoing basis with regard to the general competitive landscape and trends in compensation and executive and director compensation matters, including (1) competitive analysis, (2) incentive plan design, (3) updates on trends in executive and director compensation, (4) peer group composition, and (5) handling other matters requested by the HR Committee. A Towers Watson representative attends meetings of the HR Committee as necessary and communicates directly with the chairman of the HR Committee.
Decision-Making Process and Role of Executive Officers
The HR Committee works with its compensation consultantTowers Watson to analyze competitive market data to determine appropriate base salary levels, annual incentive target levels, and long-term incentive target levels for all of our executive officers. With respect to our CEO’s compensation, the HR Committee conducts an annual performance assessment of the CEO and determines appropriate adjustments to all elements of his total compensation based on individual and company performance, taking into consideration our CEO’s preference to have a larger percentage of his pay be “at risk”at-risk in the form of performance-based compensation and his overall compensation to be below the median of his peers. For the other executive officers, the CEO and CFO make recommendations to the HR Committee for all elements of compensation based on individual performance, market data from our peer group and published survey data. The HR Committee reviews, discusses, modifies, and approves, as appropriate, these compensation recommendations. The HR Committee recommends both CEO and executive officer compensation to the Board for approval. The CEO is not a member of the HR Committee and does not vote on Board matters concerning executive compensation.
Targeted Overall Compensation and Competitive Analysis
Compensation Philosophy
We target base salary, annual cash incentive awards, and long-term equity grants, as well as total compensation, to be market competitive for our executive officers. However, because comparative data is one of several tools that are used in determining executive officer compensation, competitiveness of compensation may fluctuate based on:
●The level of achievement of our pre-established performance goals;
●Our TSR compared against our peer group;
●Individual performance and scope of job responsibilities;
●Internal equity considerations;
●Market competitiveness and internal executive turnover; and
●The executive’s industry and position experience and tenure.
In order to appropriately align the long-term interests of our executives, our stockholders and customers, we structure our executive compensation to have a significant component that places a substantial percentage of an executive’s compensation “at risk” in the form of performance-based incentive awards. Our HR Committee and Board establish metrics for our performance based incentive awards that, in general, are more difficult to achieve than our peers, based on an analysis our independent compensation consultant conducted. Such a structure influences our executive officers to focus on both short- and long-term performance and provides a reward to our executives, our stockholders and our customers when we achieve our financial and non-financial operating objectives.

31
Compensation Discussion & Analysis


In order to appropriately align the long-term interests of our executives, stockholders, and customers, we structure our executive compensation so that a significant component of an executive’s compensation is at risk in the form of performance-based incentive awards. Our HR Committee and Board establish metrics for our performance based incentive awards that, in general, are more difficult to achieve than our peers, based
on an analysis our independent compensation consultant conducted. This structure influences our executives to focus on both short- and long-term performance and provides a reward to our executives, stockholders, and customers when we achieve both our financial and operating objectives.
The target compensation mix for our named executive officers changed in 20132014 from 2012.2013. As part of the overall compensation package for our named executive officers in 2013,2014, our HR Committee increased the targeted long-term incentive opportunity for three of our named executive officers as described below in the 2013 2014
Performance Unit Grants section. In addition, for one of our named executive officers (and the other executive officers) the HR Committee increased slightly the annual incentive target opportunity, as described in the Annual Cash Incentive Awards section below.
The result of these changes to the target compensation mix was an increase in the percentage of at-risk compensation for all of our named executive officers to 6063 percent from 58 percent, as illustrated by the graphic to the right.
60 percent.

AVERAGE NAMED EXECUTIVE OFFICER PAY MIX
29
Compensation Discussion & Analysis


For our CEO, 6772 percent of the overall targeted compensation (base salary and targeted annual and long-term incentives) relates to performance-based incentive awards. For our named executive officers other than the CEO, that percentage averages 5255 percent. The charts below depict the target total compensation mix for our CEO and the average of our other named executive officers.
CEO PAY MIX 
OTHER NAMED EXECUTIVE OFFICER
AVERAGE PAY MIX
   
 
Charts represent target level for each component of compensation.
Compensation Consultant Data and Analysis
As a component of the HR Committee’s review of executive compensation matters, Towers Watson provides an analysis of the pay levels of a peer group, as well as published survey data that focuses on the energy and  utility industry, which is size-adjusted based on our revenues for appropriate market comparison. For 20132014, the published survey data included the Towers Watson Compensation DataBank, William M. Mercer’s Executive Benchmark Database and Towers Watson Survey Report on Top Management Compensation. The peer group data is a primary basis for setting compensation for our CEO and CFO because these positions are common among our peers. Both the peer group and survey data are analyzed and considered in setting compensation levels for the remaining named executive officers because these positions or division of responsibilities may not be common among each of our peers.
The HR Committee, in consultation with Towers Watson, periodically examines our peer group to determine whether the members continue to meet the criteria for inclusion. Our peer group was selected based on the following criteria: (1) a market capitalization of less than $3 billion, (2) total revenue between $100 million

32
Compensation Discussion and Analysis




and $5 billion and (3) energy-related revenue of at least 75 percent of total revenue. In addition, peer group companies either must be located near our existing service territory or have both electric and gas customers.
For 2013, we removed one company from our peer group because it was acquired by another company. Our peer group for 2013 consisted of us and the following entities:
For long-term incentive purposes, Towers Watson performs its analysis using the published survey data and focuses on companies in the energy services industry, specifically with annual revenues less than $3 billion. The HR Committee considers the responsibilities of the job performed by each of our executive officers and
ALLETE, Inc.Empire District Electric CompanyPortland General Electric Company
Avista CorpGreat Plains Energy IncorporatedUIL Holdings Corporation
Black Hills CorporationIDACORP, Inc.UNS Energy Corporation
Cleco CorporationMGE Energy Inc.Vectren Corporation
El Paso Electric Co.PNM Resources Inc.Westar Energy, Inc.
As a reference in determining compensation for our executive officers, the HR Committee considers the total compensation paid to each of our executive officers relative to our peer companies. This provides an additional perspective to complement the position-specific analysis that the HR Committee considers.
For long-term incentive purposes, Towers Watson performs its analysis using the published survey data and focuses on companies in the energy services industry, specifically with annual revenues less than $3 billion. The HR Committee considers the responsibilities of the job performed by each of our executive officers and his or her performance, and adjusts each executive’s targeted compensation amounts accordingly. As discussed in more detail
his or her performance, and adjusts each executive’s targeted compensation amounts accordingly. As further detailed below, internal comparison with other officer positions also is considered.
In addition to these efforts, Towers Watson prepares an analysis of market data compiled from the Towers Watson Compensation DataBank for energy services executives. The analysis examines the target direct compensation opportunity for energy services executives, including base salary, target annual incentives, and the expected value of long-term incentives. Using regression analysis, Towers Watson size-adjusts the data to reflect our revenue scope.
Based uponon Towers Watson’s analysis and as illustrated in the chart below,to the right, the direct compensation opportunity for our highest-paid employees is below the market median of the direct compensation opportunity for the highest-paid employees for energy services companies. For the top five highest-paid employees, our employees’ compensation opportunity is 63 percent of the median; while our top 10, 15 and 20 highest-paid employees have a compensation opportunity that is 69 percent, 68 percent and 68 percent, respectively, of the median.
 
AGGREGATE COMPENSATION OPPORTUNITY

FOR HIGHEST-PAID EMPLOYEES
 
 *Top 5 is based on 20132014 proxy data of energy services companies. Top 10, Top 15, and Top 20 are based on a survey of energy services companies completed by Towers Watson. Values exclude any change in pension value.

30
Compensation Discussion and Analysis




compensation opportunity is 63 percent of the median; while our top 10, 15, and 20 highest-paid employees have a compensation opportunity that is 69 percent, 68 percent and 68 percent, respectively, of the median.
We also conducted a separate analysis of the 20122013 executive compensation of the 1514 other companies in our peer group. This internal analysis, which was based on proxy data, examined base salary, bonus, other annual compensation, equity awards, and non-equity incentive plan compensation (and excluded change in pension value). Using this analysis, our named executive officers had an average compensation that was less than all but twofour of the companies in our peer group, with an average compensation per named executive officer of approximately $752,000$856,000 versus the average compensation per named executive officer of the median of our peer group of approximately $1.2$1.3 million. For 2012,2013, our CEO’s total compensation was approximately 63 percent of the median total compensation of CEOs in our peer group.
These analyses demonstrate that, on average, we currently are below the middle of the competitive range. We also are cognizant of prevailing economic conditions, internal pay equity, and executive turnover, which our HR Committee takes into account when determining executive compensation.

33
Compensation Discussion & Analysis


Internal Pay Equity and Wealth Accumulation
We believe our executive compensation program must be internally consistent and equitable to motivate our employees to create stockholder value. We are committed to internal pay equity, and the HR Committee monitors the relationship between the compensation of our executive officers and the compensation of our non-managerial employees. In 2014, the HR Committee reviewed a comparison of CEO pay (base salary and incentive compensation) to the pay of all our employees. The compensation for our CEO in 2014 was approximately 24 times the median pay of our full-time employees.
Our CEO to median employee pay ratio calculation includes all components of compensation available to our CEO and the HR Committee monitorsmedian employee, as summarized in the relationship betweentable below. We have included incentive compensation in the compensation of our executive officers andcalculation at the compensation of our non-managerial employees. In targeted level (2013i.e., 100 percent of the HR Committee reviewed a comparison of CEO pay (base salaryincentive). Our calculation includes full-time employees and incentive compensation) to the pay of all ourexcludes part-time employees. The targeted compensation for our CEO in 2013, excludingcalculation also excludes benefits was approximately 22 times(which do not differ materially between executives and employees generally) and any overtime pay that the median pay of our full-time employees.employee may receive.
   
President
and CEO
 Median Employee
2014 Base Salary $561,389
 $77,938
Annual Cash Incentive    
 Percent of base salary 80% 6%
 Targeted annual cash incentive $449,111

$4,676
Performance Unit Awards under
Long-Term Incentive Program
    
 Percent of base salary 150% —%
 Targeted long-term incentive $842,084
 $—
Restricted Share Grants under
Executive Retention / Retirement Program
    
 Percent of base salary 25% —%
 Targeted executive retention / retirement incentive $140,347
 $—
2014 Total Target Direct Compensation $1,992,931
 $82,614
     
Pay as Multiple of Median Employee 24 1
The HR Committee reviews annually the wealth accumulation of our executives, considering all of the elements of total compensation paid to each executive officer during the prior five-year period, including base salaries, annual cash incentive bonuses, the value of long­-term incentive awards and any special payments made to an individual executive. The HR Committee also reviews the projected value of each executive officer’s accumulated equity grants over the subsequent five-year period based upon various stock appreciation and “stay to normal retirement” scenarios. This is done to analyze not only the amount of compensation each executive officer has accumulated to date, but also to better understand how current equity grants may affect the amount of wealth the executive officers accumulate in the future.

31
Compensation Discussion & Analysis


Components of Executive Compensation for 20132014
The primary components of total compensation for our executive officers for 2013 were:
Base salary;
Annual performance-based cash incentive awards; and
The primary components of total compensation for our executive officers for 2014 were:
●Base Salary
●Annual performance-based cash incentive awards; and
●Long-term performance-based equity incentive awards in the form of performance units and ERRP restricted share units.
The HR Committee believes these compensation components align the interests of our executives and our stockholders by basing a significant portion of total compensation on performance and achievement of our short- and long-term goals. The specific mix among the individual components reflects market compensation arrangements and individual position and performance. Base salary represents 3328 percent of our CEO’s targeted total compensation and, on average, 4845 percent of our other named executive officers’ targeted total compensation. Performance-based awards (annual and long-term incentive) represent the remaining portion of targeted total compensation.
The HR Committee also believes that our executive compensation program appropriately mitigates the risk associated with incentive-based pay. The HR Committee has designed the entire program and the metrics under our annual and long-term performance-based incentive components to curb inappropriate risk taking. For example, we do not offer guaranteed bonuses. In addition, our annual and long-term performance-based incentive awards utilize multiple performance metrics which vary from plan to plan, and rewards under those plans are aligned with the interests of our stockholders. If our stockholders benefit from our performance, our executive officers are rewarded. Our ERRP restricted share units also benefit our long-term succession and strategic plan by providing for a pay outpayment only after the recipient leaves employment with us, and then over a fiver-year payoutfive-year period. Furthermore, we have limited severance packages, we do not maintain a non-performance-based supplemental executive retirement plan, and our retirement, healthcare, and welfare benefit programs for executives are generally the same as for all employees and are discussed in the “Compensation of Executive Officers and Directors” section of this proxy statement. Finally, we maintain robust stock ownership/holdingownership guidelines. In light of these pay practices, the HR Committee believes that our executive compensation program appropriately address the risks associated with performance-based incentives.
Base SalaryCompensation Committee Report
The HR Committee reviewed and discussed the Compensation Discussion and Analysis with management. Based on this review and discussion, the HR Committee recommended to the Board that the Compensation Discussion and Analysis be included in the proxy statement and incorporated by reference into the Annual Report on Form 10-K for the year ended December 31, 2014.
Human Resources Committee
Dana J. Dykhouse, Chairman*
Stephen P. Adik
Julia L. Johnson
Denton Louis Peoples
*Phil Maslowe was the long-standing chair of our HR Committee. Following his passing, the Chairman of our Board assumed the responsibilities through the end of 2014, and Mr. Dykhouse became HR Committee Chair, effective January 1, 2015.
Compensation Discussion and Analysis
The general guideline for determining salary levels forCompensation Discussion and Analysis (CD&A) describes our executive officers,compensation programs, including the CEO, isoversight of such programs by the HR Committee of our Board and the rationale and processes used to determine the 2014 compensation of our executive officers. This includes the objectives and specific elements of our compensation program, including cash compensation, equity compensation, and post-termination compensation. This CD&A, which may include forward-looking statements, should be aroundread together with the middlecompensation tables and related disclosures that follow this section. For ease of the competitive range, adjusted for other factors such as trade area economics, turn-over, tenure and experience. Adjustments from market levels are made based on experience in the position, industry experience and individual performance and responsibilities. While we are cognizantreference, a table of the competitive range, our primary goal iscontents specific to compensate our executives at a level that best achievesthis CD&A follows.
CD&A Table of ContentsPage
Executive Summary21
2014 Results21
Compensation Practices23
Compensation Components24
Pay for Performance25
Value Provided to Stockholders25
Performance Relative to Our Peers26
Peer Group for 201426
Say-on-Pay Results28
Governance of Our Executive Compensation Program28
Human Resources Committee28
Compensation Consultant29
Decision-Making Process and Role of Executive Officers29
Targeted Overall Compensation and Competitive Analysis29
Compensation Philosophy29
Compensation Consultant Data and Analysis30
Internal Pay Equity and Wealth Accumulation31
Components of Executive Compensation for 201432
Base Salary32
Annual Cash Incentive Awards33
Long-Term Performance-Based Equity Awards under the Equity Compensation Plan37
2014 Long-Term Incentive Program Performance Unit Grants38
2014 Executive Retention / Retirement Program Restricted Share Grants39
Vesting of 2012 Long-Term Incentive Program Performance Unit Grants in 201440
Other Compensation Policies41
Stock Ownership Guidelines41
Retirement and Other Benefits41
Severance and Post-Termination Benefits42
Non-Qualified Deferred Compensation42
No Employment Agreements42
Tax Treatment of Certain Compensation42

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Compensation Discussion and Analysis




our compensation philosophy, whether or not this results in actual pay for some positions that may be higher or lower than the market median. We find that survey results for particular positions can vary from year to year, so we consider market trends for certain positions over a period of several years rather than a one-year period in setting compensation for such positions.
This CD&A is organized into the following sections:
Executive Summary— Highlights of our 2014 executive compensation program and results.
Pay for Performance — How our pay and performance, relative to our peers, provides value to our stockholders.
Say-on-Pay Results — Details about our Board's consideration of prior shareholder voting results concerning executive compensation.
Governance of Our Executive Compensation Programs — How our HR Committee oversees our executive compensation program.
Targeted Overall Compensation and Competitive Analysis — How our HR Committee determined 2014 compensation levels.
Executive CompensationComponents — Details about our 2014 executive compensation program.
Other Compensation Policies — Information on other aspects of our compensation philosophy.
Executive Summary
2014 Results
The HR Committee considers adjustments to base salaries for the executive officers on an annual basis. ForIn 20132014, the HR Committee felt that an increasewe continued to the base salaries of our executive officers in line with the industry average was reasonable in light of the company’sshow strong operating results, and increased stockholderwhich have translated into returns in 2012. The HR Committee also considered that our executive officer base salaries remain below the median compensation of our peers even with this increase. The following table sets forth the base salaries for our named executive officers. The base salary adjustments for 2013 were effective April 1, 2013.
  Annualized Base Salary 
Increase
(%)
Name 
2013
($)
 
2012
($)
 
Robert C. Rowe 545,038
 529,163
 3.00
Brian B. Bird 357,553
 347,139
 3.00
Heather H. Grahame 325,366
 315,889
 3.00
Curtis T. Pohl 256,168
 248,707
 3.00
Kendall G. Kliewer 236,324
 229,441
 3.00
Annual Cash Incentive Awards
Annual cash incentive awards are used to motivate employees to meetstockholders. We achieved our best ever safety results and exceed annual company objectives that are a part ofcustomer satisfaction rating, while providing our strategic plan. All regular, non-represented employees, including executive officers, participate incustomers with reliable service and our stockholders with returns among the same plan described in this section, and regular, represented employees participate in a separate management-designed program. Actual payouts for annual cash incentive awards reflect both (1) company performance based on financial and operational measures and (2) the employee’s individual performance.
There are four factors that determine the amount of the final payout under the annual incentive plan:industry leaders.
(1)●Base salary;Our net income grew 28.3 percent to $120.6 million in 2014 from $94 million in 2013.
(2) ●Target incentive percentage of base salary;For the five-year period ending in 2014, our total shareholder return (TSR) was 167.4 percent, a return that significantly outperformed the S&P 500 index (105 percent) and the S&P utility index (87 percent) over that same time period.
(3)●The annual incentive plan funding percentage (based on financial, reliability, customer careOf the 48 utilities that appear in the Edison Electric Institute’s Utility Index, we are the only company with a TSR in the top ten for the one-, two-, three- and safety performance metrics); andfive-year periods ending December 31, 2014.
(4)●The individual’s performance multiple.Our return on average equity (ROAE) has averaged 10.4 percent over the last three years.
Actual payouts of annual cash incentive awards are calculated pursuant to the following formula:
●For 2014, our TSR was 35 percent, which was considerably better than the industry as a whole (S&P utility index 29 percent).
Base Salary x Target Incentive % x Plan Funding % x Performance Multiple = Individual Payout●
In 2014, we paid an annual dividend of $1.60 per share, which provided a dividend yield of approximately 2.8 percent, based on our closing stock price of $56.58 per share on December 31, 2014.
Each year,We were able to continue to achieve these strong operating results during 2014, while simultaneously completing the HR Committee approvesacquisition of 11 hydroelectric facilities, related assets, and one storage reservoir located in Montana for a target incentive percentagepurchase price of base salary for each executive based onapproximately $900 million (the Hydro Transaction). In 2013 and 2014, we dedicated significant management and other resources to the internalHydro Transaction to (1) ensure a smooth operational transition of the assets, (2) obtain state and external factors previously noted. Management also annually proposes specific performance targetsfederal regulatory approval of the transaction, and (3) secure financing for the company’s financial and operational measures, which are reviewed and, after considerable discussion and usually some modification, approved by the HR Committee as well as the Board. At the end of the fiscal year, the HR Committee reviews data submitted by management on company performance against each of the specific performance targets and determines the degree to which each financial and operational measure was met during the year, subject to Board approval. The aggregate percentage of financial and operational measures met during the year represents the plan funding percentage for the annual incentive plan.acquisition.

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Compensation Discussion & Analysis


The funding (as a percentageIn spite of target) underthis strong operating performance and completion of the annual incentive planHydro Transaction, the overall compensation of our executives ranks near the bottom of our peer group, which is identified on page 26 of this proxy statement. In summary, for 2013 (the most recent year for which our peer group executive compensation is publicly available):
●Our named executive officers had an average compensation (as published in the 2014 proxy statement Summary Compensation Table for each respective company, excluding change in pension value) that was less than all but four of the other 14 companies in our peer group, with our average compensation per named executive officer of approximately $856,000 versus our peer group median average compensation per named executive officer of approximately $1.3 million.
●Our CEO’s total compensation was approximately 63 percent of the median total compensation of CEOs in our peer group.
Relative to our peers, we are providing strong financial results, with our TSR over the four previous years ispast one- and three-year periods in the top quartile. Meanwhile, our CEO pay has been among the lowest in our peer group, ranking third lowest over the same periods. Later in this CD&A, we provide additional details concerning (1) the compensation of our executives in comparison to our peers as follows:summarized above, (2) the graphics below, and (3) the members of our peer group.
Historical Funding (as a percentage of target)
2009201020112012
108%94%101%98%
3-YEAR
3rd Lowest CEO Pay2nd Highest TSR
                                    of 15 Peers                         of 15 Peers
1-YEAR
3rd Lowest CEO Pay3rd Highest TSR
                                    of 15 Peers                         of 15 Peers
The HR Committee may use discretionWe consider our executive compensation program to be instrumental in increasing or decreasing the plan funding percentage from actual performance due to specific factshelping us achieve our business objectives and circumstances, such as current economic conditions as well as unusual one-time events that significantly impact financial or non-financial results. The HR Committee exercises this discretion only for unusual, non-operational items. As described further below, each executive’s annual individual performance is then evaluatedeffective in order to determine a performance multiple, which is factored into the incentive payout calculation.
The target annual incentive opportunities forrewarding our executive officers are derivedfor their role in part from peer group and competitive survey analysis data and in part by the HR Committee’s judgment on the internal equity of the positions, scope of job responsibilities and the executives’ industry experience and tenure. Potential adjustments to the annual incentive target for the executive officers are considered by the HR Committee on an annual basis.
As reflected in the table below, our HR Committee adjusted the 2013 target annual incentive opportunity for one named executive officer (and the other executive officers that are not named executive officers) by increasing the target opportunity to 35 percent from 30 percent. This adjustment was based upon a variety of factors including market competitiveness. The HR Committee did not adjust the 2013 target annual incentive opportunity for any of the other named executive officers because the HR Committee believed the annual incentive targets were appropriate and commensurate with the responsibilities of those executives. The following table sets forth the 2013 annual incentive opportunity for our named executive officers.
  
Target Incentive Opportunity
(% of base salary)
 
Increase
(%)
Name 2013 2012 
Robert C. Rowe 80 80 —
Brian B. Bird 50 50 —
Heather H. Grahame 40 40 —
Curtis T. Pohl 40 40 —
Kendall G. Kliewer 35 30 17
The design of our 2013 annual incentive plan was the same as our previous year’s plan. As more fully described below, the actual amount of money available for awards (the award pool) is based on overall plan funding. Each year, the HR Committee determines funding of the award pool based on its assessment of overall company performance during the year, measured against pre-establishedachieving strong financial and operational metrics. The HR Committee determined that the metrics and relative weightings focus the organizationperformance. Based on desired performance for the following reasons:
Net income, 55 percent of the funding opportunity – Net income was chosen as the financial metric because it is a financial measure that investors consider significant to evaluate companyour performance and net income can be directly affected by individual employee and team performance.
Operational targets, 45 percentour compensation outcomes, we are requesting your support of the funding opportunity – We believe that employee safety and providing reliable serviceProposal No. 3 — Advisory Vote to our customers’ satisfaction over the long term are critical to our customer commitment and regulatory obligations, which ultimately supports our financial goals and enhances stockholder value.
The award pool is allocated to each participant based on:
The participant’s annual incentive award opportunity;
Performance measured against the plan metrics; and
The participant’s individual performance during the year measured against individual goals.Approve Named Executive Officer Compensation.

3622
Compensation Discussion and Analysis




Our overarching philosophy concerning executive compensation is that it should be structured to be market competitive and to align the long-term interests of our executives, our stockholders and our customers so that the compensation appropriately reflects performance in achieving financial and non-financial operating objectives. In order for any awards under the 2013 annual incentive plan to live up to our philosophy, we believe that a significant portion of an executive’s compensation should be earned and paid out, a minimum of 90 percent of the company’s budgeted net income target must have been attained, which coincides with the threshold net income target for the plan. This metric for determining performance against our financial goal is derived from our audited financial statements. However, the HR Committee, in its discretion, may consider certain non-operational items or events as unusual when determining performance against the metric and make what it deems to be appropriate adjustments. In addition, the 2013 annual incentive plan provided that the 2013 safety portion would be forfeited“at-risk” in the eventform of performance-based incentive awards that are paid, if earned, as a work-related fatality, unless the HR Committee determines that no actions on the partresult of the employee or the Company contributed to the incident.individual and company performance.
For 2013, based on company performance for all of the metrics, the annual incentive plan was funded at 108 percent of target. In calculating performance under the net income metric, the HR Committee exercised its discretion to exclude from such calculation the expenses we incurred in connection with our pending acquisition of hydroelectric facilities and related assets located in Montana, which we announced via press release and a filing on Form 8-K on September 26, 2013.
The table below shows the associated performance metrics, weighting and plan payout percentage for each of the 2013 performance measures.
  2013 Incentive Plan Information
Performance Measures 
Weight
(Percent of Total Plan Payout)
 Performance Level Target % Achieved Final Funding % of Total
Threshold Target Maximum Actual Achieved
Financial              
Net Income ($ in millions) (1) 55% $85.4 $94.9 $104.4 $97.9 115.7% 63.6%
Operational              
   Safety (2)              
Lost Time Incident Rate 7.5% 1.1
 0.8
 0.6
 0.7
 125.0% 9.4%
Total Recordable Incident Rate 7.5% 3.1
 2.6
 2.1
 2.3
 130.0% 9.7%
   Reliability (3)              
SAIDI (excluding major event days)
 7.5% 123.0
 105.0
 91.0
 123.44
 —% —%
SAIDI (including major event days)
 7.5% 195.0
 129.0
 113.0
 143.51
 89.0% 6.7%
   Customer Satisfaction (4)              
JD Power Residential Electric and Gas Survey Performance Ranking 15% 618
 628
 638
 633.3
 126.2% 18.9%
Our executive compensation program is designed to:
(1)●The actual net income achieved of $97.9 million excluded the $3.9 million impact from expenses associated withAttract and retain a high-quality executive team by providing competitive compensation and benefits that reflect our pending acquisition of the hydroelectric facilitiesfinancial and related assets located in Montana, which we announced via press release and a filing on Form 8-K on September 26, 2013.operational size;
(2)●SafetyReward executives for both individual and company performance is calculated by us(based on financial, reliability, customer care, and participating Edison Electric Institute (EEI) utilities as defined by Occupational Safetysafety metrics) through performance-based, at-risk compensation; and Health Administration, or OSHA. OSHA specifically defines what workplace injuries and illnesses should be recorded and, of those recorded, which must be considered lost time incidents. The threshold level for the safety measures represents our five-year average performance for these metrics, which is higher than our EEI peer group average; the target level represents a 25 percent improvement over our five-year average performance for lost time incident rate and a 15 percent improvement over our five-year average performance for total recordable incident rate; and the maximum represents top tier performance for our EEI peer group and a significant improvement over historical company performance.
(3)●System Average Interruption Duration Index, or SAIDI, isMaximize long-term stockholder value by putting a system reliability index used by us and participating Institute of Electrical and Electronic Engineers, Inc., utilities to measure the duration of interruptions on a utility’s electric system. SAIDI indicates the total duration of interruption for the average customer during a predefined period of time. The threshold level for SAIDI, excluding major event days, represents first quartile performance within rural and suburban medium sized investor owned utilities; the target level represents a 20 percent improvement over the difference of the company’s 5-year average results (105 minutes) and 91 minutes, which is first quartile performance for all reporting companies, including urban and those that do not report transmission; 91 minutes is used as the maximum level. The threshold for SAIDI, including major event days, of 195 minutes represents first quartile performance within rural and suburban medium sized investor owned utilities; the target level represents a 20 percent improvement over the gap of the company’s 5-year average results and 113 minutes; 113 minutes is used as the maximum level, which is better than first quartile for all reporting utilities and equal to NorthWestern’s best SAIDI, including major event days, in the last five years.significant emphasis on:
(4)●Customer satisfaction is measured by the broadly utilized JD Power residential electric and gas customer satisfaction surveys and studies, which include the following components: communications, corporate citizenship, billing and payment, price, power quality andfinancial performance, reliability, (electric) or field service (gas)safety, and customer service. The companies measured against were 26 investor-owned electricsatisfaction; and
●annual and gas utilities includedlong-term at-risk, performance-based compensation.
Compensation Practices
Our executive compensation program accomplishes our goals by incorporating certain compensation practices while avoiding other, more problematic or controversial compensation practices.
What We Do
●Place a significant portion of executive compensation at risk in both the 2012 JD Power electricform of incentive awards that are paid, if earned, based on continuing annual and gas residential studieslong-term individual and the results weighted by residential customer count by energy source utilizing data from the Federal Energy Regulatory Commission. The threshold level maintains the company’s 2012 performance with an allowance for range of error; the target level is an improvement of five points over 2012; and the maximum level is first quartilecompany performance.
●Utilize multiple performance metrics for long-term incentive awards that align executive and stockholder interests.
●Target executive compensation around the median of our peers, while also considering trade area economics, turn-over, tenure, experience, and other factors.
What We Don’t Do
●Use employment or golden parachute agreements.
●Provide change in control payments exceeding three times base salary and target bonus. Our only change in control provision appears in the NorthWestern Corporation Amended and Restated Equity Compensation Plan (Equity Compensation Plan) and provides for the immediate vesting or cash payment of any unvested equity awards upon a change in control.
●Grant stock options. No stock options are currently outstanding, and none have been issued under our Equity Compensation Plan.
●Allow option repricing or liberal share recycling. Each of these compensation practices are expressly prohibited under our Equity Compensation Plan.
●Promise multi-year guarantees for salary increases.
●Provide perquisites for executives that differ materially from those available to employees generally.
●Maintain non-performance-based top hat plan or separate retirement plan available only to our executive officers. We do maintain a performance-based executive retirement / retention program, with five-year cliff vesting and a five-year payout period after the recipient’s separation from service.
●Pay tax gross-ups to our named executive officers.
●Pay dividends or dividend equivalents on unvested performance shares or units.
●Allow our executives or directors to hedge or pledge company securities.

3723
Compensation Discussion & Analysis


Individual Performance
The HR Committee analyzes the total mix of available information (including performance against any quantitative performance goals) on a qualitative and not strictly quantitative basis in making annual cash incentive determinations. Although actual performance measured against pre-established goals is the key component in determining both company and individual performance, the HR Committee may use judgment when determining whether company or individual goals have been attained.Compensation Components
Our 2013 non-GAAP diluted adjusted earnings per share increased byFor 5.52014 percent over 2012, excluding, our executive compensation package included the favorable GAAP impact of the CELP arbitration result and the negative impact of the MSTI abandonment decisionsame components as in2012 described above and adjusting for normal weather and other discrete events. Other significant achievements for 2013 included: (1) the announcement of entry into a $900 million purchase agreement to acquire 11 hydroelectric generating facilities, a storage reservoir and related assets in Montana; (2) the acquisition of natural gas production interests in northern Montana's Bear Paw Basin for approximately $68.7 million; (3) the completion of construction and achievement of commercial operation of a $54 million, 60 MW peaking facility located in Aberdeen, South Dakota; (4) obtaining approval from the Montana Public Service Commission to increase our natural gas distribution rates effective April 1, 2013; and (5) successfully accessing the capital markets to fund growth projects and extend maturities by issuing (a) approximately 1.38 million shares of common stock with net proceeds of approximately $56.8 million, and (b) $35 million of first mortgage bonds at 3.99 percent and $65 million of first mortgage bonds at 4.85 percent, maturing in 2028 and 2043, respectively.
These efforts were successful due to the substantial efforts of our executive officers and many other employees across all departments of the company. As a result of the factors noted above, the HR Committee determined that it was appropriate to assign a 100 percent performance multiplier to all of the named executive officers.
Actual 2013— base salary, annual cash incentive awards, for the named executive officers were as follows:
Name 
Annual Target Incentive as Percent of Base Salary
(%)
 
2013 Actual Incentive as Percent of Base Salary
(%)
 
Incentive Award
 ($)
Robert C, Rowe 80 86.4 470,913
Brian B. Bird 50 54.0 193,079
Heather H. Grahame 40 43.2 140,558
Curtis T. Pohl 40 43.2 110,665
Kendall G. Kliewer 35 37.8 89,330
Long-Term Performance-Based Equity Awards Under the 2005 Plan
We have used our 2005 Plan to provide for the award of long-term, performance-based incentive awards to our executive officers. These performance-based awards help us achieve our compensation philosophy of being market competitive while simultaneously aligning the interests of our executives and stockholders.
The 2005 Plan authorizes several types of stock-based awards, including restricted stock and a variety of performance-based awards. In 2013, the HR Committee granted two types of long-term equity incentive stock awards. All of the incentive awards to(annual and long-term) were performance-based. The annual incentive award utilized financial and operational measures and were issued under our executivesannual incentive plan. The long-term incentive stock awards were issued under the 2005 Plan: (1)our Equity Compensation Plan, targeted multi-year financial performance goals, and consisted of two components. The first component, our long-term incentive program (LTIP), was an award of performance units withthat cliff vestingvest after a three-year performance period;period tied 50 percent to TSR (relative to our peer group) and (2) a smaller50 percent to earnings per share (EPS) growth and ROAE. The second component, executive retirement / retention program (ERRP), was an award of ERRP restricted share units withthat cliff vestingvest after a five-year performance period that is tied to improved net income and, if earned, will be paid out over a payout over five years followingfive-year period after the executive’s separationexecutive separates from service with the company. All of these 2013 awards are performance-based and payable, if and when earned, in shares of our common stock.Unlike many other companies, we do not offer a non-performance-based supplemental executive retirement plan.
Performance Units
ComponentDescriptionWhy we include this componentHow we determine amountDecisions for 2014
Reason for
Change
Base
Salary
Short-term fixed cash. The HR Committee determines the terms and restrictions applicable to such grants. After the company’s financial results are available for the prior year, the HR Committee approves the annual grant of performance units to our executive officers (and approximately 100 other participants) and selects a date (usually the date of the HR Committee’s action) when the awards will be granted, typically in February of each year. The awards of performance units are intended to provide a link between executive officer compensation
Provide a base level of compensation for executive talentTarget middle of competitive range of peer group, with adjustments for trade area economics, turnover, tenure, and experienceConsistent with the salary adjustment generally provided to all employees, executives received a three percent increase to base salary for 2014To remain market competitive and provide cost of living adjustment
Annual
Cash
Incentive
Short-term variable cash compensation, based on corporate performance against annually established metrics (financial, safety, reliability, and customer satisfaction) and individual performance
Motivate employees to meet and exceed annual company objectives that are part of our strategic planTarget middle of competitive range of peer group, with adjustments for trade area economics, turnover, tenure, and experienceOne executive received a 12.5 percent increase to annual cash incentive target; targets unchanged for other executivesTo increase the compensation opportunity for a strategic position to align with market median
Added natural gas reliability metrics and additional customer satisfaction metricsTo appropriately motivate employees serving our natural gas customers and to capture customer viewpoints from independent custom survey results
Performance Unit Awards under
Long-Term Incentive Program (LTIP)
Long-term variable equity compensation, paid following three-year vesting period if corporate performance metrics (EPS, ROAE, and TSR) are achieved
Provide market-competitive, performance-based compensation opportunities while aligning interests of executives and stockholdersMarket survey of similar peer group roles and responsibilities and assessment of the strategic value of each positionIncreased target opportunity for three executivesTo increase the compensation opportunity for strategic positions to align with market median
Changed one of three performance measures to earnings per share instead of net incomeTo align performance results with the experience of equity investors and to capture the dilutive impact of additional equity to finance the hydro and any future transactions
Restricted Share Grants under Executive Retention / Retirement Program (ERRP)
Long-term variable, equity compensation, with corporate performance metrics over a five-year vesting period; paid over five-year period following separation from service
In lieu of a non-performance based supplemental retirement benefit, provide market-competitive, performance-based compensation opportunity that aligns interests of executives and stockholders, while encouraging retention and the continuity of our strategic planPeer group and competitive survey data and judgment on internal equity of positions and scope of responsibilities, as well as an assessment of the strategic value of each positionTarget opportunities doubled for all executivesTo remain competitive with the market median for long-term incentive compensation opportunity

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and long-term stockholder interests as reflected in changes in our stock price, and to motivate and reward achievement of pre-established corporate financial goals and relative TSR. ThePay for Performance
Our HR Committee believes that making an annual grant of performance units motivateshas designed our executive officers (and the other participants)compensation program to focus on long-term, sustainable improvement in stockholderalign pay with performance. Our executives are rewarded for providing value because (1) the award payout is tied to financial performancestockholders and continued service over a three-year period with cliff vesting at the end of such period and (2) the ultimate value delivered is dependent upon the value of our stock.
During the performance periods summarized in the table below, the performance measures for the awards included (1) TSRperforming relative to our peer group, contributing 50 percentwhich is summarized on page 26 of the payout and (2) a combination of average net income growth and ROAE, also contributing 50 percent of the payout. The payout (as a percentage of target) since 2009 of these types of grants and our relative TSR ranking within our peer group is as follows:this proxy statement.
Value Provided to Stockholders
 Performance Period
 2009-20112010-20122011-2013
Payout Percentage155.2%134.1%92.5%
Relative TSR2nd of 124th of 124th of 12
As highlighted above in the Executive Summary of this CD&A, the value we have provided to our stockholders over the past one-, two-, three- and five-year periods has been among the industry leaders and, for the past five years, has surpassed the S&P 500 index and the S&P utility index. An investment
in our stock of $100 at the beginning of 2014 would have turned into $135 by the end of 2014.
These results we achieved for our stockholders are consistent with the results obtained under our incentive plans. With respect to our annual cash incentive plan for 2014, our financial results combined with the results of our reliability, safety, and customer satisfaction goals resulted in a 125 percent funding of our annual incentive target for 2014.
The grants of long-term performance units that were made in 2012 vested on December 31, 2014. The performance measures associated with those grants were measured over a three-year
RESULT OF INVESTING $100 IN
NORTHWESTERN STOCK FOR 2014
vesting period and were tied to net income growth, ROAE, and TSR. The company had solid results over the three-year vesting period, attaining 10.1 percent average net income growth, 10.4 percent ROAE, and 70.8 percent TSR. Our TSR ranked second highest when compared with our 14 other peer companies. Based on these results, the awards paid out at 168.4 percent of target.
ERRP Restricted Share Units. In 2011,The chart below shows the HR Committeetotal return on an investment made the first annual grants of ERRP restricted share units. The HR Committee instituted the practice of granting ERRP restricted share units to bring the long-term incentive component ofover that same three-year vesting period and highlights our executives’ compensation in linestock price performance with the median of our peers, while simultaneously encouraging retention with the five-year cliff vesting componentS&P 500 and providing retirement benefits, along with succession planning and continuity of our strategic plan through the five-year payout of vested awards following the executive officer’s separation from service with the company. The key distinction between these awards and the non-performance-based supplemental executive retirement plans that certain of our peers and many other companies provide is that our ERRP restricted share units are earned based upon company performance.
The number of ERRP restricted share units that the HR Committee has granted annually has been considerably fewer than the grants of performance units. Like the performance units described above, these restricted share units are intended to provide a link between executive officer compensation and retirement planning and long-term stockholder interests and to motivate and reward achievement of pre-established corporate financial goals. The HR Committee believes that an annual grant of restricted share units motivates our executive officers to focus on long-term, sustainable improvement in our business because (1) vesting of the award is tied to financial performance and continued service over a five-year period and (2) payout of the vested award occurs over a five-year period following the executive officer’s separation from service with the company. The ERRP also encourages retention due to its five-year cliff vesting. The first opportunity for grants to vest under the ERRP is on December 31, 2016.
2013 Performance Unit Grants
In February 2013, the HR Committee approved grants of performance units subject to a three-year performance period with cliff vesting at the end of such period. The target long-term equity opportunities are derived from peer group and competitive survey data and from the HR Committee’s judgment on the internal equity of the positions and scope of job responsibilities. To determine the target value of each executive officer’s performance unit awards, the HR Committee considered the range for comparable roles within our peer group, with consideration given to the strategic valuegroup. Total return is computed assuming reinvestment of each position. Based on these considerations, in 2013, the HR Committee increased the targeted opportunity (expressed as a percentage of base salary) associated with the awards for each executive officer.dividends.
Each executive officer’s targeted opportunity is converted into specific performance unit grants by dividing the total targeted value (the targeted percentage of base salary) by the fair market value of a share of our stock on the grant date. The resulting calculation represents the number of performance units that are granted and will vest on December 31, 2015, if all performance goals are met at the target performance level.
After the performance period, the HR Committee calculates the actual company performance relative to the performance goals and determines the number of performance units that vest based on such performance. Depending on the calculated company performance, the exact number of performance units that vest will vary from zero to 200 percent of the target award. In addition, if earned, the value of the award on the vesting date,
3 YEAR TSR

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Compensation Discussion & Analysis


based onThe charts below provide another example of pay for performance by illustrating the fair market valuedirectional relationship between the compensation of our stock on that future date, likely will differ from the value at target as reflected in the following table, which is based on the fair market value of a share of our stock on the grant date.
The target equity opportunities for the 2013 grants ofCEO and company performance units are shown in the table that follows. The table also compares the target opportunities (expressed as a percentage of base salary) applicable to the 2012 and 2013 awards.
    Target Performance Unit Opportunity for 2013
Name 
2012
Base Salary
(%)
 
2013
Base Salary
(%)
 
2013
Value at Target
 ($)
 
Long-Term
Stock Awards
(#)
Robert C. Rowe 100 125 661,454
 17,261
Brian B. Bird 75 85 295,068
 7,700
Heather H. Grahame 55 60 189,533
 4,946
Curtis T. Pohl 55 60 149,224
 3,894
Kendall G. Kliewer 35 40 91,776
 2,395
These performance unit awards contain both a market- and performance-based component. The performance goals for these awards are independent of each other and are equally weighted. Settlement of awards will be made only if we maintain investment grade credit ratings on both a secured and unsecured basis.
The following table summarizes the performance measures for the 2013 performance unit awards.
Performance Measures — 2013−2015 Threshold Target Maximum
Financial Goals – 50%      
   ROAE 8.3% 9.8% 11.3%
   Average Net Income Growth —% 3.0% 6.0%
TSR – 50%      
   Relative Average vs. Peers 13th
 6th
 1st
In general, based on a market analysis that the HR Committee’s independent compensation consultant conducted, our metrics for relative TSR are established at levels higher than our peers and the market. For example, according to this market analysis, we use a ranking of 1st for maximum, while the market uses 3rd; we use a ranking of 6th for target, while the market uses 8th; and our threshold of 13th pays at 10 percent, and 9th pays at 50 percent, while the market threshold of 12th pays at 50 percent.
The ROAE and net income growth levels are tied to management performance as this goal relates to revenue enhancement and cost containment. The average net income target for 2013 - 2015 is 3.0 percent average growth over 2012 results. In recognition that 2012 results were significantly positively impacted by the favorable November 2012 CELP arbitration ruling and the unfavorable MSTI abandonment, which we disclosed in our 2013 proxy statement, our average net income growth target of 3.0 percent was less than it otherwise would have been.
TSR is determined by our common stock price change and dividends paid over the performance period. We then compare our TSR with the total stockholder returns achieved by our peers over the same three-year period and determine our ranking.
2013 ERRP Restricted Share Unit Grants
In December 2013, the HR Committee approved performance-based ERRP restricted share unit grants. These restricted share unit awards are subject to a five-year performance and five-year cliff vesting period and, once vested, will be paid out in shares of the company’s common stock over a five-year period afterbased on the three performance metrics utilized in our LTIP performance units.
5-YEAR CEO PAY ALIGNMENT
 VS. NET INCOMEVS. ROAEVS. CUMULATIVE TSR
Net Income is stated in millions. TSR illustrates the growth of $100 invested in our common stock on December 31, 2009, assuming reinvestment of dividends. CEO Compensation is total compensation (excluding change in pension value) as published in the proxy statement Summary Compensation Table. In 2011, 2012, and 2013, the CEO received the same adjustment to base pay for which other non-represented employees were eligible. The CEO first received a long-term stock-based incentive in 2012 (for the 2009-2011 plan), and has participated in the plan since then.
Performance Relative to Our Peers
As detailed below, relative to our peers, we are producing high performance for low pay. Over the past three years, our TSR is in the first quartile of our peer group, while our CEO’s compensation falls to the low end of the peer group range in the fourth quartile. In addition, the aggregate compensation provided to our named executive officers and the pay multiple of our CEO to the second highest paid named executive officer both lag the median of our peer group.
We also provide value to shareholders by maintaining a recipient has separated from service withrelatively small executive team. We currently have nine members on our executive team. As of the company.
Our overall compensation program does not provide any non-performance-based supplemental executive retirement benefit. The HR Committee designed and implemented the ERRP in lieurecord date, three of a traditional supplemental executive retirement plan which is not performance-based but is offered by manyour 14 peers also have nine executives, eight of our peers have larger executive teams of ten or more members, and other companies to increase overall competitiveness. The ERRP restricted share units help to achieve our compensation philosophy of being market competitive while aligning the intereststhree of our executivespeers have fewer than nine executive officers. We believe that having a relatively small executive team creates efficiencies and a stronger team that is more effective as a group.
Peer Group for 2014
ALLETE, Inc.Empire District Electric CompanyPortland General Electric Company
Avista Corp.Great Plains Energy IncorporatedUIL Holdings Corporation
Black Hills CorporationIDACORP, Inc.Vectren Corporation
Cleco CorporationMGE Energy Inc.Westar Energy, Inc.
El Paso Electric Co.PNM Resources Inc.
Our HR Committee, in consultation with its independent compensation consultant, selects the members of our peer group and periodically examines whether the members continue to meet the criteria for inclusion. The HR Committee uses the following financial criteria to select our peer group: (1) a market capitalization of less than $3 billion, (2) total revenue between $100 million and $5 billion, and (3) energy-related revenue of at least 75 percent of total revenue. The HR Committee also requires that peer group companies either be located near our existing service territory or have both electric and gas customers.
For 2014, we removed one company, Unisource Energy Corporation, from our peer group because it was acquired by another company.

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Compensation Discussion and Analysis




stockholders. It also promotes retention throughThe following pay-for-performance charts and tables below reflect relative values for CEO pay and TSR of us and our peers that are expressed as a percentage of the five-year cliff vesting componenthighest value in the category. The charts and benefits succession planning and continuitytables demonstrate that, over the past three years, our CEO is generally being compensated at a lower level than the CEOs of our strategic plan through its fiver-year payout following separation from service.
The long-term equity opportunitypeers (in the fourth quartile), while leading strong performance for stockholders (in the ERRP is derived from peer group and competitive survey data and from the HR Committee’s judgment on the internal equity of the positions and scope of job responsibilities. To determine the value of each executive officer’s ERRP restricted share unit award, the HR Committee considered the range for comparable roles within our peer group, with consideration given to each position’s strategic value, and the overall long-term equity opportunity offered to that group. The equity opportunities for the 2013 ERRP restricted share unit grantsfirst quartile) relative to our named executive officers are shown inpeers.
Datapoints within the following table. Each executive officer’s award value was then converted into specific equity grants by dividingshaded pay-for-performance alignment band reflect a strong correlation between pay and performance. Datapoints to the total potential value ofleft and above the award byband suggest lower pay for higher performance; while those to the fair market value of a share of our stock onright and below the grant date. This represents the number of restricted share units that will vest on December 31, 2018, if the company’s net incomeband suggest higher pay for three of the five calendar years 2014 – 2018 exceeds the company’s net income for 2013. If earned, the value of the award on the vesting date, based on the fair market value of our stock on that future date, likely will differ from the fair value of the award on the grant date, as reflected in the following table, which is based on the closing market price of our stock on the grant date, less the present value of expected dividends.lower performance.
  Target ERRP Opportunity
Name Base Salary (%) 
Value at Grant Date
 ($)
 Long-Term Stock Awards (1) (#)
Robert C. Rowe 25.0
 136,260
 3,878
Brian B. Bird 12.5
 44,694
 1,272
Heather H. Grahame 10.0
 32,537
 926
Curtis T. Pohl 10.0
 25,617
 729
Kendall G. Kliewer 7.5
 17,724
 504
(1)CEO PAY FOR PERFORMANCE VS. PEERS
1-YEARBased on a weighted average grant date fair value of $35.14, which was calculated using the closing stock price of $42.46 on December 10, 2013, less the present value of expected dividends.3-YEAR
Vesting of 2011 Restricted Share Grants in 2013
In February 2011, the HR Committee approved grants of performance-based restricted shares, subject to a three-year performance period. The 2011 restricted share grants vested on December 31, 2013.
The 2011 restricted share grants contained both market- and performance-based components. The  performance goals were independent of each other and equally weighted. The following table summarizes the performance measures which governed these 2011 grants.
Performance Measures — 2011−2013 Threshold Target Maximum
Financial Goals – 50%      
   ROAE 8.2% 10.2% 12.2%
   Average Net Income Growth 6.2% 10.2% 14.2%
Market Goal – 50%      
   Relative TSR Average vs. Peers 9th
 5th
 1st
Depending upon actual company performance relative to these performance goals, the exact number of shares that could have vested varied from zero to 200 percent of the target award. As summarized above in the 2013 Performance Unit Grants section, our relative TSR metrics are established at levels higher than our peers according to a market analysis conducted by the HR Committee’s independent compensation consultant. At the conclusion of the performance period, the HR Committee calculated the company’s performance relative to these goals during the three-year performance period to determine the vesting percentage for the 2011 restricted share grants.
During the performance period, for the financial goals, ROAE was 10.52 percent and average net income growth was 7.15 percent. This financial performance resulted in a 59.9 percent vesting percentage for that half of the program. For our market goal, TSR was 63.2 percent, resulting in a ranking of 4th with respect to our peers, and contributing 125.0 percent with respect to that half of the program. Based on the HR Committee’s calculation of these performance measures, the 2011 restricted share grants vested at 92.5 percent.
Relative 1-Year CEO Pay* Relative 1-Year TSR* Relative 3-Year CEO Pay* Relative 3-Year TSR*
Vectren Corporation100% El Paso Electric Co.100% Cleco Corporation100% PNM Resources Inc.100%
Cleco Corporation99% Vectren Corporation96% PNM Resources Inc.94% NorthWestern Corporation100%
Great Plains Energy89% NorthWestern Corporation96% Great Plains Energy93% Black Hills Corporation98%
UIL Holdings Corporation88% Westar Energy, Inc.91% Vectren Corporation86% Vectren Corporation96%
Avista Corp.77% IDACORP, Inc.87% UIL Holdings Corporation75% IDACORP, Inc.93%
PNM Resources Inc.77% Avista Corp.84% Avista Corp.71% Portland General Electric87%
Black Hills Corportation74% Portland General Electric81% El Paso Electric Co.68% Westar Energy, Inc.82%
Westar Energy, Inc.72% PNM Resources Inc.72% Westar Energy, Inc.66% El Paso Electric Co.80%
IDACORP, Inc.68% MGE Energy Inc.60% IDACORP, Inc.66% MGE Energy Inc.78%
Portland General Electric62% Great Plains Energy59% Black Hills Corporation64% Cleco Corporation74%
ALLETE, Inc.48% Cleco Corporation56% Portland General Electric56% Avista Corp.74%
El Paso Electric Co.46% UIL Holdings Corporation48% ALLETE, Inc.44% ALLETE, Inc.63%
NorthWestern Corporation45% Empire District Electric48% NorthWestern Corporation40% Great Plains Energy61%
Empire District Electric34% ALLETE, Inc.41% MGE Energy Inc.29% UIL Holdings Corporation54%
MGE Energy Inc.31% Black Hills Corportation11% Empire District Electric21% Empire District Electric35%
         
* Expressed as a percentage of the highest value in the category.
Source: CEO Pay for the one-year period is the 2013 total compensation and for the three-year period is the 2011-13 total compensation, as published in the, as applicable, 2012, 2013, and 2014 proxy statement Summary Compensation Tables for each respective company. We have excluded any change in pension value from the total compensation calculation because its inclusion could lead to inconsistent comparisons from company to company based upon differing pension plan provisions, length of employee tenure, and other factors. Total Stockholder Return is from SNL Financial for the one- and three-year periods ended December 31, 2014.

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The following table summarizesAs with our CEO’s total compensation package, the performance results with respecttotal compensation provided to each of the performance measures applicable to the 2011 grants and the corresponding contributions to the vesting percentage.
Performance Measures — 2011−2013 Result Weight Vesting
Financial Goals – ROAE and Average Net Income Growth 59.9% 50% 30.0%
Market Goal – TSR 125.0% 50% 62.5%
    TOTAL
 92.5%
The following table summarizes the number of shares awarded by the 2011 restricted share grants and the number of shares paid out in 2013 with respect to such grants for our named executive officers, based onas a group, relative to our peers also demonstrates a strong pay-for-performance alignment for our stockholders. As shown in the 92.5 percent vesting percentage approved bycharts below, our named executive officer group lags the HR Committee.median total compensation provided to our peer group named executive officers. The summary also depicts that the multiple of our CEO’s compensation compared with our next most highly compensated named executive officer is significantly less than our peer group median.
  Vesting of 2011 Restricted Share Grants
Name 
Amount at Grant Date
(#)
 
Amount upon Vesting
(#)
Robert C. Rowe 18,169
 16,806
Brian B. Bird 8,939
 8,269
Heather H. Grahame 5,965
 5,518
Curtis T. Pohl 4,697
 4,345
Kendall G. Kliewer 2,798
 2,588
NAMED EXECUTIVE OFFICER PAY VS. PEERSPAY MULTIPLE OF CEO TO SECOND HIGHEST PAID NAMED EXECUTIVE OFFICER
Source: Total compensation (excluding change in pension value) as published in the proxy statement summary compensation table for each respective company. We excluded change in pension value because its inclusion could lead to inconsistent comparisons from company to company based upon differing pension plan provisions, length of employee tenure, and other factors.
Amended and Restated Equity Compensation PlanSay-on-Pay Results
As discussedAt our annual meeting in more detail in Proposal 3 below, in February 2014, we asked our stockholders to approve, on an advisory basis, a say-on-pay resolution regarding the compensation of our named executive officers as disclosed in the proxy statement for that meeting. Our say-on-pay resolution and the 2013 compensation of our named executive officers was approved by 94.7 percent of the shares present and entitled to vote on the matter.
The HR Committee recommended, and the full Board approved,reviewed the Equity Compensation Plan, which amends, restatesvoting results received at the 2014 annual meeting concerning our say-on-pay resolution and replaceshave taken the 2005 Plan.results into account when establishing compensation for the named executive officers for 2015. The Equity Compensation Plan is subject toHR Committee believes the approvalresults from our 2014 annual meeting affirm our stockholders’ support of the stockholders at this year’s annual meeting and, if approved, will be effective July 1, 2014.
Other Compensation Policies
Stock Ownership Guidelines
Our Corporate Governance Guidelines requirecompany’s approach to executive compensation. Thus, we believe our executive officers to meet and maintain a specified stock ownership level. Stock ownership guidelines range from a multiplecompensation programs appropriately align the long-term interests of five times base salary for the CEO, four times base salary for the CFO, three times base salary for our Vice President and General Counselmanagement and our Vice President - Distribution,stockholders.
Governance of Our Executive Compensation Program
Human Resources Committee
The HR Committee, composed solely of independent directors, acts on behalf of and two times base salarywith the concurrence of the Board with respect to compensation, benefits, and other employment matters for our Vice Presidentexecutives; stock-based compensation plans for employees; the election and Controller. Eachappointment of executive is restricted, absent a hardshipofficers and prior Board approval, from selling stock until his or her guideline amount is achievedother officers; the assessment of the performance of the CEO; and must continuethe compensation of non-employee members of the Board. The HR Committee considers several factors including but not limited to maintain(1) the required ownership level once it is obtained. More specific details of our officer stock ownership guidelines are available in our Corporate Governance Guidelines located on our website at www.northwesternenergy.com under Our Company / Investor Relations / Corporate Governance.
Our Board instituted these guidelines to require our executives to hold a meaningful financial stake in the companydesire to align our executive’smanagement (and employee) interests with those of stockholders and customers, (2) the desire to link management pay to both annual and long-term performance, (3) the need to attract talent from both within and outside the utility industry, (4) economic circumstances including turnover and retention considerations, (5) pay for performance (financial and operational) in all areas of compensation, and (6) executives participate in same base plans available to all non-union employees, with no additional perquisites — all of which ultimately influence our stockholders. Progress towards meeting the guidelines is summarized below:executive compensation program.
Name Multiple of Base Pay 
Percent of Guideline Achieved
as of December 31 (1)
2012 2013
Robert C. Rowe (2) 5x 102% 160%
Brian B. Bird 4x 135% 156%
Heather H. Grahame 3x 39% 51%
Curtis T. Pohl 3x 54% 68%
Kendall G. Kliewer 2x 104% 152%
(1)
Percent of guideline achieved uses the closing stock prices of $34.73 and $43.32 as of December 31, 2012, and 2013, respectively.
(2)Effective February 18, 2014, our Board increased the stock ownership guideline for our CEO to a multiple of six times base salary. A substantial percentage of the CEO’s guideline achieved has been the result of voluntary deferrals of annual incentive compensation, which will ensure alignment of his interest with company performance for a number of years beyond his departure.

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Retirement and Other BenefitsCompensation Consultant
Retirement benefits are offered to employees hired prior to January 1, 2009, through tax-qualified company-funded pension plansIn its governance of our executive compensation program, the HR Committee works with an independent compensation consultant, Towers Watson, and, to all eligible employees through a 401(k) defined contribution plan. Both pension planslesser extent, our CEO and 401(k) plans are common benefits providedCFO. Towers Watson, who reports directly to and is retained directly by the HR Committee, advises the HR Committee on an ongoing basis with regard to the general competitive landscape and trends in compensation and executive and director compensation matters, including (1) competitive analysis, (2) incentive plan design, (3) updates on trends in executive and director compensation, (4) peer group composition, and (5) handling other matters requested by the utilityHR Committee. A Towers Watson representative attends meetings of the HR Committee as necessary and energy industry. Our executive officers, includingcommunicates directly with the CEO, participate in some orchairman of the HR Committee.
Decision-Making Process and Role of Executive Officers
The HR Committee works with Towers Watson to analyze competitive market data to determine appropriate base salary levels, annual incentive target levels, and long-term incentive target levels for all of these plans, and the terms governing the retirement benefits under these plans are the same as those available to substantially all employees. We do not offer any supplemental retirement benefitsour executive officers. With respect to our executive officers other thanCEO’s compensation, the performance-based ERRP restricted share units described above. Our healthcare, insurance and other welfare and employee-benefit programs are generally the same for substantially all employees, includingHR Committee conducts an annual performance assessment of the CEO and executive officers. We sharedetermines appropriate adjustments to all elements of his total compensation based on individual and company performance, taking into consideration our CEO’s preference to have a larger percentage of his pay be at-risk in the costform of healthperformance-based compensation and welfare benefits with our employees, which is dependent onhis overall compensation to be below the benefit coverage option that each employee elects. Ourmedian of his peers. For the other executive officers, dothe CEO and CFO make recommendations to the HR Committee for all elements of compensation based on individual performance, market data from our peer group and published survey data. The HR Committee reviews, discusses, modifies, and approves, as appropriate, these compensation recommendations. The HR Committee recommends both CEO and executive officer compensation to the Board for approval. The CEO is not receive any material perquisites or special benefits that differ materially from those available to employees generally.a member of the HR Committee and does not vote on Board matters concerning executive compensation.
SeveranceTargeted Overall Compensation and Post-Termination BenefitsCompetitive Analysis
Compensation Philosophy
We provide severance and post-termination benefits to our executive officers under our severance plan. Severance and post-termination benefits are explained in detail under the “Compensation of Executive Officers and Directors—Post Employment Compensation” section, starting on page 49 of this proxy statement.
Non-qualified Deferred Compensation
The company provides a non-qualified deferred compensation plan, which is intended to be an unfunded plan. The 2009 Officer Deferred Compensation Plan, or officer deferred plan, allows eligible officers to defer up to 100 percent of certain compensation, includingtarget base salary, (subject to compliance with Section 409A of the Internal Revenue Code compensation limit), short-termannual cash incentive awards, and awards earned underlong-term equity grants, as well as total compensation, to be market competitive for our 2005 Plan. Thereexecutive officers. However, because comparative data is one of several tools that are no company contributions to theused in determining executive officer deferred plan. Participants in the officer deferred plancompensation, competitiveness of compensation may elect to have deferrals credited to their account in company stock (in the formfluctuate based on:
●The level of deferred share units issued under the 2005 Plan) or cash investment options that substantially mirror the qualified employee 401(k) plan investment options. The value of each deferred compensation account is adjusted periodically to reflect the gains, losses and dividends associated with the designated investments. Plan participants do not pay income taxes on amounts deferred or earnings thereon until those amounts are distributed from the officer deferred plan. A participant’s benefits under the officer deferred plan are fully vested and are payable after terminating employment. Benefits are paid in a lump sum unless a participant elects annual installments.
Employment Agreements
We currently do not have employment agreements with anyachievement of our executives. We generally believe that ongoing employment agreements are not necessary to retain talented executives; however, agreements may  be appropriate on a case-by-case basis, such as when anpre-established performance goals;
●Our TSR compared against our peer group;
●Individual performance and scope of job responsibilities;
●Internal equity considerations;
●Market competitiveness and internal executive begins employment with us. Due to the changing marketplace in which we compete for talent, the HR Committee regularly reviews this practice to help ensure that we remain competitive in our industry.turnover; and
Tax Treatment of Certain Compensation●The executive’s industry and position experience and tenure.
Section 162(m) of the Internal Revenue Code limits the company deductibility of executive compensation paid to certain named executive officers to $1 million per year, but contains an exception for certain performance-based compensation. However, compensation that qualifies as “performance-based compensation” is not subject to the $1 million deduction limit if, at least every five years, stockholders approve the material terms of such performance-based compensation. The performance units granted under the 2005 Plan are eligible for the performance-based compensation exception. Each of the amounts approved for named executive officers subject to Section 162(m) were below the maximums established of 200,000 shares and $1 million in cash for any one participant. As discussed in more detail in Proposal 3 below, the Equity Compensation Plan is being submitted to stockholders at this year’s annual meeting so that awards made thereunder also will qualify as performance-based compensation.

In order to appropriately align the long-term interests of our executives, stockholders, and customers, we structure our executive compensation so that a significant component of an executive’s compensation is at risk in the form of performance-based incentive awards. Our HR Committee and Board establish metrics for our performance based incentive awards that, in general, are more difficult to achieve than our peers, based
on an analysis our independent compensation consultant conducted. This structure influences our executives to focus on both short- and long-term performance and provides a reward to our executives, stockholders, and customers when we achieve both our financial and operating objectives.
The target compensation mix for our named executive officers changed in 2014 from 2013. As part of the overall compensation package for our named executive officers in 2014, our HR Committee increased the targeted long-term incentive opportunity for three of our named executive officers as described below in the 2014
Performance Unit Grants section. The result of these changes to the target compensation mix was an increase in the percentage of at-risk compensation for all of our named executive officers to 63 percent from 60 percent.

4329
Compensation Discussion & Analysis


For our CEO, 72 percent of the overall targeted compensation (base salary and targeted annual and long-term incentives) relates to performance-based incentive awards. For our named executive officers other than the CEO, that percentage averages 55 percent. The charts below depict the target total compensation mix for our CEO and the average of our other named executive officers.
CEO PAY MIX
OTHER NAMED EXECUTIVE OFFICER
AVERAGE PAY MIX
Charts represent target level for each component of compensation.
Compensation Consultant Data and Analysis
As a component of the HR Committee’s review of executive compensation matters, Towers Watson provides an analysis of the pay levels of a peer group, as well as published survey data that focuses on the energy and  utility industry, which is size-adjusted based on our revenues for appropriate market comparison. For 2014, the published survey data included the Towers Watson Compensation DataBank, William M. Mercer’s Executive Benchmark Database and Towers Watson Survey Report on Top Management Compensation. The peer group data is a primary basis for setting compensation for our CEO and CFO because these positions are common among our peers. Both the peer group and survey data are analyzed and considered in setting compensation levels for the remaining named executive officers because these positions or division of responsibilities may not be common among each of our peers.
For long-term incentive purposes, Towers Watson performs its analysis using the published survey data and focuses on companies in the energy services industry, specifically with annual revenues less than $3 billion. The HR Committee considers the responsibilities of the job performed by each of our executive officers and
his or her performance, and adjusts each executive’s targeted compensation amounts accordingly. As further detailed below, internal comparison with other officer positions also is considered.
In addition to these efforts, Towers Watson prepares an analysis of market data compiled from the Towers Watson Compensation DataBank for energy services executives. The analysis examines the target direct compensation opportunity for energy services executives, including base salary, target annual incentives, and the expected value of long-term incentives. Using regression analysis, Towers Watson size-adjusts the data to reflect our revenue scope.
Based on Towers Watson’s analysis and as illustrated in the chart to the right, the direct compensation opportunity for our highest-paid employees is below the market median of the direct compensation opportunity for the highest-paid employees for energy services companies. For the top five highest-paid employees, our employees’
AGGREGATE COMPENSATION OPPORTUNITY
FOR HIGHEST-PAID EMPLOYEES
*Top 5 is based on 2014 proxy data of energy services companies. Top 10, Top 15, and Top 20 are based on a survey of energy services companies completed by Towers Watson. Values exclude any change in pension value.

30
Compensation Discussion and Analysis




Compensation Committee Interlockscompensation opportunity is 63 percent of the median; while our top 10, 15, and 20 highest-paid employees have a compensation opportunity that is 69 percent, 68 percent and 68 percent, respectively, of the median.
We also conducted a separate analysis of the 2013 executive compensation of the 14 other companies in our peer group. This internal analysis, which was based on proxy data, examined base salary, bonus, other annual compensation, equity awards, and Insider Participationnon-equity incentive plan compensation (and excluded change in pension value). Using this analysis, our named executive officers had an average compensation that was less than all but four of the companies in our peer group, with an average compensation per named executive officer of approximately $856,000 versus the average compensation per named executive officer of the median of our peer group of approximately $1.3 million. For 2013, our CEO’s total compensation was approximately 63 percent of the median total compensation of CEOs in our peer group.
During 2013, Stephen P. Adik, Julia L. Johnson, Philip L. MasloweThese analyses demonstrate that, on average, we currently are below the middle of the competitive range. We also are cognizant of prevailing economic conditions, internal pay equity, and Denton Louis Peoples served on our HR Committee. Each is an independent member as defined by NYSE corporate governance listing standards. None of these individuals who served as members ofexecutive turnover, which our HR Committee during takes into account when determining executive compensation.
Internal Pay Equity and Wealth Accumulation
We believe our executive compensation program must be internally consistent and equitable to motivate our employees to create stockholder value. We are committed to internal pay equity, and the HR Committee monitors the relationship between the compensation of our executive officers and the compensation of our non-managerial employees. In 2014, the HR Committee reviewed a comparison of CEO pay (base salary and incentive compensation) to the pay of all our employees. The compensation for our CEO in 2014 was approximately 24 times the median pay of our full-time employees.
Our CEO to median employee pay ratio calculation includes all components of compensation available to our CEO and the median employee, as summarized in the table below. We have included incentive compensation in the calculation at the targeted level (2013i.e. are officers or employees or former employees, 100 percent of the company orincentive). Our calculation includes full-time employees and excludes part-time employees. The calculation also excludes benefits (which do not differ materially between executives and employees generally) and any overtime pay that the median employee may receive.
   
President
and CEO
 Median Employee
2014 Base Salary $561,389
 $77,938
Annual Cash Incentive    
 Percent of base salary 80% 6%
 Targeted annual cash incentive $449,111

$4,676
Performance Unit Awards under
Long-Term Incentive Program
    
 Percent of base salary 150% —%
 Targeted long-term incentive $842,084
 $—
Restricted Share Grants under
Executive Retention / Retirement Program
    
 Percent of base salary 25% —%
 Targeted executive retention / retirement incentive $140,347
 $—
2014 Total Target Direct Compensation $1,992,931
 $82,614
     
Pay as Multiple of Median Employee 24 1
The HR Committee reviews annually the wealth accumulation of its subsidiaries.our executives, considering all of the elements of total compensation paid to each executive officer during the prior five-year period, including base salaries, annual cash incentive bonuses, the value of long­-term incentive awards and any special payments made to an individual executive. The HR Committee also reviews the projected value of each executive officer’s accumulated equity grants over the subsequent five-year period based upon various stock appreciation and “stay to normal retirement” scenarios. This is done to analyze not only the amount of compensation each executive officer has accumulated to date, but also to better understand how current equity grants may affect the amount of wealth the executive officers accumulate in the future.

31
Compensation Discussion & Analysis


Components of Executive Compensation for 2014
The primary components of total compensation for our executive officers for 2014 were:
●Base Salary
●Annual performance-based cash incentive awards; and
●Long-term performance-based equity incentive awards in the form of performance units and ERRP restricted share units.
The HR Committee believes these compensation components align the interests of our executives and our stockholders by basing a significant portion of total compensation on performance and achievement of our short- and long-term goals. The specific mix among the individual components reflects market compensation arrangements and individual position and performance. Base salary represents 28 percent of our CEO’s targeted total compensation and, on average, 45 percent of our other named executive officers’ targeted total compensation. Performance-based awards (annual and long-term incentive) represent the remaining portion of targeted total compensation.
The HR Committee also believes that our executive compensation program appropriately mitigates the risk associated with incentive-based pay. The HR Committee has designed the entire program and the metrics under our annual and long-term performance-based incentive components to curb inappropriate risk taking. For example, we do not offer guaranteed bonuses. In addition, noour annual and long-term performance-based incentive awards utilize multiple performance metrics which vary from plan to plan, and rewards under those plans are aligned with the interests of our stockholders. If our stockholders benefit from our performance, our executive officerofficers are rewarded. Our ERRP restricted share units also benefit our long-term succession and strategic plan by providing for payment only after the recipient leaves employment with us, and then over a five-year period. Furthermore, we have limited severance packages, we do not maintain a non-performance-based supplemental executive retirement plan, and our retirement, healthcare, and welfare benefit programs for executives are generally the same as for all employees and are discussed in the “Compensation of NorthWestern or anyExecutive Officers and Directors” section of its subsidiaries served as a memberthis proxy statement. Finally, we maintain robust stock ownership guidelines. In light of these pay practices, the board orHR Committee believes that our executive compensation committee of any other entity.program appropriately address the risks associated with performance-based incentives.
Compensation Committee Report
The HR Committee reviewed and discussed the Compensation Discussion and Analysis with management. Based on this review and discussion, the HR Committee recommended to the Board that the Compensation Discussion and Analysis be included in the proxy statement and incorporated by reference into the Annual Report on Form 10-K for the year ended December 31, 20132014.
Human Resources Committee
Philip L. Maslowe, ChairmanDana J. Dykhouse, Chairman*
Stephen P. Adik
Julia L. Johnson
Denton Louis Peoples
*Phil Maslowe was the long-standing chair of our HR Committee. Following his passing, the Chairman of our Board assumed the responsibilities through the end of 2014, and Mr. Dykhouse became HR Committee Chair, effective January 1, 2015.
Compensation Discussion and Analysis
The Compensation Discussion and Analysis (CD&A) describes our executive compensation programs, including the oversight of such programs by the HR Committee of our Board and the rationale and processes used to determine the 2014 compensation of our executive officers. This includes the objectives and specific elements of our compensation program, including cash compensation, equity compensation, and post-termination compensation. This CD&A, which may include forward-looking statements, should be read together with the compensation tables and related disclosures that follow this section. For ease of reference, a table of contents specific to this CD&A follows.
CD&A Table of ContentsPage
Executive Summary21
2014 Results21
Compensation Practices23
Compensation Components24
Pay for Performance25
Value Provided to Stockholders25
Performance Relative to Our Peers26
Peer Group for 201426
Say-on-Pay Results28
Governance of Our Executive Compensation Program28
Human Resources Committee28
Compensation Consultant29
Decision-Making Process and Role of Executive Officers29
Targeted Overall Compensation and Competitive Analysis29
Compensation Philosophy29
Compensation Consultant Data and Analysis30
Internal Pay Equity and Wealth Accumulation31
Components of Executive Compensation for 201432
Base Salary32
Annual Cash Incentive Awards33
Long-Term Performance-Based Equity Awards under the Equity Compensation Plan37
2014 Long-Term Incentive Program Performance Unit Grants38
2014 Executive Retention / Retirement Program Restricted Share Grants39
Vesting of 2012 Long-Term Incentive Program Performance Unit Grants in 201440
Other Compensation Policies41
Stock Ownership Guidelines41
Retirement and Other Benefits41
Severance and Post-Termination Benefits42
Non-Qualified Deferred Compensation42
No Employment Agreements42
Tax Treatment of Certain Compensation42

4420
Compensation Discussion and Analysis




This CD&A is organized into the following sections:
Executive Summary— Highlights of our 2014 executive compensation program and results.
Pay for Performance — How our pay and performance, relative to our peers, provides value to our stockholders.
Say-on-Pay Results — Details about our Board's consideration of prior shareholder voting results concerning executive compensation.
Governance of Our Executive Compensation Programs — How our HR Committee oversees our executive compensation program.
Targeted Overall Compensation and Competitive Analysis — How our HR Committee determined 2014 compensation levels.
Executive CompensationComponents — Details about our 2014 executive compensation program.
Other Compensation Policies — Information on other aspects of our compensation philosophy.
Executive Summary
2014 Results
In 2014, we continued to show strong operating results, which have translated into returns for our stockholders. We achieved our best ever safety results and customer satisfaction rating, while providing our customers with reliable service and our stockholders with returns among the industry leaders.
●Our net income grew 28.3 percent to $120.6 million in 2014 from $94 million in 2013.
●For the five-year period ending in 2014, our total shareholder return (TSR) was 167.4 percent, a return that significantly outperformed the S&P 500 index (105 percent) and the S&P utility index (87 percent) over that same time period.
●Of the 48 utilities that appear in the Edison Electric Institute’s Utility Index, we are the only company with a TSR in the top ten for the one-, two-, three- and five-year periods ending December 31, 2014.
●Our return on average equity (ROAE) has averaged 10.4 percent over the last three years.
●For 2014, our TSR was 35 percent, which was considerably better than the industry as a whole (S&P utility index 29 percent).
●
In 2014, we paid an annual dividend of $1.60 per share, which provided a dividend yield of approximately 2.8 percent, based on our closing stock price of $56.58 per share on December 31, 2014.
We were able to continue to achieve these strong operating results during 2014, while simultaneously completing the acquisition of 11 hydroelectric facilities, related assets, and one storage reservoir located in Montana for a purchase price of approximately $900 million (the Hydro Transaction). In 2013 and 2014, we dedicated significant management and other resources to the Hydro Transaction to (1) ensure a smooth operational transition of the assets, (2) obtain state and federal regulatory approval of the transaction, and (3) secure financing for the acquisition.

21
Compensation Discussion & Analysis


In spite of this strong operating performance and completion of the Hydro Transaction, the overall compensation of our executives ranks near the bottom of our peer group, which is identified on page 26 of this proxy statement. In summary, for 2013 (the most recent year for which our peer group executive compensation is publicly available):
●Our named executive officers had an average compensation (as published in the 2014 proxy statement Summary Compensation Table for each respective company, excluding change in pension value) that was less than all but four of the other 14 companies in our peer group, with our average compensation per named executive officer of approximately $856,000 versus our peer group median average compensation per named executive officer of approximately $1.3 million.
●Our CEO’s total compensation was approximately 63 percent of the median total compensation of CEOs in our peer group.
Relative to our peers, we are providing strong financial results, with our TSR over the past one- and three-year periods in the top quartile. Meanwhile, our CEO pay has been among the lowest in our peer group, ranking third lowest over the same periods. Later in this CD&A, we provide additional details concerning (1) the compensation of our executives in comparison to our peers as summarized above, (2) the graphics below, and (3) the members of our peer group.
3-YEAR
3rd Lowest CEO Pay2nd Highest TSR
                                    of 15 Peers                         of 15 Peers
1-YEAR
3rd Lowest CEO Pay3rd Highest TSR
                                    of 15 Peers                         of 15 Peers
We consider our executive compensation program to be instrumental in helping us achieve our business objectives and effective in rewarding our executive officers for their role in achieving strong financial and operational performance. Based on our performance and our compensation outcomes, we are requesting your support of Proposal No. 3 — Advisory Vote to Approve Named Executive Officer Compensation.

22
Compensation Discussion and Analysis




Our overarching philosophy concerning executive compensation is that it should be structured to be market competitive and to align the long-term interests of our executives, our stockholders and our customers so that the compensation appropriately reflects performance in achieving financial and non-financial operating objectives. In order to live up to our philosophy, we believe that a significant portion of an executive’s compensation should be “at-risk” in the form of performance-based incentive awards that are paid, if earned, as a result of individual and company performance.
Our executive compensation program is designed to:
●Attract and retain a high-quality executive team by providing competitive compensation and benefits that reflect our financial and operational size;
●Reward executives for both individual and company performance (based on financial, reliability, customer care, and safety metrics) through performance-based, at-risk compensation; and
●Maximize long-term stockholder value by putting a significant emphasis on:
●financial performance, reliability, safety, and customer satisfaction; and
●annual and long-term at-risk, performance-based compensation.
Compensation Practices
Our executive compensation program accomplishes our goals by incorporating certain compensation practices while avoiding other, more problematic or controversial compensation practices.
What We Do
●Place a significant portion of executive compensation at risk in the form of incentive awards that are paid, if earned, based on continuing annual and long-term individual and company performance.
●Utilize multiple performance metrics for long-term incentive awards that align executive and stockholder interests.
●Target executive compensation around the median of our peers, while also considering trade area economics, turn-over, tenure, experience, and other factors.
What We Don’t Do
●Use employment or golden parachute agreements.
●Provide change in control payments exceeding three times base salary and target bonus. Our only change in control provision appears in the NorthWestern Corporation Amended and Restated Equity Compensation Plan (Equity Compensation Plan) and provides for the immediate vesting or cash payment of any unvested equity awards upon a change in control.
●Grant stock options. No stock options are currently outstanding, and none have been issued under our Equity Compensation Plan.
●Allow option repricing or liberal share recycling. Each of these compensation practices are expressly prohibited under our Equity Compensation Plan.
●Promise multi-year guarantees for salary increases.
●Provide perquisites for executives that differ materially from those available to employees generally.
●Maintain non-performance-based top hat plan or separate retirement plan available only to our executive officers. We do maintain a performance-based executive retirement / retention program, with five-year cliff vesting and a five-year payout period after the recipient’s separation from service.
●Pay tax gross-ups to our named executive officers.
●Pay dividends or dividend equivalents on unvested performance shares or units.
●Allow our executives or directors to hedge or pledge company securities.

23
Compensation Discussion & Analysis


Compensation Components
For 2014, our executive compensation package included the same components as in 2013 — base salary, annual cash incentive awards, and long-term equity incentive stock awards. All of the incentive awards (annual and long-term) were performance-based. The annual incentive award utilized financial and operational measures and were issued under our annual incentive plan. The long-term incentive stock awards were issued under our Equity Compensation Plan, targeted multi-year financial performance goals, and consisted of two components. The first component, our long-term incentive program (LTIP), was an award of performance units that cliff vest after a three-year performance period tied 50 percent to TSR (relative to our peer group) and 50 percent to earnings per share (EPS) growth and ROAE. The second component, executive retirement / retention program (ERRP), was an award of restricted share units that cliff vest after a five-year performance period that is tied to improved net income and, if earned, will be paid out over a five-year period after the executive separates from service with the company. Unlike many other companies, we do not offer a non-performance-based supplemental executive retirement plan.
ComponentDescriptionWhy we include this componentHow we determine amountDecisions for 2014
Reason for
Change
Base
Salary
Short-term fixed cash compensation
Provide a base level of compensation for executive talentTarget middle of competitive range of peer group, with adjustments for trade area economics, turnover, tenure, and experienceConsistent with the salary adjustment generally provided to all employees, executives received a three percent increase to base salary for 2014To remain market competitive and provide cost of living adjustment
Annual
Cash
Incentive
Short-term variable cash compensation, based on corporate performance against annually established metrics (financial, safety, reliability, and customer satisfaction) and individual performance
Motivate employees to meet and exceed annual company objectives that are part of our strategic planTarget middle of competitive range of peer group, with adjustments for trade area economics, turnover, tenure, and experienceOne executive received a 12.5 percent increase to annual cash incentive target; targets unchanged for other executivesTo increase the compensation opportunity for a strategic position to align with market median
Added natural gas reliability metrics and additional customer satisfaction metricsTo appropriately motivate employees serving our natural gas customers and to capture customer viewpoints from independent custom survey results
Performance Unit Awards under
Long-Term Incentive Program (LTIP)
Long-term variable equity compensation, paid following three-year vesting period if corporate performance metrics (EPS, ROAE, and TSR) are achieved
Provide market-competitive, performance-based compensation opportunities while aligning interests of executives and stockholdersMarket survey of similar peer group roles and responsibilities and assessment of the strategic value of each positionIncreased target opportunity for three executivesTo increase the compensation opportunity for strategic positions to align with market median
Changed one of three performance measures to earnings per share instead of net incomeTo align performance results with the experience of equity investors and to capture the dilutive impact of additional equity to finance the hydro and any future transactions
Restricted Share Grants under Executive Retention / Retirement Program (ERRP)
Long-term variable, equity compensation, with corporate performance metrics over a five-year vesting period; paid over five-year period following separation from service
In lieu of a non-performance based supplemental retirement benefit, provide market-competitive, performance-based compensation opportunity that aligns interests of executives and stockholders, while encouraging retention and the continuity of our strategic planPeer group and competitive survey data and judgment on internal equity of positions and scope of responsibilities, as well as an assessment of the strategic value of each positionTarget opportunities doubled for all executivesTo remain competitive with the market median for long-term incentive compensation opportunity

24
Compensation Discussion and Analysis




Pay for Performance
Our HR Committee has designed our compensation program to align pay with performance. Our executives are rewarded for providing value to stockholders and performing relative to our peer group, which is summarized on page 26 of this proxy statement.
Value Provided to Stockholders
As highlighted above in the Executive Summary of this CD&A, the value we have provided to our stockholders over the past one-, two-, three- and five-year periods has been among the industry leaders and, for the past five years, has surpassed the S&P 500 index and the S&P utility index. An investment
in our stock of $100 at the beginning of 2014 would have turned into $135 by the end of 2014.
These results we achieved for our stockholders are consistent with the results obtained under our incentive plans. With respect to our annual cash incentive plan for 2014, our financial results combined with the results of our reliability, safety, and customer satisfaction goals resulted in a 125 percent funding of our annual incentive target for 2014.
The grants of long-term performance units that were made in 2012 vested on December 31, 2014. The performance measures associated with those grants were measured over a three-year
RESULT OF INVESTING $100 IN
NORTHWESTERN STOCK FOR 2014
vesting period and were tied to net income growth, ROAE, and TSR. The company had solid results over the three-year vesting period, attaining 10.1 percent average net income growth, 10.4 percent ROAE, and 70.8 percent TSR. Our TSR ranked second highest when compared with our 14 other peer companies. Based on these results, the awards paid out at 168.4 percent of target.
The chart below shows the total return on an investment made over that same three-year vesting period and highlights our stock price performance with the S&P 500 and our peer group. Total return is computed assuming reinvestment of dividends.
3 YEAR TSR

25
Compensation Discussion & Analysis


The charts below provide another example of pay for performance by illustrating the directional relationship between the compensation of our CEO and company performance over a five-year period based on the three performance metrics utilized in our LTIP performance units.
5-YEAR CEO PAY ALIGNMENT
 VS. NET INCOMEVS. ROAEVS. CUMULATIVE TSR
Net Income is stated in millions. TSR illustrates the growth of $100 invested in our common stock on December 31, 2009, assuming reinvestment of dividends. CEO Compensation is total compensation (excluding change in pension value) as published in the proxy statement Summary Compensation Table. In 2011, 2012, and 2013, the CEO received the same adjustment to base pay for which other non-represented employees were eligible. The CEO first received a long-term stock-based incentive in 2012 (for the 2009-2011 plan), and has participated in the plan since then.
Performance Relative to Our Peers
As detailed below, relative to our peers, we are producing high performance for low pay. Over the past three years, our TSR is in the first quartile of our peer group, while our CEO’s compensation falls to the low end of the peer group range in the fourth quartile. In addition, the aggregate compensation provided to our named executive officers and the pay multiple of our CEO to the second highest paid named executive officer both lag the median of our peer group.
We also provide value to shareholders by maintaining a relatively small executive team. We currently have nine members on our executive team. As of the record date, three of our 14 peers also have nine executives, eight of our peers have larger executive teams of ten or more members, and three of our peers have fewer than nine executive officers. We believe that having a relatively small executive team creates efficiencies and a stronger team that is more effective as a group.
Peer Group for 2014
ALLETE, Inc.Empire District Electric CompanyPortland General Electric Company
Avista Corp.Great Plains Energy IncorporatedUIL Holdings Corporation
Black Hills CorporationIDACORP, Inc.Vectren Corporation
Cleco CorporationMGE Energy Inc.Westar Energy, Inc.
El Paso Electric Co.PNM Resources Inc.
Our HR Committee, in consultation with its independent compensation consultant, selects the members of our peer group and periodically examines whether the members continue to meet the criteria for inclusion. The HR Committee uses the following financial criteria to select our peer group: (1) a market capitalization of less than $3 billion, (2) total revenue between $100 million and $5 billion, and (3) energy-related revenue of at least 75 percent of total revenue. The HR Committee also requires that peer group companies either be located near our existing service territory or have both electric and gas customers.
For 2014, we removed one company, Unisource Energy Corporation, from our peer group because it was acquired by another company.

26
Compensation Discussion and Analysis




The following pay-for-performance charts and tables below reflect relative values for CEO pay and TSR of us and our peers that are expressed as a percentage of the highest value in the category. The charts and tables demonstrate that, over the past three years, our CEO is generally being compensated at a lower level than the CEOs of our peers (in the fourth quartile), while leading strong performance for stockholders (in the first quartile) relative to our peers.
Datapoints within the shaded pay-for-performance alignment band reflect a strong correlation between pay and performance. Datapoints to the left and above the band suggest lower pay for higher performance; while those to the right and below the band suggest higher pay for lower performance.
CEO PAY FOR PERFORMANCE VS. PEERS
1-YEAR3-YEAR
Relative 1-Year CEO Pay* Relative 1-Year TSR* Relative 3-Year CEO Pay* Relative 3-Year TSR*
Vectren Corporation100% El Paso Electric Co.100% Cleco Corporation100% PNM Resources Inc.100%
Cleco Corporation99% Vectren Corporation96% PNM Resources Inc.94% NorthWestern Corporation100%
Great Plains Energy89% NorthWestern Corporation96% Great Plains Energy93% Black Hills Corporation98%
UIL Holdings Corporation88% Westar Energy, Inc.91% Vectren Corporation86% Vectren Corporation96%
Avista Corp.77% IDACORP, Inc.87% UIL Holdings Corporation75% IDACORP, Inc.93%
PNM Resources Inc.77% Avista Corp.84% Avista Corp.71% Portland General Electric87%
Black Hills Corportation74% Portland General Electric81% El Paso Electric Co.68% Westar Energy, Inc.82%
Westar Energy, Inc.72% PNM Resources Inc.72% Westar Energy, Inc.66% El Paso Electric Co.80%
IDACORP, Inc.68% MGE Energy Inc.60% IDACORP, Inc.66% MGE Energy Inc.78%
Portland General Electric62% Great Plains Energy59% Black Hills Corporation64% Cleco Corporation74%
ALLETE, Inc.48% Cleco Corporation56% Portland General Electric56% Avista Corp.74%
El Paso Electric Co.46% UIL Holdings Corporation48% ALLETE, Inc.44% ALLETE, Inc.63%
NorthWestern Corporation45% Empire District Electric48% NorthWestern Corporation40% Great Plains Energy61%
Empire District Electric34% ALLETE, Inc.41% MGE Energy Inc.29% UIL Holdings Corporation54%
MGE Energy Inc.31% Black Hills Corportation11% Empire District Electric21% Empire District Electric35%
         
* Expressed as a percentage of the highest value in the category.
Source: CEO Pay for the one-year period is the 2013 total compensation and for the three-year period is the 2011-13 total compensation, as published in the, as applicable, 2012, 2013, and 2014 proxy statement Summary Compensation Tables for each respective company. We have excluded any change in pension value from the total compensation calculation because its inclusion could lead to inconsistent comparisons from company to company based upon differing pension plan provisions, length of employee tenure, and other factors. Total Stockholder Return is from SNL Financial for the one- and three-year periods ended December 31, 2014.

27
Compensation Discussion & Analysis


As with our CEO’s total compensation package, the total compensation provided to our named executive officers, as a group, relative to our peers also demonstrates a strong pay-for-performance alignment for our stockholders. As shown in the charts below, our named executive officer group lags the median total compensation provided to our peer group named executive officers. The summary also depicts that the multiple of our CEO’s compensation compared with our next most highly compensated named executive officer is significantly less than our peer group median.
NAMED EXECUTIVE OFFICER PAY VS. PEERSPAY MULTIPLE OF CEO TO SECOND HIGHEST PAID NAMED EXECUTIVE OFFICER
Source: Total compensation (excluding change in pension value) as published in the proxy statement summary compensation table for each respective company. We excluded change in pension value because its inclusion could lead to inconsistent comparisons from company to company based upon differing pension plan provisions, length of employee tenure, and other factors.
Say-on-Pay Results
At our annual meeting in 2014, we asked our stockholders to approve, on an advisory basis, a say-on-pay resolution regarding the compensation of our named executive officers as disclosed in the proxy statement for that meeting. Our say-on-pay resolution and the 2013 compensation of our named executive officers was approved by 94.7 percent of the shares present and entitled to vote on the matter.
The HR Committee and the full Board reviewed the voting results received at the 2014 annual meeting concerning our say-on-pay resolution and have taken the results into account when establishing compensation for the named executive officers for 2015. The HR Committee believes the results from our 2014 annual meeting affirm our stockholders’ support of the company’s approach to executive compensation. Thus, we believe our executive compensation programs appropriately align the long-term interests of management and our stockholders.
Governance of Our Executive Compensation Program
Human Resources Committee
The HR Committee, composed solely of independent directors, acts on behalf of and with the concurrence of the Board with respect to compensation, benefits, and other employment matters for executives; stock-based compensation plans for employees; the election and appointment of executive officers and other officers; the assessment of the performance of the CEO; and the compensation of non-employee members of the Board. The HR Committee considers several factors including but not limited to (1) the desire to align management (and employee) interests with those of stockholders and customers, (2) the desire to link management pay to both annual and long-term performance, (3) the need to attract talent from both within and outside the utility industry, (4) economic circumstances including turnover and retention considerations, (5) pay for performance (financial and operational) in all areas of compensation, and (6) executives participate in same base plans available to all non-union employees, with no additional perquisites — all of which ultimately influence our executive compensation program.

28
Compensation Discussion and Analysis




Compensation Consultant
In its governance of our executive compensation program, the HR Committee works with an independent compensation consultant, Towers Watson, and, to a lesser extent, our CEO and CFO. Towers Watson, who reports directly to and is retained directly by the HR Committee, advises the HR Committee on an ongoing basis with regard to the general competitive landscape and trends in compensation and executive and director compensation matters, including (1) competitive analysis, (2) incentive plan design, (3) updates on trends in executive and director compensation, (4) peer group composition, and (5) handling other matters requested by the HR Committee. A Towers Watson representative attends meetings of the HR Committee as necessary and communicates directly with the chairman of the HR Committee.
Decision-Making Process and Role of Executive Officers
The HR Committee works with Towers Watson to analyze competitive market data to determine appropriate base salary levels, annual incentive target levels, and long-term incentive target levels for all of our executive officers. With respect to our CEO’s compensation, the HR Committee conducts an annual performance assessment of the CEO and determines appropriate adjustments to all elements of his total compensation based on individual and company performance, taking into consideration our CEO’s preference to have a larger percentage of his pay be at-risk in the form of performance-based compensation and his overall compensation to be below the median of his peers. For the other executive officers, the CEO and CFO make recommendations to the HR Committee for all elements of compensation based on individual performance, market data from our peer group and published survey data. The HR Committee reviews, discusses, modifies, and approves, as appropriate, these compensation recommendations. The HR Committee recommends both CEO and executive officer compensation to the Board for approval. The CEO is not a member of the HR Committee and does not vote on Board matters concerning executive compensation.
Targeted Overall Compensation and Competitive Analysis
Compensation Philosophy
We target base salary, annual cash incentive awards, and long-term equity grants, as well as total compensation, to be market competitive for our executive officers. However, because comparative data is one of several tools that are used in determining executive officer compensation, competitiveness of compensation may fluctuate based on:
●The level of achievement of our pre-established performance goals;
●Our TSR compared against our peer group;
●Individual performance and scope of job responsibilities;
●Internal equity considerations;
●Market competitiveness and internal executive turnover; and
●The executive’s industry and position experience and tenure.
In order to appropriately align the long-term interests of our executives, stockholders, and customers, we structure our executive compensation so that a significant component of an executive’s compensation is at risk in the form of performance-based incentive awards. Our HR Committee and Board establish metrics for our performance based incentive awards that, in general, are more difficult to achieve than our peers, based
on an analysis our independent compensation consultant conducted. This structure influences our executives to focus on both short- and long-term performance and provides a reward to our executives, stockholders, and customers when we achieve both our financial and operating objectives.
The target compensation mix for our named executive officers changed in 2014 from 2013. As part of the overall compensation package for our named executive officers in 2014, our HR Committee increased the targeted long-term incentive opportunity for three of our named executive officers as described below in the 2014
Performance Unit Grants section. The result of these changes to the target compensation mix was an increase in the percentage of at-risk compensation for all of our named executive officers to 63 percent from 60 percent.

29
Compensation Discussion & Analysis


For our CEO, 72 percent of the overall targeted compensation (base salary and targeted annual and long-term incentives) relates to performance-based incentive awards. For our named executive officers other than the CEO, that percentage averages 55 percent. The charts below depict the target total compensation mix for our CEO and the average of our other named executive officers.
CEO PAY MIX
OTHER NAMED EXECUTIVE OFFICER
AVERAGE PAY MIX
Charts represent target level for each component of compensation.
Compensation Consultant Data and Analysis
As a component of the HR Committee’s review of executive compensation matters, Towers Watson provides an analysis of the pay levels of a peer group, as well as published survey data that focuses on the energy and  utility industry, which is size-adjusted based on our revenues for appropriate market comparison. For 2014, the published survey data included the Towers Watson Compensation DataBank, William M. Mercer’s Executive Benchmark Database and Towers Watson Survey Report on Top Management Compensation. The peer group data is a primary basis for setting compensation for our CEO and CFO because these positions are common among our peers. Both the peer group and survey data are analyzed and considered in setting compensation levels for the remaining named executive officers because these positions or division of responsibilities may not be common among each of our peers.
For long-term incentive purposes, Towers Watson performs its analysis using the published survey data and focuses on companies in the energy services industry, specifically with annual revenues less than $3 billion. The HR Committee considers the responsibilities of the job performed by each of our executive officers and
his or her performance, and adjusts each executive’s targeted compensation amounts accordingly. As further detailed below, internal comparison with other officer positions also is considered.
In addition to these efforts, Towers Watson prepares an analysis of market data compiled from the Towers Watson Compensation DataBank for energy services executives. The analysis examines the target direct compensation opportunity for energy services executives, including base salary, target annual incentives, and the expected value of long-term incentives. Using regression analysis, Towers Watson size-adjusts the data to reflect our revenue scope.
Based on Towers Watson’s analysis and as illustrated in the chart to the right, the direct compensation opportunity for our highest-paid employees is below the market median of the direct compensation opportunity for the highest-paid employees for energy services companies. For the top five highest-paid employees, our employees’
AGGREGATE COMPENSATION OPPORTUNITY
FOR HIGHEST-PAID EMPLOYEES
*Top 5 is based on 2014 proxy data of energy services companies. Top 10, Top 15, and Top 20 are based on a survey of energy services companies completed by Towers Watson. Values exclude any change in pension value.

30
Compensation Discussion and Analysis




compensation opportunity is 63 percent of the median; while our top 10, 15, and 20 highest-paid employees have a compensation opportunity that is 69 percent, 68 percent and 68 percent, respectively, of the median.
We also conducted a separate analysis of the 2013 executive compensation of the 14 other companies in our peer group. This internal analysis, which was based on proxy data, examined base salary, bonus, other annual compensation, equity awards, and non-equity incentive plan compensation (and excluded change in pension value). Using this analysis, our named executive officers had an average compensation that was less than all but four of the companies in our peer group, with an average compensation per named executive officer of approximately $856,000 versus the average compensation per named executive officer of the median of our peer group of approximately $1.3 million. For 2013, our CEO’s total compensation was approximately 63 percent of the median total compensation of CEOs in our peer group.
These analyses demonstrate that, on average, we currently are below the middle of the competitive range. We also are cognizant of prevailing economic conditions, internal pay equity, and executive turnover, which our HR Committee takes into account when determining executive compensation.
Internal Pay Equity and Wealth Accumulation
We believe our executive compensation program must be internally consistent and equitable to motivate our employees to create stockholder value. We are committed to internal pay equity, and the HR Committee monitors the relationship between the compensation of our executive officers and the compensation of our non-managerial employees. In 2014, the HR Committee reviewed a comparison of CEO pay (base salary and incentive compensation) to the pay of all our employees. The compensation for our CEO in 2014 was approximately 24 times the median pay of our full-time employees.
Our CEO to median employee pay ratio calculation includes all components of compensation available to our CEO and the median employee, as summarized in the table below. We have included incentive compensation in the calculation at the targeted level (i.e., 100 percent of the incentive). Our calculation includes full-time employees and excludes part-time employees. The calculation also excludes benefits (which do not differ materially between executives and employees generally) and any overtime pay that the median employee may receive.
   
President
and CEO
 Median Employee
2014 Base Salary $561,389
 $77,938
Annual Cash Incentive    
 Percent of base salary 80% 6%
 Targeted annual cash incentive $449,111

$4,676
Performance Unit Awards under
Long-Term Incentive Program
    
 Percent of base salary 150% —%
 Targeted long-term incentive $842,084
 $—
Restricted Share Grants under
Executive Retention / Retirement Program
    
 Percent of base salary 25% —%
 Targeted executive retention / retirement incentive $140,347
 $—
2014 Total Target Direct Compensation $1,992,931
 $82,614
     
Pay as Multiple of Median Employee 24 1
The HR Committee reviews annually the wealth accumulation of our executives, considering all of the elements of total compensation paid to each executive officer during the prior five-year period, including base salaries, annual cash incentive bonuses, the value of long­-term incentive awards and any special payments made to an individual executive. The HR Committee also reviews the projected value of each executive officer’s accumulated equity grants over the subsequent five-year period based upon various stock appreciation and “stay to normal retirement” scenarios. This is done to analyze not only the amount of compensation each executive officer has accumulated to date, but also to better understand how current equity grants may affect the amount of wealth the executive officers accumulate in the future.

31
Compensation Discussion & Analysis


Components of Executive Compensation for 2014
The primary components of total compensation for our executive officers for 2014 were:
●Base Salary
●Annual performance-based cash incentive awards; and
●Long-term performance-based equity incentive awards in the form of performance units and ERRP restricted share units.
The HR Committee believes these compensation components align the interests of our executives and our stockholders by basing a significant portion of total compensation on performance and achievement of our short- and long-term goals. The specific mix among the individual components reflects market compensation arrangements and individual position and performance. Base salary represents 28 percent of our CEO’s targeted total compensation and, on average, 45 percent of our other named executive officers’ targeted total compensation. Performance-based awards (annual and long-term incentive) represent the remaining portion of targeted total compensation.
The HR Committee also believes that our executive compensation program appropriately mitigates the risk associated with incentive-based pay. The HR Committee has designed the entire program and the metrics under our annual and long-term performance-based incentive components to curb inappropriate risk taking. For example, we do not offer guaranteed bonuses. In addition, our annual and long-term performance-based incentive awards utilize multiple performance metrics which vary from plan to plan, and rewards under those plans are aligned with the interests of our stockholders. If our stockholders benefit from our performance, our executive officers are rewarded. Our ERRP restricted share units also benefit our long-term succession and strategic plan by providing for payment only after the recipient leaves employment with us, and then over a five-year period. Furthermore, we have limited severance packages, we do not maintain a non-performance-based supplemental executive retirement plan, and our retirement, healthcare, and welfare benefit programs for executives are generally the same as for all employees and are discussed in the “Compensation of Executive Officers and Directors” section of this proxy statement. Finally, we maintain robust stock ownership guidelines. In light of these pay practices, the HR Committee believes that our executive compensation program appropriately address the risks associated with performance-based incentives.
Base Salary
The general guideline for determining salary levels for our executive officers, including the CEO, is to be around the middle of the competitive range, adjusted for other factors such as trade area economics, turn-over, tenure, and experience. Adjustments from market levels are made based on experience in the position, industry experience, and individual performance and responsibilities. While we are cognizant of the competitive range, our primary goal is to compensate our executives at a level that best achieves our compensation philosophy, whether or not this results in actual pay for some positions that may be higher or lower than the market median. We find that survey results for particular positions can vary from year to year. Thus, we consider market trends for certain positions over a period of several years rather than a one-year period in setting compensation for such positions.
The HR Committee considers adjustments to base salaries for the executive officers on an annual basis. For 2014, the HR Committee felt that an increase to the base salaries of our executive officers in line with the industry average and the increases provided to our employees generally was reasonable in light of the
company’s strong operating results and increased stockholder returns in 2013. The HR Committee also considered that our executive officer base salaries remained below the median compensation of our peers even with the increase. The table to the right sets forth the base salaries for our named executive officers. The base salary adjustments for 2014 were effective April 1, 2014.        
   Annualized Base Salary 
Increase
(%)
 Name 
2014
($)
 
2013
($)
 
 Robert C. Rowe 561,389
 545,038
 3.00
 Brian B. Bird 368,280
 357,553
 3.00
 Heather H. Grahame 335,127
 325,366
 3.00
 Curtis T. Pohl 263,853
 256,168
 3.00
 Kendall G. Kliewer 243,414
 236,324
 3.00

32
Compensation Discussion and Analysis




Annual Cash Incentive Awards
The overall design of our 2014 annual incentive plan was the same as our previous year’s plan. However, as described in detail in the annual incentive plan performance metrics discussion below, the HR Committee included additional performance metrics in 2014, with the addition of two reliability metrics related to our natural gas business and two new customer satisfaction metrics.
Annual cash incentive awards are used to motivate employees to meet and exceed annual company objectives that are a part of our strategic plan. All regular, non-represented employees, including executive officers, participate in the same plan described in this section, and regular, represented employees participate in a separate, but similar, management-designed program. Actual payouts for annual cash incentive awards reflect both (1) company performance based on financial and operational measures and (2) the employee’s individual performance.
There are four factors that determine the amount of the final payout under the annual incentive plan:
(1)Base salary;
(2) Target incentive percentage of base salary;
(3)The annual incentive plan funding percentage (based on financial, safety, reliability, and customer care performance metrics); and
(4)The individual’s performance multiple.
Actual payouts of annual cash incentive awards are calculated pursuant to the following formula:
Each year, the HR Committee approves a target incentive percentage of base salary for each executive based on the internal and external factors previously noted. Management also annually proposes specific performance targets for the company’s financial and operational measures, which are reviewed, and, after considerable discussion and usually some modification, approved by the HR Committee as well as the Board. At the end of the fiscal year, the HR Committee reviews data submitted by management on company performance against each of the specific performance targets and determines the degree to which each financial and operational measure was met during the year, subject to Board approval. The aggregate percentage of financial and operational measures met during the year represents the plan funding percentage for the annual incentive plan.
The funding (as a percentage of target) under the annual incentive plan has ranged from 94 percent to 108 percent for the four previous years, as set forth in the table to the right. Historical Funding (as a percentage of target)
 2010201120122013
 94%101%98%108%
The HR Committee may use discretion in increasing or decreasing the plan funding percentage from actual performance due to specific facts and circumstances, such as current economic conditions as well as unusual one-time events that significantly impact financial or non-financial results. The HR Committee exercises this discretion only for unusual, non-operational items. As described further below, each executive’s annual individual performance is then evaluated in order to determine a performance multiple, which is factored into the incentive payout calculation.
The target annual incentive opportunities for our executive officers are derived in part from peer group and competitive survey analysis data and in part by the HR Committee’s judgment on the internal equity of the positions, scope of job responsibilities, and the executives’ industry experience and tenure. Potential adjustments to the annual incentive target for the executive officers are considered by the HR Committee on an annual basis.

33
Compensation Discussion & Analysis


As reflected in the table to the right, our HR Committee adjusted the 2014 target annual incentive opportunity for one named executive officer by increasing the target opportunity to 45 percent from 40 percent. This adjustment was based upon a variety of factors including market competitiveness.
The HR Committee did not adjust the 2014 target annual incentive opportunity for any of our other named executive officers (or any of our other executive officers) because the HR Committee believed the annual incentive targets were appropriate and commensurate with the responsibilities of those executives. The table to the right sets forth the 2014 annual incentive opportunity for our named executive officers.        
   
Target Incentive Opportunity
(% of base salary)
 
Increase
(%)
 Name 2013 2014 
 Robert C. Rowe 80 80 —
 Brian B. Bird 50 50 —
 Heather H. Grahame 40 45 12.5
 Curtis T. Pohl 40 40 —
 Kendall G. Kliewer 35 35 —
        
As more fully described below, the actual amount of money available for awards (the award pool) is based on overall plan funding. Each year, the HR Committee determines funding of the award pool based on its assessment of overall company performance during the year, measured against pre-established financial and operational metrics.
The HR Committee determined that the metrics and relative weightings focus the organization on desired performance for the following reasons:
●
Net income, 55 percent of the funding opportunity – Net income was chosen as the financial metric because it is a financial measure that investors consider significant to evaluate company performance, and net income can be directly affected by individual employee and team performance.
●
Operational targets related to safety, reliability, and customer satisfaction, 45 percent of the funding opportunity – We believe that employee safety and providing reliable service to our customers’ satisfaction over the long term are critical to our customer commitment and regulatory obligations, which ultimately supports our financial goals and enhances stockholder value.
In order for any awards under the 2014 annual incentive plan to be earned and paid out, a minimum of 90 percent of the company’s budgeted net income target must have been attained, which coincides with the threshold net income target for the plan. This metric for determining performance against our financial goal is derived from our audited financial statements. However, the HR Committee, in its discretion, may consider certain items or events as unusual when determining performance against the metric and make what it deems to be appropriate adjustments. In addition, the 2014 annual incentive plan provided that the 2014 safety portion would be forfeited in the event of a work-related fatality, unless the HR Committee determined that no actions on the part of the employee or the Company contributed to the incident.Annual Incentive Plan Metrics
For 2014, based on company performance for all of the metrics, the annual incentive plan was funded at 125 percent of target. The narrative which follows highlights some of the results we achieved under the individual performance metrics, followed by a table with the specific results for each metric.
Net Income. In calculating performance under the net income metric, the HR Committee exercised its discretion to exclude two non-budgeted items from such calculation because the net income target is set at our budgeted net income.
●First, the HR Committee excluded the revenue and expenses we incurred in connection with our acquisition of hydroelectric facilities and related assets located in Montana, which closed on November 18, 2014. The effect of excluding these transaction-related items (approximately $4.1 million after tax) increased our net income for purposes of the annual incentive plan calculation.

34
Compensation Discussion and Analysis




●Second, the HR Committee excluded the tax benefit from the 2014 release of previously unrecognized tax benefits. The effect of excluding these tax benefits (approximately $12.6 million) decreased our net income for purpose of the annual incentive plan calculation.
If the HR Committee had not exercised its discretion to exclude these two non-budgeted items from net income, our annual incentive plan would have been funded at 131 percent, or six percent higher than the actual annual incentive plan funding of 125 percent. Thus, the HR Committee’s exercise of discretion resulted in a lower plan funding amount.
Safety. We achieved our best performance in company history from a safety perspective. Our two performance metrics – lost time incident rate and operation safety and health administration (OSHA) recordable rate – reflected our best historical safety performance, which is a tribute to the dedication and diligence of our employees to recognize the importance of working safely every day.
Reliability. Our ability to provide reliable utility service to our customers improved over prior years. Both of our electric reliability metrics exceeded target, while one of our gas reliability metrics exceeded target and the other fell short of target.
Customer Satisfaction. In 2014, we achieved our highest ever JD Powers overall customer satisfaction score. This independent verification of our efforts to serve our customers to their satisfaction is important. However, we failed to meet threshold on two separate, customer satisfaction measures.
The table that follows shows the associated performance metrics (including threshold, target, and maximum levels), weighting and plan payout percentage for each of the 2014 performance measures, which resulted in the plan funding at 125 percent of target.
  2014 Annual Incentive Plan Information
Performance Measures 
Weight
(% of Total Plan Payout)
 Performance Level Target % Achieved Final Funding % of Total
Threshold Target Maximum Actual Achieved
               
Financial (55%)              
   Net Income ($ in millions) (1) 55% $85.4 $94.9 $104.4 $112.2 139.5% 76.7
               
   Safety (15%) (2)              
Lost Time Incident Rate 7.5% 1.0
 0.8
 0.6
 0.5
 150.0% 11.3
Total Recordable Incident Rate 7.5% 2.8
 2.5
 2.2
 2.0
 150.0% 11.3
               
   Reliability (15%) (3)              
SAIDI (excluding major event days) 5.0% 120.0
 111.0
 101.0
 110.2
 104.2% 5.2
SAIDI (including major event days) 5.0% 192.0
 127.0
 113.0
 111.5
 150.0% 7.5
Gas -- Leaks per 100 Miles of Main 2.5% 8.0
 5.6
 4.7
 6.3
 85.4% 2.1
Gas -- Damages per 1000 Locates 2.5% 3.3
 2.7
 2.2
 2.2
 150.0% 3.8
               
   Customer Satisfaction (15%) (4)              
JD Power Residential Electric and
Gas Survey Performance Ranking
 5% 629
 640
 645
 649.4
 150.0% 7.5
Operational Performance –
Customer Survey by Flynn Wright
 5% 39.55
 40.32
 40.47
 38.5
 —% —
Reputational Perceptions –
Customer Survey by Flynn Wright
 5% 39.03
 39.82
 39.98
 38.6
 —% —
               
        TOTAL FUNDING PERCENTAGE  125%
(1)
Net Income. The actual net income achieved of $112.2 million excluded the impact from two significant non-budgeted items described above.
(2)
Safety. Safety performance is calculated by us and participating Edison Electric Institute (EEI) utilities as defined by Occupational Safety and Health Administration (OSHA). OSHA specifically defines what workplace injuries and illnesses should be recorded and, of those recorded, which must be considered lost time incidents. The threshold level for the safety measures represents our five-year average performance for these metrics, which is significantly above our EEI peer group average; the target level represents top tier performance for our EEI peer group and a 15 percent improvement over our five-year average performance for lost time incident rate and a ten percent improvement over our five-year average performance for total recordable incident rate; and the

35
Compensation Discussion & Analysis


maximum represents top tier performance for our EEI peer group, significant improvement over historical company performance, and is significantly higher than our EEI peer group average.
(3)Reliability.
SAIDI (excluding major event days). System Average Interruption Duration Index (SAIDI) is a system reliability index used by us and participating Institute of Electrical and Electronic Engineers, Inc., utilities to measure the duration of interruptions on a utility’s electric system. SAIDI indicates the total duration of interruption for the average customer during a predefined period of time. The threshold level for SAIDI, excluding major event days, represents first quartile performance within rural and suburban medium sized investor owned utilities; the target level represents a 20 percent improvement over the difference of the company’s five-year average results and the maximum level; and the maximum level is equal to the company’s best SAIDI performance (excluding major event days) in the last five years.
SAIDI (including major event days). The threshold for SAIDI, including major event days, represents first quartile performance within rural and suburban medium sized investor owned utilities; the target level represents a 20 percent improvement over the gap of the company’s five-year average results and the maximum level; and the maximum level is equal to the company’s best SAIDI, including major event days, in the last five years.
Leaks per 100 Miles of Main. This natural gas reliability metric assesses the overall performance of the company’s natural gas system. The threshold level represents second quartile performance as reported by the AGA; the target level represents a ten percent improvement over the company’s two-year average; and the maximum level represents a 25 percent improvement over the company’s two-year average.
Damages per 1000 Locates. This natural gas reliability metric assesses the effectiveness of the company’s programs to prevent damage to its natural gas system. The threshold level represents first quartile performance as reported in a leak reporting survey conducted by the American Gas Association (AGA); the target level represents a ten percent improvement over the company’s
two-year average; and the maximum level represents a 25 percent improvement over the company’s two-year average.
(4)Customer Satisfaction.
JD Power. One customer satisfaction metric is measured by the broadly utilized JD Power residential electric and gas customer satisfaction surveys and studies, which include the following components: communications, corporate citizenship, billing and payment, price, power quality and reliability (electric) or field service (gas) and customer service. The threshold level represents the company’s three-year average; the target level is an improvement of five points over 2013; and the maximum level is first quartile performance and is an improvement of ten points over 2013.
Flynn Wright Surveys. The remaining two customer satisfaction metrics are measured based on the results of a 2014 customer tracking survey conducted on our behalf by Flynn Wright. For both of these metrics, the threshold level represents the company’s baseline score from research conducted in 2013; the target level represents an improvement from 2013 that is statistically significant at the 90 percent confidence level; and the maximum level represents an improvement is statistically significant at the 95 percent confidence level.
Clawback of Annual Cash Incentive Awards
Although we have not adopted a formal clawback policy, the annual cash incentive awards are specifically made subject to any formal clawback policy that we may adopt in the future.
Individual Performance
The HR Committee analyzes the total mix of available information (including performance against any quantitative performance goals) on a qualitative and not strictly quantitative basis in making annual cash incentive determinations. Although actual performance measured against pre-established goals is the key component in determining both company and individual performance, the HR Committee may use judgment when determining whether company or individual goals have been attained.
For 2014, our net income increased by 28.3 percent over 2013, while our non-GAAP diluted adjusted earnings per share increased by 22 percent over 2013, adjusting for normal weather and other discrete events. Other significant achievements for 2014 included:
●Completion of the Hydro Transaction, which increased our rate base by approximately $870 million;
●Successfully accessing the capital markets to fund:
●The Hydro Transaction, by issuing approximately 7.77 million shares of common stock with net proceeds of approximately $386 million and $450 million of first mortgage bonds at 4.176 percent, maturing in 2044; and

36
Compensation Discussion and Analysis




●Growth projects, by issuing approximately 296,000 shares of common stock with net proceeds of approximately $13.4 million and $30 million of first mortgage bonds at 4.22 percent, maturing in 2044.
These efforts were successful due to the substantial efforts of our executive officers and many other employees across all departments of the company. As a result of the factors noted above, the HR Committee determined that it was appropriate to award each named executive officer (and the other executive officers) the annual cash incentive award as provided by the 2014 annual cash incentive plan,
without the addition of any performance multiplier. In addition, no named executive officer and no other executive officer received any supplemental compensation or incentive as a reward for the completion of the Hydro Transaction. Actual 2014 annual cash incentive awards for the named executive officers are reflected in the table to the right.        
 Name 
Annual Target Incentive as Percent of Base Salary
(%)
 
2014 Actual Incentive as Percent of Base Salary
(%)
 
Incentive Award
 ($)
 Robert C, Rowe 80 100.0 561,389
 Brian B. Bird 50 62.5 230,175
 Heather H. Grahame 45 56.3 188,509
 Curtis T. Pohl 40 50.0 131,927
 Kendall G. Kliewer 35 43.8 106,494
Long-Term Performance-Based Equity Awards Under the Equity Compensation Plan
We have used our Equity Compensation Plan to provide for the award of long-term, performance-based incentive awards to our executive officers. These performance-based awards help us achieve our compensation philosophy of being market competitive while simultaneously aligning the interests of our executives and stockholders.
The Equity Compensation Plan authorizes several types of stock-based awards, including restricted stock and a variety of performance-based awards. In 2014, the HR Committee granted two types of long-term, equity incentive awards to our executives under the Equity Compensation Plan: (1) LTIP performance units with cliff vesting after a three-year performance period; and (2) a smaller award of ERRP restricted share units with cliff vesting after a five-year performance period and a payout over five years following the executive’s separation from service with the company. All of these 2014 awards are performance-based and payable, if and when earned, in shares of our common stock.
LTIP Performance Units. The HR Committee determines the terms and restrictions applicable to grants of LTIP performance units. After the company’s financial results are available for the prior year, the HR Committee approves the annual grant of LTIP performance units to our executive officers (and approximately 100 other participants) and selects a date (usually the date of the HR Committee’s action) when the awards will be granted, typically in February of each year. The awards of LTIP performance units are intended to provide a link between executive officer compensation and long-term stockholder interests as reflected in changes in our stock price, and to motivate and reward achievement of pre-established corporate financial goals and relative TSR. The HR Committee believes that making an annual grant of LTIP performance units motivates our executive officers (and the other participants) to focus on long-term, sustainable improvement in stockholder value because (1) the award payout is tied to financial performance and continued service over a three-year period with cliff vesting at the end of such period, and (2) the ultimate value delivered is dependent upon the value of our stock.
During the performance periods summarized in the table below, the performance measures for the LTIP awards included (1) a combined financial metric comprised of ROAE and either average earnings per share or net income growth, contributing 50 percent of the payout, and (2) TSR relative to our peer group, also contributing 50 percent of the payout. The table below shows, for the past four completed performance
periods, the contribution of these two performance measures (and our relative TSR ranking within our peer group) to the overall payout (expressed as a percentage of target).      
  Performance Period
  2009-20112010-20122011-20132012-2014
 Financial Measures Payout Percentage135.3%143.2%59.9%156.7%
 Relative TSR2nd of 124th of 124th of 122nd of 15
 Relative TSR Payout Percentage175.0%125.0%125.0%180.0%
 Total Payout Percentage155.2%134.1%92.5%168.4%

37
Compensation Discussion & Analysis


ERRP Restricted Share Units. In 2011, the HR Committee made the first annual grants of ERRP restricted share units. The HR Committee instituted the practice of granting ERRP restricted share units to bring the long-term incentive component of our executives’ compensation in line with the median of our peers, while simultaneously encouraging retention with the five-year cliff vesting component and providing retirement benefits, along with succession planning and continuity of our strategic plan through the five-year payout of vested awards following the executive officer’s separation from service with the company. The key distinction between these awards and the non-performance-based supplemental executive retirement plans that certain of our peers and many other companies provide is that our ERRP restricted share units are earned based upon company performance.
The number of ERRP restricted share units that the HR Committee has granted annually has been considerably fewer than the grants of performance units. Like the performance units described above, these restricted share units are intended to provide a link between executive officer compensation and retirement planning and long-term stockholder interests and to motivate and reward achievement of pre-established corporate financial goals. The HR Committee believes that an annual grant of restricted share units motivates our executive officers to focus on long-term, sustainable improvement in our business because (1) vesting of the award is tied to financial performance and continued service over a five-year period and (2) payout of the vested award occurs over a five-year period following the executive officer’s separation from service with the company. The ERRP also encourages retention due to its five-year cliff vesting. The first opportunity for grants to vest under the ERRP is on December 31, 2016.
2014 Long-Term Incentive Program Performance Unit Grants
In February 2014, the HR Committee approved grants of LTIP performance units subject to a three-year performance period with cliff vesting at the end of such period. The target long-term equity opportunities are derived from peer group and competitive survey data and from the HR Committee’s judgment on the internal equity of the positions and scope of job responsibilities. To determine the target value of each executive officer’s LTIP performance unit awards, the HR Committee considered the range for comparable roles within our peer group, with consideration given to the strategic value of each position. Based on these considerations, in 2014, the HR Committee increased the targeted opportunity (expressed as a percentage of base salary) associated with the LTIP awards for three of our named executive officers to align with the market median.
Each executive officer’s targeted opportunity is converted into specific LTIP performance unit grants by dividing the total targeted value (the targeted percentage of base salary) by the fair market value of a share of our stock on the grant date. The resulting calculation represents the number of LTIP performance units that were granted and will vest on December 31, 2016, if all performance goals are met at the target performance level.
After the performance period, the HR Committee calculates the actual company performance relative to the performance goals and determines the number of LTIP performance units that vest based on such performance. Depending on the calculated company performance, the exact number of LTIP performance units that vest will vary from zero to 200 percent of the target award. In addition, if earned, the value of the award on the vesting date, based on the fair market value of our stock on that future date, likely will differ from the value at target as reflected in the following table, which is based on the fair market value of a share of our stock on the grant date.
The target equity opportunities for the 2014 grants of LTIP performance units are shown in the table to the right. The table also compares the target opportunities (expressed as a percentage of base salary) applicable to the 2013 and 2014 awards.     Target LTIP Performance Unit Opportunity for 2014
 Name 2013
Base Salary
(%)		 
2014
Base Salary
(%)
 
2014
Value at Target
 ($)
 
LTIP
Stock Awards
(#) (1)
 Robert C. Rowe 125 150 817,557
 21,329
 Brian B. Bird 85 92.5 330,737
 8,629
 Heather H. Grahame 60 65 211,488
 5,518
 Curtis T. Pohl 60 60 153,701
 4,010
 Kendall G. Kliewer 40 40 94,530
 2,466
(1)Based on a weighted average grant date fair value of $38.33, which was calculated using the closing stock price of $46.47 on February 18, 2014, less the present value of expected dividends.

38
Compensation Discussion and Analysis




These LTIP performance unit awards contain market- and performance-based components. The performance goals for these awards are independent of each other and are equally weighted. Vesting of awards is also contingent on maintaining investment grade credit ratings on both a secured and unsecured basis.
The following table summarizes the performance measures for the 2014 LTIP performance unit awards.
Performance Measures — 2014-2016 Threshold Target Maximum
Financial Goals – 50%      
   ROAE 9% 10% 11%
  Simple Average EPS Growth 3.3% 6.3% 9.3%
TSR – 50%      
   Relative Average vs. Peers 13th
 6th
 1st
In general, based on a market analysis conducted by Towers Watson, our metrics for relative TSR are established at levels higher than our peers and the market. For example, according to this market analysis, we use a ranking of 1st for maximum, while the market uses 3rd; we use a ranking of 6th for target, while the market uses 8th; and our threshold of 13th pays at ten percent, and 9th pays at 50 percent, while the market threshold of 12th pays at 50 percent.
The ROAE and simple average EPS growth levels are tied to management performance as this goal relates to revenue enhancement and cost containment. The EPS performance measure is a new measure for our performance unit awards in 2014. In prior years, the awards utilized a performance measure tied to net income. With the then-pending hydro acquisition, which would significantly increase the size of our company and our net income, the HR Committee determined to include a different measure that it believed would more closely reflect the earnings growth experienced by our stockholders. A switch to EPS as a measure also captures the dilutive impact of additional equity to finance the hydro or any future transactions. TSR is determined by our common stock price change and dividends paid over the performance period. We then compare our TSR with the total stockholder returns achieved by our peers over the same three-year period and determine our ranking.
2014 Executive Retention / Retirement Program Restricted Share Unit Grants
In December 2014, the HR Committee approved performance-based ERRP restricted share unit grants. These restricted share unit awards are subject to a five-year performance and five-year cliff vesting period and, once vested, will be paid out in shares of the company’s common stock over a five-year period after a recipient has separated from service with the company.
Our overall compensation program does not provide any non-performance-based supplemental executive retirement benefit. The HR Committee designed and implemented the ERRP in lieu of a traditional supplemental executive retirement plan which is not performance-based but is offered by many of our peers and other companies to increase overall competitiveness. The ERRP restricted share units help to achieve our compensation philosophy of being market competitive while aligning the interests of our executives and stockholders. It also promotes retention through the five-year cliff vesting component and benefits succession planning and continuity of our strategic plan through its fiver-year payout following separation from service.
The long-term equity opportunity for the ERRP is derived from peer group and competitive survey data and from the HR Committee’s judgment on the internal equity of the positions and scope of job responsibilities. To determine the value of each executive officer’s ERRP restricted share unit award, the HR Committee considered the range for comparable roles within our peer group, with consideration given to each position’s strategic value, and the overall long-term equity opportunity offered to that group. For 2014, the HR Committee increased the ERRP restricted share unit award for each of our executive officers. The  HR Committee made this determination following its analysis of equity incentive opportunities provided by our peer group and increased the ERRP award to approximate the market median.
The equity opportunities for the 2014 ERRP restricted share unit grants to our named executive officers and the 2013 ERRP target opportunity are shown in the table on the following page. Each executive officer’s award value was then converted into specific equity grants by dividing the total potential value of the award by the fair market value of a share of our stock on the grant date. This represents the number of restricted share

39
Compensation Discussion & Analysis


units that will vest on December 31, 2019, if the company’s net income for three of the five calendar years 2015 – 2019 exceeds the company’s net income for 2014. If earned, the value of the award on the vesting date, based on the fair market value of our stock on that future date, likely will differ from the fair value of the award on the grant date, as reflected in the following table, which is based on the closing market price of our stock on the grant date, less the present value of expected dividends.
    2014 Target ERRP Opportunity
Name 2013
Base Salary (%)		 
2014
Base Salary (%)
 
Value at Grant Date
 ($)
 
ERRP
 Stock Awards (1) (#)
Robert C. Rowe 25.0 50.0 280,695
 6,410
Brian B. Bird 12.5 25.0 92,070
 2,103
Heather H. Grahame 10.0 20.0 67,025
 1,531
Curtis T. Pohl 10.0 20.0 52,771
 1,205
Kendall G. Kliewer 7.5 15.0 36,512
 834
(1)Based on a weighted average grant date fair value of $43.79, which was calculated using the closing stock price of $53.02 on December 16, 2014, less the present value of expected dividends, calculated using a 1.53 percent five-year Treasury rate and assuming quarterly dividends of $0.48 for the five-year vesting period.
Vesting of 2012 Long-Term Incentive Program Performance Unit Grants in 2014
In February 2012, the HR Committee approved grants of LTIP performance units, subject to a three-year performance period. The 2012 LTIP performance unit grants vested on December 31, 2014.
The 2012 LTIP performance unit grants contained both market- and performance-based components. The performance goals were independent of each other and equally weighted. The following table summarizes the performance measures which governed these 2012 grants.
Performance Measures — 2012-2014 Threshold Target Maximum Actual
Financial Goals – 50%        
   ROAE 7.9% 9.9% 11.9% 10.4%
   Average Net Income Growth —% 4.0% 8.0% 10.1%
Market Goal – 50%        
   Relative TSR Average vs. Peers 13th
 6th
 1st
 2nd
Depending upon actual company performance relative to these performance goals, the exact number of shares that could have vested varied from zero to 200 percent of the target award. As summarized above in the 2014 LTIP Performance Unit Grants section, our relative TSR metrics are established at levels higher than our peers according to a market analysis conducted by the HR Committee’s independent compensation consultant. At the conclusion of the performance period, the HR Committee calculated the company’s performance relative to these goals during the three-year performance period to determine the vesting percentage for the 2012 LTIP performance unit grants.
During the performance period, for the financial goals, ROAE was 10.4 percent and average net income growth was 10.1 percent. This financial performance resulted in a 78.4 percent vesting percentage for that half of the program. For our market goal, TSR was 70.8 percent, resulting in a ranking of 2nd with respect to our peers, and contributing 90.0 percent with respect to that half of the program. Based on the HR Committee’s calculation of these performance measures, the 2012 LTIP performance unit grants vested at 168.4 percent.
The following table summarizes the performance results with respect to each of the performance measures applicable to the 2012 LTIP performance unit grants and the corresponding contributions to the vesting percentage.
Performance Measures — 2012-2014 Result Weight Vesting
Financial Goals – ROAE and Average Net Income Growth 156.7% 50% 78.4%
Market Goal – TSR 180.0% 50% 90.0%
    TOTAL
 168.4%

40
Compensation Discussion and Analysis




The following table summarizes the number of shares awarded by the 2012 LTIP performance unit grants and the number of shares paid out in 2014 with respect to such grants for our named executive officers, based on the 168.4 percent vesting percentage approved by the HR Committee.
  Vesting of 2012 Performance Unit Grants
Name 
Amount at
Grant Date
(#)
 
Vesting
Percentage
(%)
 
Amount upon Vesting
(#)
Robert C. Rowe 14,763
 168.4% 24,861
Brian B. Bird 7,264
 168.4% 12,233
Heather H. Grahame 4,847
 168.4% 8,162
Curtis T. Pohl 3,816
 168.4% 6,426
Kendall G. Kliewer 2,274
 168.4% 3,829
Other Compensation Policies
Stock Ownership Guidelines
Our Corporate Governance Guidelines require our executive officers to meet and maintain a specified stock ownership level. Stock ownership guidelines range from a multiple of six times base salary for the CEO, four times base salary for the CFO, three times base salary for our Vice President and General Counsel and our Vice President - Distribution, and two times base salary for our Vice President and Controller. Each executive is restricted, absent a hardship and prior Board approval, from selling stock until his or her guideline amount is achieved and must continue to maintain the required ownership level once it is obtained. More specific details of our officer stock ownership guidelines are available in our Corporate Governance Guidelines located on our website at www.northwesternenergy.com under Our Company / Investor Relations / CorporateGovernance.
Our Board instituted these guidelines to require our executives to hold a meaningful financial stake in the company to align our executive’s interests with those of our stockholders. As summarized below, all of our named executive officers have satisfied the applicable stock ownership guideline, as have our other executive officers.
Name Multiple of Base Pay 
Percent of Guideline Achieved
as of December 31 (1)
2013 2014
Robert C. Rowe (2) 6x 133% 215%
Brian B. Bird 4x 156% 240%
Heather H. Grahame 3x 51% 167%
Curtis T. Pohl 3x 68% 138%
Kendall G. Kliewer 2x 152% 229%
(1)Percent of guideline achieved uses the closing stock prices of $43.32 and $56.58 as of December 31, 2013, and 2014, respectively.
(2)Effective February 18, 2014, our Board increased the stock ownership guideline for our CEO to a multiple of six times base salary from five times base salary. The calculation reflected in this table uses the six times base pay multiple for each year, even though our CEO was required to hold five times his base pay in 2013. A substantial percentage of the CEO’s guideline achieved has been the result of voluntary deferrals of annual and long-term incentive compensation into company stock, which will ensure alignment of his interest with company performance for a number of years beyond his departure.
Retirement and Other Benefits
Retirement benefits are offered to employees hired prior to January 1, 2009, through tax-qualified company-funded pension plans and to all eligible employees through a 401(k) defined contribution plan. Both pension plans and 401(k) plans are common benefits provided in the utility and energy industry. Our executive officers, including the CEO, participate in some or all of these plans, and the terms governing the retirement benefits under these plans are the same as those available to substantially all employees. We do not offer any supplemental retirement benefits to our executive officers other than the performance-based ERRP restricted share units described above. Our healthcare, insurance, and other welfare and employee-benefit programs are generally the same for substantially all employees, including the CEO and executive officers. We share the cost of health and welfare benefits with our employees, which is dependent on the benefit

41
Compensation Discussion & Analysis


coverage option that each employee elects. Our executive officers do not receive any material perquisites or special benefits that differ materially from those available to employees generally.
Severance and Post-Termination Benefits
We provide severance and post-termination benefits to our executive officers under our severance plan. Severance and post-termination benefits are explained in detail under the “Compensation of Executive Officers and Directors—Post Employment Compensation” section, starting on page 47 of this proxy statement.
Non-qualified Deferred Compensation
The company provides a non-qualified deferred compensation plan, which is intended to be an unfunded plan. The 2009 Officer Deferred Compensation Plan (officer deferred plan) allows eligible officers to defer up to 100 percent of certain compensation, including base salary (subject to compliance with Section 409A of the Internal Revenue Code compensation limit), short-term incentive awards and awards earned under our Equity Compensation Plan. There are no company contributions to the officer deferred plan. Participants in the officer deferred plan may elect to have deferrals credited to their account in company stock (in the form of deferred share units issued under the Equity Compensation Plan) or cash investment options that substantially mirror the qualified employee 401(k) plan investment options. The value of each deferred compensation account is adjusted periodically to reflect the gains, losses, and dividends associated with the designated investments. Officer deferred plan participants do not pay income taxes on amounts deferred or earnings thereon until those amounts are distributed from the officer deferred plan. A participant’s benefits under the officer deferred plan are fully vested and are payable after terminating employment. Benefits are paid in a lump sum unless a participant elects annual installments.
No Employment Agreements
We currently do not have employment agreements with any of our executives. We generally believe that ongoing employment agreements are not necessary to retain talented executives; however, agreements may  be appropriate on a case-by-case basis, such as when an executive begins employment with us. Due to the changing marketplace in which we compete for talent, the HR Committee regularly reviews this practice to help ensure that we remain competitive in our industry.
Tax Treatment of Certain Compensation
Section 162(m) of the Internal Revenue Code limits the company deductibility of executive compensation paid to certain named executive officers to $1 million per year, but contains an exception for certain performance-based compensation. Compensation that qualifies as “performance-based compensation” is not subject to the $1 million deduction limit if, at least every five years, stockholders approve the material terms of such performance-based compensation. The Equity Compensation Plan is structured to enable grants of equity-based incentive awards to be deductible under Section 162(m), and the material terms of the Equity Compensation Plan were approved by stockholders at last year’s annual meeting. The HR Committee generally seeks ways to limit the impact of Section 162(m). However, the HR Committee believes that the tax deduction limitation should not compromise our ability to establish and implement incentive programs that support the compensation objectives discussed above. Accordingly, achieving these objectives and maintaining required flexibility in this regard may result in payments of compensation or grants of awards that are not deductible for federal income tax purposes.

42
 

Compensation of Executive Officers and Directors
The following tables, footnotes, and narratives provide information regarding the compensation, benefits, and equity holdings in the company for the named executive officers during the years ended December 31, 20132014, 20122013, and 20112012. Please see the “Compensation Discussion and Analysis”CD&A on the previous pages for a description of our executive compensation program necessary to gain an understanding of the information disclosed below.
20132014 Summary Compensation Table
The following table sets forth the compensation earned during 20132014, 20122013, and 20112012 for services in all capacities by the named executive officers:
Name and
Principal Position
 Year 
Salary
 ($)
 
Bonus
($)
 
Stock Awards
(1)
($)
 
Non-equity Incentive Plan Compensation
 (2)
 ($)
 
Change in Pension Value and Nonqualified Deferred Compensation Earnings
(3)
($)
 
All Other Compen- sation
 (4)
($)
 
Total
($)
 Year 
Salary
 ($)
 
Bonus
($)
 
Stock Awards
(1)
($)
 
Non-Equity Incentive Plan Compensation
 (2)
 ($)
 
Change in Pension Value and Nonqualified Deferred Compensation Earnings
(3)
($)
 
All Other Compen- sation
 (4)
($)
 
Total
($)
Robert C. Rowe 2013 540,764
 —
 666,183
 470,913
 26,461
 20,577
 1,724,898
 2014 556,924
 —
 1,098,234
 561,389
 104,139
 22,155
 2,342,841
President and 2012 525,013
 —
 476,307
 414,864
 63,143
 19,364
 1,498,691
 2013 540,764
 —
 666,183
 470,913
 26,461
 20,577
 1,724,898
Chief Executive Officer 2011 510,101
 —
 474,785
 415,110
 49,812
 18,903
 1,468,711
 2012 525,013
 —
 476,307
 414,864
 63,143
 19,364
 1,498,691
Brian B. Bird 2013 354,749
 —
 281,088
 193,079
 —
 43,055
 871,971
 2014 365,351
 —
 422,840
 230,175
 32,002
 49,005
 1,099,373
Vice President and 2012 344,417
 —
 217,210
 170,098
 29,744
 42,280
 803,749
 2013 354,749
 —
 281,088
 193,079
 —
 43,055
 871,971
Chief Financial Officer 2011 334,634
 —
 216,755
 170,199
 9,531
 40,012
 771,131
 2012 344,417
 —
 217,210
 170,098
 29,744
 42,280
 803,749
Heather H. Grahame 2013 322,815
 —
 184,382
 140,558
 —
 44,903
 692,658
 2014 332,462
 —
 278,547
 188,509
 —
 46,629
 846,147
Vice President and 2012 313,412
 —
 147,022
 123,828
 —
 44,095
 628,357
 2013 322,815
 —
 184,382
 140,558
 —
 44,903
 692,658
General Counsel 2011 304,510
 —
 146,691
 123,902
 —
 49,794
 624,897
 2012 313,412
 —
 147,022
 123,828
 —
 44,095
 628,357
Curtis T. Pohl 2013 254,159
 —
 145,163
 110,665
 —
 48,646
 558,633
 2014 261,754
 —
 206,470
 131,927
 64,786
 62,079
 727,016
Vice President - 2012 246,757
 —
 115,747
 97,493
 62,888
 40,089
 562,974
 2013 254,159
 —
 145,163
 110,665
 —
 48,646
 558,633
Retail Operations 2011 239,748
 —
 115,486
 97,551
 6,848
 49,525
 509,158
 2012 246,757
 —
 115,747
 97,493
 62,888
 40,089
 562,974
Kendall G. Kliewer (5) 2013 234,471
 —
 91,234
 89,330
 —
 43,020
 458,055
 2014 241,478
 —
 131,043
 106,494
 36,373
 46,366
 561,754
Vice President and 2012 228,528
 —
 70,860
 67,456
 33,335
 39,872
 440,051
 2013 234,471
 —
 91,234
 89,330
 —
 43,020
 458,055
Controller               2012 228,528
 —
 70,860
 67,456
 33,335
 39,872
 440,051
(1)
These values reflect the grant date fair value of these awards as calculated utilizing the provisions of Accounting Standards Codification 718, Stock Compensation, and do not represent earned or paid compensation as the shares are subject to performance and vesting conditions. The values in the table above assume 100 percent payout based on grant date fair value. The exact number of shares issued will vary from zero to 200 percent of the target award, depending on actual company performance relative to the performance goals. See Note 17 to the consolidated financial statements in our 20132014 Annual Report on Form 10-K for further information regarding assumptions underlying the valuation of equity awards. The value of awards for each named executive officer assuming a maximum payout based on grant date fair value would be $1,196,092$1,915,775 for Mr. Rowe; $517,478$753,590 for Mr. Bird; $336,224$490,052 for Ms. Grahame; $264,709$360,174 for Mr. Pohl; and $164,757$225,564 for Mr. Kliewer.
(2)The Non-equityNon-Equity Incentive Plan Compensation column reflects cash incentive awards earned pursuant to our annual incentive plan as previously described. These awards are earned during the year reflected and paid in the following fiscal year.
(3)These amounts are attributable to a change in the value of each named executive officer’s defined benefit pension account balances and do not represent earned or paid compensation. Pension values are dependent on many variables including years of service, earnings and actuarial assumptions. Based on changes to actuarial assumptions in 2013 concerning the NorthWestern Corporation pension plan for our South Dakota and Nebraska employees, pension values in 2013 decreased for Messrs. Bird (by $2,295), Pohl (by $24,563) and Kliewer (by $9,936). Mr. Rowe is a participant in the NorthWestern Energy pension plan for our Montana employees. Our pension plans were closed to new participants prior to Ms. Grahame joining the company; therefore, she is not eligible to participate in oura pension plans.plan.
(4)
The table on the top of the following page identifies the items included in the All Other Compensation column for 20132014. Employee benefits include employer contributions, as applicable, for health benefits (medical, dental, vision, employee assistance plan and health savings account), group term life and 401(k) plan, which are generally available to all employees on a nondiscriminatory basis. Life insurance also includes imputed income consistent with IRS guidelines for coverage amounts in excess of $50,000 for each of the named executive officers. Mr. Pohl’s other income for 2014 and 2013 includes vacation sold back to the company at a rate of 75 percent.

4543
Compensation of Executive Officers and Directors


 
Health Benefits
($)
 
Life Insurance
($)
 
401(k) Contributions
($)
 
Other Income
($)
 
Total All Other Compensation
($)
 
Health Benefits
($)
 
Life Insurance
($)
 
401(k) Contributions
($)
 
Other Income
($)
 
Total All Other Compensation
($)
Robert C. Rowe 6,085
 4,292
 10,200
   20,577
 7,288
 4,426
 10,400
 41
 22,155
Brian B. Bird 18,324
 1,781
 22,950
   43,055
 21,167
 1,838
 26,000
 —
 49,005
Heather H. Grahame 16,945
 2,458
 25,500
   44,903
 18,050
 2,542
 26,000
 37
 46,629
Curtis T. Pohl 16,238
 3,302
 25,519
 3,587
 48,646
 20,135
 4,107
 28,600
 9,237
 62,079
Kendall G. Kliewer 18,325
 1,745
 22,950
   43,020
 21,167
 1,799
 23,400
 —
 46,366
(5)Mr. Kliewer did not meet the criteria in 2011 to be included as a named executive officer.
20132014 Grants of Plan-Based Awards
The following table shows the range of each named executive officer’s annual and long-term incentive award opportunities granted for the fiscal year ended December 31, 20132014. The narrative following the table describes the terms of each incentive award opportunity.
Name Grant Date 
Estimated Future Payouts Under
Non-equity Incentive Plan Awards
 Estimated Future Payouts Under Equity Incentive Plan Awards (1) 
All Other Stock Awards: Number of Shares of Stock or Units
(#)
 
Grant Date Fair Value of Stock Awards (2)
($)
 Grant Date 
Estimated Future Payouts Under
Non-equity Incentive Plan Awards
 Estimated Future Payouts Under Equity Incentive Plan Awards (1) 
All Other Stock Awards: Number of Shares of Stock or Units
(#)
 
Grant Date Fair Value of Stock Awards (2)
($)
Threshold
($)
 
Target
($)
 
Maximum
($)
Threshold
(#)
 
Target
(#)
 
Maximum
(#)
 
Threshold
($)
 
Target
($)
 
Maximum
($)
Threshold
(#)
 
Target
(#)
 
Maximum
(#)
 
Robert C. Rowe                                    
Annual Cash Incentive —
 218,015
 436,030
 654,046
 —
 —
 —
 —
 —
 —
 224,556
 449,111
 673,667
 —
 —
 —
 —
 —
Performance Units 2/13/2013
 —
 —
 —
 —
 17,261
 34,522
 —
 529,910
 2/18/2014
 —
 —
 —
 —
 21,329
 42,658
 —
 817,541
Restricted Share Units 12/10/2013
 —
 —
 —
 —
 3,878
 3,878
 —
 136,273
 12/16/2014
 —
 —
 —
 —
 6,410
 6,410
 —
 280,694
Brian B. Bird                                    
Annual Cash Incentive —
 89,388
 178,777
 268,165
 —
 —
 —
 —
 —
 —
 92,070
 184,140
 276,210
 —
 —
 —
 —
 —
Performance Units 2/13/2013
 —
 —
 —
 —
 7,700
 15,400
 —
 236,390
 2/18/2014
 —
 —
 —
 —
 8,629
 17,258
 —
 330,750
Restricted Share Units 12/10/2013
 —
 —
 —
 —
 1,272
 1,272
 —
 44,698
 12/16/2014
 —
 —
 —
 —
 2,103
 2,103
 —
 92,090
Heather H. GrahameHeather H. Grahame                Heather H. Grahame                
Annual Cash Incentive —
 65,073
 130,146
 195,220
 —
 —
 —
 —
 —
 —
 75,404
 150,807
 226,211
 —
 —
 —
 —
 —
Performance Units 2/13/2013
 —
 —
 —
 —
 4,946
 9,892
 —
 151,842
 2/18/2014
 —
 —
 —
 —
 5,518
 11,036
 —
 211,505
Restricted Share Units 12/10/2013
 —
 —
 —
 —
 926
 926
 —
 32,540
 12/16/2014
 —
 —
 —
 —
 1,531
 1,531
 —
 67,042
Curtis T. Pohl                                    
Annual Cash Incentive —
 51,234
 102,467
 153,701
 —
 —
 —
 —
 —
 —
 52,771
 105,541
 158,312
 —
 —
 —
 —
 —
Performance Units 2/13/2013
 —
 —
 —
 —
 3,894
 7,788
 —
 119,546
 2/18/2014
 —
 —
 —
 —
 4,010
 8,020
 —
 153,703
Restricted Share Units 12/10/2013
 —
 —
 —
 —
 729
 729
 —
 25,617
 12/16/2014
 —
 —
 —
 —
 1,205
 1,205
 —
 52,767
Kendall G. Kliewer                                    
Annual Cash Incentive —
 41,357
 82,713
 124,070
 —
 —
 —
 —
 —
 —
 42,598
 85,195
 127,793
 —
 —
 —
 —
 —
Performance Units 2/13/2013
 —
 —
 —
 —
 2,395
 4,790
 —
 73,523
 2/18/2014
 —
 —
 —
 —
 2,466
 4,932
 —
 94,522
Restricted Share Units 12/10/2013
 —
 —
 —
 —
 504
 504
 —
 17,711
 12/16/2014
 —
 —
 —
 —
 834
 834
 —
 36,521
(1)
Reflects possible payout range of 20132014 performance units and restricted share units awards. The performance units granted on February 13, 2013,18, 2014, have a weighted average grant date fair value of $30.70.$38.33. The restricted share units granted on December 10, 2013,16, 2014, have a weighted average grant date fair value of $35.14.
$43.79.
(2)
These values reflect the grant date fair value of these awards as calculated utilizing the provisions of Accounting Standards Codification 718, Stock Compensation, and do not represent earned or paid compensation as the shares are subject to performance and vesting conditions. The values in the table above reflect grant date fair value assuming payment at target. See Note 17 to the consolidated financial statements in our 20132014 Annual Report on Form 10-K for further information regarding assumptions underlying the valuation of equity awards.

4644
Compensation of Executive Officers and Directors


Non-equity Incentive Plan Awards
Non-equity incentive plan compensation includes amounts earned under the NorthWestern Energy 20132014 Annual Incentive Plan for 20132014 performance, which were paid in 20142015. The HR Committee reviewed 20132014 performance against plan targets and the plan achieved a payout percentage of 108125 percent, as discussed in the “Compensation Discussion and Analysis—2013 Compensation—Components of Executive Compensation for 2014—Annual Cash Incentive Awards” section, starting on page 3533 of this proxy statement.
Equity Incentive Plan Awards
As previously discussed in the “Compensation Discussion and Analysis—20132014 Compensation—Long-Term Incentive Plan Equity Awards” section in this proxy statement, the Board approved granting performance awards in 20132014 under the 2005Equity Compensation Plan. The values of stock awards included in the table above reflect the grant date fair value of these awards as calculated utilizing the provisions of Accounting Standards Codification 718, Stock Compensation, and does not represent earned or paid compensation as the shares are subject to performance and vesting conditions. For the 20132014 performance unit awards, the exact number of shares issued upon vesting will vary from zero to 200 percent of the target award, depending on actual company performance relative to the performance goals. In addition, if earned, the value of a performance unit award and a restricted share unit award on the vesting date, based on the fair market value of our stock on that future date, likely will differ from the value on the grant date, which is based on the fair market value of a share of our stock and, with respect to a performance unit award, is based on the target amount for such award. See Note 17 to the consolidated financial statements in our 20132014 Annual Report on Form 10-K for further information regarding assumptions underlying the valuation of equity awards.
Percentage of Salary Compared to Total Compensation
For 2014, “Salary” for the named executive officers accounted for approximately 28 percent to 55 percent of total direct compensation (i.e., salary plus targeted annual and long-term incentive compensation), while incentive compensation accounted for approximately 45 percent to 72 percent of total direct compensation, assuming achievement of a target level of performance for each named executive officer.

4745
Compensation of Executive Officers and Directors


Outstanding Equity Awards at 20132014 Fiscal Year-End
The following table contains information regarding outstanding equity-based awards, including the potential dollar amounts realizable with respect to the awards for each named executive officer. Dividends are not paid or accrued on any unvested shares.
Name 
Grant
Date
 Stock Awards 
Grant
Date
  
Restricted Stock Performance-Based SharesPerformance-Based Shares
Number of Shares or Units of Stock That Have Not Vested
(#)
 
Market Value of Shares or Units of Stock That Have Not Vested (1)
($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (2)
(#)
 
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (1) (2) (3)
($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (2)
(#)
 
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (1) (2) (3)
($)
Robert C. Rowe 12/10/2013 —
 —
 3,878
 167,995
 12/16/2014 6,410
 362,678
 2/13/2013 —
 —
 17,261
 747,747
 2/18/2014 42,658
 2,413,590
 12/12/2012 —
 —
 3,814
 165,222
 12/10/2013 3,878
 219,417
 2/16/2012 —
 —
 14,763
 639,533
 2/13/2013 34,522
 1,953,255
 12/5/2011 —
 —
 3,667
 158,854
 12/12/2012 3,814
 215,796
 12/5/2011 3,667
 207,479
Brian B. Bird 12/10/2013 —
 —
 1,272
 55,103
 12/16/2014 2,103
 118,988
 2/18/2014 17,258
 976,458
 2/13/2013 —
 —
 7,700
 333,564
 12/10/2013 1,272
 71,970
 12/12/2012 —
 —
 1,251
 54,193
 2/13/2013 15,400
 871,332
 2/16/2012 —
 —
 7,264
 314,676
 12/12/2012 1,251
 70,782
 12/5/2011 —
 —
 1,203
 52,114
 12/5/2011 1,203
 68,066
Heather H. Grahame 12/10/2013 —
 —
 926
 40,114
 12/16/2014 1,531
 86,624
 2/13/2013 —
 —
 4,946
 214,261
 2/18/2014 11,036
 624,417
 12/12/2012 —
 —
 911
 39,465
 12/10/2013 926
 52,393
 2/16/2012 —
 —
 4,847
 209,972
 2/13/2013 9,892
 559,689
 12/5/2011 —
 —
 876
 37,948
 12/12/2012 911
 51,544
 12/5/2011 876
 49,564
Curtis T. Pohl 12/10/2013 —
 —
 729
 31,580
 12/16/2014 1,205
 68,179
 2/18/2014 8,020
 453,772
 2/13/2013 —
 —
 3,894
 168,688
 12/10/2013 729
 41,247
 12/12/2012 —
 —
 717
 31,060
 2/13/2013 7,788
 440,645
 2/16/2012 —
 —
 3,816
 165,309
 12/12/2012 717
 40,568
 12/5/2011 —
 —
 689
 29,847
 12/5/2011 689
 38,984
Kendall G. Kliewer 12/10/2013 —
 —
 504
 21,833
 12/16/2014 834
 47,188
 2/13/2013 —
 —
 2,395
 103,751
 2/18/2014 4,932
 279,053
 12/12/2012 —
 —
 496
 21,487
 12/10/2013 504
 28,516
 2/16/2012 —
 —
 2,274
 98,510
 2/13/2013 4,790
 271,018
 12/5/2011 —
 —
 484
 20,967
 12/12/2012 496
 28,064
 12/5/2011 484
 27,385
(1)
Values were calculated based on a $43.3256.58 closing price of our common stock on December 31, 20132014.
(2)
The performance units granted in February 20122013 and 20132014 will vest, if at all, on December 31, 20142015 and 20152016, respectively, subject to the satisfaction of the applicable performance and market criteria and generally subject to the recipient’s continued employment through such date. Based on performance through December 31, 20132014, we are belowabove target for obtaining payout of the 20122013 and 20132014 grants. The number of units and payout value shown for the 20122013 and 20132014 grants assume a targetmaximum level of performance (100(200 percent), as required by the SEC’s disclosure rules.
(3)
The performance-based restricted share units granted under the ERRP in December 2011, 2012, 2013, and 20132014 will vest, if at all, on December 31, 2016,, 2017, 2018, and 2018,2019, respectively, subject to the satisfaction of the applicable performance criteria and generally subject to the recipient’s continued employment through such date.

4846
Compensation of Executive Officers and Directors


20132014 Stock Vested
The table below shows the dollar amounts realized pursuant to the vesting of equity-based awards during the last fiscal year.
 Stock Awards Stock Awards
Name 
Number of Shares Acquired on Vesting
(#)
 
Value Realized on Vesting
($)
 
Number of Shares Acquired on Vesting
(#) (1)
 
Value Realized on Vesting
($)
Robert C. Rowe (1) 18,169
 787,081
 24,861
 1,406,635
Brian B. Bird (1) 8,939
 387,237
 12,233
 692,143
Heather H. Grahame (2) 6,965
 301,314
 8,162
 461,806
Curtis T. Pohl (1) 4,697
 203,474
 6,426
 363,583
Kendall G. Kliewer (1) 2,798
 121,209
 3,829
 216,645
(1)
Shares vested consist of restricted shares granted in 2011performance units for the 2012 - 2014 performance period that vested on December 31, 20132014, at a performance level of 92.5168.4 percent. We determined the value realized for the vesting of these shares using the fair market value of our common stock on the vesting date, which was $43.3256.58.
(2)
Shares vested consist of 5,965 restricted shares granted in 2011 that vested on December 31, 2013, at a performance level of 92.5 percent, and 1,000 restricted shares granted on August 2, 2010, that vested on August 2, 2013. We determined the value realized for the vesting of these shares using the fair market value of our common stock on the vesting dates, which was $43.32 and $42.91, respectively.
Post-Employment Compensation
20132014 Pension Benefits
We have two separate defined benefit pension plans that cover employees hired prior to January 1, 2009. The NorthWestern Energy Pension Plan is applicable to employees who began their employment in Montana, and the NorthWestern Pension Plan is applicable to employees who began their employment in South Dakota or Nebraska.
Name Plan Name 
Number of Years Credited Service
(#)
 
Present Value of Accumulated Benefit
($)
 
Payments During Last Fiscal Year
($)
 Plan Name 
Number of Years Credited Service
(#)
 
Present Value of Accumulated Benefit
($)
 
Payments During Last Fiscal Year
($)
Robert C. Rowe NorthWestern Energy Pension Plan 5.00
 220,788
 —
 NorthWestern Energy Pension Plan 6.00
 324,927
 —
Brian B. Bird NorthWestern Pension Plan 10.08
 128,997
 —
 NorthWestern Pension Plan 11.08
 160,999
 —
Heather H. Grahame (1) — —
 —
 —
 — —
 —
 —
Curtis T. Pohl NorthWestern Pension Plan 27.39
 294,240
 —
 NorthWestern Pension Plan 28.39
 359,026
 —
Kendall G. Kliewer NorthWestern Pension Plan 11.16
 111,870
 —
 NorthWestern Pension Plan 12.16
 148,243
 —
(1)Ms. Grahame joined the company after the pension plans were closed to new entrants and therefore is not eligible to participate.
We calculated the present value of accumulated benefits assuming benefits commence at age 65 and using the discount rate, mortality assumption, and assumed payment form consistent with those disclosed in Note 16 of the Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 20132014. While we calculated the present values in the table above assuming that benefits commence at age 65, the table below summarizes the cash balance available if the individual had terminated service as of December 31, 20132014.
Name 
Cash Balance
($)
Robert C. Rowe 175,946218,971
Brian B. Bird 129,848146,872
Heather H. Grahame —
Curtis T. Pohl 296,453323,032
Kendall G. Kliewer 113,004128,277

49
Compensation of Executive Officers and Directors


Under the NorthWestern Energy Pension Plan, a participant’s account grows based upon (1) contributions by the company made once per year, and (2) interest credits at the rate of 6six percent per year. Contribution rates range from three percent to 12 percent for compensation below the taxable wage base and from 1.5 percent to six percent for compensation above one-half of the taxable wage base. Upon termination of employment, an employee who is at least 50 years of age with five years of service may begin receiving a monthly annuity or defer receiving benefits until he or she is required to take a minimum distribution.

47
Compensation of Executive Officers and Directors


Under the cash balance formula of the NorthWestern Pension Plan, a participant’s account grows based upon (1) annual pay credits, and (2) annual interest credits based on the average federal 30-year Treasury Bill rate for November of the preceding year. Pay credits range from three percent to 7.5 percent for compensation below the taxable wage base, and such amounts are doubled for compensation above the taxable wage base. Upon termination of employment, an employee, or if deceased, his or her beneficiary, may elect to receive a lump sum equal to the cash balance in the account, a monthly annuity if age 55 or greater, or defer receiving benefits until he or she is required to take a minimum distribution.
The plans were closed to new entrants on January 1, 2009. For both pension plans, credited years of service are based on actual hire date, and pensionable earnings include base pay only. Mercer Human Resources Consulting, the actuary for our pension plans, calculated the present value of accumulated benefits using participant data provided by us.
Non-qualified Deferred Compensation Plan
As discussed in the “Compensation Discussion and Analysis—Other Compensation Policies—Non-qualified Deferred Compensation” section in this proxy statement, we implemented a deferred compensation plan in 2009. The following table provides information on the 20132014 non-qualified deferred compensation of our named executive officers who participate in the plan.
 
Executive Contributions in 2013 (1)
($)
 
Registrant Contributions in 2013
($)
 
Aggregate Earnings
in 2013
($)
 
Aggregate Withdrawals/ Distributions in 2013
($)
 
Aggregate Balance on December 31, 2013
($)
 
Executive Contributions in 2014 (1)
($)
 
Registrant Contributions in 2014
($)
 
Aggregate Earnings
in 2014
($)
 
Aggregate Withdrawals/ Distributions in 2014
($)
 
Aggregate Balance on December 31, 2014
($)
Robert C. Rowe (2) 1,172,131
 — 588,236
 — 3,175,189
 752,957
 — 1,309,375
 — 5,237,521
Kendall G. Kliewer (3) 146,409
 — 75,019
 — 401,181
 112,185
 — 170,063
 — 683,429
(1)All executive contributions in the last fiscal year are reported as compensation to such executive officer in the 20132014 Summary Compensation Table on page 45.43.
(2)Mr. Rowe’s aggregate contributions under the plan are $2,516,803.$3,269,760, all of which were reported as compensation in the 2014 Summary Compensation Table or for prior years.
(3)Mr. Kliewer’s aggregate contributions under the plan are $316,665.$428,850, all of which were reported as compensation in the 2014 Summary Compensation Table or for prior years.
Termination or Change in Control Arrangements
2008 Key Employee Severance Plan
Our named executive officers are participants in the 2008 Key Employee Severance Plan which we refer to as the 2008(2008 Severance Plan.Plan). The 2008 Severance Plan was reviewed by the HR Committee with recommendations from professional advisers and approved by the Board. The HR Committee believes that it is appropriate for us to have a severance plan to provide a consistent means of addressing severance situations.
The 2008 Severance Plan does not provide for change in control payments, but it does provide for the payment of severance benefits in the event an officer is terminated involuntarily without cause. Cause generally is defined in the 2008 Severance Plan as (1) fraud, misappropriation of corporate property or funds, or embezzlement; (2) malfeasance in office, misfeasance in office which is willful or grossly negligent, or nonfeasance in office which is willful or grossly negligent; (3) failure to comply with our Code of Conduct; (4) illegal conduct, gross misconduct, or dishonesty, in each case which is willful and results (or is reasonably likely to result) in substantial damage to the company; or (5) willful and continued failure by the employee to perform substantially his/her duties. For this purpose, involuntary termination does not include a termination resulting from a participant’s death or disability.

5048
Compensation of Executive Officers and Directors


The severance benefits payable under the 2008 Severance Plan consist of:
A lump-sum cash payment equal to one times annual base pay;
Reimbursement of Consolidated Omnibus Budget Reconciliation Act or COBRA,(COBRA) premiums paid by the participant during the 12-month period following the participant’s termination date; and
$12,000 of outplacement services during the 12-month period following the participant’s termination date.
The following table shows the amount of potential cash severance that would have been payable, based on an assumed termination date of December 31, 20132014, under the normal severance provisions of the 2008 Severance Plan, including the amount that each named executive officer would be entitled to be reimbursed for outplacement expenses and reimbursement of costs for continuing coverage and other benefits under our group health, dental, and life insurance plans. Severance benefits are not provided in connection with terminations for cause.
Name 
Base
Salary
($)
 
COBRA Premiums
($) (1)
 
Outplacement Services
($)
 
Amount of Potential Severance Benefit
($)
 
Base
Salary
($)
 
COBRA Premiums
($) (1)
 
Outplacement Services
($)
 
Amount of Potential Severance Benefit
($)
Robert C. Rowe 545,038
 5,320
 12,000
 562,358
 561,389
 6,029
 12,000
 579,418
Brian B. Bird 357,553
 17,143
 12,000
 386,696
 368,280
 19,532
 12,000
 399,812
Heather H. Grahame 325,366
 20,208
 12,000
 357,574
 335,127
 21,520
 12,000
 368,647
Curtis T. Pohl 256,168
 16,679
 12,000
 284,847
 263,853
 19,091
 12,000
 294,944
Kendall G. Kliewer 236,324
 17,648
 12,000
 265,972
 243,414
 20,011
 12,000
 275,425
(1)
Amounts calculated using COBRA premiums in effect as of December 31, 20132014.
2005Equity Compensation Plan Change in Control Provision
All outstanding equity awards were granted under our 2005Equity Compensation Plan. The 2005Equity Compensation Plan, in a change in control situation, provides that either the vesting of awards shall accelerate so that awards shall vest as to the shares that otherwise would have been unvested, or the HR Committee shall arrange or otherwise provide for the payment of cash or other consideration to participants in exchange for the satisfaction and cancellation of outstanding awards. The following table shows the amount of potential stock value that would have been received, based on an assumed change in control date of December 31, 20132014, outstanding equity awards at target payout, and a closing stock price on December 31, 20132014, of $43.3256.58.
Name 
Value of Accelerated Stock Vesting
($)
Robert C. Rowe 1,879,3513,188,792
Brian B. Bird 809,6501,253,700
Heather H. Grahame 541,760832,179
Curtis T. Pohl 426,484636,186
Kendall G. Kliewer 266,548406,188
For a termination of service that does not involve a change in control, death, disability, or retirement, all outstanding equity awards granted under the 2005Equity Compensation Plan are forfeited.
ERRP Restricted Share Units
Awards under our ERRP, as discussed in the “Compensation Discussion and Analysis—Other Compensation Policies—Long-Term Performance-Based Equity Awards under the 2005Equity Compensation Plan” section in this proxy statement, if earned, will be paid out in shares of common stock of the company over a five-year period following the participant’s separation of service with the company.
Death and Disability Benefits
Our executives are covered by the standard death and disability benefits that are available to substantially all employees. In addition, upon the death or disability of a recipient of a performance unit award, such recipient

5149
Compensation of Executive Officers and Directors


(or his or her executor or administrator) is entitled to receive a pro rata portion of the award based on the number of full months such recipient was employed by the company, and the remaining portion of the award is forfeited. An award under the ERRP vests in full upon the death or disability of the recipient.
20132014 Director Compensation
Compensation to our non-employee directors consists of an annual cash retainer, an annual unrestricted stock award, an annual cash retainer for the chairperson of each committee of the Board and meeting attendance fees. Non-employee directors are not eligible to participate in our retirement plans. The company also reimburses non-employee directors for the cost of participation in certain continuing education programs and the expense of traveling to Board and committee meetings. Employee directors are not compensated for service on the Board.
Non-employee directors may elect to defer up to 100 percent of any qualified cash or equity-based compensation that would be otherwise payable to them, subject to compliance with NorthWestern’s 2005 Deferred Compensation Plan for Non-employee Directors, or director deferred plan, and Section 409A of the Internal Revenue Code. For those directors who defer their compensation under the director deferred plan, the meeting fee or retainer, as applicable, is the value utilized to determine the amount of deferred compensation. The deferred compensation may be invested in deferred stock units of the company’s common stock or in designated investment options that substantially
Non-employee directors may elect to defer up to 100 percent of any qualified cash or equity-based compensation that would be otherwise payable to them, subject to compliance with NorthWestern’s 2005 Deferred Compensation Plan for Non-employee Directors (director deferred plan) and Section 409A of the Internal Revenue Code. For those directors who defer their compensation under the director deferred plan, the meeting fee or retainer, as applicable, is the value utilized to determine the amount of deferred compensation. The deferred compensation may be invested in deferred stock units of the company’s
common stock or in designated investment options that substantially
mirror the qualified employee 401(k) plan options. Our directors defer a significant portion of their total compensation each year into the company's common stock. For 2014, our directors, deferred 73 percent of the aggregate compensation paid to all directors into the company's common stock.
Based on the election of the non-employee director, other than on account of death, he or she shall receive a distribution either in a lump sum or in approximately equal installments over a designated number of years (not to exceed 10ten years). Distributions of deferred share units will be equal to one share of the company’s common stock for each unit. The value of each deferred compensation account is adjusted periodically to reflect the gains, losses, and dividends associated with the designated investments.
In 2012,2013, the HR Committee asked Towers Watson to update its review of the competitive market data concerning Board compensation from peer company comparisons so that the HR Committee could determine 20132014 compensation levels for non-employee directors. Based upon this review, the HR Committee increased the annual Board retainerstock retainers paid to the chairman of our Board to $125,000(to 3,750 shares from $100,000.3,500) and individual Board members (to 2,750 shares from 2,500). The HR Committee made no other changes to the compensation provided to our non-employee directors. Following is the rate schedule for non-employee director compensation for 20132014.
 
Cash
($)
 
Shares
(#)
 
Cash
($)
 
Shares
(#)
Annual Board Retainer        
New Member Initial Stock Grant (1) —
 1,000
 —
 1,000
Board Chairman 125,000
 3,500
 125,000
 3,750
Board Member 25,000
 2,500
 25,000
 2,750
Annual Committee Chairperson Retainer        
Audit Committee 10,000
 —
 10,000
 —
Nominating and Corporate Governance Committee 6,000
 —
 6,000
 —
Human Resources Committee 10,000
 —
 10,000
 —
Meeting Fees (2)        
Board Meeting 2,000
 —
 2,000
 —
Committee Meeting 2,000
 —
 2,000
 —
(1)We had no new members ofjoin our Board in 2013.2014.
(2)The Board Chairman does not receive meeting fees.


5250
Compensation of Executive Officers and Directors


The following table sets forth the 20132014 compensation received by our non-employee directors.
Name 
Fees Earned or Paid in Cash (1)
($)
 
Stock Awards
(2)
($)
 
Total
($)
 
Fees Earned or Paid in Cash (1)
($)
 
Stock Awards
(2)
($)
 
Total
($)
E. Linn Draper Jr., Chairman 125,000
 149,835
 274,835
 125,000
 160,538
 285,538
Stephen P. Adik 75,000
 107,025
 182,025
 67,000
 117,728
 184,728
Dorothy M. Bradley 51,000
 107,025
 158,025
 48,000
 117,728
 165,728
Dana J. Dykhouse 57,000
 107,025
 164,025
 61,000
 117,728
 178,728
Julia L. Johnson 69,000
 107,025
 176,025
 67,000
 117,728
 184,728
Philip L. Maslowe 75,000
 107,025
 182,025
 61,000
 117,728
 178,728
Denton Louis Peoples 65,000
 107,025
 172,025
 57,000
 117,728
 174,728
(1)Amounts deferred under the deferred compensation plan described above included $125,000 for Mr. Draper; $40,000$32,000 for Mr. Adik; $5,000 for Ms. Bradley; $69,000$67,000 for Ms. Johnson, $75,000Johnson; $61,000 for Mr. MasloweMaslowe; and $65,000$57,000 for Mr. Peoples.
(2)
These values reflect the grant date fair value of annual stock awards described above. Grant date fair value is calculated utilizing the provisions of Accounting Standards Codification 718, Stock Compensation. See Note 17 to the consolidated financial statements in our 20132014 Annual Report on Form 10-K for further information regarding assumptions underlying the valuation of equity awards. The grant date fair value of annual stock awards made during 20132014 was $42.81 per share. Mr. Draper, Mr. Adik, Ms. Bradley, Ms. Johnson, Mr. Maslowe, and Mr. Peoples deferred their 2013 grants2014 stock awards under the deferred compensation plan described below.above. The total deferred share units outstanding as of December 31, 2013,2014, are as follows: Mr. Draper – 85,827;95,112; Mr. Adik – 47,058;52,061; Ms. Bradley – 9,919;13,076; Ms. Johnson – 59,590;64,520; Mr. Maslowe – 53,273;- 59,114; and Mr. Peoples – 31,248.35,276.
Director Stock Ownership
We believe it is important that the interests of our Board members are aligned with the interests of our stockholders. Accordingly, we have robust stock ownership guidelines for our non-employee directors. Our stock ownership guidelines require each non-employee director to retain at least five times the value of his or her annual cash Board and committee chair retainer(s) in common stock or deferred stock units within five years of commencing service on our Board.
We believe it is important that the interests of our Board members are aligned with the interests of our stockholders. Accordingly, we have robust stock ownership guidelines for our non-employee directors. Our stock ownership guidelines require each non-employee director to retain at least five times the value of his or her annual cash Board and committee chair retainer(s) in common stock or deferred stock units within five years of commencing service on our Board.
Each of our directors has satisfied his or her stock ownership guideline requirements and has continued to increase his or her ownership level in excess of the requirements. This has resulted in our Board, in the aggregate, maintaining one of the highest stock ownership levels of any of our peers. The table set forth below shows the non-employee Board members’ stock ownership levels as of December 31, 2013.
Name 
Stock Ownership Requirement
($)
 
Number of Shares or DSUs Owned
(#)
 
Value of Shares or DSUs Owned
(1)
($)
 
Ownership as a Percent of Requirement
(1)
(%)
E. Linn Draper Jr., Chairman 625,000
 85,827
 3,718,026
 595%
Stephen P. Adik 175,000
 67,058
 2,904,953
 1,660%
Dorothy M. Bradley 125,000
 13,521
 585,730
 469%
Dana J. Dykhouse 125,000
 14,750
 638,970
 511%
Julia L. Johnson 155,000
 59,590
 2,581,439
 1,665%
Philip L. Maslowe 175,000
 53,273
 2,307,786
 1,319%
Denton Louis Peoples 125,000
 34,247
 1,483,580
 1,187%
(1)
Value and ownership percentage calculated as of December 31, 2013, using a closing stock price of $43.32.
As important as it was to achieve the required stock ownership levels, we and our Board believe it is equally significant that our non-employee directors have continued to retain and increase their stock ownership after meeting their stock ownership guidelines. None of our non-employee directors have sold or otherwise transferred any of their shares of our common stock.
Based on an analysis performed by Towers Watson in 2013, in terms In addition, as described above, for 2014, our directors deferred 73 percent of shares beneficially owned,their aggregate compensation into the level ofcompany’s common stock, even though they previously had satisfied their stock ownership guideline requirements.
The table set forth below shows the non-employee Board members’ stock ownership levels as of our non-employee directors as a whole is at the 88th percentile when compared with our peers. This level of ownership in comparison to our peers is significant because the same analysis showed that (a) our Board has fewer non-employee directors than any of our peers, (b) our Board memberDecember 31, 2014.
Name 
Stock Ownership Requirement
($)
 
Number of Shares or DSUs Owned
(#)
 
Value of Shares or DSUs Owned
(1)
($)
 
Ownership as a Percent of Requirement
(1)
(%)
E. Linn Draper Jr., Chairman 625,000
 95,112
 5,381,437
 861%
Stephen P. Adik 175,000
 52,061
 2,945,611
 1,683%
Dorothy M. Bradley 125,000
 16,796
 950,318
 760%
Dana J. Dykhouse 125,000
 14,750
 834,555
 668%
Julia L. Johnson 155,000
 64,520
 3,650,542
 2,355%
Philip L. Maslowe 175,000
 59,114
 3,344,670
 1,911%
Denton L. Peoples 125,000
 35,276
 1,995,916
 1,597%
(1)
Value and ownership percentage calculated as of December 31, 2014, using a closing stock price of $56.58.


5351
Compensation of Executive Officers and DirectorsStock Ownership Information


with the lowest ownership level owns more than any other corresponding peer and (c) our Board member at the median ownership level owns more than any other corresponding peer.
Thus, our Board, the smallest board in our peer group, has one of the highest aggregate stock ownership levels and our individual Board members compare favorably with, and in many instances outrank, their peers.
Stock Ownership Information
Our common stock is currently the only class of voting securities. The number of shares noted in the tables below are those beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which a person has sole or shared voting power or investment power and any shares which the person has the right to acquire within 60 days through the exercise of option, warrant, or right.
Security Ownership of Directors and Management
The following table sets forth certain information as of February 24, 201423, 2015, with respect to the beneficial ownership of shares of our common stock owned by our current directors, the named executive officers, and by all of our directors and executive officers as a group.
Amount and Nature of Beneficial Ownership  Amount and Nature of Beneficial Ownership 
Name of Beneficial Owner 
Unrestricted Shares of 
Common 
Stock Beneficially 
Owned Directly
(#)
 
Unrestricted Shares of 
Common 
Stock Beneficially 
Owned Indirectly
(#)
 
Deferred Stock Units
(#)
 
Total Shares of Common Stock Beneficially Owned
(#)
 
Percent of Common
Stock
(%)
 
Unrestricted Shares of 
Common 
Stock Beneficially 
Owned Directly
(#)
 
Unrestricted Shares of 
Common 
Stock Beneficially 
Owned Indirectly
(#)
 
Deferred Stock Units
(#)
 
Total Shares of Common Stock Beneficially Owned
(#)
 
Percent of Common
Stock
(%)
Stephen P. Adik (1) —
 20,000
 49,808
 69,808
 * —
 20,000
 54,811
 74,811
 *
E. Linn Draper Jr. —
 —
 90,268
 90,268
 * —
 —
 99,403
 99,403
 *
Dorothy M. Bradley 3,602
 —
 12,668
 16,270
 * 3,719
 —
 15,825
 19,544
 *
Dana J. Dykhouse 14,750
 —
 —
 14,750
 * 17,500
 —
 —
 17,500
 *
Julia L. Johnson —
 —
 62,340
 62,340
 * —
 —
 67,404
 67,404
 *
Philip L. Maslowe —
 —
 56,217
 56,217
 * —
 —
 58,204
 58,204
 *
Denton Louis Peoples 3,000
 —
 34,011
 37,011
 * 3,000
 —
 38,058
 41,058
 *
Robert C. Rowe (2) 6,677
 4,230
 89,686
 100,593
 * 7,018
 4,230
 116,828
 128,076
 *
Brian B. Bird 51,447
 —
 —
 51,447
 * 62,450
 —
 —
 62,450
 *
Heather H. Grahame 11,521
 —
 —
 11,521
 * 29,766
 —
 —
 29,766
 *
Curtis T. Pohl 12,083
 —
 —
 12,083
 * 19,302
 —
 —
 19,302
 *
Kendall G. Kliewer 4,874
 —
 11,703
 16,577
 * 7,590
 —
 12,079
 19,669
 *
Directors and Executive Officers as a Group (16 persons) 144,630
 24,230
 410,373
 579,233
 1.5 189,143
 24,230
 474,647
 688,020
 1.5
* Less than 1%.         
* Less than one percent.         
(1)Shares held indirectly by Mr. Adik represent shares held in a trust of which Mr. Adik and his spouse are co-trustees.
(2)Shares held indirectly by Mr. Rowe represent shares held in a SEP IRA owned by Mr. Rowe.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on information furnished to us and contained in reports filed with the SEC, as well as written representations that no other reports were required, NorthWestern believes that during 20132014 all of its directors and executive officers timely filed all reports required by Section 16 of the Exchange Act.


5452
Stock Ownership Information

Security Ownership of Certain Beneficial Holders
The following table sets forth information regarding whom we know to be the beneficial owners of more than five percent of our issued and outstanding common stock as of February 24, 201423, 2015. Such information is based on a review of statements filed with the SEC pursuant to Sections 13(d), 13(f), and 13(g) of the Exchange Act.
Name of Beneficial Owner 
Shares of 
Common Stock
Beneficially Owned
(#)
 
Percent of Common Stock
(%)
 
Shares of 
Common Stock
Beneficially Owned
(#)
 
Percent of Common Stock
(%)
BlackRock, Inc. (1) 4,425,064 11.5 4,585,078 10.0
40 East 52nd Street, New York, NY 10022
 
 
55 East 52nd Street, New York, NY 10022
 
The Vanguard Group, Inc. (2) 2,478,781 6.4 3,221,132 6.9
100 Vanguard Blvd., Malvern, PA 19355  
 
Deutsche Asset & Wealth Management Investment GmbH (3)
 2,835,000 6.0
Taunusanlage 12, 60325 Frankfurt am Main, Federal Republic of Germany 
T. Rowe Price Associates, Inc. (3)(4) 2,283,215 5.9 2,318,335 5.0
100 E. Pratt Street, Baltimore, MD 21202  
 
JPMorgan Chase & Co. (4) 2,099,265 5.4
270 Park Avenue, New York, NY 10017 
(1)
Reflects shares beneficially owned by BlackRock, Inc. as of December 31, 2013,2014, according to a statement on Schedule 13G filed with the SEC on January 10, 2014,12, 2015, which indicates that the beneficial owner, a holding company, or control person in accordance with Rule 13d-1(b)(1)(ii)(G), has sole voting power with respect to 4,297,0744,460,935 shares and sole dispositive power with respect to 4,425,0644,585,078 shares. The beneficial owner holds shared voting or dispositive power with respect to none of the shares. The Schedule 13G certifies that the securities were acquired in the ordinary course and not with the purpose or with the effect of changing or influencing the control of NorthWestern Corporation.
(2)
Reflects shares beneficially owned by The Vanguard Group, Inc., as of December 31, 2013,2014, according to a statement on Schedule 13G filed with the SEC on February 12, 2014,19, 2015, which indicates that the beneficial owner, an investment adviser in accordance with Rule 13d-1(b)(1)(ii)(E), has sole voting power with respect to 86,32669,413 shares and sole dispositive power with respect to 2,424,0553,159,419 shares. The beneficial owner has shared dispositive power with respect to 54,72661,713 shares and shared voting power with respect to none of the shares. The Schedule 13G certifies that the securities were acquired in the ordinary course and not with the purpose or with the effect of changing or influencing the control of NorthWestern Corporation.
(3)
Reflects shares beneficially owned by T. Rowe Price Associates, Inc.Deutsche Asset and Wealth Management Investment GmbH, as of December 31, 2013,2014, according to a statement on Schedule 13G filed with the SEC on February 10, 2014,17, 2015, which indicates that the beneficial owner, an investment adviser registered under Section 203 of the Investment Advisers Act of 1940,in accordance with Rule 13d-1(b)(1)(ii)(E), has sole voting power with respect to 538,7902,835,000 shares and sole dispositive power with respect to 2,283,2152,835,000 shares. The beneficial owner holds no shared voting or dispositive power with respect to any of the shares. The Schedule 13G certifies that the securities were acquired in the ordinary course and not with the purpose or with the effect of changing or influencing the control of NorthWestern Corporation.
(4)
Reflects shares beneficially owned by JPMorgan Chase & Co.T. Rowe Price Associates, Inc., as of December 31, 2013,2014, according to a statement on Schedule 13G filed with the SEC on JanuaryFebruary 17, 2014,2015, which indicates that the beneficial owner, a holding company or control personan investment adviser registered under Section 203 of the Investment Advisers Act of 1940 in accordance with Rule 13d-1(b)(1)(ii)(G), has sole voting power with respect to 2,043,596611,760 shares and sole dispositive power with respect to 2,098,7232,318,335 shares. The beneficial owner hasholds no shared voting power with respect to 542 shares and sharedor dispositive power with respect to 542any of the shares. The Schedule 13G certifies that the securities were acquired in the ordinary course and not with the purpose or with the effect of changing or influencing the control of NorthWestern Corporation.


5553
Other Matters

Other Matters
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents summary information about our Equity Compensation Plan. The table presents the following data as of the close of business on December 31, 2014:
a.The aggregate number of shares of our common stock subject to outstanding stock options, warrants, and rights, including unvested performance units and unvested restricted share units;
b.The weighted average exercise price (or grant date fair value) of those outstanding stock options, warrants, and rights; and
c.The number of shares that remain available for future option grants, excluding the number of shares to be issued upon the exercise of outstanding options, warrants, and rights.
For additional information regarding our long-term incentive plans and the accounting effects of our stock-based compensation, please see Note 17 to our Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2014.
Plan category 
Number of securities to be issued upon exercise of outstanding options, warrants, and rights
(a)
 
Weighted average exercise price of outstanding options, warrants, and rights
(b)
 
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
Equity compensation plans approved by security holders (1) 222,292
(2)$35.65(3)1,121,723
(4)
Equity compensation plans not approved by security holders       
     None —
 —
 —
 
Total 222,292
   1,121,723
 
(1)Consists of the NorthWestern Corporation Amended and Restated Equity Compensation Plan, which was re-approved by stockholders at the 2014 annual meeting.
(2)Consists of (a) 180,572 unvested performance units, with a weighted average grant date fair value of $35.77, granted to employees who participate in our LTIP, and (b) 41,720 unvested restricted share units, with a weighted average grant date fair value of $35.14, granted to executive officers under our ERRP. For descriptions of our LTIP and ERRP, please see the Compensation Discussion and Analysis section of this Proxy Statement.
(3)Amount represents the weighted average grant date fair value of the outstanding awards reflected in column (a).
(4)Awards under the Equity Compensation Plan can take the form of stock options, share appreciation rights, restricted and unrestricted share awards, deferred share units, and performance awards.



54
 

Proposals Requiring Your Vote
At the annual meeting, stockholders will consider and our Board asks you to vote on the following items of business:
ŒElection of all theeight individuals to serve as members of our Board for a one-year term. TheSeven of the eight individuals nominated for election currently are currently serving on our Board.
Ratification of the appointment of ourDeloitte & Touche LLP as the company’s independent registered public accounting firm for 2014. We have appointed Deloitte & Touche LLP for this role.2015.
ŽApproval of our equity compensation plan.
Approval of the compensation for our named executive officers through an advisory say­on-paysay-on-pay vote.
Transaction of any other matters and business as may properly come before the annual meeting or any postponement or adjournment of the annual meeting.
The first fourthree proposals listed above are discussed individually in more detail on the following pages of this proxy statement and will be presented at the annual meeting for your vote.
The Board of Directors recommends a vote “FOR” Proposals 1, 2, 3 and 4.3.
When voting by Internetinternet or telephone, you will be instructed how to cast your vote for or against or to abstain from voting on these proposals. If you received a printed copy of your proxy materials, space is provided on the proxy card to vote for or against or abstain from voting on each of the proposals.



56

Proposal 1
Election of Directors
Our Board is nominating eight individuals for election as directors at the annual meeting. All nominees are currently serving as directors of the company. In accordance with our Certificate of Incorporation and our Bylaws, all members of our Board are elected annually, to serve until the next annual meeting of stockholders and until their successors are duly elected and qualify. Our Bylaws currently authorize a Board consisting of not fewer than five nor more than 11 persons. We currently have eight seats on our Board; however, if any director is unable to complete his or her term, the Board, by resolution, may reduce the number of directors or choose a substitute to fill the vacated position.
The
Our Board is nominating eight individuals for election as directors at the annual meeting. All nominees, with the exception of Directors recommends a vote “FOR” electionJan R. Horsfall, are currently serving as directors of the company. In accordance with our certificate of incorporation and our bylaws, all members of our Board are elected annually, to serve until the next annual meeting of stockholders and until their successors are duly elected and qualify. Our bylaws currently authorize a Board consisting of not fewer than five nor more than 11 persons. We currently have eight nominees.seats on our Board; however, if any director is not elected or is unable to complete his or her term, the Board, by resolution, may reduce the number of directors or choose a substitute to fill the vacant position.
The nominees for election to the eight positions on our Board, selected by our NCG Committee and proposed by our Board to be voted upon at the annual meeting, are:

Stephen P. AdikJulia L. Johnson
Dorothy M. Bradley55
Philip L. Maslowe
E. Linn Draper Jr.Denton Louis Peoples
Dana J. DykhouseRobert C. RoweProposal 1 — Election of Directors


Our goal is to maintain a diverse Board that operates cohesively and challenges management in a constructive way. The NCG Committee has not established specific minimum qualifications for director nominees or set forth specific qualities or skills that the committee believes are necessary for one or more directors to possess. Instead, in considering director candidates, the NCG Committee considers the diversity of our Board and takes into account whether the Board as a whole has the skills, experience, and background that add to and complement the range of skills, experience, and background of each director, based on the following: integrity, accomplishments, business judgment, experience and education, commitment, representation of stockholders, industry knowledge, independence, financial literacy, race, and gender. With the exception of the company’s CEO, all of our directors are independent, as required to be independent.by our Corporate Governance Guidelines. Our Board also determined that no family relationships exist with any current directors, executive officers or newly-nominated directors, except that current director Dana Dykhouse and newly-nominated director Jan Horsfall are first cousins.
When nominating persons to serve on our Board, the NCG Committee considers individuals who can add value to the strategic policymaking and oversight responsibilities of the Board and provide skills and personal experiences that add to and complement the skills, experience, and background of the Board as a whole and are needed to achieve the company’s corporate objectives. A director’s ability to contribute to the Board, the time he or she has available and his or her participation on other boards also are considered because we believe these are important factors that enhance the quality of the Board’s decision-making, its oversight of management, and our business overall. The NCG Committee believes that our incumbent Board members, along with the new nominee, collectively possess the experience, skills, and attributes necessary to lead the company to a long and successful future. TheBiographical information and the individual qualifications of each nominee are described beginning on page 1110 of this proxy statement.
Unless authority to vote for the election of directors has been specifically withheld, the persons named in the accompanying proxy intend to vote “FOR” the election of director nominees Adik, Bradley, Draper, Dykhouse, Horsfall, Johnson, Maslowe, Peoples, and Rowe to hold office as directors until the next annual meeting of stockholders in 20152016 and until their successors are duly elected and qualified. All nominees have advised the Board that they are able and willing to serve as directors.
If any nominee becomes unavailable for any reason (which is not anticipated), the shares represented by the proxies may be voted for such other person or persons as may be determined by the holders of the proxies (unless a proxy contains instructions to the contrary). In no event will the proxy be voted for more than eight nominees.
Directors will be elected by a favorable vote of a plurality of the shares of voting stock present and entitled to vote, in person or by proxy, at the annual meeting. Accordingly, abstentionsYou may vote “FOR” all of the nominees or you may “WITHHOLD AUTHORITY” for one or more of the nominees. Withheld votes will not count as votes cast for the nominee, but will count for purposes of determining whether a quorum is present. Stockholders do not have the right to cumulate their vote for directors. Abstentions or broker non-votes as to the election of directors will not affect the election of the candidates receiving a plurality of votes; however,

57
Proposal 1 — Election of Directors


under our Majority Plus Resignation Vote Policy described below, if a nominee for director receives more “WITHHOLD AUTHORITY” votes than “FOR” votes, such nominee shall immediately tender his or her resignation under the procedures in the policy.
Director Majority Plus Resignation Vote Policy
The Board has in place a Majority Plus Resignation Vote Policy for the election of directors. The policy provides that, in an uncontested election, any nominee for director who receives a greater number of “WITHHOLD AUTHORITY” votes from his or her election than votes “FOR” such election (a “Majority(or a Majority Withheld Vote”)Vote) shall promptly tender his or her resignation following certification of the stockholder vote.
Under this policy, the NCG Committee shall promptly consider the resignation offer and a range of possible responses based on the circumstances that led to the Majority Withheld Vote, if known, and make a recommendation to the Board. The Board will act on the NCG Committee’s recommendation within 90 days following certification of the stockholder vote. Thereafter, the Board will promptly disclose its decision-making

56
Proposal 1 — Election of Directors




process and decision regarding whether to accept the director’s resignation offer (or the reason(s) for rejecting the resignation offer, if applicable) in a Current Report on Form 8-K furnished to the SEC.
Any director who tenders his or her resignation pursuant to this provision shall not participate in the NCG Committee’s recommendation or Board action regarding whether to accept the resignation offer. However, if each member of the NCG Committee receives a Majority Withheld Vote at the same election, then the independent directors who did not receive a Majority Withheld Vote shall appoint a committee amongstamong themselves to consider the resignation offers and recommend to the Board whether to accept them. If the only directors who did not receive a Majority Withheld Vote in the same election constitute three or fewer directors, all directors may participate in the action regarding whether to accept the resignation offers, with each director recusing himself or herself from consideration of his or her resignation offer.
The Board of Directors recommends a vote “FOR”
the election of our eight nominees.


58

Proposal 2
Ratification of Independent Registered Public Accounting Firm
Our Audit Committee has selected Deloitte & Touche LLP as our independent registered public accounting firm to audit our financial statements for the year ending December 31, 2014,
Our Audit Committee has selected Deloitte & Touche LLP as our independent registered public accounting firm to audit our financial statements for the year ending December 31, 2015, and recommends that stockholders vote for ratification of such appointment. Although action by the stockholders is not required by law, the Audit Committee and the Board have determined that it is desirable to request approval of this selection by the stockholders. Notwithstanding the selection, the Audit Committee, in its discretion, may direct the appointment of a new independent registered public accounting firm at any time during the year if the Audit Committee feels that such a change would be in the best interests of the company and its stockholders. In the event of a negative vote on ratification, the Audit Committee will reconsider its selection.
The Board of Directors recommends a vote “FOR” the ratification of
Deloitte & Touche LLP as our independent registered public accounting firm.
Representatives of Deloitte will be present at the annual meeting and will be given the opportunity to make a statement if they so desire and to respond to appropriate questions. The following table is a summary of the fees billed to us by Deloitte for professional services for the fiscal years ended December 31, 20132014 and 20122013:
Fee Category 
Fiscal 2013
Fees
($)
 
Fiscal 2012
Fees
($)
 
Fiscal 2014
Fees
($)
 
Fiscal 2013
Fees
($)
Audit fees 1,304,675
 1,282,650
 1,322,600
 1,304,675
Audit-related fees —
 —
 —
 —
Tax fees 113,566
 180,756
 367,325
 113,566
All other fees —
 —
 —
 —
Total fees 1,418,241
 1,463,406
 1,689,925
 1,418,241
Audit Fees
Audit fees consist of fees billed for professional services rendered for the audit of our financial statements, internal control over financial reporting, review of the interim financial statements included in quarterly reports, services in connection with debt and equity securities offerings, and services that are normally provided by Deloitte in connection with statutory and regulatory filings or engagements. For 20132014, this amount includes estimated billings for the completion of the 20132014 audit, which wereDeloitte rendered after year-end.

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Proposal 2 — Ratification of Independent Registered Public Accounting Firm


Audit-related Fees
Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees.” There were no audit-related fees in fiscal 20132014 and 20122013.
Tax Fees
Tax fees consist of fees billed for tax compliance, tax advice and tax planning.
All Other Fees
All other fees consist of fees for products and services other than the services reported above. In fiscal years 20132014 and 20122013, there were no other fees.

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Proposal 2 — Ratification of Independent Registered Public Accounting Firm


Pre-approval Policies and Procedures
Rules adopted by the SEC in order to implement requirements of the Sarbanes-Oxley Act of 2002 require public company audit committees to pre-approve audit and non-audit services. Our Audit Committee follows procedures pursuant to which audit, audit-related, and tax services and all permissible non-audit services, are pre-approved by category of service. The fees are budgeted, and actual fees versus the budget are monitored throughout the year. During the year, circumstances may arise when it may become necessary to engage the independent public accountants for additional services not contemplated in the original pre-approval. In those instances, we will obtain the specific pre-approval of the Audit Committee before engaging the independent public accountants. The procedures require the Audit Committee to be informed of each service, and the procedures do not include any delegation of the Audit Committee’s responsibilities to management. The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated will report any pre-approval decisions to the Audit Committee at its next scheduled meeting.
Pursuant to the provisions of the Audit Committee Charter, before Deloitte is engaged to render audit or non-audit services, the Audit Committee must pre-approve such engagement. For 20132014, 100 percent of the tax fees were pre-approved by the Audit Committee or(or the Chairman of the Audit Committee pursuant to delegated authority.authority) pre-approved 100 percent of the tax fees.
Leased Employees
In connection with their audit of our 20132014 annual financial statements, more than 50 percent of Deloitte’s work was performed by full-time, permanent employees of Deloitte.
The affirmative vote of the holders of a majority in voting power of the shares of our common stock which are present in person or represented by proxy and entitled to vote thereon is required to ratify the selection of Deloitte. Brokers may vote a client’s proxy in their own discretion on this proposal, and accordingly, “broker non-votes” will not affect the outcome of the vote on the proposal. Abstentions will have the same effect as a vote against the proposal. Unless instructed to the contrary in the proxy, the shares represented by the proxies will be voted “FOR” the proposal to ratify the selection of Deloitte to serve as the independent registered public accounting firm for NorthWestern Corporation for the fiscal year ending December 31, 20142015.
The Board of Directors recommends a vote “FOR”
the ratification of Deloitte & Touche LLP as our
independent registered public accounting firm.




60

Proposal 3
Approval of Equity Compensation Plan
We are asking stockholders to approve The NorthWestern Corporation Amended and Restated Equity Compensation Plan, or the Plan, which amends and restates the NorthWestern Corporation Amended and Restated 2005 Long-Term Incentive Plan, or the 2005 Plan. Accordingly, the Board approved the Plan and recommends approval by stockholders. If approved by stockholders, the Plan will become effective July 1, 2014. The Plan is an important part of our pay-for-performance compensation program. The Board considers equity compensation to be a significant component of total compensation for NorthWestern’s officers and other employees. With the expiration of the 2005 Plan on March 9, 2015, the Board feels approval of the Plan is important for the continuation of our pay-for-performance compensation program.
The Board of Directors recommends a vote FOR the approval of the Plan.
To approve the Plan, a majority of shares present in person or represented by proxy at the meeting and entitled to vote on the proposal must be voted “FOR,” provided that the total number of votes cast on the proposal represents more than 50 percent of the total shares outstanding and entitled to vote. Abstentions will be counted as shares present at the meeting and as votes cast on the proposal and will have the effect of a vote against the proposal. Broker non-votes will not be counted as shares entitled to vote on the matter or as votes cast on the proposal, but will be counted in the number of outstanding shares. Failure to instruct your brokerage firm how to vote shares held in a brokerage account could impair our ability to get the Plan approved. If stockholders do not approve Proposal 3, the amendment and restatement of the 2005 Plan as the Plan will not become effective, and the 2005 Plan will continue to remain in effect until its expiration on March 9, 2015.
As indicated above, the Plan is intended to amend and restate the 2005 Plan. The Plan contains the following significant changes from the 2005 Plan:
600,000 additional shares of common stock authorized for issuance under the Plan;
The addition of “conversion awards” that permit the Company to issue awards under the Plan in connection with conversion or assumption of awards held by employees of an entity acquired or merged into the Company. Such conversion awards will not count toward the overall share limit under the Plan;
Acceleration of outstanding awards upon a change of control is no longer automatic, but instead will be up to the discretion of the HR Committee; and
The term of the Plan will expire June 30, 2024.
In addition, several other administrative changes are reflected in the Plan to specifically accommodate electronic book-entry awards and miscellaneous changes consistent with Section 409A of the Internal Revenue Code.
The full text of the Plan is attached to this proxy statement as Appendix A. The following discussion is a summary of the Plan, and you may wish to review Appendix A in its entirety.
Purpose of the Plan
The 2005 Plan has served a critical role in our pay-for-performance compensation program. We believe equity awards are the simplest, most direct way to align the interests of our executives, senior management and board members with those of stockholders. In order to balance compensation principles with stockholder interests in limiting dilution, we generally have restricted employee equity awards to more senior positions.
A core objective of our equity awards under the 2005 Plan has been to focus on long-term sustainable results. We have granted two types of performance-based awards in recent years. The first type of award is a

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Proposal 3 — Approval of EquityAdvisory Vote to Approve Named Executive Officer Compensation Plan


performance unit that vests, if earned, over a three-year performance period, based on the achievement of pre-established corporate financial goals and relative total stockholder return. We believe that performance-based grants — with payouts tiedProposal 3
Advisory Vote to financial performance, continued service over a three-year period and the value of our stock — motivate our executives and other leaders at our company to focus on long-term improvement in stockholder value. The second type of award is a restricted share unit award that also utilizes performance measures, but over a five-year performance period. These restricted share units address our executive retirement/retention objectives as well as our core objective of long-term sustainable results.

The 2005 Plan also provides the means for the annual stock-based compensation paid to our Board members and the means for Board members and certain employees to defer all or a portion of certain of their compensation into deferred share units of company stock.
Highlights of the Plan
No discounted awards. Awards that have an exercise price or base value cannot be granted with an exercise price or base value less than the fair market value on the grant date.
No evergreen provision. There is no evergreen feature under which the shares authorized for issuance under the Plan can be automatically replenished.
No repricing or replacement without stockholder approval. The Plan does not permit repricing of options or share appreciation rights or the exchange of underwater options or share appreciation rights for cash or other awards with an exercise price that is less than the exercise price of the original awards without stockholder approval, except in connection with certain corporate transactions involving NorthWestern or a change in control.
No liberal share recycling. Shares delivered to the company to pay the exercise price or withholding taxes in connection with the exercise of an outstanding stock option or share appreciation right, and shares otherwise transferred or relinquished in connection with any stock option or share appreciation right do not become available for issuance as future awards under the Plan.
No dividends on unvested awards. The Plan prohibits the payment of dividends and dividend equivalents on unvested performance units, options and share appreciation rights.
No automatic acceleration upon a change in control. Vesting of awards under the Plan does not automatically accelerate upon a change in control of the company. The Plan provides the HR Committee with discretion to accelerate awards.
Material amendments that require stockholder approval. Material changes, including increasing the number of shares authorized for issuance and changing the restrictions on repricing, require stockholder approval.
Administered by an independent HR Committee. The Plan is administered by the HR Committee of our Board; the HR Committee is made up entirely of independent directors.
Additional Shares to be Authorized Under the Plan
As described above, equity compensation is a significant component of the total compensation of our officers and other employees. The Plan supports this overall compensation strategy by providing a means for granting equity awards to attract and retain talent. The material change to the Plan approved by the HR Committee and the Board is an increase in the number of shares of common stock authorized under the Plan.
As of February 24, 2014, there are 563,417 unused shares that are available for awards under the 2005 Plan out of the 2,037,637 shares which stockholders previously authorized for use. We are seeking your authority to make an additional 600,000 shares available for awards under the Plan. If approved, a total of 2,637,637 shares would be authorized under the plan, with 1,163,417 shares unused and available for awards.

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Proposal 3 — Approval of EquityApprove Named Executive Officer Compensation Plan


Factors Considered
In setting the number of proposed additional shares issuable under the Plan, the HR Committee and the Board considered a number of factors. These factors, each of which is discussed in greater detail below, included:
Shares currently available under the Plan and how long the shares available (both currently and assuming the approval by stockholders of this Proposal 3) are expected to last.
Historical equity award granting practices, including our three-year average share usage rate (commonly referred to as burn rate).
Impact of total outstanding equity awards under the Plan.
Expected value transfer and dilution.
Compliance with Internal Revenue Code section 162(m).
Shares Currently Available under the Plan. As of February 24, 2014, we had 38,815,464 shares of common stock issued and outstanding (not including treasury shares) and 563,417 shares of common stock were available for future awards under the Plan, assuming unvested performance stock awards at target (293,145 shares available with such awards at maximum). The HR Committee and the Board considered that the shares currently available under the Plan may not be sufficient to cover future equity awards in the near term. As of February 24, 2014, the proposed 600,000 additional shares would represent approximately 1.5 percent of the then-issued and outstanding shares of common stock, and, assuming the approval by stockholders of this Proposal 3, the aggregate of approximately 1,163,417 shares remaining available under the Plan would represent approximately 3 percent of the then-issued and outstanding shares of common stock. The proposed additional shares, together with shares currently available under the Plan are expected to be sufficient, based on historical granting practices and the recent trading price of our common stock, to cover awards for approximately five years.
Historical Equity Award Practices. In setting and recommending to stockholders the increase in the number of shares authorized under the Plan, the HR Committee and the Board also considered the historical number of equity awards utilized under the Plan in the past two years. In 2011, 2012 and 2013, we used 110,326 shares, 178,255 shares and 178,607 shares, respectively, of the shares authorized under the Plan with respect to (1) vested performance share units awards, (2) the annual equity portion of our Board member compensation, and (3) deferred share units elected to be received by participants in lieu of compensation or vested awards.
Further, the HR Committee and the Board considered an analysis conducted by the HR Committee’s independent compensation consultant, which determined our three-year average burn rate of 1.26 percent, based on our annual stock price volatility of 17.4 percent and the assignment of a 3.0 multiplier for restricted shares or other full value awards. The table that follows depicts our average burn rate, as calculated by the HR Committee’s independent compensation consultant, adjusting the full-value shares granted under the Plan by the 3.0 multiplier. The resulting average burn rate is significantly lower than the industry thresholds established by certain major proxy advisory firms.
Fiscal YearOptions GrantedFull-Value Shares GrantedTotal Granted (1)Basic Weighted Average Common Shares OutstandingBurn Rate
2013—178,255534,76538,144,8521.40%
2012—178,607535,82136,847,4271.45%
2011—110,326330,97836,258,4630.91%
    Three-year avg. burn rate1.26%
(1)Total Granted = (Options Granted + Full-Value Shares Granted) multiplied by the 3.0 multiplier.


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Proposal 3 — Approval of Equity Compensation Plan


Impact of Total Outstanding Equity Awards under the Plan. The HR Committee and the Board also considered the total number of equity awards outstanding under the Plan. Since the inception of the Plan in 2005, stockholders have approved the issuance of up to 2,037,637 shares. As of February 24, 2014, there are a total of 707,273 shares of common stock to be issued on the exercise of outstanding awards under the Plan, which total includes 296,900 shares for outstanding performance awards at target, and 410,373 shares for outstanding deferred share units. The table below lists the total shares authorized and issued under the Plan as of February 24, 2014 and the shares needed for outstanding awards and deferrals.
Total Shares Authorized under the Equity Plan as of February 24, 2014
Total shares authorized under Plan2,037,637
Shares issued under Plan1,474,220
Shares needed for outstanding awards at target296,900
Shares needed for outstanding awards at maximum (1)567,172
Shares needed for outstanding deferred share units410,373
Unexercised stock options to purchase shares of common stock—
(1)Represents shares needed for (a) performance units awards assuming performance at maximum for the three-year performance cycles ending December 31, 2014, 2015 and 2016 and (b) our ERRP restricted share units for our five-year performance cycles ending December 31, 2016, 2017 and 2018. Actual performance of performance awards for the three-year performance cycle ending December 31, 2013 was 92.5 percent. Actual performance of our ERRP restricted share units awards will not be available until the first of such annual awards vests on December 31, 2016.
Expected Value Transfer and Dilution. In addition, the HR Committee and the Board considered the stockholder value transfer and dilution policies of certain institutional investors and major proxy advisory firms. They also considered the fact that the additional 600,000 shares proposed to be authorized under the Plan, along with the shares currently available under the Plan and associated with outstanding equity awards, are expected to result in basic dilution of 4.82 percent.
Basic dilution is calculated as shown below.
Basic =
(Plan shares currently available)
+
(Plan sharesThe company is providing stockholders an opportunity to be issued on exercise or conversion of outstanding equity awards)
+
(additional Plan shares proposedprovide an advisory vote to be authorized)
Dilution
Total number of issued and outstanding shares of common stock
(excluding treasury shares)
4.82%=(563,417) + (707,273) + (600,000)
38,815,464
Compliance with Internal Revenue Code section 162(m). Performance-based awards granted under the Plan are intended to be eligible to qualify as “performance-based compensation” that would be fully deductible under Internal Revenue Code section 162(m). The HR Committee and the Board further considered that stockholders last approved the Plan in 2011 and that, in order for awards issuable under the Plan to be eligible to qualify as “performance-based compensation” (and therefore qualify for exemption from the tax deduction limitations under Internal Revenue Code section 162(m)), the performance goals and other material terms of the Plan must be approved by stockholders at least every five years.
In addition to satisfying New York Stock Exchange requirements and requirements under the Internal Revenue Code relating to incentive stock options, stockholder approval of the Plan will also constitute reapproval of the performance goals and other material terms of the Plan in order to be eligible to qualify as “performance-based”approve named executive officer compensation for purposes of Internal Revenue Code section 162(m), as described below.

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Proposal 3 — Approval of Equity Compensation Plan


Material Features of the Equity Compensation Plan
The following description of the material features of the Plan is qualified in its entirety by reference to Appendix A, which contains the complete text of the Plan.
Administration
The Plan provides that the HR Committee will administer the Plan, but the Board may act in lieu of the Committee on any matter, subject to compliance with Internal Revenue Code section 162(m) and Section 16(b) of the Securities Exchange Act of 1934. The Plan also provides that each individual member of the HR Committee must be independent under applicable standards or regulations adopted by the New York Stock Exchange (or any such other national securities exchange on which the shares of our common stock may be listed). Because the HR Committee is currently performing administration duties, throughout the following discussion we refer to the administrator as the HR Committee. The HR Committee has full and final authority under the Plan to determine eligibility and types and terms of awards and to interpret and administer the Plan.
Prohibition on Repricing and Buy-Outs of Options and Share Appreciation Rights
Without stockholder approval, the HR Committee may not amend outstanding options or share appreciation rights to reduce the exercise price of the award or cancel options or share appreciation rights in exchange for either cash or other securities or other awards or options or share appreciation rights with an exercise price that is less than the exercise price of the original options or share appreciation rights, except in connection with a change of control or a corporate transaction involving NorthWestern, including, for example, a stock dividend, stock split, combination of shares, recapitalization, reclassification or other change in our capital structure, or any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities or any other transaction or event described in the Plan’s award adjustment provisions.
Eligibility
Awards may be made to any of our employees (as of December 31, 2013, we had approximately 1,500 employees) and members of our Board. In determining which employees will receive awards, the HR Committee will consider such factors as it deems relevant in order to promote the purposes of the Plan. In 2014, we anticipate that approximately 100 employees and all of the members of our Board will receive awards under the Plan.
Types of Awards
Awards may be in the form of performance awards, restricted shares, restricted share units, unrestricted shares, deferred share units, options, share appreciation rights and other awards including the payment of stock in lieu of cash under our other incentive or bonus programs or otherwise and payment of cash based on attainment of performance goals. Share-based awards relate to shares of our common stock.
To date, only performance awards, restricted shares, restricted share units, unrestricted shares and deferred share units have been granted under the 2005 Plan. We have not granted any options or share appreciation rights under the 2005 Plan. We do not anticipate changing these practices under the Plan.
Performance Awards
The HR Committee may award performance units. Subject to the limits in the Plan, the HR Committee has discretion to determine the number of performance units to be awarded and the terms and conditions of the awards, including the applicable performance period and specific performance goals. The Plan prohibits the payment of dividends and dividend equivalents on unvested performance units. The value of a performance unit paid in shares is based on the fair market value of a share of our common stock at the time of grant. The extent to which the performance goals are met during the performance periods established by the HR Committee will determine the number and/or value of performance units that will be paid to employees.

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Payment of the value of earned performance units after the end of the performance period will be made in cash or stock or a combination of cash and stock, as determined by the HR Committee. The awards may be granted subject to such other restrictions and terms as the HR Committee determines. Each award is evidenced by an agreement that specifies the number of units being awarded, any restrictions or vesting conditions, the performance goals and any other terms the HR Committee may deem appropriate such as provisions relating to a change of control and dividend equivalent rights. To date, performance units have been the primary awards granted under the 2005 Plan, and all award agreements have provided that no dividends will be paid on any unvested awards.
Restricted Shares, Restricted Share Units and Unrestricted Shares
The HR Committee also may award restricted and unrestricted shares of our common stock and restricted share units. Subject to the limits in the Plan, the HR Committee has discretion to determine the number of shares or units to be awarded and the terms and conditions of the awards, including performance goals. The right to vest or receive distributions or payments with respect to restricted share and restricted share unit awards may be conditioned upon attainment of performance goals or continued service. Each award is evidenced by an agreement that specifies the number of shares or units being awarded, any restrictions or vesting conditions, any applicable performance goals and other terms the HR Committee may deem appropriate, such as provisions relating to a change of control and a participant’s termination of employment.
Restricted share units are settled in shares of our common stock.
During the restricted period, restricted shares and restricted share units may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated. Under the Plan, employees holding restricted shares may exercise full voting rights with respect to those shares during the restriction period and, unless otherwise provided in an award agreement, upon vesting, will receive an amount equal to any cash dividends (plus, in the discretion of the HR Committee, simple interest) and a number of shares equal to any stock dividends, which were declared and paid during the restricted period. However, none of our outstanding award agreements provide for voting rights or the payment of any dividends prior to the vesting of such awards. We do not anticipate changing our practice, notwithstanding the language of the Plan.
To date, we have issued unrestricted shares under the 2005 Plan only with respect to the annual equity portion of our Board member compensation. Going forward, we do not anticipate issuing unrestricted shares under the Plan other than with respect to the annual equity portion of our Board member compensation.
Deferred Share Units
The HR Committee also may permit select individuals (as described in the Plan) to forego, or defer, the receipt of cash or other compensation (including any awards made under the Plan), and in place of such compensation receive deferred share units having a fair market value equal to the awards or other compensation deferred. Unless an award agreement provides otherwise, any person electing to defer compensation and receive deferred share units are 100 percent vested at all times in any shares subject to the deferred share units. Following a deferring individual’s termination of service with us, such individual will receive one share of our common stock for each deferred share unit in five substantially equal annual installments as specified in the Plan, unless the individual selects a different distribution option permitted under the Plan. Dividends which are declared and paid during the deferral period are reinvested in additional deferred shares. Our director deferred plan and officer deferred plan are the means through which our directors and officers may defer receipt of cash or other compensation and receive deferred share units under the Plan. For a further discussion of the officer deferred plan, please see the “Compensation Discussion and Analysis—Other Compensation and Policies—Non-qualified Deferred Compensation” section in this proxy statement.
Options
The Plan permits the HR Committee to grant nonqualified options and incentive stock options. To date, we have not granted any nonqualified options or incentive stock options under the Plan.

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Subject to the limits in the Plan, the HR Committee has discretion to determine the number of options to be awarded and the terms and conditions of the awards. The Plan prohibits the payment of dividends and dividend equivalents with respect to any option. Each award must be evidenced by an agreement that specifies the number of shares subject to the award, the exercise price, the option term and exercise periods, the vesting schedule and other terms the HR Committee may deem appropriate such as provisions relating to a change of control and vesting and forfeiture upon a participant’s termination of employment. No dividend equivalents may be provided with respect to options.
The option exercise price may not be less than the fair market value of a share of our common stock on the grant date, and the option term may not exceed ten years. Options may be exercised by delivery of a notice of intent to purchase a specific number of shares. Payment may be made in cash or its equivalent, by tendering previously acquired shares of common stock, by means of a broker-assisted cashless exercise, or any combination of the foregoing.
Options may not be granted with a reload feature, which entitles the option holder to receive additional options when exercising options by tendering shares. The HR Committee may not reprice any options without stockholder approval, including the cancellation of options in exchange for options with a lower exercise price or for cash or other securities (other than in connection with certain corporate transactions involving NorthWestern or a change in control).
Share Appreciation Rights
The Plan permits the HR Committee to grant share appreciation rights. To date, no share appreciation rights have been granted under the Plan. Subject to the limits in the Plan, the HR Committee has discretion to determine the number of share appreciation rights to be awarded and the terms and conditions of the awards. The Plan prohibits the payment of dividends and dividend equivalents with respect to share appreciation rights. Each award is evidenced by an agreement that specifies the number of shares subject to the award, the base value of the award, the award’s term and exercise periods, the vesting schedule and other terms the HR Committee may deem appropriate such as provisions relating to a change of control and vesting and forfeiture upon a participant’s termination of employment. A share appreciation right’s exercise price may not be less than the fair market value of a share of our common stock on the grant date, and a share appreciation right’s term may not exceed ten years. No dividend equivalents may be provided with respect to share appreciation rights.
Share appreciation rights may be granted alone or in tandem with options or in any combination of these forms. Upon exercise of a share appreciation right, an employee will receive payment in an amount equal to the product of the excess of the fair market value of a share of our common stock on the date of exercise over the base value multiplied by the number of shares with respect to which the share appreciation right is exercised. The HR Committee may not reduce the exercise price of a share appreciation right without stockholder approval, including canceling a share appreciation right in exchange for an award with a lower exercise price or for cash or other securities (other than in connection with certain corporate transactions involving NorthWestern or a change in control).
Other Awards
The HR Committee may grant other awards which may include the payment of stock in lieu of cash, including cash payable under our other incentive or bonus programs, and the payment of cash based on attainment of performance goals established by the HR Committee. None of these other awards have been granted to date under the Plan.
Section 162(m); Performance Goals
Internal Revenue Code Section 162(m) generally limits income tax deductions of publicly-traded companies to the extent total compensation (including base salary, annual bonus, stock option exercises) for certain executive officers exceeds $1 million in any one taxable year. Under Section 162(m), the deduction limit does not apply to certain “performance-based” compensation which conforms to certain restrictive conditions stated under the Code and related regulations. The Plan has been structured with the intent that awards granted

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Proposal 3 — Approval of Equity Compensation Plan


under the Plan may meet the requirements for “performance-based” compensation and Section 162(m). Options and share appreciation rights granted under the Plan are intended to qualify as “performance-based” under Section 162(m) so long as they are granted at an exercise price not less than the value of our common stock on the grant date. Other awards under the Plan may qualify as “performance-based” awards under Section 162(m) if they vest or become payable only upon attainment of pre-established performance goals.
Certain awards under the Plan may be based on achievement of performance goals. These goals are established by the HR Committee and will be based on one or more of the following performance measures, which take into account the business or financial goals of the company, an affiliate or a business unit thereof:
lbasic, diluted, or adjusted earnings per share;leconomic value added;
lsales or revenue;lworking capital;
lreturns on equity, assets, capital, revenue or similar measure;ltotal stockholder return; and
lbasic or adjusted net income;lmergers, acquisitions, sales of assets.
learnings before interest, taxes and other adjustments (in total or on a per share basis);
The HR Committee determines the specific performance goals using the performance measures listed above, and such performance goals and measures may be absolute in their terms or measured against or in relationship to the performance of indices or other companies, including a peer group. In addition, the HR Committee will determine each performance measure, to the extent applicable, in accordance with generally accepted accounting principles as consistently applied by the company (or such other objective standard applied by the HR Committee). If so determined and to the extent permitted under Section 162(m)say-on-pay vote), the HR Committee may adjust such measure to omit the effects of extraordinary items, gain or loss on the disposal of a business segment, unusual or infrequently occurring events and transactions and cumulative effects of changes in accounting principles. To the extent an award has been designated by the HR Committee as a performance compensation award intended to qualify as performance-based compensation for purposes of Section 162(m), the performance period, the performance measure(s) and performance formula(e) shall not be amended or otherwise modified to the extent such amendment or modification would cause the compensation payable pursuant to the award to fail to constitute qualified performance-based compensation under Section 162(m). Performance measures may vary from period to period and from participant to participant, and the HR Committee may establish such measures on a stand-alone basis, in tandem or in the alternative.
A vote in favor of approving the Plan will be a vote approving all the material terms and conditions of the 2005 Plan and the Plan for purposes of the performance-based exemption under Section 162(m), including the performance measures, eligibility requirements and limits on various stock awards, in each case as described above.
Fungible Pool
Each share issued pursuant to any form of award under the Plan will reduce the number of shares available under the Plan by one share. Shares of stock underlying awards that are lapsed or forfeited restricted stock awards, that are expired or canceled, that are settled in cash, or that are otherwise settled without delivery of shares of stock will not be treated as having been issued under the Plan. Shares which are used to pay the exercise price for an option or share appreciation right and shares withheld to pay taxes will be treated as having been issued under the Plan. With respect to stock-settled share appreciation rights, the full number of shares underlying the exercised portion of the share appreciation right will be treated as having been issued under the Plan (regardless of the number of shares actually used to settle the share appreciation right upon exercise).

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Limits on Awards
The Plan contains the following per-participant limitations on awards granted under the Plan so that such awards will qualify as “performance-based compensation” under Internal Revenue Code section 162(m):
The total number of shares of stock with respect to which options or share appreciation rights may be granted in any calendar year to any participant may not exceed 200,000 shares.
The maximum performance awards that may be received for any one performance period for any one participant may not exceed 200,000 shares and $1,000,000 in cash.
Elective Share Withholding
Under the Plan, an employee is deemed to have directed the Company, in the absence of any other arrangement, to withhold shares with a fair market value in an amount required to satisfy the minimum federal, state and local tax withholding requirements upon the vesting of a performance share or performance share unit award, the exercise of an option or share appreciation right, the vesting of a restricted share or restricted share unit award, or any other taxable event in respect to an award granted under the Plan.
Limits on Transferability
In general, awards are not assignable or transferable other than by will or the laws of descent and distribution. The HR Committee, in its discretion may provide that an award, other than an incentive share option, may be transferred to certain family members or to a trust, foundation, or any other entity meeting certain ownership requirements.
Forfeitability
Unless otherwise provided by the HR Committee or in an award agreement, if a participant has a termination of employment, all awards will terminate and be forfeited on the date of such termination of employment. Typically, the HR Committee has prescribed that, subject to exceptions for death, disability and retirement, all unvested awards will terminate and be forfeited on the date of an employee’s termination of employment or failure to achieve specific performance goals.
Adjustments for Certain Events
The HR Committee will make proportional adjustments to the maximum number of shares of common stock that may be delivered under the Plan and to outstanding awards to reflect stock dividends, stock splits, spin-offs, rights offerings, recapitalizations, mergers, consolidations, reorganizations, liquidations, or similar events. In the event of a change of control, the Plan gives the HR Committee the discretion to accelerate the vesting of awards.
Amendment, Modification and Termination of the Plan
The Board may amend, alter, suspend, or terminate the Plan at any time and in any respect, provided that no amendment will (1) increase the total number of shares of common stock that can be issued under the Plan or (2) modify the repricing or replacement provisions of the Plan, unless in each instance the amendment is approved by our stockholders. No amendment, modification, or termination of the Plan may materially affect in an adverse way any award then outstanding under the Plan, without an employee’s written consent, unless otherwise provided in the Plan or required by applicable law.
Duration of the Plan
The Plan will remain in effect until (1) the shares authorized for use under the Plan are exhausted or (2) June 30, 2024, whichever occurs first.

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Federal Income Tax Consequences
The following is a general summary of the United States federal income tax consequences related to awards that have been or may be granted under the Plan. The federal tax laws may change, and the federal, state and local tax consequences for any employee will depend upon his or her individual circumstances. This summary does not address all potential tax consequences related to awards, such as estate and gift taxes, foreign taxes and state and local taxes.
Nonqualified Stock Options
Generally an employee will not have any taxable income, and we are not entitled to any deduction on the grant of a nonqualified stock option. Upon the exercise of a nonqualified stock option (or, generally, upon the exercise of an incentive stock option followed by a disqualifying disposition, described below), the employee recognizes ordinary income equal to the excess of the fair market value of the shares acquired over the option exercise price, if any, on the date of exercise. We are generally entitled to a deduction equal to the compensation taxable to the employee as ordinary income, except to the extent such deduction is limited by applicable provisions of the Internal Revenue Code. Any such income is also considered wages and, as such, is subject to income, Social Security and Medicare taxes. If an employee disposes of shares of our common stock acquired upon exercise of a nonqualified stock option in a taxable transaction, the employee will recognize capital gain or loss in an amount equal to the difference between the employee’s basis in the shares sold and the total amount realized upon disposition.
Incentive Stock Options
Generally an employee does not recognize taxable income on the grant or exercise of an incentive stock option, and no federal income, Social Security, or Medicare taxes will be withheld upon such grant or exercise. However, the excess of the fair market value on the exercise date over the option exercise price is included in alternative minimum taxable income and thus may trigger alternative minimum tax.
Upon the disposition of shares of common stock acquired on exercise of an incentive stock option more than one year after the exercise date, and more than two years after the grant date, the employee will normally recognize a capital gain or loss, as the case may be. This gain or loss is measured by the difference between the common stock’s sale price and the exercise price. We will not be entitled to a tax deduction on the grant or exercise of an incentive stock option or on the disposition of common stock acquired upon the exercise of an incentive stock option.
If, however, an employee disposes of the shares of common stock acquired upon the exercise of an incentive stock option either before the one year period after exercise, or before the two year period after the grant date, the difference between the exercise price of such shares and the lesser of (i) the fair market value of the shares on the date of exercise or (ii) the sale price will constitute compensation taxable to the employee as ordinary income. We are generally allowed a corresponding tax deduction equal to the amount of the compensation taxable to the employee. If the sale price of common stock exceeds the fair market value on the exercise date, the excess will be taxable to the employee as capital gain. We are not allowed a deduction with respect to any such capital gain recognized by the employee.
Use of Common Stock to Pay Option Exercise Price of Nonqualified Option
If an employee delivers previously acquired common stock in payment of all or part of the option exercise price of a nonqualified stock option, there will be no recognition of taxable income or loss of any appreciation or depreciation in value of the tendered common stock. The employee’s tax basis in, and capital gain holding period for, the tendered stock carries over to an equal number of the option shares received. The fair market value of the shares received in excess of the tendered shares constitutes compensation taxable to the employee as ordinary income. We may be entitled to a tax deduction equal to the compensation income recognized by the employee.

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Proposal 3 — Approval of Equity Compensation Plan


Use of Common Stock to Pay Option Exercise Price of Incentive Stock Option
If an employee delivers previously acquired common stock in payment of all or part of the incentive stock option exercise price (other than stock acquired on exercise and not held for the required holding periods), the employee will not recognize as taxable income or loss any appreciation or depreciation in the value of the tendered stock after its acquisition date. The employee’s tax basis in, and capital gain holding period for, the tendered stock carries over to an equal number of the option shares received. Shares received in excess of the tendered shares have a tax basis equal to the amount paid, if any, in excess of the tendered shares, and such shares’ holding period will begin on the date of exercise.
If an employee delivers previously acquired common stock that was acquired upon the exercise of an incentive stock option that was not held for the required holding periods, ordinary income will be recognized by the employee, and we will generally be entitled to a corresponding compensation deduction. The employee’s basis in the shares received in exchange for the tendered shares will be increased by the amount of ordinary income recognized.
Share appreciation rights
An employee will not have any taxable income on the grant of share appreciation rights. Upon the exercise of share appreciation rights, the employee recognizes ordinary income equal to the fair market value of the shares and cash received. We will be entitled to a corresponding compensation deduction. Any such ordinary income is also considered wages and, as such, is subject to income, Social Security and Medicare taxes. If share appreciation rights are settled in shares of our common stock, then upon a subsequent disposition of such shares the employee will recognize capital gain or loss in an amount equal to the difference between the employee’s basis in the shares sold and the total amount realized upon disposition.
Unrestricted Shares and Restricted Share Awards
Generally, an employee will not have any taxable income on the grant of restricted stock, and we will not be entitled to a deduction at the time of grant. When shares of restricted stock are no longer subject to a substantial risk of forfeiture, the employee will recognize ordinary income in an amount equal to the fair market value of the shares, less the amount paid, if any, for the shares. Alternatively, an employee may elect to be taxed at the time of grant, in which case the employee will recognize ordinary income on the grant date equal to the fair market value of the shares on the grant date. In either case, we will generally be entitled to a deduction in an amount equal to the ordinary income recognized by the employee. Unless the employee elects to be taxed on the grant date of restricted stock, any dividends paid on restricted stock are taxed as ordinary income (rather than dividend income) to the employee and are deductible by us. If an employee elects to be taxed on the grant date of restricted stock, any dividends paid on the restricted stock will be taxed as dividend income, rather than ordinary income. With respect to unrestricted stock, an employee will recognize ordinary income at the time of grant in an amount equal to the fair market value of the stock on that date, and we will generally be entitled to a deduction in the same amount. Compensation with respect to restricted stock and unrestricted stock is subject to income, Social Security and Medicare taxes. Upon the disposition of any shares acquired pursuant to an unrestricted stock or restricted stock award, any gain or loss, based on the difference between the employee’s basis in the shares sold and the total amount realized upon disposition, will be taxed as capital gain or loss.
Restricted Share Units, Performance Units and Performance Share Awards
An employee will not have any taxable income on the grant of restricted stock units, performance units, or performance stock. Upon the delivery of shares or payment of cash with respect to restricted stock units, performance units, or performance stock, the employee generally will be required to include as ordinary income in the year of receipt an amount equal to the cash received and/or the fair market value of shares of stock received, and we will be entitled to a deduction in an amount equal to the same amount. Compensation with respect to restricted stock units, performance units and performance stock is subject to income, Social Security and Medicare taxes. If shares of our common stock are received in settlement of any restricted stock units, performance units, or performance stock award, then upon a subsequent disposition of such shares

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Proposal 3 — Approval of Equity Compensation Plan


the employee will recognize capital gain or loss in an amount equal to the difference between the employee’s basis in the shares sold and the total amount realized upon disposition.
Internal Revenue Code Section 409A
Certain awards under the Plan, depending in part on the specific terms and conditions of such awards, may be considered “non-qualified deferred compensation” subject to the requirements of Internal Revenue Code section 409A, which regulates deferred compensation arrangements. If the terms of such awards do not meet the requirements of Internal Revenue Code section 409A, then the violation may result in an additional 20 percent tax obligation, plus penalties and interest for such participant.
Other Information
New Plan Benefits Resulting From Approval of Plan
It is not possible at this time to determine the benefits or amounts of awards that will be made in the future as a result of the increased number of shares of common stock authorized and the other revised provisions of the Plan.
The entire text of the Plan is set forth in Appendix A to this proxy statement.
The Board of Directors recommends a vote “FOR”
approval of the equity compensation plan.


72

Proposal 4
Advisory Vote to Approve Named Executive Officer Compensation
The company is providing stockholders an opportunity to provide an advisory vote to approve named executive officer compensation, or a say-on-pay vote, as required by Section 14A of the Exchange Act. Through the say-on-pay vote, we are asking you to support the compensation of our named executive officers as we have described it in this proxy statement. The say-on-pay vote is seeking advisory approval of the compensation of our named executive officers. We hold advisory votes on executive compensation every year. Our Board decided on annual votes after most of our stockholders voted for that preference in 2011. We will continue to hold annual advisory votes on executive compensation until our next vote on the frequency of stockholder votes on executive compensation, which will occur at our 2017 annual meeting.
At our annual meeting in 2013,2014, we asked our stockholders to approve, on an advisory basis, a say-on-pay resolution regarding the compensation of our named executive officers, as disclosed in the proxy statement for that meeting. Our say-on-pay resolution and the 20122013 compensation of our named executive officers was approved by 94.494.7 percent of the shares present and entitled to vote on the matter.
Through the say-on-pay vote, we are asking you to support the compensation of our named executive officers as we have described it in this proxy statement. The say-on-pay vote is seeking advisory approval of the compensation of our named executive officers. We hold advisory votes on executive compensation every year. Our Board decided on annual votes after most of our stockholders voted for that preference in 2011. We will continue to hold annual advisory votes on executive compensation until our next vote on the frequency of stockholder votes on executive compensation, which will occur at our 2017 annual meeting.
Your say-on-pay vote will provide insight and guidance to us and our Board regarding your sentiment about our executive compensation philosophy, policies and practices. While the say-on-pay vote is advisory and not binding on our company, we and our Board will consider the guidance received by the vote when determining executive compensation for the remainder of 20142015 and beyond. For the reasons summarized below, we ask that you support our executive compensation and vote in favor of the say-on-pay proposal outlined below.
The Board of Directors recommends a vote “FOR” adoption of the resolution approving, on an advisory basis, the compensation of the company’s named executive officers, as described in this proxy statement.
We consider our executive compensation programs to be instrumental in helping us achieve strong financial performance and other key non-financial objectives, such as safety, reliability, and customer satisfaction. Our programs are designed to attract, motivate, and retain a highly qualified executive team that is able to achieve corporate objectives and create long-term stockholder value. Our HR Committee which is composed entirely of independent members, and our Board believe the company’s overall executive compensation program is structured to reflect a strong pay-for-performance philosophy and aligns the long-term interests of our executives and our stockholders. The “Compensation Discussion and Analysis,” or CD&A, section, starting on page 2520 of this proxy statement, and the “Compensation of Executive Officers and Directors” section, starting on page 45,43, provide more detailed discussions of our specific executive compensation programs.
Our compensation programs are substantially tied to our key business objectives and the success of our stockholders. As described in the “Compensation Discussion and Analysis” section, one component of our compensation philosophy is that a significant portion of our executives’ compensation should be at riskat-risk in the form of incentive awards that are paid, if earned, based on individual and company performance. Our short-term and long-term incentive programs demonstrate this philosophy. More than half (55 percent) of the weighting of the potential annual incentive payment an executive may earn is tied to the company’s success in achieving a net income target established by our HR Committee and approved by our Board. The remainder of the potential annual incentive payment is focused on achieving excellence in operations. With respect to our long-term incentive program, the number of shares actually earned pursuant to long-term incentive awards is based on ROAE, earnings per share growth (prior to 2014 our long-term incentive programs used net income growth instead of earnings per share growth) and TSR relative to our peer group. If the value we deliver to our stockholders declines, so, too, does the compensation we deliver to our executives.
In addition, we have designed the framework of our short-term and long-term incentive programs for the long haul. Our Board established the framework for our short-term incentive program in 2005. Since establishment, the primary revisions to the program have been with respect to annual targets, generally, to require improvement on a year-over-year basis. Our Board established a long-term incentive plan in 2005.2005, our Equity Compensation Plan. In 2009, our Board granted performance-based awards to the company’s senior employees whose work directly

7359
Proposal 43 — Advisory Vote to Approve Named Executive Officer Compensation


employees whose work directly affects our financial results and incorporated performance-based metrics over a three-year period with cliff vesting at the end of that period. The first payouts under such awards occurred in early 2012. In addition, payout of our executive retention / retirement program restricted share units are conditioned on the company’s financial performance over a five-year period with cliff vesting at the end of such period and, if earned, are paid out over a five-year period after the executive’s separation from service with the company.
We believe this framework has contributed greatly to aligning the interests of our stockholders and executives. As illustrated by the following graphics, relative to our peers, we are providing strong financial results, with our TSR over the past one- and three-year periods in the top quartile. Meanwhile, our CEO pay has been among the lowest in our peer group, ranking third lowest over the same periods. The CD&A contains additional details concerning our performance and compensation relative to our peers as depicted in the graphics below.
3-YEAR
3rd Lowest CEO Pay4th2nd Highest TSR
                                    of 15 Peers                         of 15 Peers
  
1-YEAR
3rd Lowest CEO Pay3rd Highest TSR
                                    of 15 Peers                         of 15 Peers
Another component of our compensation philosophy is to target compensation around the middle of the competitive total compensation range, while also considering various factors, including trade area economics, turn-over, tenure, experience and other factors. Our HR Committee closely monitors the compensation programs and pay levels of executives from similar companies as to size and complexity with the assistance of an independent compensation consultant, Towers Watson.

7460
Proposal 43 — Advisory Vote to Approve Named Executive Officer Compensation


Our compensation philosophy also is reflected in what we don’t do:
We do not make multi-year guarantees for salary increases to our named executive officers.
We do not have perquisites for current, former and/or retired executives that differ materially from those available to employees generally.
We do not have any change in control payments exceeding three times base salary and target bonus. Our only change in control provision appears in the 2005 Plan and provides for the immediate vesting or cash payment of any unvested equity awards upon a change in control.
We do not have employment or golden parachute agreements with any of our named executive officers.
We do not have a non-performance-based top hat plan or separate retirement plan available only to our executive officers. We do maintain a performance-based executive retention / retirement program.
We do not provide tax gross-ups to our named executive officers.
We do not pay dividends or dividend equivalents on unvested performance shares or units.
We do not allow our executives to engage in hedging activities with company securities.
●We do not make multi-year guarantees for salary increases to our named executive officers.
●We do not have perquisites for current, former, and/or retired executives that differ materially from those available to employees generally.
●We do not have any change in control payments exceeding three times base salary and target bonus. Our only change in control provision appears in the Equity Compensation Plan and provides for the immediate vesting or cash payment of any unvested equity awards upon a change in control.
●We do not have employment or golden parachute agreements with any of our executive officers.
●We do not have a non-performance-based top hat plan or separate retirement plan available only to our executive officers. We do maintain a performance-based executive retention / retirement program.
●We do not provide tax gross-ups to our named executive officers.
●We do not pay dividends or dividend equivalents on unvested performance shares or units.
●We do not allow our executives to hedge or pledge company securities.
Finally, we believe our compensation philosophy is reflected in the high level of corporate governance we maintain over our executive compensation programs. Our HR Committee consists entirely of independent members. Moreover, our HR Committee, our CEO, and our executive in charge of human resources engage in an annual talent review process to address succession and executive development for our CEO and other key executives. Our HR Committee also conducts an annual performance assessment of our CEO and determines appropriate adjustments to all elements of his total compensation based on individual and company performance.
We believe that the summary information we’vewe have provided with this proposal and the more detailed descriptions provided elsewhere in this proxy statement demonstrate that we and our HR Committee have designed our executive compensation programs appropriately to align the long-term interests of management and stockholders.
For all of these reasons, including what we do and don’t do, your vote in support of the compensation of our named executive officers is requested. Accordingly, the Board recommends that stockholders approve our executive compensation program by voting “FOR” the following advisory resolution:
RESOLVED, that the compensation paid to the company’s named executive officers (as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the compensation discussion and analysis, the compensation tables and any related material disclosed in this proxy statement) is hereby APPROVED.
This advisory vote to approve named executive officer compensation is not binding on the company. However, we and our Board will take into account the result of the vote when determining future executive compensation arrangements.
The affirmative vote of the holders of a majority in voting power of the shares of our common stock which are present in person or represented by proxy and entitled to vote thereon is required to approve the say-on-pay resolution set forth above. If your shares are held through a broker, bank, or other nominee and you do not vote your shares, your bank, broker, or other nominee may not vote your shares in this proposal. Assuming a quorum is present, broker non-votes or the failure to vote – either by not returning a properly executed proxy card or not voting in person at the annual meeting – will have no effect on the outcome of the voting on this proposal. Abstentions will have the same effect as a vote against the proposal. Unless instructed to the contrary in the proxy, the shares represented by the proxies will be voted “FOR” the proposal to approve, on an advisory basis, the compensation of the company’s named executive officers, as set forth in the company’s 20142015 proxy statement.
The Board of Directors recommends a vote “FOR”
adoption of the resolution approving, on an advisory basis,
the compensation of the company’s named executive officers,
as described in this proxy statement.

75

Other Matters
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents summary information about our equity compensation plans, including our long-term incentive plan. The table presents the following data on our plans as of the close of business on December 31, 2013:
1.The aggregate number of shares of our common stock subject to outstanding stock options, warrants and rights;
2.The weighted average exercise price of those outstanding stock options, warrants and rights; and
3.The number of shares that remain available for future option grants, excluding the number of shares to be issued upon the exercise of outstanding options, warrants and rights described in number 1. above.
For additional information regarding our long-term incentive plans and the accounting effects of our stock-based compensation, please see Note 17 to our Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2013.
Plan category 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
 
Weighted average exercise price of outstanding options, warrants and rights
(b)
 
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
(c)
Equity compensation plans approved by security holders (1) —
 —
 662,507
(2)
Equity compensation plans not approved by security holders       
     None —
 —
 —
 
Total —
 —
 662,507
 
(1)Consists of the NorthWestern Corporation Amended and Restated 2005 Long-Term Incentive Plan, which was approved by stockholders at the 2011 annual meeting. Does not include additional shares being authorized at this year’s annual meeting in connection with the approval of the Equity Compensation Plan.
(2)Awards under the Amended and Restated 2005 Long-Term Incentive Plan can take the form of stock options, share appreciation rights, restricted and unrestricted share awards, deferred share units and performance awards.



76

Appendix A — Equity Compensation Plan




NorthWestern Corporation
Amended and Restated
Equity Compensation Plan

Effective March 10, 2005
Amended October 31, 2007
Amended and Restated February 23, 2011
Amended and Restated April 8, 2011
Amended and Restated (and Renamed) February 18, 2014








As approved by the Board of Directors
on February 18, 2014

77
Appendix A — Equity Compensation Plan


NorthWestern Corporation
Amended and Restated
Equity Compensation Plan
1.Establishment, Purpose, and Types of Awards
NorthWestern Corporation (the “Company”) previously established this equity-based incentive compensation plan as the “NorthWestern Corporation 2005 Long-Term Incentive Plan” and has now renamed it the “NorthWestern Corporation Amended and Restated Equity Compensation Plan” (hereinafter referred to as the “Plan”), in order to provide incentives and awards to select Employees, Directors and Advisors of the Company and its Affiliates. Subject to shareholder approval at the 2014 annual meeting of shareholders, this amendment and restatement will be effective July 1, 2014.
The Plan permits the granting of the following types of awards (“Awards”) according to the Sections of the Plan listed here:
Section 6    Performance Awards
Section 7    Restricted Shares, Restricted Share Units and Unrestricted Shares
Section 8    Deferred Share Units
Section 9    Options
Section 10    Share Appreciation Rights
The Plan is not intended to affect and shall not affect any stock options, equity-based compensation, or other benefits that the Company or its Affiliates may have provided, or may separately provide in the future pursuant to any agreement, plan, or program that is independent of this Plan.
2.Defined Terms
Terms in the Plan that begin with an initial capital letter have the defined meaning set forth in Appendix 1, unless defined elsewhere in this Plan or the context of their use clearly indicates a different meaning.
3.Shares Subject to the Plan
(a)Maximum Shares Available Under the Plan. Subject to the provisions of Section 13 of the Plan, the number of Shares that the Company may issue or transfer for all Awards under this Plan is 2,637,637, which number includes the 2,037,637 shares previously authorized for issuance under the Plan.
(b)Share Counting Rules.
(i)Subject to the following provisions of this Section 3(b), Shares that are subject to an Award that for any reason expires, is forfeited, is canceled, or becomes unexercisable, Shares that are subject to an Award that is settled for cash, and Shares that are for any other reason not paid or delivered under the Plan shall again, except to the extent prohibited by Applicable Law, be available for subsequent Awards under the Plan.
(ii)Notwithstanding anything to the contrary contained in this Section 3: (A) any Shares that the Company retains from otherwise delivering pursuant to an Award either (I) as payment of the exercise price of an Award, or (II) in order to satisfy the withholding or employment taxes due upon the grant, exercise, vesting, or distribution of an Award shall be considered issued or transferred pursuant to the Plan, (B) the number of Shares subject to a SAR, to the extent that it is exercised and settled in Shares, and whether or not all such Shares are actually issued or transferred to the Participant upon exercise of the SAR, shall be considered issued or transferred pursuant to the Plan, and (C) in the

78
Appendix A — Equity Compensation Plan


event that the Company repurchases Shares with Option proceeds, those Shares will not be available for subsequent Awards under the Plan.
(c)Limit on Incentive Stock Options. Notwithstanding the foregoing, but subject to adjustment pursuant to Section 13 below, the aggregate number of Shares that may be issued or transferred by the Company upon the exercise of Incentive Share Options will not exceed 2,637,637 Shares.
(d)Shares issued under Awards granted in connection with the conversion or assumption of, or substitution for, awards held by awardees of or relating to the stock or other equity interests of an entity acquired by or merged or otherwise affiliated with the Company or an Affiliate of the Company pursuant to a merger, acquisition or similar transaction (“Conversion Awards”) will not reduce the aggregate number of Shares available for issuance under this Plan nor count against the other limitations under this Section 3, nor will Shares subject to a Conversion Award again be available for awards granted under this Plan as provided in the second paragraph of this Section 3. Additionally, in the event that an entity acquired by the Company or any Affiliate or with which the Company or any Affiliate otherwise combines has shares available for grant under a pre-existing plan that was approved by stockholders of such entity and was not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for awards granted under the Plan and will not reduce the number of Shares available for issuance or transfer under this Plan; provided, that Awards granted under this Plan using such available Shares may not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and may only be made to individuals who were not employees of the Company or any Affiliate or directors of the Company prior to such acquisition or combination.
4.Administration
(a)General. The Committee shall administer the Plan in accordance with its terms, provided that the Board may act in lieu of the Committee on any matter. The Committee shall hold meetings at such times and places as it may determine and shall make such rules and regulations for the conduct of its business as it deems advisable. In the absence of a duly appointed Committee or, subject to the requirements of Section 162(m) of the Code and Section 16(b) of the Exchange Act, if the Board otherwise chooses to act in lieu of the Committee, the Board shall function as the Committee for all purposes of the Plan.
(b)Committee Composition. The Committee shall initially consist of the Human Resources Committee of the Board of Directors. If and to the extent permitted by Applicable Law, the Committee may authorize one or more Reporting Persons (or other officers) to make Awards to Eligible Persons who are not Reporting Persons (or other officers whom the Committee has specifically authorized to make Awards). The Board may at any time appoint additional members to the Committee, remove and replace members of the Committee with or without Cause, and fill vacancies on the Committee however caused.
(c)Powers of the Committee. Subject to the provisions of the Plan, the Committee shall have the authority, in its sole discretion:
(i)to determine Eligible Persons to whom Awards shall be granted from time to time and the number of Shares, units, or SARs to be covered by each Award;
(ii)to determine, from time to time, the Fair Market Value of Shares;
(iii)to determine, and to set forth in Award Agreements, the terms and conditions of all Awards, including any applicable exercise or purchase price, the installments and conditions under which an Award shall become vested (which may be based on performance), terminated, expired, canceled, or replaced, and the circumstances for vesting acceleration or waiver of forfeiture restrictions, and other restrictions and limitations;

79
Appendix A — Equity Compensation Plan


(iv)to approve the forms of Award Agreements and all other documents, notices and certificates in connection therewith which need not be identical either as to type of Award or among Participants;
(v)to construe and interpret the terms of the Plan and any Award Agreement, to determine the meaning of their terms, and to prescribe, amend, and rescind rules and procedures relating to the Plan and its administration; and
(vi)in order to fulfill the purposes of the Plan and without amending the Plan, modify, cancel, or waive the Company’s rights with respect to any Awards, to adjust or to modify Award Agreements for changes in Applicable Law, and to recognize differences in foreign law, tax policies, or customs (provided that, in accordance with the provisions of the Plan generally and Section 15(c) in particular, no repricing or other action described in Section 15(c) shall be permitted); and
(vii)to make all other interpretations and to take all other actions that the Committee may consider necessary or advisable to administer the Plan or to effectuate its purposes.
Subject to Applicable Law and the restrictions set forth in the Plan, the Committee may delegate administrative functions to individuals who are Reporting Persons, officers, or Employees of the Company or its Affiliates.
(d)Deference to Committee Determinations. The Committee shall have the discretion to interpret or construe ambiguous, unclear, or implied (but omitted) terms in any fashion it deems to be appropriate in its sole discretion, and to make any findings of fact needed in the administration of the Plan or Award Agreements. The Committee’s prior exercise of its discretionary authority shall not obligate it to exercise its authority in a like fashion thereafter. The Committee’s interpretation and construction of any provision of the Plan, or of any Award or Award Agreement, shall be final, binding, and conclusive. The validity of any such interpretation, construction, decision or finding of fact shall not be given de novo review if challenged in court, by arbitration, or in any other forum, and shall be upheld unless clearly arbitrary or capricious.
(e)No Liability; Indemnification. Neither the Board nor any Committee member, nor any Person acting at the direction of the Board or the Committee, shall be liable for any act, omission, interpretation, construction or determination made in good faith with respect to the Plan, any Award or any Award Agreement. The Company and its Affiliates shall pay or reimburse any member of the Committee, as well as any Director, Employee, or Advisor who takes action in connection with the Plan, for all expenses incurred with respect to the Plan, and to the full extent allowable under Applicable Law shall indemnify each and every one of them for any claims, liabilities, and costs (including reasonable attorney’s fees) arising out of their good faith performance of duties under the Plan. The Company and its Affiliates may obtain liability insurance for this purpose.
(f)Installments. The right to a series of installment payments upon the distribution of an amount deferred pursuant to the Plan shall be treated as a right to a series of separate payments.
(g)Compliance with Code Section 409A. The provisions of the Plan dealing with amounts subject to Code Section 409A shall be interpreted and administered in accordance with Section 409A and the applicable guidance issued by the Department of the Treasury with respect to the application of Section 409A.
(h)Notwithstanding any provision of the Plan to the contrary, no payment subject to Code Section 409A, payable on account of a break in Continuous Service shall be made to a Participant who is a specified employee (within the meaning of Code Section 409A and the applicable guidance issued by the Department of the Treasury with respect to the application of Section 409A), as of the date of such Participant’s break in Continuous Service, within the six-month period following such Participant’s break in Continuous Service. Amounts to which such Participant would otherwise be entitled under the Plan during the first six months following the break in Continuous Service will be accumulated and paid on the first day of the seventh month following the Participant’s break in Continuous Service.
(i)Neither a Participant nor any of a Participant’s creditors or beneficiaries will have the right to subject any deferred compensation (within the meaning of Code Section 409A) payable under this Plan and

80
Appendix A — Equity Compensation Plan


grants hereunder to any anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment. Except as permitted under Code Section 409A, any deferred compensation (within the meaning of Code Section 409A) payable to a Participant or for a Participant’s benefit under this Plan and grants hereunder may not be reduced by, or offset against, any amount owing by a Participant to the Company or any of its Affiliates.
5.Eligibility
(a)General Rule. The Committee may grant all Awards other than ISOs to any Eligible Person. The Committee may grant ISOs only to Employees (including officers who are Employees) of the Company or an Affiliate that is a “parent corporation” or “subsidiary corporation” within the meaning of Section 424 of the Code. A Participant who has been granted an Award may be granted an additional Award or Awards if the Committee shall so determine, if such person is otherwise an Eligible Person and if otherwise in accordance with the terms of the Plan.
(b)Grant of Awards. Subject to the express provisions of the Plan, the Committee shall determine from the class of Eligible Persons those individuals to whom Awards under the Plan may be granted, the number of Shares subject to each Award, the price (if any) to be paid for the Shares or the Award and, in the case of Performance Awards, in addition to the matters addressed in Section 10 below, the specific objectives, goals and performance criteria that further define the Performance Award. Each Award shall be evidenced by an Award Agreement signed by the Company and, if required by the Committee, by the Participant. The Award Agreement shall set forth the material terms and conditions of the Award established by the Committee.
(c)Limits on Awards. No Participant may receive Options and SARs that relate to more than 200,000 Shares in any one year. The Committee will adjust these limitations pursuant to Section 13 below.
(d)Replacement Awards. Subject to Applicable Laws (including any associated shareholder approval requirements) and Section 15(c) of the Plan, the Committee may, in its sole discretion and upon such terms as it deems appropriate, require as a condition of the grant of an Award to a Participant that the Participant surrender for cancellation some or all of the Awards that have previously been granted to the Participant under this Plan or otherwise. An Award that is conditioned upon such surrender may or may not be the same type of Award, may cover the same (or a lesser or greater) number of Shares as such surrendered Award, may have other terms that are determined without regard to the terms or conditions of such surrendered Award, and may contain any other terms that the Committee deems appropriate. In the case of Options or SARs, these other terms may not involve an Exercise Price that is lower than the Exercise Price of the surrendered Option or SAR unless the Company’s shareholders approve the grant itself or the program under which the grant is made pursuant to the Plan.
6.Performance Awards
(a)Performance Units. Subject to the limitations set forth in paragraph (c) hereof, the Committee may in its discretion grant Performance Units to any Eligible Person and shall evidence such grant in an Award Agreement that is delivered to the Participant which sets forth the terms and conditions of the Award. A Performance Unit is an Award which is based on the achievement of specific goals with respect to the Company or any Affiliate or individual performance of the Participant, or a combination thereof, over a specified period of time. Notwithstanding anything in this Plan or an Award Agreement to the contrary, the Company shall not pay dividends or dividend equivalents currently on unvested Performance Units.
(b)Performance Compensation Awards. Subject to the limitations set forth in paragraph (c) hereof, the Committee may, at the time of grant of a Performance Unit, designate such Award as a “Performance Compensation Award” in order that such Award constitutes “qualified performance-based compensation” under Code Section 162(m), in which event the Committee shall have the power to grant such Performance Compensation Award upon terms and conditions that qualify it as “qualified performance-based compensation” within the meaning of Code Section 162(m). With respect to each such Performance Compensation Award, the Committee shall establish, in writing within the time required under Code Section 162(m), a “Performance Period,” “Performance Measure(s)”, and “Performance Formula(e)” (each such term being hereinafter defined). Once established for a Performance Period, the Performance Measure(s) and Performance Formula(e) shall not be amended or otherwise modified to the extent such amendment or

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modification would cause the compensation payable pursuant to the Award to fail to constitute qualified performance-based compensation under Code Section 162(m).
A Participant shall be eligible to receive payment in respect of a Performance Compensation Award only to the extent that the Performance Measure(s) for such Award is achieved and the Performance Formula(e) as applied against such Performance Measure(s) determines that all or some portion of such Participant’s Award has been earned for the Performance Period. As soon as practicable after the close of each Performance Period, the Committee shall review and certify in writing whether, and to what extent, the Performance Measure(s) for the Performance Period have been achieved and, if so, determine and certify in writing the amount of the Performance Compensation Award to be paid to the Participant and, in so doing, may use negative discretion to decrease, but not increase, the amount of the Award otherwise payable to the Participant based upon such performance.
(c)Limitations on Awards. The maximum Performance Unit Award and the maximum Performance Compensation Award that any one Participant may receive for any one Performance Period shall not together exceed 200,000 Shares and $1,000,000 in cash.
(d)Definitions.
(i)“Performance Formula” means, for a Performance Period, one or more objective formulas or standards established by the Committee for purposes of determining whether or the extent to which an Award has been earned based on the level of performance attained or to be attained with respect to one or more Performance Measure(s). Performance Formulae may vary from Performance Period to Performance Period and from Participant to Participant and may be established on a stand-alone basis, in tandem or in the alternative.
(ii)“Performance Measure” means one or more of the following selected by the Committee to measure Company, Affiliate, and/or business unit performance for a Performance Period, whether in absolute or relative terms (including, without limitation, terms relative to a peer group or index or in a ratio or ratios or other relationship between one or more, or a combination of): basic, diluted, or adjusted earnings per share; sales or revenue; earnings before interest, taxes, and other adjustments (in total or on a per share basis); basic or adjusted net income; returns on equity, assets, capital, revenue or similar measure; economic value added; working capital; total shareholder return; and mergers, acquisitions, sales of assets of Affiliates or business units. Each such measure shall be, to the extent applicable, determined in accordance with generally accepted accounting principles as consistently applied by the Company (or such other objective standard applied by the Committee) and, if so determined by the Committee, and in the case of a Performance Compensation Award, to the extent permitted under Code Section 162(m), adjusted to omit the effects of extraordinary items, gain or loss on the disposal of a business segment, unusual or infrequently occurring events and transactions and cumulative effects of changes in accounting principles. Performance Measures may vary from Performance Period to Performance Period and from Participant to Participant, and may be established on a stand-alone basis, in tandem or in the alternative.
(iii)“Performance Period” means one or more periods of time (of not less than one fiscal year of the Company), as the Committee may designate, over which the attainment of one or more Performance Measure(s) will be measured for the purpose of determining a Participant’s rights in respect of an Award.
(e)Deferral Elections. At any time prior to the date that is at least six months before the close of a Performance Period (or any shorter period within such window that the Committee selects) with respect to an Award of either Performance Units or Performance Compensation Award, the Committee may permit a Participant who is a member of a select group of management or highly compensated employees (within the meaning of Title I of ERISA) to irrevocably elect, on a form provided by the Company, to defer the receipt of all or a percentage of the cash or Shares that would otherwise be transferred to the Participant upon the vesting of such Award, provided that the following criteria are met:

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(i)the Participant performs services continuously from a date no later than the date upon which the performance criteria are established through a date no earlier than the date upon which the Participant makes an initial deferral election;
(ii)the performance criteria must be established in writing no later than ninety (90) days after the commencement of the Performance Period; and
(iii)in no event may an election to defer Performance Units or Performance Compensation be made after such compensation has become both substantially certain to be paid and readily ascertainable.
If the Participant makes this election, the cash or Shares subject to the election, and any associated interest and dividends, shall be credited to an account established pursuant to Section 8 hereof on the date such cash or Shares would otherwise have been released or issued to the Participant pursuant to Section 6(a) or Section 6(b) above.
7.Restricted Shares, Restricted Share Units and Unrestricted Shares
(a)Grants. The Committee may in its discretion grant restricted shares (“Restricted Shares”) to any Eligible Person and shall evidence such grant in an Award Agreement that is delivered to the Participant and that sets forth the number of Restricted Shares, the purchase price for such Restricted Shares (if any) and the terms upon which the Restricted Shares may become vested. In addition, the Company may in its discretion grant the right to receive Shares after certain vesting requirements are met (“Restricted Share Units”) to any Eligible Person and shall evidence such grant in an Award Agreement that is delivered to the Participant which sets forth the number of Shares (or formula, that may be based on future performance or conditions, for determining the number of Shares) that the Participant shall be entitled to receive upon vesting and the terms upon which the Shares subject to a Restricted Share Unit may become vested. The Committee may condition any Award of Restricted Shares or Restricted Share Units to a Participant on receiving from the Participant such further assurances and documents as the Committee may require to enforce the restrictions. In addition, the Committee may grant Awards hereunder in the form of unrestricted shares (“Unrestricted Shares”), which shall vest in full upon the date of grant or such other date as the Committee may determine or which the Committee may issue pursuant to any program under which one or more Eligible Persons (selected by the Committee in its discretion) elect to receive Unrestricted Shares in lieu of cash bonuses that would otherwise be paid.
(b)Vesting and Forfeiture. The Committee shall set forth in an Award Agreement granting Restricted Shares or Restricted Share Units, the terms and conditions under which the Participant’s interest in the Restricted Shares or the Shares subject to Restricted Share Units will become vested and non-forfeitable. Except as set forth in the applicable Award Agreement or the Committee otherwise determines, upon termination of a Participant’s Continuous Service for any other reason, the Participant shall forfeit his or her Restricted Shares and Restricted Share Units; provided that if a Participant purchases the Restricted Shares and forfeits them for any reason, the Company shall return the purchase price to the Participant only if and to the extent set forth in an Award Agreement.
(c)Issuance of Restricted Shares Prior to Vesting. Except as set forth in the applicable Award Agreement or the Committee otherwise determines, the Company shall issue, in electronic book-entry form, Restricted Shares to an account for the Participant who is awarded Restricted Shares which shall be maintained by the Company’s transfer agent or such other administrator designated by the Committee for the deposit of such Restricted Shares. Such Restricted Stock shall bear a legend or notation referring to such restrictions. Except as set forth in the applicable Award Agreement or the Committee otherwise determines, the Company’s transfer agent or such other administrator designated by the Committee shall hold such Restricted Shares and any dividends that accrue with respect to Restricted Shares pursuant to Section 7(e) below.
(d)Issuance of Shares upon Vesting. As soon as practicable after vesting of a Participant’s Restricted Shares (or Shares underlying Restricted Share Units) and the Participant’s satisfaction of applicable tax withholding requirements, the Company shall release to the Participant, free from the vesting restrictions, one Share for each vested Restricted Share (or issue one Share free of the vesting restriction for

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each vested Restricted Share Unit), unless an Award Agreement provides otherwise. No fractional shares shall be distributed, and cash shall be paid in lieu thereof.
(e)Dividends Payable on Vesting. Whenever Shares are released to a Participant or duly-authorized transferee pursuant to Section 7(d) above as a result of the vesting of Restricted Shares or the Shares underlying Restricted Share Units are issued to a Participant pursuant to Section 7(d) above, such Participant or duly-authorized transferee also shall be entitled to receive (unless otherwise provided in the Award Agreement), with respect to each Share released or issued, an amount equal to any cash dividends (plus, in the discretion of the Committee, simple interest at a rate as the Committee may determine) and a number of Shares equal to any stock dividends, which were declared and paid to the holders of Shares between the Grant Date and the date such Share is released from the vesting restrictions in the case of Restricted Shares or issued in the case of Restricted Share Units.
(f)Section 83(b) Elections. A Participant may make an election under Section 83(b) of the Code (the “Section 83(b) Election”) with respect to Restricted Shares. If a Participant who has received Restricted Share Units provides the Committee with written notice of his or her intention to make a Section 83(b) Election with respect to the Shares subject to such Restricted Share Units, the Committee may in its discretion convert the Participant’s Restricted Share Units into Restricted Shares, on a one-for-one basis, in full satisfaction of the Participant’s Restricted Share Unit Award. The Participant may then make a Section 83(b) Election with respect to those Restricted Shares. Shares with respect to which a Participant makes a Section 83(b) Election shall not be eligible for deferral pursuant to Section 9 below.
(g)Deferral Elections. The Committee may permit a Participant who is a member of a select group of management or highly compensated employees (within the meaning of Title I of ERISA) to irrevocably elect to defer all or a percentage of the Shares that would otherwise be transferred to the Participant upon the vesting of such Award in accordance with this Section 7(g). Except as otherwise provided in this Section 7(g), an Award of Restricted Shares or Restricted Share Units awarded with respect to services to be performed by a Participant during a calendar year may be deferred at the election of the Participant only if the election to defer such Award is made and becomes irrevocable consistent with the terms of either (i) the NorthWestern Corporation 2009 Officers Deferred Compensation Plan or (ii) the NorthWestern Corporation 2005 Deferred Compensation Plan for Non-Employee Directors, as applicable.
In the case of the first year in which an Eligible Person becomes eligible to participate in the Plan (as defined in section 1.409A-1(c) of the final Treasury Regulations or the corresponding provision in subsequent guidance issued by the Department of the Treasury to include any other plan that would be considered together with this Plan as the same plan), as permitted by the Committee, the Eligible Person may make an initial deferral election within thirty (30) days after the date the Eligible Person becomes eligible to participate in the Plan, with respect to an Award of Restricted Shares or Restricted Share Units awarded with respect to services to be performed by the Eligible Person subsequent to the election.
In the case of an Award of Restricted Shares or Restricted Share Units that is subject to a vesting condition requiring the Participant to continue to provide services for a period of at least 12 months from the date of the Award, as permitted by the Committee, the Participant may make a deferral election provided that the election is made consistent with the terms of either (i) the NorthWestern Corporation 2009 Officers Deferred Compensation Plan or (ii) the NorthWestern Corporation 2005 Deferred Compensation Plan for Non-Employee Directors, as applicable (disregarding vesting on death or disability).
Any election to defer Awards pursuant to this Section 7(g) shall be on a form provided by the Company. If a Participant makes an election to defer under this Section 7(g), the Shares subject to the election, and any associated dividends and interest, shall be credited to an account established pursuant to Section 8 hereof on the date such Shares would otherwise have been released or issued to the Participant pursuant to Section 7(d) above.
8.Deferred Share Units
(a)Elections to Defer. The Committee may permit any Eligible Person who is a Director, Advisor or member of a select group of management or highly compensated employees (within the meaning of Title I of ERISA) to irrevocably elect, on a form provided by the Company (the “Election Form”), to forego the receipt of cash or other compensation (including the Shares deliverable pursuant to any Award other than Restricted

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Shares for which a Section 83(b) Election has been made), and in lieu thereof to have the Company credit to an internal Plan account (the “Account”) a number of deferred share units (“Deferred Share Units”) having a Fair Market Value equal to the Shares and other compensation deferred. These credits will be made at the end of each calendar month during which compensation is deferred. Each Election Form shall take effect on the first day of the next calendar year (or on the first day of the next calendar month in the case of an initial election by a Participant who is first eligible to defer hereunder taking into account the rules of Treasury Regulation Section 1.409A.1(c) described in Section 7(g) above) after its delivery to the Company, subject to Section 7(g) regarding deferral of Restricted Shares and Restricted Share Units and to Section 6(e) regarding deferral of Performance Awards, unless the Company sends the Participant a written notice explaining why the Election Form is invalid within five business days after the Company receives it. Notwithstanding the foregoing sentence: (i) Election Forms shall be ineffective with respect to any compensation that a Participant earns based on services performed before the date on which the Company receives the Election Form, and (ii) the Committee may unilaterally make awards in the form of Deferred Share Units, regardless of whether or not the Participant foregoes other compensation.
(b)Vesting. Unless an Award Agreement expressly provides otherwise, each Participant shall be 100% vested at all times in any Shares subject to Deferred Share Units.
(c)Issuances of Shares. The Company shall provide a Participant with one Share for each Deferred Share Unit in five substantially equal annual installments that shall begin within 90 days of the date on which the Participant’s Continuous Service terminates and are distributable on each of the first four anniversaries thereof, unless -
(i)the Participant has properly elected a different form of distribution, on a form provided by the Company, that permits the Participant to select any combination of a lump sum and annual installments that are completed within ten years following termination of the Participant’s Continuous Service, and
(ii)the Company received the Participant’s distribution election form at the time the Participant elects to defer the receipt of cash or other compensation pursuant to Section 8(a), provided that such election may be changed through any subsequent election that (A) is delivered to the Administrator at least twelve months before the date on which distributions are otherwise scheduled to commence pursuant to the Participant’s election and does not take effect for at least twelve months, (B) defers the commencement of distributions by at least five years from the originally scheduled commencement date and (c) does not extend any payment beyond the tenth anniversary of the termination of the Participant’s Continuing Service.
Fractional shares shall not be issued, and instead shall be paid out in cash.
(d)Crediting of Dividends. Whenever Shares are issued to a Participant pursuant to Section 8(c) above, such Participant shall also be entitled to receive, with respect to each Share issued, a number of Shares the value of which is equal to the amount of any cash dividends (based on the Fair Market Value of a Share on the date of the payment of the dividend), and a number of Shares equal to any stock dividends which were declared and paid to the holders of Shares between the Grant Date and the date such Share is issued. Any fractional shares shall be settled in cash.
(e)Hardship Distributions from Accounts. In the event a Participant suffers a Hardship, the Participant may apply to the Committee for an immediate distribution of all or a portion of the Participant’s Account. The amount of any distribution hereunder shall be limited to the amount necessary to relieve the Participant’s Hardship, plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which the Hardship is or may be relieved through reimbursement or compensation by insurance or otherwise, by liquidation of the Participant’s assets (to the extent the liquidation of such assets would not itself cause severe financial hardship), or by cessation of the Participant’s deferrals under the Plan. The Committee shall determine whether a Participant has a qualifying Hardship and the amount which qualifies for distribution, if any. The Committee may require evidence of the purpose and amount of the need, and may establish such application or other procedures as it deems appropriate. Notwithstanding the foregoing, a financial need shall not constitute a Hardship unless it is for at

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least $100,000 for all Participants (or the entire vested principal amount of the Participant’s Accounts, if less). “Hardship” means an unforeseeable emergency resulting in financial hardship of the Participant or beneficiary due to an illness or accident of the Participant or beneficiary, a spouse of the Participant or beneficiary or of a dependent (as defined in Code Section 152(a)) of a Participant or beneficiary; loss of the Participant’s or the beneficiary’s property due to casualty, or other similar or extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant or beneficiary. Whether a Participant or beneficiary is faced with an unforeseeable emergency permitting a distribution under the Plan shall be determined based upon the relevant facts and circumstances of each case, but in any case, its distribution shall not be allowed to the extent that such hardship is or may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation of the Participant’s assets to the extent liquidation of such assets would not cause a severe financial hardship or be cessation of deferrals under the Plan. The amount of a distribution on account of a hardship shall be limited to the amount reasonably necessary to satisfy the emergency need plus amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution.
(f)Unsecured Rights to Deferred Compensation. A Participant’s right to Deferred Share Units shall at all times constitute an unsecured promise of the Company to pay benefits as they come due. The right of the Participant or the Participant’s duly-authorized transferee to receive benefits hereunder shall be solely an unsecured claim against the general assets of the Company. Neither the Participant nor the Participant’s duly-authorized transferee shall have any claim against or rights in any specific assets, shares, or other funds of the Company.
9.Option Awards
(a)Types;Documentation. The Committee may in its discretion grant ISOs to any Employee and Non-ISOs to any Eligible Person, and shall evidence any such grants in an Award Agreement that is delivered to the Participant. Each Option shall be designated in the Award Agreement as an ISO or a Non-ISO, and the same Award Agreement may grant both types of Options. At the sole discretion of the Committee, any Option may be exercisable, in whole or in part, immediately upon the grant thereof, or only after the occurrence of a specified event, or only in installments, which installments may vary. Options granted under the Plan (and any related Award Agreement) may contain such terms and provisions consistent with the Plan that the Committee shall deem advisable in its sole and absolute discretion; provided that the Company shall not pay dividends or dividend equivalents with respect to any Option.
(b)ISO $100,000 Limitation. To the extent that the aggregate Fair Market Value of Shares with respect to which Options designated as ISOs first become exercisable by a Participant in any calendar year (under this Plan and any other plan of the Company or any Affiliate) exceeds $100,000, such excess Options shall be treated as Non-ISOs. For purposes of determining whether the $100,000 limit is exceeded, the Fair Market Value of the Shares subject to an ISO shall be determined as of the Grant Date. In reducing the number of Options treated as ISOs to meet the $100,000 limit, the most recently granted Options shall be reduced first. In the event that Section 422 of the Code is amended to alter the limitation set forth therein, the limitation of this Section 9(b) shall be automatically adjusted accordingly. Notwithstanding anything in this Section 9, or elsewhere in this Plan, to the contrary and subject to adjustment pursuant to Section 13 of this Plan, the aggregate number of Shares actually issued or transferred by the Company upon the exercise of ISOs shall not exceed 2,637,637.
(c)Term of Options. Each Award Agreement shall specify a term at the end of which the Option automatically expires, subject to earlier termination provisions contained in Section 9(h) hereof; provided, that, the term of any Option may not exceed ten years from the Grant Date. In the case of an ISO granted to an Employee who is a Ten Percent Holder on the Grant Date, the term of the ISO shall not exceed five years from the Grant Date.
(d)Exercise Price. The exercise price of an Option shall be determined by the Committee in its discretion and shall be set forth in the Award Agreement, provided that (i) if an ISO is granted to an Employee who on the Grant Date is a Ten Percent Holder, the per Share exercise price shall not be less than 110% of the Fair Market Value per Share on the Grant Date, and (ii) for all other Options, such per Share exercise price shall not be less than 100% of the Fair Market Value per Share on the Grant Date.

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(e)Exercise of Option. The Committee shall in its sole discretion determine the times, circumstances, and conditions under which an Option shall be exercisable, and shall set them forth in the Award Agreement. The Committee shall have the discretion to determine whether and to what extent the vesting of Options shall be tolled during any unpaid leave of absence; provided, however, that in the absence of such determination, vesting of Options shall be tolled during any such leave approved by the Company.
(f)Minimum Exercise Requirements. An Option may not be exercised for a fraction of a Share. The Committee may require in an Award Agreement that an Option be exercised as to a minimum number of Shares, provided that such requirement shall not prevent a Participant from purchasing the full number of Shares as to which the Option is then exercisable.
(g)Methods of Exercise. Prior to its expiration pursuant to the terms of the applicable Award Agreement, and subject to the times, circumstances and conditions for exercise contained with the applicable Award Agreement, each Option may be exercised, in whole or in part (provided that the Company shall not be required to issue fractional shares), by delivery of written notice of exercise to the secretary of the Company accompanied by the full exercise price of the Shares being purchased. In the case of an ISO, the Committee shall determine the acceptable methods of payment on the Grant Date and it shall be included in the applicable Award Agreement. The methods of payment that the Committee may in its discretion accept or commit to accept in an Award Agreement include:
(i)cash or check payable to the Company (in U.S. dollars);
(ii)other Shares that (A) are owned by the Participant who is purchasing Shares pursuant to an Option, (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which the Option is being exercised, (C) are all, at the time of such surrender, free and clear of any and all claims, pledges, liens and encumbrances, or any restrictions which would in any manner restrict the transfer of such shares to or by the Company (other than such restrictions as may have existed prior to an issuance of such Shares by the Company to such Participant), and (D) are duly endorsed for transfer to the Company;
(iii)a cashless exercise program that the Committee may approve, from time to time in its discretion, pursuant to which a Participant may concurrently provide irrevocable instructions (A) to such Participant’s broker or dealer to effect the immediate sale of the purchased Shares and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the exercise price of the Option plus all applicable taxes required to be withheld by the Company by reason of such exercise, and (B) to the Company to deliver the certificates for the purchased Shares directly to such broker or dealer in order to complete the sale; or
(iv)any combination of the foregoing methods of payment.
The Company shall not be required to deliver Shares pursuant to the exercise of an Option until payment of the full exercise price therefore is received by the Company.
(h)Termination of Continuous Service. The Committee may establish and set forth in the applicable Award Agreement the terms and conditions on which an Option shall remain exercisable, if at all, following termination of a Participant’s Continuous Service. Subject to Section 15 hereof, the Committee may waive or modify these provisions at any time. To the extent that a Participant is not entitled to exercise an Option at the date of his or her termination of Continuous Service, or if the Participant (or other person entitled to exercise the Option) does not exercise the Option to the extent so entitled within the time specified in the Award Agreement or below in sub-paragraphs (i) through (v), as applicable, the Option shall terminate and the Shares underlying the unexercised portion of the Option shall revert to the Plan and become available for future Awards. In no event may any Option be exercised after the expiration of the Option term as set forth in the Award Agreement.
The following provisions shall apply to the extent an Award Agreement does not specify the terms and conditions upon which an Option shall terminate when there is a termination of a Participant’s Continuous Service:

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(i)Termination other than Upon Disability, Death, Retirement or for Cause. In the event of termination of a Participant’s Continuous Service (other than as a result of Participant’s death, disability, Retirement or termination for Cause), the Participant shall have the right to exercise an Option at any time within 90 days following such termination to the extent the Participant was entitled to exercise such Option at the date of such termination.
(ii)Disability. In the event of termination of a Participant’s Continuous Service as a result of his or her being Disabled, the Participant shall have the right to exercise an Option at any time within one year following such termination to the extent the Participant was entitled to exercise such Option at the date of such termination.
(iii)Retirement. In the event of termination of a Participant’s Continuous Service as a result of a Participant’s Retirement, the Participant shall have the right to exercise the Option at any time within six months following such termination to the extent the Participant was entitled to exercise such Option at the date of such termination.
(iv)Death. In the event of the death of a Participant during the period of Continuous Service since the Grant Date of an Option, or within 30 days following termination of the Participant’s Continuous Service, the Option may be exercised, at any time within one year following the date of the Participant’s death, by the Participant’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the right to exercise the Option had vested at the date of death or, if earlier, the date the Participant’s Continuous Service terminated.
(v)Cause. If the Committee determines that a Participant’s Continuous Service terminated due to Cause, the Participant shall immediately forfeit the right to exercise any Option, and it shall be considered immediately null and void.
(i)Reverse Vesting. The Committee in its sole and absolute discretion may allow a Participant to exercise unvested Options, in which case the Shares then issued shall be Restricted Shares having analogous vesting restrictions to the unvested Options.
(j)Buyout Provisions. Subject to Section 15(c) of the Plan, the Committee may at any time offer to buy out an Option, in exchange for a payment in cash or Shares, based on such terms and conditions as the Committee shall establish and communicate to the Participant at the time that such offer is made.
10.Share Appreciate Rights (SARs)
(a)Grants. The Committee may in its discretion grant Share Appreciation Rights to any Eligible Person, in any of the following forms:
(i)SARs Related to Options. The Committee may grant SARs either concurrently with the grant of an Option or with respect to an outstanding Option, in which case the SAR shall extend to all or a portion of the Shares covered by the related Option. Each SAR shall entitle the Participant who holds the related Option, upon exercise of the SAR and surrender of the related Option, or portion thereof, to the extent the SAR and related Option each were previously unexercised, to receive payment of an amount determined pursuant to Section 10(e) below. Any SAR granted in connection with an ISO will contain such terms as may be required to comply with the provisions of Section 422 of the Code and the regulations promulgated thereunder.
(ii)SARs Independent of Options. The Committee may grant SARs which are independent of any Option subject to such conditions as the Committee may in its discretion determine, which conditions will be set forth in the applicable Award Agreement.
(iii)Limited SARs. The Committee may grant SARs exercisable only upon or in respect of a Change in Control or any other specified event, and such limited SARs may relate to or operate in tandem or combination with or substitution for Options or other SARs, or on a

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stand-alone basis, and may be payable in cash or Shares based on the spread between the exercise price of the SAR, and (A) a price based upon or equal to the Fair Market Value of the Shares during a specified period, at a specified time within a specified period before, after or including the date of such event, or (B) a price related to consideration payable to the Company’s shareholders generally in connection with the event.
(b)Exercise Price. The per Share exercise price of a SAR shall be determined in the sole discretion of the Committee, shall be set forth in the applicable Award Agreement, and shall be no less than 100% of the Fair Market Value of one Share. The exercise price of a SAR related to an Option shall be the same as the exercise price of the related Option. The exercise price of a SAR shall be subject to the special rules on pricing contained in Sections 9(d) and 9(j) hereof.
(c)Exercise of SARs. Unless the Award Agreement provides otherwise, a SAR related to an Option will be exercisable at such time or times, and to the extent, that the related Option will be exercisable; provided that the Award Agreement shall not, without the approval of the shareholders of the Company, provide for a vesting period for the exercise of the SAR that is more favorable to the Participant than the exercise period for the related Option. A SAR may not have a term exceeding 10 years from its Grant Date. A SAR granted independently of any other Award will be exercisable pursuant to the terms of the Award Agreement, but shall not, without the approval of the shareholders of the Company, provide for a vesting period for the exercise of the SAR that is more favorable to the Participant than the exercise period for the related Option. Whether a SAR is related to an Option or is granted independently, the SAR may only be exercised when the Fair Market Value of the Shares underlying the SAR exceeds the exercise price of the SAR.
(d)Effect on Available Shares. The number of Shares subject to a SAR, to the extent that the SAR is exercised and settled in Shares, and whether or not all such Shares are actually issued to the Participant upon exercise of the SAR, shall be charged against the maximum number of Shares that may be delivered pursuant to Awards under this Plan. The number of Shares subject to the SAR and the related Option of the Participant will also be reduced by the number of underlying Shares as to which the exercise relates.
(e)Payment. Upon exercise of a SAR related to an Option and the attendant surrender of an exercisable portion of any related Award, the Participant will be entitled to receive payment of an amount determined by multiplying -
(i)the excess of the Fair Market Value of a Share on the date of exercise of the SAR over the exercise price per Share of the SAR, by
(ii)the number of Shares with respect to which the SAR has been exercised.
Notwithstanding the foregoing, a SAR granted independently of an Option (i) may limit the amount payable to the Participant to a percentage, specified in the Award Agreement but not exceeding one-hundred percent (100%), of the amount determined pursuant to the preceding sentence, and (ii) shall be subject to any payment or other restrictions that the Committee may at any time impose in its discretion, including restrictions intended to conform the SARs with Section 409A of the Code.
(f)Form and Terms of Payment. Subject to Applicable Law, the Committee may, in its sole discretion, settle the amount determined under Section 10(e) above solely in cash, solely in Shares (valued at their Fair Market Value on the date of exercise of the SAR), or partly in cash and partly in Shares. In any event, cash shall be paid in lieu of fractional Shares. Absent a contrary determination by the Committee, all SARs shall be settled in cash as soon as practicable after exercise. Notwithstanding the foregoing, the Committee may, in an Award Agreement, determine the maximum amount of cash or Shares or combination thereof that may be delivered upon exercise of a SAR.
(g)Termination of Employment or Consulting Relationship. The Committee shall establish and set forth in the applicable Award Agreement the terms and conditions on which a SAR shall remain exercisable, if at all, following termination of a Participant’s Continuous Service. The provisions of Section 9(h)

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above shall apply to the extent an Award Agreement does not specify the terms and conditions upon which a SAR shall terminate when there is a termination of a Participant’s Continuous Service.
(h)Buy-out. Subject to Section 15(c) of the Plan, the Committee has the same discretion to buy-out SARs as it has to take such actions pursuant to Section 9(j) above with respect to Options.
(i)No Dividends. Notwithstanding anything to the contrary in this Plan, the Company shall not pay dividends or dividend equivalents with respect to any SAR.
11.Taxes
(a)General. As a condition to the issuance or distribution of Shares pursuant to the Plan, the Participant (or in the case of the Participant’s death, the person who succeeds to the Participant’s rights) shall make such arrangements as the Company may require for the satisfaction of any applicable federal, state, local or foreign withholding tax obligations that may arise in connection with the Award and the issuance of Shares. The Company shall not be required to issue any Shares until such obligations are satisfied. If the Committee allows the withholding of Shares to satisfy a Participant’s tax withholding obligations, the Committee shall not allow the Company to withhold Shares in an amount that exceeds the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes.
(b)Default Rule for Employees. In the absence of any other arrangement, an Employee shall be deemed to have directed the Company to withhold whole shares and collect from his or her cash compensation an amount sufficient to satisfy the fractional share amounts for such tax obligations from the next payroll payment otherwise payable after the date of the exercise of an Award.
(c)Special Rules. In the case of an Employee where the next payroll payment is not sufficient to satisfy such tax obligations, with respect to any remaining tax obligations, in the absence of any other arrangement and to the extent permitted under the Applicable Law, the Employee shall be deemed to have elected to have the Company withhold from the Shares or cash to be issued pursuant to an Award that number of Shares having a Fair Market Value determined as of the applicable Tax Date (as defined below) equal to the amount required to be withheld. For purposes of this Section, the Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined under the Applicable Law (the “Tax Date”).
(d)Income Taxes and Deferred Compensation. Participants are solely responsible and liable for the satisfaction of all taxes and penalties that may arise in connection with Awards (including any taxes arising under Section 409A of the Code), and the Company shall not have any obligation to indemnify or otherwise hold any Participant harmless from any or all of such taxes. The Administrator shall have the discretion to organize any deferral program, to require deferral election forms, and to grant or to unilaterally modify any Award in a manner that (i) conforms with the requirements of Section 409A of the Code with respect to compensation that is deferred and that vests after December 31, 2004, (ii) voids any Participant election to the extent it would violate Section 409A of the Code, and (iii) causes the issuance of the Shares subject to the Award (provided that the Committee has determined that issuance of such Shares at the time of vesting is not a “permissible distribution event” within the meaning of Section 409A of the Code) to be automatically deferred until the earliest date on which issuance of the Shares in unrestricted form will constitute a permissible distribution event pursuant to paragraphs (i), (ii), (iii), (v), or (iv) of Section 409A(a)(2)(A) of the Code. The Administrator shall have the sole discretion to interpret the requirements of the Code, including Section 409A, for purposes of the Plan and all Awards.
12.Non-Transferability of Awards
(a)General. Except as set forth in this Section 12, or as otherwise approved by the Committee for a select group of management or highly compensated Employees, Awards may not be sold, pledged, assigned, hypothecated, transferred or disposed of for value in any manner other than by will or by the laws of descent or distribution. The designation of a beneficiary by a Participant will not constitute a transfer. An Award may be exercised, during the lifetime of the holder of an Award, only by such holder, the duly-authorized legal representative of a Participant who is Disabled, or a transferee permitted by this Section 12.

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(b)Limited Transferability Rights. Notwithstanding anything else in this Section 12, the Committee may in its discretion provide that an Award, other than an ISO, may be transferred, on such terms and conditions as the Committee deems appropriate, either (i) by instrument to the Participant’s Immediate Family, (ii) by instrument to an inter vivos or testamentary trust (or other entity) in which the Award is to be passed to the Participant’s designated beneficiaries, or (iii) by gift to charitable institutions. Any transferee of a Participant's rights shall succeed to and be subject to all of the terms of the Plan and the Award Agreement (and any amendments thereto) granting the transferred Award.
13.Adjustments Upon Changes in Capitalization, Merger or Certain Other Transactions
(a)Adjustments. The Committee will make or provide for such adjustments in the numbers of Shares covered by outstanding Awards, in the Exercise Price provided in outstanding Options and SARs, and in the kind of shares covered thereby, as the Committee, in its sole discretion, exercised in good faith, may determine is equitably required to prevent dilution or enlargement of the rights of Participants that otherwise would result from (i) any stock dividend, stock split, combination of shares, recapitalization, reclassification or other change in the capital structure of the Company, (ii) any merger, consolidation, spin-off, split- off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or (iii) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event or in the event of a Change in Control, the Committee, in its discretion, may provide in substitution for any or all outstanding Awards under this Plan such alternative consideration (including cash), if any, as it, in good faith, may determine to be equitable in the circumstances and may require in connection therewith the surrender of all awards so replaced in a manner that complies with Code Section 409A. In addition, for each Option or SAR with an Exercise Price greater than the consideration offered in connection with any such transaction or event or Change in Control, the Committee may in its sole discretion elect to cancel such Option or SAR without any payment to the person holding such Option or SAR. The Committee also will make or provide for such adjustments in the numbers of Shares specified in Section 3, Section 6(c) or Section 9(b) of this Plan as the Committee in its sole discretion, exercised in good faith, may determine is appropriate to reflect any transaction or event described in this Section 13(a); provided, however, that any such adjustment to the number specified in Section 9(b) will be made only if and to the extent that such adjustment would not cause any Option intended to qualify as an ISO to fail to so qualify. In any case, such substitution of securities shall not require the consent of any person who is granted Options pursuant to the Plan. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be required to be made with respect to, the number or price of Shares subject to any Award.
(b)Dissolution or Liquidation. In the event of the dissolution or liquidation of the Company other than as part of a Change in Control, each Award will terminate immediately prior to the consummation of such action, subject to the ability of the Committee to exercise any discretion authorized in the case of a Change in Control.
(c)Change in Control. In the event of a Change in Control, the following shall occur:
(i)The Committee, in its sole discretion, exercised in good faith, may determine to accelerate the vesting of Awards so that Awards shall vest (and, to the extent applicable, become exercisable) as to the Shares that otherwise would have been unvested and provide that repurchase rights of the Company with respect to Shares issued upon exercise of a Grant shall lapse as to the Shares subject to such repurchase right; or
(ii)The Committee shall arrange or otherwise provide for the payment of cash or other consideration to Participants in exchange for the satisfaction and cancellation of outstanding Awards.
Notwithstanding the above, in the event a Participant holding a Grant assumed or substituted by the Successor Corporation in a Change in Control is Involuntarily Terminated by the Successor Corporation in connection with, or within 12 months following consummation of, the Change in Control, then any assumed or substituted Grant held by the terminated Participant at the time of termination shall accelerate and become fully vested, and any repurchase right applicable to any Shares shall lapse in full. The acceleration of vesting

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and lapse of repurchase rights provided for in the previous sentence shall occur immediately prior to the effective date of the Participant’s termination.
(d)Certain Distributions. In the event of any distribution to the Company’s shareholders of securities of any other entity or other assets (other than dividends payable in cash or stock of the Company) without receipt of consideration by the Company, the Committee may, in its discretion, appropriately adjust the price per Share covered by each outstanding Award to reflect the effect of such distribution.
14.Time of Granting Awards.
The date of grant (“Grant Date”) of an Award shall be the date on which the Committee makes the determination granting such Award or such later date as is determined by the Committee, provided that in the case of an ISO, the Grant Date shall be the later of the date on which the Committee makes the determination granting such ISO or the date of commencement of the Participant’s employment relationship with the Company.
15.Modification of Awards and Substitution of Options.
(a)Modification, Extension, and Renewal of Awards. Within the limitations of the Plan, the Committee may modify an Award to accelerate the rate at which an Option or SAR may be exercised (including, without limitation, permitting an Option or SAR to be exercised in full without regard to the installment or vesting provisions of the applicable Award Agreement or whether the Option or SAR is at the time exercisable, to the extent it has not previously been exercised), to accelerate the vesting of any Award, to extend or renew outstanding Awards. Notwithstanding the foregoing provision, no modification of an outstanding Award shall materially and adversely affect such Participant’s rights thereunder, unless either the Participant provides written consent or there is an express provision in the Plan or the Award Agreement permitting the Committee to act unilaterally to make the modification.
(b)Substitution of Options. Notwithstanding any inconsistent provisions or limits under the Plan, in the event the Company or an Affiliate acquires (whether by purchase, merger or otherwise) all or substantially all of outstanding capital stock or assets of another corporation or in the event of any reorganization or other transaction qualifying under Section 424 of the Code, the Committee may, in accordance with the provisions of that Section, substitute Options for options under the plan of the acquired company provided (i) the excess of the aggregate fair market value of the shares subject to an option immediately after the substitution over the aggregate option price of such shares is not more than the similar excess immediately before such substitution and (ii) the new option does not give persons additional benefits, including any extension of the exercise period.
(c)No Repricing or Replacement Without Shareholder Approval. Except in connection with a corporate transaction or event described in Section 13 of the Plan, the terms of outstanding Awards may not be amended to reduce the exercise price of outstanding Options or SARs, and outstanding Options or SARs may not be canceled, exchanged, bought-out, replaced or surrendered in exchange for cash, other Awards or Options or SARs with an exercise price that is less than the exercise price of the original Options or SARs without shareholder approval. This Section 15(c) is intended to prohibit the repricing of “underwater” Options and SARs without shareholder approval and will not be construed to prohibit the adjustments provided for in Section 13 of the Plan. Notwithstanding any provision of the Plan to the contrary, this Section 15(c) may not be amended without approval by the Company’s shareholders.
16.Term of Plan.
The Plan shall continue in effect through and including June 30, 2024, unless the Plan is sooner terminated under Section 17 below.
17.Amendment and Termination of the Plan.
(a)Authority to Amend or Terminate. Subject to Applicable Laws and the other provisions of the Plan, the Board may from time to time amend, alter, suspend, discontinue, or terminate the Plan.

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(b)Effect of Amendment or Termination. No amendment, suspension, or termination of the Plan shall materially and adversely affect Awards already granted unless either it relates to an adjustment pursuant to Section 13 above, or it is otherwise mutually agreed between the Participant and the Committee, which agreement must be in writing and signed by the Participant and the Company. Notwithstanding the foregoing, the Committee may amend the Plan to eliminate provisions which are no longer necessary as a result of changes in tax or securities laws or regulations, or in the interpretation thereof.
18.Conditions Upon Issuance of Shares.
Notwithstanding any other provision of the Plan or any agreement entered into by the Company pursuant to the Plan, the Company shall not be obligated, and shall have no liability for failure, to issue or deliver any Shares under the Plan unless such issuance or delivery would comply with Applicable Law, with such compliance determined by the Company in consultation with its legal counsel.
19.Reservation of Shares.
The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
20.Controlling Law.
All disputes relating to or arising from the Plan shall be governed by the internal substantive laws (and not the laws of conflicts of laws) of the State of Delaware, to the extent not preempted by United States federal law. If any provision of this Plan is held by a court of competent jurisdiction to be invalid and unenforceable, the remaining provisions shall continue to be fully effective.
21.Laws And Regulations.
(a)U.S. Securities Laws. This Plan, the grant of Awards, and the exercise of Options and SARs under this Plan, and the obligation of the Company to sell or deliver any of its securities (including, without limitation, Options, Restricted Shares, Restricted Share Units, Deferred Share Units, and Shares) under this Plan shall be subject to all Applicable Law. In the event that the Shares are not registered under the Securities Act of 1933, as amended (the “Act”), or any applicable state securities laws prior to the delivery of such Shares, the Company may require, as a condition to the issuance thereof, that the persons to whom Shares are to be issued represent and warrant in writing to the Company that such Shares are being acquired by him or her for investment for his or her own account and not with a view to, for resale in connection with, or with an intent of participating directly or indirectly in, any distribution of such Shares within the meaning of the Act, and a legend to that effect may be placed on the certificates representing the Shares.
(b)Other Jurisdictions. The Company may adopt rules and procedures relating to the operation and administration of this Plan to accommodate the specific requirements of local laws.
22.No Shareholder Rights.
Neither a Participant nor any transferee of a Participant shall have any rights as a shareholder of the Company with respect to any Shares underlying any Award until the date of issuance of a share certificate to a Participant or a transferee of a Participant for such Shares in accordance with the Company’s governing instruments and Applicable Law. Prior to the issuance of Shares pursuant to an Award, a Participant shall not have the right to vote or to receive dividends or any other rights as a shareholder with respect to the Shares underlying the Award, notwithstanding its exercise in the case of Options and SARs. No adjustment will be made for a dividend or other right that is determined based on a record date prior to the date the stock certificate is issued, except as otherwise specifically provided for in this Plan.
23.No Employment Rights.
The Plan shall not confer upon any Participant any right to continue an employment, service or consulting relationship with the Company, nor shall it affect in any way a Participant’s right or the Company’s right to terminate the Participant’s employment, service, or consulting relationship at any time, with or without Cause.

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__________
Appendix 1: Definitions
__________
As used in the Plan, the following definitions shall apply:
“Advisor” means any person, including an advisor, who is engaged by the Company or any Affiliate to render services and is compensated for such services.
“Affiliate” means, with respect to any Person (as defined below), any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, “control,” when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person or the power to elect directors, whether through the ownership of voting securities, by contract or otherwise; and the terms “affiliated,” “controlling” and “controlled” have meanings correlative to the foregoing.
“Applicable Law” means the legal requirements relating to the administration of options and share-based plans under applicable U.S. federal and state laws, the Code, any applicable stock exchange or automated quotation system rules or regulations, and the applicable laws of any other country or jurisdiction where Awards are granted, as such laws, rules, regulations and requirements shall be in place from time to time.
“Award” means any award made pursuant to the Plan, including awards made in the form of a Performance Award, a Restricted Share, a Restricted Share Unit, an Unrestricted Share, a Deferred Share Unit, an Option, and a SAR, or any combination thereof, whether alternative or cumulative, authorized by and granted under this Plan.
“Award Agreement” means any written document setting forth the terms of an Award that has been authorized by the Committee. The Committee shall determine the form or forms of documents to be used, and may change them from time to time for any reason. An Award Agreement may be in an electronic medium and may be limited to notation on the books and records of the Company.
“Board” means the Board of Directors of the Company.
“Cause” for termination of a Participant’s Continuous Service will exist if the Participant is terminated from employment or other service with the Company or an Affiliate for any of the following reasons: (i) the Participant’s willful failure to substantially perform his or her duties and responsibilities to the Company or deliberate violation of a material Company policy; (ii) the Participant’s commission of any material act or acts of fraud, embezzlement, dishonesty, or other willful misconduct; (iii) the Participant’s material unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom the Participant owes an obligation of nondisclosure as a result of his or her relationship with the Company; or (iv) Participant’s willful and material breach of any of his or her obligations under any written agreement or covenant with the Company.
The Committee shall in its discretion determine whether or not a Participant is being terminated for Cause. The Committee’s determination shall, unless arbitrary and capricious, be final and binding on the Participant, the Company, and all other affected persons. The foregoing definition does not in any way limit the Company’s ability to terminate a Participant’s employment or consulting relationship at any time, and the term “Company” will be interpreted herein to include any Affiliate or successor thereto, if appropriate.
“Change in Control” means the happening of any of the following events:
(i)    An acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of either (1) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the

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"Outstanding Company Voting Securities"); excluding, however, the following: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation or other Person controlled by the Company or (4) any acquisition by any corporation or other Person pursuant to a transaction which complies with clauses (1), (2) and (3) of subsection (iii) of this Section 9(b) provided, however, that it shall not be deemed a Change of Control if the Person acquires beneficial ownership of 35% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities solely as a result of an acquisition by the Company of shares of Common Stock, until such time thereafter as such Person shall become the beneficial owner (other than by means of a stock dividend or stock split) of any additional shares of Common Stock; or
(ii)    A change in the composition of the Board such that the individuals who, as of January 1, 2014, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this Section 9(b), that any individual who becomes a member of the Board subsequent to January 1, 2014, whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of those individuals then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or
(iii)    Consummation of a reorganization, merger, share exchange or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), excluding, however, such a Business Combination pursuant to which (1) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the outstanding shares of common stock or equity interests and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors or other controlling persons as the case may be, of the corporation or other Person resulting from such Business Combination (including, without limitation, a corporation or other Person which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (2) no Person (other than the corporation or other Person resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation or other Person resulting from such Business Combination) beneficially owns, directly or indirectly, 35% or more of, respectively, the outstanding shares of common stock or equity interests of the corporation or other Person resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed with respect to the Company prior to the Business Combination and (3) at least a majority of the members of the board of directors or other governing body of the corporation or other Person resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or the action of the Board, providing for such Business Combination; or
(iv)    The approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
“Committee” means the Human Resources Committee of the Board of Directors or one or more committees or subcommittees of the Board appointed by the Board to administer the Plan in accordance with Section 4 above. Each individual member of the Committee shall be independent in accordance with any applicable standards and/or regulations adopted by the New York Stock Exchange (or, if not listed on such exchange, on any other national securities exchange on which the Shares are listed). With respect to any decision involving an Award intended to satisfy the requirements of Section 162(m) of the Code, the Committee shall consist of two or more Directors of the Company who are “outside directors” within the

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meaning of Section 162(m) of the Code. With respect to any decision relating to a Reporting Person, the Committee shall consist of two or more Directors who are disinterested within the meaning of Rule 16b-3.
“Company” means NorthWestern Corporation, a Delaware corporation; provided, however, that in the event the Company reincorporates to another jurisdiction, all references to the term “Company” shall refer to the Company in such new jurisdiction.
“Continuous Service” means the absence of any interruption or termination of service as an Employee, Director or Advisor. Continuous Service shall not be considered interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Committee, provided that such leave is for a period of not more than 90 days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; (iv) changes in status from Director to advisory director or emeritus status; or (iv) in the case of transfers between locations of the Company or between the Company, its Affiliates, or their respective successors. In the event of Retirement, Continuous Service will end on an Employee’s last day worked, even though an Employee may receive approval to extend their actual termination date by using accrued paid leave. A change in status between service as an Employee, Director, and an Advisor may not, in and of itself, mandate a determination that an interruption of Continuous Service has occurred. Whether an interruption in Continuous Service has occurred which shall constitute an event triggering payment under the Plan shall be determined and administered in accordance with Section 409A and the applicable guidance issued by the Department of the Treasury with respect to the application of Section 409A.
“Deferred Share Units” mean Awards pursuant to Section 8 of the Plan.
“Director” means a member of the Board, or a member of the board of directors of an Affiliate.
“Disability” means, with respect to a Participant, the Participant is: (i) unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; (ii) by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company; or (iii) determined to be totally disabled by the Social Security Administration.”
“Dividend Equivalent” means, with respect to a Share subject to an Award (other than an Option or SAR), a right to be paid an amount equal to cash dividends, other than large, nonrecurring cash dividends, declared on an equal number of outstanding Shares.
“Eligible Person” means any Advisor, Director or Employee and includes non-Employees to whom an offer of employment has been extended.
“Employee” means any person whom the Company or any Affiliate classifies as an employee (including an officer) for employment tax purposes. The payment by the Company of a director’s fee to a Director shall not be sufficient to constitute “employment” of such Director by the Company.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Fair Market Value” means, as of any date (the “Determination Date”) means: (i) the closing price of a Share on the New York Stock Exchange (or, if not listed on such exchange, on any other national securities exchange on which the Shares are listed), on the Determination Date, or, if shares were not traded on the Determination Date, then on the nearest preceding trading day during which a sale occurred; or (ii) if such stock is notreadily tradable on an established securities market, the fair market value established in good faith by the Board using the reasonable application of a reasonable valuation method consistent with Code Section 409A and the regulations promulgated thereunder.
“Grant Date” has the meaning set forth in Section 14 of the Plan.

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“Immediate Family” means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships.
“Incentive Share Option or ISO” hereinafter means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code, as designated in the applicable Award Agreement.
“Involuntary Termination” means termination of a Participant’s Continuous Service under the following circumstances occurring on or after a Change in Control: (i) termination without Cause by the Company or an Affiliate or successor thereto, as appropriate; or (ii) subject to the following sentence, voluntary termination by the Participant within 60 days following (A) a material reduction in the Participant’s job responsibilities, provided that neither a mere change in title alone nor reassignment to a substantially similar position shall constitute a material reduction in job responsibilities; (B) an involuntary relocation of the Participant’s work site to a facility or location more than 50 miles from the Participant’s principal work site at the time of the Change in Control; or (C) a material reduction in Participant’s total compensation other than as part of an reduction by the same percentage amount in the compensation of all other similarly-situated Employees, Directors or Advisors. A termination described in clause (ii) of the preceding sentence shall be considered an Involuntary Termination only if (Y) the Participant provides the Company written notice of the existence of the circumstances described in clause (ii) of the preceding sentence within 10 days of the existence of such circumstances and (Z) the Company fails to cure the existence of such circumstances within 30 days of the Company's receipt of such notice.
“Non-ISO” means an Option not intended to qualify as an ISO, as designated in the applicable Award Agreement.
“Option” means any stock option granted pursuant to Section 9 of the Plan.
“Participant” means any holder of one or more Awards, or the Shares issuable or issued upon exercise of such Awards, under the Plan.
“Performance Awards” mean Performance Units and Performance Compensation Awards granted pursuant to Section 6.
“Performance Compensation Awards” mean Awards granted pursuant to Section 6(b) of the Plan.
“Performance Unit” means Awards granted pursuant to Section 6(a) of the Plan which may be paid in cash, in Shares, or such combination of cash and Shares as the Committee in its sole discretion shall determine.
“Person” means any natural person, association, trust, business trust, cooperative, corporation, general partnership, joint venture, joint-stock company, limited partnership, limited liability company, real estate investment trust, regulatory body, governmental agency or instrumentality, unincorporated organization or organizational entity.
“Plan” means this NorthWestern Corporation Equity Compensation Plan.
“Reporting Person” means an officer, Director, or greater than ten percent shareholder of the Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange Act.
“Restricted Shares” mean Shares subject to restrictions imposed pursuant to Section 7 of the Plan.
“Restricted Share Units” mean Awards pursuant to Section 7 of the Plan.

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“Retirement” means a termination of the Participant’s Continuous Service with the Company after the Participant has (a) attained age 50 and completed at least five years of Continuous Service or (b) attained age 65. “Retirement” shall exclude any termination of the Participant’s Continuous Service for Cause.
“Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act, as amended from time to time, or any successor provision.
“SAR” or “Share Appreciation Right” means Awards granted pursuant to Section 10 of the Plan.
“Share” means a share of common stock of the Company, as adjusted in accordance with Section 13 of the Plan.
“Ten Percent Holder” means a person who owns stock representing more than ten percent (10%) of the combined voting power of all classes of stock of the Company or any Affiliate.
“Unrestricted Shares” mean Shares awarded pursuant to Section 7 of the Plan.

9861
 

Proxy Statement Glossary
The list below defines the various terms, abbreviations, and acronyms used in this proxy statement.

2005 PlanNorthWestern Corporation Amended and Restated 2005 Long-Term Incentive Plan, effective March 10, 2005, as amended and restated on February 23, 2011, and approved by stockholders on April 27, 2011
2008 Severance PlanNorthWestern Corporation 2008 Key Employee Severance Plan, effective October 1, 2008
AGAAmerican Gas Association
BoardBoard of Directors of NorthWestern Corporation
CD&ACompensation Discussion and Analysis
CELPColstrip Energy Limited Partnership, a qualified facility with which we do business
CEOPresident and Chief Executive Officer
CFOVice President and Chief Financial Officer
COBRAConsolidated Omnibus Budget Reconciliation Act
Code of ConductCode of Conduct and Ethics
CompanyNorthWestern Corporation d/b/a NorthWestern Energy
DeloitteDeloitte & Touche LLP
Director Deferred PlanNorthWestern Corporation 2005 Deferred Compensation Plan for Non-Employee Directors
Equity Compensation Plan
NorthWestern Corporation Amended and Restated Equity Compensation Plan
(f/k/a the NorthWestern Corporation Amended and Restated 2005 Long-Term Incentive Plan)
ERMEnterprise Risk Management and Business Continuity Programs
ERRPExecutive Retention / Retirement Program
Exchange ActSecurities and Exchange Act of 1934, as amended
Executive Officer
The Named Executive Officers and other executives responsible for company policy, strategy and operations. For 2014, there were nine executive officers serving on ourexecutive team.
HR CommitteeHuman Resources Committee
MSTILTIPMountain States Transmission Intertie, a former transmission projectLong-Term Incentive Program
NACDNational Association of Corporate Directors
Named Executive Officer
The CEO, CFO, and the three most highly compensated officers, other than the CEO andCFO, who were serving as executive officers at the end of 2014. Our named executive officers for 2014 are identified in the Compensation Discussion and Analysis section of this Proxy Statement.
NCG CommitteeNominating and Corporate Governance Committee
NorthWesternNorthWestern Corporation d/b/a NorthWestern Energy
NYSENew York Stock Exchange
Officer Deferred PlanNorthWestern Corporation 2009 Officer Deferred Compensation Plan
OSHAOccupational Safety and Health Administration
OurNorthWestern Corporation d/b/a NorthWestern Energy
PCAOBPublic Company Accounting Oversight Board
PlanNorthWestern Corporation Amended and Restated Equity Compensation Plan
Record DateFebruary 24, 201423, 2015
ROAEReturn on Average Equity
SAIDISystem Average Interruption Duration Index
SECSecurities and Exchange Commission
TSRTotal Stockholder Return
UsNorthWestern Corporation d/b/a NorthWestern Energy
WeNorthWestern Corporation d/b/a NorthWestern Energy



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Montana Operational Support Office
40 East Broadway
Butte, Montana 59701
(406) 497-1000
 
CORPORATE SUPPORT OFFICESouth Dakota / Nebraska Operational Support Office
600 Market Street West
Huron, South Dakota 57350
(605) 353-7478
Corporate Support Office
3010 W.West 69th Street
Sioux Falls, SDSouth Dakota 57108
(605) 978-2900
www.northwesternenergy.com



VOTING CARD
[Front Side]
NORTHWESTERN CORPORATION
3010 W. 69TH STREET
SIOUX FALLS, SD 57108
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form.

ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via email or the Internet. To sign up for electronic delivery, please follow the VOTE BY INTERNET instructions above, and when prompted, indicate that you agree to receive or access proxy materials electronically in future years.

VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instruction prompts.

VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.





TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLANK INK AS FOLLOWS: 
  KEEP THIS PORTION FOR YOUR RECORDS
  DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.


  NORTHWESTERN CORPORATION 
 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORSFor AllWithhold AllFor All ExceptTo withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. 
 The Board of Directors recommends that you vote FOR the following nominees:ooo   
 
Vote on Directors
1. Election of Directors
     Nominees:
 
 
01) Stephen P. Adik
02) Dorothy M. Bradley
03) E. Linn Draper Jr.
04) Dana J. Dykhouse
05) Jan R. Horsfall
06) Julia L. Johnson
06) Philip L. Maslowe
07) Denton Louis Peoples
08) Robert C. Rowe
 
 Vote on Proposals ForAgainstAbstain
 The Board of Directors recommends that you vote FOR Proposal 2:   
 2. RatifyRatification of the appointment of Deloitte & Touche LLP as the company'scompany’s independent registered public accounting firm for fiscal year 2014.2015.ooo
 The Board of Directors recommends that you vote FOR Proposal 3:   
 3. Approval of equitythe compensation plan.for our named executive officers through an advisory say-on-pay vote.ooo
 The Board of Directors recommends that you vote FOR Proposal 4:   
 4. An advisory vote to approve named executive officer compensation.Transaction of any other matters and business as may properly come before the annual meeting or any postponement or adjournment of the annual meeting.ooo
 5. Upon such other matters as may come before said meeting or any adjournment or postponement thereof, in the discretion of the Proxyholders.   
 Please sign exactly as name(s) appear(s) on this Proxy. Joint owners should each sign personally. Corporation Proxies should be signed by an authorized officer. When signing as executors, administrators, trustees, etc., give full title.    
       
 Signature [PLEASE SIGN WITHIN BOX]Date   Signature (Joint Owners)Date  

VOTING CARD
[Back Side]



 
If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card.
To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope.

PLEASE VOTE PROMPTLY BY INTERNET, PHONE OR MAIL.






Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report with 10-K Wrap are available at www.proxyvote.com.
 
   
   
 
NORTHWESTERN CORPORATION
3010 W. 69TH STREET, SIOUX FALLS, SD 57108

PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 24, 201423, 2015

The undersigned hereby appoints E. Linn Draper Jr. and Robert C. Rowe, and each of them, with full power of substitution, attorneys and proxies to represent the undersigned at the 20142015 Annual Meeting of Stockholders of NORTHWESTERN CORPORATION to be on held Thursday, April 24, 2014,23, 2015, at 10:00 a.m. MountainCentral Daylight Time at the NorthWestern Energy Montana Operational Support Office, 40 East Broadway, Butte, Montana,Operations Center, 600 Market Street West, Huron, South Dakota, or at any adjournment or postponement thereof, with all power which the undersigned would possess if personally present, and to vote all shares of common stock of the Company which the undersigned may be entitled to vote at said Meeting as directed on the reverse side.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” THE NOMINEES NAMED IN ITEM 1; “FOR” RATIFICATION OF DELOITTE & TOUCHE LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM IN ITEM 2; “FOR” APPROVAL OF EQUITY COMPENSATION PLAN IN ITEM 3; AND “FOR” THE ADVISORY VOTE TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION IN ITEM 4.3.


Continued and to be signed on the reverse side